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The Collective

Kentwood, Michigan

Project Type: Mixed Use—Three Uses or More

Volume 38 Number 11

April–June 2008

Case Number: C038011

PROJECT TYPE

Located in Kentwood, Michigan, a suburb of Grand Rapids, the Collective is a

36,986-square-foot (3,436-sq-m) membership facility that provides users with

an array of office services, a fitness center, rooms for making art and playing

music, and a coffee shop. For a monthly fee, members—a mix of small-

business owners, freelancers, and telecommuters, among others—have access

to cubicle and office space, printing services, meeting rooms, conference

facilities, art and music classes, as well as exercise equipment and a

swimming pool. As of July 2008, there is only one Collective, which occupies a

structure that was originally used as a health club. However, the developer,

Main Street Development, has created plans for a 40,000-square-foot (3,716-

sq-m) prototype building with the goal of constructing more Collectives in

different locations.

LOCATION

Inner Suburban

SITE SIZE

2.8 acres/1.33 hectares

LAND USES

Office Building(s), Fitness Center, Retail

KEYWORD/SPECIAL FEATURE

Adaptive Use

WEB SITE

www.getcollective.com

PROJECT ADDRESS

4620 Kalamazoo Avenue SE

Kentwood, Michigan

DEVELOPER

Main Street Development, LLC

Grand Rapids, Michigan

616-454-9860

ARCHITECT

Landmark Design Group

Grand Rapids, Michigan

616-956-0606

CONTRACTOR

FCC, Inc.

Caledonia, Michigan

616-891-4000

www.fccinc.com

INTERIOR DESIGN

Lee & Birch

Muskegon, Michigan

231-733-7500

www.leeandbirch.com

GENERAL DESCRIPTION

Located in Kentwood, Michigan, a suburb of Grand Rapids, the Collective is both a mixed-use development and an

office services provider that targets a mix of professionals including freelancers, telecommuters, and small-

business owners. Within the 36,986-square-foot (3,436-sq-m) building are offices, teleconference facilities,

classrooms, exercise and fitness areas, a pool, and a coffee shop. As of July 2008, a demonstration kitchen for

cooking classes is being planned.

The concept behind the Collective is to provide a place for professionals to satisfy a variety of their daily, weekly,

or intermittent business and personal needs under one roof. In particular, it targets those who are “nomadic,” or

who otherwise do not require a fixed office for their working needs on a daily basis.

The existing building was previously used as a health club and many of its fitness areas were converted into office

uses. Because of the success of this project, the developer has designed a 40,000-square-foot (3,716-sq-m) two-

story facility prototype with generally the same uses as the existing structure, although in a different layout and

with more square footage devoted to offices.

The Collective was developed by Main Street Development, LLC, of Grand Rapids, which is headed up by Robert

Dykstra, who also owns the business of running the Collective under a separate entity. This arrangement, which

will be followed in future developments, allows Main Street to sell the real estate or the business portion, as well as

develop a turn-key product for operators, property owners, and investors.

Having developed and managed a variety of office buildings and health clubs in the western Michigan area and

across the country, Dykstra has significant experience in real estate development dating to the 1970s. The

Collective represents a combination of his experience in these types of real estate.

THE CONCEPT

The Collective is a membership-based facility that reflects changes in how and where people work. The developer’s

intention is that a member can use the Collective at any time, on any day, perhaps stopping in to do some work,

exercise, get a music lesson, print or prepare meeting materials, or hold a meeting in either the coffee shop or a

more formal meeting or conference room. Cooking classes are being planned for when a demonstration kitchen is

completed. Members can meet their needs with just one visit per week or even less frequently; others may use

some portion of the facility every day.

The concept behind the project was based on Dykstra’s experience and knowledge, as well as local and national

research that analyzes workplace trends, office environments, office space, and wellness among office workers and

the general public. One of the primary trends is an increase in the number of professionals who do not require a

fixed office and who travel frequently or primarily work from home. This segment of the professional world consists

of young “knowledge workers,” members of the creative class, baby boomers who work part time or are

semiretired, and telecommuters. They may work for themselves, for a small firm, or for a regional/satellite office

of a larger corporation. Formal office and meeting space also is available on an as-needed hourly, daily, weekly, or

monthly basis.

The Collective is a fitness center, too. Based on his previous experiences with health clubs, Dykstra knew that

members are increasingly strapped for time, and this causes a low retention rate at clubs. Offering a health club

and office space under one roof lets people get more for their membership, and the developer forecasts that

turnover will be low.

MARKET RESEARCH

A study, released in February 2008 and funded by the Western Michigan Business Alliance and the U.S.

Department of Labor’s Wired Initiative, found increasing demand for “location-neutral” office workers (those who

don’t require a fixed office) in the greater western Michigan area around Grand Rapids. Although the developer

was not directly involved in the study, its findings were used to bolster and inform the real estate and business

model and potential locations for the Collective.

Other research conducted around the country indicates that employees at large corporations are spending less and

less time at their desks. For example, SunMicrosystems employees spend just 40 percent of their workday at their

desks. These findings suggest that work environments such as the Collective may appeal to a variety of white-

collar workers and companies, and firms both large and small.

Dykstra noted that the market for office space in Grand Rapids changed with the advent of new technology during

the 1990s. This decade was also characterized by reduced regional office needs for several employers that

adversely affected the market for that property type. The notion that a large corporation could intermittently rent

space at the Collective for its employees to use as needed, rather than signing a long-term lease for formal, fixed

office space, is a major part of the concept. Dykstra claims that employers could save $4,000 per year per

employee by using the Collective’s model rather than leasing traditional office space.

Citing statistics that show the benefits of regular exercise, Dykstra notes that it can reduce companies’ health care

costs. One study performed by Medica, a health care provider, indicates that regular exercise can decrease health

care costs by 33 percent. Having office space and a health club in the same building encourages wellness among

members simply due to the convenience of access.

Dykstra believes the research on office and workforce trends combined with health research indicates that there is

a demand for places that address both changes in the workplace and the need for exercise facilities under one

roof. The Collective is marketed as a place to go for business, life, and health. For the developer, the key was to

find the right location and either buy or erect the appropriate building to provide access to a sizable population of

potential members.

While conducting market research for the Collective, the developer analyzed lifestyle clusters, a form of market

segmentation research. Lifestyle clusters are often used by retail developers to determine shopping interests in a

given area. The developer considered any competition for each of the uses as well. Generally, the developer seeks

a site surrounded by 20,000 households within a ten-minute drive, which is similar to the criterion used to

determine whether or not to build a neighborhood shopping center. The structure that now houses the Collective,

which was vacant at the time, fit the parameters of the specified market research and was therefore a suitable

location for the project.

The concept was intended to be considerably flexible, and Dykstra believes that future Collectives can be located in

urban or suburban areas, and in a variety of commercial and high-traffic areas, including transit stations.

THE SITE

The Collective is located on Kalamazoo Avenue, a north–south road that connects the M-6 freeway along the

southern edge of the metropolitan area with the city of Grand Rapids to the north. It is also located two blocks

south of 44th Street, a major east–west retail and commercial thoroughfare with a higher traffic volume than

Kalamazoo Avenue. Thus, the site is near—but not directly on—a major retail street. The Collective is part of a

1970s- and 1980s-style small office park that contains a variety of professional and medical office buildings as well

as two mortuaries.

Kentwood is a first-ring suburb located southeast of Grand Rapids that was developed after World War II. It is

largely built out, and most new development there is on infill sites or in renovated buildings such as the Collective.

Because Grand Rapids Airport lies on the eastern edge of Kentwood, the city is considered attractive for

commercial and office development.

DEVELOPMENT AND DESIGN

Used at several points in history as a health club, the original structure dates to 1977, when it was constructed as

a racquetball club. Gymnasiums and a pool were added in subsequent years.

When the building’s former owner went out of business, the developer agreed to assume the existing loan under

favorable terms and then renovated the structure, adding a new HVAC system, windows, computer and phone

wiring for offices, wireless Internet, locker room upgrades, the aforementioned coffee shop, and exterior painting,

landscaping, and signage. A demonstration kitchen is in the planning stage as of July 2008.

The facility is mostly on the ground level, although the pool and some fitness rooms are located on the lower level.

The Collective is generally divided into two sections: office and health club. The main entrance area contains a

reception desk that is immediately adjacent to the coffee shop. Behind the front desk are the cardio and free-

weights areas of the fitness center. Locker rooms, fitness rooms, and the pool are located on the lower level.

Around the corner from the reception desk are three music rooms, one each for piano, guitar, and organ.

A hallway from the reception desk leads past the music rooms to the entrance of the office section. The office area

has its own exterior entrance as well, so members can use either. Individual offices line the exterior of the

building, as do a conference room, a larger office room, and an art room. This allows all those rooms to have

windows. Interior rooms, which are windowless, include a large classroom and four smaller meeting/multipurpose

rooms. All rooms are meant to be as flexible as possible for a variety of users.

Intended for informal or professional art projects, the art room includes a sink for cleanup. The large classroom

and one multipurpose room are for general use and feature high-tech computer and video presentation equipment.

The other interior room has several computers and is meant for computer training courses. The large office room

comprises eight lockable desks available for rent by members. A copy room is located behind the office front desk

and contains a commercial-sized copier/printer and a professional plotter. Also in the office section of the building

is a large room with a climbing wall, which is intended for professional leadership training.

The Collective has 131 parking spaces, or 3.5 spaces per 1,000 square feet (92.9 sq m). This is fewer than the

number seen in typical high-profile retail development and health clubs, but greater than typical office uses. The

developer considers the parking to be shared in some respects, since most members use fitness facilities early in

the morning and during evenings, whereas office users visit during regular daytime hours.

APPROVALS AND FINANCING

The city quickly approved a necessary zoning change to permit the project to go ahead, but the project was

delayed due to inspection issues. Both the economic development and planning and zoning departments were

enthusiastic about the proposed concept for the Collective; however, the site was zoned for office development,

and the project required a special use permit to allow for the range of uses there, such as the coffee shop.

The inspections department had several requirements that slowed the project down. It required the office and

health club portions of the building to have a fire door separating them, because they are different uses. The

inspections department also required a sprinkler and fire alarm system.

The financing of the Collective was fairly typical for a single-use project, even though it’s a mixed-use project.

Byron State Bank provided a loan of $2.15 million. It is a miniperm loan at one point over the prime rate, with a

20-year amortization and a balloon payment that comes due at three years. The bank required the developer to

put down 25 percent of the project value in equity. The developer intends to refinance with a permanent loan in

the next year or so.

FUTURE COLLECTIVES

As mentioned earlier, the developer has designed a prototype Collective building for future developments. It is

similar in size (40,000 square feet [3,716 sq m] versus 36,986 [3,436]) but has a different layout. The prototype

building has more of an urban look: it stands two stories tall, has a partial brick exterior, and has significantly

more windows. Whereas roughly one-third of the space in the existing Collective is dedicated to office use, the

prototype will dedicate approximately half. Each of the 20,000-square-foot (3,716-sq-m) floor plates on the

prototype’s two floors is 80 feet (24 m) deep by 250 feet (76 m) wide, because the 80-foot (24-m) depth is ideal

for an office layout as well as the right depth for a mid-size retailer. This allows the building to be more easily

retrofitted for pure office or retail use, rather than a single-use structure that would need extensive renovation to

accommodate a different use. This makes the prototype more attractive to lenders and investors who may not be

entirely sold on the Collective concept but who like the location and size of the building. The only extra expense at

a prototype Collective is the locker rooms.

The prototype is also designed to be flexible in its size: it can be as small as 24,000 square feet (2,230 sq m) or

expanded to be as big as 60,000 (5,574) and can occupy three stories instead of two. It can be part of a larger

mixed-use building that can include residential units on upper floors.

The ideal prototype location is a mixed-use suburban location (especially a suburban town center or lifestyle

center); a denser, mixed-use urban area; or a suburban or urban rail transit center. In single-use zoning

situations, the developer believes Class A office sites or Class B/C retail sites are most suitable for a prototype, as

is the case with the existing Collective. For new buildings, the developer projects it will cost $15 to $20 per square

foot ($161.45 to $215.27 per sq m) for land and $100 to $110 per square foot ($1,076.39 to $1,184.03 per sq m)

in construction costs. These costs reflect those of the Grand Rapids area, and will vary depending on local market

prices in other metropolitan areas.

As part of a larger mixed-use project, the Collective prototype could be considered an amenity and loss leader for

a potential developer—similar to a coffee shop or grocery store, which needs to be open and operating for a

developer to get a premium on residential units in that development. The Collective is similar in that it is a value-

added type of amenity in a development.

MARKETING

The marketing for the Collective is conducted primarily through its Web site, www.getcollective.com, and also

through word of mouth among existing members. The Collective has received additional media attention, and its

marketing director also has a local radio show, on which he frequently touts the benefits of the facility.

Believing that the most effective marketing, besides the Web site, is to simply get people in the door, the

developer has found that once people see and understand the Collective firsthand, they are sold on the concept.

Thus, the developer hosts business meetings and seminars at the Collective, even if they make little or no profit,

simply for the marketing exposure. Allowing a company to host a corporate training or seminar brings in additional

revenue, but, of greater importance, exposes possibly hundreds of potential members to the project.

The biggest marketing challenge facing the developer is explaining the concept. Marketing materials contain

slogans like “simplifying your life” and “Business. Life. Health.” Dykstra describes the Collective as a circle that

includes a work environment, wellness, and community education. A member can enter the circle at any point, but

once inside, can utilize the Collective’s other parts.

PERFORMANCE

By several measures, the Collective has been successful. Since opening in March 2008, 1,100 people have become

members. Its operating budget for 2009 is $1.274 million, generated from a projected 1,250 members.

Considering that over half of its revenue comes from annual memberships of $150 each plus $49 per month, the

developer considers attaining 1,100 members already to be a success and expects the Collective to reach stabilized

occupancy by January 2009.

Individual offices can be rented by the hour, day, or month. Monthly rents range from $550 to $650

(approximately $20 per square foot [$215 per sq m]), and as of July 2008 five of eight offices in the Collective are

rented on a month-to-month basis. The Collective offers a “Laptop Nomad” category, whereby members pay $150

per month for wireless access, access to printers, and use of the facility, but no formal office space.

There are several ways to measure the project’s performance. One is revenue from annual membership and

monthly dues, which, with the anticipated 1,250 members, totals nearly $25 per square foot ($269 per sq m) for

the entire building. Excluding annual and monthly memberships, the various office rentals average $24 per square

foot ($258 per sq m) across the 10,336 square feet (960 sq m) of office space. Additional revenue comes from art,

music, fitness, and business classes; the coffee shop; and rental of event space.

The Collective is also an environmentally friendly alternative to standard office spaces, because it reduces the

number of trips as well as trip distance. A person with a home office, or an employee of a larger company who

lives far from the central office but doesn’t need to report there on a daily basis, can use the Collective instead.

The Wired study estimated that each Collective facility could lower carbon emissions by 700 tons per year, spread

across all members and users, from shorter and less frequent commutes to the office and by decreasing additional

trips to the health club.

By sharing uses within one building, the Collective functions as a mixed-use facility and generates savings for the

developer. The developer estimates that 25 percent of members use the fitness facilities before 8 a.m., and 60

percent do so between 5 p.m. and 9 p.m., while the offices are used primarily between 8 a.m. and 5 p.m. The

complementary nature of these two uses means sharing of taxes, parking spaces, utilities, and employee costs

across the facility, and the utilization of the facility the entire time for one or more of the various uses. Whereas a

typical health club requires five parking spaces per 1,000 square feet (929 sq m), the Collective requires just 3.5

per 1,000.

EXPERIENCE GAINED

The Collective has been successful in the few months it has been open. However, because it is a new concept and

development type, the developers have learned to be patient with several aspects of the development process.

They faced obstacles with regard to overall marketing and branding, financing, and the city inspection process.

As with any new real estate concept, creating effective, concise marketing and branding for the project has been a

challenge for the developer. Prior to and immediately after opening, the developer found that it was difficult for

people to understand that the Collective was more than a health club, and that the office and meeting space was

also a major component of the development. With time, however, that has become less of an issue, particularly

due to marketing efforts and word of mouth. Because the Collective is multifaceted, the developer continues to

evolve the marketing and branding strategies.

Developers often face obstacles in getting mixed-use projects financed, although lenders are becoming increasingly

familiar with them. Nonetheless, the Collective is an unusual concept, and the developer experienced some

difficulty as a result. The lender treated the project as a single-use facility, and demanded a high level of equity

(25 percent) from the developer. The developer believes the prototype Collective, with its size and layout, will be

more attractive to lenders and investors since it will be more easily retrofitted as a retail, office, or mixed-use

building.

Since the Collective opened, the developer has found there to be more demand for informal working places where

members can simply come in, find a comfortable place to sit, and just work. This has resulted in a makeover of the

entrance to the office area into more of a lounge-type setting. Also, the developer has found that the potential for

both informal and formal networking is a major selling point for members, many of whom are in similar fields or

otherwise benefit from contact with others.

In exploring the potential expansion of the Collective into new markets, the developer has spoken extensively to

potential partners. Feedback he has received includes the desire for more conference and meeting space that can

be used for business meetings, professional courses, training, and seminars, as well as community education

classes. This is especially true for large employers, who view the fitness and arts offerings as an amenity for

employees to use during breaks.

Employers also see the Collective as an alternative to operating a large regional office that is either expanding or

otherwise doesn’t have fixed office space needs. They like the innovative and attractive work spaces as well.

PROJECT DATA

BUILDING TYPE

Low Rise, Class B

LAND USE INFORMATION

Site area (acres/hectares): 2.8/1.13

Gross building area (square feet/square meters): 26,831/2,492

Net rentable or usable area (square feet/square meters): 36,986/3,436

Number of surface parking spaces: 131

LAND USE PLAN

Use Area (Square Feet/Square Meters)

Buildings 26,831/2,492.7

Paved areas (including surface parking) 84,963/7,893.3

Landscaping/open space 10,176/945.4

Total 121,970/11,331.4

BUILDING INFORMATION (OFFICE AMENITIES)

Use Size (Square Feet/Square Meters)

Nine office suites 2,792/259.4

Art room 644/59.8

Classroom 240/22.3

Three multipurpose rooms 4,000/371.6

Meeting room 900/83.6

Music room 480/44.6

Conference room 280/26.0

Coffee shop 2,000/185.8

Cardio room 2,500/232.3

Weight room 3,000/278.7

Music room 240/22.3

Large multipurpose room 1,600/148.6

Pool area 4,400/408.8

Demonstration kitchen 800/74.3

Leadership training room 2,400/223.0

DEVELOPMENT COST INFORMATION

Site Acquisition Cost: $2,620,000

Site Improvement Costs (On and Off Site): $32,268

Curbs/sidewalks: $12,268

Landscaping/irrigation: $20,000

Construction Costs: $821,918

Superstructure: $116,996

HVAC: $127,269

Electrical: $83,917

Plumbing/sprinklers: $24,116

Fees/general conditions: $52,001

Finishes: $417,619

Soft Costs: $130,802

Architecture/engineering: $32,407

Project management: $50,000

Legal/accounting: $6,000

Taxes/insurance: $12,678

Title fees: $2,100

Construction interest and fees: $27,617

Total Development Cost: $3,604,988

ANNUAL OPERATING EXPENSES

Taxes: $52,437

Insurance: $7,691

Security: $2,400 Repair and maintenance: $32,437

Janitorial: $41,200

Utilities: $96,783

Legal: $1,000

Management: $12,000

Total: $245,948

Operating costs per square foot/square meter: $6.66/$71.68

DEVELOPMENT SCHEDULE

Planning started: April 2007

Site purchased: June 2007

Sales/leasing started: October 2007

Construction started: November 2007

Project completed: March 2008

DRIVING DIRECTIONS

From Gerald R. Ford International Airport: Take 44th Street SE heading west. After a little more than four miles

(6.4 km), turn left on Kalamazoo Avenue. About two blocks later, make a left onto Viewpond Drive SE and then

turn right into the parking lot. The project will be on the right.

Driving time: Approximately 15 minutes in nonpeak traffic.

Sam Newberg, report author

Jason Scully, editor, Development Case Studies

David James Rose, copy editor

Joanne Nanez, online production manager

Ted Thoerig, editorial associate

This Development Case Study is intended to serve as a resource for subscribers in improving the quality of future projects. Data

contained herein were made available by the project’s development team and constitute a report on, not an endorsement of, the

project by ULI–the Urban Land Institute.

Copyright © 2008 by ULI–the Urban Land Institute

1025 Thomas Jefferson Street, N.W., Suite 500 West, Washington, D.C. 20007-5201

Formerly a health club in Kentwood, Michigan, a suburb of Grand Rapids, the Collective is now a

36,986-square-foot (3,436-sq-m) membership facility that provides users with access to business services, a fitness center, art and music classes, and a coffee shop.

Individual offices or cubicle space can be rented by the hour, day, or month. There is also a “Laptop

Nomad” category that allows members to pay a set amount per month to access the wireless Internet, printers, and fitness center, but does not provide formal office space.

The Collective has a number of specialized rooms; there are teleconference facilities, meeting spaces, and art and music rooms, and as of July 2008 a demonstration kitchen is being planned for future cooking classes.

Annual memberships cost $150 plus $49 per month. As of July 2008 there are 1,100 members, and

the developer expects occupancy to stabilize at 1,250 members by January 2009.

Floor plan of the Collective.

Based on the success of the existing Collective and the potential demand, the developer has created plans for a two-story, 40,000-square-foot (3,716-sq-m) prototype Collective building.

The prototype is designed for maximal flexibility so that it can be altered as needed to fit a specific location or respond to changes in demand for the uses in the building.