Are Short-Term Rentals The Future Of Downtown Traverse City's Upper Floors?

Short-term rentals (STRs) are hitting downtown Traverse City like never before. Last year, redevelopment of the Golden Shoes building brought four new vacation rentals to the second floor, and similar projects are currently underway at several other downtown buildings. Given that demand for office real estate in Traverse City has been tepid since the start of the pandemic, could STRs be the future for downtown TC’s upper floor spaces? The Ticker investigates.

STRs have been and continue to be a hot-button issue in the Grand Traverse region. Proponents argue that STRs benefit the local tourism economy, provide an effective and robust revenue stream for local property owners and developers, and could even be used as a means to fund workforce housing projects. Detractors contend that STRs drive up real estate prices and suck up residential inventory, leaving actual local residents with fewer long-term housing options.

Last July, city commissioners sided with the detractors – at least in part. In a 5-1 vote, the City of Traverse City commission voted to change city zoning rules for the C-4 district, which encompasses most of the downtown commercial core. That zoning change banned STRs on the first floor of C-4 buildings, mostly as a way to promote a more “engaging street-level experience” in the downtown corridor. City Planning Director Shawn Winter suggested that using first-floor downtown real estate for offices, parking, or vacation rentals risked creating “dead spaces” along downtown streetscapes, in that such uses would be visible to passersby from the sidewalk but wouldn’t offer the same opportunities for public engagement and interactivity as, say, a restaurant or retail store. Then-recent conversions of two ground-floor downtown spaces – the old Georgina’s building on Front Street, which was turned into an office space; and the former home of Bistro Foufou on Cass, which became an STR – prompted city commissioners to adopt the new zoning.

Since upstairs uses don’t affect the street-level experience in the way that ground-floor uses do, last summer’s zoning shift still leaves the door open for STRs downtown, so long as they are located on upper floors. Incidentally, a series of projects are now underway to convert the upper stories of downtown buildings into vacation rentals.

At least one of those projects has already put new STRs on the map downtown. Last July, just days after the city’s vote to ban vacation rentals on ground-floor downtown spaces, The Ticker reported on the partnership between Golden Shoes and Golden Swan Management to undertake an ambitious $1.6 million renovation of the Golden Shoes building. That project was, in part, a restoration of the historic building, removing a plaster façade that had long covered the original brick walls and curved windows. But it was also a conversion that renovated the building’s second floor – long used for storage purposes – into four brand-new STRs. Those rentals, dubbed “Golden Lofts,” are now available to rent on Airbnb and VRBO.

Also downtown, the Cali’s building at 242 East Front Street recently changed hands, with Matthew Ness purchasing the building from Cali’s owner Alison Knowles. Cali’s will continue to operate on the ground floor, but Ness and his wife are in the process of converting the second floor into a vacation rental. Cali’s had previously operated retail space on both floors, but has consolidated operations to the first floor. Ness says the 1,600-square-foot upper floor will become a one-unit condominium with three bedrooms and two bathrooms, as well as a spiral staircase that goes through the roof and leads to a rooftop patio.

Cali’s is currently in the midst of a two-week closure – reopening Monday, February 13 – to allow for mechanical and plumbing work. Ness says construction should take about 60 days total, with an estimated completion date around the end of March. The rental – which is geared toward family groups and named “Camille’s Loft,” after Ness’s daughter – will launch as an STR in time for the summer tourism season.

Another six STRs will go online this summer in the old Masonic Building, which has been renamed Front + Union by new owners Jen and Steve Vander Roest and Roche and Leslie Featherstone. The Vander Roests and the Featherstones purchased the building late last year with plans of restoring and reimagining the space in a way that would “honor the 1890 construction of the Freemasons” while also “nurturing a sense of place, community, and purpose for today and the next generation.” STRs are one component of that vision: Speaking to The Ticker, Jen Vander Roest says approximately 30 percent of the 26,000-square-foot building will be converted to “boutique rental spaces.” Those spaces, which Vander Roest describes as “six European flats,” will be situated on the second and third floors and will have a mix of floorplans to accommodate everyone from solo guests traveling with dogs to full families.

Interspersed with the flats will be “multiple creative businesses throughout those floors,” including local filmmaker Rich Brauer and his company Brauer Productions (a current tenant) and a range of other “creative entrepreneurs” that specialize in “advertising, marketing, website design, graphic design,” and more. The goal there, Vander Roest says, is to cultivate a community of businesses in the same building who can help one another with interlocking specialties, or assist tenants in other parts of the building with their marketing needs. The ground floor – which includes long-time tenants like Robertson’s Hair Center and First Community Bank – will largely stay the same, but the basement is being renovated into an incubator-style space that will include 6-8 affordable retail spaces for newer or smaller-scale businesses. A later phase of the Masonic renovation will bring a “fully covered four-season entertainment venue” to the rooftop.

In discussing the mixed-use vision for Front + Union, Vander Roest notes that she and her partners “considered everything” when deciding how to use the space, including long-term affordable housing options. “But with the price of the building, the cost of construction, and the taxes being uncapped, there’s no way [to make that possible],” she says.

Ness concurs, noting that, while he may “entertain long-term renters for the offseason” at Camille’s Loft, an STR was ultimately the only financially feasible path forward. “As far as what these downtown buildings cost, how high the taxes are, and what you can rent something like that out for long term, it just doesn't make any financial sense,” he explains. “Really the only way we can even make the mortgage payment is to do STRs on the upstairs. And I think it's good for the city to have all these different family groups that will come through and get to enjoy the space and spend money downtown at the different restaurants and retail shops.”

For her part, Vander Roest thinks that trying to concentrate more of Traverse City’s STRs into the downtown area might actually be the best-case scenario for the local community. “Downtown is a beautiful place for people to stay, and that’s really where you want your tourists,” she says. “You want them downtown feeding the community and away from our neighborhoods, community homes, and elementary schools.”

What other downtown buildings might follow the trend set by Golden Lofts, Camille’s Loft, and Front + Union? One big prospect is the Beadle Building, home to the now-shuttered Mackinaw Brewing Company. When that building hit the market last spring, realtor Jack Lane touted the potential for the second floor to be used for Airbnb rentals. That building, which was listed for $4.95 million, is reportedly now under contract.