Alderman Nik Kovac, WHEDA Executive Director Wyman Winston, DCD Commissioner Rocky Marcoux, Mandel Group CEO Barry Mandel, Governor Scott Walker, Federal Home Loan Bank of Chicago President Matthew Feldman, County Executive Chris Abele, and Mandel Group Senior Vice President Dick Lincoln

A ceremonial groundbreaking took place at the corner of Pleasant and Water streets today for the Portrait and Silhouette buildings at The North End, collectively known as Phase Two of The North End. A number of public officials were on hand representing the large number of public funding sources required to get the project off the ground (or more aptly, in the ground) with the state of private financing for development.

Offering remarks and wielding (painted) gold shovels were Alderman Nik Kovac, WHEDA Executive Director Wyman Winston, DCD Commissioner Rocky Marcoux, Mandel Group CEO Barry Mandel, Governor Scott Walker, Federal Home Loan Bank of Chicago President Matthew Feldman, County Executive Chris Abele, and Mandel Group Senior Vice President Dick Lincoln. Other elected officials in attendance included were Alderman Bob Bauman, Alderwoman Milele Coggs, Alderman Willie Wade, Alderman Michael Murphy, and Comptroller Wally Morics.

Funding sources include a number of public funding sources. The largest is $26.2 million in “Midwest Disaster Area Bonds” issued by WHEDA and sold to private investors (increased from an initial $24 million to fill a funding gap), with support from the Federal Home Loan Bank of Chicago. In addition, the City of Milwaukee is providing two funding sources, a $4.63 million loan put forth by the Redevelopment Authority of the City of Milwaukee (RACM), and a $2.2 million grant from the Park East TID (#48). The grant is for street work, riverwalk construction, and other public improvements on the site.

Governor Walker included a positive comment towards Milwaukee in his remarks, “For Wisconsin to succeed, we need a strong Milwaukee, and for Milwaukee to succeed we need investments like this.”

First, up of course is The Moderne, which borders the Park East and is scheduled to break ground in February.  This $56 million, 30-story high-rise apartment project received city financing in late 2009 and when built out could serve as a catalyst to further development in the corridor.

Another significant project that appears to be advancing is the first phase of RSC & Associates’ Park East Square proposal.  This first phase would include a 120-unit apartment building with 4,000 square feet of retail space.  Recently it received assistance from the Redevelopment Authority of Milwaukee (RACM) which would issue $25 million in revenue bonds to help the project move forward with the intent of breaking ground in late spring.  Although, RSC & Associates have failed to meet ground breaking goals in the past with RACM’s assistance it appears this project is likely to move forward.

At a Zoning, Neighborhoods & Development committee meeting in October, 2009 Department of City Development (DCD) Commissioner Rocky Marcoux stated that Mandel Group would be bringing forward the second phase of the North End shortly.  As of yet this hasn’t occurred, but with the success of the first phase, combined with Mandel Group finishing up two major projects, Corcoran Lofts and Cambridge Commons, elsewhere in the city this year, they might look to continue their development within the Park East.

The $76 million Eco-Square at Park East proposal by Fair Market Development would build out 400 residential units and 10,000 square feet of retail space in Block 22 of the Park East if it were to move forward this year.  Unfortunately, as there hasn’t been any recent news regarding this project it seems like the least likely of the projects to move forward in 2010.

Finally, Rainier Properties II LLC’s office and movie theater proposal looks promising as Marcus Corp., has formally committed to the $100 million project.   The potential time-line for this project probably will push it beyond 2010, as various approvals, financing, and a likely city funded TIF will need to be worked out prior to ground breaking.  If it is able to meet those requirements this project could dramatically change downtown Milwaukee for the better.  Because, it is one of the key sites in the Park East corridor, would fulfill the long talked about downtown movie theater need, further extend the Riverwalk, and be a socially diverse meeting place that Milwaukee needs.

Certainly, there will be plenty of land in the corridor to develop post 2010 and only a couple of these projects will actually break ground this year, but with the addition of new density, new entertainment options, and new office space, it might just be that 2010 is remembered as the year of the Park East.

Currently land sales in Milwaukee, be it those executed by the state, county, or city, don’t allow for speculation and restrict developer freedom with the current purchase options/request for proposal process.  The process currently in place is designed to protect the interests of the city and to attempt to create a level playing field for developers.  It succeeds, sort of.

The current request for proposal (RFP) process involving publicly-held land works by announcing a request for development proposals, judging the replies, and granting a time-limited purchase option for the land to the winning party.  The system is not without flaws.  Submitting the proposals is burdensome for developers and requires a clear picture for the use of all of the land in the parcel before ownership is even granted.  If a developer wins the option to purchase the land, there is very little control on their execution of the proposal.  The option contracts also are often structured as such that the time component is virtually meaningless as they are frequently extended to avoid having to restart the process.  The final large problem is that the process is slow and does not allow a market to form around the land as it would for private land.

The Changes

Applying more market principles to the RFP process might speed the transition from public and vacant to private and developed for publicly-held parcels.

The first of such adjustments should be to allow speculators into the market.  With the current process, developers are effectively the only parties that can buy parcels with a requirement that a proposal be submitted first.  By regulating the use of land with zoning the desired use can be created flexibly after the sale of the land.  Zoning codes would need to become more detailed to include explicit minimums (and potentially maximums) along with use types to ensure that any development of the land benefits the area around it.

The second of such adjustments should be to make the public land more closely mimic the properties or private property before it is developed.  Currently the RFP process requires land to frequently be bought as a single parcel, with no flexibility to sell portions to others.  Speculators should be able to obtain a contract for a plot of land at auction and have the ability to parcel it out to others to develop.  Parceling of large blocks of land could be done after the contract was obtained, not before as is currently required.

The third adjustment to the RFP process should be to enhance the time-limited option contracts currently created.  Allowing speculators into the market has the danger of creating parcels that remain undeveloped for years, and a safe guard is needed.  To encourage the ultimate goal of getting the land developed, contracts should be granted with yearly fees that grow annually.

A per square foot cost can be assigned to the land, so if a specular wishes to sell or develop a portion of a parcel they may.  When the land is ultimately developed, the portion used should be paid for in full, instead of just the option cost.  However, the amount paid on the option could be applied towards the cost of the land.  This would allow higher option prices to be charged, while further enticing development the longer a parcel is held (coupled with the higher option costs each year).  The price paid on the option will be able to exceed the actual cost of the land, encouraging the land to be developed or to let the contract lapse.

If a contract owner wishes to exit their obligations of the growing annual payments, they can simply sell their contract to another party or notify the land-holding agency that they wish to release their remaining contract options.  This would allow partial development (to corresponding zoning codes) of a parcel, while not forcing other portions to remain undeveloped.  To prevent the building of a structure by a developer and the failure to build any landscaping on small portions of the land remaining (which would then be released back to the government unit undeveloped), the contract would have to stipulate a minimum divided parcel size.

The Intended Effects

How would this change Milwaukee as it is now?  In the past ten years the largest example of the RFP process has been the reclaimed land from the former Park East Freeway spur.  While small border parcels are being infilled, almost all of the land that has come under the ownership of the county has remained undeveloped.  Why?  Simply the lots are too big.

By allowing speculators to buy the land at auction without proposals (but with strict zoning codes) and affording them the flexibility to sell smaller parcels, much of the land may have been developed already. Furthermore, the escalating annual payments would have begun to push developers like RSC & Associates off their block of land, opening it up to the market again.

Developers like Robert Ruvin, who win RFP option contracts, then struggle (or fail) to actually develop the land would be given options to reasonably scale back their projects by using less land (at less cost).

The state of Wisconsin Department of Transportation (WisDOT) will soon begin selling the parcels used during construction of the Marquette Interchange.  Allowing them to use a more market-based approach would allow them to sell options on the land to private interests, begin to see a revenue stream immediately, and have private interests searching for developers.

If you’re questioning the possibly that such a plan allowing subdividing would work, look no further than the former Pabst Brewery.  The Brewery Project stewarded by Joseph Zilber has successfully parceled off buildings that will create an entirely new neighborhood.