Editor's note: This story is part of Southwest Michigan Second Wave’s On the Ground Edison series.

Thirty to 40 years ago it was relatively easy to build rental housing, says Matthew Hollander, president of Hollander Development Corp.

 “You could just build an apartment building, charge people the rent you needed to support the debt that you would take out to build the project,” he says. “You’d make a reasonable rate of return and go on with your life.”

It’s not so easy these days, he says, particularly if you’re trying to build “affordable” housing.

“That’s simply not possible anymore,” the second-generation real estate developer says of conventional financing for non-conventional housing, “because wages have not kept up with the cost of living and wages have not kept up with the increasing cost of construction. That means the percent of income people spend on housing has increased to a point that puts pressure on middle-class households.”

And if middle-class households are struggling with housing costs, lower-income earners “are in a really, really desperate situation because they’re having to make choices between medical care or rent or diapers or putting food on the table,” he says.

Nonetheless, Hollander’s company is excited this month to open The Creamery, a $14.7 million, mixed-use, mixed-income, energy-efficient, and highly anticipated 48-unit residential development – with 15 apartments that should be affordable for the lowest-income earners – in the Washington Square area of the Edison Neighborhood.

“We’re very thrilled and are extremely proud of the project,” says Jason Muniz, vice president of Hollander Development.

The three-story, 59,420-square-foot development, which also has space for some office and commercial uses, puts back into use 1.3 acres of vacant property at the southeast corner of Portage and Lake streets. The development takes its name from the Klover Gold Creamery Co., a processor of milk, butter, and dairy foods that used the site from 1904 until it was closed in 1997. Its production facilities were demolished in 2011.

Fifteen of The Creamery’s 48 apartment units are earmarked for people whose income puts them at or below 30 percent of what is called the Area Median Income. The Area Median Income for a one-person household in Kalamazoo County (according to 2018 HUD data) is $38,550. For a four-person household, it is $55,050.

But Muniz says 39 of the apartments are restricted to individuals earning at or below 80 percent of AMI, meaning “all 39 of those units are considered to be low-income units,” he says.

The most affordable units in the property are one-bedroom apartments that rent for as low as $319 per month, plus utilities. Other one-bedroom units will rent from $719 to $1,163 per month, according to information provided by Hollander Development.

“Those are intended for people earning $16,500 a year or less,” Muniz says. People have to be income-qualified to lease those. He says the maximum annual income for anyone living in the majority of The Creamery’s other apartments is $44,240 for an individual and $63,200 for a family of four.

“The maximum income for an individual in the nine workforce housing units is $66,360,” he says..

The Edison Neighborhood’s vision

“We’re really excited to finally see the vision of the residents on the ground and opening on Portage Street,” says Kelly Clarke, executive director of the Kalamazoo County Land Bank Authority. “There’s an enormous need for affordable housing and the more groups – nonprofit groups and housing groups – in town that are working on it, the better.”

The Land Bank acquired the former Kalamazoo Creamery property in December of 2010 through tax foreclosure. 

“At that time, the building was in a state of disrepair and distress and was frequently broken into,” Clarke says. “Children from the Edison Environmental Academy would walk by the vacant and dangerous building on the way to Washington Square Library.”

Charged with acquiring, managing, and redeveloping such properties, the Land Bank worked with the Edison Neighborhood Association, the Edison Environmental Academy, residents, and others to host a series of community meetings to gather input and create a vision for the property. 

“Residents at those sessions articulated they had a vision of a mixed-use and mixed-income development -- a project that would not create gentrification but one that would not concentrate poverty,”  Clarke says.

The Land Bank ultimately sold the land to a limited liability partnership that includes Holland Development after that group presented a proposal that was responsive to the neighborhood’s vision.

One-bedroom apartment units at The Creamery range from 695 to 895 square feet. Two-bedroom units range from 1,014 square feet to 1,289 square feet. Amenities include dishwashers, garbage disposals, ceiling fans, and in-unit clothes washers and dryers. They also include a rooftop terrace, a fitness room, indoor bicycle storage, a community room, and a 24-hour drop-in childcare center for night-shift workers and families in crisis.

The daycare is the YWCA of Kalamazoo’s Edison Children’s Center. Located on the south side of the building, it is poised to provide child care starting in the late summer or early fall, for infants to 3-year-olds as well as the youngsters of second- and third-shift workers, up to age 12.

The property is also on track to become only the second LEED Platinum certified property in Kalamazoo County. Heritage Hall at Western Michigan University is the other. LEED stands for Leadership in Energy Efficiency and Design and recognizes a high-level environmentally sustainable and green design and structural plan. The Creamery has top-notch insulation, a highly efficient plumbing system, and an equally efficient heating/air conditioning system, among other energy-efficient design elements.

All of that and other features are expected to help tenants save on their utility bills.

“It’s an absurdly efficient building,” Hollander says.

Clarke says she knows it is very expensive to build rental housing or any type of housing currently and there is a significant mismatch between incomes and construction costs. But she is pleased that Hollander Development, working with architectural firm Byce & Associates to respond to residents' desires and did the complicated work to help make the units affordable. 
 
‘Affordable’ is tough to define

While people in many communities are clamoring for more affordable housing, Hollander says, “Affordability corresponds to different income levels.”

Nine of the apartments at The Creamery are categorized as “workforce” housing units, meaning they are available for people making up to about 120 percent of Area Median Income, “which works out to about $65,000 for an individual,” Hollander says. “It’s like $68,000 for two people. And it goes up a minuscule amount for dependents.”

Those are primarily two-bedroom units that lease for about $1,460 per month, plus utilities. They are rent-restricted, Hollander says, meaning management is required to keep rents below a certain level. But he says, “Anybody can live in those; to provide options for people in different income ranges.” And their rental rate compares favorably with the market rates charged at apartments that have sprung up in downtown Kalamazoo over the last 10 to 15 years that have rental rates in excess of $1,500 per month.

Units for people with limited finances are the toughest units to develop when they are included in a mix of units that are to be leased at market rate, Hollander says. It is difficult to factor lower-rate units into a financing plan that results in enough net operating income to pay off a mortgage or debts, he says.

“We have nine layers of financing on the Creamery,” Hollander says. “And it took us four years to develop it. … I have a 3-year-old and a 5-year-old. And that project is my middle child.”

The company had its first conversation about the project with the Kalamazoo County Land Bank in 2011, Muniz says, and began to work on the project, in earnest, in 2013.

“That was a huge challenge and we had to do a lot of creative financing to make that portion of the project work,” Hollander says. “It’s balanced against the rest of the housing units, which are for people at higher income levels. But 39 out of the 48 units are technically affordable housing. And when I say that, I mean 39 out of the 48 qualify for the low-income tax credit program.”

The creative financing plan

The Creamery project benefits from a low-income tax credit -- 4 percent of eligible construction costs (a floating rate annually) that comes back to the project owners in the form of a non-refundable tax credit each year for 10 years. The Michigan Economic Development Corp. provided some funding in the form of a low-rate loan that helped subsidize the interest rate on project debt, Hollander says. And the City of Kalamazoo provided about $350,000 worth of home development funds, channeled through a federal program.

A significant public contribution to the financing was the City of Kalamazoo’s amendment of a PILOT (Payment In Lieu Of Taxes) agreement for The Creamery. Its first-year payment in lieu of taxes is expected to be about $17,679. The project owners will pay an adjusted amount each year after that.

Those payments are offered as an incentive for companies that already have other state and federal funding to rehabilitate or redevelop certain properties, are in lieu of a standard taxable value on the property of $59,000.

“The PILOT reduces our overall operating costs,” Hollander says.

The project owners are a partnership between Hollander Development Corp. and InSite Capital. It is called the Kalamazoo Creamery Limited Dividend Housing Association LP. The property is being managed by Mount Pleasant-based KMG Prestige.

He says, “Private (sector) contributions came in the form of a reduction in the debt.”

The Kalamazoo-based Stryker Johnston Foundation and the Kalamazoo Community Foundation bought bonds from MSHDA at a below-market rate (1 percent interest), which also helped make the project possible.

“Nobody gave us a hand-out on the financing,” Muniz says. “There were no charitable contributions. The private investment helped by reducing the cost to finance the project.”

“Affordable” housing remains a challenge

 “We know the demand is there,” Hollander says of affordable housing. But the resources to pay for it are limited and there is strong competition for that funding, he says. So building such housing will continue to take extra effort on the part of developers.

“We know that if we build anything that’s affordable to households in the lower half of that range,” Hollander says of the Area Median Income scale, “there’s going to be a demand for it. We can’t build them fast enough.”

But he says new housing development has not made a dent in the need suggested by a 2015 Target Market Analysis of housing needs. It projected that Kalamazoo County would need 2,600 new housing units over a five-year period. “That period ended last year and most of them never got built,” he says.

A housing needs study produced by HUD in 2019 for the City of Kalamazoo suggested that the largest need for new housing units was for people at or below 50 percent of Area Median Income. That’s a family of four with a household income of less than $40,000 per year.

“They projected demand for 450 new rental units by the end of 2022,” Hollander says.

But that development is also lacking.

At the same time he says, more people are spending a greater percentage of their incomes on housing.

“Wages, even at the moderate-income level, are not keeping up with the cost of housing,” Hollander says. “Even people in Kalamazoo County who are earning $40,000 to $60,000 as a household are having trouble making ends meet.”

He recalled a Household Survival Budget developed by the Michigan Association of United Ways. It reported that a family of four in Michigan (with an infant and a preschooler) needs to have an annual income of about $50,000 just to make ends meet. It refers to the working poor as ALICE families (Asset Limited, Income Constrained, Employed) and in 2019 it reported that 40 percent of the households in Kalamazoo and Calhoun counties were at or below survival income levels.

“The bottom line is we got 15 of the hardest-to-develop units built,” he says. “But we need at least 20 times that amount by the end of next year.”

He has hopes for the “Homes For All” millage, which was approved by Kalamazoo County voters in November. The property tax millage, which should cost the owner of a $100,000 house about $38 per year, is expected to raise about $6.3 million dollars per year to develop new housing “with a focus on affordable housing for people at or below 60 percent of AMI  -- which is the traditional cutoff for where you start talking about low income,” Hollander says.

“Their goal is to generate 800 new units of housing over the eight-year period of the millage,” he says. “If they’re successful with implementing the millage and they get the outcome that they’re talking about, I think we’re going to be much, much better off than we are right now.”

Of his company, Hollander says, “It’s a do well by doing good philosophy. We care about it and we see the need. I’m aware of what’s going on out there and feel like something needs to change. And we’re just trying to make it happen.”

A few details

Hollander Development plans to relocate soon to the Creamery from its location at 1822 W. Milham Ave. in Portage.

More information about The Creamery, at 1101 Portage St., is available here.

Residential leasing information is available at 269-225-6535. Information about commercial leasing is available at 269-388-4677 (Ext. 2). And information about the YWCA Edison Children’s Center is available at 269-345-5595.

To learn more about Impact Investing from the Kalamazoo Community Foundation click here.