Palomar project failure a major blow to Park East corridor

Five years after the demolition of the Park East freeway, Milwaukee County’s property in the corridor remains undeveloped.

Dallas-based Gatehouse Capital‘s decision to drop its Milwaukee Hotel Palomar and Residences development proposal that was planned for the Park East corridor in downtown Milwaukee, is a major blow to efforts to attract development to the corridor.

The $150 million, 22-story development planned for the northwest corner of West Juneau Avenue and Old World Third Street was to include 63 luxury condominiums, a 175-room boutique hotel, a restaurant owned by Food Network star Michael Symon, a nighclub, a spa and fitness center, retail space and a parking structure.

Work to demolish the Park East Freeway spur through the corridor was completed about five years ago. The freeway spur was removed in hopes of opening up a large swath of land for development on the northern edge of downtown. Most of the land that was underneath the freeway spur is owned by Milwaukee County. So far the county has been unsuccessful in its attempts to attract any development to its Park East property.

Chicago-based RSC & Associates planned to develop two county-owned blocks in the corridor, but dropped its plans for one block and its plans to build a pair of hotels and apartments on another block have been delayed indefinitely.

The County Board adopted the Park East Redevelopment Compact (PERC) for reviewing developments on the county-owned land in the Park East corridor. The PERC requires developers to pay union-scale wages for construction projects on the county land. In addition, the PERC indicates that developers that hire local employees, provide job training or create green space would be more likely to be selected. However, developers criticized the PERC, saying it would discourage development. The Milwaukee Common Council rejected a proposal similar to the PERC.

Some other development has occurred in recent years, or is still under construction, on land around the Park East corridor that is privately owned or was owned by the city including the new Manpower Inc. corporate headquarters, the Pabst brewery redevelopment, Mandel Group Inc.‘s North End development, the Flatiron condominiums, a Staybridge Suites hotel and an Aloft hotel.

In response to questions about the Palomar project and the lack of development on county owned land in the Park East corridor, Milwaukee County Board Chairman Lee Holloway released the following statement, "This development would have been a great addition to the Park East area, and the developers gave this project their best shot. It’s unfortunate that the economy and the credit markets did not favor this type of project at this time. If anything, this proves that we are having difficulty in creating jobs for county residents. It underscores the need for a federal stimulus package to create jobs and opportunities in Milwaukee County."

However, Milwaukee Alderman Robert Bauman, who represents the downtown area, said the failure of the Palomar project demonstrates the problem of forcing developers to obtain county and city approval for development of the county-owned properties in the Park East corridor.

"There’s an inherent problem with all of the county owned parcels," Bauman said. "Developers have two units of government they have to pass through. That creates delays and is an impediment for development in any economic climate."

In addition, the developer for the Palomar project indicated that city officials were reluctant to provide financial assistance for the project. In a prepared statement, Gatehouse chief executive officer Marty Collins said that one problem for the project was that, "as the residential and credit markets worsened to historical levels, Gatehouse Capital attempted to obtain a higher level of assistance from the City of Milwaukee, which unfortunately failed to materialize … the project is simply impractical in this new business climate without a much larger assistance package."

In a statement to the media, Department of City Development Commissioner Richard "Rocky" Marcoux declined to address the issue of city financing for the project.

"We understand that current economic conditions have impacted the Palomar project, but we are hopeful that as conditions improve, Gatehouse will still view Milwaukee as the opportune place to invest and develop projects," Marcoux said. "Unfortunately, as the developer noted, market conditions are not ideal and lenders are cautious. The pace of the Park East corridor redevelopment will always be determined by the private marketplace, but we will continue to do our part to ensure that it’s an attractive development opportunity."

A spokeperson for Mayor Tom Barrett could not be reached for comment.

The city may need to re-consider its tax incremental financing (TIF) policy, in light of the recession, Bauman said.

"My guess is you will see a re-evaluation of the policy, given market conditions," Bauman said. TIF requirements could be loosened to, in effect, create a city stimulus package for economic development, he said.

Collins said Gatehouse made a significant investment in the project.

"We were invited to this opportunity in early 2006 by local co-developers who were the majority financial partners," Collins said. "In 2007 to keep the project moving, Gatehouse Capital restructured that relationship and provided significant funding, advanced the drawings and construction plans, completed and opened the sales center, and identified several other nationally recognized operating partners for the restaurant and spa while continuing to sell the residences. As the residential and credit markets worsened to historical levels, Gatehouse Capital attempted to obtain a higher level of assistance from the City of Milwaukee, which unfortunately failed to materialize. This was a landmark project in an emerging section of the city with great promise to which we were very much attached. I would like to thank the Milwaukee community for the support it has shown during the planning and pre-development of this project over these last several years. We had a world-class team of professionals that were committed to building the finest project in Milwaukee. But even with the highest level of support and community backing, the deteriorating macro conditions of today’s market could not be overcome. In the final analysis, the project is simply impractical in this new business climate without a much larger assistance package. We wish the community every success in the re-development of this emerging section of downtown."

Signs of trouble for the project first appeared last fall when Collins announced that the start of construction for the project had been pushed back as a result of the recession and the credit crunch.

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