PabstCity’s use of conservation easement unique in state
By Charles Rathmann, of SBT
A Cleveland developer plans to use tax revenue from a federal conservation easement to fund redevelopment of the former Pabst Brewery site west of downtown Milwaukee.
A conservation easement preserves open spaces and other environmentally significant resources while providing income, property and estate tax savings to the landowner.
Easements are "donated" by the US Department of Interior to a conservation organization or local government entity, which accepts the responsibility to monitor the easement and to enforce its terms.
While conservation easements were designed to allow landowners to keep land in an undeveloped state, preserving green space and wildlife habitat, the only wildlife on the PabstCity site are seagulls, pigeons, crows and — more than likely — rats.
Additional wildlife and green space would not likely be created as plans move forward to turn the 20 buildings on the 130-year-old Pabst Brewery site into an entertainment, retail, office and residential district.
However, according to developer John Ferchill, his Ferchill Group has used conservation easements to redevelop urbanized sites before.
"This would be the fourth one we have done," Ferchill said. "We have done three of them already. Two of them have each been in effect for about a year."
Ferchill said one of his earlier ventures, a $70 million adaptive reuse project in Pittsburgh, is the largest of his projects involving urban use of conservation easements.
"We took five historic buildings and converted them into lofts," Ferchill said, stressing that the revenue resulting from the easement was critical to the project’s viability. "As part of the financing, we did a conservation easement. It wouldn’t work unless we could do that."
On previous projects, Ferchill said, he has been able to negotiate up-front payments for the easements.
"We received the benefits up front, discounted so we could get them up front," Ferchill said. "And then we use the proceeds for construction of the project."
The idea of applying a program designed for forests to factories is incongruous, and according to Ferchill, his first venture with conservation easements involved doing a lot of homework to make sure the program was applicable.
"We got a legal opinion, an accounting opinion, a tax opinion," Ferchill said. "There were no issues with it."
According to a Madison attorney with experience using conservation easements, Ferchill’s approach is something new in Wisconsin, both because of his use of conservation easements and the fact the he is combining the easement with a historic preservation tax credit.
"It is not common," Johanna London of Michael Best & Friedich said. "The historic preservation credit is more common in these situations. We see that all the time. But the use of conservation easements on a developed piece of property — that is new."
London said the rules for conservation easements do not specifically require they be used to protect undeveloped land, stressing that whoever holds the conservation easement would play a role in determining how it is used.
"You have to meet certain requirements to take advantage of the tax deductions," London said. "You could do it under state law and not meet all of the federal tax deduction requirements. It would be important that the piece of land would really fall into those conservation purposes for donating it. I think the holder of the easement would help a lot in defining those conservation purposes."
In the case of PabstCity, the holder of the easement would likely be the City of Milwaukee. According to Department of City Development (DCD) spokesman Bill Zaferos, Ferchill has not yet requested a conservation easement, but DCD officials expect he will apply for one.
"We are looking at a series of structures that at this point are being used for nothing, and at this point, we certainly want to encourage redevelopment of the area," Zaferos said.
Mix-and-match financing not easy
PabstCity developer John Ferchill says mixing and matching multiple tax deduction and funding sources for historic preservation projects is a complex process.
Ferchill plans to fund some of the redevelopment of the former brewery by obtaining up-front payments on some tax deductions, including a federal conservation easement he plans to receive for the vacant industrial complex.
Ferchill also is seeking a Historic Preservation Tax Credit, which would place stiff requirements on the redevelopment project.
According to sources close to the project, the PabstCity application to the National Park Service for entry on the National Register of Historic Places should be completed by June.
"There are rigorous restrictions," Ferchill said. "On our projects, everything we did was approved by the National Park Service."
Ferchill said the involvement of the Park Service has not slowed down the development process in his projects.
"The Park Service part of it takes about six months," Ferchill said. "But while we are doing the historic items, we are doing all the rest of the work at the same time. Does it add expense? Does it add time to build the historic stuff? Yes. Does it cause delays to the project? No."
However, Ferchill’s message for other developers when it comes to his aggressive approach to funding using governmental programs and tax credits seems to be, "Kids, don’t try this at home."
"I think it is important for you to understand that this is about as good a historic team you could put together," Ferchill said, crediting his Cleveland-based team of general contractors Marous Brothers Construction and architects Sandvick and Associates.
"Berghammer Construction (of Milwaukee) — they also have a huge amount of historic experience," Ferchill said. "They are in a joint venture with Marous, but their role is not completely defined yet. But both firms with be heavily involved in the project."
May 16, 2003 Small Business Times, Milwaukee