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Posted: Wed Nov 18, 2015 10:28 am
Banks underwrite office development differently than residential development. For a bank to finance office, the developer either needs a lot of equity or a regular amount of equity and a anchor tenant with good credit. For a bank to finance residential, the developer needs to match a normal amount of equity to a strong case for unit absorption. So banks looked at Alexanders program, Madison's low vacancy rate, and knowledge economy hiring and said looks good for apartments, go ahead! The same banks looked at the office absorption/vacancy rate for office construction and the credit of the anchor tenant, and said hold up, Exact is a risk, so we will lend you the money only with a huge security deposit to cover operating expenses and rebuild the interior for a new tenant if Exact leaves before the lease is up. After their stock fell, Exact couldn't escrow the security deposit and continue to feed its core business via periodic stock sales without giving away the company and diluting existing shares. So they bailed, the banks bailed, and JDS's office-heavy development fell through.
A JDS plan that includes more residential development will be easier to finance and less risky for the City. Vermillion, Beitler, and ULI all had significant residential offerings. Hotel developments require lots of equity too, even if Epic regularly fills them, so it can't be hotel heavy if its going to stand on its own legs. JDS was lucky to be both hotel heavy AND office heavy, with no apartments. It was the proposal most likely to fall apart from the beginning. If any of the other developers win the project, it will work.
Posted: Fri Dec 18, 2015 4:14 pm
Beitler returns with an interesting ground lease option bringing immediate cashflow to the City and no public subsidy. http://host.madison.com/ct/news/local/g ... 2a0bd.html
Not crazy about the design, but I like the glass curtain walls. The above ground parking ramp is tougher, though--it looks like it has street level retail, and won't look like a parking ramp, but I don't think we'd mistake it for an office building. I suppose it could be designed with sufficient floor to floor height to allow it to reposition as office or residential at some point when BRT/self-driving cars/HSR finally hit, in respectively distant futures.
Part of me thinks throwing public money at an expensive underground parking ramp makes sense because it can bring increased density.
But then part of me wonders what other projects could benefit from that TIF money--maybe the conversion of the MATC campus from institutional to a mixed use project? Perhaps the early redevelopment of the other five city-owned dedicated parking structures or surface lots? https://www.cityofmadison.com/parkingut ... wntown.cfm
JDS isn't the only option to use public money to make something cool happen downtown.
Posted: Fri Dec 18, 2015 7:22 pm
First, I think company president J. Paul Beitler is being a class act, showing ongoing optimism and enthusiasm for the project even after being cast aside by the city in a totally non-class move in round one.
Second, I'm still not crazy about a hotel room or apartment with a glass wall that looks across a relatively narrow passageway right into somebody else's glass-walled hotel room or apartment. And that's pretty much the theme of the whole living-unit aspect of the design.
On the other hand, there are probably more exhibitionists out there than I realize, and they all have to live somewhere too, right? Especially the ones with money.
Setting that aside, the proposal seems to look a whole lot better than the previous one did with regard to dollars and cents for the city. Yes, the next big development opportunity could be the MATC block. At the same time, nothing says Madison has to disburse every bit of that TIF money right away just because they can. We already saw what happens when the process gets rushed and a low-quality proposal pushes to the front of the line. Let's take our time and examine all our options thoughtfully.
I agree about building the parking ramp so future conversion to other uses is possible. All new parking ramps should be designed that way today.
Posted: Fri Dec 18, 2015 7:47 pm
This project is in TID 25. It has a lot of cash on hand. TID 25 ceases to exist in 2022. Any of that cash must be committed by 2017 in order to be used. In City parlance, that is the blink of an eye.
MATC is not in TID 25. It is in TID 32. TID 32 has a longer life.
With some exceptions I won't get into here, you can't take money generated in one TID and spend it anywhere you want.
I'm not commenting on the substance of any proposals, just noting that there are temporal and spatial limits on where TID money can be spent. There are also limits on the purpose of the spending, but that really isn't an issue here.
Here's a map of the City's TIDs: http://www.cityofmadison.com/dpced/econ ... %20map.pdf
Posted: Fri Dec 18, 2015 9:27 pm
That's helpful and useful. There actually is a shelf life to the money in TID 25. I can't tell from the way the article is written, but if the Beitler twin buildings require no city funds (instead, a ground lease is put into effect), is the implication if the city wants that parking ramp it applies the TIF money there? Or can it instead apply the TIF funds to renovating and restoring the municipal building?
If they want the latter they better get going.
(Sometimes the way these articles are written leaves you with more questions than answers -- the reporters are doing the best they can, but they're so young and new.)
Wasn't the Beitler proposal the one that had the cool fly-through rendering in the original presentations? The firm definitely put some time and money into it and I can see why they want a revisit.
Posted: Sat Dec 19, 2015 10:22 am
MPMay wrote:This project is in TID 25. It has a lot of cash on hand. TID 25 ceases to exist in 2022. Any of that cash must be committed by 2017 in order to be used. In City parlance, that is the blink of an eye.
Well from the link you provide, it appears the city-owned Brayton surface lot off East Wash is included in TID 25. That's literally an entire downtown block devoted to asphalt surface parking. There's also a surface lot at King and Webster across the street from the Majestic that has a plan for a boutique hotel that I'm sure could use an extra oomph to close the financing gap via city money. Oh, and don't forget that triangular block between Wilson and John Nolen with water utility infrastructure on it. That's in the TID, and pretty damn valuable. It also looks like Summit Credit Union's building is in the TID....and Law Park and the surface lot behind the Machinery Row building.
I think the City is being a little myopic here--there are other developable lots in the TID, just not connected to their office buildings.
Posted: Tue Jan 19, 2016 2:47 pm
http://host.madison.com/wsj/news/local/ ... cfb88.html
Welp, looks like my 'ULI will just come in and save the day' prediction just died a quiet death. In fairness, looks like its the hotel operator who's backing out, and Binkowski is saying that ULI would be willing to do everything but the hotel. He also made some comments about how it will be tough for any developer to give the city what it wants, which I think carry some weight given the source. Should be interesting!
Posted: Tue Jan 19, 2016 4:29 pm
You know what? The city's approach to this as a single big project that requires a large hotel has been wrong from the start. If they don't learn and break it into manageable pieces, 5 more years will pass and nothing significant will have been done.
Posted: Tue Jan 19, 2016 8:53 pm
That was how it looked to me months and months ago. I wanted them to spread out the risk and have several small (and predominantly privately financed) projects on the blocks in question. The city should focus on fixing up the municipal building (old courthouse) and maybe on parking.
And I still don't see why the city should be helping fund a new hotel -- how do the existing hotels like that? Are they booked so solid a new hotel won't cut into their business?
I don't remember exactly how this whole thing got started, but it sure won't die.
If Brad Binkowski can't pull something together and meet the city's terms, that's a message right there.
Posted: Wed Jan 20, 2016 10:18 am
North Central is building a new hotel 3 blocks away, so I wonder if they pulled out in order to avoid reducing the value of their existing project.
At least the Beitler proposal doesn't ask for that much tax support.
Posted: Wed Jan 20, 2016 10:34 am
And the message is... there's not enough public financing available.
Developers like ULI, Gorman, Stonehouse, Dunn, to name a few, don't do anything without substantial public investment. Block 89 (ULI) got two separate TIF loans totaling over 27 million and their current Anchor Bank project got over 13 million.
ULI does a good job of keeping their requests out of the headlines.
Posted: Wed Jan 20, 2016 11:00 am
ULI, Dunn, and their brethren can suck it up and invest their own money if they think they have a profitable business idea. There is no reason for TIF funding to go to hotels and parking lots. It's antithetical to the concept and just plain stupid.
Madison is not Janesville. We are doing just fine, and that is extremely valuable real estate. They idea of paying someone to develop it is absurd. The more I think about it the more I wonder what drugs these people are on to be giving away millions of dollars in taxpayer money and some of the best real estate on the isthmus.
We have to start acting like the great city we have become and not like a cowering abuse victim with Stockholm syndrome.
Posted: Wed Jan 20, 2016 11:02 am
Honestly, they really only need public financing because there's a height restriction downtown, so they have to bury the parking at a cost of $30,000 per space. Aboveground parking is like $10k less expensive per space. Look at the difference in public subsidy to the Gebhart buildings on East Wash compared to the public subsidy for buildings on the Square. As our favorite national developer would say, its 'YYUUGGEE'.
But that isn't to say their isn't a cottage industry of squeezing money out of cities to be able to provide amenities below cost.
Posted: Wed Jan 20, 2016 11:08 am
They don't need public financing period if they have sufficient cash flow. They WANT public financing. Big difference.
If ULI doesn't have the cash flow, shrug, others do. Step aside, small timers.
Posted: Wed Jan 20, 2016 11:34 am
christopher_robin wrote:They don't need public financing period if they have sufficient cash flow. They WANT public financing. Big difference.
If ULI doesn't have the cash flow, shrug, others do. Step aside, small timers.
You can't get the cash flow downtown with the height restrictions AND parking requirements without public subsidy. Doesn't matter who you are, given the city/state requirements, the building won't produce enough income to pay for its development.