Downer Avenue Stalled by Joel Lee?

Here is a real estate conundrum of the first order:

The two-block long Downer Avenue retail district is an urban planner’s dream. It serves a neighborhood of about 9,390 people and has off-the-chart demographics. The population density is twice the city average, its income level is the city’s highest, residents’ average age is 27, many have no dependents (and more spendable income), and it has a walkscore of 87. It should have huge appeal for retail business owners.

Moreover, the street seems admirably suited for commerce, as it has been since the Downer Theater was built a century ago. The sidewalk is lined with traditional storefronts in pleasantly scaled, mixed-use buildings. In addition to the theater, which has been showing movies since they were silent, the street has Boswell Books, one of the few remaining independent bookstores in the city, a specialty grocery store in Nehring’s Sendik’s market, a fine wine store in Downer Liquors and a number of casual dining spots like Pizza Man and Bel Air Cantina. According to surveys, these are the types of retail activity that people are asking for these days.

As Ald. Nik Kovac, who grew up in the neighborhood, tells Urban Milwaukee:

“No other two block stretch of the city has so many amenities – the bookstore, the movie theater, the grocery store, the bakery, the liquor store, the hardware store, the drycleaners, the bank, the pharmacy, the barber shop, the designer eyewear, the athletic therapy, the nail spa, the coffee shop, and all the great restaurants – but in between all of those great destinations are also too many vacancies.”

A quarter of the storefronts are empty, despite city grants totaling $649,100 for streetscape improvements, facade renovations and other projects since 2007.

Something in the marketplace is out of whack, and the city wants the area to get back on track. One of the first steps is the preparation of a “Neighborhood Snapshot” of the Downer District.

Citizens Asked for Input

A slideshow presentation was made to the public Wednesday, April 29th at the East Library as part of the preparation of the neighborhood snapshot, to be released in June. [You may see the slideshow here.]

The event was hosted by Ald. Kovac, and included a performance by DCD Commissioner Rocky Marcoux in a supporting role.

The meeting room of the new library was filled to overflowing, with over 175 interested neighbors and others in attendance. Among them were Rep. Jonathan Brostoff, Jeff Bentoff, Leslie Montemurro, Sally Peltz, Chuck Kahn, Patti Keating Kahn and Yance Marti along with numerous residents.

As the slideshow highlighted the neighborhood’s existing conditions, some facts stood out that may tend to explain the neighborhood’s problems:

• A single owner, operating under various LLCs, controls three out of the four blocks that comprise the district.
• All of the district’s retail vacancies are in that owner’s buildings, the audience was told.
• Most of those buildings have been foreclosed on by an out-of-town lender.

Ald. Kovac said, “we have an owner who owes $10 million on a building that’s valued at $5-$10 million. He’s underwater.”

The owner, Joel Lee, received a Detailed Plan Development approval in 2007, before Kovac was on the council, to create a parking garage structure, a hotel and apartments in the area. Only the parking structure was built (right next door to Kovac’s parents’ house).

Lee now is asking for a $2.5 million Tax Incremental Financing District to help him finance his revised project. He is not deterred by the fact that his properties are in foreclosure, and appeared personally at the event to state his case. He said he was appearing as a courtesy to those who had asked him to, including residents of Newcastle Place. “You mean Eastcastle Place,” he was corrected by an audience member, referring to the senior residence down the street from Lee’s properties, and not the Mequon nursing home called Newcastle Place, located in a converted corn field.

Lee said the earlier plans called for a cosmetic surgery office to open above one of his buildings. “But the economy changed, and the doctor’s practice went from 96 percent elective surgeries to nearly all reconstructive surgery,” in what must be a very fickle segment of the medical economy.

The deal was off. Lee said he would like to spend some TIF money on restoring the theater, which he said lacked a decent concession – bar area as well as accessibility features. If not, the theater might just roll up its screens and go back to Hollywood, he suggested.

He said he would personally guarantee repayment of a TIF, and said if his earlier request “had been granted in 2008 it would have been paid for by now.” This seems to contradict the hard luck story of the plastic surgeon whose rent would have helped repay the TIF, and leaves open the question of the wisdom of depending on the personal guarantee of someone who has let many of his properties fall into foreclosure.

City officials, for their part, did not buy into Lee’s argument.

Marcoux was unimpressed, calling Lee’s threatened theater move “a direct emotional appeal” — a negotiating tactic. It is the city’s contention, he said, that development can take care of itself without city involvement, especially in the city’s wealthiest neighborhood.

“Lee wants city involvement. That’s not what we do. We will not upset the market.

“The government’s role is not to do what private industry can do itself. We must have a level playing field,” he said.

Kovac echoed Marcoux’s argument. The city’s role is to provide environmental cleanup, streetscaping and some retail assistance on the ground floor level, like “White Box” buildouts, facade restorations and other improvements.

“Retail needs city help,” he said. “But upper floors — apartments, hotels — developers can do on their own.

Marcoux outlined the types of TIF districts the city has funded over the years, and the limits to the city’s involvement in the developments. Slide after slide appeared on the screen, as Marcoux began his performance. “The Beer Line — $15 million to clean up the mess left behind [coal yards, petroleum]. Produced $350 million in investment. None of it by the city.

“Irgens’ 833 building — it is in a TIF, but the developer gets no city money; it all goes to the streetcar. The train station — it was a carpeted sewer. The Menomonee Valley from 2004-2014 — highly polluted. Added streets, cleaned it up, raised it 6 feet above the flood plain. Reed Street — $8 million. Pollution, no infrastructure. A O Smith — post apocalyptic. Invested $35 million. Pabst — $29 million. Built streets, roads, sewer, water.”

His point was that the city is happy to invest TIF money (“Taxpayer money — your money” is how Marcoux put it) on infrastructure, but not on the actual development.

Where do matters stand, then, for Downer Avenue’s retail district?

Kovac says the public’s advice is welcome, while the city waits to see how the ownership of the property shakes out.

Lee himself, on several occasions, has hinted that he might bid on his own foreclosed properties. In that case, he could keep the property and owe a lot less on the mortgage, provided he could get one.

Or, as in the case of the 804 N. Milwaukee St. building that he constructed for ATT in 1984 and walked away from when the lease expired, the property might go to a sheriff’s auction later this year.

Leaving the matter of ownership of three-quarters of a business district up in the air may be another negotiating tactic by Lee. Kovac and DCD officials stress “the city will work with any owner” on the district.

Marcoux said “there are other developers interested in Lee’s buildings who do not want to be identified during the redemption [foreclosure process], but want to talk” with the city when the ownership becomes cleared up.

A woman in the audience summed up the general state of affairs as they stand at this time.

“I’m tired of listening to plans,” she said.

“Lee says he won’t build without a TIF.

“The City says, ‘no TIF.’

“So why do you keep wasting our time with these meetings?”

How to Submit Your Downer Retail District Ideas

While the Downer Avenue drama plays out, Ald. Kovac would like residents and the public to comment on their ideas for the Neighborhood Snapshot via links to MySidewalk.com. [See links below.]

“Last night was really just the beginning, though, of a community process that I hope gives the public – and the investment community – confidence in the present and future of Downer Avenue. We are encouraging everyone to go to MySidewalk.com and answer the three questions we have posted about Downer Avenue,” he wrote in an e-mail.

“The goal is to let current – and possible future – landlords and tenants know what kind of businesses East Siders will support. As the DCD data showed, the neighborhoods around Downer Avenue have the density, the incomes, and the education levels to support great retail (and they do support it now) – and if we more clearly communicate that to potential tenants and to current or future landlords, then I think we will be able to come up with some great new businesses in some of the vacancies [Lee’s properties]that have lingered for too long in the northeast and southwest blocks of Downer. [Lee’s properties.]

Finally, Kovac adds:

“The northwest block has four different landlords – and no vacancies.”

Link to presentation of April 29th, 2015

MySidewalk comment pages

• What types of retail would complement the existing stores on Downer?
• What should Downer look like in two years?
• What should Downer look like in ten years?

Related Stories

• Bruce Murphy Urban Milwaukee article on district (January 9th, 2014)
• Journal Sentinel article on foreclosure.
• Map of Downer Avenue Business Improvement District #41
• Joel Lee foreclosure 804 N. Milwaukee St.

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