Housing squeezes bustling Traverse City. Are rehabbed warehouses an answer?

• Traverse City and northern Michigan continue to struggle for enough non-vacation housing
• City officials and developers are considering options like revised zoning rules that could expand home development
• Among the options: Remaking old warehouses or commercial spaces into housing

TRAVERSE CITY — Once a medical supply warehouse, a small, gray brick building in this tourist haven offers a glimpse into the lengths developers are taking to address northern Michigan’s housing crunch.

Now bright and airy, a group of seven lofts on Centre Street has new life as nearly 1,000 square-foot condos that sell for about $250,000, in a community whose average home costs have jumped 7% in one year to $434,000. 

The transformation from the drab industrial space began in 2016, when units were carved out of the warehouse for “work-life” rentals. But with housing in Traverse City at a premium, finding takers for business use proved challenging.

Converting the building to condos this year seemed like “a natural progression,” owner John Strand said. “That's what the market demands.”

Fueled by short-term rentals, financing challenges and rising prices, the housing crunch in northern Michigan is causing developers and city officials to get creative. 

In Traverse City alone, a closed bank was turned into a house and is now for sale for $785,000. Condo development continues at the former state mental hospital, a project started years ago. 

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Next, with an estimated 60,000 square feet of vacant offices in the city, conversions of some of that space may come soon.

Traverse City isn’t alone: From Manistee to Petoskey, some of the state’s most popular destinations are fighting to balance their vacation popularity with housing access and affordability.

Doing so requires zoning changes that are often controversial.

For Traverse City, the issue is of particular concern: While Michigan’s population grew just 2% from 2010 to 2020, the city’s population has jumped 7.4% to 16,100, while Grand Traverse County has grown 10% to 95,000 residents, according to a 2023 study by Bowen National Research. 

The study predicted the city will need 1,438 new rentals and 1,819 new homes in the next five years to meet demand.

And medium-cost housing is of primary importance. The city’s median household income of $64,000 is a hair below the state median, even though housing prices are growing significantly higher.

“The addition of a variety of housing product types and affordability levels would enhance the city’s ability to attract potential workers and help meet the changing and growing housing needs of the local market,” the report said. 

The widest gap for renters is in properties priced for people earning less than $50,000 annually. 

For buyers, the largest gap is for people earning about $70,000 to $100,000 per year who are seeking homes from $239,000 to $359,000. 

The condos on Centre Street can fill that void, Strand said. 

“I wanted to make them as least expensive as possible to get those people in there, especially with the high interest rates,” Strand said. 

Five sold right after they were listed in the spring. Two more recently came on the market, after tenants moved out. 

Buyers have come from Traverse City and out of state, including two from Nashville and one buyer who — like Strand, an Austin, Texas native — spent years hoping to move to the city on the Grand Traverse Bay. 

Strand said many put offers in on other properties and were “overbid on every one of them,” he said. 

Remaking industrial buildings into housing “is a small slice of the housing issue, and it has specific challenges,” Leah DuMouchel, director of programs and communications for the Michigan Association of Planners,  told Bridge Michigan. 

Among the barriers: the size and layout of buildings and windows, contamination of sites, nearby buildings and zoning restrictions.

However, DuMouchel added: “(Converting commercial buildings is) also part of the larger conversation about how we build the cores of our communities. Housing has been illegal in many commercial areas for a long time, and that's a part of why buildings have been so customized to a single commercial use, which makes them now so difficult to repurpose.”

Across the U.S., a small but growing portion of housing development uses property that is not zoned residential. 

Nationwide, conversions from commercial to residential properties increased about 17% to 12,700 from 2022 to 2023, according to a report from RentCafe. The number is an increase from 2022 of about 17%.

Another 151,000 conversions are in the pipeline, with many of those adaptive reuse projects involving hotels becoming condos in big cities, including Manhattan. 

Some office buildings have been converted, too, with Atlanta, Georgia, leading the way. Urban warehouses or retail spaces also have become turned into lofts or apartments, as Grand Rapids developers Visser Brothers did in Newaygo in 2020. 

On a sunny summer day in Traverse City, it’s easy to envision walking from Strand’s converted condos to Front Street or Grand Traverse Bay parks, about 1 mile north. 

Closer still is the Boardman Lake trail, which blends nature with the mixed uses of the neighborhood: The lakeshore path goes past industrial buildings, housing and retail, while running alongside the railroad tracks behind the public library. 

Strand bought the property in 2020, about four years after the former medical warehouse built in 1972 was re-developed into the  “live-work” lofts. 

He started the condo conversion after deciding to retire, setting it up so that only one unit could be a short-term rental. 

The commercial history of the building is among its assets, Strand said. Mechanicals are done to higher commercial specifications, he said, while the cement block walls add soundproofing not usually found in multi-family housing. 

Fencing was added in front of each unit, giving each some outdoor privacy. Rafters were added to a portion of the lower level ceiling, adding some industrial-style visual interest. Extra-wide parking spots mean each condo has space for two vehicles.

While the greater neighborhood includes housing — including an apartment building about 100 feet to the south — adjacent properties remain commercial. Business services are in the building across the parking lot, and a construction company is located to the east. Beyond that, an established residential neighborhood is increasingly dotted with new infill buildings, including small townhouses.

“The mixed use neighborhood is kind of a wave of the future,” said Susan Leithauser-Yee, an agent with the Loft Warehouse through Berkshire Hathaway HomeServices. 

Leithauser-Yee listed the condos for Strand, and she’s a volunteer with Housing North, a regional housing advocacy group. 

Finding ways for property types to coexist helps to increase density and contain sprawl, Leithauser-Yee added.

Traverse City officials last year approved some zoning reform to broaden what can be built in residential areas. Among the changes: allowing duplexes on single family lots and owners to add so-called accessory dwelling units to their properties.

Conversations continue, after some proposed changes generated controversy. 

An open question is how many additional commercial buildings in Traverse City could become housing, and what conversions would cost developers and, eventually, buyers. Costs often exceed new construction, Leithauser-Lee said. 

Yet on Centre Street, the loft price per square foot is about $100 less than the $318 city-wide housing average.

And it was the right building to make condos affordable for an owner, Strand said. 

“I double the value by turning them into condos,” he said.