Dan Stiebel,
Coldwell Banker
Commercial Schmidt
Traverse City may be known as a small resort town on the shores of Lake Michigan, but each year it grows in popularity. And more commercial real estate players are taking notice.
In the past year, Traverse City has been named one of the “Top 20 Best Small Towns in the U.S. to Visit” (Smithsonian); “One of the 50 Best Places to Live in America” (Men’s Journal); “One of the 10 Must See Cities in America” (Horizon Travel Magazine); “One of 10 U.S. Destinations on the Rise” (TripAdvisor); and “One of America’s 20 Most Romantic Towns” (Travel + Leisure).
Tourism is on the rise as we become known as a region not only for cherries, but also for great restaurants, wineries, microbreweries, recreational trails for hiking and biking, skiing, festivals and a great place to live.
With increasing notoriety comes pressure for development, and Traverse City is no exception. We have seen more development and projects in the pipeline in the past 12 months than we have seen since the height of the real estate boom 10 years ago.
Tourists will be happy to note more hotel rooms in the downtown area as the new Hotel Indigo nears completion. The 107-room hotel is set for a March 2016 opening. Rochester Hills, Mich.-based developer Jeff Schmitz is also planning to include a main floor restaurant called the Warehouse Kitchen + Cork , a modern, local-inspired kitchen. Local economic development officials say the project, located in the city’s warehouse district, has created a positive buzz.
Meanwhile, the West Bay Resort-Holiday Inn and Best Western Four Seasons have recently undergone multi-million dollar renovations.
Regency Midwest Ventures, the owner of the Park Place Hotel in the heart of downtown, has proposed a $50 million expansion encompassing multiple parcels, including four phases of mixed-use development.
Even with these expansions, we are unable to meet the total room demand downtown during the height of the tourist season, and many new condominium projects underway will address that by allowing owners to rent their units on a daily and weekly basis.
As our society turns into an Internet-driven consumer marketplace, individuals are turning toward web-based companies such as VRBO, Airbandb and HomeAway to find alternatives to the traditional hotel room.
By creating an easy way for consumers to find places to stay, these websites have also created a marketplace for individual entrepreneurs to buy second and third homes specifically for the purpose of short-term rentals.
Urban Living In Demand
While the R1 and R2 zoning of the traditional residential neighborhoods does not allow for short-term rentals, the downtown C4 mixed-use zoning does allow overnight and weekly rentals. Most of the downtown area is C4 zoning, and that is where developers are proposing their new mixed-use projects.
Favorable zoning is by no means the only reason developers are looking to build downtown. The downtown was growing in popularity even during the economic slowdown. Downtown offers a great mix of restaurants, walkability, river and lakefront parks, special events and festivals, and a lifestyle choice that is being pursued by millennials and empty nesters.
In fact, a growing number of young adults entering the workforce today are looking at lifestyle choices and social engagement when choosing where to work. In many cases, that lifestyle choice is more important to them than working for a large company that can offer a lifelong career.
In order to attract the best workers, companies have to create workspaces that appeal to millennials. This includes open offices with lounges and shared workspace that is social and collaborative. Companies also know the value of locating in an urban environment where workers can conduct work on their cell phones and tablets not only from the office, but also from the nearby coffee shop, restaurant, park or their home.
Because jobs are more mobile and workers are more likely to take multiple trips to the office instead of spending the whole day there, they are choosing to live closer to work and alternate workplaces. This trend also allows for active lifestyle choices such as being able to bike and walk to the places they most likely frequent.
Developers Step Up
These benefits of urban living have created heightened demand for developers to add more residential units, ranging from workforce housing to high-end condos. Although families may choose to be a one-car family instead of two, parking is becoming more of a premium as more space is developed.
Traverse City has just entered into a purchase option for land downtown to build a third parking deck and provide parking for existing and newly proposed developments on the west side of downtown. This project will provide parking for new businesses opening in the warehouse district as well as mixed-use developments now beginning to be marketed for sale.
Federated Properties has begun marketing a five-story building with 47 condos, retail space and restaurant space along the Boardman River. There is a nine-story building being proposed across the street from this project on Front and Pine streets that would include low-income housing, premium condominiums, retail and office space. The nine-story building proposed by developers Joe Sarafa and Erik Falconer would be only the third building downtown taller than five stories.
There is a 1.8-acre parcel of land recently listed for sale in the heart of downtown that has already generated multiple offers from various developers hoping to capitalize on the popularity and limited building sites downtown.
In fact, the average sales price of vacant land for commercial properties in Grand Traverse County increased by 49 percent for the 18-month period that ended Sept. 30, 2015, compared with the 18-month period that ended Sept. 30, 2013.
A Borrower’s Market
The availability of credit in the region is helping spur the increase in prices and the local building boom. Traverse City has an extremely large number of banks for a city its size. In addition, the local credit unions have jumped into commercial real estate lending.
This competition has dropped commercial loan rates to all-time lows that are below the 30-year residential rate. Developers and investors alike have been enjoying the numerous lenders aggressively competing for a piece of the relatively small market.
Although demand for commercial properties is running high, supply is running low.
As more people and businesses move to the area, vacancies are declining and fewer properties are being marketed for sale.
Brisk Sales Activity
The number of new commercial listings in Grand Traverse County during the first three quarters of 2015 was down 20 percent from the same period a year ago, according to the Northern Great Lakes Realtors MLS.
Even with the decrease in new properties coming on the market, the number of property sales during the first three quarters of 2015 has increased by 46 percent compared with the same period a year ago. Not surprisingly, this trend has led to a 3 percent increase in the average sales price on a year-over-year basis.
Meanwhile, the average marketing time for listings has decreased by 14 percent on a year-over-year basis as buyers react more quickly to well-priced listings.
The largest increase in sales of existing buildings has occurred in the industrial and warehouse market. As the economy rebounds and the popularity of the area increases, manufacturing is also on the rise. Nearly all of the industrial space has been absorbed.
Businesses seeking new industrial space are beginning to look at new construction or retrofitting functionally obsolete buildings to meet their needs.
For example, Stone House Bread is planning to move out of its 5,000-square-foot facility into a recently purchased 10,400 square-foot building that it is completely gutting and retrofitting into a new bakery.
Retailers Expand
A number of retail projects have recently been completed or are in the works. Domino’s Pizza, Sprint and a Biggby Coffee recently opened in a new strip mall in East Bay. Construction is almost complete on a new Meijer in nearby Acme Township and a 14-screen Carmike Cinemas theater, complete with an IMAX screen, along U.S. 31 in Garfield Township.
Oryana Natural Foods Market, a local organic grocery co-op, recently announced plans for a million-dollar project to renovate a building on the east side of town and open a second location.
A few national restaurant chains and gas stations have properties under contract and expect to expand into the market. While numerous investors are looking for investment properties to purchase in the area, the lack of quality buildings on the market has made that a challenging exercise. These new developments getting underway may be able to fill that void.
As the construction market heats up, look for new mixed-use buildings in the downtown area with residential apartments and condos. We also expect to see additional industrial buildings for the manufacturing and service industry, plus national retailers and restaurateurs expanding into the Traverse City market.
— By Dan Stiebel CCIM, Associate Broker, Coldwell Banker Commercial Schmidt. This article originally appeared in the November 2015 issue of Heartland Real Estate Business.