Former Zahn’s department store in downtown Racine could become 80-room boutique hotel

Could receive $7.5 million in city incentives

Proposed downtown Racine hotel at former Zahn's department store.
Proposed downtown Racine hotel at former Zahn's department store.

Last updated on March 17th, 2020 at 01:34 pm

The $27 million downtown Racine hotel project that Milwaukee-based Dominion Properties is pursuing consists of transforming the former Zahn’s department store building into a 79,900-square-foot, 80-room boutique hotel, city officials announced Wednesday.

The project could receive up to $7.5 million in incentives from the city.

According to a city memo, Dominion plans to convert the Zahn’s building at 500 Main St. along Monument Square into a “destination” hotel. Beyond its 80 rooms, the hotel would also feature a roof-top bar and observation plaza, a sidewalk café and coffee bar, an upscale restaurant, a 2,700-square-foot banquet facility, and meeting rooms.

The development also calls for adding a floor to the Zahn’s building and building an additional structure in a vacant lot to the south of the building.

The city teased the pending announcement in a media advisory on Tuesday, though it provided little detail at the time.

An affiliate of Dominion purchased the former Zahn’s building last fall for $1.1 million, according to state records. The city and Dominion have been in talks for over a year on an incentive agreement to redevelop the building, according to the memo.

The proposed city incentives consist of: $2.86 million that would come from reserves of an existing tax incremental financing district, which specifically includes $1.95 million for site improvements and a $945,000 banquet facilities incentive; a 25% rebate of room taxes generated by the hotel totaling up to $608,000, which is to be used for construction of the public-access roof-top bar and observation deck; and a loan of between $3.5 million and $4 million.

The up-to $4 million loan would actually be taken out by the city on behalf of the developer from the Board of Commissioners of Public Lands. The city would then receive about 125 basis points higher in interest on the debt from the developer than the city will repay. According to the memo, the city would pay about 3.75% interest while the developer would pay the city approximately 5% interest.

The actual size of the loan depends on the principal construction financing the developer privately receives. If, for example, the developer acquires up to $9.3 million in principal construction financing, the city loan will be $4 million. If Dominion acquires $10 million or more, the loan will be reduced to $3.5 million.

Dominion in turn would agree to provide no less than 15% equity in the project and guarantees a minimum total investment of $25 million.

What’s more, the city stands to receive more than $50,000 a year in parking revenue through long-term leases of city-owned parking stalls, the memo states.

The Zahn’s building redevelopment is just the latest hotel project being proposed for downtown Racine.

In May, the city announced a $40 million redevelopment of a vacant city-owned site at 233 Lake Ave. that consisted of 190 residential units and a 100-room hotel. That project is being developed by Madison-based Hovde Properties.

Later that summer, the city also revealed a $48 million project that included a hotel with at least 173 rooms and 10,000-square-foot expansion of the Festival Hall convention center. The hotel would go up on a city-owned parking lot at the corner of Festival Park Drive and Sam Johnson Parkway. The project developer is Dallas-based Gatehouse Capital.

Those developments were the subject of a July BizTimes Milwaukee magazine feature.

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Alex Zank, former BizTimes Milwaukee reporter.

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