GRAND RAPIDS, Mich. (WOOD) — A developer is ditching plans to bring a 24-story tower containing apartments, office space and parking to “The Wedge” in downtown Grand Rapids.
“It’s not possible in this current economic market for us to move forward with this project at this scale,” Jason Wheeler of Wheeler Development Group said.
Wheeler Development Group let its option to buy the city-owned lot at 22 Ottawa Ave. SW expire on Oct. 1.
“It just doesn’t feel right now for us to be taking risks of that size,” Wheeler said.
WDG’s mixed-use development, dubbed City Tower, would have connected to the city’s existing parking structure on the triangular site bordered by Ottawa Avenue, Ionia Avenue and Fulton Street. The project proposal included more than 100 apartments, several condominiums, office space and parking.
Wheeler said the decision to abandon the plan was based on higher construction costs, “huge” interest rate hikes and the supply chain’s continued unpredictability in delivering building materials like steel in glass, which could push the project out much further than the 28-month timeline.
Wheeler said that since WDG proposed the development in 2019, costs have risen 25% to 30%, which is at least $13 million to $14 million more than the original estimate. He said no amount of “value engineering,” or using alternative materials and reworking the design, could bridge that gap and passing on the cost increase to new tenants wasn’t realistic.
“Those apartments would have to be $4,000 a month to justify that. We know that’s not a healthy rent structure and it doesn’t give the opportunities for the community to embrace the project,” Wheeler said Monday.
Brian Long, the director of supply manager research at Grand Valley State University’s Seidman College of Business, told News 8 it’s a perfect storm of issues facing developers.
“The climate as it is right now with what appears to be a softening economic situation, higher costs for practically everything, they’ve decided that the prudent business thing to do is to wait,” Long said. “If it were my decision, I would make identically the same decision right now.”
“The cost of steel is up,” Long added. “The cost of bricks is up. The cost of all the fixtures are up.”
Jeremiah Gracia, economic developer director for the city of Grand Rapids, told News 8 there are “no imminent next steps” for the property because the same economic challenges facing WDG’s proposal will continue to be factors for any development. If conditions improve, Gracia said re-bidding the property is “certainly a possibility, but nothing has been decided yet.”
“We certainly are committed to not only having development downtown but also across the city,” he said. “This site is certainly one I’m sure many folks will revisit in the future.”
Gracia said the city is still focused on encouraging more housing development to meet its needs. A 2020 study showed Grand Rapids needs just over 9,000 units to satisfy demand for rental and permanent housing.
Additionally, Gracia said that while other projects are successfully moving forward, the economic conditions are affecting other developments.
“We all know that interest rates and construction costs and supply chain issues are real,” Gracia said. “And we’ve seen it not only impact this project but many others.”
The same challenges prompted WDG to halt its Robinson Flats proposal for Eastown in June.
Wheeler said then that it’s rare for the company to halt a project like this, but the industry is “dealing with unknown factors that haven’t been present in the decision-making process for a long time.”
“The timing’s not right,” he said Monday. “We’ve got to always be smart.”
Wheeler said WDG expects this to be a temporary situation, “but it could be a couple months or a couple years. We’re just watching like a hawk, seeing what indicators signal a shift and then we’re ready to move.”
For now, WDG is focusing on its “backlog of opportunity,” including Village East of Ada and Evergreen Townhomes. Wheeler said the company is still considering new projects and meeting with new clients.
Survey results released Monday by Grand Valley State University’s Seidman College of Business indicated the West Michigan economy has flattened out, with steady demand among auto suppliers offsetting more negative results from other sectors including the office furniture industry.
Long said he’s about 80% certain the region is sliding into a “shallow recession” given national trends and feedback from regional industrial employers. Long said lower confidence has worsened the short-term business outlook, but perceptions are still positive three to five years out.
News 8 reached out to other large developers in the area to see if they’re eliminating any project proposals from their list because of the current economic conditions.
“Despite talks of a recession, the owners and developers we are working with are still moving forward with their projects,” Jeff Smigielski, vice president of construction at Orion Construction stated in a message to News 8. “Certain sectors are even ramping up to meet demand. We are seeing growth in multifamily developments, especially since Grand Rapids has one of the most competitive rental markets.”
“Overall, development is continuing strong across all market segments, and our flow of projects has not been affected,” Smigielski stated. “We foresee a strong project backlog through 2023 and beyond.”
— News 8’s Byron Tollefson contributed to this report.