Last updated on August 9th, 2019 at 11:39 am
The developer planning to redevelop the former Sears building on Milwaukee’s near northwest side into the Ikon Hotel is seeking another $5 million loan from the city to help cover project costs.
Kalan Haywood, president of Milwaukee-based Haywood Group LLC is working ot redevelop the building at the northwest corner of Fond du Lac and North avenues into an 80-room Ikon Hotel, a full-service boutique hotel featuring a restaurant, lobby bar and co-working space. Development plans also include a new 23,600-square-foot conference center to be built next to the historic building.
The project is already receiving a $4 million loan from the city, which is being provided through a new tax incremental financing district. The city incentive was approved by Common Council members in May.
City officials will now consider a proposal to provide the project with an additional $5 million, according to a city report. If approved, this would bring the total amount the city is loaning the developer to $9 million.
When details of the first city loan were revealed this spring, Department of City Development Commissioner Rocky Marcoux made clear the city expected a second round of funding would be put forward. At the time, he said he expected the second funding proposal to be introduced prior to the Common Council’s August recess.
Haywood could not immediately be reached for comment.
The city report notes that a feasibility study conducted for the tax financing district back in March found the project would have a stabilized value of roughly $3.64 million by 2022. The property currently has an assessed value of $1.47 million.
However, there was limited information on the expected financial performance of the hotel at that point. And since then, the Haywood has provided the city with a market study that estimated a gross profit for the hotel of between $1.5 million and $2.5 million. After factoring in other expenses, the developer estimates a net operating income of about $1 million.
Using the new projections, the city expects a stabilized value of nearly $10.63 million, which would be reached by 2023, the report states. This is a conservative estimate that reduces the hotel’s expected net operating income by 15%. Without reducing that, the expected estimated value would be $12.5 million.
Construction is anticipated to commence by the end of the year, and will be substantially finished by the end of 2022. According to the term sheet for the proposed city loan, the developer is required to meet that completion deadline in order to receive the financial assistance.
The term sheet states that the developer would be provided $2 million at the time of the closing date, and could draw up to another $2 million for pre-development work, such as architectural and engineering expenses, legal expenses, environmental remediation, interior demolition and holding costs. The remaining $5 million would be available after all other project funding sources are secured and construction has commenced.
The additional $5 million loan would be authorized through an amendment to the tax financing district’s project plan. The proposed amendment also calls for $500,000 in spending on public infrastructure improvements, $500,000 that would be put toward the city’s Commercial Corridor fund and $112,500 in administrative expenses.
Infrastructure improvements include street paving, streetscaping, traffic-signal upgrades, utility work, public art, lighting improvements and pedestrian and bike amenities.
The Commercial Corridor funding is used for cash grants or loans related to tenant improvements, facade improvements, new signage and other expenses that would be administered through existing city programs. However, the proposed $500,000 would specifically be used on properties within a half-mile radius of the district’s boundaries. The district is bounded by Fond du Lac Avenue, North Avenue, 24th Street and Oak Street.
The proposed amendment will first be introduced to the Joint Review Board next Wednesday, according to a public notice from the city. It would then be considered for approval by the Redevelopment Authority of the City of Milwaukee, the Common Council and, lastly, the Joint Review Board.
According to the report, the city’s expenses would be paid off on or before 2045 due to the resulting anticipated tax incremental revenue to be generated.