Council Okays Subsidy for One MKE Plaza

The Milwaukee Common Council unanimously endorsed a plan Tuesday morning to provide the Haywood Group with a $4 million loan from a tax-incremental financing (TIF) district to advance its One MKE Plaza development.

The $32 million project, led by developer Kalan Haywood, is centered around the redevelopment of the former Sears department store at W. Fond du Lac Ave. and W. North Ave. into a hotel, conference center and co-working space, and will rely on a variety of funding sources.

Unlike many recent TIF districts which are used to close a final financing gap in a project by funding public infrastructure or subsidizing affordable housing, the interest-only loan for One MKE Plaza would fund pre-development costs including architecture and engineering services, environmental remediation and interior demolition.

It would place the city in a position of risk. The city would borrow the $4 million and in turn loan it to Haywood as opposed to a developer-financed TIF district where the developer is at risk, only receiving funds if incremental property tax revenue is generated.

Half the $4 million loan would go towards paying back a $2 million loan to acquire the property. The city-affiliated Milwaukee Economic Development Corporation provided Haywood Group with a $2 million loan in 2018 to purchase the property.

But an April 23rd letter from independently-elected Comptroller Martin Matson warns: “To date, no information has been provided to the Comptroller’s office which indicates that this project is likely to succeed.”

Matson has concerns about the city’s ability to pay off its debt even if things go as planned. “If the project is completed in full and on time, revenues derived from the project may still be insufficient for the developer to repay the city’s loan,” wrote the comptroller.

Matson, who noted his office had received “insufficient information,” concluded the project includes “significant risk.”

Department of City Development Commissioner Rocky Marcoux has repeatedly admitted the project has risk. “This is going to be a difficult project. There is no two ways about it,” said Marcoux in March. “We would not move forward if we were not confident in the developer and the plan.” He repeated those comments before a council committee last week, reiterating that Haywood was the right person for the job.

Alderman Robert Bauman, a frequent Marcoux adversary, advanced the commissioner’s cause on Tuesday on the council floor.

“Yes this is high risk, yes this is not typical. My eyes are absolutely wide open on this,” said Bauman. “It’s a challenging project.” Bauman said he has met with Haywood, who admits the project’s risks, and believes he is the right person for the job.

Bauman has an ulterior motive for approving the deal. “This building has been a symbol of blight and disinvestment in the city since [Sears] closed,” he said. “We’re not doing this deal on strictly financial considerations, but on social justice considerations.”

“Excellent job Alderman Bauman,” said area representative Ald. Russell W. Stamper, II. “In order for us to improve the central city, we have to build economic projects that create jobs.”

Ald. Michael Murphy moved to send the file back to the Zoning, Neighborhoods & Development Committee for more review. He found support from colleagues Robert Donovan and Terry Witkowski.

He didn’t find support from south side council member Mark Borkowski: “I think people think they know exactly how I would vote, and I’m going to surprise people. We are a tale of two cities,” said the frequent administration critic. “At a certain stage, we need to take a leap of faith.”

Murphy’s motion failed on a 3-12 vote, and the council voted to approve the creation of the district on a 12-3 vote.

The city would have a mortgage on the property, allowing it to take ownership of the property should Haywood default on the 20-year, 4.5-percent interest loan. The city would need to establish overperforming TIF districts as “donor” districts to the One MKE Plaza district to pay off any remaining debt as a result of any shortfall.

“There is no great reward without great risk,” said Alderwoman Milele A. Coggs. She said that beyond the proposed 82-room Ikon Hotel, the co-working space for technology entrepreneurs has great promise to create jobs in the area.

About the Project

The three-story building, built in 1928, contains 211,298 square feet of space according to city assessment records. In recent years the first floor had been used as the Milwaukee Mall, a marketplace for small vendors.

The project is located across the street from the Fondy Food Center, which recently played host to a ribbon cutting celebration for the extensive amount of green infrastructure built in the area. The city has designated Lindsay Heights its first “eco-neighborhood,” and is hoping to draw eco-tourism to the area.

The conference center would be built in a currently vacant lot adjacent to the building on W. North Ave. Stamper, Bauman and other council members repeated their belief that there is a shortage of large meeting places on the city’s northwest side and that the conference center would immediately draw events that are currently held Downtown.

The co-working space, which would open shortly after the hotel, is intended to focus on entrepreneurs working in science, technology, education or mathematics (STEM) fields. Haywood said he’s working on making it the central space for such activity in the city and is working with Startup Milwaukee on the vision. “Milwaukee has yet to develop an inclusive hub for tech and startup activity and we want to be a part of any discussions about how to achieve this vision,” said Matt Cordio of Startup Milwaukee in late March.

“Part of our issue in our community is we don’t have exposure to the network,” said Haywood last week of his intention to bring together groups like the MMAC and central city tech entrepreneurs. Haywood, who is African American, said he is modeling the hotel and associated conference on similar projects in Baltimore and New York City.

Haywood is working with Engberg Anderson Architects on the project. The proposal would rely in part on historic preservation tax credits.

Because the project is receiving more than $1 million in city funds, the developer will be required to have 40 percent of the project’s construction work hours performed by unemployed or underemployed city residents. Twenty-five percent of the project’s construction budget will be required to go to city-certified Small Business Enterprises.

Construction is planned to be led by African-American owned and managed JCP Construction.

Renderings

Interior Photos

Exterior Photos

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Related Legislation: File 190070