Bruce Murphy
Murphy’s Law

How Republicans Will Hurt City Real Estate

Reacting to a smelly deal involving one school building, legislators are pushing a badly-flawed bill that worsens the problem.

By - Oct 17th, 2013 01:28 pm
Sign-up for the Urban Milwaukee daily email
Joe Sanfelippo

Joe Sanfelippo

“This deal does not pass the smell test.”

Such was the reaction of Rep. Joe Sanfelippo (R-West Allis) to a presentation to legislators by Milwaukee Public Schools Superintendent Gregory Thornton on why the district sold the old Malcolm X Academy (2760 N. 1st St.) to a couple of developers in a murky, not-very-well-explained deal. For months, the nearby St. Marcus Lutheran School, a successful private school, has been offering to pay cash for the building, but Thornton has resisted selling to them.

Thornton’s decision has provoked understandable outrage. It looks as though MPS is deliberately trying to prevent competitive, voucher-funded schools from expanding. And so Sanfelippo, state Sen Alberta Darling (R-River Hills) and other Republican legislators want to pass legislation that would force the sale of such buildings to choice and charter schools.

There are two problems with their solution. First, the bill is badly flawed: in order to allow competition in the education marketplace, it will greatly restrict competition in the real estate marketplace. But far worse is that it will prevent Mayor Tom Barrett and the Common Council from aggressively seeking the best deals when selling excess school properties. Indeed, it may bring to a halt all such sales.

The reality is that Barrett supports the goal of selling excess school properties and supported an earlier law, passed in 2011, that was intended to force a quicker sale of MPS properties. Barrett’s chief of staff Pat Curley says the mayor was “frustrated with MPS” and concerned that “some of its buildings were sitting empty.”

The 2011 law in essence required MPS to declare some buildings surplus property and allow those properties to be sold through a standard, market-oriented process in which the city (which legally holds the title to all school buildings) would complete the sale.

By and large, Curley says, that process was working. “MPS was making great strides with its facilities plan.” But a procedural problem arose, as Barrett recently explained in a letter to the legislature: “After the bill was passed, we determined that state law still required our City Attorney to represent MPS as well as the City in real estate matters. Therefore, the new law presented a conflict whenever there was disagreement between the City and the District about the sale of a property.”

St. Marcus School's proposed design for Malcolm X Academy

St. Marcus School’s proposed design for Malcolm X Academy

In the case of the Malcolm X property sale, which Sanfelippo says doesn’t pass the smell test, Curley says “we’re not convinced it does either.” He notes that the deal is being studied and “we should have answers in the next few days.”

The simple solution, Curley, says is a technical fix to the 2011 law which would declare that in the case of real estate deals, Milwaukee’s City Attorney represents the city and does not represent MPS (which could choose to hire outside counsel). This would eliminate any conflict of interest and leave the city less constrained in how to sell excess MPS property.

Instead Sanfelippo and company are crafting a bill that would force the district to sell buildings to choice and charter schools, even when they are outbid by other parties. This would prevent the city from getting the best deal it can from potential developers.

One example, Barrett’s letter noted, “is the transformation of the former Jackie Robinson Middle School, a vacant school building in the Sherman Park Neighborhood that had been closed since 2005. Using tax credits, the building was redeveloped and repurposed by Gorman and Company into a senior living center with 68 apartment units and is now a wonderful asset to that neighborhood.”

Another example, the letter noted, “is a housing project that has been proposed by Milwaukee Public Schools in conjunction with the Greater Milwaukee Committee…This proposal would repurpose the former Dover Elementary School in the Bay View Neighborhood into housing for teachers and school professionals. Assembly Bill 417 would put an end to this project by shutting out prospective buyers who are not education operators out of the sales process for 48 months.”

Even worse, the bill essentially commands that the Common Council must approve sales to educational institutions, even if they think it’s a bad deal for the taxpayers. This could kill any possible deal, Curley contends. “You’re not going to get any approval from the Common Council if they feel they are getting stomped on. We don’t think anything’s ever going to get sold under this law.”

The reality is that many of the liberal-versus-conservative conflicts, including school choice versus public schools, break down at the city level. For Mayor Barrett, any good school, whether public, choice or charter, is good for the city because it encourages families to stay in the city. Over the years Barrett has been supportive of all such schools.

The other reality is that an unrestricted real estate marketplace is critically important to the mayor and the Common Council. Simply put, the mayor is in the business of real estate. The more he can drive development, the bigger the property tax base becomes, which is the key to paying the bill for all the services the city must provide for residents.

As I’ve previously reported, the state has slashed aid to the cities in real dollars over the past 20 years, yet prevents this city from levying its own sales or income taxes, something most big cities in America can do. This forces the city to over-rely on the much-hated property tax and leaves the mayor badly constrained fiscally speaking.

As a result, both the mayor and Common Council are greatly concerned about driving the growth of city real estate. They have a much different point of view on this issue than MPS, and don’t need to be forced to sell excess properties.

Why then do Republican legislators so misunderstand the motives of Barrett and the Common Council? It could be a knee-jerk, frustrated reaction to the issue or perhaps s failure to listen to city representatives. Or it could be something much worse, a cave-in to School Choice Wisconsin and other voucher lobbyists who don’t care whether the city’s real estate marketplace works properly and who simply want cheap buildings for the schools they represent.

Whatever the reason, the result is a law that interferes unnecessarily with local control, offering a draconian “solution” to a small technical problem that could easily be fixed. It’s like firing a bazooka to kill a fly.

Short Takes

-Barrett, by the way, has also proposed that legislators include a provision in the case of each school building sold to choice schools that would eliminate the funding flaw that costs city taxpayers for every student that gets a voucher payment. The funding flaw has been eliminated for every other school district in the state but has left a $57 million shortfall in school funding for Milwaukee that the legislature has promised to fix over a 12-year-period. It’s yet another example of how the legislature has fiscally constrained the city.

-And Curley notes that the Malcolm X building is not the only vacant MPS building that could be purchased by St. Marcus Lutheran. “There are two buildings on the list (of excess school buildings), Garfield and Lee, within blocks of St. Marcus that could be available.” Yet another reason the focus on the Malcolm X building is a bit overblown.

37 thoughts on “Murphy’s Law: How Republicans Will Hurt City Real Estate”

  1. Observer says:

    You can bet that if something can hurt Milwaukee, Alberta Darling will champion the bill.

  2. Michelle says:

    White liberals who run this town denying poor inner city black kids the chance at a great education is the real story here. Bruce, your arguments against the bill are very flimsy and the shady actions by the School Board and Mayor Barrett represent government at its worst.

  3. Mike Bark says:

    Bruce,

    You are a tremendous reporter, so it’d be great to see you actually digging into this MPS deal instead of being fixated on the Republican party response to it.

  4. Tom D says:

    I’m confused.

    I thought MPS and the City of Milwaukee were separate public entities that happened to be almost coterminous. (I think there are small pieces of the City in Waukesha and Washington Counties, but I don’t know if MPS extends beyond Milwaukee County.) MPS has its own elected officers and taxing authority (as does the City).

    If this is correct, then doesn’t MPS (and not the City) own the school buildings? So why are the Mayor and Common Council involved in selling school properties?

  5. Dave Reid says:

    @Tom D Although MPS sets its own budgets, policies and such the city does own the buildings.

  6. East Slider says:

    First off, I have to agree with Mike Bark 110%, I also would LOVE

  7. East Slider says:

    First off, I have to agree with Mike Bark 110%, I also would LOVE to see Bruce Murphy digging into the Malcolm X sale/leaseback deal. I’ve read several articles on this ridiculous fleecing of the taxpayers not-so-cleverly disguised as a rather complicated real estate transaction and the more I read, the dirtier it gets. Now, that’s based mainly on what I’ve read in the JS, who’s reporters never seem to get much deeper than the surface of any story. PLEASE BRUCE! Dig into this one, I think it would be a gold mine of dirty details and other secrets that certain people involved in the deal are hoping and praying will never see the light of day!

    I’ve been in the real estate biz for years and know a fair amount about sale/leaseback transactions and after looking at the particulars of this one, I can say that I’ve never seen anything this ridiculously awful of a deal for the seller. (MPS) The JS in their article on Tuesday showed the details to James T Barry, who knows as much about local commercial real estate as anyone and he was astounded by how bad it was for MPS. His best point was to point out that the average usual rate of return these days for leasebacks is around a 6% annual return. The Malcolm X deal would have a FIFTY PERCENT return and it doesn’t end there! Besides the totally insane 50% rate of return, there are lots of other particulars that simply line the pockets of the “developers” and screw MPS over and over again! Please Bruce-start digging on this one-PLEASE!

    My only conclusion on the Malcolm X deal is that MPS had their back to the wall because of their desperate desire to keep all of their empty school buildings out of the hands of any successful choice school and they panicked as the state was moving in quickly. I want to know more about who exactly from inside MPS put this horrible (for MPS) deal together? Leasebacks are complicated transactions that no one would attempt without professional advice, so WHO exactly were the outside advisors for MPS? I’d really love to hear those names because whoever it is just gave the worst advice I’ve ever seen in my career! Next are the mysteriously absent developers (the buyers) for this project. Since this story began to blow up a couple of days ago, apparently they’ve been hiding out somewhere, because no one can get ANY sort of comment out of any of them!

    Superintendent Thornton came out today to attempt to defend the deal (which as of today is officially THE worst job in the whole world!) Part of his lame defense is to attempt to say that the developers have some sort of awesome plans for the building’s future. If that’s true (wanna bet its not???!!) then where are these developers and their awesome plans? If it was true, they’d be there front and center selling their end of this project. I’d assume they’d have some fancy architectural drawings showing the completed building and all sorts of other wonderful things to tell the public to prove why they really do deserve what they’re going to get. Instead, they’re nowhere to be found, no comment on anything from anyone! In fact, we really don’t even know who exactly the developers actually are. They have some woman as the registered agent for the LLC who’s not their attorney and obviously not one of the principals because just last year she was being evicted by her landlord and apparently has been sued by everyone and their brother in the past. The real principals behind the project aren’t even claiming responsibility here-what the heck is that all about???!!!

    This whole Malcolm X deal STINKS from top to bottom-come on Bruce-GO FOR IT!!!

  8. Mike Bark says:

    The East Slider makes a ton of good points here.

    I’m a CPA and have been part of several real estate transactions and some sales-leasebacks in my years. The deal does not pass the smell test for a few reasons:

    1) In a typical real estate transaction a buyer is looking to buy a building for no more than 10 times what the annual rent is on the building. So in this case, MPS will be paying $1,000,000 in rent per year in this deal. This would indicate that the building should have sold for about $10,000,000. Instead, it’s selling for $2,000,000. Rather than having the rent generate a typical 10% (or in many cases less as James Barry states in the JS article) this is generating a 50% rate of return.

    2) Sales-leasebacks are typically used as a financing vehicle for a business. Let’s say my business is growing and the banks aren’t lending or interest rates are high. If I have equity in my building, I might be willing to enter into a transaction like this to free up some cash. MPS wouldn’t have this motivation.

    This is why I think it takes a reporter like Bruce to dig into this. I probably don’t agree with much with him politically, but he’s a damn good reporter and that’s in short supply these days. As East Slider points out the Journal will likely only touch on the surface details of this. The Business Publications in the city will merely regurgitate any press release related to the story rather than do any reporting. The right wing media will simply just use this as a cudgel to beat MPS with (although I could see Belling putting in the legwork to find out the details)

  9. partypanther says:

    Why would someone want a condo or an apartment with an attached school and community center? They wouldn’t. It’s pretty clear that the developer got this sweetheart deal, then made up some ideas for the property to try to make it seem like a rational decision. In the end, maybe half of it will become a school for a few years so MPS can say, “I told you so”. The rest of the building won’t be developed. After four years, MPS will quit their lease and the developers will abandon the building and let the city foreclose on it for unpaid taxes(this is why they created a separate company). The developers will walk away with $2 million in profit and the city will be stuck with a delapitated building to tear down.

  10. Dave Reid says:

    I’m not saying the MPS deal is a good one, but some fact seem to be missing from the discussion. Apparently part of the leaseback deal is $4.2 million in improvements to the school.

    And

    “After four years, MPS will quit their lease and the developers will abandon the building and let the city foreclose on it for unpaid taxes(this is why they created a separate company). ” Developers almost always create a new LLC for each development project. This is a standard practice.

  11. dohnal(Wis. Conservtive Digest says:

    Is there no end to the embarassment that the Left does to Milwaukee, only th elates being the reel estate deal. and the Bruce tries to blame the GOP for this mess. The Left has mis-controlled the Milwaukee area for 100 years and made a mess of it.

  12. Richard Feyrer says:

    Better fix is for the legislature to abolish and recreate MPS so it can’t misbehave.

  13. Jesse says:

    MPS is a creation of the State of WI. The State of WI funds a majority of its budget… yet they just want to tinker at the margins.

    Governor Walker, where are you on this?

  14. jake says:

    Ha, local control loving republicans! What a joke and esc, to see their enablers concentrate more power to the state and governers office. You think sykes conservatives would be up in arms over this takeover and the new take over of local control frac sand mining.

    I guess principles only matter when democrats are in power. Otherwise for WI conservatives and tea beggers they are situational.

  15. Dohnal(Wis. Conservtive Digest says:

    for almost 50 years I have advocated to break upo MPS so they can teach kids to read so that they have a chance to succeed. the Left has shown that it cannot teach kids, run a city, county, Wisconsin Centers, MMSD and almost anything. Lucky to have bruce to cover up for them.

  16. Observer says:

    Thank god for my Lefty teachers who taught me capitalization, syntax, and punctuation.

  17. jake says:

    So Dohnal, do you approve of your conservatives concentrating power into the state government? I understand why you want to bait and switch the topic, but whatever happened to that “local control”, principle spouted during diamond Jim?

    I hope i don’t even have to list everything Walker and the Voss/Darling/Sanfillipo triad has interefered in Milwaukee & County issues, as well as statewide (see new frac sand bill,etc…) that removes local control and funnels that power to the state?

    Is it some miguided idea that only your guys & gals are always right(??), or is it a situational reaction some irrational reaction to ignore ethics and principles if your ideological side breaks them?

  18. Bruce Thompson says:

    Despite their self-identification as conservatives, the people running the state have clearly shown they are no fans of local control. And their target for takeovers is not just Milwaukee, as most recently evidenced by legislation to take away the ability of local government to regulate sand mining.

    Given that, it is puzzling to me why MPS came up with a plan that was so easy to pillory. Who is giving them strategic advice? The county board? The Tea Party?

  19. Chris Byhre says:

    MPS is trying to prevent up to 900 poor inner city children from getting a better education. They came up with this ridiculous plan because they figured they could get away with it. You know it must be a bad plan when the JS editorial board finally had to come out against it. The fact that they would give away 2 million dollars of tax payer money to their cronies just to prevent a very successful private school from expanding shows their desperation.

  20. Andy says:

    Bruce, the title of this article is a bit of a stretch. I agree there is a story here… whether it’s about the bill being passed or the shady deal with MPS, one thing is for sure… this will not have any impact on the greater realestate market in Milwaukee which is what the title implies.

    As for MPS however, I absolutely abhor them. It is a group of self serving and myopic people that would rather sacrifice the education of 900 children to allow a voucher school to take over one of their buildings.

    I do not necessarily agree with the bill as written right now… but when you have MPS skirting existing laws as they do now, how can I not blame the legislature for taking this action? And on top of it all, we now have potentially shady deals going on.

    It’s time to break up MPS and build schools that actually work in this city.

  21. Tim says:

    Why can’t St. Marcus use another school building to expand?

    Honestly, what’s the problem?

  22. Chris Byhre says:

    Tim, they could use another building and there are several others that are close to St. Marcus. The fact is, they have identified this one as the building that works best for their future needs. The problem therefore would be MPS going out of their way to block inner city children from getting the best education possible and dumping several million tax payer dollars to do it.

  23. Mike Bark says:

    Mr. Thompson,

    Most conservatives are fans of local control. The trouble is bodies like the County Board and MPS keep making ludicrous decisions and seem to need more oversight. Given that both bodies do get State funds that oversight is appropriate.

  24. Jake says:

    Conservatives only believe in local control when they are not in power. Wi Conservatives have taken away more local control then Democrats had ever done.

    The Frac sand mine bill is just another example.

    It is a total lie and I think it is time for Republicans admit that that they approve of taking local control away from people, areas and to municipalities that they consider beneath them and morally superior too or in payback to corporations, otherwise how can they contort their logic and be hypocrites.

  25. STACY MOSS says:

    One problem with requiring selling school buildings to voucher schools is that new schools don’t fit well into those old building.

  26. Tim says:

    Chris, if St. Marcus can use another building, then why shouldn’t MPS put this property back on the taxrolls? If I walk up to someone’s house and tell them I want it, how do you think they’ll react?

    The deal MPS has with the developer is not great, it should be improved, but the best solution is to get these properties on the tax rolls. Unless you want to see a weaker city of Milwaukee, of course.

  27. Chris Byhre says:

    Someone who would defend MPS in this deal would be most likely to be singled out as wanting a weaker city of Milwaukee. The deal is worse than ‘not great’ Tim. You are concerned with taxes and the tax rolls so why don’t we start with the 4 million tax dollars MPS is going to spend on a building that they already own? After spending this 4 million dollars they will own half of the building. Even an MPS high school student could figure out that the math on that does not seem to benefit the city of Milwaukee. How long will this development take to break even on the net loss of over 2 million tax dollars?

    You are saying that the crooked MPS deal is a better deal than selling the building at the market rate to a highly successful school that will prepare 900 inner city children for a bright future? Our kids are one of our greatest assets and an educated populace will assuredly make this city stronger.

  28. Dave Reid says:

    I’m not saying the MPS deal is good, but I believe there are a couple of facts continually being left out of the discussion.

    1. MPS is getting $4.2 (the cost of the lease) in improvements to the building.
    2. The St. Marcus offer is (according to other news outlets) $1 million.

  29. East Slider says:

    I sure hope you’re not saying that the MPS deal is good Dave, you would need to have your head examined!

    Yes, MPS will supposedly get $4.2 million in improvements on the building. (which yes, does happen to be the same as their upfront amount that they’re paying on the lease. So, doesn’t that then beg the question to everyone-WHY THE HELL DOESN’T MPS JUST SPEND THE $4.2 MILLION THEMSELVES AND FIX IT UP????!!!! AND THEN STILL OWN THE ENTIRE BUILDING????!!! Instead, they’re going to lease back HALF of the building and have the option to buy it back, but not at a predetermined price-so basically the option to buy it back is also WORTHLESS!

    Mike Bark also makes an excellent point when he mentions that sale/leaseback transactions are really as much or more of financing arrangements for a business (the seller) that needs capital for whatever reason (expansion plans, pay down debt, get a more favorable rate on current debt, etc) than they really are real estate deals. It almost like a special kind of private note (loan) written between two businesses, using the real estate as collateral. THIS is why there’s usually also a pre-determined buyback price written into the original contract, which this deal doesn’t have. That way, the seller who needs capital, enters into the agreement knowing full well what the terms are and what it will cost to get their building back in the end (if they even want to get it back by then) so they can figure what the real interest rate is that they are paying.

    I honestly wonder WHO, IF ANYONE MPS had advising them on this? Sale/Leasebacks are still complicated transactions and I cannot possibly imagine ANYONE doing a “DIY” leaseback. Oh wait, maybe LegalZoom has a “Sale and Leaseback” section on their website-hahahahaha! (I’m sure they’d charge extra though, maybe $299?)

    One last thing that’s been driving me NUTS for a while now-Mr Dohnal, or Bob Dohnal-I enjoy reading your responses on here and other forums and we actually agree on a fair amount of things. I’m pretty conservative fiscally and my heart rarely bleeds when I read the usual bleeding heart stories here and elsewhere, so we’re often on the same page there, although I am pro-choice and support same sex marriage, which I bet we disagree on. Yet, whenever I read one of your usually relevant posts, why do I ALWAYS have to sift through typo after typo after typo??? Do you EVER proof read? I know I’m not always perfect on my syntax and grammar either, but at least make an effort! What are usually relevant and meaningful points you make are lost in a sea typos and muck!

  30. Dave Reid says:

    @East Slider
    What I’ve seen reported is that MPS would have the ability to buy the improved portion back for $1 (There seems to be some debate on this but if that is not true then of course that changes the deal and quite frankly likely won’t get sign-off from the Common Council).

    But if these things are true:
    -Lease arrangement is really paying for improvements
    -MPS gets $2.1 million, which is more than St. Marcus offered ($1 million).
    -A portion of the site will go on to the tax rolls (this wouldn’t be true in the St. Marcus case).
    Is it still awful?

    Now I’m just trying to understand the deal, but I think some of these items are simply being ignored by some.

    UPDATE: I see the given reason for the leaseback to pay for the improvement is that the developer could apply for tax credits that MPS could not (actually sounds pretty creative no?).

  31. East Slider says:

    @ Dave, Actually, IF all of that is true, maybe its not as bad of a deal as when it was initially explained to me, but I doubt it. I’m basing this off a few things here:
    -James Barry (local commercial real estate super pro with as much experience as anyone in town) was apparently shown the entire deal while being interviewed by the JS (not exactly a pro school choice paper) for their original story and he thought it completely stunk. That’s what I based a lot of my initial reaction from. As I and Mr Bark both mentioned as well, a sale/leaseback isn’t really just a real estate transaction, its usually used as a way to raise capital for the seller, for when the seller could better use that asset to expand a business for instance, as opposed to having it tied up in real estate. Why such a deal would be appealing to MPS puzzles me.

    -If its true that MPS has the option of buying back the improved building (or at least half of it) for $1 when the lease is up, well that’s certainly better than not having any resale price hashed out!

    -What really makes me wonder though about this whole deal and why I’d say that as someone’s who’s got some pretty good common sense and a good BS meter is why in the world if it does make any sense for MPS, why it was introduced like it was and attempted to be rammed through, with these various “details” that suddenly make the deal “not so bad” for MPS just barely trickling out??? I haven’t had time to check the JS coverage today yet, I think I last checked yesterday, but WHY wouldn’t they come with an all out sales assault from the very beginning on this? WHY were the “developers” basically impossible to find, the only info being that it was a new LLC (public record) who’s registered agent is some lady that’s been sued for eviction, etc in the recent years. So, she’s obviously not the money behind this and besides her there were only rumored partners and many “no comments”! A couple of names came up and those people wouldn’t say a word-what the heck is that all about? Seriously, why all of this secrecy if there’s nothing to hide here?

    If this thing is such a WONDERFUL idea, why didn’t the intro go something like this: In one of the (very many) extra conference rooms at MPS headquarters or one of the schools, did they not have a nice little “kickoff party” for the whole wonderful proposal? The MPS board and staff members who worked it out would be there, along with the developers (yes, in plain view, in broad daylight!) who’d certainly show up with some of those fancy architectural renderings we see of EVERY new and renovated building project anywhere. Along with the two parties would be a representative from whichever law firm and real estate brokerages were representing buyer/seller, certainly with at least one “numbers person” there to lay out the wonderful terms of the whole deal and put everyone at ease that it truly is a great deal for MPS, for everyone-WHERE WAS THAT WHOLE DEAL??!!! It was nowhere to be found, which leads me to believe that something still stinks and stinks BAD!

  32. Dave Reid says:

    @East Slider The James Barry thing is interesting though it makes me wonder if he had of the details.

    And I think the reason behind the lease arrangement is so that the developer can obtain tax credits to finance the project (and I assume make a few bucks) while MPS could not do this.

    And although there has not been a big meeting party I’ve seen a pile of press releases on the topic from MPS. And the deal isn’t complete yet, it still has to get approval from the Common Council.

    Now it of course comes down if all of these details are in fact correct.

  33. East Slider says:

    Well Dave, I don’t know what exactly happened here, but all that I know is if I were in MPS’s shoes and was getting slammed and pilloried from the word “go” on this whole deal, I’d sure as heck try getting the word out better than they did. Plus, that’s only being reactive to what happened, even if the terms are somehow decent for MPS (which I still very highly doubt!) don’t you think that someone with at least half of a brain, either from the MPS board, or the developers, or whoever in the world is advising them on this, would’ve had at least a SLIGHT CLUE beforehand that they better bring their “A Game” on this one, considering all of the high emotions and vitriol surrounding school choice, MPS not selling any of their unused buildings to choice schools and especially the loud rallying cry put out to support St Marcus? Who, with even half of a brain wouldn’t know that whatever deal they came up with, as long as it doesn’t sell the building to St Marcus-it will NO DOUBT be gone over with a fine tooth comb and ANYTHING fishy will be bandied about?

    I’m no PR pro, but I would’ve known that as the MPS board, if we came out with a plan to do anything other than sell it to St Marcus and especially if we tried to slip it in before the state legislature could act, we’d be in the spotlight 100%. How these morons didn’t see this coming is also totally beyond me!

  34. Dave Reid says:

    @East Slider I’ll agree it has become a pr mess and it could still even be a bad deal (if the buyback isn’t the right price and so on). But it seemed to me that key parts of the deal were being left out of the discussion. Why? I don’t know but they were missing.

  35. East Slider says:

    @Dave-I don’t know why I keep getting sucked back into researching and writing additional comments on this subject, especially when I have more pressing needs for my time (well actually I do know why-because I live in a nice enough house on the east side of Milwaukee-thus I get WHACKED every year on my property tax bill, not to mention that I’m in the real estate biz, so I own several more properties in the city of Milwaukee where I also get WHACKED annually! Yes, I know that all of Milwaukee Cty is awful, but every so often I do a little daydreaming about how I could own and live in the same value of house in any city in Waukesha Cty and literally pay LESS THAN HALF of what I pay now-and the trend is getting even worse for Milw down the road!) but I keep getting sucked back in, I’ll try to knock it off after this one!

    OK, even if we take the monumentally gigantic leap of faith and just assume that the deal is a net neutral for MPS, not a winner or loser (kind of like just assuming
    There still are MANY other issues here that no matter how you look at them, STINK TO HIGH HEAVEN! First off, where in the world was a competitive bidding process? Even if we don’t have a law requiring that all gov’t assets of over a certain value must be offered for at least a period of time to the highest bidder, we shouldn’t need one because its pure common sense! Apparently there was ZERO time taken to shop this multi-million dollar “deal” around.

    Beyond getting just the highest amount of money for a building or other asset, there certainly are other considerations as well. This brings us back to this murky or downright invisible LLC recently formed, likely to put this deal together. As I mentioned, their registered agent is some lady who’s a lot of things but experienced real estate developer is certainly NOT one of them! Beyond that, all I’ve heard are “rumors” as to who else is involved, who the money is behind the deal. (although you don’t need a whole lot of money to be this developer-YOU GET IT ALL RIGHT FROM MPS ON CLOSING DAY!) What I’m worried about here is that I know damn well from experience that developing properties, anything from rehabbing a $50k house in the hood all the way to building giant shopping malls or office towers, is not child’s play, its not easy and it is DEFINITELY NOT LEARN ON THE JOB TYPE STUFF!) This may not be a new 50 story office tower, but its still a multi-million dollar rehab of a large, existing building. There’s a LOT of stuff that could go wrong and those mistakes add up quickly, both time-wise and budget-wise. (and as an aside, how much do you want to bet that this murky LLC that’s getting the deal of the century here has something in that magical contract that says something to the effect of-if the budget gets totally out of whack and the developers can’t cover the overruns-MPS STEPS IN AND PICKS UP THE TAB!!! I know it may sound far fetched to all of you “lovers of the state” but it wouldn’t shock me one bit!

    Either way, I’ve seen it happen many times before where an RFP (Request For Proposal-what RESPONSIBLE GOV’T BODIES DO BEFORE SELLING LARGE ASSETS!) is made public and out of the multiple offers, the top 3 or 5 are obviously competing on price, but they’re also competing just as importantly on the financial viability of each bidder, reputation of each bidder, history of working with that gov’t body,etc) In the end, its not uncommon at all to see it go not to the highest bidder money-wise, but the bidder that satisfies these other components. I’d suuurrrreeee love to hear more about this fly-by-night LLC and who’s REALLY in charge there! Even more importantly, I’d sure love to see their books and balance sheet and see how well (or not-so-well!) capitalized they actually are, because it would be nothing new in Milwaukee to have them get halfway through the renovation job and figure out that for whatever reason, they’ll miss their targeted final budget by 20%, 30%, 40% you pick the number! THEN what happens???!!! That’s when I’ll bet any money that this maybe, hopefully, please please please keep your fingers crossed its not so totally, unbelievably, ridiculously horrible for the taxpayers “deal” will suddenly invoke another clause it has buried somewhere deep inside the legal-ese that says that in case of total failure on the part of developer, MPS swoops in and picks up the tab!

    I guess that’s just getting back to a fundamental difference between myself and so many of you MPS defenders. While you’re all hoping to god (or whatever) that there might possibly be the slightest glimmer of hope that this deal isn’t what it sure looks like, a total ripoff of the taxpayers, I’ve just been around the block enough times to have seen these stupid and often downright dirty deals before and I bet I see another one here! Just watch too, how much do you want to bet that if it all doesn’t go just right for this rag tag development crew, that MPS, NOT THE PRIVATE INVESTORS, will be on the hook for that one, too!

  36. Dave Reid says:

    @East Slider Well if you’re worried about property taxes I’d think the last thing you’d want is the City of Milwaukee locking up more property as tax free, but anyhow.

    As far the LLC goes, creating an LLC for a development project is typical. And the team, according to MPS, is:

    “Principals of 2760 Holdings, LLC, include James Phelps, whose work has included renovations at the Medical College of Wisconsin, the University of Wisconsin-Milwaukee, and the YWCA – and Dennis Klein, chairman of KBS, who has been involved in substantial construction and development projects including three mixed-use University of Wisconsin-Milwaukee properties, two new facilities for Marquette University, major new Milwaukee hotels Aloft and Marriott, and the redevelopment of Capitol Court into Midtown Center.”

    (UM did a story on Phelps not too long ago: http://urbanmilwaukee.com/2013/03/31/city-people-james-phelps/)

    I would be concerned about what you bring up in regards to cost overruns and that is an issue that the Common Council better look at before approving any deal.

    And I’m with you an RFP would be better.

    Further, in the past I’ve written that DCD should handle these sales, and I’ve taken issue with the “Walmart” practice that MPS had employed (which I think is what many people believe is happening here despite the offer of 3 other nearby MPS properties to St. Marcus)… more on my suggested changes here: http://urbanmilwaukee.com/2010/06/02/a-small-mps-reform-could-save-money-add-to-the-tax-base-and-enhance-competition/ (I’m pretty sure these change couldn’t be characterized as MPS defending).

  37. Tim says:

    Dave, I really appreciate you taking the effort to join the comments and bring more information to the table. The lack of hard info is what has made this project such a circus, hopefully MPS takes note.

Leave a Reply

Your email address will not be published. Required fields are marked *