The Fulmar “Three Towers” Development and TSP
The Grand Rapids community is buzzing over a massive new development project that is being proposed for downtown. The project is drawing praise and criticism alike for its requested taxpayer funding and contribution to Grand Rapids’ affordable housing fund. In this post, we’ll go over the development itself, the public funding mechanism, and what it means for Grand Rapids.
What is being proposed?
Fulmar Property Holdings has proposed the “Three Towers” project in what is currently a surface parking lot at the corner of Fulton St and Market Ave. The project would consist of, appropriately, three towers: a 27-story building including a 130-room hotel and 76 condos, a 43-story residential building consisting of 595 apartment units, and a 21-story office building (complete with a shocking 2,500-space parking garage). There is also expected to be ground-floor retail space. In turn, the development would provide an over 68,000 square foot promenade that would be completely open to the public, as well as a waterfront easement for public access and completion of the riverfront trail. Fulmar Property Holdings plans to work with the city on the design of the riverfront project and pay for its construction, although so far no dollar amount has been presented. Once construction is complete, they would turn over the site to the Downtown Development Authority for maintenance.
Overview of the Three Towers project, reproduced from MLive1. Currently the project does not have a public website for information.
How is the project being funded?
In order to help finance this gargantuan development, Fulmar Property Holdings is requesting a Transformational Brownfield Plan (TBP) from the State of Michigan. This plan is authorized by the Brownfield Redevelopment Financing Act, whose goal is to help revitalize abandoned properties by attracting developers to “brownfield” sites: functionally obsolete, blighted, vacant, and/or contaminated properties. The currently vacant site with surface parking, built on ground that was formerly the riverbed, fits the bill nicely. Funding is provided by tax increment financing (TIF) to cover eligible costs associated with redeveloping the brownfield property.
How does brownfield TIF work?
The basic idea behind TIF is that when a brownfield site is redeveloped, its property value goes up. Additional property tax paid to the state based on this higher property value is the “increment”, which is captured by the taxing authority, in this case the State of Michigan, and reimbursed to the developer for the costs associated with brownfield redevelopment during construction. Eligible costs must be approved by both local and state officials. This is very different from what is normally thought of as a “TIF district,” which is used by other cities and states across the country to designate certain sites, which can be as small as specific parcels or as large as entire neighborhoods or cities, for redevelopment, using the tax capture to fund capital expenses.2 According to the most recent report from the Michigan Office of Auditor General, this program is effective at increasing the taxable value of eligible properties; in a sample of 25 brownfield projects, redevelopment resulted in total taxable values $348.4 million higher than the initial values, a 600% increase.3
Okay, so what’s “transformational” about it?
The Brownfield Redevelopment Financing Act was amended in 2017 to include Transformational Brownfield Plans (TBPs), which are reserved for projects expected to have a “transformational impact on local economic development and community revitalization based on the extent of brownfield redevelopment, growth in population, commercial activity and employment that will result from the plan.” In order to be eligible for a TBP, a proposed development must be mixed-use, with retail, office, residential, and/or hotel uses. The Three Towers project will include all of the above. In addition to the property tax capture described above, TBPs allow a developer to capture the following:
Construction period income tax capture of employees building the project
Construction period sales and use tax exemption on construction materials
Sales tax capture from commercial uses
Income tax capture of residents living in the development when it is completed
Withholding tax capture of employees working on site after completion
It is important to note that in all cases, the tax capture is from state income tax revenue, not any local or city taxes. That means that Grand Rapids will still collect income tax from both residents and employees working on site, and the hotel excise tax would still be paid to Kent County. In total, the Three Towers project is estimated to receive reimbursement of $565.5 million in eligible costs over 30 years, out of a total investment of $797 million.
How does the affordable housing contribution factor into this development?
By state legislation, in order to be eligible to capture 100% of income and withholding tax revenue, a TBP must include a binding affordable housing agreement. Without this agreement in place, a TBP would only be able to capture 50% of income and withholding tax revenue. Other developments under TBPs in Grand Rapids have made an agreement to designate a certain number of units to be rented or sold at below-market rate. In the case of this project, the developer has instead decided to commit $8.5 million to the city’s affordable housing fund over 20 years, or 6.5% of the expected state income tax capture. It is under the purview of the local government and Brownfield Redevelopment Authority to negotiate the terms of the affordable housing agreement, but they cannot waive this requirement.
In addition to the affordable housing fund contribution, Fulmar Property Holdings has also stated its intent to engage minority-, women-owned, micro-local businesses for a total of $31 million in construction and professional services.
In sum, the public benefits of this paradigm-shifting development go beyond the affordable housing contribution. The development would provide almost 700 new housing units, expected to generate at least $1 million in city income tax every year. The site would be fully open to the public and it would restore access to the riverfront. With the city’s stated goal in completing the Grand River trail, the easement at this property would allow the city to fully connect the community along this public, multi use, non-motorized path. Now if only it didn’t include 2,500 parking spots, we’d all be winners.
-Laura Cesa
Further reading
1. 5 things to know about the massive, skyline changing Grand Rapids riverfront project. MLIVE. https://www.mlive.com/news/grand-rapids/2024/09/5-things-to-know-about-the-massive-skyline-changing-grand-rapids-riverfront-project.html. September 21, 2024. Accessed November 20, 2024.
2. Paull E. Using Tax Increment Financing for Brownfields Redevelopment. Northeast-Midwest Institute; 2008:5-8. Accessed November 13, 2024. https://www.nemw.org/wp-content/uploads/2015/07/2008-Brownfields-Using-Tax-Increment-Financing-for-Brownfields-Redevelopment.pdf
3.Ringler DA. Brownfield Redevelopment Financing Program: Department of Environment, Great Lakes, and Energy and Michigan Strategic Fund, Department of Labor and Economic Opportunity. Office of the Auditor General; 2024. Accessed November 15, 2024. https://audgen.michigan.gov/wp-content/uploads/2024/07/r186042023-6494.pdf