Officials with the city of Milwaukee Department of City Development said they will submit a recommendation to the Common Council for a $3.4 million city loan for the second phase of Mandel Group Inc.’s North End development along the Milwaukee River in downtown Milwaukee.
Mandel Group had requested an $8 million loan from the city for the project, but the $3.4 million loan was recommended in a report to the city by Chicago-based consulting firm S.B. Friedman & Company.
A spokesman for Mandel Group complained that the company was not involved with Friedman’s evaluation process for its loan request.
“Mandel Group has been shut out of this process all along in an unprecedented fashion," said Mandel Group spokesman Carl Mueller. “Mandel didn’t get a copy of this report until the same time that the media got it. To not include the developer (in the process) to ensure a level of accuracy and completeness is unprecedented.”
DCD staff met with Mandel executives Tuesday about the Friedman report and the loan for The North End.
"We were meeting them to get some additional information and understand some of the conclusions that they came to," said Mandel Group senior vice president Richard Lincoln. "I think we will continue to have discussions."
A $3.4 million loan from the city, less than half of what was requested by Mandel, makes it more difficult to make the project work, Mueller said.
“It creates serious problems for the project, no doubt about it," he said. "The developer wouldn’t seek the level of financing they did if it wasn’t essential.”
The second phase of the North End is a $38.4 million project that would consist of two buildings with 155 apartments and 227 parking spaces. It would be located next to the 83-unit first phase of the North End project, which is located southwest of Water Street and Pleasant Street.
The second phase of the North End will be primarily financed with $24 million in tax exempt bonds issued by the Wisconsin Housing and Economic Development Authority (WHEDA) through the federal Midwest Disaster Area program. By using that program Mandel, for at least 15 years, would have to provide 20 percent of the units to households earning 60 percent or less of the Milwaukee County median income.
City officials are also offering to complete $2.2 million of infrastructure work for the North End site that the city had previously agreed to do once the value of the property from the development had increased by $16 million. So far the value of the property has not reached that threshold said DCD commissioner Richard “Rocky” Marcoux. The city has assessed the value of the North End’s first phase at $12 million and Mandel Group is challenging that assessment, saying it should be $10 million, Marcoux said.
The city has already invested $2.4 million in tax incremental financing (TIF) funds for infrastructure improvements for the North End, Marcoux said. That plus the commitment of a $3.4 million loan plus the $2.2 million in additional infrastructure improvements is a significant contribution for the project on the city’s part, he said.
“It’s a good project,” Marcoux said. “We would very much like this development to be built. Mayor Barrett and this department fought very hard to make this project happen.”
The city is also providing a $9.3 million loan for the 30-story Moderne apartment and condominium tower downtown.
To stimulate economic development and job creation, city officials decided to consider loans for some projects when the commercial markets for residential real estate development dried up during the Great Recession. However, this is the last downtown residential project that the city plans to provide a loan for and city officials believe downtown residential projects should continue to be developed without subsidies, Marcoux said.
“(The city) should not be viewed long-term (by developers) as a financing mechanism,” he said.
DCD officials said they are confident that the North End project will be feasible with a $3.4 million loan from the city instead of the $8 million loan that Mandel Group had requested.
“We believe it’s a very fair offer,” Marcoux said.
If the offer is accepted by Mandel the loan could be approved by the Common Council in time for construction to begin in the spring DCD officials said.
