WYOMING — West Michigan affordable housing developers are pursuing a rare conversion of vacant office space into apartments.
A former AT&T call center office building in the city of Wyoming will be converted into 68 apartments under an adaptive reuse plan that has garnered both local and state support.
With a widespread transition to remote work during the COVID-19 pandemic, real estate experts have expected to see a growing trend of converting offices to housing as a form of adaptive reuse. However, high construction costs have largely held up the trend in West Michigan.
“This is a good, adaptive reuse of the building there,” said Tom Ralston, one of the project developers. “It’s not necessarily repeatable in every vacant office building, but one that is a creative reuse of a really well built structure.”
Ralston, along with development partner Nick Lovelace and nonprofit housing organization Dwelling Place, are leading the $32 million Union Suites at Michael project at 3566 Michael Ave. in Wyoming. In addition to converting the existing 80,000-square-foot office building into apartments, the 7.3-acre project also calls for the construction of 30 new townhomes and 52 new apartments, bringing the housing unit total to 150. The housing will serve senior residents.
The 68 apartment units and 30 townhomes will be priced at 60 percent of the area median income for Kent County, and the additional 52 units of new construction will be priced at 30 to 80 percent of the area median income for tenants.
Lott3Metz Architecture LLC serves as the project architect. Orion Construction has worked with the developers to secure a rezoning from the city of Wyoming, as well as Low Income Housing Tax Credits (LIHTC) and loan funding through the Michigan State Housing Development Authority (MSHDA). Colliers International’s West Michigan office also has been an active member of the development team.
The project in June received $905,100 in LIHTC funding for the 52-unit portion of the project. At its Aug. 18 meeting, MSHDA approved a package of incentives and loans for the project, including a tax-exempt bond construction loan for more than $15 million, a permanent mortgage loan for nearly $11 million, an MRF loan for $405,500, a HOME loan for nearly $2 million, and LIHTC funding for nearly $7 million.
The former AT&T building, which has sat vacant for five years, is currently owned by the State Land Bank Authority, according to a MSHDA memo on the project. The development team has been working on the project since 2019 and hopes to start construction in the first quarter of 2023.
“It all boils down to looking for what is the highest and best use (for a site), and the city pushed very hard for this project given the residential nature of the surroundings,” Ralston said.
The pandemic added complexities to the development via increased construction costs and market uncertainty caused by long construction material lead times, he said.
“We’ve had to retool our pro-forma so many times ... it’s been a long road,” Ralston said. “There have been over 100 iterations in the last three years of the capital stacks and how the matrix works with the different rents and those all have their ramifications.”
Ralson and Lovelace have worked with Dwelling Place to develop several other affordable housing projects in the area, but this is their largest project yet, Ralston said.
“This will be our biggest and our first senior project,” Ralston said. “There are so many wonderful aspects to doing a senior project that I’m looking forward to.”
The two-story former office building features an open floor plan and most recently housed an AT&T call center.
JLL Senior Vice President Jeff Karger is among real estate experts who expected to see a growing number of adaptive reuse cases converting office into housing, given the work-from-home trend spurred by the pandemic.
While Karger has been involved in several projects that “have put pen to paper” to convert vacant office space into market-rate housing, most have failed to progress amid high construction costs, he said.
“The cost of conversion has skyrocketed over the years,” he said, adding that federal American Rescue Plan Act funding for housing could make conversions more feasible. “Even though the rental rates for apartments have gone up, the cost to convert has increased past rental rates. But depending on exactly how ARPA money is allocated, we could see some more conversions.”
Greater Grand Rapids had an 11.7 percent office vacancy rate in the second quarter of 2022. Office vacancy rates have been increasing for the past eight consecutive quarters, according to JLL’s most recent office insight report.
While some smaller, local companies are expanding office space in the Grand Rapids area right now, most of JLL’s corporate clients that are not headquartered locally are “analyzing their footprint in Grand Rapids and downsizing,” Karger said.