corporate properties study benton harbor/st. joseph part i

8/8/2019 Corporate Properties Study Benton Harbor/St. Joseph Part I

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COIlI'OIATl I'IOl'UTIlS, LTD.

Corn 'astone Alliance

e d ~ v e ' o p m e n t Propaties

Cities oo f St. Joseph 6- Benton Harbbr, Michigan

MARKETING R E COM M °E N 0 A T ION



TABLE OF CONTENTS

PAGE

SECTION NQ..

I. EXECUTIVE SUMMARY 1A. PRESENT SITUATION

B. ECONOMIC AND MARKET CONDITIONS

C. REUSE OF THE ST. JOSEPHIBENTON HARBOR PROPERTIES 15

D. REUSE ALTERNATIVES FOR THE PROPERTIES 17

E. PROPOSED REDEVELOPMENT FINANCIAL FEASIBILITY 20

F. REDEVELOPMENTAND DISPOSITION RECOMMENDATIONS 22

G. DISPOSITIONALTERNA

TIVES25

H. DISPOSITION RECOM:MENDATION 28

I. IMPLEMENTA TION OF THE DISPOSITION RECOMMENDATION 29

II. GENERAL INFORMATION 31

A. THE STATE OF MICHIGAN 31

B. THE BERRIEN COUNTY/ST. JOSEPHIBENTON HARBOR REGION 40

C. SUMMARY 49

III. DEMOGRAPIDC AND ECONOMIC CHARACTERISTICS 50

A. DEMOGRAPHICS OF THE STATE OF MICHIGAN 50

B. ECONOMIC CHARACTERISTICS OF THE STATE OF MICHIGAN 53

C. DEMOGRAPHIC CHARACTERISTICS OF THE BERRIEN COUNTY/ 61

ST. JOSEPHIBENTON HARBOR AREAS

D. ECONOMIC CHARACTERISTICS OF THE BERRIEN COUNTY/ 67

ST. JOSEPHIBENTON HARBOR AREAS

E. SUMMARY 74



IV . TH E INDUSTRIAL, COMMERCIAL, AND RESIDENTIALREAL ESTATE MARKETS

A. THE INDUSTRIAL MARKET

B. THE COMMERCIAL MARKET

C.THE RESIDENTIAL MARKET

D. SUM1v1ARY

V. PROPERTY EVALUATION

A. DESCRIPTION

B. LEGAL AND FINANCIAL STATUS

C. PHYSICAL CONDITIONS OF THE PROPERTY

D. CONCLUSIONS

VI. REUSE OF ST. JOSEPHIBENTON HARBOR PROPERTIES

A. PREVIOUS STUDIES

B. PROPERTY CHARACTERISTICS

C. FACTORS AFFECTING REUSE

D. REUSE ALTERNATIVES FOR THE PROPERTIES

E. FINANCIAL ANALYSIS

VII. REDEVELOPMENT AND DISPOSITION ALTERNATIVESAND RECOMMENDATIONS

A. ISSUES AFFECTING PROPERTY REDEVELOPMENT

B. DISPOSITION AL TERNATIVES

C. DISPOSITION RECOMMENDATION

D. IMPLEMENTATION OF THE DISPOSITION RECOMMENDATION

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.. ". " . ' . ~

\c - ..

REGIONAL MAP

LOCATION MAP

LOCUS MAP

PARCEL MAP

OWNERSHIP MAP

ZONING MAP

FIRM MAP

LIST OF ILLUSTRATIONS

REDEVELOPMENT PLAN-PARCEL ONE NORTH

REDEVELOPMENT PLAN-PARCEL ONE SOUTH

REDEVELOPMENT PLAN-PARCELS TWO & THREE

REDEVELOPMENTPLAN-PAReEL FIVE

REDEVELOPMENT MASTER PLAN

PAGEN(L

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SECTION I: EXECUTIVE SUMMARY

A. PRESENT SITUATION

Corporate Properties, Ltd. (CPL) was retained by Cornerstone Alliance to generally evaluate theredevelopment feasibility of approximately 450 acres of land in the cities of St. Joseph andBenton Harbor and develop recommendations for disposition.

CPL began this assignment in January, 1997. Included in this report are the results of extensiveeconomic, demographic, and real estate market research and analyses; a comprehensive propertyreview and preparation of redevelopment plans; budget cost estimating and financial analysis;and numerous interviews and discussions with local, regional, and national consultants, advisers,govef?I11ent agencies, political officials, professional associations, real estate brokers andappraIsers.

B. ECONOMIC AND MARKET CONDITIONS

1. Demographic And Economic Characteristics Of Michigan And The Berrien

County/St. JosephlBenton Harbor Area

Michigan has a population of approximately 9.5 million people as of 1995. Between1990 and 1995, Michigan's population grew only 2.7%, compared to the United Statespopulation growth of 5.6%. ·Projections through the year 2025 show Michigan'spopulation growing only 1.4% between 1995 and 2000, and only 4.1 % between 2000 and2025 compared with the United States' growth of4.5% and 21.9%, respectively.

Only 12.5% of the state 's population is over 65, compared to 12.8% in the U.S., andalmost 62% ofMichigan's population is ofworking age. For 1995, this translates toapproximately 5.7 million people. Michigan's younger population profile insures a

balanced long-term employee pool. .. However, Michigan's slow population growth maydampen long term economic growth within the state if availability of labor becomes anissue in the future. Companies looking to locate or expand in Michigan will first considerthe areas with the largest population and available labor pools.

Michigan's metropolitan areas have lower population growth rates, above averagehousehold incomes, lower unemployment rates, and above average costs of living incomparison to the other metropolitan areas. Per capita income has risen slightly abovethe national average, reflecting a stable economy and an employed workforce. Thestate' s per capita income compares favorably to other midwest states and the U.S.Similarly, Michigan's average annual pay is above the U.S. average and has grown16.4%, compared with the U.S. growth of 14.1%, between 1990 and 1994. Michigan'smanufacturing wage rates are the highest among the six neighboring midwest states.

Michigan's ability to attract new residents and workers is directly related to the variousincome measures. Given the state's favorable position when comparing these measuresto other states and the national averages, Michigan should be able to attract people to thestate. However, the state's higher wage rates will slow expansion or relocation projectsinvolving new jobs in the state.



... . ...

Michigan's economy has rebounded after the last recession as measured by Gross StateProduct (GSP), a measure of a state's total output, or output of a specific industry sector.Michigan and its neighboring manufacturing industrial states of Illinois and Ohio,togethercomprise about 12% of the national GSP.

The state has an extremely proficient exporting capacity which is a major factor in the

state's economic stability. The state ranks fourth nationally in total exports. The key toMichigan' economic status, however, is still transportation related. Michigan is thenation's largest exporter of transportation equipment.

These factors have given Michigan, long considered the rustbelt state of the nation, arevitalized and healthy economy in the 1990's. Across all industries, real growth anddiversity are clearly evident. With a 1996 average of 4.7%, Michigan has one of thelowest unemployment rates in the nation (1996 national average was 5.3%).

Underscoring the strength of the state's manufacturing economy is the fact that Michiganaccounted for almost 21 % of the 102,000 new manufacturing jobs created nationwidebetween 1994 and 1995, and in the final quarter of 1995, Michigan generated 1 in every 3manufacturing jobs in the United States.,

The state's industrial base, which includes agriculture, manufacturing, tourism, financeand mining, has become much more diversified. Although the Michigan economy wasbuilt on automobile manufacturing and it is still the number one manufacturing sector, theeconomy is not as dependent on the automobile industry as it was in the past.

Michigan hasa stable, diversified, and slowly growing economy supported by a growingemployment base. The state's economy survived the effects of the most recent recession,and, by most measures, is expected to expand, albeit slowly. The presence of a largenumber of manufacturing companies and the move away from dependence on theautomotive industry is indicative of the strength of the general business climate. Thestate economic and demographic characteristics are a positive influence on theredevelopment of the St. JosephlBenton Harbor properties.

Berrien County ranks 12th in population, 10th in size, and 11 th in population density outofMichigan's 18 counties with the largest population.

The cities of St. Joseph and Benton Harbor are the central cities of the Benton HarborMSA. ,The Benton Harbor MSA has a total population of approximately 162,000. Dieurbanized area, ofwhich the two cities are the center, contains 57,712 people from theadjacent municipalities ofBenton Township, St. Joseph Township, Lincoln CharterTownship and a portion of Sodus township.

The demographic characteristics of the Berrien County/St. JosephlBenton Harbor area areunique. Despite the growth occurring in Michigan, Berrien County's unemployment rate

remains 50% higher than that of the rest oithe state. Manufacturing employment is upand per capita income is growing, but there has been a significant loss ofpopulation from1980 to 1990.

According to the 1990 census data, the population of the area declined substantiallybetween 1960 and 1990 as people left to find jobs and opportunities elsewhere. Between1980 and 1990, Berrien County's population decreased 5.8%, St. Joseph's decreased4.2%, and Benton Harbor's decreased 12.4%.

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The county's inability to supply sufficient employment opportunities to keep and attractyoung adults will negatively impact the quality of its labor force. This situation is mo reacute in the St. JosephlBenton Harbor areas .

While Berrien County's total population dropped 5.8% between 1980 to 1990, thenumber of county residents in various age groups changed more dramatically. BerrienCounty experienced an out-migration of young adults during the 1980's and forecasts

suggest that the trend will continue during the 1990's. From 1980 to 1990, the number ofcounty residents between the ages of 20 and 30 years of age dropped nearly 22% from28,020 down to 22,991. Moreover, the Michigan Department ofManagement andBudget forecasts that by the year 2000, the number of county residents in their twentieswill decline by another 10.4% to 20,598, and these trends are expected to continuethrough 2010, suggesting a decreasing population and labor supply, both countywide andin the two cities. The growing population of retirees and elderly can be expected to have~ n c r e a s i n g health care and personal service needs as well as increasing disposableIncomes.

Between 1980 and 1990, the ethnic composition of the remaining residents in BerrienCounty, St. Joseph, and Benton Harbor has changed as well. Berrien County's Whitepopulation has decreased by almost 11,000, or 7.5%, between 1980 and 1990, accountingfor all of the total population decrease over the period. Similarly, the decrease in thepopulations of St. Joseph and Benton Harbor are due almost entirely to decreases in theWhite populations.

The lack of similarity in the ethnic characteristics of the County and the two cities hascreated friction within the County. In addition, the City ofBenton Harbor's hugepercentage of youth has generated greater demands for social services.

The Michigan Department ofEducation measures performance using the MichiganEducational Assessment Program (MEAP) test. While students in the St. Joseph andLakeshore School Districts have scored well above the state average, students in theBenton Harbor School District have not. OfBenton Harbor Area 10th and 11 th grade

students, less than 6% received a satisfactory grade in math ,. less than 14% in reading, andless than 14% in science compared to almost 44%,54%, and 60%, respectively, for St.Joseph students.

The recently released state report for 1995-96 shows that the Benton Harbor Area SchoolDistrict recorded the lowest test scores in the state, and was the only district to record 1.0(out of a possible score of 100.0) in the science skill assessment. .

Michigan's crime rate is higher than the average for the United States, and higher thanfour of the five other neighboring Midwest states. Only Illinois has a higher crime rateamong the six states, while Berrien County's crime rate is comparatively higher than allsix states and the United States.

The quality of the public education system in the Benton Harbor Area Schools coupledwith the high incidence of crime presents a very negative impression. As importantmeasures of he quality of life, these negative factors are a strong concern for anyone orany company 100Jcing t6 expand or locate in the area.

Total Personal Income, Disposable Personal Income, Personal Income Per Capita, andDisposable Personal Income Per Capita figures for Berrien County indicate steady fiveyear incremental increases averaging 30% for each five year period. These increases areprojected to continue through 2010.

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However, there are wide historical discrepancies in these same measures within the St.

JosephlBenton Harbor area. While Per Capita Income rose in Berrien County. the City ofSt. Joseph, and St. Joseph Township 12.1%, 18 .7%, and 19.9%, respectively, between1979 and 1989, it increased by less than 1% in Benton Township and declined almost11% in Benton Harbor.

The wide discrepancies in the various income measures in the St. JosephlBenton Harborarea further indicate a decaying urban core. Benton Harbor's income figures are only300/0-50% of the County averages, and even less than those of the immediatelysurrounding communities. This tends to isolate the community and create increasingsocial service demands on the Benton Harbor budget.

During the early 1900's, the St. JosephlBenton Harbor area established a strong base ofmanufacturing, metal fabricating plants, and as a distribution center for fruit. By 1920,the City was also a popular tourist destination. By 1950, Benton Harbor was the area'sleading center for manufacturing, retail and wholesale trade.

Unfortunately, like many of the largest midwestern cities in the manufacturing belt,thousands of obs were lost between 1970 and 1985 due to cost efficiency relocations anddownsizing. Businesses abandoned the center city for more commercially attractivesuburbs in outlying townships. Manufacturers began to move centers of operation tolocations where labor and material costs were lower. New industry opted for newerindustrial park settings. Metal refiners and fabricators employed newer technologiesrequiring fewer, but more highly skilled labor force members.

The City of St. Joseph's recent employment losses from major plant closings contributesto the economic stagnation in the area Together, the statistics for the St. JosephiBentonHarbor area reflect a declining economy.

The Berrien County unemployment rate has trended up and down during the 1990's, asdid the state's and the nation's. St. Joseph is essentially at full employment with an

unemployment rate of 2%, while the unemployment rate in the City ofBenton Harbor hasnot dipped below 20% since the 1970's, and has,soared to the mid to high 30% rangeduring the early to mid 1980's and again in the early 1990's.

The composition of the job market in Berrien County, as elsewhere in the midwest, hasshifted away from manufacturing toward low-skilled sales and service jobs.

Employment levels directly impact the real estate market. An increasing employmentbase indicates the potential for increased consumer spending. Increased income andspending generate many benefits for any area including increased tax revenue (increasingmunicipalities' ability to pay for services), increased employment (as demand for goodsand services increases, jobs are created), and stable or growing real estate markets (as anincreasing number·ofworkers require more office, retail, and industrial space and more

residential units).

The opposite alsoholds true. A d e c r e a s ~ g employment base can cause municipalspending cutbackS or increases in taxes, reduced demand for goods and services, andincreasing vacancy rates in all sectors of the real estate market.

Based on the most recent employment trends, CPL believes that the St. JosephiBentonHarbor area employment base will grow very slowly, with very little positive impact onthe real estate market.

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.... ... /

Berrien County's economic base is divided between manufacturing industries, whichrepresent approximately 30%, and service industries, which represent approximately 50%of total County employment. The retail trade and service industries account for 35% of

all jobs and 80% of the County's non-manufacturing employment. The Governmentsector and self-employed individuals account for the remaining 20% of the economicbase.

The manufacturing sector is heavily dependent on metal working and machine relatedindustries, which account for almost 75% of all manufacturing jobs in the County.

Tourism is one of the leading economic base industries in Berrien County due to itslocation along the shores ofLake Michigan and proximity to the Chicago metropolitanarea. Visitors to the county bring thousands of dollars into its economy.

The impact of tourism on the county economy is evident. The county's expenditure-toincome ratio in eating and drinking places is well above that in similar metropolitanareas. Other positive indicators include increases in the room tax receipts from countymotels and other lodging places, the number ofvisitors to the county's state parks, and in

the seasonal traffic volume along the county's major roads.

Agricultural production is also a significant element in Berrien County's economy.Berrien County is noted for its fruit crops, particularly apples, pears, peaches, berries, andgrapes. The Benton Harbor Fruit Market is one of the largest distribution outlets for fruitproduce in the world.

Employment ii1 the manufacturing sector in the Berrien County area is projected toremain at or near current levels. Services and trade will show moderate growth.Restructuring in the banking, healthcare, communications, and utilities industries mayaffect the local economy, but only minimally due to the small concentration of

employment in each these sectors. Growth in the retail and service sectors, as well as inthe tourism subsector, may provide support for new development in the region.

The area economy has diversified away from the auto industry somewhat, which shouldpartially insulate it from volatile economic swings in the future. Overall, the trend of

slow economic growth is projected to continue. However, the continuation of a staticbusiness climate will dampen the business and investment outlook over the long-term.

Based on virtually all economic indicators, the area economy still lags badly behind theU.S. recovery which began in 1993. Job growth has been minimal in the area, and theCity ofBenton Harbor has had chronic unemployment levels above 20% for more than 25

years.

The region's strengths include its location between Chicago and Detroit, its small butdiverse manufacturing base, its natural attractions and role as a tourist destination, and itspotential as a regional retail center.

Long term groWth depends on the area's ability to attract new industries and residents.Without a growing labor pool, there will be fewer and fewer opportunities to attract newbusinesses and industries.

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2. The Regional Industrial Real Estate Market

The re<;overy in the U.S . industrial markets has advanced more quickly than the recoveryof the office markets. Not only were industrials less overbuilt, but industrial revival in

.durables has stimulated demand for assembly and distribution space for a wide variety of

suppliers and subcontractors, at the very same time that corporations are cutting middlemanagement and banks are merging thousands of jobs out of existence.

There has been an exceptional recovery in American basic industry . Led by hightechnology industries, but joined by traditional industries like automobiles, machinetools, and heavy equipment, the recovery from the recession of the early 1990's has beencarried by the durables manufacturing sectors.

The tone and tenor of the national industrial market, in short, has become much moreenthusiastic and optimistic over the year. This property type has come a long way sincethe depths of 1992.

Overall vacancies declined by 8.6 million s.f. and the overall vacancy rate declined by0.3%, from 7.4% to 7.1%. The continued drop in the U.S. industrial property vacancyrate represents a four-year vacancy rate improvement of3.8 percentage points from

10.9% at the market bottom of 1992.

Strong durables manufacturing performance played to the strength of the industrialMidwest in 1996. The Midwest has experienced extraordinary absorption for warehousefacilities in geographic locations having an ample supply of high cube space formanufacturers, distributors, and retailers to accommodate the consumer demand forgoods, and to provide lower-cost goods through greater distribution efficiencies.

Several of the major midwest metropolitan industrial markets, Chicago, Cleveland,Detroit and Milwaukee, as well as the secondary markets of Dayton, Fort Wayne, GrandRapids, Lansing, and South Bend, influence the St. JosephiBenton Harbor industrial market.

The Chicago MSA posted the highest totals both for absorption and construction of allthe East North Central Region submarkets in 1996, but Cleveland's absorption of 12 .2million s.f. and Detroit's 7.6 million s.f. were notable signs of the regional progress aswell. Eight of the ten markets experienced significant decreases and Detroit hadvacancies increase. The amount of construction increased in most markets, as didabsorption. All but two of the markets had single digit vacancy rates, while theGarylHammondlEast Chicago and Lansing markets had vacancy rates of 12.2% and14.8% respectively.

South Bend's vacancy rate of 1.5% and Grand Rapids' 4.0% vacancy rate are goodindications of a healthy industrial market in the area. Both markets have less than twoyears worth of available supply and absorption has outpaced construction.

Sale and lease prices of midwest industrial buildings and land held steady between 1995and 1996. Average building sales prices ranged from $15/s.f. to $28/s.f. in 1996,compared to $17/s.f. to $27/s.f. in 1995, and the average sale price increased only $0.11to $21.89/s.f. Average industrial lease rates ranged from $2.60/s.f. to $3.70/s.f. in 19%,compared to $2.40/s.f. to $3.60/s.f. in 1995, and the overall average lease rate increasedonly $0. 15/s.f., or 5%. Similarly, average land sale prices increased $0. 19/s.f. to$1.54/s.f. or $66,800/acre.

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The Berrien County industrial market is largely comprised ofmanufacturers andassemblers, and manufacturing space makes up the majority of the County's industrialbase.

Plenty of land is available for development in this relatively undeveloped industrialmarket. Undeveloped sites "ranging from a single acre to 820 acres, offering highwayaccess, highway frontage and room for expansion are available in Berrien County, at

prices ranging from $1.00 per site in the Urbandale Industrial Park to $ 7 ~ 5 0 0 per acre forsites located in industrial parks with immediate access to 1-94 interchanges.

The County has fifteen major industrial parks, three classified as Certified IndustrialParks by the Michigan Professional Industrial Development Association. Locatedthroughout the region are numerous fully-serviced individual industrial sites, as well asvacant and shell buildings ofvarying sizes.

Discussions with local appraisers, real estate brokers, owners, and local and Countyassessment and economic development professionals confinned the lack of industrialmarket activity in the St. JosephiBenton Harbor area.

More than 1.0 million square feet ofgood industrial" space is available for sale or lease in

the greater St. JosephlBenton Harbor"area. This does not include buildings such as theSuperior Steel or Malleable Steel properties, which represent almost 200,000 s.f., nor theolder industrial buildings in the North ofMain area. The movement of commercial andindustrial activities away from the city has left many buildings vacated and abandoned.

Good industrial space is available for lease at annual rates ranging from $0.60/s.f., triplenet to $2.75Is.f., triple net. Nearly 1.0 million s.f. of industrial or commercial/industrialspace is available for sale, with asking prices ranging from $3.04/s.f. for an older 115,000s.f. industrial building to $54.96/s.f. for a newer office and light industrial facility.

There have been very few industrial land sales in the St. JosephiBenton Harbor area formore than three years. Recent activity in the local market is encouraging. Several

. companies, representing 1.2 million s.f.of

required industrial space, are currentlyconsidering locations in the St. JosephlBenton Harbor area.

3. The Regional Office Market

Office is actually a "hot property type" nationally as pension funds, REIT's and lifeinsurers are back in the market, developers are building new office product, and leasingand investment brokers are busy.

Investors are committing more than $1 billion each quarter to office properties across theU.S. Commercial office buildings are capturing the highest share of real estateinvestment dollars, approximately 35% oftota! property sales recorded nationally in thefirst three quarters of 1996. Foreign purchasers have returned to the market, real estate

investment trusts and limited partnerships have committed substantial volumes of capital,and small, private investors have matched the big players in aggregate sales price volumeby completing hundreds ofmoderate-sized transactions.

On a nationwide scale, the drivers of absorption reflect key employment sectors. Whitecollar employment was up by 1.8 million jobs during 1996, with managerial andprofessional workers accounting for most of the gains.

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A number of office-intensive industries showed strong job growth in 1996. Despiteforecasts of several years ago which predicted that technological advances would be anegative force on office demand, communications companies added 59,000 jobs andcomputer services firms added 120,000 positions. Over the past 12 months, commercialbanks added 10,000 jobs, insurance employment is up 20,000, and the securities &

commodities sector has generated 46,000 jobs. Real estate itself has added 45,000positions (not counting construction jobs), and engineering and architectural firms added

31,000 new jobs.

The national office vacancy rate dropped below 13% for the first time in more than adecade. The 11.6% vacancy rate for 1996 reflects a 2.1 percentage point drop over

1995's 13.8% office vacancy rate.

The industrial heartland in the Great Lakes states benefited from the excellentperformance of the U.S. auto industry over the past several years, as well as the generallystrong activity in the durable goods manufacturing sector. SIOR figures show that 1996vacancy rates for the sixteen markets reporting in the East North Central region this yearfell from 1995's .13.9"/o level to a current 10.3%. Moreover, the gains in occupancy wereachieved even as repOrted construction activity rose.

However, double-digit vacancies at the national level are still too high. They r e r ~ F 1 t a375 million s.f. block ofunutilized space, an enormous amount of unproductive capitalfor the U.S. investment community. But the improvement is real and its extentsignificant.

Many of the midwest office markets improved dramatically between 1995 and 1996,including Chicago, Fort Wayne, Grand Rapids, Lansing and South Bend. Chicago's

vacancy rate dropped more than 30% to 9.5%, Fort Wayne's dropped 13% to 10.8%,Grand Rapids' dropped 40% to 8.0%, Lansing's dropped 13% to 9.5%, and South Bend's

dropped 17% to 7.7%. Cleveland, Dayton, Detroit all have continuing softness in theiroffice markets, with vacancy rates still above 13%, but all of the markets have shown

improvement. However, absorption is declining in most of the markets, with the

exception of Fort Wayne, South Bend, and Lansing. Six of the nine markets reportedmodest increases in construction, suggesting further confidence in the local officemarkets.

Office building sale and lease prices in the midwest have improved as well. Lease ratesrange from $ 12.00/s.f. in Grand Rapids to $26.00/s.f. in Chicago, and sale prices rangefrom $60.00/s.f. in Fort Wayne to $175.00/s.f. in Chicago.

Clearly, the local area office market has not benefited from the county's job growth.Many existing office buildings are currently underutilized or vacant in and around the St.JosephiBenton Harbor Main Street corridor, most of which are older rehabilitatedbuildings. No new office space has been constructed in the immediate area during thepast year.

Office leases in the area range from $6.00/s.f. to $14.00/s.f. plus common area charges.The minimal demand for office space and the competition for the few new office usersthat exist has kept lease rates low by comparison to other metropolitan areas.

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4. The Regional Retail Market

Several changes are taking place in the national retail industry. Among the primaryreasons are the spending and saving habits of consumers. Retail analysts suggest thatpreviously high retail activity was due, in part, to consumer access to 'cash throughmortgage refInancings which occurred between 1992 and 1995. Individual credit carddebt is at an all-time high, with average balances of$4,000. Americans are saving anaverage of only 4% of their income, and their incomes are growing at or near the level ofinflation. As a result, retail market activity is projected to decline through 1997, withincreasing vacancies and decreasing absorption.

F or several years, a substantial amount of retail spending by area residents has been donein Kalamazoo and South Bend. In addition, other market studies have indicated shoppersfrequent Chicago and other metropolitan areas seeking purchases ofmore upscale itemsthan typically found at merchants in the St. JosephfBenton Harbor area.

The reasons that customers shop outside of the trade area are the larger selection of

merchandise available, the number of stores available, the quality ofmerchandiseavailable, and prices. The preferred place for shopping is a shopping mall or discountcenter.

A significant number of shoppers frequent the downtown shopping areas from out-ofregion and out-of-state locations. The St. Joseph downtown area indicates 30% of itspatronage originating from this group of shoppers, as opposed to 7% for the trade area asa whole.

Downtown Benton Harbor serves the smallest trade area. The retail services are locallyorientated and designed to provide goods and services to residents and workers in theimmediate area.

Downtown St. Joseph serves the largest trade area, larger even than that served byOrchards Mall and Fairplain Plaza, due to customers from out-of-state and from the larger

geographic area. St. Joseph serves as the primary restaurant, recreational shoppingdistrict and the tourist entertainment center of the metropolitan area.

The Orchards Mall area functions as the regional shopping center. The geographic tradearea reflects the midpoint of travel time to competing regional shopping centers located insurrounding metropolitan population centers such as Kalamazoo, Grand Rapids, andSouth Bend.

Recent retail activity has centered around the Orchards Mall area, which has beenpartially offset by the decline at Fairplains Plaza. Target stores has committed to locatinga 110,000 s.f. store, creating nearly 600 new jobs, between the Fairplain Plaza andOrchards Mall, contingent upon local funding of a roadway which would provide accessfrom the Mall area to the Plaza area. Fairplain Plaza, meanwhile, is essentially vacant,

awaiting complete demolition and/or redevelopment.

Retail space in the St. JosephiBenton Harbor area ranges from $8.50/s.f. to $10.00/s.f. ona triple net basis. Rates in the downtown areas are lower, while those in the OrchardsMalllRoute 1-94 area are higher. .

If the ·amount of sales within the area can be increased, the fInancial viability of existingbusinesses and shopping districts will improve. Further, increased sales can be used to

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recruit additional retailers to specific shopping areas to capture additional retail spendingand create new job opportunities and investments in the St. JosephiBenton Harbor area.

s. The Regional Residential Market

The market area for primary and second home demand for the southern Lake Michiganshoreline draws not only from the local area, but from the southern Chicago metropolitan

area and the metropolitan areas of Indianapolis, South Bend, Kalamazoo, Battle Creekand Grand Rapids as well.

According to the Southwestern Michigan Board ofRealtors, the total number ofresidential sales in Berrien County has averaged approximately 1,966 units annually from1991 through 1996. The St. Joseph and Lakeshore school districts capturedapproximately 30%, or 578 residential unit sales annually, and the Benton Harbor schooldistrict captured approximately 14% during the same period. Sales of condominiumunits, included in the Berrien County total, averaged 52 units annually countywide

•.Average sale prices increased 34% to $110,418 for all ofBerrien County from 1991 to

1996, 28% to $149,054 for the St. Joseph and Lakeshore districts, 17% to $56,536 for theBenton Harbor school district, and only 6% to $140,890 for condominiums.

According to the Realtors Association, the St. Joseph-Lakeshore School District marketarea's sales volume jumped to $89.2 million in 1996 from $66.0 million in 1995, and theaverage home price increased to $149,054 from $126,586. The area had the top salesvolume of the association's 11 market areas and second-highest average price behind theBridgman-to-New Buffalo 's average price 0[$153,029.

Generally, housing prices in the City ofSt. Joseph range from $125,000 to $175,000.New houses in recently completed subdivisions have sold for as much as $275,000-$325,000. Housing with frontage on Lake Michigan can sell for more than $1 .0 million,especially in the area north of the St. Joseph River, locally known as the Ridgewayneighborhood. However, the housing adjacent to Ridgeway, which has no water accessor views, sell for $60,000-$70,000 for a one to two story, 2-3 bedroom, bungalow-stylehouse. Houses in established neighborhoods sell for $90/s.f.-$120/s.f., while houses onthe water sell for $200+/s.f.

Discussions with real estate brokers and developers indicted shoreline housing in the areais being demanded primarily by young professionals (specifically, couples with doubleincomes and no children), empty-nesters, retirees, and individuals seeking incomeproperty. Real estate prices in the area are lower than those in more well-known secondhome locations.

Local buyers are willing to purchase a condominium as a primary residence. However,price sensitivity isoften displayed by this group. Those from outside the area find thearea's condominiums attractive as second homes, due to the security and maintenance

provided by the condominium associations. For buyers from outside the area, theoptimum selling season is during the spring and summer seasons.

6. Commercial Port

As Michigan's second largest river system, the St. Joseph River has provided a naturalhighway for transporting settlers, goods, and industry to and from the Benton HarborlSt.Joseph area, and because of its proximity to Chicago and the Mississippi River Valley,the St. Joseph River Harbor became a prominent lakeport in the 19th Century.

to



.... .. }

Since 1987, the St. Joseph River Harbor experienced a peak in tonnage of 694,494 nettons in 1994, compared to the low of461,216 tons in 1989. The port 's all-time low wasin 1975, when only 244,963 tons were received.

The harbor currently serves a variety of uses. Industrial development is a significant landuse on the harbor's waterfront with several operating industrial concerns and additional

industrial sites available in Benton Harbor directly northeast of the harbor.

Upgrading the St. Joseph River Harbor as a major lakeport has been a development goalconsidered for many years. A port development study was conducted for the Twin CitiesChamber ofCommerce in 1961, which was not optimistic about the feasibility of port

. development at that time.

The Board ofHarbor Commissioners reconsidered port development in 1979, due to therapid escalation in energy costs, the emergence of sources of State and Federal assistance,and the need to provide the region with superior transportation facilities. The creation ofa multi-modal transportation facility, linking rail, water, and highway systems, as part ofBerrien County's commercial and i n d u s t r i ~ development efforts, was seen as enhancingthe County's ability to attract and retain job providing industries.

A preliminary market study was conducted in conjunction with the site evaluation andselection study, which indicated that under appropriate conditions a public facility locatedat the selected site would reach an average annual potential commerce of 380,000 tonswithin five years ofoperation. The majority of the cargo would be bulk, with theremainder being containerized.

The fmancial feasibility analysis estimated facility revenues and operating and capitalcosts. The analysis assumed 50% of the facility operating budget would be provided forby the State ofMichigan as permitted under the Port Authority Act of 1978.

The financial projectionS indicated that the facility would eventually be able to cover its

share of operating costs·and repay debts incurred during acquisition and construction. Aswith any public investment project, it becomes the role of the St. Joseph River Board of

Harbor Commissioners, the County, and the surrounding communities to evaluatewhether the economic development benefits to the community of port developmentjustify the fmancial risk and low rate of return associated with the public portdevelopment in the St. Joseph River Harbor.

7. Recreational Marinas

In 1994, the Department of Park, Recreation and Tourism Resources at Michigan StateUniversity completed a study of Michigan's Marinas (Clean Vessel ActfMichiganBoating Study 1994-95, Great Lakes Marina Census and Marina Needs). The 1994census of Michigan's Great Lakes marinas and assessment of current needs for Great

Lakes marinas in Michigan describes the distribution, ownership and facilities ofMichigan's marinas and provides an assessment of the state of the market for rentals ofseasonal spaces at Michigan's marinas, a market segmentation analysis for this marketand gives conclusions on needs for additional marinas.

The assessment ofmarina needs indicated no strong general needs for additional seasonalspaces in public and commercial Great Lakes marinas in any region, although it indicatedstrong demand for certain specific types ofmarinas in all regions

I I



All regions have unfilled space available for seasonal rental. Over 20% of seasonalspaces are unfilled in most regions. However, all regions also have marinas that are filledto capacity. Therefore, although there is little demand for new marina spaces in general,demand is strong for at least some particular types of marinas.

Marina needs have changed sharply since 1986. The most important cause seems to havebeen the decline in Michigan's Great Lakes salmon and trout fishery. However, an

increase in numbers of non-angler marina renters has been offset by a decrease in anglernumbers, so the total number of marina users has remained about constant.

The most successful marinas are within walking distance to downtown shopping areas.New Buffalo, Saugatuk, and South Haven are good examples. The most importantmarina attributes for seasonal renters selecting a marina are "hospitality" items such astheft and vandalism security, clean, well-maintained facilities, presence of restrooms andshowers, and prompt and friendly service.

Marinas still have a tremendous economic impact on their communities. Expenditures by_ seasonal renters of public and commercial marinas in the marina vicinity and the marina

"community" were estimated at about $7,000 per boat.

The study identified 20 marinas in Berrien County with a total of2,626 slips, 8 moc'rings,and 149 dry spaces. Of the 2,564 slips identified, occupancy rates declined with

increases in slip size. Marina occupancy rates range from 80-87% in Berrien County.

Berrien County ranks 2nd in the number of marina slips, 2nd in the number of registeredwatercraft, and 4th in the number of boater days of all of Michigan's counties.

Recent data'indicates a growing number of boats registered in Berrien County. Between1993 and 1995, the total number of boats registered increased by 1,079, or 8.7%. Thenumber of boats over 23 feet in length grew by 116, or 12.2%. Typically, boats under 23feet are trailered, while boats over 23 feet are kept in marinas.

. , . The growth in hoating in the area is similar to other areas in the State of Michigan, which

- have seen increased demand in the past three years. If growth in County registrationscontinues at the current pace, approximately 500 boats per year will be added to thismarket. Occupancy rates are marinas in the St. JosephfBenton Harbor market generallyrange from 85% to 98%.

The bulk of the St. Joseph market are sport fishermen. Most of the marinas in the St.JosephlBenton Harbor market are on the wrong side of bridges, creating some delayswhen going out to Lake Michigan. However, the local marina market is healthy, with an85% to 95% occupancy rate for well-located and serviced marinas.

8. Tourism

Travel and tourism is the second leading overall industry in Michigan, but in most

counties it's actually the top industry. According to Ernst & Young, travel and tourism isrecognized as an increasingly important sector of the economy in the State of Michigan.The industry creates substantial direct and indirect expenditures, employment and fiscalbenefits which have a positive impact on the economic growth and competitiveness of thestate.

T otirism brings in $8 billion anmially to the state and $3.7 billion in the West Michiganarea from the Indiana state line to Mackinac Island. In 1993 (the most recent year that

12



figures were available), Berrien County took in $136.7 million in direct tourism dollarsand an estimated $106.6 million in "indirect" spending according to the West MichiganTourist Association. "Indirect" spending is money taken in by tourism businesses and respent inside the county.

Tourism puts people to work, pays them a living wage and contributes directly to thelocal, regional and national economy. Criticism that tourism related jobs are relatively

low paying is unfounded, unless one is only counting the entry levels jobs and comparingthose to high paying jobs in the auto industry. However, there are almost as many jobs insupervision and management positions as entry level positions in the tourism industry.Moreover, manufacturing jobs tend to employ more people, but tend to be clustered in afew areas.

In Berrien County, tourism accounted for 4,506 jobs in 1993. According to theSouthwestern Michigan Tourist Council, the total number of hotel and motel rooms hasdoubled from 1986 to 1996. Approximately 1,475 rooms available in the immediate areatoday in major hotels and motels.

A 6% room receipts tax is levied Qn all hotel/motel room rentals, ofwhich 2% goes to theSouthwestern Michigan Tourist Council. The 2% room rental tax receipts have increasedapproximately 5% annually from 1987 through 1996. .

Occupancy rates generally range from 100% in the summer to 50-60% in January.However, increased business use in the off-season has increased the overall occupancyrates. In general, Bemen County has a healthy hotel industry.

Silver Beach County Park is a popular regional recreation resource and destination areadrawing over 150,000 visitors annually. Both the number and percentage of out-of-townvisitors at Silver Beach is growing. During the summer of 1996, 51% of all day passessold to persons residing outside ofBerrien County.

9. Conclusion

The steady improvement in the midwest and metropolitan industrial and office marketswill provide fertile ground for new construction activity in the midwest in 1997 and 1998.In the near term, however, while the availability of capital is greater than it has ever been,40% to 50% preleasing requirements still will be required, depending on the developer.

The health of the national and international economies will affect the pace of industrialactivity throughout the 1990's. Industrial property remains relatively strong in someareas of the country, and because its economic base is more diverse than it was a decadeago, the midwest is well positioned to handle new development.

The state of the commercial office and retail markets is a fair indication of the futurefocus of the capital markets. The suburban markets will be among the strongest,

increasing in popularity as vacancies tighten further and rents move higher. In contrast,activity and interest jn the downtown and second and third tier markets, except for"vulture funds" will remain flat, despite the lower values.

The miIllmal activity in the St. Joseph/Benton Harbor office market is almost entirelygenerated from within the area. Virtually no office users of any significant size fromoutside the area have located in St. Joseph or Benton Harbor recently, however, there hasbeen increased interest. Quality of life and labor availability issues may continue toimpact the office market.

13



'The retail market has slowed regionally, but has strengthened locally as a result of theOrchards Mall development. The Mall area has become a regional shopping destinationand, retail occupancy rates and development activity have increased. We expect thisgrowth to continue.

The area's tourism industry is growing, and with it the hotel and marina markets havecontinued to expand. As more and more people look for vacation and second homelocations, the area can expect continued growth in the tourism industry.

The residential market is healthy and growing in St. Joseph, but is depressed in BentonHarbor.

Exhibit 1-1 summarizes the real estate market information developed by CPL as itinfluences the St. JosephiBenton Harbor properties.

Exhibit 1-1R ~ a l E s t a t ~ Mark!.:! Summao:

Estimated EstimatedMidwest Market Property

Valac Value Total Value Implied ' ¥ ~ I I :R a ~ e Range Acres Range Value §/Ac'{e

Industrial

SaleLandSlAcre $22,000-$217,000 $1-S4,500 126 .0 $126-$567,000 $252,000 S2,OOO

Modem Bldgs SlS.F. SI5.00-$28.oo S9.00-S18.OOOlder Bldgs. SlS.F. S3 .00-SI2.oo S3.oo-S5.ooLea.scM<>4em Bldgs. SlS.F. SI.75-S5.OO $1.00-$2.75Older Bldgs. SlS.F. SO.5O-S1.50 SO.50-S1.00

Qf1i«LandS/Acre .' $50,000-$ 150,000 S15,OOO-$25,OOO 25.0 $375,ooO-S625,ooo $400,000 SI6,OOO

Sale SlS.F. S60.00-$ 175.00 $20.00-$40.00Lease SIS .F. SI2 .00-$26.oo S6.00-$14.oo

Retlil ( D ! l D - [ ~ h m l l ) Land 5/Acre $240,000-$80,000 S20,OOO-$40,OOO 5.0 S I00,OOO-S200,OOO SIOO,OOO $20,000Sale SlS .F. $40.00-S120.OO S30 .00-S75.00Lease S/S .F. S8 .90-S26.00 S8.50-S14 .00

H!I.WLand S/Acre • S40,ooO-S220.000 S I 0,000-$40,000 20.0 S200,OO-5800,OOO 600,000 30,000

Sale SlRoom S3S,ooO-S I2S,OOO S60,OOO-S80 ,OooLease SlRoomlNight S29.00-S 150.00 S39.OO-S99.OO

Ma.riuLand SlAcre $4,000-$40,000 S I OOOO-S20,000 6.2 562,000-$ 124,000 $124,000 520,000Sale S/Slip $ I0,OOO-S30,OOO 512,000-517,000Lease SlSlip $1,000-S3,500 51,250-S2,250

Qlbcr C!lmmc[l:illLand SlAcre $20,000-S80,000 59,000-520,000 24.5 5220,500-$490,000 5220,500 $9,000

ResidentillLand SlAcre

Waterfront S7S,OOO-S3oo,000+ S30,OOO-S60,ooO 24 .0 snO,OO0-5 I 440,000 5nO,ooo S30,OOO

Interior $4,OOO-S 150.000 5S,OOO-S1 ,OOO 56.5 5282,500-S847,500 S565,OOO 510,000Housing: SlS.F.

Waterfront S I 50.00-5350.00+ 5150.00-S175.00Interior $60.00-S 150.00 590.00-S 120 .00

287.2 SI,960,126-55,093,500 52,981,500 510,381

Therefore, based solely on the real estate market information presented in this section, the

property values range from $2.0 million to $5.1 million, with an implied value of $3.0million. This assumes a sale ofall of he properties without a discount to reflect currentmarket absorption characteristics, the bulk nature of the development parcels, or the timevalue discount ofdevelopment costs, carrying costs, and market timing. These factorscan discount the value by as much as 50%.

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This value does not include the 53 acres of wetland and fill in the Northeast quadrant ofthe St. Joseph properties, the 104 acres south of the CSX tracks and north of West MainStreet in Benton Harbor, or the cost of environmental remediation. In addition, the costsof infrastructure improvements to the M-63 interchanges, some of the roadway andinfrastructure improvements both inside and outside the project areas, and the commercialport facility are expected to be funded through Federal, state, and local monies.

C. REUSE OF THE ST. JOSEPHIBENTON HARBOR PROPERTIES

Several factors contribute to the analysis of possible reuse alternatives.

1. Access To Interstate Highways

The properties offer good access to local and regional roadway, air and rail transportationroutes. Access to M-63 and Business Loop 1-94, which connect with Interstate 1-94, is

less than 112 mile from any of the properties. Interstate 1-94 is the major east/west routeconnecting Detroit, 180 miles east, with Chicago, 90 miles to the west.

Interstate 1-196, which .connects 1-94 with Grand Rapids and Interstate 1:.96 to the-north,begins in the St. JosephlBenton Harbor a r ~ a .

Route 31 passes through the area, connecting with Interstates 1-80 and 1-90, and SouthBend, 35 miles to the south.

2. Economic And Demographic Characteristics

The economic and demographic characteristics of the area are not favorable. Thepopulation has declined significantly, as has the job base. However, long term growth inboth population and employment is forecast, rather than a continued decline. CPLbelieves that, as the r e ~ e v e l o p m e n t proceeds, and as the area grows as a touristdestination, more people andmore companies will move to the area, and employment

will grow.

3. The Regional Industrial Market

The midwest has experienced tremendous growth in warehousing and distribution spacerequirements, and continued growth in the manufacturing sectors has added to demandfor good industrial space.

Based upon our survey of the St. JosephlBenton Harbor real estate market, as well as ourdiscussions with local brokers, appraisers and public officials, the existing supply of goodmanufacturing, assembly, R&D, office, or warehouse/distribution facilities for sale orlease is high, given the lack of demand historically for space in the area.

However, the regional growth in warehousing, distribution, and manufacturing, combinedwith the area's locational attributes; should create an increasing need for warehouse,distribution, .and manufacturing space and justifies industrial reuses.

4. The Regional Office Market

Office activity in the region is focused primarily in the Grand Rapids and South Bendmarkets, which have improved dramatically over the past year. Space is still available inthose markets, which have greater pools of workers available as well.

15



The St. JosephiBenton Harbor office market is static, with no new product added and nosignificant absorption over the past several years. The market appears to be able toabsorb a minimal 20,000 s.f. - 40,000 s.f. annually, based on historical trends.

The St. Joseph waterfront offers an attractive location for commercial office users. Asmall scale office development is probably feasible, serving the legal and professional

community. If a larger office user is secured, the development program could be adjustedaccordingly.

5. The Regional Retail Market

The area retail market began to plateau in 1996, after strong growth in previous yearssupported by a growing transient population with strong purchasing power. The § t.

JosephiBenton Harbor area has seen continued growth in commercial and retailestablishments along Route 31 and Pipestone Road. Recent growth has predominantlyoccurred in the Orchard Mall area, which serves as the regional shopping area. Includingthe "big box" retailers, approximately 200,000 s.f. ofmulti-tenant retail space wasabsorbed or committed to in 1996, at rates ranging from $8.00/s.f. to $14.00/s.f., triplenet. Large anchor tenant lease rates are generally $6.00/s.f. - $8.00/s.f., triple net.

The St. Joseph properties present a limited opportunity for retail development, but only in

conjunction with and in support ofwaterfront, residential, and recreational developmentin the area.

The Benton Harbor properties along West Main Street also present limited opportunityfor retail development, and only as the area redevelopment creates the critical massnecessary to support local retail.

6. The Regional Residential Market

The local residential market is getting stronger, supported in part by increased interest inrecreational/second home buyers, as well as retirees. Recent developments north and

south of St. Joseph, as well as home sales in the St. Joseph and Lakeshore schooldistricts, confmn the strength of the market.

The residential market strength, together with the locational amenities of the St. Josephproperties, support residential reuse of the St. Joseph properties. .

The Benton Harbor properties do not have good residential characteristics and have notbeen considered for residential reuse.

7. The Regional Hotel Market

The hotel market in the area has doubled in size in less than 10 years, with little impact tothe overall occupancy rates. Discussions with several national conference centeroperators indicated interest in the St. Joseph location, but require a full feasibility study,which CPL reCommends undertaking.

S. The Regional Recreation Market

As an adjunct to the growing tourism industry, several recreation venues have beenestablished in Berrien County. The state and county parks have experienced growth in

16



.. .. ., ..... !

use, and activities including waterparks, go-cart tracks, and archery are available inBerrien County for the local and tourist contingents.

The St. JosephiBenton Harbor area has only limited passive recreational opportunities,primarily at the beaches. According to the Southwestern Michigan Tourist Council, thearea needs an attraction which will provide year-round family-oriented recreationalopportunities for both regional residents and out-of-state visitors.

CPL surveyed several ice, indoor soccer, and other sports venues in the Grand Rapids,Kalamazoo, and Lansing markets, as well as projects in Illinois and Ohio. A recreationsports complex would serve as a regional draw. Nationally, the fastest growing sports arehockey, soccer, and in-line hockey. Preliminary surveys indicate strong support fromarea schools for an ice hockey complex, as well as indoor soccer. Approximately 3,000adults and children have been identified as participants in a hockey program, and 2,400children currently participate in soccer in the St. Joseph and Lakeshore schools.

Strong interest has been expressed by several developers. Again, a full feasibility study isrequired and recommended.

9. Environmental Conditions

The environmental conditions of the properties have not been fully delineated. However,the redevelopment ofall of the properties will require that the properties be brought toacceptable environmental standards.

10. Political Considerations

Both the cities are supportive of redevelopment of the study properties, and both wouldlike to improve the tax base, the quality of life, and the employment base in the area.Historically, it has been difficult to get the area townships and cities to work together, butthis, hopefully, is changing.

11. Market ing Period

CPL believes that a reasonable marketing period, assuming the disposition pricesrecommended in this report, will be between 12 and 18 months. Nationally, this type of

property generally requires a period in the range of 18 to 24 months. It is our opinion thata 12 to 18 month period will be sufficient.

D. REUSE ALTERNATIVES FOR THE PROPERTIES

CPL reviewed the site's redevelopment potential and developed reuse plans based on ourconclusion's regarding the property and our market research. The nature of the regional andlocal real estate markets and the property characteristics suggest that the facilities are best suitedfor several different uses, as described below.

CPL's proposal encompasses numerous uses in response to the variety of factors influencing thesite, including the following: - .

• Market Conditions-• Demographics• Surrounding Land Uses• Geographical Conditions• Environmental Conditions

17



Conceptually, we are proposing a mixed use re-development of the property incorporating the. following uses:

• Waterfront Park• 2 Marinas - 188 slips total• 100 Residential Townhouses• 150 -200 Room HoteVConference Center• 136,800 s.[ OfficelR & D Buildings• 300,000 s.f. Recreation Sports Complex• 63,500 s.f. Retail Stores• 110 Lot Residential Subdivision• 5 Barge Commercial Port Facility• 700,000 s.[ Industrial Park

In conjunction with the proposed redevelopment, there is a significant amount of infrastructurework, which includes the following:

• Reconstruct M-63, bringing it to grade north of the CSX tracks and reconstructing theUpton Road and Klock Road interchanges. -

• New Access Roads in St. Joseph and Benton Harbor.• Reconstruct 8th St. Bridge in Benton Harbor.• Shoreline Bulkhead & Breakwater for Marinas and Port Facility.• Water, Sewer, S t o ~ Gas, Electricity, and Telephone Infrastructure.

The proposed redevelopment includes r e s i d e n t i a l office, retail, marina, recreational, industrial,and open space uses. .

The recreation sports complex will draw from the local and regional communities, and providean additional draw for enhancing the local tourism industry. A well designed and managedfacility would become a significant community focal point not only for the homes proposed inthe area, but also for the users of the proposed commercial, office, retail, marinas,

hoteVconference center.

The combination of a marina and recreation sports complex will enhance the recreationalopportunities of the new home and second home buyers targeted for the proposed housing, aswell as visiting tourists. A future hoteVconference center will provide further exposure of thearea to companies and individuals coming to stay at the center.

The office and retail uses are compatible with residential development, will provide jobs, andimprove the tax base for the community.

Similarly, the industrial, commercial, and port development in Benton Harbor will provide badlyneeded jobs, an increased tax base, and an improved image for the city.

The proposed redevelopment accomplishes the following planning tasks:

• Locates compatible uses adjacent to the existing residential area. The residentialsubdivision and the neighborhood scale office and retail component compliment dIeexisting uses.

• Maximizes the potential of the waterfront as a setting for marina-oriented residential andcommercial development. Relocation of the M-63lUpton Road ramps is a criticalcomponent.

18



.... ·,-1

• Creates a water amenity for the internal portions of the residential subdivision.

• Provides sites for employment and commercial uses as well as an appropriate mixture of

residential products.

• Provides buffers along the major roadway and rail corridors, with landscaping, buildings,

and minor roadways.

• Provides new access into the site from M-63. A new road offM-63 provides convenientaccess for the proposed redevelopment, while mitigating the potential increase in trafficon Upton Drive.

• Responds to the on-site environmental constraints with appropriate land uses. The mostcontaminated portion of the site, the southern portion ofParcel One, will be developedwith commercial uses, which require a lower level of remediation. Further, thedevelopment essentially caps the site with buildings and parking, eliminating future riskof exposure.

• The wetlands are preserved as <?pen spaces, and Jean Klock Park will be more fully

utilized by area residents providing excellent beachfront opportunities for communitywide recreation.

• Landscaped buffers are anticipated to separate the residential areas from the major roadand rail corridors and the utilitY substation. Additionally, the six smaller-scaleoffice/retail/residential buildings along Upton Drive and the new road between UptonDrive and M-63 will provide a buffer between the recreational sports complex and itsassociated parking and the surrounding residential areas .

• The hotel conference center proposed for the St. Joseph riverfront takes advantage of itslocation near the sports complex, the waterfront amenities (including the proposed marinaand open space), and downtown St. Joseph.

Exhibit 1-2 summarizes the proposed land uses for the various parcels and the total project.

"1: .,. •. : -2

B,edgv!o:IQPm!o:ot Land Us!o:s And A[!o:3

Renais.Open Zone Total

Parcel S ~ a c e Indus. Office Retail Marina Recrea. Hotel Res' I. Overlal: AcresOne 11.5(1) 12(2) 2.0 24.5 56.5 20(3) 95.0Two 3.0 3.5 24.0 30.5lbree 7.0(4) 8 0.7 3.0 24 35.7Four 53 .0 53 .0Five 126 50 126.0

71.5 126 20 5.7 6.5 24.5 24 80.5 70 340 .2

(1) included in residential.(2) includes office/retail Buildings A-F and associated parking.(3) 7 acres are residential (12 lots), 13 acres are commercial (portion of recreation complex and Bldgs. A-C).(4) included in office and hotel.

19



Exhibit 1-3 summarizes the density of development for the various parcels and the total project.

Exhibit 1-3Redevelopment Uses and AmQunts

Parcel Indus. Office Retail Marina Recrea. Hotel Res'l

One 45,000 s.f. 52,500 s:f. 300,000 s.f. 110 lotsTwo 10,000 s.f. 104 slips 100 unitsThree 91,800 s.f. 1,000 s.f. 84

slips146,000 s. f.150-200 TID

FourFive 700z000 s.f.

700,000 s.f. 136,800 s.f. 63,500 s.f. 188 slips 300,000 s.f. 150-200 rID . 210 units

E. PROPOSED REDEVELOPMENT FINANCIAL FEASIBILITY

1. Construction Costs

The projected square foot and total project costs for the various proposed uses arepresented in Exhibit 1-4. All of the costs are in 1997 dollars.

Exhibit 1-4CQDstrl.l!:tiQD Costs

Total

S/Unit S/Unit Construction

Reuse Total Units Range Used Cost

Industrial 700,000 s.t: $20-$35 $25 $17,500,000Office 136,800 s.f. $75-$100 $80 $12,312,000Retail 63,500 s.t: $45-$75 $60 $3,810,000Hotel SlRoom 150-200 rIDS. $80,000-SI20,000 S90,000 SI3,500,000-

SI8,000,000Recreational 300,000 s.f. S30-S120 S75 $22,500,000Residential

Single Family Lots 110 lots $10,000-S30,000 S15,000 SI,650,000Townhouses 100 units $80-$140 $120 SI5,400,000

(1,400 s.t:

avg.)Marina 188 slips S6,000-$20,000 S15,000 $2,820,000

2. F'na cial Feasibility

To evaluate the feasibility of each reuse of the facility, we constructed the multi-yeardiscounted cash flow analyses, as shown on pages 164-170, based on the income andexpense assumptions and the construction cost estimates presented previously in SectionVI.

20



" - ' j

As shown in Exhibit 1-5, the net present values of the reuses for the study properties,based on the assumptions outlined herein range from ($2,492,492) to $1 ,812,410.

Exhjbjt 1-5St. JosephlBenton Harbor PropertiesNet Present Value of Reuses

ReuseParcel One NorthParcel One SouthParcel TwoParcel ThreeParcel FourParcel Five-IndustrialParcel Five - Port

Net Preseot Value5316,8635318,2065772,114

(5562,061) - 5385,094-0-

(53,337,614) - 520,133-0-

(52,492,492) - 51,812,410

This range of value, combined with the market information range of values, suggests amaximum value of approximately $1 .9 million.

3. Summary

Given the projected construction costs, the fmancial assumptions, the lease rates and thelease up period as outlined in this report, redevelopment of the properties for theproposed uses is feasible under certain conditions. Parcels One and Two are feasibleredevelopment projects for third party private developers under the redevelopmentscenarios outlined herein. Parcels Three and Five are feasible redevelopment projectsonly i f users are secured to purchase the land and develop it for their own use (i.e. hotelcompany, office user, or industrial user).

While the net present values would equate to a sale price for the properties, it may IlQt

necessarily result in an all-cash sale at that price since financing for speculative real estateacquisitions is difficult to obtain in today's financial marketplace. It is realistic to expectthat some seller financing would be required to achieve this value. Alternatively, theinvestor/developer may have to fmance the acquisition with private capital, which carriesmuch higher interest rates than does traditional bank or institutional financing. Thisv; ',"er the ri:e an investor/developer could pay for the property.

The redevelopment analysis assumes that the mUltiple privately owned parcels will becontrolled by a single entity for purposes of negotiation and disposition forredevelopment. The values attributed to the various parcels assume that the sites aredelivered free of environmental remediation requirements.

The development plan requires public investments in environmental cleanup,infrastructure, road improvements, and the port facility. It is hoped that environmentalcleanup, infrastructure, and road improvements can be funded with federal and state

monies, and that the port facility can be funded with state, county, and local funds.

The cities ofSt. Joseph and Benton Har1J9r will benefit from the project in many ways.Economic development benefits include job generation and tax base expansion. Alsoimportant will be the psychological benefit and increased confidence in the localeconomy from having seen derelict properties on a prominent and highly visible site atthe community's waterfront entrance redeveloped to an active mixed-use project.

21



F.

These development projects will have a significant impact in stimulating confidence inother development and pent-up investments. In addition, investments will occur inexisting businesses in order to provide materials and services to these projects during theconstruction period and during operation. These investments will result in new

businesses and expansions locally that will, in turn, produce increased tax flows.

Direct employment benefits are estimated from 400 to 800 construction related jobs

associated with all site development and construction activities during the project period.Pennanent on-site employment created by the project is estimated to be 1,460 jobs, ofwhich as many as 1,000 jobs could be oriented towards unskilled and semiskilled labor,service and support jobs, and clerical and administrative categories.

Local governments in Michigan derive the vast majority of their tax revenues associatedwith real estate development projects from real and personal property taxes. Increases inthe resident population as a result of development also result in increases in thepercentage of tax rebates which Michigan municipalities receive from the State. Theprimary source of these taxes are sales, income and single business taxes.

Property tax benefits to the cities have been estimated using the 1996-1997 portion of thetaxes which goes to the cities' operating budget, or 16.96 mills for St. Joseph and 28.67mills for Benton Harbor. The net annual property tax benefits to the cities are projeciedat approximately $800,000 for St. Joseph and $225,000 for Benton Harbor .

Therefore, the cities could commit up to $1.0 million annually of future incrementalproperty tax receipts in this development as a means to generate the economicdevelopment .and increased employment which the projects represent.

REDEVELOPMENT AND DISPOSITION RECOMMENDATIONS

1. Issues Affecting Property Redevelopment

Redevelopment of the study properties must respond to current economic, demographic,and market conditions in the area. Over the last twenty years, manufacturing plants havebeen closed, jobs have been lost, people have moved away from the area, population hasdeclined, and economic stagnation has occurred. Without substantial public and privateinvestment in the area's economic and market infrastructure, continued stagnat ion islikely.

The St. Joseph properties offer a good opportunity for a mixed-use residential,commercial, and recreational waterfront development. The properties have goodwaterfront and transportation access, Renaissance Zone designation of a portion of theproperties, and Whirlpool's continued commitment to the area.

The Benton Harbor properties offer a good opportunity for a quality industrial and

commercial redevelopment project. The existing infrastructure, the Renaissance Zoned e s i g n a t i o ~ the availability of rail, and the potential for commercial port access allsupport industrial redevelopment of the Graham Avenue area. The character of the WestMain Street corridor will support commercial and retail redevelopment, providedeconomic growth occms in the area

However, none of the projects will be successful without the coordinated attention ofpublic and private leaders, the commitment of the surrounding communities to the overall

22



.

redevelopment plan, and the allocation of local, regional, state, and federal financialresources.

Implementation of any proposed redevelopment projects requires coordinated, aggressive,and sustained action by the public and private sectors. Issues which need to be addressedprior to proceeding with any redevelopment are presented below. Some of these are

recurring themes which have been raised by previous studies; highlighted at the March10-11, 1997 workshop conducted by Cornerstone Alliance and the Great LakesEnvironmental Finance Center (GLEFC); included in prior Cornerstone Allianceredevelopment efforts; or mentioned by various private organizations and communitygroups.

a. Regional Commitment To Redevelopment Plan Concept

Public and private leadership should agree on the redevelopment plan for the St.Joseph and Benton Harbor properties and publicly endorse its implementation.Consensus and support of the general public should be achieved on the overalldevelopment concept, including the redevelopment of the Business Loop 1-94corridor. Any necessary zoning changes should be implemented.

The communities surrounding St. Joseph and Benton Harbor should be involvedand committed to the project, as the proposed redevelopment will benefit not onlySt. Joseph and Benton Harbor, but the surrounding region as well.

A well organized regional marketing and promotion program should beimplemented to promote the redevelopment and attract residents, businesses andvisitors. .

b. Regional Development Authority

The successful redevelopment of the study sites depends upon the cities' abilitiesto create a long-term vision and master plan for regional revitalization. The

creation of a redevelopment authority as a means to spur regional redevelopmentwith coordinated planning and investment guidelines would provide a frameworkfor municipal cooperation and reduce the need for constant consensus-buildingamong multiple municipalities with potentially conflicting needs and goals.

c. Site Control

Presently, there are approximately 159 individual parcels within the study area,with as many individual property owners. It is imperative to the successfulredevelopment of the study area that one entity control the redevelopment anddisposition of the multiple properties. A Redevelopment Authority would be anappropriate entity to invest control of the redevelopment. The acquisition ofproperty by donation, acquisition, or eminent domain could be accomplished bythe Authority.

d. Redevelopment Phasing

The phasing ofdevelopment should take advantage of existing opportunities suchas available utilities and infrastructure, access, market strengths, and economicdevelopment incentives such as the Renaissance Zone designations.

23



The redevelopment plan for both the St. Joseph and Benton Harbor propertiestakes advantage of the Renaissance Zones as much as possible. In St. Joseph, aportion of the Recreation Sports Complex, three of the six office/retail buildings,and fourteen of the 110 residential lots have been located to take advantage of theZone. Similarly, most of the new industrial buildings in the Graham Avenue areaofBenton Harbor are located within the Zone.

Redevelopment activities should occur first within the Renaissance Zones as anadditional incentive for those initial uses. Activity on the sites needs to begenerated to further spur investment and development in the area, and the mostobvious locations are the most visible - the existing waterfronts and streetfronts.

Finally, outside interest needs to be generated for the area. This will beaccomplished through the combination of expanded marina and recreationalboating opportunities included in the redevelopment plan, but the largest regionaldraw is expected to be generated by the Recreation Sports Complex.

e. Funding

The redevelopment of the study area will require external funding, as the netpresent values ofmany of the parcels do not support the necessary investJtnent inenvironmental remediation, infrastructure improvements, or even, in some ca.ses,site acquisition.

However, the benefits of increases to the tax base, new jobs, and a revitalizedeconomy just ify public, quasi-public, private foundation, and private investmentin the redevelopment. It is anticipated that DEQ funds will be available forenvironmental remediation; that DOT funds will be available for roadwayimprovements; that DNR funds will be available for recreational and waterfrontimprovements; and that traditional federal, state and local funding sources will beutilized in support of the project. Specific funding sources that may be utilized inthe redevelopment include:

• Community Development Block Grants;• Tax Increment Financing;• City Bonds (General Obligation or Revenue);• Tax Incentives and Abatement Programs;• Section 108 Loans;• Small Business Administration Loans and Guarantees;• Special Grants and Appropriations from State and Federal agencies, the

County, the business community, and private foundations;• State ofMichigan Environmental Protection Bond Implementat ion Act;• Debt Financing;• Equity Investments;• Real Estate Loan Guarantees;

• Working Capital Loans; and• Brownfield Site Assessment Grants.

f. Environmental

The environmental status of he entire study area is undocumented, although theDEQ is completing a thorough site investigation and characterization of thefonner Auto Specialties site. Redevelopment will require complete

24



The risks to this approach are several. The properties could cost more to redevelop thanestimated or take longer to sell than expected, and the market could change, eitherincreasing or decreasing the marketability of the properties. Moreover, theRedevelopment Authority would be exposed to these risks until the properties sold, andRedevelopment Authority personnel would be required to oversee the projects. Thiscould take several years, depending on the length of time it takes to redevelop and sell the

properties.

Although this disposition alternative potentially represents the highest long term return, italso represents a long term commitment of funds and personnel, is the highest riskdisposition alternative, and is not recommended by CPL.

2. Minimum Bid Auction

A minimum bid auction is the fastest alternative to property disposition other than anabsolute sale auction. Under this approach, a minimum price is established, an auctiondate is set, sale documents, promotional, and informational materials are distributed topotential bidders, the auction is advertised, and a high bidder is identified on the auctiondate. Immediately thereafter, sale documents are executed by the high bidder and the

seller which detail the terms, conditions, and date of closing.

The risks to this approach are several. The expenses assoCiated with preparing for anauction do not guarantee that the minimum bid will be met or that there will be any bids.

Setting the price too high is a risk, and setting the minimum bid at a lower figure stilld ~ e s not guarantee a sale and risks disposition of the property at a deeply discountedpnce.

Once an auction is publicized, the property is assumed by the market to be distressed,further hindering alternative marketing approaches if the auction is unsuccessful.

Although this is the fastest disposition alternative, it does not guarantee a return and isnot recommended by CPL.

3. Targeted Marketing And Brokerage

The targeted marketing and brokerage sales approach is the disposition strategy whichcould take the longest time, other than redeveloping and selling the properties, but is themost appropriate strategy for disposition of the properties. Under this approach, a brokeris hired to market the property, an asking price is established, the property is advertised,sale documents, promotional, and informational materials are distributed to potentialbuyers, and a fmal disposition agreement is negotiated.

The risks to this approach are several. The marketing expenses committed to the sale

effort do not guarantee that a buyer will be found. Again, setting the asking priced o ~ s

not guarantee a sale and risks disposition of t h ~ property at a discounted price if set toolow; and risks lack of activity and continued carrying costs i f he asking price is set toohigh. Additionally, market conditions may, or may not, deteriorate over the marketingperiod.

The benefit of the targeted marketing approach versus the auction approach is that theseller maintains control of the process. If a buyer' s offer is too low, the seller has the

26



option of rejecting the offer and continuing the marketing effort, negotiating for a higherprice, or accepting the offer. -

This is the slowest shorter term disposition alternative, but it does represent a method forcontrolling the sale price and terms under uncertain market conditions, thereby achievingthe highest shorter term achievable sale price.

The sale would take approximately eight to twelve months to accomplish, assuming no

serious environmental issues are discovered. This disposition alternative presents somerisk, but it also has the highest potential value for a short term sale.

4. "Request For Proposals" Bid-Type Sale OfThe Property

Because there is some activity in the area residential market, a Request For Proposals(RFP) process would be another appropriate way to sell the properties planned forresidential development quickly, other than a Minimum Bid Auction. Under the RFPapproach, an asking price is established, sale documents, promotional, and informationalmaterials are distributed to potential buyers in a Request for Proposals format, and the

property is advertised.

The RFP sets a date for bidders to submit "last and [mal" bids. Once the final bids arereceived, the seller can then negotiate with the top three bidders, accept an offer, or rejectall offers.

The risks to this approach are less than either the auction or targeted marketingapproaches. Although the marketing expenses committed to the RFP effort do notguarantee that a buyer will be found, the seller is not exposed to an indefinite marketingperiod. Again, setting the asking price does not guarantee a sale and risks disposition ofthe property at a discounted,price if set too low, but the risks due to lack of activity andcontinued carrying costs are minimized by setting a date certain for all final bids.Additionally, if the RFP effort is successful, the seller is not exposed to possible

deteriorating market conditions, as the RFP process is typically only 2 to 3 monthsbetween initiation and [mal bid date.

This disposition method presents a large amount of risk if the RFP process fails toproduce a buyer, but it also has the highest potential value for a short term sale if

successful.

Parcels One and Two are good candidates for an RFP-type disposition, as they havereadily determinable redevelopment potential. However, the RFP process may notachieve the highest possible disposition value.

5. Donation OfThe Properties

As an alternative to selling, the private landowners can donate property to a suitable taxexempt organization. The benefit of this approach is that the landowners can deduct up to10% of their taxable income each year (for up to 5 years) until the total deductions equalthe qualified appraised value of the donated property.

The risk to this approach is that an appraisal will be required, as a donation requires anappraisal of the property within 60 days of the date of donation. The appraisal will costapproximately $3,000-$10,000 per property and may not generate the value necessary toproduce a higher return to the property owners than the recommended dispositionalternative.

27



6. Bargain Sale And Donation OfThe Property

This alternative combines the benefits of a donation with the RFP-type sale of theproperty. In essence, an appropriate tax-exempt organization is identified, an agreementis structured with the organization, a buyer is identified through an RFP-type marketingprogram and a sale price is negotiated. The sale proceeds, after deducting the property

owner's adjusted tax basis and the sales and donation costs, are then subject to thecorporate or personal tax rate, depending on the type of ownership. The differencebetween the sale price and the appraised value is considered a donation, and can bededucted as described previously.

This alternative allows property owners the tax benefits of a donation insofar as theappraised value exceeds the ultimate sale price. In this way, the owners can be assuredthat the combined property disposition value is the highest achievable within the timeperiod. Again, the costs to achieve the bargain sale/donation will reduce the proceeds,but similar costs would be incurred if the property were simply sold.

A Bargain Sale and Donation of several of the larger parcels may generate the highestvalue.

The sale would take approximately eight to twelve months to accomplish, assuming noserious environmental issues surface. This disposition alternative presents some risk. butit also has the highest potential disposition value for a short term sale of a few of theparcels.

H. DISPOSITION RECOMMENDATION

CPL recognizes the Minimum Bid Auction process as the fastest disposition method, butrecommends the Targeted Marketing And Brokerage process as the best method to achieve thehighest value and most appropriate developers for the properties. Additionally, the Donation orthe Bargain Sale and Donation process should be explored with a few of the larger property

owners as the best method to achieve the highest disposition values. CPL is prepared toimplement the dispositions upon approval by the appropriate parties.

If the property owners wish to maximize the short term value and dispose of the propertiesquickly with as little risk as possible. CPL recommends that a T a r ~ e t e d M a r k e t i n ~ and k e r a ~ e approach be pursued. A l t h o u ~ h redevelopment by the property owners could represent abigJlgdisposition value. the investment. l e a s i n ~ , t i m i n ~ , and market risks could erode the differencesubstantially. In addition, the financial and personnel resources necessary to achieve aredevelopment of the property would further erode anY additional value.

If one or more of the property owners choose not to pursue the T a r ~ e t e d M a r k e t i n ~ andB r o k e r a ~ e alternative, CPL recommends p u r s u i n ~ disposition via the B a r ~ a i n Sale and Don.ati.Qn

process. Finally,if the Ba[iain

Sale and Donation cannot be accomplished then CPLrecommends pursuin.: the disposition by Donation. A donation ~ t e e s a disposition ya!J.lt<and minimizes the property owner' s risk and deiUee of involvement.

28



d. Conduct Property Inspection Tours For Prospective Buyers

CPL will organize and conduct property inspection tours for all interested buyers.

e. Receive And Analyze Buyer Submissions

CPL will assemble and review all bids, request clarifications and additional .

qualifications if necessary, analyze the financial implications, and present the bidswith a recommendation.

f. Negotiate Final Sales Agreement With Buyer

CPL will negotiate the fmal sales agreement.

3. Donation Of The Property

If a donation of any of the properties is elected, CPL will manage the donation process, asoutlined below.

a. Interview And Select Appraiser

CPL will interview, select, and supervise a qualified appraiser to generate thehighest possible value of the property.

b. Identify A Tax-Exempt Organization And Complete The D I l l l 2 1 ~ i

CPL will actively solicit interest from appropriate organizations. This can happenconcurrently with the appraisal process.

Once an appropriate organization is identified, CPL will complete the donationtransaction.

30



SECTION II: GENERAL INFORMATION

A. THE STATE OF MICHIGAN

1. General Information

The first settlers of Michigan were the Algonquin Indians, who inhabited "michi gami"(large lake) long before Europeans arrived. Samuel Champlain, Lieutenant governor ofNew France, heard of the Algonquin's large supply of furs, but was also interested infinding copper and a short cut to the Far East when he sent Etienne Brule to explore thearea in the early 1600' s. Other explorers and missionaries soon followed.

Father Jacques Marquette established Michigan's first permanent settlement in SaultSainte Marie in 1668, and another mission at the straits of Michilimackinac in 1671.Antoine de la Mothe Cadillac convinced King Louis to provide him with soldiers, priestsand other men to begin colonization, and in 1701 La Ville d'Etroit was founded. Thevillage quickly became an important trading post, attracting fur traders, businessmen, andfarmers. Detroit, the first city in Michigan, was thus established.

Control over the Michigan area was claimed at various times by the French, the British,the colonists, and the Algonquins. In 1783 the Treaty of Paris awarded the area to thenewly independent United States. Michigan became the 26th state in 1837.

By 1840, more than 200,000 people lived in Michigan. Agriculture was the dominantindustry, with more than 75% of the population involved in farming. Lumber was animportant industry as well, and the furniture and paper industries flourished. By the late1800s. the Kellogg, Dow Chemical, and Upjohn companies were established, furtheringthe industrial development in the state.

The advent of the automobile, and the industrial beginnings of Ford Motor Company,General Motors, and Chrysler made Detroit, and Michigan, the industrial capital of themidwest by 1925. Perhaps due to Ford's revolutionary moving assembly line, or theplenitude ohvood and ore, manufacturing concentrated in Michigan over the next fortyyears.

2. Geographic Regions

Michigan has a land area of 58,527 square miles divided into 84 counties. Four of thefive Great lakes - Erie. Huron, Michigan. and Superior - border Michigan on the east,north and west sides. Ohio and Indiana border the Lower Peninsula to the south. andWisconsin borders the Cpper Peninsula to the south.

The Lower Peninsula is 277 miles long and 195 miles wide. The terrain is relatively lowand gently rolling, with numerous lakes and marshlands. The Lower Peninsula rises fromthe flat plains in the southeast and the Saginaw lowlands to a moderate plateau in thenorth. Sand dunes reach 600 feet in elevation along the western shore, while the easternshore has beaches along the southern portion but is cliffbound to the north. The majorrivers in the Lower Peninsula - Grand, Kalamazoo, Manistee, Muskegon. and S1. Joseph -all flow into Lake Michigan.

The Upper Peninsula is more rugged, with hills rising from the flat southeastern tip. Thehills in the southern portion are relatively low, while those along the north coast rise to

31



nearly 2,000 feet in elevation in Baraga County and create picturesque cliffs along LakeSuperior. The Menominee River defines the eastern half of the border between the UpperPeninsula and Wisconsin, and flows into Lake Michigan. The state ' s wealth of copperand iron ores come from the three ridges of the Marquette iron range that angle throughthe western portion 0 f the Upper Peninsula into Wisconsin.

3. The Business Environment

Michigan is still a leader in the manufacture of automobile parts and engines, trucktrailers, conveyors, sporting equipment, steel springs, refrigerators , hardware, andindustrial products, and accounted for 20% of the nation' s new manufacturing jobs

created in 1994-95. Computer-aided design and other advances in auto manufacturinghave spawned a high-tech corridor in southeast Michigan.

Also of importance to ~ t i c h i g a n ' s economy are tires and rubber goods, chemicals.pharmaceuticals, lumber. furniture, paper products, steel, iron and coke. The state rankssecond only to Minnesota in the production of iron ore, and is among the nat ion' s leadingproducers of natural salines. Other mineral resources include petroleum, natural gas,clay, lime and limestone.

Michigan is the fourth largest exporting state, and is home to more than 900 foreignbased companies. The state's International and National Business Development (INBD)office, within the Michigan Jobs Commission, provides import and export assistance toboth foreign and domestic firms . The INBD has offices in Europe, China, Hong Kong,Japan, Canada, Mexico. and South Africa.

Tourism is a growing industry in the state, with numerous convention centers, resorts ,and seasonal facilities which attract hundreds of thousands of national and internationalvisitors annually.

Finally, agriculture continues to play an extremely important role in the Michigan

economy. The state ranks first in the productionof

cranberries, navy beans, cucumbers.potted geraniums and Easter lilies, blueberries and hanging baskets and ranks second indry beans, bedding plants, and gladiolus. Once covered with forests , Michigan now reliesupon nurseries and extensive reforestation programs to maintain its lumbering industry.

a. Business Incentives

Michigan administers several programs to assist and enhance businessdevelopment. including:

• Community Development Block Grants,• Tax Exempt Industrial Development Revenue Bonds.• Taxable Revenue Bonds,

• Michigan Strategic Loan Fund,• State Venture Capital,• Capital Access Program,• Research Grants,• Private Industry Council,• Economic Development Administration Funds,• Michigan Transportation Economic Development Fund,• Small Business Administration SBA 504 Program,• Freight Economic Development Project Loans and Grants,• Michigan Transportation Economic Development Fund.

32



,

• Air Quality Small Business Assistance Program,• Urban Land Assembly Program,• Business and Industrial Development Corporations, and• Michigan Department of Commerce Loan Guarantees.

Numerous private capital programs tailored to the needs of small and medium.-

sized businesses are grouped under the Michigan Strategic Fund program.

Other incentive programs available through local economic development agenciesinclude:

• Industrial Property Tax Abatement,• Economic Development Corporations,• Tax Increment Financing,• Local Development Financing,• Enterprise Zones, and• Land Acquisition Programs.

i.Job Training Assistance

In addition to job retention, expansion, and training programs on a Federalbasis, the state of Michigan offers employee training resources tocompanies through the Economic Development Job Training program.

Economic Development Job Training (EDJT): EDJT provides directfinancial assistance for training new or retraining existing employees. Theprogram provides grants, and the employer must match 25% of the stategrant, for on-the-job training conducted by the employers or training ateducational institutions. Grants average $2,000 per employee.

b. Taxes

Michigan has some of the most innovative tax programs in the nation, and hasgranted more than 20 business and personal tax cuts in the last five years.Signiticant reductions in property taxes, the Single Business Tax, and Worker'sCompensation costs together with available tax abatements for ne\v job creationhave brought Michigan's tax burden to 9% below the national average .

Michigan's key state taxes are the Single Business Tax (the only general state taxfor business), property taxes, and sales and use taxes.

Michigan's tax structure compares favorably with other states. Average state andlocal taxes for selected cities are compared in Exhibit 2-1.

Exhibit 2-1Average Annual State and Local Taxes

Per Household in Selected Cities

City

New YorkWashingtonBostonDetroit

Los AngelesChicago

Tax

$6,100$5,000$4,100$3,900$3,800$3,100

33



i. Personal Income Tax

Michigan decreased its flat personal income tax from 4.6% to 4.":'°-0 in1994. The reduction makes the state 's average tax per person 7Q ) belowthe national average. Among the six neighboring midwest s t a t e ~ . Michigan's personal income tax is higher than Illinois' and Indima' s, butbelow \1innesota, Ohio, and Wisconsin, as shown in Exhibit 2-:.

Exhibit 2-2t 995 Personal Tax Rate

MI IL IN MN OH6.0 to 0.743 to

4.4% 3.0% 3.4% 8.5% 7.5%

ii. Single Business Tax (SBT)

WI

4.9 to

6.93%

Michigan's general tax on business is the Single Business Ta.'\( (SBT),which is a modified value added tax. Businesses are not required to fileSBT if their gross receipts are less than $250,000 per year. The SBT isbased on value added during the production process, measured by totalcompensation, profits, net interest paid, and depreciation - all apportionedto Michigan.

The SBT rate is 2.3%, however, with deductions and adjustments. the ratecan vary. The most recent figures (1991) show that the average rate for allbusinesses was 0.37% of gross receipts, calculated before the most recenttax reductions were adopted.

An alternative tax of 2% on adjusted business income is availab:c toeligible small businesses.

The Single Business Tax is a tax on payroll and profits. The S i ~ g l e Business Tax rate was lowered from 2.35% to 2.3%. effecti\'e O ~ t o b e r 1.1994. For ta.'\( years beginning after December 31 , 1994. 1995 P'.lblic Acts1 and 6 eliminated, respectively, an employer 's FICA contributions(Social Security and Medicare), and an employer's workers' compensationand state and federal unemployment compensation fund contributionsfrom the SBT tax base.

As shown in Exhibit 2-3 , Michigan's corporate income tux compares veryfavorably to other midwestern states.

Exhibit 2-J

t 995 CorpQrate IncQrne Ta x

MI IL IN MN OH WI

0.0 to 5.1 to2.35% 4.8% 3.4% 9.8% 8.9% 7.9%

*Corporation in Indiana are also subject to a 4.5% supplemental ta"'( on the differencebetween their adjusted gross income tax payment.

Source: Commerce Clearing House Inc ., State Tax Handbook, 1995 through 1991

34



iii. Inheritance Tax

Michigan's inheritance tax was repealed in 1993 .

iv. Sales Tax

Retail purchases of tangible personal property are subject to a state salestax of 6.0%. Local sales tax are not allowed in Michigan.

The following items and services are exempt from the sales tax ; food,prescription drugs, medical devices, newspapers and periodicals, water,and commercial vessels, sales for resale. property in interstate or foreigncommerce, computers used in industrial processing, custom computersoftware. computer infonnation services, railroad rolling stock, air orwater pollution control facilities, energy fuels, and machines and materialsused directly in a manufacturing process.

Michigan's sales tax is 20% higher than other midwestern states, as shownin Exhibit 2-4.

E ~ b i b i t 2-4S a l ~ s I a ~

1991 1992 1993 1994 1995

Michigan 4.00% 4.00% 4.00% 6.00% 6.00%Indiana 5.00% 5.00% 5.00% 5.00% 5.00%Ohio 5.00% 5.00% 5.00% 5.00% 5.00%Wisconsin 5.00% 5.00% 5.00% 5.00% 5.00%

Source: Commerce Clearing House Inc., State Tax Handbook, 1995 through 1991

v. l'tility Taxes

Michigan does not impose a tax on those in the business of selling,distributing, supplying or furnishing electricity or natural gas for use orconsumption.

vi. Property Taxes

Michigan reduced its property tax in March 1994. As a result, Michigan ' sper person property ta'( burden is now 9.2% below the national average .

• Businesses pay 24 mills in school property taxes.• Michigan's property tax is assessed at the state and local levels and can

be abated at either or both levels.• Taxable value of real and personal property is 50% of current market

value.

Property tax exemptions for businesses can be given for:

• qualifying tools, patterns, etc. used in manufacturing;• electricity and natural gas used in manufacturing ; and• air and water pollution abatement equipment.

35



Annual property assessment increases are limited to the lesser of 5% or therate of inflation.

vii. Unemployment Insurance

An unemployment compensation tax is applied to the first $9 ,500 in wagespaid to each employee annually. The rate for new employers is 2.7% forthe first and second years. For firms with no layoffs, the rate falls to 1.8 %and 1.0% for the third and fourth years , respectively. As of 1997, theminimum rate can fall to as low as 0.3% for companies with no layoffsafter five years, and will be lowered to 0.2% in 1998 and 0.1 % in 1999.

Michigan' s maximum weekly benefit amount has been frozen for threeyears. and changes were implemented in 1994 which significantly reducedpaperwork and streamlined the system.

The C.S. government levies a 0.8% federal unemployment insurance tax(FUT.-\.) on nearly all companies.

Michigan' s unemployment insurance cost as a percent of taxable incomewere dramatically higher than other midwestern states , and almost 90%higher than the US average, as shown in Exhibit 2-5 .

Exbibit 2-5Un!i:mpIQ)::m!i:nt Insyrance CQstAverage EmplQ)::er Tax As A P!i:rcent Of Taxable IncQm!i:

1990 1991 1992 1993 1994Michigan 3.63 3.74 4.03 4.18 4.46Indiana \.34 1.22 \.34 \.37 \.37Ohio 2.44 2.35 2.80 2.82 2.77Wisconsin 2.39 1.98 2.04 2.15 2.18U.S.A . 1.95 1.92 2.20 2.51 2.55

Source: ETA Handbook Annual Reports ; W.E. Upjohn Institute for EmploymentResearch

viii. Tax Incentives

Michigan' s state legislature enacted a series of changes to the tax laws in1996 \\ihich further improved the state ' s business and economicdevelopment climate. Some of the changes include:

• A Single Business Tax credit, beginning in the 1997 tax year. for 10%of the cost of investment in brownfield zones;

• A Single Business Tax credit for legal business activity in Renaissance

Zones; and

• A youth employment credit under the Single Business Tax, beginningwith the 1997 tax year which allows a taxpayer to claim up to 50% of

the salary, wages, and fringe benefits paid for the benefit of an ·apprentice, as well as 100% of the costs of classroom instruction. Thecredit may not exceed $2,000 for each apprentice trained in the taxyear.

36



.'vfichigan Renaissance Zones(RZ): Enacted in June 1996 to promoteeconomic growth in economically distressed areas, RZ's have beendesignated in eleven communities .

State taxes waived for businesses and residents within the RZ included:Single business tax (SBT), personal income tax, and the 6-mill stateeducation tax. Local taxes waived include real and personal property taxon operating mills, and utility users tax. In addition, the Act amended theIncome Tax Act to exempt, for tax years beginning in 1997, incomeearned while the taxpayer was a resident of a Renaissance Zone. Theexemption would not apply to interest and dividends, capital gains. andincome received from the lottery if the taxpayer was not a resident of thezone on the date of the drawing.

The state will reimburse each of the school districts in the RenaissanceZone for all tax revenue lost as the result of the exemption of propertyunder this legislation.

RZ designation varies from 10-15 years, and the tax relief phases outduring the last three years in 25% increments.

A1ichigan Economic Growth Authority (MEGA): Enacted in 1995 topromote economic growth and job retention, the MEGA legislation allowseligible companies engaged in manufacturing, research and development,wholesale trade, or office operations to receive a tax credit against theMichigan Single Business Tax (SBT). The credit is applied to theincremental SBT liability attributable to an expansion/new location projectand/or the amount of personal income tax attributable to new jobs created.Each credit may be awarded for up to 20 years and 100% of the attributedamount.

viii. Environmental Assistance

,'vfichigan Department ofEnvironmental Quality (DEQ) : Michiganconsolidated environmental protection, regulatory, and permittingfunctions into the newly created DEQ in 1995. Prior to 1995, thesefunctions were done by the Department of Natural Resources (DNR),which retained oversight and operation of the state's resource managementprograms such as wildlife, fisheries, forest management, and parks andrecreation.

The DEQ provides assistance with permits. technical advice, informationand funding for contaminated site cleanups and redevelopment, pollutionprevention. and training programs. Recently enacted environmental laws

allow companies to purchase "brownfield" sites without assuming priorowner liability, provided a Baseline Environmental Audit (BEA) iscompleted and approved by the state .

.Michigan Brownfield Redevelopment Authority: To promote theredevelopment of brownfield sites, Michigan enacted the BrownfieldRedevelopment Financing Act. A qualified business can claim a credit onthe Single Business Tax liability equal to 10% of the investment made ona brov.nfield site up to $1.0 million. In addition, the allows for the use of

tax increment financing to pay for environmental cleanup activities.

37



ix. Intangibles Tax

The intangibles tax imposes a tax of 3 5% of income but not less than0.1 % of face or par value on income-producing intangibles such as stock s,bonds. or land contracts .

x. Income Tax

The Michigan individual income tax is a direct flat-rate on the federaladjusted gross income of individuals, estates, and trusts . Interest incomefrom state and local obligations other than Michigan is also subject to thestate income tax. Adjustments re made with respect to estate or trustincome. The Michigan income tax rate was reduced from 4 .6% to 4 .4%,effective May 1, 1994.

c. Utilities

More than 94% (10.8 billion gallons per day)of

the state's residential andindustrial water comes from its rivers and lakes , including Lake Michigan, one of

the largest lakes in the world. Ground water supplies approximately 5% (596million gallons per day), but is the source of water for 380 public water suppliesand approximately 43% of all residential water in the state.

Coal and nuclear power are Michigan's chief energy sources, accounting for 97%of electrical generating capacity.

Exhibit 2-6 ranks Michigan's electric costs for the state as a whole, which are10% lower than Pennsylvania' s. 25% lower than California' s, and 29% lower thanNew York's . Overall, the state ranked 15th most expensive in terms of electricitypricing and only 6% above the national average.

Exhibit 2-6Electricity Price Ranking

Ranking Among

50 States State

2 New York6 California13 Pennsylvania14 Illinois15 Michigan

1 Wisconsin43 Indiana

U.S. Average

Price Per

Million BTU$29 .86

28 .3923 .6122 .6121.2416.1215 .5920 .06

38



Exhibit 2-7 compares selected Michigan cities ' with other U.S. cities' electriccosts, and Exhibit 2-8 compares costs for selected Michigan cities .

Exhibit 2-7Comparison of Select National Cities'

Industrial Electric Rates (995)

City

Charlotte. NCSouth Bend, IN

St. Joseph, MI

Columbus . OHDetroit. \11

Chicago. IL

Akron, OHSan Jose. CANew York, NY

Cents

pe r

KWH4.4

4.54.8

4.85.36.0

6.2

6.912 .3

Source: Edison Electric Institute 1995

Exhibit 2-8Comparison of Select Michigan Cities'

Industrial Electric Rates (995)

Michigan City

Sault Ste. MarieLansingSt. Joseph

DetroitGrand RapidsKalamazooMidland

Cents

pe r

KWH

3.3

4.54.85.35.4

5.4

5.4

Source: Edison Electric Institute 1995

As shown. the St. JosephiBenton Harbor area electric rates compare veryfavorably, both nationally and within the state.

Michigan has an extensive natural gas pipeline network. and ranks tenth amongthe states in the production of oil and gas. The state ' s natural gas storage capacityis the largest in the midwest, with more than 650 billion cubic feet of storagecapacity. Exhibit 2-9 compares gas prices in selected states.

Exhibit 2-9Com parison of Gas Utilitv Prices by State

State

IllinoisGeorgia

WisconsinMichigan

CaliforniaNew York

Dollars Per

Million BTU's

$3.493.724.014.164.544.90

Source: Energy User News, May 1992

39



Michigan was the first major state to deregulate its business telecommunicationsservices, has the most technologically advanced telecommunicationsinfrastructure. and has become the model for communications-related legislationnationwide . . -

The state ' s telecommunications network incorporates over 425 ,000 miles of fiber

optic cables, more than twice that of Illinois and more than four times that ofIndiana. The '\lichigan Telecommunications Act of 1992 (and further improvedin 1995) enabled telecommunication companies to offer service and pricingflexibility una\-ailable in other states.

B. THE BERRIEN COCNTY/ST. JOSEPHIBENTON HARBOR REGION

1. Introduction

Historically, Berrien County' s early growth can be attributed to its natural features,attracting tourists from the Chicago area to its beaches and other natural attractions.Later, companies such as Whirlpool, Automotive Specialties , Superior Steel, and

Malleable Steel developed large manufacturing facilities. employing thousands andgenerating significant economic growth. As these major employers shut down theirfactories, the area's growth and prosperity lagged behind the rest of the state and thenation.


Berrien County, part of the Benton Harbor Metropolitan Statistical Area (MSA). islocated in southwest comer of Michigan' s Lower Peninsula. The county is 580 squaremiles in area, and the county seat is located in the City of St. Joseph.

The climate in the Berrien County area is continental with cold winters and warmsummers. However. Lake Michigan has a moderating influence on temperature extremes.The average annual daily temperature is 49.2° Fahrenheit (OF). The highest average dailytemperature is 72°F in July, and the lowest average daily temperature is 25°F in January(NOAA, 1990). Average annual rainfall is 37 inches. and average annual sno\\1all is 70inches.

St. Joseph and Benton Harbor trace their roots to the Miami Indians who long agoestablished a community in the St. Joseph River valley . The tirst white settler to the areawas explorer and missionary Father Jacques Marquette who discovered the river on areturn voyage from the Mississippi Valley in 1675. Marquette was followed by Frenchexplorer Rene LaSalle. who built Fort Miami at what is no'.v the city of St. Joseph in1679.

Fort Miami served as LaSalle ' s base for exploring the region and by 1769 the fort at themouth of the river began to serve as a center of trade between Native Americans andEuropean i m m i g r a n t s ~ The area remained unsettled until 1785 when William Burnettestablished a trading post and became the first permanent settler. The new settlers namedthe river the St. Joseph - a patron saint of Canada - after the Jesuits established a missionof that name near the current town of Niles. The settlement grew into a village whichwas originally called ~ e w b e r r y p o r t in honor of a prominent businessman. The village'.vas incorporated on ~ l a r c h 7, 1834 and was renamed St. Joseph. In 1891 , the villageonicially became the City of St. Joseph by state charter. The City of St. Joseph becamethe permanent seat of County government in 1894.

40



During the 19th Century. the river to'Wn played a vital role in the European settlement ofMichigan's interior, as people and supplies were transported across the Great Lakes andshipped inland up the river. By the mid-1800's , transportation had become a majorcomponent of the to\,m' s economy. Also during that era, another economic opportunityblossomed. Peach trees planted in the valley thrived and steamships began making dailytrips from Chicago for the fuzzy fruit. Other varieties of fruit and vegetables also adaptedwell to the area. and it is a major contributor to Michigan's status as the second majorfruit-producing state in the nation.

Industry also prospered in the City . Steamers, freighters , and pleasure boats found the St.Joseph River to be an ideal Lake Michigan port.

The City of St. Joseph prospered by encouraging a balanced mixture of industry,commercial, and residential development. By the 1890's, tourists had discovered St.Joseph. Hotels were erected and the Silver Beach Amusement Park \vas opened. Thispark remained a popular tourist attraction until the late 1960' s. Although no longer anamusement park, Silver Beach (now a county park undergoing extensive revitalization) is

once more a tourist attraction. The first full seasonof

operation after the recentexpansion and improvement has resulted in exceeding all expected attendance records.

St. Joseph is v.iell-knov..n for its beautiful location on Lake Michigan, its abundance of

beaches and parks, its affluent community, and high quality public schools. Due to thepresence of large employers such as LECO Corporation. Mercy Memorial MedicalCenter, Whirlpool Corporation and the Berrien County Courthouse, the population of St.Joseph nearly triples on the average workday. The ideal location of St. Joseph hasattracted many second-home buyers, mainly from the Chicago area.

The history of Benton Harbor began with the purchase of 160 acres of land by EleazarMorton in a portion of Benton Township. In 1836, Morton and his son, Henry, plantedorchards and prospered from the sale of fruit.

To establish a market for the convenience of farmers on the east side of the St. JosephRiver. Sterne Brunson. along with Charles Hull and Henry Morton. undertook thebuilding of a mile-long canal through the wetland between the river and the future BentonHarbor. Because of this well-known resident's venture. the town was founded asBrunson Harbor in 1860. The canal was opened in 1862. and within a year the dry landbelo\v the bluffwas planed and fifty-foot lots were sold.

The new settlement grew rapidly and was incorporated as a village in 1866. BrunsonHarbor became Benton harbor in 1875. The canal had made Benton Harbor a lake portand by the 1870's ships were loading more than 300.000 packages of fruit per year.Sav"mills and basket factories lined the canal. Evidence of rapid gro'W1h was indicated bythe establishment of a college (1866), a high school (1872), a street railway (1885), an

opera house (1885), and a national bank (1888). The City of Benton Harbor was granteda charter in 1891.

In the 1890' s, huge numbers of tourists deluged the area seeking relaxation andamusement. Numerous hotels offered mineral baths as they were believed to have healthgiving benefits. In 1903. the Israelite house of David. a communal society, was foundedby Benjamin and Mary Purnell. Located on a large tract ofland east of the city, theiramusement park and baseball team became famous nationwide and attracted thousands of

visitors.



In 1905, the Benton Harbor Development Company was organized to attract industries tothe City. Land grants and financial aid induced numerous industries to locate in the City.The Roaring Twenties were boom years and inspired the building of new hotels, officebuildings, schools and churches.

Beginning in the 1960's, Benton Harbor's fortunes began to decline. Industries and

residents moved out of the city due to problems which were being experiencednationwide in inner-citv environments. The deterioration continued to escalate until latein the 1980's. . "

3. Transportation And Infrastructure

Michigan's transportation system utilizes air, ground transportation , rail, waterways andtelecommunications technologies to provide direct routes to every U.S. market andinternational ports.

a. Highways

Michigan has more than 9,628 miles of state highway. Six interstate highways (1-

27, 1-69, 1-75, 1-94,1-96, and 1-196) pass through Michigan. 1-75 begins at theCanadian border and runs to southern Florida, and 1-94 begins at Michigan'seastern border with Canada and goes through both Detroit and Chicago on its wayto the west coast. In all, 1,860 miles of interstate highway serve Illinois.

The St. JosephlBenton Harbor area is halfway between Detroit and Chicago, withInterstates 94 and 196 providing convenient access to more than 50% of thenation's major markets. Several major expressways and interstate highways servethe St. JosephlBenton Harbor area. 1-94 is the main route to cities along the EastWest corridor. 1-196 provides access to the north. US Route 31 and State Routes63 and 139 service the St. JosephlBenton Harbor area and Berrien County. USRoute 12 and State Routes 51 , 62, and 140 provide access to other areas of thecounty.

US-31 serves as the primary route between the St. Joseph/Benton Harbor andSouth Bend, Indiana urbanized areas. The combination of high volumes andlimited sight clearance has resulted in this route being noted for its high accidentrate. To remedy the situation, the Michigan Department of Transportation is inthe process of relocating the existing two-lane US-31 to a freeway alignment fromthe Michigan/Indiana state line north to 1-94 and 1-196, east of Benton Harbor,connecting with the East-West corridor connecting Chicago and Detroit and theNorth-South corridor to Grand Rapids. Ramps will be relocated with local accessroads paralleling freeway ramps. The construction is to be divided into fourphases. A new ramp that allows eastbound 1-94 traffic to exit on westboundBusiness Loop 1-94 is included in the plans. This complete interchange is

currently scheduled to be completed when the new US-31 bypass connect s wi th 1-94 at Benton Harbor.

42



Distances to major regional metropolitan areas are shown in Exhibit 2-10.

Exhibit 2-10Distance From St. Joseph/Benton Harbor

Miles from

City St. JosephlBenton Harbor

Chicago, IL

Cleveland. OHDes Moines, IADetroit, MIGrand Rapids, MIKalamazoo, MILansin2:. MIToledo: OH

South Bend, INIndianapolis, INLouisville, KYMadison, WIMilwaukee, WI

Minneapolis/St. Paul, MN

Pittsburgh, PA

Rockford, ILSt. Louis, MO

Source: AAA

90240

375180

80

47

135

18035160

265270190

490

340

180340

According to the W.E. Upjohn Institute, roadway conditions in Berrien Countyare inferior to those in fifteen similar metropolitan areas. Fewer of the county' sfederally-funded highways are interstates or freeways; pavement conditions on thearea's roads are worse; fewer of the area's roads can be widened; and area driversface more peak-hour congestion than in the comparable metropolitan areas .

b. Trucking Services

Thirteen motor freight carriers serve the St. Joseph/Benton Harbor area. Twelvefreight terminals. 4 public warehouses, and cold storage are available in the area .

c. Rail Service

Statewide. twenty-three rail freight companies. including five Class I interstatecarriers, provide freight service to every part of the U.S. Freight service isprovided to Berrien County and St. Joseph/Benton Harbor by the CSX railroad.This freight rail line is very active, providing service from Chicago and beyond toGrand Rapids and Detroit.

Amtrak provides statewide and coast-to-coast passenger rail service directly to theSt. JosephlBenton Harbor area, running one train southbound in the morning and

one train northbound in the late afternoon.

d. Airport Facilities

Michigan has more than 21 airports providing commercial air passenger andfreight service, with major facilities at Grand Rapid's Kent County InternationalAirport and Detroit Metropolitan Wayne County International Airport. Fiveinternational carriers provide nonstop/round-trip service to major cities around theworld. Sixteen Michigan airports provide customs services .

43



Detroit International Airport is North America's 9th busiest airport, with morethan 1.200 flights per day on 26 domestic and international passenger carriers , andis Northwest Airline ' s North American hub. Detroit is also the state's largest aircargo facility . handling 177,000 tons in 1995 on 25 cargo-dedicated air servicelines.

Southwest Michigan Regional Airport, located in Benton Harbor, providescommercial passenger and air freight service to the region. allowing access tonational and international opportunities.

Commercial passenger service is also available at Michiana Regional Airport inSouth Bend, Indiana and Kalamazoo International Airport in Kalamazoo. GeneralAviation Airports are located in Berrien Springs , Niles, and Watervliet.

e. Public Transportation

Greyhound Bus Lines and Indian Trails Motorcoach provide intrastate andinterstate transportation services to the area. Berrien Bus Company providestransportation services within Berrien County, and Benton Harbor Dial-A-Rideprovides specialized services within the community .

f. Seaports

Major shipping ports in Detroit, Saginaw, and the Upper Peninsula provide fullservices, including Customs Services, for all types of shipping. The Soo Locksand the St. La\VTence Seaway provide a navigational connection to the AtlanticOcean, east coast, and European markets. Ports on the west coast, including St.Joseph, are part of the Mississippi River Barge System, providing a navigationalconnection to the river valley and the Gulf of Mexico.

The St. Joseph River Harbor provides a fundamental component on an extensive

waterway system linking the area to world markets. In 1995. the C .S. CoastGuard approved a route allowing river barges to enter Lake Michigan throughChicago's Calumet River. This provides direct access not only to the Port ofChicago, but to all southern points along the Mississippi River. as well asinternational destinations through the Gulf of ~ l e x i c o

g. Utilities

Indiana Michigan Power Company, owned by American Electric Power Company(AEP). provides electric service and Michigan Gas Utilities Company providesgas service to the St. Joseph/Benton Harbor area . Both the electric and gas utilityrates are among the lowest in the state.

Ameritech provides telecommunication services to St. Joseph/Benton Harbor.

Both the cities of Benton Harbor and St. Joseph water supplies are drawn fromLake Michigan. The Twin Cities Sewer Authority provides \vastewater treatmentfor both cities, as well as the surrounding area. The present wastewater treatmentcapacity is 13 .0 million gallons per day , while the current demand is 9.5 milliongallons per day .

44



Exhibit 2-11 summarizes St. Joseph/Benton Harbor utilities information.

Exhibit 2-11St. JosephfBenton Harbor Utilities Information

ElectricGasTelephoneSewer

Sewer Capacity

Water

Water Capacity/Average Use

4. Government

Indiana Michigan Power Company ( AEP )Michigan Gas Utilities Company.

AmeritechTwin Cities Sewer Authority serves both St. Joseph and Benton Harbor. .13 .0 MGD treatment plant--present demand 9.5 MGD .Individual Municipal Water SuppliesSt. Joseph - 16 .0 MGD capacity/4 .7 MGD Average Use.Benton Harbor - 16 .0 MGD capacity/5.3 MGD Average Use.

The City of St. Joseph operates under a Commission/City Manager form of government.Members of the Commission are elected by the general pUblic. The Commission consistsof four commissioners and the Mayor, who is elected from among the Commissionmembers immediately after the general election. The City Manager is a full time, paidprofessional reporting directly to the Commission.

There are 20 full-time police personnel, and the fire department has 12 full-time firemenand 15 part-time paid employees.

The City of Benton Harbor operates under a City Council/Town Manager form of

government, \vith a Mayor and eight city councilors. The Mayor and the councilors areelected by the general public .

There are 24 full-time police personnel , and the fire department has 10 full-time firemen.

5. The Business Environment

St. Joseph and Benton Harbor are located within 500 miles of 54% of the total USmanufacturing base and 65% of Canada' s, and 26% of the U.S. population, or 63 millionpeople . Within the same radius are $350 billion worth of annual retail sales and 48% ofall U.S. retail sales. One hundred million people are a one-day truck drive away from theSt. Joseph/Benton Harbor area.

Already home to more than 350 industries, including national and internationalcompanies such as \Vhirlpool Corporation, All-Phase Electric Supply Company , andHeath Company, new businesses, including suppliers to the automotive industry such asDa\vson Manufacturing Company and Atlantic Automotive have located here in recentyears. Other companies located in Berrien County include manufacturers , distributors.service industries, banks and financial institutions, corporate headquarters, branches andservice centers.

In 1992 there were 1,312 farms in Berrien County utilizing 140,851 acres of cropland.The county ranks first of the 21 fruit-producing Michigan counties in grapes, peaches,nectarines , strawberries. raspberries, and blackberries, and leads the state in broccoli andeggplant production. Other crops and agricultural products include asparagus, sunflower,vegetable, and flower seeds, apples, pears, sweet peppers , specialty grains, popcorn,forages, squash, and nursery/greenhouse products.

45



Retail development has occurred in the area, primarily centered around Interstate 1-94

locations. Orchard Mall, a major shopping center, Meijers. KMart, Wal-Mart, Lowe'sand other retail operations, along with numerous nationally known hotels and restaurants,have located in Berrien County along the 1-94 corridor in Benton Township, S miles fromSt. Joseph.

St. Joseph' s State Streetis

the central business districtof

the city and includes a varietyof

specialty retail shops and restaurants. Other commercial areas are located within the cityin the secondary business district on Niles Avenue.

Cornerstone A.lliance. an investor driven, non-profit corporation located in BentonHarbor, works through partnerships to generate economic growth and promote civicdevelopment in the community. They market the St. Joseph/Benton Harbor area,promoting its location. competitively priced sites, low construction costs, belo"'.: nationalaverage manufacturing wages, one of Michigan' s lowest electric utility rates, taxincentives and benefits such as the multi-modal transportation network. Cornerstonereceives approximately 15 calls each week from firms requesting information about thearea.

All of the community's major development projects are unified in the CornerstoneAlliance Corridor for Development, a comprehensive land use plan covering a widecorridor bet", .een 1-94 and the Lake Michigan shoreline.

The City of Benton Harbor is the only state-designated Enterprise Zone in Michigan,allowing businesses \vithin the Zone exemptions from the Single Business Tax and SalesTax on purchases of goods for their business use. In addition, businesses within the Zonereceive up to 65% reduction in real and personal property taxes. The Enterprise Zonedesignation and incentives are effective for ten years, and have encouraged an increase inbusiness activity in the city. Applications have been closed as of December 31 , 1996, andthe current Enterprise Zone designation will expire in 2004.

Joint application by Benton Harbor, St. Joseph and Benton Charter Township for

Renaissance Zone designation was approved in December 1996. As describedpreviously, a Renaissance Zone is a geographic area, designated by the state and loca lgovernment. which provide incentives to establish or maintain residences, retailshopping, industrial activity. and other forms of development consistent with local zoningrequirements. The Renaissance Zone status will exist for up to 10 years. with state andlocal tax relief being phased out during the last three years in 25% increments.

Four geographic areas were approved for the area including a 20 acre strip in theEdgewater area in the City of St. Joseph; The Elisha Gray Enterprise Park, in both theCity of Benton Harbor and Benton Charter Township; The Graham AvenuelNorth of

Main area located on the Pa\v Paw River and Ox Creek in the City of Benton Harbor; andthe Fairplain South Development area located in Benton Charter Township between a.nunderutilized and deteriorating strip mall (the Fairplain Plaza) and a major region alshopping center (the Orchard Mall).

Employers in the area also enjoy a variety of federal, state and local industrial start-upand incentive programs. Infrastructure grants for municipalities as well as workforcetraining grants are available from the State, and Berrien County has a Revolving LoanFund which can provide short and long term loans ($20.000 maximum) for landacquisition; machinery. equipment, supplies, and materials: rehabilitation andconstruction of industrial property; and working capital.

46



Locally run apprenticeship training programs in areas such as statistical process control,computer training, Total Quality Management, and international trade seminars serve toenhance the skills of the local labor force available to industry.

In addition, the City of Benton Harbor receives $750,00 annually in CBOG grantallocations and currently has over $3.0 million in CBOG funds backlogged which can beutilized to spur economic development in the city.

a. Financial Institutions

Seven financial institutions are headquartered in the Berrien County area.representing over $800 million in combined deposits and more than $600 millionin loans, and six other banks or credit unions have branch facilities in the area, asshown in Exhibit 2-12.

Exhibit 2-12St. JosephfBenton Harbor Fjnancial Institutions

St. Joseph

Berrien Teachers Credit UnionFirst of AmericaFirst Resource Federal Credit UnionLakeland Credit UnionMichigan National BankNBD BankOld Kent BankPeoples State BankShoreline BankSJS Federal Savings BankStandard Federal Bank

Twin Cities Federal Credit Union

Benton Harbor

First of America

Michigan National BankNBD BankOld Kent BankPeoples State BankShoreline BankTwin Cities Federal Credit UnionUnited Federal Credit Union

b. Hospitals

Five hospitals with 1,136 beds, 9 extended care facilities with 926 beds, and 231physicians provide a full range of health services in the Berrien County area, asshown in Exhibit 2-13.

Exhibit 2-13Berrien County - :\'ledical Facilities - 1991

Hospitals in CountyExtended Care FacilitiesPhysicians (MD's & DO's) in County

Number

5

9231

Source: Southwestern Michigan Commission

47

Total

Beds1,136

926



The City of St. Joseph has 69 physicians, 2 nursing homes/extended carefacilities, 2 medical clinics, and 27 dentists. The City of Benton Harbor has 20physicians, 4 nursing homes/extended care facilities , 2 medical clinics, and 7dentists.

c. Education

Michigan has 15 public universities, 51 independent universities and colleges, and29 community colleges. Total enrollment in 1995 was 549,000 students. Thestate's colleges and universities are major players in the research of industrialproducts and processes.

The C niversity of Michigan is the number one public university in the C .S. forresearch expenditures. Funding for this research comes primarily from industryand from the C .S. governrnent. Michigan's doctorate-granting institutions are 7thin the U.S. in the amount of research funding they receive from industry.amounting to S-l5 million annually (National Science Foundation report NSF 94-303).

Lake~ 1 i c h i g a n

College, Sienna Heights College. and Andrews University are alllocated in Berrien County. University ofNotre Dame, St. Mary's College, andIndiana University at South Bend are within 35 miles, and Western MichiganUniversity and Kalamazoo College are within 60 miles of the St. JosephIBentonHarbor area, as sho'vVll in Exhibit 2-14.

Exhibit 2-14Colleges and Universities

Distance

From

St.Enroll- JoelBenton

College ment Harbor

Andrews UniversitvBerrien Springs. \-11

2,96415

milesIndiana UniversitySouth Bend, IN 7,600 -l5 milesLake \-fichigan CollegeBenton Harbor. \f J 3,404 -l milesSiena Heights CollegeBenton Harbor. \f J 125 15 milesNotre Dame UniVersityNotre Dame, IN 10 ,351 40 milesPurdue University North CentralWestville, IN 3,400 44 milesSouthwestern Michigan CollegeDowagiac, MI 3,337 30 milesSt. Marv's Colle£eNotre Dame, IN - 1,574 40 milesWestern Michigan University

Kalamazoo, MI 22,715 50 milesWestern Michigan UniversitySt. Joseph, MI 340 2 miles

St. Joseph public school system's 1994-95 operating budget was $14.8 millionwith an enrollment of approximately 2,700 students. The Benton Harbor Areapublic schools had a budget of $35.3 million and an enrollment of approximately7.100 students. The Twin Cities area also has 17 parochial schools.

48



C. SUMMARY

The State of Michigan is an established manufacturing center with a central geographic location,a good transportation system. a well trained work force , and numerous cultural , educational, andrecreational resources . Overall. the state compares favorably to other midwestern states in

several categories such as available business incentives, corporate and personal income tax, andutility costs. The state has good access to markets and raw materials, and has improved itsgovernment climate.

The Berrien County/St. Joseph/Benton Harbor area has a fair transportation system, a good

geographic location between Chicago and Detroit, good work force training opportunities, andnumerous recreational resources. The area has fair access to markets and raw materials .

The City of St. Joseph continues to be an attractive area in which to live and work. The citygovernment is pro business and development, but careful to maintain the positive quality of lifethat has attracted tourists, second-home owners, young families , and retirees.

The City of Benton Harbor is a depressed area. Unemployment is high and businesses are

closing. However , the city administration is pro-business and development and is working toencourage and stimulate economic development in the city.

Overall, the general geographic, transportation and utility infrastructure and costs, taxes andincentives, and governmental climate characteristics of the area are fair. However, the depressedcondition of the City of Benton Harbor presents a strong concern to businesses and industriesconsidering expansion or a new location in the area. Similarly, people from outside the areaconsidering moving to the area will be concerned as well.



SECTION III: DEMOGRAPHIC AND ECONOMIC CHARACTERISTICS

A. DEMOGRAPHICS OF THE STATE OF MICHIGAN

1. Introduction

State and local demographic and economic trends provide information concerning generalmarket influences on, opportunities for, and constraints to potential redevelopment of theproperty. CPL evaluated the demographic and economic characteristics of the State ofMichigan, the Benton Harbor Metropolitan Statistical Area (SMSA) which includes all ofBerrien County, and Benton HarborlS1. Joseph areas. Information was obtained from avariety of public and private sources. For reasons of comparability, U.S. Governmentsources were used whenever possible , supplemented by state and local data.

In some cases, data for the Berrien County and S1. Joseph/Benton Harbor areas was eithernon-existent or incomplete for the years 1991 - 1996. As a result, CPL has used the mostrecent information available for purposes of economic and demographic analysis. Where

possible, data was extrapolated from previous studies, government projections andestimates, and local informational sources.

2. Population

Michigan has a population of approximately 9.5 million people as of 1995. Between1990 and 1995, Michigan's population grew only 2.7%, compared to the United Statespopulation growth of 5.6%. Projections through the year 2025 show Michigan'spopulation growing only 1.4% between 1995 and 2000, and only 4.1 % between 2000 and2025 compared with the United States ' growth of 4.5% and 21.9%, respectively, asshown in Exhibit 3-1.

Exhibit J- I

P o ~ u l a t i o n % growth % growth % growth

1990 1995 2000 2025 1990-1995 1995-2000 2000-2(}25Michigan 9.295 9.549 9.679 10 ,078 2.7% 1.4% 4.1%U.S. 2-l8.718 262,755 274.635 335,048 5.6% 4.5% 21.9%

Source: State Profile From U.S. Bureau of the Census; Statistical Abstract of the U.S . 1996

As shown in Exhibit 3-2. 26.4% of Michigan's population is below the age of 18 , similarto the U.S.. with 26.2% under 18 years old. With only 12.5% of the state ' s populationover 65 , compared to 12.8% in the U.S. , almost 62% of Michigan' s population is ofworking age. For 1995. this translates to approximately 5.7 million people.

Exhibit 3-2Population

Percent Under 18

MichiganU.S.Percent Over 65MichiganU.S. -

1990 1995

26.5% 26.4%25.7% 26.2%

1\.9% 12 .5%

12A% 12.8%

Source: State Profile From U.S. Bureau of the Census; Statistical Abstract of the U.S .. 1996

50



The general demographic characteristics of several of Michigan's metropolitan areas arecompared with other metropolitan areas in the midwest in Exhibit 3-3 . With theexception of the Grand Rapids area, the Michigan metropolitan areas have lowerpopulation growth rates, above average household incomes, lower unemployment riltes,and above average costs of living in comparison to the other areas.

Exhibit 3-3DemQgraphic CQmpariSQI!S.L222

Median

Population Household Unemployment Cost of

Market Area Population Growth Rate Income Rate Living

Chicago, IL 7,784,107 0.64% 41.595 5.0% N/A

Cleveland, OH 2,227 ,977 0.05% 34,422 4.5% 103.8

Dayton,OH 956,738 -0.05% 34,311 4.1% 10l.5

Detroit. MI 4,336,626 0.12% 38,928 4.0% N/A

Fort Wayne, IN 474,524 0.48% 34,697 3.2% 90.5

Gary-Hammond-East Chicago 626,797 0.44% 35,966 5.0% N/A

Grand Rapids, MI 1,010,591 1.02% 34,704 3.8% 100.1

Lansing, MI 439 ,076 0.09% 35,543 3.3% 106. 1

Milwaukee , WI 1,462,015 0.20% 37,672 3.6% 104 .2

South Bend, IN 260 ,278 0.68% 31 ,915 4.0% 90.8

In comparison to surrounding states, Michigan's younger population profile insures abalanced long-term employee pool. In 1995, nearly 100,000 high school graduates andvocational education students entered the workforce, and Michigan' s 4-year colleges anduniversities (graduated more than 45,000 with bachelor degrees, 15 ,000 with masters'degrees, and 1,500 with doctorates.

However, Michigan· s slow population growth may dampen long term economic growthwithin the state if availability of labor becomes an issue in the future. Companies looking

to locate or expand in Yfichigan will first consider the areas with the largest populationand available labor pools.

3. Income

Michigan' s per capita income has risen slightly above the national average, reHecting astable economy and an employed workforce. The state's per capita income comparesfavorably to other midwest states and the U.S. , as shOVvTI in Exhibit 3-4.

Exhibit 3-4Pe r Capita IncQme CQrnparisons

United StatesIllinoisIndianaMichiganOhioWisconsin

1995 Per

Capita Income$22.788$24 .763$21 ,273$23 .551$22.021$21.839

Source: U.S. Department of Commerce, Bureau of Economic Analysis

51



Similarly, Michigan's average annual pay is above the U.S. average and has grown16.4%, compared with the U.S. growth of 14 .1%, between 1990 and 1994. Although thestate' s personal income per capita is roughly the same as the U.S.'s, the state's has grownmore than twice as fast as the U.S., 11.6% compared to 5.5%, respectively. The state'shousehold income, $35,284, almost exactly mirrors the U.S.'s, $35,264, and the growthrates were exactly the same, 3.9%, between 1990 and 1994, as shown in Exhibit 3-5 .

Exhibit 3-5I n ~ o m e Growth 1990-1995M i ~ b i g a n & U.S.

1990 1995 % Change

A vg. Annual ea vMichigan $25,376 $29,541 * 16.4%U.S . $23,602 $26,939* 14.1%P ~ r : i Q n a l [ncQme P ~ r CapitaMichigan $19,629 521,898 11.6%U.S. $20,090 $21,188 5.5%

M i ~ h i g a n HQusehQld IncomeMichigan $33,945 $35,284* 3.9%U.S. $33,952 535,264* 3.9%

* 1994

Source: State Profile From U.S. Bureau of the Census; Statistical Abstract of the U.S., 1996

Although income gro\\ h in Michigan lagged the nation's in the late 1980' s, the state stillranked in the top 16% of all states. By 1993, Michigan's income growth rates hadsurpassed the nation's and the growth continued through 1995.

Excluding benefits, of all Michigan's part-time, full time, hourly, and salaried workers,40% earn less than $8.85 an hour, 40% earn more than $12.50 per hour, and 20% of allwage earners make $6 .00 or less per hour, as shown in Exhibit 3-6. Median earnings perhour are $10.68.

Exhibit 3-6Michigan Wage Rates

& Percent of Workforce

Wages

<S6 .00$6.01-S8.84$8.85-S 12 .50$12.51-$18 . 13>$18.14

% of

Workforce

20° '020° '020°020° '0:20°'0

Source: Current Population Survey. U.S. Bureau of the Census. as reported by the MichiganEmployment Security Commission

Michigan's manufacturing wage rates are the highest among the six neighboring midweststates, as shov.n in Exhibit 3-7.

Exhibit 3-7

Average Hourly Manufacturing Wage

Mav, 1995

MI IL IN MN OH WI

SI6.23 $12.59 $13 .77 S12.75 $14 .35 $12.72

52



From 1985 to 1995, ~ 1 i c h i g a n unionized workforce has decreased at a faster rate thanthe national average. 1995 studies show that of Michigan ' s private sector employment,less than 18% of workers are unionized. The vast majority of union workers areemployed by Ford, Chrysler, General Motors, and the Auto Alliance . In fact, if theselargest auto makers are factored out, Michigan' s private-sector workforce has a lower

percentage of union membership (11.7%) than the U.S. average (12 .3%) .

Most of the business gro\.\'th taking place in Michigan in the last 20 years has been insmall and medium sized businesses (500 or fewer employees), and these firms havelargely relied on informal worker-management relationships rather than on unions.

Michigan's ability to anract new residents and workers is directly related to the variousincome measures. Given the state ' s favorable position when comparing these measuresto other states and the national averages, Michigan should be able to attract people to thestate. However, the state ' s higher wage rates will slow expansion or relocation p rojectsinvolving new jobs in the state.

B. ECONOMIC CHAR.\CTERISTICS OF THE STATE OF MICHIGAN

1. Background

Michigan' s economy has rebounded after the last recession as measured by Gross StateProduct (GSP), a measure of a state's total output, or output of a specific industry sector.Michigan and its neighboring manufacturing industrial states of Illinois and Ohio togethercomprise about 12% of the national GSP. Michigan's GSP increased 44% from 1977 to1992 (the last year for which figures are available) to a current total of more than $204.5billion. However, Michigan's projected GSP growth rate of 1.8% through the year 2000is the lowest of the six midwest states and below the U .S. average rate of2.0%, as shownin Exhibit 3-8.

Exhibit 3-8Projected Average Annual

Growth in Gross State Product -1992-2000

USA MIlL IN MN OH WI

2.2% 1.30.0 2.0% 2.3% 2.2% 1.9% 2.3%

The state has an extremely proficient exporting capacity which is a major factor in thestate ' s economic stability. The state ranks fourth nationally in total exports. The key to

Michigan' economic status. however, is still transportation related. Michigan is thenation' s largest exporter of transportation equipment.

Michigan's gross total budget for 199611 997 is $28.5 billion (general fund budget portion

is $8.5 billion) and the state has a provision in its state constitution mandating a bal3ncedbudget. In addition to maintaining a balanced budget, the state also has a Budget

Stabilization Fund (Rainy Day fund) which has a balance in excess of $1 billion-

amongst the largest in the nation.

Michigan's inflation rate historically has been within 711 0 of a percentage point of thenational average. In -l- of the past 5 years, Michigan ' s cpr has been below the nationalaverage.

53



', .": .. .;,

These factors have given Michigan, long considered the rustbelt state of the nation, arevitalized and healthy economy in the 1990 ' s. Across all industries, real growth anddiversity are ckarly evident.

2. Employment/l..:nemployment

Michigan 's total labor force exceeds 4.7 million persons , more people than the totalpopulation of 31 other states in the nation. From 1985 to 1995 , Michigan sawemployment gro\V1h equal to or greater than the national average in all industrial sectors .

Several industries have shown significant growth within the state recently includingmetalworking. metal fabricating, equipment manufacturing; and automotive, includingvehicle research and development. Employment in furniture and fixtures, plastics,printing, publishing and the lumber and wood products sectors grew at twice the nationalaverage between 1985 and 1995, and Michigan is 35% less dependent today on auto jobsin manufacturing employment than it was in the 1980's.

Between 1990 and 1996, Michigan' s civilian labor force has grown 5.3% while

employment has grown 8.6%. As a result, the total number of people unemployed hasdropped 34.8% and the unemployment rate has dropped 38.1% to 4.7%, as shown inExhibit 3-9.

Exhibit 3-9Mi!;higan E m p I Q \ m ~ n t (Data in ThQusands)

1990 1991 1992 1993 1994 1995 1996 %Chg.

Civilian Labor Force 4,596 4,577 4.659 4,706 4,761 4,745 4,841 5.3%Employment 4,246 4,152 4,245 4,374 4,480 4,491 4,613 8.6%Unemployment 350 425 414 ... ?

J J_ 281 254 228 (34 .8%)Rate 7.6 9.3 8.9 7.1 5.9 5.3 4.7 (38 . 1%)

Source: Michigan Employment Security Agency , Research and Statistics, Information and Reports

Section

During 1996. \1ichigan recorded its lowest monthly unemployment rate in history at4.4%. With a 1996 average of 4.7%, Michigan has one of the lowest unemployment ratesin the nation (1996 national average was 5.3%). However, because of the size of thestate's population, a 4.7% Michigan unemployment rate still means 228.000 peopleavailable to \york.

The increase in employment between 1990 and 1996 has been broad-based across allemployment sectors, \vith the exception of the Federal and State governments, as shownin Exhibit 3-10. Service Producing Industries realized a 10 .9% increase in employment,While Goods Producing Industries employment increased 3.9%. The largest increase inemployment. 22.7%, came in the Private Services sector, which includes such areas as

hotels, personal services, business services, automotive services, amusement andrecreation. health and legal services, educational and social services, and engineering,accounting, and management services.

Notably, the Federal Government decreased employment in the state by 8.1 % and theState Government employment fluctuated between 163.000 and 166,000 , while LocalGovernment increased only 2.5% over the same period

54



Exhibit 3-10Mi!:higan Eml2IQvml:nt(Data in thQusands)

1990 1991 1992 1993 1994 1995 1996 % Chg .Total Wage & Salary Emp. 3,970 3,891 3,928 ·+.006 4.148 4.252 4,325 8.9%

Goods Producing Industries 1,095 1,035 1,038 1.050 1,103 1.137 1, 138 3.9%

Construction and Mining 152 138 137 141 151 162 175 15.1 %Manufacturing 944 897 901 908 952 975 962 1.9%Durable Goods 710 670 671 674 709 729 718 1.1%Nondurable Goods 234 227 230 234 242 246 24-+ 4.3%

Service Producing Industries 2,874 2,856 2,890 2.956 3,045 3.115 3,188 10 .9%Private Sector Service Indus 2,240 2,220 2,251 2.317 2,405 2,476 2,550 13 .8%Transp., Commun. & L'tilities 158 154 154 157 163 166 169 7.0%Trade 949 931 926 943 971 1.000 1,0T 8.2%

'W'holesale Trade 202 199 197 200 206 211 216 6.9%Retail Trade 748 732 728 743 764 789 811 8.4%

Finance, Ins.. Real Estate 191 190 191 195 197 196 197 3.1'%Private Services 942 946 980 1.022 1.075 1.114 1, 156 22.7%

Government 634 636 639 639 640 638 638 . 0.6%Federal Government 61 58 58 57 57 57 56 (8.1%)State Government 166 166 163 164 165 166 166 0.0%Local Government 406 412 417 419 418 415 416 2.5%

Note: Private Services includes Business, Auto , Health, Educational. Social and Other Services

Source: Michigan Employment Security Agency, Research and Statistics. Information and ReportsSection

Betvveen 1990 and 1995, Michigan increased its ' percentage of civilians employed by1.7%, while the U.S. percentage increased by only 0.1 %. Similarly, while the percentageof civilians 'employed in the U.S. manufacturing sector declined 1.6%, Michigan' sdeclined only 0.9%, as shov,oTI in Exhibit 3-11.

Exhibit 3-11Eml2IQ),:ml:ot

1990 1995 %Chg.

% Civilian EmplQvedMichigan 60.6% 62.3% 1.7%U.S. 62.8% 62 .9% 0.1%% M a n u f g c t u r i n ~ Michigan 23.8% 22.9% 0.9%U.S. 17.4% 15 .8% 1.6%

Source: State Profile From U.S. Bureau of the Census; Statistical Abstract of the U.S., 1996

Between 199-l and 1995. Michigan' s manufacturing employment rose by 2.2%. while thenation' s increase was only 0.5%, as shown in Exhibit 3-12 .

Exhibit 3-12

Manufa!:turing Emplovment

United StatesMichigan% of U.S.

1994

18 ,304.000949.400

5.2%

199518,406,000

970 ,4005.3%

Total Change

102,00021,00020.6%

Source: Michigan Employment Security Commission

55

% Change

0.5%

2.2%



Underscoring the strength of the state ' s manufacturing economy is the fact that \fichigan

accounted for almost 21% of the 102,000 new manufacturing jobs created nation\videbetween 1994 and 1995. and in the final quarter of 1995, Michigan generated 1 in every 3manufacturing jobs in the United States.

Within the broad based industrial sectors, several major employment subsectors are

responsible for more than 26% of the total civilian employment in Michigan, as shown inExhibit 3-13 .

Exhibit 3-131995 Major Industry Sector Employment

Industrv

Agricu lture/ forestrylfi sh in gChemicals

Electronic/electrical equ ipment

Fabricated metalsFood and kindredFurnitureIndustrial machinery

Nonelectrical machinery

Primary metalsPrint/publishingRubber/plasticsTransportation equipment

Trave l/tourism

Major Sector EmploymentTotal State Employment

Emplovment

14 ,00045,00034,000

129,00045,00039,000

117,000134,000

37,00044,00066 ,000

294,000115 ,000

1,113,0004,252,000

% Major

1.26%4.04%3.05%

11.59%4.04%3.50%

10 .51 %12 .04%

3.32%3.95%

5.93%26.42%10 .33 %

100 .0%

% State

0.33 %1.06%0.80%3.03%

1.06%

0.92%2.75%3.15%

0.87%1.03%

1.55%6.91%

2.70%

26 .18%100.0%

The Transportation Equipment subsector is by far the largest single employmentsubsector, employing approximately 294,000 in 1995, 26.4% of the Major Sectoremployment and 6.9% of the Total State employment. The next closest employmentsubsector, Non-Electric \iachinery, employed 134,000 people, 12 .0% of the Major Sectoremployment and 3.1% of the Total State employment.

Michigan has added more than 250,000 jobs and its unemployment rate has droppedcontinuously since 1991. Job creation and employment are expected to continuegrowing, but at a relatively slow pace compared with the rest of the nation. If the state'sjob creation grows faster than the available pool of workers, inflationary pressures onwage rates may exacerbate the wage differential between Michigan and the neighboringstates, drawing companies out of Michigan for expansion or relocation projects.

3. Economic Sectors

The state· s industrial base, which includes agriculture, manufacturing, tourism, financeand mining, has become much more diversified . Although the Michigan economy wasbuilt on automobile manufacturing and it is still the number one manufacturing sector, the

economy is not as dependent on the automobile industry as it was in the past.

Michigan ' s agriculture is among the most productive in the world. The state is thenumber one producer of blueberries, cucumbers, red tart cherries, and several types ofbean. For 59 products, ranging from varieties of flowers to potatoes, Michigan is one of

the nation' s top 10 producers.

Companies located or headquartered in Michigan dominate a variety of industriesthroughout the world. 360 R&D facilities focusing specificall y on industrial technologycall Michigan their home. The representative companies listed in Exhibit 3-14 are either

56



located or headquartered in Michigan, and/or have annual sales in excess of $2.0 billion,and/or have more than 6,500 employees.

Exhibit 3-14

Michigan Companies

CompanY

American Axle & Manufacturing Inc.Ameritech

Amway CorporationBlue Cross Blue Shield of 'vtichiganChrysler CorporationChrysler Financial Corporation

CM S Energy CorporationComerica Bank

Consumers Powers Co .Dayton Hudson Corporation

Delphi Automotive Systems

Detroit Edison Co .Domino ' s Pizza Inc .Dow Chemical Co .EDS Corp .

Ford Holdings Inc .Ford Motor Company

Ford Motor Credit Company

General Motors Acceptance Corp.General Motors Corporation

Henry Ford Health Systems

J C Penney Co. Inc .Kellogg USA Inc.Kelly Service Incorporated

KMart Corporation

Lear Corporation

Masco Corporation

Meijer Inc .National Bank of Detroit t 1st Chicago-NBD)

Northwest Airlines Inc.Penske Corporation

Phannacia & Upjohn Inc .Sears. Roebuck & Company

Spartan Stores Inc.Steelcase Inc .The Kroger Company

United Parcel ServiceUT Automotive Inc.Volkswagen of America Inc .Wal-Mart StoresWhirlpool Corporation

William Beaumont Hosp ital

:Yotes:

Note

12I

1, 2, 31, 2,311

1,2,32,3211,2,3I

1, 2,321

1, 2,3

1

11, 2,32, 3

2I

1,2,31,2,31

1

1, 2, 32, 32I

1, 2,32I

1, 2,322I

1212, 3

I. Each of these companies. publicly or privately held, has annual sales in excess of$2 Billion.2. Each of these private sector employers has more than 6,500 employees

3. World or U.S. Headquarters

57



During the last decade. Ylichigan ' s annual exports have tripled in value from below $10billion to $28.4 billion. as shown in Exhibit 3-15 .

Exhibit 3-15

1985-1995 Export Value - :\,lichigan(In Billions of Dollars)

Year EXQort S

[985 $9 .0[986 $[ [ .0[987 $[3 .5

[988 $[4 .2

[989 $[5 .0[990 $[8 . [[99[ $2l.0[992 $23 .-+[993 $25 . [[994 $28 .2

[995 528.4

A growing international market for a variety of Michigan produced goods has madeMichigan the United States' 4th largest exporting state, as sho\\-'Il in Exhibit 3-16.

Exhibit 3-161995 Top 10 Export States Dollars

1995Rank

[

23

56789[0

State

CaliforniaTexas

New YorkMichigan

IllinoisWashington

OhioF[orida

LouisianaNorth Carolina

1995Exports

596.572,987 ,000S68,8 [8,6 [4 ,000S3 7.089,140,000S 2 8 , ~ 3 0 , 7 3 1 , O O O S25,572,688,OOOS24,847.378,000523 ,764, [27,000S23,67 [, [49 ,000S21 ,059,453,OOO516,820, 102 ,000

1995% of US EXQorts

[6.73%[ l.92%6.42%4.92%

4.43%4.30%4. [2%4. [0%3.65%2.9[%

Source: MISER, U.S. Department of Commerce, Bureau of the Census

Michigan is the nation' s largest exporter of transportation equipment, annually exceeding$15 billion. Historically. the top three export destinations for Michigan products areCanada, Mexico and Japan as shown in Exhibit 3-17 . Michigan exports more in valueand volume to Mexico and Canada than any other state in the nation, and the State ofMichigan is Canada's largest world trading partner.

58



Exhibit 3-17

Michigan's Export Markets - 1995

Rank Country

I Canada

2 Mexico3 Japan-+ Germany

5 Austria6 United Kingdom7 Belg ium-

8 Kor-ea

9 FrancelOA stralia

Source: MISER. U.S. Department of Commerce , Bureau of the Census

The total value of Michigan exports in 1995 was $28.4 billion dollars, as shown inExhibit 3-18. Almost 14% of the total exports were to the European Union (EU)

countries, and of those. 45.4% was transportation equipment.

Exhibit 3-18Michigan ExPQrts - 1995(Value in 5 millions)

1995 Value Percentage 1995 Value %OfEU % EU Exports of

Industr:y of E x ~ o r t s of Total EU I m ~ o r t s I m ~ o r t s Indust!:I E x ~ o r t s Transportation Equipment $15,057.4 53.0% 1,807 45.4% 12.0%Industrial Machinery, Computer Equip. $3.917.9 13.8% 550 13.8% 14 .0%Chemicals, Rubber & Misc. Plastics $2,518.9 8.9% 746 18.8% 29.6%Electronic, Electric Equipment 51,316.4 4.6% 176 4.4% 13.4%Fabricated Metal Products 51 ,087.7 3.8% 110 2.7% 10 .1%Primary Metal Industries 5923.1 3.2% 114 2.8% 12.3%Furniture and Fixtures 5657.4 2.3% 40 1.0% 6.1%Instruments and Related Products 5601.3 2.1% 122 3.0% 20.1%Other (23 Categories) 52.350.6 8.3% 311 7.8% 13.2%

528,430.7 100.0% 3,976 100.0% 13 .9%

Source: MISER. U.S. Department of Commerce, Bureau of the Census

59



Germany, Austria, the United Kingdom, and Belgium together represent more than 70%of Michigan's exports to the European Union (EU), as shown in Exhibit 3-19.

Exhibit 3-19

Michigan El l EXPQrts By CQuntr):(In MiIIiQns Qf Dollars)

Rank Country Value % of Ex(!ortsI Gennan :: $803 20.2%2 Austria $800 20 .1%3 United Kingdom $696 17 .5%4 Belgium $537 13 .5%5 France $374 9.4%6 Netherlands $213 5.3%7 Italy $188 4.7%8 Spain $169 4.2%9 Sweden $52 1.3%

10 Ireland $40 1.0%I I Portugal $38 0.9%12 Greece $21 0.5%13 Denmark $20 0.5%14 Luxembourg $13 0.3%15 Finland $12 0.3%

Total EU Exports 53,976 100.0%

The 15 nations of the EU comprise a market of over 368 million customers and have acombined gross EU product of over $6 trillion. Michigan exports in dollars to the EUhave increased 54% o\-er the last 4 years.

As of January 1996, there were more than 900 companies in Michigan with foreignparents, representing 26 countries and encompassing all industry and service sectors , asshov.-n in Exhibit 3-20. Japan is Michigan's number one foreign investor, with 308Michigan-based Japanese businesses employing more than 32,000 people . Foreign basedcompanies in Michigan employ nearly 130,000 people.

Exhibit 3-20FQreign-Owned Michigan CQmpanies

Parent Company

Country

JapanCanada

Gennany

United KingdomFranceOther 21 Countries

Number of

Michigan

Com(!anies

3081621507956

184939

% of

Foreign

Com(!anies

32.8%17 .3%16 .0%8.4%6.0%

19.5%100 .0%

Source: Michigan International and National Business Development Office

Michigan has maintained offices in Europe and Asia for 25 years, aiding non-U.S.companies with establishing business relationships in the state, as well as providingassistance to Michigan companies wishing to do business abroad.

4. Summary

Michigan has a stable. diversified, and slowly growing economy supported by a growingemployment base. The state's economy survived the effects of the most recent recession.and. by most measures. is expected to expand, albeit slowly. The presence of a large

60



The cities of St. Joseph and Benton Harbor are the central cities of the Benton HarborMSA. The Benton Harbor MSA has a total population of approximately 162,000. Theurbanized area. of which the two cities are the center, contains 57 ,712 people from theadjacent municipalities of Benton Tov.nship, St. Joseph Township, Lincoln CharterTownship and a portion of Sodus tov.nship.

According to the 1990 census data, the population of the area declined substantiallybetween 1960 and 1990 as people left to find jobs and opportunities elsewhere. Between1980 and 1990, Berrien County's population decreased 5.8%, S1. Joseph's decreased4.2%, and Benton Harbor' s decreased 12.4%, as shown in Exhibit 3-22.

Exhibit 3-22Population Trends

Total Population

St. JosephBenton HarborBerrien County

19809.622

1-t,637

171 ,276

19909,214

12 ,818161 ,378

%Chg.(4.2%)

( 12.4%)(5.8%)


20009,400

13 .000

159,919

%Chg.

2.0%1.4%

(0.9%)

While St. Joseph and Benton Harbor are expected to increase in population 2.0% and1.4% respectively by 2000, the County is expected to decrease, but by less than 1%.According to Berrien County forecasts shown in Exhibit 3-23 , the County population isprojected to begin to increase between 2005 and 2010 , but only by less than 1% and, eventhen, the County population in 2010 is projected to be less than it is today.

Exhibit 3-23Berrien County Forecast

1991 1992 1993 1994 1995 2000 2005 2010Population 16 1.500 160.935 160.752 160.768 160.869 159.919 159.857 160.2-l-l

The forecast to 2010is

based on an integrated population/economic model which resultsin a tendency for the model to not let employment in a declining area decline indefinitely,based on the phenomena that as jobs decrease, the cost of labor tends to decline over timewhich \vill tend to trigger new employment growth. Similarly, in a county that isgrowing rapidly, the cost of labor increases, putting a dampening affect on long termrapid employment gro\\1h.

According to the W.E. l'pjohn Institute study completed in June 1996, the county ' sinability to supply sufficient employment opportunities to keep and attract young adultswill negatively impact the quality of its labor force. This situation is more acute in the S1.

Joseph/Benton Harbor areas.

3. Age and Ethnic Characteristics

While Berrien County' 5 total population dropped 5.8% between 1980 to 1990, thenumber of county residents in various age groups changed more dramatically . As shownin Exhibit 3-24, the population below the age of25 dropped 18.9%, or almost 14,000, andits percentage share of the overall popUlation dropped from 42.5% to 36.7%. Thepopulation between the ages of 25 and 65 increased by less than 1%, 628 people. while itspercentage share of the overall population increased from 46 .3% to 49.6%. Finally, thepopUlation over the age of 65 increased 16.9%, or 3,248 people, and its percentage shareof the overall population increased from 11.2% to 13 .7%.

62



Exhibit J-24

Berrien Countv Age Cohorts

%Chg.Age 1980 % 1990 % 1980-90

< 18 55 ,7 '+ I 45,929 28.5% Inc!.18-2'+ 17.20.+ 10.0% 13 ,242 8.2% (18.9%)25-4.+ 45,128 26.3 0

/0 48,272 29.9% Inc!.45-64 34,306 20.0% 31 ,790 19.7% 0.9%>65 18.897 11 .2% 22,145 13 .7% 16 .9%

Total 171,276 100% 161,378 100% (5.8%)


Berrien County experienced an out-migration of young adults during the 1980' 5 andforecasts suggest that the trend will continue during the 1990's. From 1980 to 1990, thenumber of county residents between the ages of 20 and 30 years of age dropped nearly22% from 28 .020 dO\\ 'n to 22 ,991. Moreover, the Michigan Department of Managementand Budget forecasts that by the year 2000, the number of county residents in theirtwenties will decline by another 10.4% to 20 ,598, and these trends are expected tocontinue through 2010.

The aging of St. Joseph is even more pronounced, as shown in Exhibit 3-25. \Vhile St.Joseph 's total population dropped 4.2%, the population below the age of 25 dropped18.5%, or almost 584, and its percentage share of the overall population dropped from32.7% to 27.8%. The population between the ages of25 and 65 increased by 2.3%, 109people, while its percentage share of the overall population increased from 47.3% to50.6% . Finally, the population over the age of 65 increased 3.5%, or 67 people, and itspercentage share of the overall population increased from 20.0% to 21.6%. St. Joseph'smedian age was 37.2 in 1990.

Exhibit 3-25St. Joseph Age Cohorts

%Chg.

Age 1980 0/ 0 1990 % 1980-90< 18 2.069 21.5% 1,774 19 .3% Inc!.18-24 1,081 11.2°'0 792 8.5% 18 .5%25-.+4 2,379 24 .7° ° 3.040 33 .0% Inc!.45-6'+ 2.175 22.6% 1.623 17.6% 2.3%

>65 1.918 :20.0°0 1.985 2 6 3.5%Total 9,622 100'% 9 , 2 1 ~ 100% (4.2%)

The city of Benton Harbor population has remarkably different age characteristics, asshown in Exhibit 3-26 . While the city' s total population dropped 12.4%, the populationbelow the age of25 dropped 17.9%. or almost 1,490. and its percentage share of theoverall population dropped from 57% to 53.5%. The population between the ages of25

and 65 decreased by 3.9%, 200 people, while its percentage share of the overall

population increased from 35.2%to

38.6%. Finally, the population over the age of65

decreased 11.3%, or 129 people, but its percentage share of the overall populationincreased from 7.8% to 7.9%. Benton Harbor's median age was 22.8 in 1990.

63



E ~ b i b i t 3-26Benton Harbor Age Cohorts

%Chg.Age 1980 0 /0 1990 0/ 0 1980-90

< 18 6,802 4 6 . 5 ~ 5,599 43 .7% [nci.18-24 1,539 1 0 . 5 1,252 9.8% (17 .9%)25-44 3,051 20.8% 3,171 24.7% [nci.45-64 2,105 14.4% 1,785 13 ,9% (3.9%)>65 1.140 7.8% 1,01 I 7.9% {I 1.3%2Total 14,637 100% 12,818 100% (12.4%)

These trends suggest a decreasing population and labor supply, both countywide and inthe two cities. The gro\ving population of retirees and elderly can be expected to have~ n c r e a s i n g health care and personal service needs as well as increasing disposableIncomes.

Between 1980 and 1990. the ethnic composition of the remaining residents in BerrienCounty, St. Joseph, and Benton Harbor has changed as well, as shown in Exhibit 3-27.

Exhibit 3-27

Ethnic CQhortsBerrien St. Benton

1980 Countl: 0/ 0 Jose[!h 0/ 0 Harbor 0/ 0

White 144 ,007 84.1% 9,357 97.2% 1,938 13 .2%Black 24,817 14 .5% 171 1,8% 12 ,693 86,7%AmeL Indian, Eskimo &

Aleutian 593 0.3% 30 0.3% 38 0.2%Asian & Pacific Islander . 822 0.5% 40 0.4% 7 0.04%Other Races 1,037 0.6% 24 02% 3 I 0.2%Hispanic Origin : 2,088 12% 66 0.7% [39 0.9%Total 171,276 9,622 14,637

Berrien St. Benton United

1990 County 0/ 0 Jose[!h 0/ 0 Harbor 0/ 0 States %White 133,259 82 ,6% 8,743 94.9% 930 7.2% 80 .3%

Black 24,872 15.4% 283 3.1% 11 ,817 92 .2% 12.1%AmeL Indian, Eskimo &Aleutian 685 OA% 20 0.2% 18 0.1% 0.8%Asian & Pacitic [slander 1,487 0.9% 142 1.5% 6 0.04% 2.9%Other Races 1,075 0.6% 26 0.2% 47 0.4% 3.9%Hispanic Origin 2.683 1.7% 113 1.2% 122 0.9% 9.0%Total 161,378 9,214 12,818

Note: Population of Hispanic origin can be of any raceSource: Southwestern Michigan Commission

Berrien County, St. Joseph, and Benton Harbor have less ethnically diverse popUlationsthan the United States. as shown in Exhibit 3-27. In the 1990 Census, 82 .6% of theCounty popUlation was White, compared to 80 .3% of the United States. St. Joseph's and

Benton Harbor's ethnic composition of their populations are almost exact opposites. St.Joseph's population is almost 95% White, while Benton Harbor is almost 93% Black. InBerrien County and in both cities as well, the combined White and Black popUlationscomprise 98% or more of the population, compared to 92% nationally.

Berrien County's White population has decreased by almost 11,000, or 7.5%, between1980 and 1990, accounting for all of the total population decrease over the period. TheCounty's other ethnic populations have remained relatively level in number. with theexception of Asian and Pacific Islanders, which increased by 665. or 80.9%.

64



Similarly, the decrease in the populations of St. Joseph and Benton Harbor are due almostentirely to decreases in the White populations. St. Joseph's White population decreasedby 614. or 6.6%. while all other ethnic populations increased. Benton Harbor 's Whitepopulation decreased by 1,008, or 52%, and the city ' s other ethnic populations decreasedas \vell.

The lack of similaritv· in the ethnic characteristics of the Countv and the two cities hascreated friction withIn the County. In addition, the City of B e ~ t o n Harbor's hugepercentage of youth has generated greater demands for social services.

4. Educational And Community Characteristics

While almost 85% of St. Joseph ' s residents have high school degrees and 28% havecollege degrees, only -+7% of Benton Harbor residents have high school degrees and only3% have college degrees, as shown in Exhibit 3-28 .

Exhibit 3-28Educational Attainment

High School DegreesCollege Degrees

Benton

Harbor

47.4%3.3%

St. Joseph

84.4%28 .1%

The W. E. Upjohn Institute study indicated that Benton Harbor Area School'sexpenditures per student were somewhat below the average of other similar metropolitanareas ($5,755/student versus $5,800/student), the student /teacher ratio was above average(23.2 students/teacher versus 16 .5 students/teacher), and the dropout rate was higher(11.9% versus 4.4% in 1993-94). On average, less resources are being spent in theBenton Harbor Area Schools than in the school districts in the comparison areas .

The Michigan Department of Education measures performance using the Michigan

Educational Assessment Program (MEAP) test. While students in the St. Joseph andLakeshore School Districts have scored well above the state average, students in theBenton Harbor School District have not. Of Benton Harbor Area 10th and 11 th gradestudents, less than received a satisfactory grade in math, less than 14% in reading , andless than 14% in science compared to almost 44%, 54%, and 60%, respectively, for St.Joseph students.

The recently released state report for 1995-96 shows that the Benton Harbor Area SchoolDistrict recorded the lowest test scores in the state, and was the only district to record 1.0(out of a possible score of 100.0) in the science skill assessment. The area' s averagescore in the MEAP test has remained below the state ' s average for the past three years.

65



., ... ,.. .

Michigan's crime rate is higher than the average for the United States, and higher thanfour of the five other neighboring midwest states, as shown in Exhibit 3-29. Only Illinoishas a higher crime rate among the six states , while Berrien County's crime rate iscomparatively higher than all six states and the United States.

Exhibit 3-291994 Crime Rate

Pe r 100.000 Population

Berrien Countv MI

7.232 5,4'+5IL IN

5,625 4 ,592

MN OH WI USA

4,341 4,461 3,944 5,37'+

Source: State Profile From U.S. Bureau of the Census; Statistical Abstract of the U.S ., 1996FBI Uniform Police Reports; W.E. Upjohn Institute for Employment Research

Berrien County ' s total number of crimes dropped 8.4% between 1990 and 1994. and St.

Joseph Township ' s declined 7.2%. While total crimes committed in Benton Townshipincreased 10 .1%, St. Joseph's only increased 2.7% and Benton Harbor's increased by

only 2.3%, as shown in Exhibit 3-30.

Exhibit 3-30

Total Crime

Berrien County

Benton Harbor

Benton Township

St. Joseph

St. Joseph Township

1990

32.-+235,60 9

6.2881.502

694

1994

29,697

5,736

6,9211,543

644

% Change

(8.4%)2.3%

10.1%2.7%

(7.2%)

The quality of the public education system in the Benton Harbor Area Schools coupledwith the high incidence of crime presents a very negative impression. As important

measures of the quality of life, these negative factors are a strong concern for anyone orany company looking to expand or locate in the area .

5. Income And Buying Power Characteristics

Total Personal Income. Disposable Personal Income, Personal Income Per Capita. andDisposable Personal Income Per Capita figures for Berrien County indicate steady fiveyear incremental increases averaging 30% for each five year period. These increases arepwjected to continue through 2010, as shown in Exhibit 3-31.

Exhibit J-JIBerrien Countv Forecast

% Chg. % Chg. % Chg . % Chg.1991- 1995- 2000- 2005-1991 1995 1995 2000 2000 2005 2005 2010 2010

Total PersonalIncome (5MM) 52,676 53.294 23 . [% $4,310 30 .8% $5.752 33.4% $7.504 30.4%

DisposablePersonal Income(5MM) 52 .338 52.862 22.-+% $3.744 30.8% 55.003 33 .6% $6.539 30.7%

Personal IncomePer Capita $16.5 70 520.-+76 23 .6% $26.951 31.6% $35.982 33.5% $46.829 30.1%

Disp. Pers.[ncome PerCapita $14,47; $17. 791 22 .9° /0 523,412 31 .6% 31.297 33 .7% $40.807 30 .3%

66



However, there are wide historical discrepancies in these same measures within the St.Joseph/Benton Harbor area, as shown in Exhibit 3-32 . While Per Capita Income rose inBerrien County, the City ofSt. Joseph, and St. Joseph Township 12 .1%, 18 .7%. and19 .9%. respectively. between 1979 and 1989, it increased by less than 1% in BentonTovmship and declined almost 11 % in Benton Harbor.

Exhibit 3-32Per C a ~ i t a an d Median HousehQld IncQme1979 and 1989

1979 Percent

Adjusted Change infor Constant

1979 Inflation 1989 DollarsPer Ca pita I n C Q m ~ Berrien Counrv S6 ,723 $11,268 512,636 12.14Benton Harbor City 3. 766 6,312 5,622 (- 10.93)Benton Township 5A30 9,101 9,189 0.97St. Joseph City 9,257 15,515 18,421 18.73St. Joseph Township 9.138 15 ,315 18,361 19 .89

M ~ d i a n HQusehQld IncomeBerrien Counrv 516 .274 $27,275 527,245 (-0.11 )

Benton Harbor City 9.074 15 ,208 8,866 (-41.70)Benton Township 12 ,390 20,766 18 ,240 (-12.16)St. Joseph City 15 .151 25,393 28,566 12 .50St. Joseph Township 2·UI2 40,747 41,303 1.36

Source: U.S. Census Bureau; Southwestern Michigan Commission

Median Household Income increased in the City of St. Joseph and St. Joseph Townshipby 12 .5% and 1.4%, respectively. while it fell less than 1% in Berrien County but morethan 12% in Benton TO'VVTIship and almost 42% in Benton Harbor

The wide discrepancies in the various income measures in the St. JosephlBenton Harbor

area further indicate a decaying urban core. Benton Harbor's income figures are only30%-50% of the Countv averag:es, and even less than those of the immediatelvsurrounding communities. Thfs tends to isolate the community and create increasingsocial service demands on the Benton Harbor budget.

D, ECONOMIC CHAR,,-CTERISTICS OF THE BERRIEN COUNTY!ST. JOSEPHIBENTON HARBOR AREAS

1. Background

During the early 1900's, the St. Joseph/Benton Harbor area established a strong base of

manufacturing, metal fabricating plants, and as a distribution center for fruit. By 1920,

the City was also a popular tourist destination . By 1950, Benton Harbor was the area' sleading center for manufacturing , retail and wholesale trade.

In 1956, the Whirlpool Corporation completed a new administrative center on a 100-acresite just north of the city in Benton Township. As the company grew and became aninternational operation. more and more jobs came into the community . They were themainstay of employment for local residents.

67



Unfortunately, like many of the largest r:::J.idwestem cities in the manufacturing belt,thousands of jobs were lost between 19- 1

) and 1985 due to cost efficiency relocations anddO\\TIsizing . In 1983, Whirlpool annour:.:ed a phase out of washer assembly at its St.Joseph plant and all washer production 'xas moved to Clyde. Ohio. Then in 1986.'Wbirlpool closed most of its St. Joseph ::::>ivision and nearly all of its remainingmanufacturing operations in the area. in-:luding those in downtowTI Benton Harbor. The

\\Ibirlpool closings were just one of s e \ ' ~ : - a l major manufacturing job losses for the area.

Businesses abandoned the center city fo:- more commercially attractive suburbs inoutlying to\\TIships. Manufacturers beg::..'1 to move centers of operation to locationswhere labor and material costs were l o w ~ r . 1\ew industry opted for newer industrial parksettings. Metal refiners and fabricators ~ m p l o y e d newer technologies requiring fewer, butmore highly skilled labor force members .

The City of St. Joseph ' s r ~ c e n t employcent losses from m < ~ i o r plant closings contributesto the economic stagnation in the area. Together. the statistics for the St. Joseph, BentollHarbor area reflect a declining economy .

2. Employment And Unemployment Characteristics

The Berrien County unemployment rate has trended up and down during the 1990' s, asdid the state's and the nation's, as show::l in Exhibit 3-33 .

Exhibit 3-33U n ~ m 1 2 I Q ~ m ~ n t T [ ~ n d s (% )

1990 1991 1992 1993 1994 1995 1996Berrien County 7.7 9.2 8.8 7.2 6.0 5.5 5.8Michigan 7.6 9.3 8.9 7.1 5.9 5.3 4.7U.S.A. 5.5 6.7 7 . ~ 6.8 6.1 5.7 5.3

Source: State Employment Security Commiss i(' ns; W.E. Upjohn Institute for Employment Research

The total labor force in Berrien County :'as increased by 1.600. or 2.2%, between 1991and 1996. Employment has grown by :.900. or 3.8%. the number of unemployed hasdropped by 1.000. or 17 .2° '0. and the une:-nployment rate has declined more than 19%from 7.7% to 5.8%. as sho\'vTI in Exhibit 3-34.

Ho\\·ever. the County's labor force rate or increase \vas only 41% of the state's rate andthe gro\'v1h rate in employment was only 44% of the state' s rate. while the number of

unemployed and the unemployment rate for the county have improved only half as fast asthe state' s.

Exhibit 3 - 3 ~ B e r r i ~ n CQunt'V Em12IQvrnent(Data in ThQusands)

%Chg.1990 1991 1992 1993 1 9 9 ~ 1995 1996 90-96

Civilian Labor Force 80.9 80.3 81.3 82.4 83.4 81.8 82.7 2.2%

Employment 75.1 72.9 74.2 76.4 78,4 77.3 78.0 3.8%

l'nempIoyment 5.8 7.4 7.1 5.9 5.0 4.5 4.8 (17 .2%)Rate 7.7% 9.2% 8.8% 7.2% 6.0% 5.5% 5.8% (19,4%)

68



Further, the Berrien County MSA performance has been 15%-27% less robust than theKalamazoo MSA, and 76%-83% less than the Grand Rapids MSA, as shown in Exhibit3-35 .

Exhibit 3-35EmplQyment

% Chg

1990 1991 1992 1993 1994 1995 1996 90-9Grand Rapids-

Muskegon --Holland MSALabor Force 6 0 0 494,000 506,000 519.600 534 ,600 538,700 554,100 1- - 0_.

Employment 461 , 100 454,500 467,300 490,700 510,600 516.800 532.200 15,..+ "Cnemployment 30.500 39,500 38,700 28,900 24.000 21 ,800 21.900 (28 .::°0Rate 6.2% 8.0% 7.6% 5.6% 4.5% 4.1% ~ . (35 ? o

Kalamazoo-Battle

Creek MSALabor Force 217.700 216,700 219,500 223.100 226,000 223 , I00 223.400 :: .6 0

Employment 203,400 200,400 204,800 211,200 215 ,200 212,900 213 ,900 "' -' 0_.-Unemployment 14 ,300 16 ,300 14,700 11,900 10 ,800 10 ,200 9,500 (336° '0Rate 6.6% 7.5% 6.7% 5.3% 4.8% 4.6% 4.3% (3 .+.30

Source: Michigan Employment Security Agency, Research and Statistics, Information and ReportsSection

As shown in Exhibit 3-36, the labor force and employment figures for the cities of St.Joseph and Benton Harbor have changed very little between 1990 and 1996. S . Joseph' slabor force increased by 175 people, or 3.6%, while the number of obs increased by thesame amount. The number of unemployed people in St. Joseph fell by 25 The increasein the labor force and in the number of obs combined with the drop in the number of

unemployed resulted in a 20% improvement in the city's unemployment rate. St. Josephis essentially at full employment with an unemployment rate of 2%.

Benton Harbor' s labor force decreased by 100 people, or 2.5%. while the number of jobsincreased by the same amount. The number of unemployed people in Benton Harbor fell

by 200. The decrease in the labor force and the increase in the number of jobs. combined\vith the drop in the number of unemployed, resulted in a 16% improvement in the city ' sunemployment rate However. with a 1996 unemployment rate of24%, more than fourtimes higher than the national. state, and county rates, Benton Harbor 's chronically highunemployment rate is disastrous.

Exhibit 3-;26EmplQx ment

% Chg

1990 1991 1992 1993 199'" 1995 1996 90-9

St. Joseph City

Labor Force 4.900 4,800 4,875 5.000 5,100 5.025 5.075 3.6°Employment ~ . 8 0 0 4,650 4,750 4,875 5,000 4.950 4.975 3.6

L'nemployment 125 150 150 125 100 75 100 (20.0°

Rate 2.5% 3.1% 3.0% 2.5% 2.0% 2.0% (20.0%Benton Harbor City

Labor Force 3,925 4,125 4,125 3,975 3,875 3,750 3,825 (2.50

Employment 2,800 2,700 2,750 2.850 2,925 2.875 2,900 3.5Unemployment 1.125 1,425 1,375 1, 150 950 850 925 (1 7 .8 %

Rate 28.7% 34.3% 33.1% 28 .6(% 24.7% 23 . 1% 24.1% (16.0%

69



The unemployment rate in the City of Benton Harbor has not dipped below 20% since the1970's, and has soared to the mid to high 30% range during the early to mid 1980's andagain in the early 1990·s. Those figures do not count people who have given up lookingfor a job .

The composition of the job market in Berrien County, as elsewhere in the midwest, has

shifted away from manufacturing toward low-skilled sales and service jobs, as shown inExhibit 3-37.

Exhibit 3-37Demographics

BentQ[l HarbQr ;\,tSA(Data in t h Q u ~ a n d s )

19901990 % ErnE 1991 1992 1993 1994 1995 1996

Employment 75.1 100.0% 72.9 74.2 76.4 78.4 77 .3 78 .0Wage & Salary Emp. 67.8 90.2% 66.0 66 .6 67.6 70 .0 70 .9 7 1.0Goods Producing Indus. 23.7 31.5% 22.4 22 .0 21.8 22.8 23 .5 23 .2

Construction and Mining 1.9 2.5% 1.8 1.9 1.8 2.2 2.1 2.2Manufacturing 21.8 29.0% 20.6 20 . 1 19 .9 20 .7 21.4 21.0

Durable Goods 15 .8 21.0% 14.9 14 .5 14.5 15 .1 15 .8 15 .6

Nondurable Goods 6.0 8.0% 5.7 5.6 5.4 5.5 5.6 5.5Service Producing Indus. 44 .1 58.7% 43.6 44 .5 45.8 47 .2 47.4 47 .8Private Service Indus. 35.2 46 .9% 34.7 35.5 36 .8 38.3 38.6 38 .8Transp., Comm. & Util. 2.7 3.6% 2.7 2.8 2.8 2.9 3.0 2.9Trade 14 .3 19 .0% 14.1 l·tO 14.6 15.4 15 .6 15 .9

Wholesale Trade 2.4 3.2% 2.3 2.0 2.3 2.4 2.4 2.5Retail Trade 11.8 15.7% 11.8 11.8 12.3 13.0 13 .2 13.4

Fin. Ins., Real Estate 2.7 3.6% 2.6 2.6 2.6 2.7 2.6 2.6Private Services 15.6 20.8% 15.2 16.1 16.7 17.3 17.6 17 .5Government 8.9 11.8% 8.9 9.1 9.1 8.9 8.8 9.0

Federal Government 0.5 0.6% 0.4 0.5 0.4 0.5 0 .5 0.5State Government 0.6 0.7% 0.6 0.5 0.5 0.5 0.6 0.6Local Government 7.8 10 .3% 7.9 8.1 8.1 7.9 7.8 7.9

Note: Private Services includes Business, Auto. Health. Educational, Social and Other Services.Source: Michigan Emplo: ment Security Agency, Research and Statistics, Information and Reports

Section

1996% ErnE100 .0%91 .0%29.7%

2.7%27.0%20.0%

7.0%61.3%49.7%

3.7%20.4%

3.2%17 .2%3.3%

22.4%11 .5%0.6%0.7%10.1 %

The 23.000 manufacturing jobs in the Benton Harbor MSA represented 27% of all jobs in1996. down from 29% in 1990. Service producing industries went from 59% of all jobsin 1990 to 61 % in 1996. Within the service sector. retail trade employment increased13.5%, representing 17.2% of all jobs, and private services employment increased 12.2%,with 22.4% of all jobs in 1996.

Employment levels directly impact the real estate market. An increasing employmentbase indicates the potential for increased consumer spending. Increased income andspending generate many benefits for any area including increased tax revenue (increasingmunicipalities ' ability to pay for services), increased employment (as demand for goods

and services increases, jobs are created), and stable or growing real estate markets (as anincreasing number of workers require more office, retail, and industrial space and moreresidential units).

The opposite also holds true. A decreasing employment base can cause municipalspending cutbacks or increases in taxes, reduced demand for goods and services, andincreasing vacancy rates in all sectors of the real estate market.

70

· %



Based on the most recent employment trends, CPL believes that the St. Joseph/BentonHarbor area employment base will grow very slowly, with very little positive impact onthe real estate market.

3. Economic Sectors

Berrien County 's economic base is divided between manufacturing industries, whichrepresent approximately 30%, and service industries, which represent approximately 50%of total County employment. The Government sector and self-employed individualsaccount for the remaining 20% of the economic base.

The manufacturing sector is heavily dependent on metal working and machine relatedindustries, \vhich account for almost 75% of all manufacturing jobs in the County.

The retail trade and service industries account for 35% and 45%, respectively, or 80% of

the County's non-manufacturing employment. Employment in wholesale trade. financeand real estate, construction, and transportation, communications and utilities eachaccount for between 5% and 10% of the non-manufacturing employment total.

Tourism is one of the leading economic base industries in Berrien County due to itslocation along the shores of Lake Michigan and proximity to the Chicago metropolitanarea. Visitors to the county bring thousands of dollars into its economy.

The impact of tourism on the county economy is evident. The county's expenditure-toincome ratio in eating and drinking places is well above that in similar metropolitanareas. Other positive indicators include increases in the room tax receipts from countymotels and other lodging places, the number of visitors to the county's state parks, and inthe seasonal traffic volume along the county's major roads.

The area offers many recreational opportunities, and several major festivals heldthroughout the spring and summer, such as the Blossomtime Festival, the Krasl Art Fair,the Venetian Festival. the Tri-State Regatta, and the Harbor Fest attract tens of thousands

of visitors annually.

Berrien County offers numerous golfing opportunities, as shoWTI in Exhibit 3-38.

Exhibit 3-38Golf Courses

Point O'Woods Golf & Country Club(private)Benton HarborBerrien Hills Country Club (private)Benton HarborPaw Paw Lake Golf Club

Watervliet

Blossom Trails Golf ClubBenton HarborIndian Hills Golf Course

Eau ClaireLake Michigan Golf Hills & Pro Shop

Benton HarborThe Oaks

St. Joseph

18 holes

18 holes

18 holes

18

holes

27 holes

18 holes

18 holes

71



Pebblewood Country ClubBridgman .

Pipestone Creek Golf & Tennis Club

Eau ClaireBrookwood Golf Course

Buchanan

Indian Lake HillsPipestone Township

Par3Benton Charter TownshipOrchard Hills Country ClubNiles Township

Plym ParkNilesPoint O'Woods

Benton Charter TownshipSignal Point ClubNiles

18 holes

18 holes

18 holes

27 holes

9 holes

18 holes

9 holes

18 holes

9 holes

Agricultural production is also a significant element in Berrien County's economy.Berrien County is noted for its fruit crops, particularly apples, pears, peaches, berries, and

grapes. The Benton Harbor Fruit Market is one of the largest distribution outlets for fruitproduce in the world.

The majority of large employers in the County are unionized, while the majority ofsmaller firms (less than 100 employers) are not. Past surveys have indicated that arealabor costs are very competitive with other regional and national manufacturing areas.

All-Phase Electric Supply Company has its national headquarters located in St. JosephCharter Township, the international headquarters Gast Manufacturing Corporation, an airpump manufacturer, is in Benton Charter Township, and the national headquarters of

electronics retailer Heath Company is in Benton Harbor.

Whirlpool headquarters remain in the area, and the company ' s Tech Center, whichprovides 450 highly skilled jobs, is located in St. Joseph. All that remains of V/hirlpool' smachining operation is the small Benton Harbor Division.

Several industries located in the area have relocated or closed operations. One recentclosing was Zenith Data Systems, a loss of over 600 jobs. Smaller spin-off businessservices and suppliers to these large manufacturers continue to close .

Of the 191 employers in the County, 61 companies have less than 50 employees. 21 havebetween 50 and 100 employees, 41 have between 100 and 200 employees, and 68companies have more than 200 employees. The list of Berrien County's largestemployers includes retailers, as well as food-processing, transportation, consumerproducts. education, telecommunications, healthcare. and city and county government

employees. as shown in Exhibit 3-39.

72



Exhibit 3-39Berrien Count'· EmploHrs

200 or More Employees

CompanYWhirlpool CorporationLakeland Reg. Health SystemsMercv Memorial Medical CenterAndrews UniversityAllied ChemicalIndiana Michigan Power Co.Leco CorporationAmerican Electric PowerAllied Signal Braking SystemsBenton Harbor Public SchoolsBerrien CountyZenith Data Systems Corp .Gast Manufacruring Corp .Niles Community SchoolsImperial Printing CompanyMeijer Inc.Pawating Hospital

Tyler Refrigeration Corp.Modem PlasticsBerrien Generai HospitalAtlantic AutomotiveHarding's Markets West Inc.Wal-Mart StoresWeldun International Inc.Wollin Products Inc.Beacon S e r v i c ~ s Inc.Lake Michigan CollegeSimplicity Pattern Co., Inc.Curtice Bums Inc.Lakeshore Public SchoolsMcDonalds RestaurantNew' Products Corp.

St. Joseph Public SchoolsWhirlpool Financial Corp.Shoreline BankHughes Plastics Inc.Ausco Inc.Berrien County ISDBerrien Springs Public SchoolsBuchanan Community SchoolsColoma Community SchoolsElectro Voice Inc .K-Mart Corp.National Standard Co.Peg Williamson EmploymentScope Services Inc.United Fixtures Co.United Technologies Auto SystemConsumer Concrete Corp.D&W FoodsJoanna CorporationAdco Die Cast Corp.All-Phase Electric Supply

Product

AppliancesHealthcareHealthcareEducationAuto partsNuclear powerInstructions, engineering & scientificElectric UtilityAuto & truck partsEducationCounty governmentComputers and equipmentCompressors, pumps, motorsEducationPrintingRetail tradeHealthcare

Refrigerated display casesPlastic productsHealthcareAutomotive interior trim componentsRetail groceryRetail tradeMetalworking machineryPlastic productsPersonnel supply servicesEducationDewing patternsFood processingEducationRestaurantFoundries, aluminum

EducationFinancial servicesBankingMolded-thermoplasticsTransportation equipmentEducationEducationEducationEducationAudio equipmentRetail tradeSteel wire drawingPersonnel supply servicesPersonnel supply servicesOffice furnitureUrethane steering wheelsConcrete/concrete productsRetail groceryCustom interior wood louvered shuttersDie castingsElectrical equipment wholesale

73

No. of

Employees

3,0002,2001,8001,7001,4001,3001,:2001,1851,0001,000

900800580550500500500

475460450400400400400400350350350300300300300

300300290280250250250250250250250250250250250250

240240210200200



. . . ,j

Company

Brandvwine Public SchoolsBurger KingClean America Corp.Community Hospital-WatervlietCorporate Staffing ResourcesHealth Care at Home Plus Inc.J.c. Penney Co .Peoples State Bank St. JosephPizza HutSassano Inc.Stanley Smith Security Inc .Wood Personnel Services

Product

EducationRestaurantBuilding servicesHealthcarePersonnel supply servicesHome healthcare servicesRetail tradeFinancial servicesRestaurantAuto serviceGuard servicesPersonnel supply services

No. of

Employees

200

200

200

200

200

200

200

200

200

200

200

200

Employment in the manufacturing sector in the Berrien County area is projected toremain at or near current levels. Services and trade will show moderate growth.Restructuring in the banking, healthcare, communications, and utilities industries mayaffect the local economy, but only minimally due to the small concentration of

employment in each these sectors. Growth in the retail and service sectors, as well as inthe tourism subsector, may provide support for new development in the region.

E. SUMMARY

The area economy has diversitied away from the auto industry somewhat, which should partiallyinsulate it from volatile economic swings in the future. Overall, the trend of slow economicgrovvth is projected to continue. However, the continuation of a static business climate willdampen the business and investment outlook over the long-term.

The W.E. Upjohn Institute identified the following key economic attributes important tobusinesses when making capital expenditures decisions. These attributes, similar to thoseidentified by manufacturing executives in the annual corporate surveys published by Area

Development: Site and Facility Planning, include the availability of a qualified workforce; aninfrastructure capacity to support growth, including government solvency; availability of

industrial sites; a growing and diversified economy; a good quality of life including the level ofcriminal activity; and the tax structure of the area.

Measured by these criteria and compared to other similar MSA' s, the Institute found fewstrengths and many weaknesses in the Berrien County/St. Joseph/Benton Harbor area, ashighlighted below.

Strengths

• Since 1990. per capita income in Berrien County has improved relative to the average forthe comparison areas.

• For the past six years. employment growth in Berrien County's manufacturing sector hasexceeded the average of the comparison group

• Earnings in Berrien County 's trade sector have grown faster than the comparison group ' saverage since 1991.

74



• According to the Berrien County's Michigan Employment Security Commission's

Employment Service rolls, there are nearly 1,000 individuals activel y looking for work inthe broad field of machine trades. Of all individuals looking for machine trade positionsduring a current 18 month period, 72% had a high school education or better, and over40% had four or more years of experience.

• From the first quarter of 1991 to the first quarter of 1996, employment in BerrienCounty ' s goods-producing sector increased 4% relative to the nation.

• Except for the City of Benton Harbor, the fiscal capacity of the local governmental unitsin the Benton Harbor area, as measured by their expenditures to State Equalized Value(SEV) ratio , is strong.

• The Benton Harbor area offers an excellent selection of industrial sites for new andexpanding businesses .

Weaknesses

• Berrien County's unemployment rate has remained above the average for the comparison

metropolitan areas.

• Berrien County' s population growth from 1990 to 1995 lagged behind all but one of thecomparison metropolitan areas.

• Except in the tourism-related eating and drinking sector, Berrien County's retail industryhas been unable to retain as high of a percentage of the area' s income as its counterpartsin the other {:omparison metropolitan areas.

• Berrien County's small business sector (firms employing 20 or fewer workers) has beenless dynamic than in the comparison areas.

• The cost of living in Berrien County is slightly higher than in the comparison areas.

• The crime rate in Berrien County , both in an outside of the City of Benton Harbor, ishigher than the average for the comparison group of metropolitan areas.

• The tax structure, unemployment insurance costs, and workers ' compensation inMichigan are not as competitive as in other states.

• Enrollment levels in several of Lake Michigan College's (LMC) machining technicalprograms have declined in the past several years, including a 32 .5% drop in electronicstechnologies and a 23 .6% decline in Machine Tool Technology from 1991 to 1995.Overall, enrollment a selected LMC technical programs having a manufacturing focusincreased 6.2% during the four-year period.

• Although growing slightly above the state's overall rate, the Benton Harbor area ' s SEVper capita remains below that of the state and for the rest ofBerrien County.

• While unemployment rates have been dropping in the Benton Harbor area during ·the pastthree years, there remains a wide discrepancy between the lack of employmentopportunities facing the residents of Benton Harbor and those living in the area's othergovernmental units.

75



Populations in the County, as well as in the cities of St. Joseph and Benton Harbor, declinedsignificantly over the past fifteen years and are not expected to change in the foreseeable future.The county's total population fell 5.8% during the 1980's and is expected to inch up only 0.6%during the 1990's.

National demographic trends and the aging of the baby-boomers are part of the reason for the

county ' s population decline during the 1980' s, however, the estimated drop during the 1990 's isdue largely to economic factors. According to national trends, more educated, highly skilledworkers have a higher propensity to move than less-educated, unskilled individuals. Theinability of the county to supply sufficient employment opportunities to keep and attract youngadults has negatively impacted the quality and quantity of its labor force.

Based on virtually all economic indicators, the area economy still lags badly behind the U.S.recovery which began in 1993 . Job growth has been minimal in the area, and the City of BentonHarbor has had chronic unemployment levels above 20% for more than 25 years.

The region's strengths include its location bet\veen Chicago and Detroit, its small but diversemanufacturing base, its natural attractions and role as a tourist destination, and its potential as aregional retail center.

The area's employment base averaged an anemic 0.3% annually for the last six years. Furtherlimiting the area's growth will be structural declines in manufacturing related to productivityadvances, as well as slow population and labor-force gains, and business costs, which can harmthe area's attractiveness to both future businesses and residents.

Services will remain the most active employment sector. Demographic changes in the age mixof the population will generate some growth in health-related sectors. The 45-64 year old cohortwill be the fastest-growing age-group over the next 10 years. At the same time, changes instaffing and other managerial strategies may increase employment in business service sectorssuch as personnel supply and data processing. Meanwhile, social services should see additionalgro\\l1h, as more resources are directed towards job training activities and the aging population.

State and local government payrolls will expand moderately , due to the need to bridge the gapbetween demand for public services and reduced federal spending.

Financial industry employment is expected to continue to decrease in the next few years. butinwstment and securities businesses are likely to see some job grow1h, due to increased demandby an aging population with increasing disposable income for financial planning andmanagement services.

Employment in the combined transportation. communications, and utilities sector will alsoadvance slowly over the next few years. Gains in transport-related sectors are expected to offsetjob losses in utilities and communications due to industry-w"de restructuring efforts.

Long term growth depends on the area's ability to attract new industries and residents. Without agrowing labor pool. there will be fewer and fewer opportunities to attract new businesses andindustries.

76



.. ", j

SECTION IV: THE INDCSTRIAL. COMMERCIAL. AND RESIDENTIAL REAL ESTATE

MARKETS

A. THE INDUSTRIAL ~ I A R K E T The recovery in the L.S. industrial markets has advanced more quickly than the recovery' of the officemarkets. Not only were industrials less overbuilt, but industrial revival in durables has stimulateddemand for assembly and distribution space for a wide variety of suppliers and subcontractors, at thevery same time that corporations are cutting middle management and banks are merging thousands ofjobs out of existence.

The U.S. has been reinvesting in its plant and equipment at a 5.0% compound rate since 1990 ,increasing its share 1.8 percentage points as a component of the real GOP. This commitment to futureproductivity is key to :\merica' s competitiveness in an increasingly global economy. Much of thisinvestment has been high-tech in nature, but as all manufacturing employs advanced technology likenumerically controlled machinery, precision robotics, and even bar-coded inventory trackingthroughout the production run. traditional industrial centers continue to playa role in manufacturing' srevival.

There has been an exceptional recovery in American basic industry. Led by high technologyindustries, but joined by traditional industries like automobiles. machine tools, and heavy equipment.the recovery from the recession of the early 1990's has been carried by the durables manufacturingsectors. Many of the criticisms leveled against U.S. corporations in the 1970's and 1980's - their focuson short-term earnings rather than long-range investment; their inattention to quality, management ' sdistance from the factory floor and from customer needs, and their lack of concerted response tooffshore challengers--have been addressed. As a nation, we are doing much better on all these fronts,and industrial real estate is reaping the benefit.

The general return of capital to the real estate markets, after the liquidity drought earlier this decade.

has unquestionably been helped by the intermediation of funds in securitized investment vehicles.Commercial banks now hold more than $700 billion in non-farm, non-residential mortgages, andprivate mortgage conduit holdings have grown from $15 billion in 1992 to $51 billion in 1996.Clearly, institutional investors and lenders are becoming more comfortable with new mortgagecommitments. Loan-to-value ratios were back up to almost 74%, and cap rates for industrial propertyinvestments were dO\\TI 30 basis points, to 9.87%. Financing has clearly been available .

The tone and tenor of the national industrial market, in short, has become much more enthusiastic andoptimistic over the year. This property type has come a long way since the depths of 1992.

SIOR data on approximately 9.7 billion s.f. of industrial inventory in 124 U.S. markets in 1995, andapproximately lO.O billion s.f. of industrial inventory in 129 U.S. markets in 1996. indicates steadilyimproving utilization of the nation's industrial inventory and a solid improvement in new construction

of light manufacturing. warehouse/distribution, and high tech/R&D facilities .

77



Exhibit 4-1 provides a regional summary of U.S. industrial markets in 1995 and 1996.

Exhibit ·HRegional Summaries--l".S. Industrial Markets

1995 Inventory Vacant Vacancy Construction Absorption

Region (MMs.f.) (MMs.f.) (% ) (MMs.f.) (MMs.f.)

East i'Jorth Central 2.299.8 141.2 6.1% 27.7 59.0East South Central 465.0 16 .8 3.6% 5.5 18 .7

Middle Atlantic 1.318.8 122.4 9.3% 4.9 16.6

Mountain 538.0 30.2 5.6% 12 .5 26 .6

New England 225.3 27.3 12.1% 1.0 6.0

Pacific 1.992.6 169.7 8.5% 14 .2 63.4

South Atlantic 1,265.8 112.3 8.9% 28.1 47.4

West North Central 659.1 37.3 5.7% 4.3 11.4

West South Central 941 .2 64.8 6.9% 10.2 25.5

Totals 9.705.6 722.0 7.4% 108.4 274.6

1996

Region

East North Central 2,473.6 151.1 6.1% 31.9 70.0

East South Central 491.3 19.9 4.1% 7.2 11.7

Middle Atlantic 1,412.8 137.5 9.7% 8.5 16.5

Mountain 582.6 33 .5 5.8% 16.0 24.4

New England 172.4 16 .7 9.7% 0.7 4.2

Pacific 2,064.1 149.1 7.2% 15 .5 45.5

South Atlantic " 1,197.4 111.5 9.3% 25.3 39.1

West North Central 665.1 28.1 4.2% 5.4 18.0

West South Central 965.0 66.0 6.8% 18.3 19.4

Totals 10 ,024 .3 713.4 7.1% 128.8 248.8

source: SIOR

Nationally. absorption continued to outpace inventory increases in 1996. Although the difference intotal inventory between 1995 and 1996 was 318.7 million s.f., as shown in Exhibit 4-2. five newmarkets repre'senting approximately 132.0 million s.f. were added to the SIOR survey.

Exhibit 4-2Regional Industrial Markets

1995 - 1996 Change

Inventol!' Vacant Vacancy Construction Absorption

Region (MMs.f.) (MMs.f.) (% ) (MMs.f.) (MMs.f.)

East ~ o r t h Central 173 .8 9.9 0.0% 4.2 11.0

East South Central 26 .3 3.1 0.5% 1.7 (7.0)

Middle Atlantic 94.0 15.1 0.4% 3.6 (0.1 )Mountain 44.6 3.3 0.2% 3.5 (2.2)

New England (52.9) (10 .6) (2.4%) (0.3) ( 1.8)

Pacific 71.5 (20 .6) (1.3%) 1.3 ( 17.9)

South Atlantic (68.4) (0.8) 0.4% (2.8) (8.3)

West North Central 6.0 (9.2) (1.5%) 1.1 6.6

West South Central 23 .8 l.2 (0.1%) 8. 1 (6.1

Totals 318.7 (8.6) (0.3%) 20.4 (25.8)

78



Overall vacancies declined by 8.6 million s.f. and the overall vacancy rate declined by 0.3% , from7.4% to 7.1 %. The continued drop in the U.S. industrial property vacancy rate represents a four-yearvacancy rate improvement of 3.8 percentage points from 10 .9% at the market bottom of 1992, in amarket survey that now encompasses over ten billion s.f. of space.

New construct ion activity increased 20.4 million s.f., or 18.4%, during 1996, to 128.5 million s .f.,compared to 108.5 million s.f. in 1995 (a 22.8% increase over 1994), and 18 .6 million s.f. in 1992.The continued increase in development represented only a 1.3% inventory expansion. However,absorption declined by 25.8 million s.f., or 10.8%, from 1995's 278 million s.f. Last year's gains inoccupancy were equal to 34.8% of the 713 million s.f. of space still available in the industrial markets.dov.n from 39% in 1995.

Strong durables manufacturing performance played to the strength of the industrial Midwest in 1996.The Midwest has experienced extraordinary absorption for warehouse facilities in geographic locationshaving an ample supply of high cube space for manufacturers, distributors, and retailers toaccommodate the consumer demand for goods , and to provide lower-cost goods through greaterdistribution efficiencies.

The seventeen markets covering the Great Lakes states from Ohio to Wisconsin, the East North Centralregion, have the largest total inventory of the nine regions reported by the SIOR. The 2.5 billion s.f. ofindustrial property in this region make up 24.7% of the national industrial stock.

Net absorption of 70 million s.f. in 1996, following the 59 million s.f. absorbed in 1995, kept theregional vacancy rate at 6.1 %, \vell below the national norm. This absorption represented an 18.6%increase over 1995, which was a 59% increase in absorption compared with 1994. During the threeyear span, approximately 150 million s.f. of transactions took place, an average of 12.5 million s.f. perquarter.

About two-thirds of the nation' s industrial property stock is located in suburban areas, though a stillsubstantial 3.3 billion s.f. is located in the central cities. Higher land prices and problems of trafficcongestion in central areas constrain development opportunities. Central City vacancy rates increasedfrom 8.2% to 9.3% over the course of the year, while suburban vacancy dropped from 6.8% to 6.3%, assho\\TI in Exhibit 4-3.

Exhibit 4-3U.S. Industrial Vacancy Rates

198919901991199119931994

19951996

Central City7.9%9.5%

10 .2%1\.6%

10.4%9.2%

8.2%9.3%

Suburban

8.1%8.5%

10 .0%10 .3° /0

9.9° /0

-;".9%

6.8%6.3%

With suburban vacancy below 50 million s.f. nationally, and 1996 absorption for out-of-the CBDmarkets at approximately 182 million s.f., suburban construction represented 79.4%, or 102 millions.L compared to 87 million s.f. in 1995. The recovery of the construction sector is still mainly inbuild-to-suits, but speculative development is underway in many markets and actively planned in manymore.

79



Several of the major midwest metropolitan industrial markets, Chicago, Cleveland, Detroit andMilwaukee, as well as the secondary markets of Dayton, Fort Wayne , Grand Rapids, Lansing, andSouth Bend, influence the St. JosephlBenton Harbor industrial market.

Exhibit 4-4 provides a two year picture of the activity in these markets. The Chicago MSA posted thehighest totals both for absorption and construction of all the East North Central Region submarkets in

1996, but Cleveland's absorption of 12.2 million s.f. and Detroit ' s 7.6 million s.f. were notable signs othe regional progress as well. Eight of the ten markets experienced significant decreases and Detroithad vacancies increase. The amount of construction increased in most markets, as did absorption. Albut two of the markets had single digit vacancy rates , while the GarylHarnmondiEast Chicago andLansing markets had vacancy rates of 12 .2% and 14 .8% respectively.

Exhibit 4-4I n d u ~ t r i a l Submarkets

1995 - 1996

l2.2.S

Market Area Inventory Vacant Space Vacancy Construction Absorption

Chicago,IL 7 700,000 55 ,664,000 7.5% 7.797,000 19,536,000

Cleveland, OH 297,000,000 27,300,000 9.2% 3,220,000 4,450,000Dayton,OH 2 9 0 , 0 0 0 4,440,000 9.6% 750,000 350,000

Detroit, MI 196,437,706 10 ,593,614 5.4% N/A 9,771 ,581Fort Wayne, IN 33 ,140 ,000 4,730,000 14 .3% 325,000 570,000Grand Rapids, MI 73.240,000 3,295,000 4.5% 2.000,000 1,197 ,600

Gary-Hammond-East Chicago ~ 8 . 0 0 0 0 0 0 7,800,000 16 .3% 200,000 1,100 ,000

Lansing, MI O O O , O O O 645,000 16.1% N/A N/A

Milwaukee, WI 200,000,000 1,204,854 0.6% 350,000 4,295,146

South Bend, IN 52.750,000 1,000,000 1.9% N/A 2,500,000

1996

Chicago, IL 858.814,000 58 ,478,000 6.8% 11.093,000 26,470,000

Cleveland. OH 303.050,000 2 1,136,000 7.0% 3,325,000 12 ,214,000

Day1on,OH 0 4 0 . 0 0 0 4,120 ,000 8.8% 600,000 1,070.000Detroit, MI 206.199,304 12 ,762.390 6.2% 2.000,000 7.592,822Fort Wayne. IN 33.140.000 2,000,000 6.0% 520,000 2.730,000Grand Rapids, MI 75.000,000 3,000,000 4.0% 1.500,000 2.055,000Gary-Hammond-East Chicago ~ 8 . 3 5 0 0 0 0 5,900,000 12.2% 375,000 2.250,000Lansing, MI 3.366,196 498,015 14 .8% 20,000 N/A

Milwaukee , WI 20 0,500.000 8,075,689 4.0% 520,000 2.744,311South Bend. IN 56.600,000 900,000 1.5% 120,000 800,000

South Bend's vacancy rate of 1.5% and Grand Rapids ' 4. 0% vacancy rate are good indications of ahealthy industrial market in the area. Both markets have less than two years worth of available suppland absorption has outpaced construction.

Sale and lease prices of industrial buildings and land held steady between 1995 and 1996 , as shown inExhibit 4-5. Average building sales prices ranged from $15/s.f. to $28/s.f. in 1996, compared to$17/s.f. to $27/s.f. in 1995, and the average sale price increased only $0.11 to $21.89/s.f. Averageindustrial lease rates ranged from $2.60/s.f. to $3.70/s.f. in 1996, compared to $2.40/s.f. to $3.60/s.f.1995, and the overall average lease rate increased only $0.15/s.f. , or 5%. Similarly, average land saleprices increased $0.19/s.f. to 51.54/s.f. or $66,800/acre.

80



Exhibit 4-5Su!.2ur!.2an Midwest Industrial Mark!:ts

Land> 10

Buildings> 40,000 s.f. Acres1995 Sale S/s.f. Lease Sis. f. Sale S/s.f.

Market Low High Low High Low High

Chicago,IL $23 .00 $36.00 $3 .60 $3 .80 S2.00 $3.50Cleveland, OH $16.00 $26.00 $2 .60 $3.40 SI .OO S2 .50

Dayton.OH $11.00 S23 .00 S2 .00 $3 .00 SO .50 SO .75

Detroit, MI $25.00 S45 .00 S3.50 S5 .00 S2 .00 S3 .25

Fort Wayne, IN S15 .00 $20.00 $1.75 S3 .50 SO.40 $0.50Grand Rapids, MI $ 22.00 S29.00 $2.65 $2 .95 Sl.l5 $1.45Gary/HammondE.Chicago $10 .00 $20.00 $2 .00 $3 .25 SO .80 SI.25

Lansing. MI N/A N/A $2.00 $4.50 SO .25 N/A

Milwaukee, WI $14.00 $24.00 $2 .00 S3 .50 SO .25 $1.00South Bend, IN $15.00 $18.00 S2 .00 $2.80 $0.70 N/A

Averages $16.78 S26.78 $2.41 $3.57 $0.91 $1.78

1996Market

Chicago,IL $17 .00 $36.00 $2 .75 $5.00 $1 .25 $5 .00Cleveland,OH $20 .00 S28 .00 $2.75 $3 .65 $l.l0 $2 .70Dayton,OH $ [ 1.00 $23.00 $2 .00 $3 .25 SO .50 $1.50Detroit, MI $10.00 $45.00 S3 .00 $4.50 S2 .00 $4.00Fort Wayne, IN $15 .00 S20.00 $2 .25 $2 .75 SO .60 N/A

Grand Rapids, ~ f I S22.00 S29.00 $2.60 S3 .00 Sl.lO SI.45

GarylHammondiE.Chicago $[0 .00 $24.00 $2.00 S3 .75 SO.80 $1.25Lansing, MI N/A N/A $3 .00 S4.50 N/A N/A

Milwaukee, WI $[5 .00 $35 .00 $3 . [0 $4.00 $0.50 $1.35South Bend, IN $[6 .00 $[8 .00 $2.35 $2.50 $0 .33 N/A

Averages $[5 . [ [ $28 .67 $2 .58 $3.69 SO .9[ $2.[6

Source: SIOR

The Berrien County industrial market is largely comprised of manufacturers and assemblers, andmanufacturing space makes up the majority of the County's industrial base.

Plenty of land is available for development in this relatively undeveloped industrial market.Undeveloped sites ranging from a single acre to 820 acres, offering highway access, highway frontageand room for expansion are available in Berrien County , at prices ranging from $1.00 per site in theUrbandale Industrial Park to $7.500 per acre for sites located in industrial parks with immediate accessto 1-94 interchanges.

81



The County has fifteen major industrial parks, three classified as Certified Industrial Parks by theMichigan Professional Industrial Development Association , as shown in Exhibit 4-6.

Exhibit 4-6Berrien Count\, - Industrial rarks

TotalName Location Acres $/Acre

Andrews Farm Industrial Park* Buchanan 52Bad gco Industrial Park Watervliet Township 34Cornerstone Industrial Park Benton Harbor 74 $5,000Eau Claire Industrial Park Eau Claire 80El isha Grav II Business Park Benton Harbor 91 $5,000Galien Industrial Park Galien 44Napier Industrial Park Benton Township 109Ni les Industr ial Park* )Jiles 48No rth of Main Industrial Park Benton Harbor 51 $2 ,000Nve' s Industrial Park St. Joseph Township 42Oid Orchards Industrial Park Benton Township 58Orchard Hill Industrial Park Watervliet Township 129Pipestone Industrial Park Benton Township 278St. Joseph Industrial Park St. Joseph 80

u rbandale Industrial Park* Benton Township 43 $1County Total - Industrial Parks 1,196

Other Sites:" ~ r t h s t a r Site Benton Twsp./Sodus 820 $7 ,500

*CertifiedSource: Southwestern Michigan Commission

Several industrial parks are located in the St. JosephlBenton Harbor area. Cornerstone Industrial Parkis located between M -63 and 1-196 with frontage off of Red Arrow Highway on North Crystal A venuSouthwest Michigan Regional Airport is adjacent to the property and the park has easy access toairport, rail, port and interstate highways.

Elisha Gray II Enterprise Park for Commerce and Technology is located on Paw Paw A venue withinone mile ofM-63. I-l96, and South\vest Michigan Regional Airport. The park is a designatedRenaissance Zone. The Whirlpool Media Center is located in the park, and a major manufacturer ofrolled steel ceiling splines is considering locating in the park.

The North of Main Industrial Park is located between Main Street, Paw Paw Avenue, Klock Road andthe Paw Paw' River in Benton Harbor. It is an area of many older industrial and commercial buildings\\ith easy access to the CSX railroad facility , port facilities, Southwest Michigan Regional Airport, 1-

9-+ and to l ;S-3 1133. A portion of the area is a designated Renaissance Zone.

C rbandale Industrial Park is located in and owned by Benton Charter Township . It is adj acent toSouthwest Michigan Regional Airport. between Territorial Avenue and Business Route 1-94. and hasgood access to 1-94.

The 820 acre "North Star" Development Site, which was an assemblage of smaller parcels located inBenton Charter Township and Sodus offers the opportunity for a "greenfield" development for a largeindustrial concern.

The StJ Joseph Industrial Park. located on Red Arrow Highway, is almost fully built-out. The park haexcellent access to 1-94, several sites are rail served, and industrial space is available for lease or sale.

82



Located throughout the region are numerous fully-serviced individual industrial sites, as well as vacanand shell buildings of varying sizes.

Exhibit 4-7 identifies the number of parcels available ranging in size from less than 10 acres to more

than 40 acres.

Exhibit 4-7Number of Parcels Available For Industrial Development

By Parcel Size

Size<10 acres10--Wacres>40 acresTotals

# Parcels

51

62

22

135

0/ 0

37. 8%45 .9%16.3%

100.0%

Source: Cornerstone Alliance

Industrially zoned properties represent approximately 22% of Berrien County ' s tax base, commerciallzoned properties represent 10%, uses such as golf courses, camp grounds, and other miscellaneous userepresent another 10%, agricultural properties are 4%, and residentially zoned properties make up morthan half, 54%, of the County ' s property tax base.

Discussions with local appraisers, real estate brokers, owners, and local and County assessment andeconomic development professionals confirmed the lack of industrial market activity in the St.JosephlBenton Harbor area.

More than 1.0 million square feet of good industrial space is available for sale or lease in the greater SJosephlBenton Harbor area. This does not include buildings such as the Superior Steel or MalleableSteel properties, which represent almost 200,000 s.f. , nor the older industrial buildings in the North ofMain area. The movement of commercial and industrial activities away from the city has left many

buildings vacated and abandoned.

Good industrial space is available for lease at annual rates ranging from $0 .60/s.f. , triple net to

$2.75 /s.f., triple net. Recent activity has centered around the Zenith Data Systems and Cro\\-TI Cork &Seal buildings, which together represent more than 680,000 s.f. of total building space, and more than500.000 s.f. of available space. Two recent leases at the Zenith building are summarized inExhibit 4-8 .

Exhibit ~ - 8 Industrial Buildings Leasing Activity

Address Date

Zenith Building 19971997

Activitv

40K s.f.25K s.1'.

Company

Eagle TechnologiesDesign Fulfillment

83

Term

3 yr.3 yr .

Type

WhseWhse

Rate

S\.75/s.f. 3NS\.75/s.f. 3N



Nearly 1.0 million s.f. of industrial or commercial/industrial space is available for sale, with askingprices ranging from S3 .04/s.f. for an older 115,000 s. f. industrial building to $54.96/s.f. for a neweroffice and light industrial facility, as shown in Exhibit 4-9.

Exhibit 4-9Available Industrial Buildings

AskingAddress Bldg. ~ a m e Size(s.f.) Acres Price S/s.f. Comments

Hilltop Road Ze:nith Bldg 532.000 29 .7 57.500,000

No rth oo.,lain 115.000 9.2 $350,000 53 .04 50%-60% leasedRiverview Dr. He:ath Bldg. 90.972 I 1.1 55.000,000 fully leasedZoschke: Rd . Saluto Pizza 31,200 75 5500,000 516.02 fully leasedLake:shore Dr . Crown. Co rk 148 .400 19 .2 Nego. l'ie:go. lc:asing 5060-S 1.00 /5. f.

Ri ve:rv iew Dr. Honda Bldg . 16,000 4 .5 $750,000 $46.88

Main St. Kitchen 'vlart 0 0 0 $285 ,000 56 .33 5125.000 IRS Lien

Britain Ave: . 10 .000 535 ,000 53.50

Britain Ave. Chevrolc:t Dlr. 33 ,000 5.0 5300 ,000 59 .09Main St. Ideal Plumb. 60 ,000 5300.000 55 .00 part leased

Rivervie:w Dr. 108 ,000 5.7 51 ,495,000 $13 .74

There have been no recent sales of existing industrial buildings larger than 20,000 s.f. Pending salest\\lO older industrial buildings. both greater than 100,000 s.f. , indicate sale values of $1. 73/s.f. to$5.00/s.f.. as shown in Exhibit 4-10.

Exhibit 4-10Industrial Buildings Sales Activitv

SaleAddress Bldg. Name Size(s.f.) Acres Price

Paw Paw Avenue ALRECO 114 .000 64 5300,000

Empire St. Madar I ~ O . O O O 13 $700.000

$/s.f. Comments

5 I. 73 5 I . l M Sale includes Mach.

& Equip.

55. 00 S2.5M Sale includes Mach.

& Equip.

There have been very few industrial land sales in the St. Joseph/Benton Harbor area for more than thryears. Only two sales of parcels greater than 10 acres have occurred, and none since 1994, as shownExhibit 4-11 .

Exhibit 4-11Industrial Land Activitv

Address

Cornerstone IndustrialCornerstone IndustrialElisha Gray II Park

Date Activitv1993 20 acres1994 20 acres1994 5 acres

Company

Atlantic AutomotiveDawson Mfg.Whirlpool

Price

SIOO.OOO

SIOO .OOO

S25 ,OOO

S/Acre$5,000$5,000$5,000

84



Recent activity in the local market is encouraging. Several companies, representing 1.2 million s.f. ofrequired industrial space, are currently considering locations in the St. JosephlBenton Harbor area, asshown in Exhibit 4-12.

Exhibit -'-12Current Activitv

Requirement T\'pe/# ,Jobs Use Companv Activity Status

800 Acres Industrial Foreign .-\uto

Mfg.

Considering North Star Site, Kentucky, Iowa Indiana. Pend ing

10 Acres Industrial l7S Cold rolled steel Worthington Steel Considering Elisha Gray ll - 10 acres @ S7.5GO /acre Negctiat

150,000 sf

100,000 sf

8-10 Acres

-10 Acres

21S,OOO sf

110.000 sf

600,000 sf

IS.OOO s.f.

Industrial/ISO

Industrial

Residential

Residential

Industrial

Commercial

Industrial

Commercial

Paper ; ;mverting

Tissue ;onverting

Elderly housing

Residential rental

Furnituredistributor

Computer systems

office

Gypsum

wallboard

Office

Oakbrook/Nu Way

Paper

Great Lakes Tissue

Chicago Developer

Developer

Amerwood

Digital Interface

Systems

USG

Whirlpool

Infrastructure (approx. S450 ,OOO) to be paid by City

and State.

Considering Crown. Cork- S O , S . 6 0 s f . ] ~ thru

9/30/2000, then SI .OO/sf. SI . IS /sf 5 year ea .

Zenith bldgs.- SI .2S/sf3yr SI .75/sf bal., 3N -CA:-.t

S.50/s f

Considering B.H. Engineering - see notes # I

Considering Edgewater for high end, market rate

elderly and assisted care facility

Agreement to purchase 40 acres/approx. S40 .000 in

Benton Twsp . for 80 attached townhouse style units

Requested quote for Zenith Building

Considering Zenith Building office area - S3 .25/st: 3N

Considering Graham Avenue

Considering Zenith Bldg. office area

Neg otiat

Negcti:lt

Pending

Negotiat

Pending

Pending

Pending

Pending

I. Cornerstone is currently negotiating to purchase 107,000 sfJ7 Acres $400,000-$450.000. will lease to GLT @S.90/sf, 3N 10 yr term.includes 15 year bonded roof@ $216.000 to be paid by Cornerstone Alliance.

B. THE COMMERCIAL MARKET

1. Office

Construction data from the U.S. Department of Commerce begin to sketch the broad outlines ofthe national office market revival. Restricted development enabled many markets to reduce theconsiderable vacancies of the early nineties. At the same time. the value of new officeconstruction put in place has exceeded $20 billion (measured in constant 1992 dollars) in eachof the past several years. and many markets are now seeing cranes on the horizon for the firsttime in this decade.

Office is actually a "hot property type" as pension funds , REIT's and life insurers are back inthe market, developers are building new office product, and leasing and investment brokers arebusy.

Landauer's monitoring of transaction volume indicates that investors are committing more than$1 billion each quarter to office properties across the U.S. Commercial office buildings arecapturing the highest share ofreal estate investment dollars, approximately 35% of totalproperty sales recorded nationally in the first three quarters of 1996. Foreign purchasers havereturned to the market. real estate investment trusts and limited partnerships have committedsubstantial volumes of capital, and small, private investors have matched the big players inaggregate sales price volume by completing hundreds of moderate-sized transactions.

85



On a nationwide scale. the drivers of absorption reflect key employment sectors . White collaremployment was up by 1.8 million jobs during 1996, with managerial and professional workeraccounting for most or" the gains. Middle-and-upper management jobs, the targets of previousdownsizing efforts, are now being restaffed. In fact, corporations are recalling as many as 20%of their laid-off staffs to exactly the same jobs that were eliminated in efforts to cut costs andboost stock prices. Some have been rehired while others are now "independent contractors"

without corporate benefits. In terms of office space demand, the results are the same. Layoffsdid not necessarily equate to vacant space.

A number of office-intensive industries showed strong job growth in 1996. Despite forecasts oseveral years ago which predicted that technological advances would be a negative force onoffice demand. communications companies added 59,000 jobs and computer sen'ices firmsadded 120,000 positions. Over the past 12 months, commercial banks added 10.000 jobs,insurance employment is up 20,000 , and the securities & commodities sector has generated46,000 jobs . Real estate itself has added 45,000 positions (not counting construction jobs). andengineering and architectural firms added 31,000 new jobs.

The national office vacancy rate dropped below 13% for the first time in more than a decade .The 11.6% vacancy rate for 1996 reflects a 2 .1 percentage point drop over 1995's 13.8% office

vacancy rate.

F our of the eight regions of the country had single-digit vacancy rates, led by the East SouthCentral's and South Atlantic ' s 9.0% availability rate , as shown in Exhibit 4-13.

Exhibit 4-13Regional Summaries - C.S. Office Markets

1995

Region

East North Central

East South Central

Middle AtlanticMountain

New England

Pacific

South Atlantic

West North Central

West South Central

Total

1996

Region

East North Central

East South Central

Middle Atlantic

Mountain

New England

Pacific

South Atlantic

West North Central

West South Central

Total

Inventory

( ~ l " l s . f . ) ~ 5 6 . 3

33.9

-63.1129.7

175.3

545.7

151.2

~ 6 9 . 0 ~ O 4 1 . 1

379.1

94.1

737.7

148.9

135.2

402.0

745.6

116.0

379.3

3237.9

Vacant

(MMs.f.)

49.7

8.0

115.211.7

24.0

63...1

65 .3

16 .8

67.0

421 . 1

38.9

8.4

110.8

13 .0

19 .0

50.4

66.9

11.2

55.9

374 :5

Vacancy Construction Absorption

(%) (MMs.f.) (MMs.f.)

13.9% 3.2 7.3

9.5% 1.7 2.9

15.1% 1.1 3.3

9.0% 2.9 .+.2

13 .7% 0.1 2.8

13.6% 1.7 11.8

12 .0% 8.1 13 .2

11.1% 0.4 0.5

18.2% 0.2 4.5

13.8% 19.4 50.5

10.3% 2.7 4.0

9.0% 2.8 3.7

14.1% 2.4 13 .7

9.3% 4.1 4.1

10 .2% 1.2 4.0

12.5% 2.9 9.3

9.0% 10 .3 20.4

9.7% 1.1 7.8

14.7% 1.0 16.0

11.6% 28 .5 83.1

86



As shown in Exhibit 4-13, the industrial heartland in the Great Lakes states benefited from theexcellent performance of the U.S. auto industry over the past several years, as well as thegenerally strong activity in the durable goods manufacturing sector. SIOR figures show that1996 vacancy rates for the sixteen markets reporting in the East North Central region this yearfell from 1995's 13.9% level to a current 10.3%. Net absorption was nearly 4,000.000 s.f., withonly 2.7 million s.f. of new supply added to the submarket.

Moreover, the gains in occupancy were achieved even as reported construction activity roseonce again. Perhaps the best measure of revival is the construction total. Most of this is "buildto-suit" space, commitments on the part of America's business to modern, more productivefacilities even as a body of older, less expensive space remains on the market. Officedevelopment jumped to 28.5 million s.f., up from 19.4 million s.f. in 1995 and less than 14million s. f. in 1994. Net absorption, defined as the change in occupied office space from periodto period. increased to 83.1 million s.L 65% higher than 1995's net absorption of 50.3 millions.f.

All major market segments, CBD and suburban, Class "A" and Class "B" properties

participated in the vacancy decline. All four categories have sustained a pattern of occupancygains since the national office market began its turn in 1991-1992. Prime space in the suburbsdropped to 8.8%, down from 11.1 % twelve months ago . Top quality downtown offices alsoregistered a major availability decline. with an 11.1 % vacancy in September 1996. comparedwith 13 .0% in the previous year.

However, double-digit vacancies at the national level are still too high. They represent a 375million s. f. block of un utilized space, an enormous amount of unproductive capital for the U.S.investment community. But the improvement is real and its extent significant.

The Chicago metro area made great strides over the year, especially in its suburban markets.Detroit is riding the boom in its key industry, with the GM move to downtown's RenaissanceCenter. an example of how even manufacturing sector forces can affect office property markets .

Dayton and Toledo, hO\\'ever, were struggling with negative net absorption and \ 'acancies in theteens.

As shown in Exhibit 4-1-+, many of the midwest office markets improved dramatically between1995 and 1996, including Chicago, Fort Wayne, Grand Rapids, Lansing and South Bend.Chicago 's vacancy rate dropped more than 30% to 9.5%, Fort Wayne's dropped 13% to 10.8%.Grand Rapids' dropped -+0% to 8.0%, Lansing's dropped 13% to 9.5%. and South Bend'sdropped 17% to 7.7%. Cleveland, Day10n, Detroit all have continuing softness in their officemarkets, with vacancy rates still above 13%, but all of the markets have shown improvement.

Exhibit -t-14

Class A Midw!:st QfIi!;e Market

1995Vacant

Market Area Inventory Space Vacancv Construction Absorption

Chicago,IL 145 ,768.768 21,872,942 15 .0% 221,456 1.687,570

Cleveland,OH 35,719.8.t1 5,463.178 15 .3% 0 1.385,714

Dayton.OH 11,631.924 1,503,649 12.9% 20,000 277,893

Detroit, MI 56,299.220 8,266,479 14 .7% 98 ,548 1.849,144

Fort Wayne, TN 5,400.800 659,863 12.2% 0 (35,243)

Grand Rapids. MI 8,347.600 1,569,700 18.8% 0 571,300

Gary-Hammond-East Chicago. IN 3,043.000 175 ,050 5.8% 30,000 87,750

Lansing, MI 5,608A96 605,652 10.8% 180.000 (548.356)

South Bend. IN 3,750.000 340,000 9 . 1 ° 0 55,000

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1996 VacantMarket Area I n v e n t o r ~ S ~ a c e V a c a n c ~ Construction A b s o r ~ t i o n Chicago, IL 203,868,947 19,440,257 9.5% 300 ,000 1.297,256Cleveland, OH 35,719,841 5,135,963 14.4% 263 ,000 327,215Dayton.OH 11.651.924 1,570.515 1 3 . 5 0 (-l6,866)

Detroit , MI 13 ,708,088 1,802,962 13 .2% 0 1148,071)Fort Wayne. IN 5,400 ,800 584,699 10 .S% 0 75 , 164

Grand Rapids, MI 3,093,000 709,000 8.0% 203 ,000 81 ,800Gary-Hammond-East Chicago, IN 8,892,900 170,700 5.5% 35,000 54,350Lansing, MI 6,047,419 571 ,801 9.5% 220,000 -l72,774

South Bend, IN 3,955,000 306,000 7.7% 35,000 239,000

However, absorption is declining in most of the markets, with the exception of Fort Wayne.which experienced negative absorption in 1995 and only modest absorption in 1996 ; South -Bend, which had absorption equaling almost 2/3rds of the available space in 1996; and Lansinwhich had a dramatic turnaround from 1995's negative absorption of 548,356 s.f. to 1996 'spositive absorption of 1,021,130 s.f., as shown in Exhibit 4-15.

Six of the nine markets reported modest increases in construction, suggesting furtherconfidence in the local office markets.

Exh ibit 4-15Midwest Office MarketsChanges: 1995-1996

Market Area

Chicago,IL

Cleveland, OHDayton,OH _Detroit, MY .

Fort Wayne. INGrand Rapids. MIGary-Hammond-East Chicago, INLansing, MI

South Bend, IN

VacantInventory S ~ a c e 58, 100 , 179 (2,432,685)

(327,215)20,000 66,866

(42,591 ,132) (6,463 ,517)

(5,254 ,600)5,849,900

438 ,923

205,000

(75 ,164)(860,700)

(4,350)(33,S51)

(34,000)

Vacancv Construction A b s o r ~ t i o n (5.5%) 78,544 (390.314)(0.9%) 263,000 (1 ,058.-l99)

0.6% (20,000) (32-l .759)(1.5%) (98,548) (1 ,997,115)(1.4%) 110.407

(10 .8%) 203 ,000 (489 .500)(0.3%) 5,000 (33.-l00)(1.3%) 40,000 1.021.130

(1.4%) 35,000 IS-l.OOO

Office building sale and lease prices have improved as well. Lease rates range from $12 .00/s.in Grand Rapids to $26.00/s.f. in Chicago, and sale prices range from $60 .00/s.f. in Fort Waynto $175.00/s.f. in Chicago, as shown in Exhibit 4-16.

Exhibit 4-16Class A Midwest Office ;\"farketBuildings Larger Than 40,000 s.f.

1996Market

Ch icago, IL

Cleveland,OH

Dayton,OHDetroit, MI *Fort Wayne, INGary/HammondlE.ChicagoGrand Rapids, MILansing, MISouth Bend, IN

* eBD Onl y

Sale S/s.f.

Low High

$115 .00 $175 .00565 .00 511 2.00

N/A N/A$ 65 .00 $139.005 60.00 5 90.00575.00 $120.00

$ 65 .00 $120.00N/A N/AN/A N/A

88

Lease Si s. f.

Low High

$22.00 $26.00$15.00 $22 .00

$14 .00 $19.25$18 .00 $23 .50$13 .00 $16.00$13 .00 $18.00$12 .00 $17.25$14.00 $18.00$15.50 $IS .50



the trade area, termed "retail spending leakage" . The final report, issued in November 1992,found that the primary geographic area served by the St. Joseph/Benton Harbor retail trade areincludes Benton Harbor, St. Joseph, Berrien Springs, Coloma. Watervliet and Stevensville.while the secondary trade area draws from an area which includes South Haven. Dowagiac.Niles, Buchanan and Sa\vyer.

A significant number of shoppers frequent the downtown shopping areas from out-of-re gionand out-of-state locations . The St. Joseph downtown area indicates 30% of its patronageoriginating from this group of shoppers , as opposed to 7% for the trade area as a whole.

Do\\ntown Benton Harbor serves the smallest trade area . The retail services are locallyorientated and designed to provide goods and services to residents and workers in theimmediate area.

Downtown St. Joseph serves the largest trade area, larger even than that served by OrchardsMall and Fairplain Plaza, due to customers from out-of-state and from the larger geographicarea. St. Joseph serves as the primary restaurant, recreational shopping district and the tourisentertainment center of the metropolitan area.

The Orchards Mall area functions as the regional shopping center. The geographic trade areareflects the midpoint of travel time to competing regional shopping centers located insurrounding metropolitan population centers such as Kalamazoo, Grand Rapids. and SouthBend.

Several studies were conducted to determine the number of households residing within each o

the trade areas, their annual incomes and spending patterns . Additionally, estimates to 1996were made to determine the anticipated growth of households in the trade area.

There were 62,066 households in the trade area in 1992, 36,045 in the primary and 26,021 inthe secondary areas.. \ 5% growth was predicted between 1992 and 1996 , resulting in 65.395households in 1996. In 1992, 29% or 18,000, of the households had average annual incomes excess of $40.000, which was projected to increase by 37%, to 24,000 households in 1996.

The average household in the trade area annually spends $29.341 , $4,396 less than the nationaverage spending panern, in 1992 dollars . The difference in spending between the local tradearea and the national average was assumed to be spent outside the trade area and represents thretail spending leakage.

Approximately 43% of total personal income is spent on goods and services in the trade area.This is 8% greater than the state average , but within the expected range of 33% to 50%. Totaspending potential equaled $1.8 billion and the estimated leakage totaled $272.8 million in1992. These were projected to increase to $2.3 billion and 5287.4 million respectively by 19

The leakage in 1992 amounted to approximately 13% of the total amount of spending potenti

within the trade area.

The forecasts of future sales potential did not consider potential expansion of the trade areabeyond the current defined geographic boundary resulting from the creation of a "critical maof retailers in one location resulting in extended retail drawing power in the future.

'"

Most area retail stores are slightly larger than the comparative midwest store size . The largestore size and lower sales generation rates are related and in part explain the lower capture rafor the overall size of the total shopping area.

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The shopping areas studied contain 4,016,944 s.f. of commercial and office space, of whichonly 10 .6% was vacant. as shown in Exhibit 4-17. Vacancy within various shopping areasranged from 2% in St. Joseph to 32% in the Fairplain Plaza/M-139 shopping area (nowvirtually 100% vacant ).

Exhibit 4-17

Shopping Area Capture Rate Analysis

Benton Fairplain OrchardSho[![!ing Area Harbor Plaza Mall St. Jose[!h Trade Area

Total Number ofBusinesses 112 54 292 210 668Commercial S.F. 358,905 240,711 1,693 ,034 440 ,665 2,733 .315Office S.F. 320 ,580 25,704 112,944 399, 181 858.409Vacant S.F. 119,823 123 ,835 164,602 16 ,960 425.220Total S.F. 799,308 390,250 1,970,580 856,806 4,016.944

% Vacancy Rate 15.0% 31.7% 8.4% 2% 10 .6%$ Sales Captured (OOO ' s) $36,255 45,977 $191 ,067 33 ,066 $306.365% Sales Captured in Trade .-\rea 11 .83% 15 .01% 62.37% 10 .79% 100.0%% Trade AreaCapture Of Sales Potential 2.83% 3.59% 14 .91 % 2.58% 23 .90%

Source: REASI Field Survey, November 1992

Based on REASI's analysis and the amount of available building space , the amount of

spending captured in the shopping areas studied was estimated at $306 million, or 24% of thesales potential available in the total trade area. (I t should be remembered that the shoppingareas studied are only a portion of the available shopping space within the St. Joseph/BentonHarbor area. Other smaller shopping districts, free-standing stores, and other communitieslocated within the trade area account for a substantial portion of the remainder of the retailspending of the trade area households) .

Several conclusions were drawn. Retail sales account for approximately 43% of the totalpersonal income within the trade area. Total personal income was projected to grow at anaverage annual rate of 2.2% per year during the period of 1992 through 1996. A larger

proportion of total personal income will be spent for selected retail goods and services in thefuture due to changes in the composition of the population, households and their incomes. Thiswill occur due to the increased number of higher income households expected to reside in thetrade area in the future.

Increased spending is forecast to occur for the following store groups : general merchandise,auto dealers & auto supplies, apparel & accessories, furniture & home furnishings , andmiscellaneous retail stores.

REASI found insufficient advertisement and promotion of the St. Joseph/Benton Harbor as ashopping destination to markets outside of the trade area; negative perceptions of the shopper' ssafety in the trade area: insufficient numbers of retailers to create the "critical mass" of storesnecessary to draw customers to specific shopping locations ; and the existing shopping areas

lack definition as shopping destinations.

The REASI retail market study made specific recommendations designed to increase theamount of retail spending potential captured within the shopping areas.

A Central Retail Council (CRC) representing the retail shopping districts was recommended tocoordinate and implement area-wide retail enhancement programs, as well as new local"neighborhood" retail associations. The CRC would link the promotional efforts together intoa regional shopping area with more than 1,200,000 s.C allowing greater drawing power.

91



Programs recommended by REASI also included external advertising and promotion,community signage program, local "neighborhood" autonomy and programs, improvedcommunications within the retail community, a downtown development coordination council.small business assistance service, and retail businesses recruitment.

Few of these recommendations have been successfully implemented. The only growth hasoccurred in the Orchards Mall area, which has been partially offset by the decline at FairplainsPlaza. If the amount of sales within the area can be increased, the financial viability of existingbusinesses and shopping districts will improve. Further, increased sales can be used to recruitadditional retailers to specific shopping areas to capture additional retail spending and createnew job opportunities and investments in the St. Joseph/Benton Harbor area.

Recent retail activity has centered around the Orchards Mall area. Target stores has comminedto locating a 110,000 s.f. store, creating nearly 600 new jobs, between the Fairplain Plaza andOrchards Mall. contingent upon local funding of a roadway which would provide access fromthe Mall area to the Plaza area. Fairplain Plaza, meanwhile, is essentially vacant, awaitingcomplete demolition and/or redevelopment.

Retail space in the St. Joseph/Benton Harbor area ranges from $8.50/s.f. to $1 O.OO/s.f. on atriple net basis. Rates in the downtown areas are lower, while those in the Orchards MalllRout1-94 area are higher. Several retail buildings on State Street in St. Joseph, the retail shoppingdistrict for the downto\'vTI area, are for sale. Asking prices range from $31.20/s.f. for the 17.60s.L at 207 State Street to $75 .00 /s.f. for the 11,000 s.f. building located at 306 State Street.

3. Commercial Port

As Michigan' s second largest river system, the St. Joseph River has provided a natural highwafor transporting settlers. goods, and industry to and from the Benton HarborlSt. Joseph area.and because of its proximity to Chicago and the Mississippi River Valley, the St. Joseph Riwr

Harbor became a prominent lakeport in the 19th Century.

The St. Joseph River Harbor was the center of a varied and colorful lake trade. Coal andbuilding materials were active. The port had a special role for the crosslake passenger trade anwas ideal for the short day cruise on Lake Michigan for the many luxury passenger ships basedat Chicago. The port was active in the fruit trade, in fisheries, and in other kinds of lake traffic

In recent years. the role of lakeports began to diminish. Shipping services became consolidatein the larger ports of Chicago and Detroit, while smaller lakeports serviced localized needs of afew enterprises.

Since 1987. the St. Joseph River Harbor experienced a peak in tonnage of 694,494 net tons in199 .L compared to the low of461,216 tons in 1989. The port's all-time low was in 1975, \vheonly 244.963 tons were received.

92



Exhibit 4-18 details tonnage from 1987 to the present.

Exhibit 4-18St. JQSellb River Harbor Activit):ImllQrt CQmmQditv in Ions

Limestone, Sand,Gravel , Stone,

Year Aggregate Cement Salt Total

1987 322A77 122,186 55,340 480,0031988 28-L606 132,884 91,217 517,7611989 238 .226 143 ,000 68,998 461 ,2161990 24 7.255 170,000 64,713 514 ,5 631991 18 7.727 220,717 61 ,809 470,2531992 305 .038 222,115 43 ,541 570,6941993 253.283 227,208 480 ,4911994 36-U90 270,700 59,404 694,4941995 302.813 243 ,239 14 ,565 560,6171996 269.847 233,430 66,677 569,954

Commercial fishing, which represented 211 tons in 1970, declined to 8 tons in 1975 and wasdiscontinued. Petroleum products, which represented 80,696 tons in 1970, declined to 16 tonsin 1983 and was discontinued.

LaFarge Corp. has represented more than half of the total traffic into the port from 1987through 1996, as shown in Exhibit 4-19 .

Exhibit 4-19St, JQsellh River HarbQr A!:tivit):. u ~ ~ r and t S Y m b ~ r C ! l [ g Q ~ ~

McCov Consumers LaFarge

Year Concre-te Asphalt Corp. Total

1987 16 16 39 66

1988 13 l-l -l6 731989 10 10 42 631990 13 12 45 701991 9 7 44 601992 6 17 42 651993 5 12 40 571994 12 16 51 791995 5 14 35 541996 11 12 32 55

According to the Harbormaster' s Annual Report from Robert J. Grimm to Frank Walsh, CityManager, City of St. Joseph, dated January 3, 1997, the 1996 shipping season ended later thanusual, with the arrival of a load of cement after the first of the year.

The two commercial terminals in the city received a total of 399,102 tons of cargo on 44vessels. An additional 170,852 tons arrived in Benton Harbor aboard 11 ships delivering there.The combined total for the port was 569,954 tons carried on 55 vessels. This was an increaseof 9,337 tons and 1 ship over the 1995 totals.

LaFarge had 32 loads of cement amounting to 233,430 tons, a decrease of some 10,000 tonscompared to the prior year, and delivered on 3 less ships.

93



McCoy had 7 loads of stone in the amount of 98 ,995 tons, an increase of some 20,000 tonsreceived last year, and 5 loads of salt, an increase of some 52 ,000 tons over the 14 ,565 tonsdelivered by 1 ship last year.

Consumer' s terminal in Benton Harbor got in 170 ,852 tons of stone via 12 vessels, a decreasefrom last year's 224,4.5.+ tons of approximately 54,000 tons that arrived on 14 ships.

Once again, the port was able to remain well above the half million tonnage mark that has beenthe average in the last few years , as well as to have the same number of ships calL even thoughin recent years they ha\·e been declining due to the larger class vessels now being used . Theport remains viable and with the dredging project to be done on the inner harbor this year, thereis a good chance that 1997 will exceed 1996.

The harbor currently serves a variety of uses. Industrial development is a significant land useon the harbor's waterfront with several operating industrial concerns and additional industrialsites available in Benton Harbor directly northeast of the harbor.

Recreational uses are also prominent. They include several public and private marinas, boatdocks, public parklands, and fishing sites. Commercial marinas, as well as the publicly owned

St. Joseph Marina, provide services to the boating public.

The St. Joseph River serves a variety of ecological functions including processing, cooling, andwaste assimilation. Sedimentation is a major concern in the harbor because it lowers waterquality, endangers fish habitats, and decreases channel depth. Much of the sediments aredeposited in the basin and the inner channel, and are generally classified as sandy pollutedsludge.

Upgrading the St. Joseph River Harbor as a major lakeport has been a development goalconsidered for many years. A port development study was conducted for the Twin CitiesChamber of Commerce in 1961 , which was not optimistic about the feasibility of portdevelopment at that time.

The Board of Harbor Commissioners reconsidered port development in 1979, due to the rapidescalation in energy costs, the emergence of sources of State and Federal assistance , and theneed to provide the region with superior transportation facilities . The creation of a multi-modatransportation facility. linking rail. \-vater, and highway systems. as part of Berrien County' scommercial and industrial development efforts, was seen as enhancing the County' s ability to

attract and retain job providing industries.

The most recent study of the commercial shipping characteristics was done in 1979 for theBoard of Harbor Commissioners by Johnson, Johnson & Ro ylinc. of Ann Arbor, Michigan,Transportation and Economic Research Associates, Inc. of Arlington, Virginia, and CivilEngineering Division. Smith, Hinchman & Grylls. Associates. Inc. of Detroit. Michigan,entitled the "St. Joseph River Commercial Harbor Feasibility Study".

The purpose of this Study was to assess whether the present and future cargo potential of the SJoseph River Harbor was sufficient to warrant public investment in a port development.

The Study concentrated O!l four interrelated elements: an assessment of the need for portfacilities, the selection of a possible site for port development. a preliminary site engineeringstudy, and an analysis of financial feasibility.

The Study raised several issues which are highlighted belo\v:

94



1 .... oj

a.) Compatibility ofRecreational and Commercial Use of he Harbor

Several large vessels enter the harbor during the shipping season to load and unloadcargo at the numerous dock sites currently in operation.

An element of danger always exists when commercial, industrial, and recreationalactivity occurs in the same vicinity. Navigational safety is also a concern when smallrecreational craft operate in close proximity to large commercial vessels. However, if

properly coordinated, recreational and commercial uses of the harbor can co-exist in anacceptable and safe manner. Practically all metropolitan areas with working waterfrontsinclude industrial and recreational uses.

b.) Veed for a Permanent Dredge Disposal Site

The Army Corps of Engineers maintains a deep draft harbor for the benefit of thecommercial shippers and recreational craft using the St. Joseph River Harbor . Theexisting Federal Navigation project provides for the protection of the mouth of the St.Joseph River Harbor by two piers and the maintenance of a deep draft channel and

turning basin through the harbor. This requires a programof

periodic dredging by theArmy Corps of Engineers .

CPL interviewed Mr. Tom O'Brien of the Army Corps of Engineers. Exhibit 4-20 liststhe amounts of dredged materials taken from the inner and outer harbor between 1986and 1992.

Exhibit 4-20-Commercial Port - Dredging

Cubic Yards

Dredged Cubic Yards Cubic Yards

Outer Dredged Disposal SiteYear Harbor to Dis(!osal Site Removed Total Cost

August. 1986 Inc!. 14,564 21 ,912 5195,000July, 1987 3,320 24,227 18,695 5266,965June, 1991 52,513 10,225 5318,672June, 1992 29,464 5293 ,097

Source: Army Corp Of Engineers

Mr. O'Brien indicated that the ACOE intended to dredge the inner and outer harborduring the summer of 1997.

Littoral drift accumulation in the harbor entrance amounts to approximately 110,000cubic yards per year. Much of the drift is sand, free of contaminants. It is dredged byhydraulic pumping and used to replenish the beach area to the south. River sediments,

however, present a major problem because they contain contaminants that cannot bedisposed of in the open lake. These sediments, accumulating at a rate of about 30,000cubic yards per year, must be disposed of in landfill sites. The U.S. Army Corps of

Engineers is currently depositing contaminated dredge materials in a temporary land sitenear the mouth of the Paw Paw River. A permanent disposal site will have to be foundto allow for the current dredging program to continue.

The cities of St. Joseph and Benton Harbor have been working with officials of BerrienCounty in an attempt to find a permanent disposal site. An interim solution, to use thefill as part of the airport expansion, has been approved. However, without a permanent

95



disposal site, the dredging program will be halted and the resulting sedimenta c c u ~ u l a t i o n \vill reduce harbor depths and preclude commercial navigation , as well arestnct recreational boating in the harbor.

c.) Extension ofFederal Navigation P r ~ j e c t Limits

The limits of the existing Federal Navigation Project extend from Lake \lichigan ,includes the turning basin, and continues to the mouth of the Paw Paw River and alongthe Benton Harbor Canal up to Riverview Drive.

Extension of the Federal Navigation Project beyond the existing limits requireslegislative approval through an Act of Congress, limiting the possible choices of sitesfor a commercial port facility.

The existing Federal Navigation Project calls for the maintenance of a project depth of

21 ' in the main channel from Lake Michigan to the mouth of the Benton Harbor CanalThe channel in the Benton Harbor Canal and the turning basin has a project depth of

18'. The Army Corps of Engineers has maintained a controlling depth of 24' in the

entrance channel to the St. Joseph River.

The Study considered access, economics, physical site requirements, land use, andenvironmental impacts as evaluation criteria for selecting the most appropriate site for the porfacility . The site must provide sufficient room for docks , loading and unloading areas, handliequipment, storage areas, storage buildings, a marshaling yard, a maintenance building, anadministration building, roadways, railroad tracks, utility lines and parking areas .

The Study team recommended the selection of the site which includes the vacant Hondadealership, as well as land currently owned by Whirlpool at the confluence of the Paw PawRiver and the Benton Harbor Canal, with the endorsement of the Board of HarborCommissioners. The site has sufficient area to accommodate the handling and storage needsa port facility. This site also provides the opportunity for expansion beyond the boundaries o

the site if the need should arise in the future. Frontage on the Benton harbor canal is adequateto serve anticipated lewIs of vessel traffic. If future conditions warrant, additional frontage o

the Paw Paw River could also be developed.

The site is well situated for the development of a multi-modal transportation port facility .Riverview Drive provides sufficient road access to Business Loop 1-94. The site can be readiserved by sidings from the CSX railroad lines. Ample water frontage and sufficient handlingand storage space provides the amenities necessary for the operation of a total intermodaltransfer facility.

Development costs for this site are low when compared to other sites considered. The site is

located within the limits of the Federal Navigation Project, thereby minimizing dredging costThe reuse of the dealership structure will necessitate minimal modification. The structure can

be used for a combination of office space, enclosed storage space, and for the consolidation ocontainer cargo. The site is served by all needed utilities.

A port facility would be compatible with surrounding land uses and local land use plans. Itslocation is ideal for use by the current and future industrial concerns in the Graham A venuearea.

A preliminary market study was conducted in conjunction with the site evaluation and selectistudy, which indicated that under appropriate conditions a public facility located at the selectesite would reach an average annual potential commerce of 380,000 tons within five years of

96



....... ...

operation. The majority of the cargo would be bulk, with the remainder being containerized.Of the total potential commerce, approximately 140,000 tons are anticipated to come fromfuture growth in trades that currently exist in the St. Joseph River Harbor (potash. aggregateand salt). The remainder of the port's cargo potential, a total of240,000 tons, would begenerated from new trades in the harbor (scrap iron, pig iron, wood pulp, coal, coke, and frozenproduce) . The market study stressed that these potentials can only be achieved with acompetent and aggressive marketing effort. The market study further indicated that theintermodal capability of the site should be exploited. Specifically, the study suggested that theport should pursue developing COFC (container on flat car) capability, TOFC (trailer on flatcar) .capability, and pursue the possibility of developing a truck terminal or consolidationservlce.

According to a December 31 , 1996 letter to Cornerstone Alliance from John H. o l a iPrincipal Consultant at Nikolai & Associates Ltd. regarding carrier response to a limited loadline Lake Michigan route, two barge lines indicated a positive response to an offer of 250.000net tons of barge freight. ETNA Supply indicted an interest in barge transportation for the pipeso his numbers are included in the 250,000 net tons offering.

The financial feasibility analysis estimated facility revenues based on the projectionsof

commodity flows and estimated operating and capital costs based on the details of the proposefirst phase development plan. The analysis assumed 50% of the facility operating budgetwould be provided for by the State of Michigan as permitted under the Port Authority Act of1978.

The financial projections indicated that the facility would eventually be able to cover its shareof operating costs and repay debts incurred during acquisition and construction. The facilitywas projected to operate at a deficit for the first nine years of operation, even after subsidizatioby the State. This operating deficit would become the responsibility of the constituent units(Berrien County, the City of St. Joseph and the City of Benton Harbor). The operating deficitcannot be financed by issuance of revenue bonds, but will need to be financed by raisingadditional funds from issuance of debt or by subsidies from Berrien County, the City of St.

Joseph, or the City of Benton Harbor. The facility will be able to eventually repay any debtincurred in the financing of the initial operating deficit. The facility will need initial funds fordevelopment totaling 52.542,000 and will incur an initial cumulative deficit approaching$1.077,160. but will be able to repay all debts incurred by the thirtieth year of operations.

As with any public investment project, it becomes the role of the St. Joseph River Board of

Harbor Commissioners. the County, and the surrounding communities to evaluate whether thebenefits to the community of port development justify the financial risk and low rate of returnassociated with the public port development in the St. Joseph River Harbor.

4. Recreational Marinas

In 1994, the Department of Park, Recreation and Tourism Resources at Michigan State

University completed a study ofMichigan's Marinas (Clean Vessel ActlMichigan BoatingStudv 1994-95. Great Lakes Marina Census and Marina Needs). The 1994 census ofMichigan' s Great Lakes marinas and assessment of current needs for Great Lakes marinas inMichigan describes the distribution, ownership and facilities of Michigan' s marinas andprovides an assessment of the state of the market for rentals of seasonal spaces at Michigan ' smarinas, a market segmentation analysis for this market and gives conclusions on needs foradditional marinas

The census attempted to enumerate all sanitary pumpout stations and dump stations reasonablyaccessible to Great Lakes recreational boats, and to identify the number. locations, and features

97



of all Great Lakes marinas capable of harboring 10 or more recreational boats. While therehave been many estimates over the last three decades of Great Lakes marina numbers andcharacteristics, none have been as extensive or as rigorous as this census.

The census included 626 "Great Lakes marinas" - marinas with a capacity of 10 or more boatsthat regularly use the Great Lakes - plus one non-marina pumpout facility . At least 579 of the

were capable of harboring 10 or more permanent, seasonal, or transient boats.

Over half(339) of the 626 marinas are commercial marinas, 201 are private - generally yachtclubs or condominiums not open to the general public - and 86 are publicly o\\ned , as shown iExhibit 4-21 .

Exhibit 4-21Michigan Marinas

339 Commercially operated86 Public operated

2..Q..l Private, non-commercia l626 Total Marinas

Source: MSU Census

Nearly 41 % of all marinas, 53% of seasonal marina slips, 56% of seasonal marina capacity, an54% of total marina boat capacity are found in southeastern Michigan (Monroe, Wayne,Macomb, and St. Clair Counties). Another 38% of marinas, with 31 % of total marina boatcapacity, are located on the west side of the lower peninsula, primarily in the West Central andSouthwest Regions.

The 626 marinas are capable of harboring nearly 60,000 boats, as shown in Exhibit 4-22.

Exhibit 4-22Total Spaces in 626 Great Lakes Recreational Marinas

43.50 I Seasonal & owned slips11 ,070 Seasonal & owned moorings, dry stack and dry sail spaces4.33ol Transient spaces

Day-only spaces59.487 Estimated total...:..QQQ Spaces occupied by commercial boats58.82 I Total spaces for recreational boats

Source: MSU Census

Occupancy rates were down since the last statewide surveys in 1986, and the amount of GreatLakes boating in 199-+ was about the same as that in 1986. Marina capacity has expanded sin1986 and the number of non-anglers renting seasonal marinas has continued to increase since1986, but this has been offset by a sharp decrease in angler numbers. Apparently , theunanticipated decline in Great Lakes angling is at least one factor permitting marin a capacity"catch up" to demand.

The number of anglers renting seasonal spaces in marinas is sharply lower. The number of

boats kept in seasonal spaces in public and commercial marinas in 1994 was about the same asthat estimated in 1986. However, the number of boats kept in seasonal spaces by "non-anglerwas 41 % higher in 1994, while the number kept by "anglers" was 53% lower in 1994.

Full service non-angler segment occupants were rare north of Port Huron and Muskegon,including the upper peninsula: 7% or less of marina occupants, compared to 25% statewide.

98



Conversely, some angler segments were much more common in those same regions and raresouth of Port Hurorv1vluskegon. These differences apparently reflect differences in demandrather than in marina supply because the rare segments reported only average levels ofdissatisfaction.

The census data indicated that pumpouts in the Southeast and East Central regions are in much

greater demand than other coastal regions of Michigan, even considering planned newpumpouts.

The assessment of marina needs indicated no strong general needs for additional seasonalspaces in public and commercial Great Lakes marinas in any region, although it indicatedstrong demand for certain specific types of marinas in all regions .

All regions have unfilled space available for seasonal rental. Over 20% of seasonal spaces areunfilled in most regions. Marina occupancy rates in non-public marinas are highest in theSouthwest and East Central Regions and in a few other counties. However, all regions alsohave marinas that are filled to capacity. Therefore, although there is little demand for newmarina spaces in general, demand is strong for at least some particular types of marinas.

The .<\ngler and Non-Angler segments differ from each other in expenditures, boat types, boatuse patterns, and other behavioral traits. The full service segments spend more and have largerboats. Angler segments spend less, have smaller boats, and more outboards than correspondingnon-angler segments. No anglers had sailboats.

All regions except perhaps most of northeastern lower Michigan were identified as lackingmarina services by at least one of the indicators.

The study identified 20 marinas in Berrien County with a total of2,626 slips, 8 moorings, and149 dry spaces, as sho\\TI in Exhibit 4-23.

Exhibit -'-23

Number of Owned. Seasonal Rental andTransient Spaces - Berrien County

Number

of

Marinas

20

Seasonal &Owned

Slips2,564

Transient

Slips54

Seasonal& Owned

8

Transient

Moorings

8

* Numbers include estimated spaces in 16 marinas of unknown capacitySource: MSU Census

No. of Dry

Stack &Dry SailSpaces

149Total

2,789

Of the 2,564 slips identified, occupancy rates declined with increases in slip size , as shown inExhibit 4-24.

Exhibit 4-2-'Number and Percent of Owned an d Seasonal Rental SlipsOf Different Sizes Occupied in 1994 - Berrien County

Slips Under 20 ' LongSlips 20' -29' LongSlips 30'-39' LongSlips -l0 ' -49' LongSlips 50' Long/LongerAll Owned/Seasonal SlipsSource: MSU Census

Number Occupancy Number

of Slips Rate Occupied

36 100% 36268 80% 214979 83% 817984 86% 843297 64% 191

2,564 82% 2, 101

99



Other than the upper peninsula, the West Central and Southwest regions have the highest slipoccupancy rates. Counties with over 80% occupancy for non-public marinas are Charlevoix,Emmet, Leelanau, Bay. Monroe, losco, Van Buren, Muskegon and Berrien.

Nearly all individual counties that have more than one marina have some marinas that are fulloccupied or nearly so. as well as some other marinas that have high vacancy rates . Marinaoccupancy rates range from 80-87% in Berrien County, as shown in Exhibit 4-25.

Exhibit 4-25Occupancy Rates Of All Seasonal SpacesFor Public and :"Ion-Public Marinas - Berrien County

No. Occupants Occupancy Rates

SeasonalTotal :'-10. Spaces Recreat'l Commer. Rec. Rec.&Com.

Public Marinas "' 87 76 0- 87% 87%Commercial &Private Marinas 18 2,640 2,123 41 80% 82%

* Data include estimates for 16 marinas of unknown capacity and 61 marinas of unknown occupancy.** Spaces includes all owned and seasonal-rental spaces, including slips, moorings, dry sail & dry stack.

The last statewide study of the Great Lakes marina market in 1986 found generally high marioccupancy rates all along the lower peninsula coast. The current differences may indicate thamarina occupants are becoming quite "choosy," hunting for the marina that seems just right.Only marinas that have locational advantages or that can attract and satisfy an appropriate-sizmarket niche will have full occupancy.

Marina needs have changed sharply since 1986. The most important cause seems to have beethe decline in Michigan' s Great Lakes salmon and trout fishery. However, an increase innumbers of non-angler marina renters has been offset by a decrease in angler numbers, so thetotal number of marina users has remained about constant.

Low marina occupancy rates in general point to a "buyer's market" for marina renters. Marinoperators in many locations say they are under pressure to increase their occupancy rates.However, there are still good opportunities for better serving seasonal marina customers,including developing new marinas and refocusing the services offered by existing marinas. Tmost successful marinas are within walking distance to downtown shopping areas. NewBuffalo, Saugatuk, and South Haven are good examples.

The most important marina attributes for seasonal renters selecting a marina are "hospitality"items such as theft and vandalism security, clean, well-maintained facilities, presence ofrestrooms and showers. and prompt and friendly service .

Marinas still have a tremendous economic impact on their communities . Expenditures byseasonal renters of public and commercial marinas in the marina vicinity and the ma.rina"community" were estimated at about $7,000 per boat, as shown in Exhibit 4-26. This estimdoes not include the costs of purchasing, financing, licensing, insuring, and much of themaintenance of these boats, nor expenditures of all kinds at home or in other communities.About 41% of these expenditures were for personal items purchased on boating outings such food, auto fuel, clothing, and entertainment. The remaining expenditures were split nearlyevenly between slip-related costs (seasonal slip rental. boat storage, launching, etc .) and boatrelated costs (boat fuel. boat supplies, pumpouts, and emergency repairs).

100



Exhibit 4-26Estimated Marina and Vicinity ExpendituresQf User Segments At Public & Commercial Marinas

Slip-Related Expenditures (at marina)

Slip rental spendinglboatLaunchihaulout costlboatStorage costlboatUtility costlboatOther costslboatTotal slip related spendinglboat·

Boat-Related ExpendituresFuellboat (at marina & vicinity)

Spent in vicinity onlyPumpout/boat (at marina & vicinity)

Spent in vicinity onlyEmergency repair.'boat (at marina & vicinity)

Spent in vicinity onlyOther supplieslboat (at marina & vicinity)

Spent in vicinity onlyOther spendinglboat (at marina & vicinity)

Spent in vicinity onlyTotal boat related expend.lboat·

Spent in vicinity only

Personal ExpendituresRestaurants & barslboat (at marina & vicinity)

Spent in vicinity onlyGrocerieslboat (at marina & vicinity)

Spent in vicinity onlyAuto fuel & others/boat (at marina & vicinity)

Spent in vicinity onlyLodging/camping. boat (at marina & vicinity)


Clothing&supplies&souvenirs/boat (marina & vicinity)Spent in vicinity onlyRecreation & ent ertainment boat (marina & vicinity)

Spent in vicinity onlyOther spendings,boat (at marina & vicinity)

Spent in vicinity onlyTotal personal expendituresiboat·


Total ExpendituresTotal expenditures/boat· (at marina & vicinity)

Spent in vicinity only·

Averageor Total

$1,344$123$350

$25

$1,952

$1,411$609

$48$23$96$83

$184

$89$500

$2,238$1 , 132

$1,297$921$585$366$211$119$114

$87

$407$313$248$159$\33

$2,889$1 ,958

$7,091$3,089

* Items do not add to total because of treatment of missing data

Boating trends in the area have changed from a "Developers Market" in 1985-1988 to a"Boaters Market" in 1990 with several significant changes in the market including boatersmoving their watercraft to newer marinas offering amenities and modem facilities; to portshaving less known environmental pollution and newer infrastructure; to cities which offer bettershopping, restaurants and recreational facilities within walking distance from their boats; and to

states and cities with lower registration fees and taxes.

101



Berrien County ranks 2nd in the number of marina slips, 2nd in the number of registeredwatercraft, and 4th in the number of boater days of all of Michigan's counties, as shown inExhibit 4-27 .

Exhibit 4-27Berrien Count,,· Recreational Water-Related Ranking

Number of MarinasNumber of SlipsLake Michigan RankNumber of Boater DaysLake Michigan RankRegistered WatercraftRank Lake Michigan

* Estimated

20*2,714

2440 ,000

4

13.4002

Records from the Michigan Department of State indicates that there were 1,069 boats greaterthan 23 feet in length registered in Berrien County in 1995 . Recent data indicates a growingnumber of boats registered in Berrien County. Between 1993 and 1995, the total number of

boats registered increased by 1,079, or 8.7%, as shown in Exhibit 4-28. The numberof

boatsover 23 feet in length grew by 116, or 12.2%. Typically, boats under 23 feet are trailered, whiboats over 23 feet are kept in marinas.

Exhibit 4-28Registration Data

Berrien Counn'

Year

Total Boats ,Greater Than 23 '

1993 199412.321 12 ,842

953 1,037

199513,400

1,069

1993-951,079116

1993-95 %

8.7%12.2%

The growth in boating in the area is similar to other areas in the State of Michigan, which haveseen increased demand in the past three years. If growth in County registrations continues at

the current pace, approximately 500 boats per year will be added to this market. Of this.approximately 60 boats will be greater than 23 feet in length. Since the area has nearly twice amany slips as registered boats over 23 feet and does not have a 50% overall vacancy rate , it is

apparent that additional demand for marina slips comes from outside the area.

Occupancy rates are marinas in the St. Joseph/Benton Harbor market generally range from 85%to 98%, as shown in Exhibit 4-29 .

Exhibit 4-29Major Berrien County Marinas

Property

New Buffalo MarketPier 33

RiverviewHarbor IsleBrian ' sSt. Joseph MunicipalRoyal Key ClubEagle PointeOtherTotalAverage Vacancy

:\0. of Slips

629220

220197212

8032

463138

2, 191

Occupancy

95%

85%

90%95%

98%

95%

90%

55%

60%

102

Occupied Slips

598187

198187208

7629

25583

1,82116 .9%



Although the a\ ·erage vacancy in the market is approximately 17%, the vacancy is concentratedin several areas. The Eagle Pointe Marina, located several miles upstream on the S1. JosephRiver, and "other" locations which include fair quality marinas in residential areas , representthe majority of the vacancies.

Exhibit 4-30 lists some of the marinas in the S1. JosephlBenton Harbor area and their rates .

Exhjbit 4-30Competing Marina Rental Rates

Location

Pier 33 , Anchor·s WaySt. Joseph

Eagle Pointe Harbor2351 Niles RoadSt. Joseph

Riverview \000 ~ t a r i n a \000 Riverview DriveSt. Joseph Twp.

Harbor Isle Marina143 Anchor's WaySt. Joseph .

Description

220 slip full service marina. Inside &

outside storage. Service, fuel, sales.Good condition. Inferior location adjacentto aggregate operation and in MorrisonChannel with heavy current.

Planned unit development with 67 acresand 443 slips. Inferior location 2.5 milesupstream. Winter storage but no marinaservices .

220 slip marina, only 45 are rental slips .Approx. 30 yrs ., in average condition. Onsite commercial facil ities consisting ofwinter stg., fuel & service. Inferiorlocation.

\ slip marina located on an island.Similar location with the subject 'salthough inferior for sailboats (bridge).Full service commercial marina with fuel,store, service & stg.

Length Rent

30 $\ ,85035 $2,20040 $2,55050 $3,250

35 $\ ,806

30 $1,85035 $2,25040 $2,600

30 $1,85035 $2,25040 $2,600

Outside stg.

$/LF$61.67$62.86$63.75$65 .00

$51.00

$6 \.67$64 .29$65 .00

$61.67$64.29$65 .00$22 .00

Distances to other competing recreational marina facilities and ports are shown in Exhibit 4-31

Exhibit 4-31Southwestern Michigan Lake ShoreCommerciallRecreational Harbors

Location and Tvpe of Harbor

Manistee - Commercial/Recreational *Ludington - Commercial/Recreational *Pentwater - Recreational *Muskegon - Commercial/Recreational *Holland - CommercialSaugatuck RecreationalSouth Haven-Recreational ,.

St. Joseph - Commercia l/Recreational *New Buffalo - Recreational **(State Sponsored)

Approximate DistancelDirectionFrom St. Joseph/ Benton Harbor

150 mi . N130 mi. N120 mi . N85 mi. N45 mi. N40mi . N23 mi. N

o25 mi . S

The bulk of the St. Joseph market are sport fishermen. Most of the marinas in the S1.

JosephlBenton Harbor market are on the wrong side of bridges, creating some delays whengoing out to Lake Michigan. However, the local marina market is healthy, with an 85% to 95%occupancy rate for well-located and serviced marinas.

103



5. Tourism

Travel and tourism is the second leading overall industry in Michigan, but in most counties it's

actually the top industry, according to Donald Holecek, a professor and director of the Travel,Tourism and Recreation Resource Center at Michigan State University (MSU) .

Tourism brings in $8 billion annually to the state and $3.7 billion in the West Michigan areafrom the Indiana state line to Mackinac Island. In 1993 (the most recent year that figures wereavailable), Berrien County took in $136.7 million in direct tourism dollars and an estimated$106.6 million in "indirect" spending according to the West Michigan Tourist Association."Indirect" spending is money taken in by tourism businesses and re-spent inside the county.

Van Buren County to ok in $33 million directly and $25 .8 million indirectly, and Cass County$10.6 million directly and $6.3 million indirectly.

Tourism puts people to work, pays them a living wage and contributes directly to the local.regional and national economy. Criticism that tourism related jobs are relatively low paying isunfounded, unless one is only counting the entry levels jobs and comparing those to highpaying jobs in the auto industry. However, there are almost as many jobs in supervision andmanagement positions as entry level positions in the tourism industry. Moreover,manufacturing jobs tend to employ more people, but tend to be clustered in a few areas .

In Berrien County, tourism accounted for 4,506 jobs in 1993 . In Van Buren County, 1,140were employed by the tourism industry in 1993, and in Cass County, 375 . According to Ernst& Young, travel and tourism is recognized as an increasingly important sector of the economyin the State of Michigan. The industry creates substantial direct and indirect expenditures,employment and fiscal benefits which have a positive impact on the economic growth andcompetitiveness of the state. In addition, the company recommended development that reflectsthe state ' s cultural and natural resources - freshwater aquariums, marinas, industry-relatedinterpretive centers, performing arts facilities and destination retail developments.

Certec, Inc. and the Travel , Tourism and Recreation Resource Center (TTRRC) at MichiganState University contracted with the Michigan Travel Bureau to conduct a "Prime Market AreaAdvertising Program Survey:' completed during the summer of 1996. The survey populationconsisted of adults age 18 or older permanently residing in Illinois , Indiana. Michigan,Minnesota. Ohio, Wisconsin or Ontario.

The most frequently mentioned destinations within Michigan were within the counties of

Wayne, Grand Traverse. Saginaw, Oakland. Mackinac. Chippewa, Washtenaw, Ingham,Berrien, Gogebic, and yluskegon, and 89% of the sample reported that they used a car or truckwithout camping equipment for transportation.

The most frequently cited months for pleasure trips were July (21%). August (15%). June(13%), May (9%), March (7%). April (7%) , and October (7%). The average travel party size

was 4.5 persons. Sixty-tive percent reported that they had traveled with family members.

Of the respondents who traveled in Michigan on pleasure trips, 85% reported that they stayedovernight. The average duration of trips was about four nights, and an average of about $42 penight was spent on commercial lodging. The most frequently used types of lodging werehotel/motel/lodge (44%) and friend's or relative's home (28%).

Total expenditures per trip averaged about $531 . The reported distance traveled averaged abou246 miles. The most frequently cited activities respondents participated in while on pleasuretrips in Michigan were shopping (66%), outdoor recreation (60%), general touring (58%), and

104



visiting some "other anraction" (42%), followed by nightlife (35%), attending a festival orevent (28%), visiting an historic site (26%), visiting a museum or hall of fame (14%), casinogaming (11 %), and fall color viewing (11 %). Seventy percent of respondents reported thattheir trip was a vacation trip .

Lakes, lake shores, and other natural features were the predominant positive images of

Michigan as a pleasure trip destination; Detroit and the climate of Michigan were thepredominant negative images. The highest levels of agreement with a series of statementsabout Michigan' s travel attributes generally pertained to the state ' s natural resource base.Lower levels of agreement pertained to Michigan's man-made attractions. Fishing,boating/sailing, and camping were the spring/summer recreation activities respondents weremost likely to say Michigan was known for.

Michigan's travel attri butes were all rated above the mid-point of a 10-point rating scale.Moreover, Michigan ranked very favorably compared to its competitors with respect tovisitation levels and ratings of desirability. These results seem to suggest that Michigan isperceived by the public as having a good travel product.

According to the Southwestern Michigan Tourist Council, the total number of hotel and motelrooms has doubled from 1986 to 1996. Exhibit 4-32 identifies approximately 1,475 roomsavailable in the immediate area today in major hotels and motels. Additional rooms areavailable in smaller inns and bed and breakfasts in the area, and in other hotels and motelsthroughout Berrien County.

Exhibit 4-32Lodging

HotelBenton Harbor

Courtyard by MarriottComfort Inn MotelDays Inn

Motel 6Quality InnRamada InnRed Roof InnSnow Flake InnSuper 8 MotelTotal Rooms - Benton Harbor

St. JosephBoulevard All Suite HotelBest Western Golden LinkHolidav Inn, Bv the LakeSt. Joseph Inn'

Total Rooms - St. Joseph

StevensvilleBudgetel InnHampton InnPark Inn International

Total Rooms - Stevensville

Total Rooms-

No. ofRooms

9853

121

1091501171095662

875

8436

15656

1037590

268

1,475

A 6% room receipts tax is levied on all hotel/motel room rentals , ofwhich 2% goes to theSouthwestern Michigan Tourist Council.

105



The 2% room rental tax receipts have increased approximately 5% annually from 1987 throug1996, as shown in Exhibit 4-33.

Exhibit 4-332% Hotel/Motel Room Rental Tax

Year Total

1987 $150.0001988 180.0001989 190.0001990 224.0001991 210.0001992 230.0001993 232 .0001994 253 .0001995 254.0001996* 233.000

* Through 11 /30/96

Source: Southwestern Michigan Tourist Council

On May 1, 1994 the rate for the lodging use tax increased from 4% to 6%. To ensurecomparability with tax collections figures for earlier time period, tax collections for May 1994through December 1994 and all of 1995 were adjusted by dividing them by a factor of 1.5.Occupancy rates generally range from 100% in the summer to 50-60% in January. However.increased business use in the off-season has increased the overall occupancy rates. In generalBerrien County has a healthy hotel industry.

The Southwest Michigan Tourist Council distributes fresh fruit and vegetables in season tosome 65,000 visitors annually at the Welcome Center in New Buffalo. In all, about 1.6 milliovisitors stop at the New Buffalo center every year . Berrien County ranked 17th in tourism andtrawler receipts in 1990, as shown in Exhibit 4-34 .

Exhibit 4-34Estimated Direct Expenditures of Tourists And

Travelers Expenditures, 1990(In Thousands)

Berrien Count'v·Michigan .

Rank

17

Tourists

537 ,25152.265,063

All Travelers

577,91155,786,346

Note: "Travelers" means all persons on trips of 50 miles or more away from home. "Tourists" means traveleon trips primarily for the purpose of recreation.

Source: Stynes. Daniel 1. 1995. "Estimates of Traveler Spending in Michigan's Counties." Dept. of Park,Recreation, and Tourism Resources. Michigan State University, East Lansing.

In 1991, Berrien County ranked 15thof

all83

Michigan Counties in the total number of publigolf holes (171), and 15th in number of second homes (4,448) in 1990. Berrien County ranke11 th in total number of rental units (2,779) with 41 hotels/motels (2,107 rooms), 16

cabin/cottage with 391 rental units, 16 Bed & Breakfasts with 98 rooms, 3 condominiumbuildings with 183 units in 1990. In addition, Berrien County had 1,399 campsites.

Silver Beach County Park is a popular regional recreation resource and destination areadrawing over 150,000 visitors annually. Both the number and percentage of out-of-townvisitors at Silver Beach is growing. During the summer of 1996, 51 % of all day passes sold topersons residing outside of Berrien County.

106



Berrien County is an important destination point for tourists. The tourism industry is growingin the area, as indicated by the increased number of hotel rooms.

C.THE RESIDENTIAL :vtARKET


The market area for primary and second home demand for the southern Lake Michi ganshoreline draws not only from the local area, but from the southern Chicago metropolitan areaand the metropolitan areas of Indianapolis, South Bend, Kalamazoo, Battle Creek and GrandRapids as well.

Population and household growth trends in this larger market area are shown in Exhibit 4-35.Between 1985 and 1995, the total number of households grew by 178,640, or 4.8%. During thsame period, Michigan' s population in the market area grew by 13.2%.

Exhibit 4-35Population & HouseholdsResidential Market Area

State* 1985 1990Michigan 1.543,900 1,698,000Indiana 2,370,700 2,384.500Illinois 6,459,600 6,592,700Total 10.374,200 \0 ,675,200

Households 3,65\,718 3,757,670* Selected counties within each state

Source: U.S. Bureau of the Census

19951,748,4002,411,8006.685,500

10 ,881,700

3,830,358

1985-95Chng.

204,50041,100

225,900507,500

178,640

1985-95 %

Chng.

13 .2%

1.7%3.5%4.9%

4.8%

According to the South\vestern Michigan Board of Realtors, the total number of residentialsales in Berrien County has averaged approximately 1,966 units annually from 1991 through1996. The St. Joseph and Lakeshore school districts captured approximately 30% , or 578residential unit sales annually, and the Benton Harbor school district captured approximately14% during the same period, as shov.n in Exhibit 4-36. Sales of condominium units, includedin the Berrien County total , averaged 52 units annually countywide.

Exhibit ·hHiResid!:ntjal S a l ~ s 1991 - 1296

Total Avg.Total Units Sold 1991 1992 1993 1994 1995 1996 91-96 AnnualBenton Harbor 2-3 -

- )) 272 305 305 282 1,672 279

St. Joseph &

Lakeshore 5'7'-+ 579 583 613 522 599 3,470 578Berrien County 1,855 1,928 1,970 2,083 1,982 1,977 11 ,795 1,966Condos.* N, A 25 41 53 70 69 258 52

* Countrywide, included in Berrien County Total

107



Average sale prices increased 34% to $110,418 for all of Berrien County from 1991 to 1996.28% to $149.054 for the St. Joseph and Lakeshore districts , 17% to $56,536 for the BentonHarbor school district. and only 6% to $140,890 for condominiums, as shown in Exhibit 4-3 7

The average price of a condominium was 27% higher than Berrien County's overall averagehousing cost. but 6% less than the St. Joseph and Lakeshore districts average cost in 1996. In1992. residential units in St. Joseph and Lakeshore were 20% less expensive than the averagecondominium in 1992.

Exhibit 4-J7Average P r i ~ ~

0/ 0

Increase

1991 1992 1993 1994 1995 1996 1991-96Benton Harbor 48. 137 68,754 52.134 55 ,887 57.2 16 56,536 17 .4%St. Joseph & 116 ,026 106,899 I 15,420 119,569 126,586 149,054 28 .5%LakeshoreBerrien County 82 .3 62 86.417 88,393 91 ,602 98.87 1 110.418 34. 1%Condos· N /A 132.517 132,578 145 ,013 13 7,231 140.290 5. 9%

* Countrywide. included in Berrien County Total

According to the Realtors Association, the St. Joseph-Lakeshore School District market area'sales volume jumped to $89.2 million in 1996 from $66 .0 million in 1995, and the averagehome price increased to $149,054 from $126,586. The area had the top sales volume of theassociation's 11 market areas and second-highest average price behind the Bridgman-to-NewBuffalo's average price of-$153 ,029.

Generally, housing prices in the City of St. Joseph range from $125,000 to $175 ,000. New

houses in res;ently completed subdivisions have sold for as much as $275 ,000-$325 ,000.Housing with frontage on Lake Michigan can sell for more than $1.0 million, especially in thearea north of the St. Joseph River, locally known as the Ridgeway neighborhood. However, thousing adjacent to Ridgeway, which has no water access or views, sell for $60.000-$70,000for a one to two story. 2-3 bedroom, bungalow-style house.

Houses in established neighborhoods sell for $90 /s.f.-$120/s.f. , while houses on the water selfor $200+/s.f. House lots in the Newberry Hill subdivision in St. Joseph sold for an averageprice of $30.000 for a 15,000 s.f. lot. Two 34,500 s.f. lots of the 7 lot subdivision haveriverviews and sold for $60,000 each.

Fev.: waterfront condominiums are currently available in St. Joseph. A recent sale'of a 1,2 00s.f. unit for 5257,000 in the Waterfront complex indicates a value of approximately $2 00 /s.f.for waterfront/lakeview condominium units.

Residential lot sales generally range from $25 ,OOO /acre to $60.000 /acre , depending on theirlocation. size. and number of units planned.

108



The median sale price for lots under 1 acre in size in the City of St. Joseph was 530,000 in1996, compared to $6,300 in the City of Benton Harbor, as shown in Exhibit 4-38 . Between1992 and 1996. 41 lots under an acre sold in St. Joseph compared to 15 in Benton Harbor. The5 year average median lot price was $43,000 in St. Joseph, and $9,160 in Benton Harbor.

Exbibit 4-JB

Land S a l ~ ~ - Under 1 A ! , ; r ~ St. Joseph School AverageDistrict 1992 1993 1994 1995 1996 Total Annual Avail. 1Total Lots Sold 10 12 8 8 3 41 8Days on Market 336 554 364 301 55 N/A 322 ':-4 !Low S14,900 59,000 59,200 $10.650 520 ,000 N/A S12.750 S2 7.00High S 65,000 $329,000 595 ,000 $90,000 $38,000 N/A 5123.400 511 9'.00Avg. Price S35,740 $64,575 $42 ,587 $32,014 $29,333 N/A S-+0.850 S66.60Median Price S30,000 $40,000 $95,000 $24,000 530,000 N/A S-+3.800 S70.00

Benton Harbor SchoolDistrict

Total Lots Sold 2..,

6 3 I 15 3 2)

Days on Market 73 357 319 221 14N/A

197N/

Low 59,000 $7,000 56,500 $7,000 56,300 N/A 57.160 53.70High 59,000 5 14 ,000 517,500 510,000 56,300 N/A 51.360 $230,00Avg. Price 59,000 511 ,666 510,750 58,500 56,300 N/A S9 .243 578.53Median Price 59,000 514,000 58,000 58,500 $6,300 N/A 59 . 160 51 ,72

The total number of residential lots between 1 and 40 acres sold between 1992 and 1996 in St.Joseph was 54, compared to 55 in Benton Harbor. Average annual prices ranged from $11 ,640to $91,800 in St. Joseph, and $6,660 to $151,540 in Benton Harbor. The average annualmedian prices were $29,880 and $16,700 respectively, as shown in Exhibit 4-39.

Exhibit 4-J9

Land Sales - 1A!,;re to 40 -\cres

St. Joseph School Average

District 1992 1993 1994 1995 1996 Total Annual Avail. 199Total Lots Sold 7 14 12 9 12 54 I I 2Days on Market 377 503 367 82 72 N/A 280 N/

Low S21,000 $9,000 $9,200 $9,000 510,000 N/A $11.640 $42 ,90High S-+2,000 $145,000 $125,000 $74,000 573,000 N/A 591.800 $2.000 ,00Avg . Price S30,642 $38,600 $53,183 $33,105 $30,224 N/A $3 7.151 $227,97Median Price 530,000 $29,500 $34,000 $30,000 525,900 N/A $29.880 5129.90

Benton Harbor SchoolDistrict

Total Lots Sold 6 8 18 12 I I 55 I I 3

Days on Market 1-+7 269 164 216 156 N/A 190 N/

Low 59,000 $7,000 $4,000 $7,000 56,300 N/A56.660

$4,50

High 5150.000 562,500 $132,000 $103 ,200 $310,000 N/A $151.540 $700,00

Avg. Price $36,500 521 ,812 $28,754 $31,162 $68,954 N/A $37,436 $64,66

Median Price 510.000 514,000 $17,500 $18,500 $23,500 N/A $16,700 $39 ,00

There are 25 lots under 1 acre currently available in Benton Harbor and 31 lots from 1 to 40acres ranging in price from $4.500 to $700,000. The median asking price for a lot under 1 acreis $21. 720, and $39,000 for lots 1 to 40 acres in size, with asking prices ranging from $3 ,700 to$230.000. In St. Joseph. 15 lots under 1 acre are available, at prices ranging from $27,000 to

109



$119,000, and 24 lots from 1 to 40 acres at prices of $42,900 to $12.0 million. The mediar:asking price for a lot under 1 acre is $70,000, and $129,900 for lots 1 to 40 acres in size.

A total of 1,364 housing units were sold in St. Joseph between 1991 and 1996. or 273 annt:3.11Average prices for the period ranged from $18 ,500 to $499,000 and the average annual mc-.:i ia

price was $102,980, as shown in Exhibit 4-40. There are currently 162 houses available.ks

sthan the average annual absorption, at prices ranging from $47,900 to $950.000 . The med:3.nasking price is $159,500.

Exhibit 4-40House SalesSt. Joseph School District

Total Res 'l Units Sold

Days on MarketLow

High

Avg . PriceMedian Price

Total Condo Units SoldDays on Market

Low

HighAvg. Price

Median Price

1992

174

74535,000

S300,000

599,38089,900

19926

237

573,0005154;500

5102,983

596,500

1993 1994 1995

312 303 278

89 92 76$30,000 $27,500 $1

5485 ,000 $625,000 $500,000

$109,384 $118,210 $122, 196$92,000 $100,500 $110,000

1993 1994 199524 20 20

125 124 190$76,000 $74,000 587,000

$320,000 $192,500 $174,000

$118,054 $114,040 5125,797

597,500 5104,000 5117,900

.-\ verage ;\ vai

1996 Total .-\nnual 199

297 1 3 6 ~ 273 16

89 N: .-\

51 N/A S18 .500 $-!-.90

5585 ,000 N/A S 4 9 9 . 0 05145 ,803

N/AS 118 .995 5206 .855122,500 N/A S 102 .980 5 0

Average Avai1996 Total Annual 199

15 85 17

135 N/A 162

586,000 N/A S79.200 S92.90

5257,000 N/A S219,600 5::25.00

5134,260 N/A S119.027 5169.47

5114,000 N/A S105.980 515 7 .90

A total of 85 condominiums were sold between 1992 and 1996 in St. Joseph. or 17 annually.with average prices ofS79,200 to $219,600, and a median price of$105 ,980, as shown inExhibit 4-40. There are 14 condominium units currently available, also less than the averageannual absorption, at prices ranging from $92 ,900 to $325 ,000 . The median asking price forcondominiums is $157.900.

In Benton Harbor, 1.092 housing units were sold during the same period, or 218 annually.Average prices ranged from $15,700 to $414,500, and the average annual median price was$52,..1.00, as shown in Exhibit 4-41 . There are currently 171 houses available at prices rangingfrom $6,000 to $1 ,150.000. The median asking price is $57.500.

Exhibit 4-.'1Hou:ie Sale:iB ~ n t Q n HarbQr SchoQI District

Average A vail1992 1993 1994 1995 1996 Total Annual 199

Total Res'l Units Sold 132 221 256 253 230 1092 218 17

Days on Market 86 71 70 73 67 N/A 73 N /A

Low 55,500 562,000 $4,000 $2,000 $5 ,000 N/A S15.700 S6.00

High S260.000 5750,000 $250,000 5512,500 $300,000 N/A 5414,50051.150,00

Avg . Price . 558 ,791 $54 ,093 $55 ,354 561 ,213 559, 112 N/.-\ S5 7.71 3 S- 7.7 1

Median Price 551 ,500 $50 .000 $51 ,000 556,000 553.500 N,' .-\ S52,400 S5 7. 50

110



Average Avail.1992 1993 1994 1995 1996 Total Annual 1997

Total Condo Un its Sold N/A 1 I 1 4 2Days on Market 425 297 N/A N/A 2.+8 ) \ ; : \Low $29,000 $29,000 $23,000 $25,000 N/A $26 .500 525,900High $29,000 $29,000 $23.000 $25,000 N/A 526.500 $325 ,000Avg . Price 529,000 $29,000 523.000 525,000 N/A $26 .500 $175,450Median Price $29,000 $29,000 $23 .000 $25,000 N/A $26 .500 525.900

A total of 4 condominium units were sold in Benton Harbor between 1993 and 1996, or 1annually, with an average price of $26,500. There are 2 condominiums available at $25,900and 5325,000 each.

Several multi-unit residential condominium developments have occurred in St. Joseph,beginning in the late 1980's. Waterfront condos usually are two-bedroom and appeal to young

couples without children, working "empty nesters," second home buyers, and retirees.However, the market has been slow to develop in St. Joseph.

The Waterfront, along the St. Joseph River, was one of the more widely publicized projects . Itwas to consist of four six-story buildings totaling 68 units and five villas in a three-storybuilding, plus 73 boat slips. Only 55 residential units and 53 slips were completed.

During The Waterfront' s II 'year history, the bank that financed the residential condominiumsforeclosed on the investor group. The group, which later went bankrupt, was forced to sell 24of the 51 boat slips at bargain prices to help pay another bank, which financed the marinaportion of the project.

The Waterfront was one of four waterfront or lakeview condominium projects started in St.

Joseph in the late 1980·s. with the units selling for $140,000 - $250,000. The others include:

• Channel Bluff - \Vayne Street. dov,:ntown. Three. 8-unit buildings were planned, of whicht'vvo were constructed.

• South Cliff - Lake Shore Drive. Two, 16-unit buildings were planned, only one building\-vas constructed.

• LaSalle 's Shoreview - on Marina Island. Fifty units were planned. Three buildings and atotal of 10 units ha\'e been completed.

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Exhibit 4-42 summarizes the number of condominiums and associated marina slips in the abovmentioned projects.

Exhibit 4-42Condominium Development

St. Joseph

Condo

South Cliff

WaterfrontWaterfront MarinaLaSalleShoreview

LaSalle MooringsLaSalle Moorings

Channel Bluff -Channel Bluff

l i nits

165553

67-10

I I12-27

89-16

Year Built

198619861987198819921988199219861989

Conversely, the housing stock in Benton Harbor and portions of Benton Township isdeteriorating. Over the last decade, many individuals have simply not paid their property taxe

and ownership reverted to the city which is now the largest property owner.

The number of occupied housing units in the City of Benton Harbor declined almost 600 unitsfrom 1980 to 1990. At the same time, the percentage of households renting their home insteadof owning has increased. In the ,City of Benton Harbor, 57% of the dwellings were rented in1990, compared to 39% in the City of St. Joseph and Benton Charter Township, and 9% in St.Joseph Charter Township, as shown in Exhibit 4-43. Similarly, only 33% of dwellings wereowner-occupied in the City 6fBenton Harbor, compared to 53% in the City of St. Joseph andBenton Charter Township, and 88% in St. Joseph Charter Township.

Exhibit 4-43Area Housing ~ a r k e t

St.Benton Joseph

Benton St. Charter Charter

Harbor 0/ 0 JoseEh 0/ 0 TWE· 0/ 0 TWE·Housing: (from 1990 Census)

Number of Dwell ings 4,791 100.0% 4,545 100.0% 7,018 100 .0% 3,793Owner Occupied 1,598 33.3% 2.396 52.7% 3,774 53 .7% 3,346Renter Occupied 2,736 57.1% 1,804 39 .7% 2.784 39 .6% 350Other 457 9.6% 345 7.6% 460 6.5% 97Median Rent $262 $351 $290 $322

Median Home Value $19,600 _- $66.200 $33,300 $72,400

Median residential rents and home values are 50%-100% higher in the City of St. Joseph andSt. Joseph Charter TO\\'nship than in the City of Benton Harbor and Benton Charter Township

Based on the past history of residential construction trends in the area, 77% of the dwellingunits were for single family homes and 23% were for multi-unit construction.

112



Between 1981 and 1986, approximately 322 single family homes and 94 multiple familydwellings were built in the St. JosephiBenton Harbor area. This represents an annual averageof 69 units per year from 1981 to 1986, as shown in Exhibit 4-44. In 1987, 1988 and 1989, thpace of construction increased to an annual average of 183 units per year.

Exhibit 4-44Housing Construction Trends

Reported Permits Issued in Area

1981-1986

Single MultipleYear Family Familv

1981 29 41982 13 41983 " 'I-' - 53

1984 63 01985 78 91986 107 24Total 1981-86 322 94

198719881989Total 1981-89A verage AnnualPennits Issued1981-1989

Total

33

17

85

63

87131

416185

219145965

107


Between 1990 and 1994, the average value of single family houses under construction inBerrien County increased 32.5%, and the number of residential penn ts issued grew at anincreasing pace year-to-year (except between 1990 and 1991), as shown in Exhibit 4-45 .

Exhibit 4-45

Housing Units Authorized bv Building PermitBerrien County

1990 1991 1992 1993 1994

Average Value of Single FamilyHousing Under Construction $84,620 $90,540 $102,830 $100,000 $112,140

Growth in the Number of ResidentialBuilding Penn its Issued -15.0%

Source: W.E. Upjohn Institute for Employment Research

5% 9% 11%

In Lincoln Township, construction of Sable Shores' first 12 residential units started in 1989,and all were sold within a year. Construction of another 9 units was completed in 1995, all of

which have been sold at prices ranging from $159,000 to S399,000. All units have a view ofLake Michigan, but no direct access to the lake.

113



In Berrien and Cass counties, the growth of housing subdivisions is boosting overall homeconstruction. Where once few existed, about 60 projects are underway or proposed. Highestconcentrations are in Milton, Niles and Ontwa townships across the state line from the SouthBend-Granger area, and in areas surrounding St. Joseph, as shown in Exhibit 4-46.

Exhibit 4-46Number Subdivision Lots

Approved & Pending

St. Joseph Twp.Lincoln Twp.Royalton Twp.Niles Twp .OnIWa Twp .

1995 199632 0

198 8232 0o 84

14 46

A 27 acre parcel on Lakeshore Drive in Shoreham with almost 1.000 feet of frontage on LakeMichigan sold in March 1997 for approximately $55,000 /acre, or $29,000/unit for the 52 unitsplanned for the site. A 1.6 acre parcel with beachfront on Lake Michigan is currently for sale $700,000, or $437 ,500/acre.

Outside these growth areas, other townships are reporting increases in building permits,whether in planned unit developments, condominiums or single family residential. As a resultotal residential sales in the two counties increased nearly 14% through October 1996 over ayear ago, according to the Southwestern Michigan Realtors Association. Proposal A madeMichigan more competitive with Indiana in property taxes, which attracted homebuilders .

Discussions with real estate brokers and developers indicted shoreline housing in the area isbeing demanded primarily by young professionals (specifically, couples \vith double incomesand no children), empty-nesters, retirees, and individuals seeking income property. Real estatprices in the area are lower than those in more well-knov-.n second home locations.

Local buyers are willing to purchase a condominium as a primary residence. However, pricesensitivity is often displayed by this group. Those from outside the area find the area 'scondominiums attractive as second homes, due to the security and maintenance pro vided by thcondominium associations. For buyers from outside the area, the optimum selling season isduring the spring and summer seasons.

D. SUMMARY

The steady improvement in the midwest and metropolitan industrial and office markets will providefertile ground for new construction activity in the Midwest in 1997 and 1998. In the near term,however, while the availability of capital is greater than it has ever been. 40% to 50% preleasingrequirements still will be required, depending on the developer.

The health of the national and international economies will affect the pace of industrial activitythroughout the 1990 ' s. Industrial property remains relatively strong in some areas of the country, andbecause its economic base is more diverse than it was a decade ago, the midwest is well positioned tohandle new development.

Although the national trend of continued downsizing remains a negative for the industrial market, afurther deterioration in the industrial base is unlikely. In general. the steady demand for space in themidwest coupled with stabilized prices indicates evidence of a stable industrial market. We anticipatstable to slight increases in rents , land values, and sale prices.

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Most industrial land sales activity will likely be limited to user sales and smaller development sites(less than 20 acres). Due to the ample quantity of fully or partially improved industrial sites availablein the area, we do not foresee significant activity or large land tract sales to developers .

Institutional investors continue to look for opportunities in industrial properties in order to diversifytheir portfolios. However, they look for quality property, primarily bulk warehouse space in businesspark settings, with growing local economies.

The general outlook for the industrial market is stable as industrial $pace demand is expected to remaisteady in the region. Assuming minimal new construction, slowly increasing absorption levels, and thcontinued phase-out of older, obsolete space from the inventory, the near-term outlook should to reflecontinued improvement.

During the next 12-18 months, demand for space should center around moving goods, likelymanufactured outside the U.S., through distribution networks. Third party warehouse providerstypically provide the location, take the risk of occupancy and have efficient transportation hubs alreadin place.

With improved access to intermodal transportation opportunities. the St. Joseph/Benton Harbor areashould be able to attract warehouse as well as manufacturing users.

The state of the commercial office and retail markets is a fair indication of the future focus of thecapital markets. The suburban markets will be among the strongest, increasing in popularity asvacancies tighten further and rents move higher. In contrast, activity and interest in the downtown andsecond and third tier markets, except for "vulture funds" will remain flat, despite the lower values.

The minimal activity in the St. JosephiBenton Harbor office market is almost entirely generated fromwithin the area. Virtually no office users of any significant size from outside the area have located inSt. Joseph or Benton Harbor recently, however, there has been increased interest. Quality of life andlabor availability issues may continue to impact the office market.

The retail market has slowed regionally, but has strengthened locally as a result of the Orchards Malldevelopment. The Mall area has become a regional shopping destination and, retail occupancy ratesand development activity have increased. We expect this growth to continue.

The area's tourism industry is growing, and with it the hotel and marina markets have continued to

expand. As more and more people look for vacation and second home locations, the area can expectcontinued growth in the tourism industry.

The residential market is healthy and growing in St. Joseph, but is depressed in Benton Harbor.

115



Exhibit 4-47 summarizes the real estate market infonnation developed by CPL as it influences the St .JosephlBenton Harbor properties.

Exhibit 4-47Real Estate Market Summarl:

Estimated Estimated

Midwest Market PropertyValue Value Total Value Implied ValueRange

Ind ustrialRange Acres Range Value S/Acre

S:>l !eLand $/Acre $22,000-$217.000 $1-$4.500 126.0 SI26-$567.000 $252.000 S2.000Modem Bldgs $/S.F. SI5 .00-$28 .00 $900-$18.00Older Bldgs. S/S.F. S3 .00-$12 .00 $3.00-$5 .00LeaseModem Bldgs. $/S.F. $1.75-$5.00 $100-$2 .75Older Bldgs. $/S.F. $0.50-$1 .50 $0.50-$1 .00

Q.!Ikt

Land S/Acre $50.000-$150.000 $15,000-$25,000 25 .0 S3: 5.000-$625 .000 $400.000 S16.000Sale $/S.F. $60.00-$175 .00 $2000-$4000Lease S.'S.F. $12.00-$26 .00 $6.00-$14.00

R ~ t l ! i l { n Q n - r ~ l : i Q n a l l Land $/Acre $240,000-$80.000 $20,000-$40.000 5.0 $1 00.000-$200.000 $100.000 $20.000Sale $/S.F. $40.00-$120.00 $30.00-$75.00Lease $.'S.F. $8.00-$26.00 $8 .50-$14.00

HotelLand $:Acre $40.000-$220.000 $10,000-$40,000 20.0 S2 (10.00-$800. 000 600.000 30.000Sale $fRoom $35.000-SI25.000 $60,000-$80.000Lease S'RoomINight $29.00-$150.00 $39.00·$99.00

MarinaLand $ Acre $4 .000-$40.000 $10,000-$20.000 6. 2 S62.000 ·$124.000 $124.000 S2 0.000Sale $/Slip $10,000-$30.000 $12.000-$17.000Lease $!Slip $1 ,000-$3 .500 $1 ,250-$2,250

Qther C o m m e r ~ i a l Land $/Acre $20.000-$80.000 $9,000-$20,000 24.5 $220. 500-$490.000 $220.500 S9,000

ResidentialLand $!Acre

Waterfront - $75,000-$300.000+ $30,000-$60.000 24 .0 $720.000-$1 ,440.000 $720.000 $30.000Interior $4,000-$150,000 $5 ,000-$15 ,000 56.5 $282.500·$847.500 $565.000 $10,000

Housing: S/S.F.Waterfront $150.00-$350.00+ $150.00-$175 .00Interior $60.00-S 150.00 $90.00-$120.00

287.2 $1 .960.1 26-$5. 093 .500 $2,981.500 S1 0.381

Therefore, based solely on the real estate market infonnation presented in this section, the propertyvalues range from $2.0 million to $5.1 million, with an implied value of$3.0 million. This assumes

corporate properties study benton harbor/st. joseph part i

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