DDA Poised to Scuttle Retail Incubator

A planned retail incubator in downtown Traverse City could be dead on arrival after the TC Downtown Development Authority’s (DDA) finance committee voted Tuesday to recommend scuttling the project to the DDA board. That recommendation – which the board will consider at its July 19 meeting – comes amid concerns about funding and staffing the incubator and its long-term viability given the uncertain future of TIF 97.

The DDA has been working on a retail incubator since at least 2021 – a facility that could address the gap between pop-ups and permanent stores and offer a lower-cost option for start-up entrepreneurs to test out brick-and-mortar retail ideas downtown. In spring 2023, DDA board members voted to approve a buildout and lease for a space at 116 Cass Street dubbed Cass Street Marketplace. The nearly 2,000-square-foot space, located next to The Pub, is owned by Tim Pulliam and Steve Morse of Keen Technical Solutions, which offered to lease the building to the DDA.

The DDA agreed to a 10-year lease with the option to renew or opt out after five years. The yearly rental fee is $54,011, with the DDA paying $58,500 in rent to date. The DDA also spent $87,000 for a ground-floor buildout including public restrooms, a new entryway on Cass Street, and interior renovations to accommodate nearly a dozen start-up businesses in individual retail stalls. Additional expenses included a $10,000 consulting contract with Commonplace for assistance launching the incubator, as well as $5,729.69 in retail and pop-up event consultation fees. Two pop-up events took place at Cass Street Marketplace with a variety of vendors during the 2023 holiday season and on Valentine’s Day weekend earlier this year.

Those events were considered successful, and the DDA had at least a dozen interested tenants apply to be part of the incubator. In November, the DDA indicated it was targeting an April launch for the incubator. However, the ensuing months saw that launch date repeatedly pushed back as concerns about the incubator’s long-term viability began to bubble up. DDA Interim CEO Harry Burkholder tells The Ticker it wasn’t a lack of interest from tenants that was the challenge, but rather funding and staffing capacity.

On the funding front, the DDA received an $80,000 USDA grant to help launch the incubator (other funding sources included an annual $50,000 allocation from the DDA TIF 97 budget and $37,000 from the Michigan Economic Development Corporation – with tenant rents expected to also help offset costs). However, Burkholder said DDA staff were under the impression the USDA would be a multi-year funding source, and discovered it was a one-time allocation. The DDA’s staffing capacity is also significantly down today compared to when the incubator discussions began in 2021, with only Burkholder and two other employees in the main DDA office now. With employee bandwidth at capacity, the DDA would need to hire a market manager or some long-term outside assistance to operate the incubator, a significant ongoing cost concern, Burkholder said.

Perhaps most importantly, the community debate around the extension of TIF 97 – which expires in 2027 and is one of the primary funding sources for the retail incubator – has intensified over the last few years, Burkholder said. “The project in concept is a worthwhile pursuit, and it meets our guiding principles,” he said. “But sometimes the intent and capacity don’t always align. This is an example of one of those types of projects where it’s the right project and intention, but not the right timing. When the grant was secured two years ago, the political environment was different.”

DDA finance committee members – including DDA board vice chair Scott Hardy, board treasurer Jeff Joubran, and board member Mike Powers – agreed Tuesday. Noting that the board wants to identify four to five top priorities for TIF 97 spending across the next three budget cycles left in the plan, Joubran said he didn’t think the incubator would make that list. “Unfortunately, I think we need to move on,” he said. Hardy said while “well-intentioned,” the incubator is a “legacy project that’s been with us now for two years” that he doesn’t envision “ever coming to fruition.” Hardy added that while eliminating the project is “painful” given the money the DDA has invested, the DDA also shouldn’t continue throwing “more good money after bad.”

Finance committee members voted to recommend that the DDA board cease funding the retail incubator project (Powers abstained due to professional ties to Keen Technical Solutions). The board will consider that recommendation on July 19. The DDA must continue making lease payments for Cass Street Marketplace until another tenant can be secured, but Burkholder said Keen Technical Solutions is open to leasing the space to another entity and will take the lead in recruiting potential leasees. 

Burkholder said the DDA is working to see if it can recoup some of its buildout expenses from the USDA grant – which hasn’t been utilized yet – but acknowledged that’s not a guarantee given the project ultimately didn’t come to fruition. Any grant funds not approved for reimbursement will ultimately be returned to the USDA. Burkholder said it’s still a possibility a retail incubator could come downtown in the future, particularly if TIF 97 is eventually extended.

“All the partners...have been excellent the whole way through,” he said. “This is really about DDA capacity more than anything else.”