GRAND RAPIDS — After a half-dozen staff departures and several stalled high-profile projects, 616 Development LLC has struck a new partnership to put the real estate firm back on what it sees as a growth trajectory.
One of the most active real estate firms working in and around downtown Grand Rapids, 616 Development has forged a joint venture with Mt. Pleasant-based management firm KMG Prestige Inc., MiBiz has learned.
Terms of the deal were not disclosed, but KMG Prestige is not an equity partner in the firm at this time, according to 616 Development founder and CEO Derek Coppess.
“(The deal) is starting as an evolving agreement,” Coppess told MiBiz. “We’ll start working like this and formalize it as we get deeper into the process. It’s hard to say today.”
However, Coppess said the benefits of the deal are clear for his company, which was founded in 2011, developed approximately 500,000 square feet of residential and commercial space and manages 312 apartment units in Grand Rapids.
“It makes us more efficient as an operator,” Coppess said of the deal. “They have so many efficiencies and economies. It makes all of our individual projects more profitable because they’re able to operate with more efficiencies.”
As part of the deal, 616 plans to turn over property management duties to KMG Prestige so Coppess can focus on projects.
However, industry sources noted that property management — a hallmark of 616 Development’s operations — tends to be a far more profitable endeavor than just building investment.
But to Coppess, turning over the property management side of the business not only makes his company more efficient, it allows him to refocus his efforts on his passion for pursuing new projects.
“I’ve gotten more clear on what my strengths are,” Coppess said. “I can spend my time on development, which is where I think I want to spend the rest of my career.”
KMG Prestige has been in business for more than 40 years. The Mid-Michigan firm manages more than 25,000 apartment units in seven states, with about 17,000 units designated as affordable housing.
The joint venture will allow 616 Development to move into affordable housing — where it hasn’t worked in the past — and expand its brand to a broader geographic area, according to Karen Mead, a partner and vice president of business development at KMG Prestige.
“Because we’re in multiple states, it helps the developers who hire us to get into other states because we’re already there,” Mead said.
Coppess said 616 Development’s new markets for expansion could be announced in the coming months.
‘RIGHT-SIZING’
For 616, the partnership also allows the company to take a hard look at its existing portfolio, according to Coppess.
Since the company’s founding, 616 Development has relied on a business model that required multiple partners and investors to complete individual projects. Now the company hopes that it can consolidate some of its shareholders, as well as its portfolio, he said.
“As the market has gotten really good and opportunities to sell are vast, I think all of a sudden (some investors) are more open to cashing out,” Coppess said. “We’re not going to sell the whole portfolio or anything. It’s more restructuring the whole portfolio for long term. People that want to get out can get out and people that want to stay in can stay in.”
To that end, the company also has “right-sized” its staff, trimming down from more than 20 employees to about 14 people in recent weeks, according to Coppess.
“When you go through that type of growth, you hire, hire, hire,” Coppess said. “I think we just got to a point where we needed to right-size and make sure we can live off our current portfolio. These changes are totally just to gear ourselves up for the future.”
The departures included Monica Steimle-App, one of the earliest 616 employees who worked in a variety of positions, most recently as director of community relations. However, Steimle-App has since landed at Rockford Construction Co. Inc. as the firm’s director of property management.
LOOKING TO THE FUTURE
616 Development opened about 240 units of market-rate apartments in 2016 between three different projects, all in development-heavy areas of Grand Rapids, including along North Monroe Avenue and Bridge Street on the city’s west side. Coppess says the firm’s portfolio stands at more 98-percent occupied.
At the same time, at least three previously announced projects have lingered for months — or years, in some cases — despite initial high-profile announcements.
“Projects stalled because I think we were distracted by three massive projects opening at the same time,” Coppess said. “For a small organization, that took a lot of energy away from the front end of our new pipeline of development. That’s the reason for the pause and part of the reason for this restructure.”
One of the prolonged projects is the anticipated movie theater development in the Arena South neighborhood of downtown Grand Rapids that was first announced in April 2016. Plans for the $187 million proposed project include a Celebration Cinema movie theater, an unspecified hotel brand, an office tower proposed by Franklin Partners LLC and parking.
Those components are all in addition to retail and 187 apartments proposed by 616 Development.
MOVING AHEAD
Since the initial announcement, Coppess confirmed to MiBiz that the company has backed off the number of apartments included in the project, citing the current market fundamentals.
J.D. Loeks, principal with the proposed project’s lead developer, Jackson Entertainment LLC, told MiBiz that “616 has a seat at the table,” but that the company’s “role had shifted and changed.”
Loeks declined to provide more specifics on those changes.
“Jackson Entertainment is the developer of this project in association with various other developers,” he said. “(Jackson Entertainment) is the entity that will sign all the legal agreements with the city and the Downtown Development Authority.”
Loeks also confirmed that Jeff Olsen, the former director of development at 616, now is working directly for him to finish the theater project.
For his part, Coppess said 616 still intends to build apartments for the theater project, as well as in planned developments in the city’s Creston and East Hills neighborhoods, the former having been announced in October 2014.
Additionally, both Coppess and Loeks separately told MiBiz that more details on the theater project would be made available in the coming weeks.
As a company that since its inception has focused almost exclusively on developing and managing market-rate apartments in Grand Rapids, 616 Development’s partnership with KMG Prestige will allow the West Michigan firm to find growth opportunities in new markets, according to Coppess.
“It’s time to get ready for diversification,” he said. “I feel like we’ve been fishing out of the same pond for five or seven years. I’m a big believer in cycles. It’s time to move to a different fishing hole. I’m really excited to be invested in Grand Rapids and we’ll always do projects here. But there’s a lot of scalability to our model and duplication opportunities.”
