IKON Hotel Deal At Risk of Default
Haywood Group could default on $4 million city loan. City could end up owning empty mall.
The City of Milwaukee could end up the owner of the former Milwaukee Mall as a proposed hotel redevelopment has not proceeded.
The Haywood Group is at risk of defaulting on a $4 million loan that was to be used to develop the IKON Hotel in the former Sears department store. The Comptroller labeled the loan a “significant risk” when it was introduced in 2019 and the city has since given Haywood a one-year deferral on repayment.
The project calls for the three-story, 211,298-square-foot building, constructed in 1928, to hold an 82-room hotel on its upper floors. An addition would be built to house a conference center along W. North Ave. Multiple tenants were considered for the first floor and future buildings were contemplated as part of a larger One MKE Plaza project.
“He has not secured his financing to move that project forward,” said Lutzka to the Zoning, Neighborhoods & Development Committee on Monday afternoon.
The city created a tax incremental financing (TIF) district to provide Haywood with $4 million to complete pre-development work on what was expected to be a $36 million project. The loan is secured by a mortgage on the property. If things went according to plan, the loan and a second $5 million loan would be repaid by 2047 with increased property tax revenue on the development.
But less than a year after the challenging project was introduced, the COVID-19 pandemic took hold.
As of 2021, Haywood Group had drawn $3.6 million on the loan. The second loan is not at risk and is only to be provided if other financing sources are secured. A DCD representative said in 2021 that without the project moving forward it is “unlikely” that payments on the first loan would be made.
Approximately $1.7 million of the pre-development loan was used to repay a Milwaukee Economic Development Corporation loan used for the building’s acquisition, approximately $1 million went to contractor JCP Construction for demolition and abatement, $380,000 went for architectural services and historic preservation tax credit preparation, $290,000 for operating costs including electricity and $200,000 for property taxes. Engberg Anderson Architects is leading the project’s design.
The $4 million loan was given to Haywood with a 4.5% interest rate. An initial payment period is to be interest-only.
“The building is walkable. Before you couldn’t walk without to take a swim,” said Haywood of the internal conditions in August 2021 when the city reviewed the loan modification. He also described ductwork filled with bird excrement on the upper levels, which have been vacant since Sears closed in 1981. An affiliate of Haywood Group purchased the building in 2018.
He claimed the building was not properly sealed from the outdoors and protected, but a review of the facade in the following weeks showed several openings were the result of broken or missing windows.
Then-Comptroller Martin Matson said his analysis of the project as a “significant risk” was limited to the hotel industry, and not to the moral considerations of correcting generational disinvestment. Then-City Development Commissioner Rocky Marcoux said the project was at the “gateway to the Northwest Side” and would be a catalytic project. The commissioner said the city subsidy would show private investors that the city was confident in the project.
Coucnil members who voted for the deal spoke of the need to take more risks investing in low-income areas. Area Alderman Russell W. Stamper, II was among those who touted the deal, and even wagered the media that it would open in 2020. “I understand the opposition, but it’s time for us to make a significant difference in the city of Milwaukee with this development, with this opportunity,” he told his colleagues.
But four of the 15 members ultimately voted against the proposal.
“I don’t think I want to have our taxpayers be in the hotel business,” said Alderman Michael Murphy describing what he said was a worst-case scenario. However, at this point there isn’t even a hotel for taxpayers to run.
The city could again modify the loan to grant Haywood more time to attempt to salvage the deal.
The developer in 2021 expressed optimism that progress was being made. “We have been putting together a deal that we knew would be difficult from the start,” said Haywood. “Then COVID turned the world upside down.”
In January, the Milwaukee County District Attorney’s Office said it wouldn’t charge Haywood, though it believed the female accuser. A representative said investigators had not obtained other evidence to advance the case.
A representative of the Haywood Group did not respond to a request for comment by the time of publication.
In the event of a default the city would need to use overperforming TIF districts or other revenue sources to repay the debt associated with the TIF district created to issue the loan.
Lutzka said the city’s portfolio of approximately 60 tax incremental financing districts is “very healthy.” Only the Century City and IKON districts are notable underperformers with financing gaps.
Haywood is part of the development team pursuing the City Place Two affordable apartment development. That project recently secured state funding to close a funding gap. Haywood successfully completed the 51-unit City Place Apartments in 2018, the same year he won three MANDI awards from LISC Milwaukee. The developer previously created the Ingram Place Apartments and the redevelopment of the historic Germania Building from office space to apartments.
Pre-Demolition Interior Photos
2019 Exterior Photos
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More about the One MKE Plaza project
- Eyes on Milwaukee: IKON Hotel Deal At Risk of Default - Jeramey Jannene - Jul 26th, 2022
- Eyes on Milwaukee: IKON Hotel Gets Loan Extension - Jeramey Jannene - Aug 19th, 2021
- Eyes on Milwaukee: Developer Assembling Land for Ikon Hotel - Jeramey Jannene - Oct 1st, 2019
- Eyes on Milwaukee: Council Approves Ikon Hotel Deal Despite Objections - Jeramey Jannene - Sep 24th, 2019
- Eyes on Milwaukee: Committee Okays $5 Million More for Ikon Hotel - Jeramey Jannene - Sep 17th, 2019
- Eyes on Milwaukee: Council Okays Subsidy for One MKE Plaza - Jeramey Jannene - May 7th, 2019
- Eyes on Milwaukee: Committee Okays City Funds for Ikon Hotel - Jeramey Jannene - Apr 30th, 2019
- Eyes on Milwaukee: 7 Takeaways From Ikon Hotel Deal - Jeramey Jannene - Mar 28th, 2019
- Eyes on Milwaukee: Old Sears Building to Become New Hotel - Jeramey Jannene - Mar 27th, 2019
Read more about One MKE Plaza project here
Political Contributions Tracker
Displaying political contributions between people mentioned in this story. Learn more.
- March 28, 2016 - Michael Murphy received $50 from Lori Lutzka
- March 28, 2016 - Michael Murphy received $350 from Rocky Marcoux
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4 thoughts on “Eyes on Milwaukee: IKON Hotel Deal At Risk of Default”
The stench of ineptness by all involved with this ill-conceived waste of precious city resources is overwhelming– shame on all the city officials and corrupt political insiders who enabled this scandal.
It’s a beautiful building but that area is still so far away from being able to sustain a hotel operation. It would probably be better off as a residential development.
Thank you for continuing to follow and report on this story.
Our family used to shop at that Sears store all the time… I remember the smell of buttered popcorn as I walked down the aisle on the first floor… There was always a beach ball spinning in the air at the vacuum cleaner display… The guy in the tower directing parking lot traffic over the loudspeaker.
Sad to see how that beautiful building was allowed to deteriorate.. Reminds me of how the corrupt leaders of the US are allowed to loot, pillage, and destroy everything they can get filthy hands on.