Retail space is expanding on South State Street with one property owner going vertical to attract tenants.

But instead of new construction, it’s the unused upper level of 216 S. State St. that will be renovated and marketed as new retail or office space on one of the hottest blocks in Ann Arbor.

“We’re going to make that building busy, like it should be,” said owner Howard Frehsee of Bloomfield Hills.

Frehsee bought the property - formerly the Marti Walker clothing store - in 2004 from the family that owned the women’s apparel chain. He paid $950,000, and it’s now assessed at $833,200.

At the time, it was leased to Zanzibar Restaurant, which closed in summer 2009.

Sava’s Restaurant replaced Zanzibar, moving from the east side of South State when owner Sava Lelcaj had to make way for the CVS now under construction behind a historic façade.

“Now that she’s stabilized the lower floor, we’re looking at the second floor,” Frehsee said.

The space is 4,488 square feet, the same as the Sava’s ground-floor space. It's formerly been medical offices.

The renovations and leasing of the upper level won’t affect the loft area at Sava’s, which utilizes the height of the ceiling space to carve out additional seating in the restaurant over the bar area.

Frehsee isn’t a stranger to the street. He also built the Corner House Lofts apartments at the southeast corner of East Washington and South State, signing Buffalo Wild Wings as the street-level retail tenant.

He’s still enthusiastic about the potential of the street, made even more vibrant this fall with the opening of the University of Michigan’s North Quad dormitory.

He’s considered adding height to the Sava’s building, but the economic climate isn’t right for that on the 1/5-acre property.

So in the meantime, he’s targeting the second level.

“I’m really into making that building a success,” he said. “It’s such a wonderful location.”

He’s listing it with Jim Chaconas of Colliers International, who said tenants are willing to look at second-floor spaces near Central Campus.

“We’ve had extremely good luck with upper levels lately,” Chaconas said.

The reason: There’s still proximity to the pedestrian traffic, but at a lower rental rate. The difference can be going from a market-leading $35 per square foot for the gound floor to $18-20 for upper levels.

Frehsee said initial work on the space that analyzed levels of lead paint and asbestos has been completed, and he’s now finalizing demolition plans. He’ll take the space down to a “white box” without interior walls, so it’s ready to customize for a tenant.

Frehsee said an office seeking downtown space could be a likely tenant. But given the number of retail/service businesses looking for space next to campus, Chaconas said that may be the most likely eventual tenant.

The changes on the block since Frehsee demolished a former Olga’s Restaurant to build Corner House still amaze him, he said.

“The differences from when I came in are dramatic,” he said. “… We’ve cleaned the blighted corner up quite a bit.”

Paula Gardner is Business News Director of AnnArbor.com. Contact her at 734-623-2586 or by email. Sign up for the weekly Business Review newsletter, distributed every Thursday, here.