Despite construction cost escalations and a range of delays, real estate development and investment firm Magnus Capital Partners broke ground in December on a 240-unit, $51.5 million multifamily housing project in Grand Rapids.
HoM Flats on Maynard, located at 526 Maynard Ave. NW along Lake Michigan Drive, includes seven buildings with one-, two- and three-bedroom apartments that cater to renters earning between 40-80 percent of the area median income.
The company estimates the project will take 22 months to complete, although the first units likely will come online in the spring of 2024. The development plan calls for amenities such as a fitness and yoga studio, cafe, rooftop lounge, indoor and outdoor play areas, indoor bike storage and repair space, a game room, indoor and outdoor dog parks, a pet spa, walking paths and green space.
“The more compelling thing for us is what this deal signals to the rest of the market in Michigan and beyond,” Magnus Capital Partners founder and CEO Vishal Arora told MiBiz. “You can go to almost any given city and they’re ready for this same type of development of workforce housing from the ground up.”
Magnus Capital’s ability to navigate financing obstacles caused by the market and COVID-19 earned the project recognition as the winner of the 2023 MiBiz Deal of the Year Award in the real estate/development category.
“In a nutshell, we had to restructure and extend our commitment to the project,” Arora said. “We had to renegotiate the equity financing, and work with MSHDA to improve the way they were underwriting our debt on the transaction to account for pandemic-related, elevated costs.
“Any time you’re doing a public-private partnership, which this is, you will likely face processing timelines that are slower than the market moves.”
Recognizing that the company needed to move quicker to avoid supply chain pressures, Magnus Capital upended the traditional construction bidding model by working directly with suppliers to lock in materials pricing and orders. The developer took on more risk and worked transparently with Rohde Construction to establish direct supplier relationships.
“We’ll do what it takes,” Arora said. “We took on a much larger financial commitment with the mortgage package and took on construction materials and price volatility and now we’re managing our own properties in-house, which helps us predict what it takes to run a property once it’s built. This has pushed us to think about things we wouldn’t have done otherwise. We weren’t rigid about it, we did a decent job pivoting.”
As part of the restructuring, Magnus Capital and equity financing partner Stratford Capital Group went back to MSHDA with a request to increase mortgage financing for the project to make it feasible, which the state approved based on the “strength of the firm.”
At the time, Magnus Capital told MSHDA that the volatile cost of materials caused a $7 million increase in hard and soft construction costs since initial approvals in March 2022. As a result, MSHDA authorized $5.3 million in additional loans and $11.1 million for short-term bridge financing.
“It’s definitely a challenging market,” Arora said. “Price escalations have kind of plateaued, with the exception of lumber, but nothing else has really come down to earth.”
The project also received Low Income House Tax Credits in November 2022.
With the revised financing package in place by the end of November, Magnus Capital moved quickly to break ground on the project in December, rather than wait for the market to improve. The company’s rationale focused on the anticipated demand for housing at the project’s price point.
Magnus Capital has developed two other workforce housing projects in West Michigan: HoM Flats at 28 West in Wyoming, which opened in phases in 2020 and 2021, and HoM Flats at Felch Street in Holland Township, which opened in 2021. All of the completed HoM Flats projects are fully leased, Arora said.
The company continues to push forward on new projects locally, including one in the works for the city of Holland, and is developing new communities in Indiana, Ohio, Tennessee and Alabama.
“We try to work with communities that want us there, and the city of Grand Rapids has been a great partner, and you’re working somewhere where you know there is great demand,” Arora said.