Jeramey Jannene
Eyes on Milwaukee

Local Firm Wants To Buy Northridge From Chinese Owners

But is it just a stall tactic? City thinks so.

By - Mar 17th, 2023 10:51 am
Northridge Mall. Photo by Jeramey Jannene.

Northridge Mall. Photo by Jeramey Jannene.

The lawsuit over the future of the long-vacant Northridge Mall took a major turn Friday morning.

Milwaukee-based Phoenix Investors has entered into an 11th-hour agreement to purchase the blighted property from the Chinese-based U.S. Black Spruce Enterprise Group.

The City of Milwaukee, following a lengthy lawsuit and hundreds of thousands of dollars in unpaid fines, was prepared to argue its case Friday morning for the property to be seized. But a Thursday afternoon filing by Black Spruce effectively halted that discussion.

Deputy City Attorney Odalo J. Ohiku called it a “delay tactic.”

“This whole thing, in this court’s view, doesn’t pass the smell test,” said Judge William Sosnay.

But he granted a delay for Phoenix to perform due diligence on a deal. A hearing on a potential sale is scheduled for April 14. He said it was likely “premature” anyway to rule on the city’s January request to transfer the property.

Attorney Mark Foley said his client, Phoenix, has a 45-day due diligence period to review the details of the acquisition and a 10-day closing period.

Foley said Phoenix would be responsible for securing the property during that period, though Ohiku noted it didn’t involve the 24/7 security the court had ordered. Sosnay called it “better than nothing.”

Phoenix specializes in industrial property development and several of its Milwaukee projects have involved redeveloping former big box stores. Foley said a January in-person tour of the building revealed it had “good bones” and could be redeveloped for a “good use.” The city, since 2019, has argued otherwise and issued a condemnation order that it be razed because its repair cost exceeds 50% of its value.

A land use plan for the area calls for the mall property to be redeveloped for light-industrial uses. Black Spruce has owned the vacant mall for 15 years, but has not substantially advanced any redevelopment. It publicly released renderings of it being converted to an Asian market.

Foley said Black Spruce and Phoenix have been negotiating “off and on” for years about selling the property.  “I understand that Black Spruce made a major change in its demands to make an agreement possible,” said the attorney. What those terms are is shielded from public view for competitive reasons. The purchase agreement was filed under seal.

But Sosnay isn’t pleased with what he said is lacking from the sale agreement: addressing the standing raze order, dealing with the lien against the property and addressing environmental concerns like asbestos. Foley said those concerns would be resolved in the due diligence phase as part of a negotiation with the city. Sosnay said that the court would also need to agree to any deal.

Foley, of Von Briesen & Roper, previously represented Black Spruce on the case, a fact that Sosnay said could cause a conflict of interest. Foley’s firm sued Black Spruce for breach of contract. Attorney Christopher M. Kloth is currently representing Black Spruce, but said he had little knowledge of the sale and Sosnay described him as caught in the middle. A separate firm, Hansen Reynolds, is representing Black Spruce in its appeal of the raze order, which Sosnay said is limiting his ability to rule.

“This court is going to move forward, as fast as I can, to move this case to resolution,” said the judge. “I know how to deal with this, and if this continues, how I am going to deal with this.”

He said he couldn’t act as both the lawyer and the judge, but things would come to a head. Sosnay said he was inclined to grant a delay because the buyer was local and the city’s request for an ownership transfer was likely “premature.”

“At some point the rubber is going to meet the road and everybody is going to have to pay the piper, I assure you of that,” said the judge. He admonished both parties for filing last-minute requests before long-scheduled hearings.

The City of Milwaukee continues to push for a resolution and didn’t indicate any desire to negotiate with Phoenix Investors. Ohiku said the city is ready to act “immediately” to demolish the property if given ownership. It once estimated the cost at $15 million, but in January its own last-minute filing said it had identified funding to raze the structure. It is currently soliciting bids to raze the portion of the mall it owns, a former Boston Store.

“Somebody died in this building. It has to end,” said Nick DeSiato, chief of staff for Mayor Cavalier Johnson in an interview after the hearing. The death occurred on the property, but not in the building. A maintenance worker was killed by a high-voltage transformer in an electrical box located outside the mall building in July 2019. The electrical box, which wasn’t owned by Black Spruce, was previously damaged by scrappers, the Milwaukee Police Department said. A settlement was reached in October 2022.

A new lien was added to the property, $261,532.31. It’s in addition to a $187,000 lien from November. Both cover unpaid fines for failing to secure the property as well as public safety response costs incurred by the city.

Sosnay also instituted a new contempt fine, $1,000 per day for each of the three Black Spruce principals until they appear before the court and explain their absence. Kloth said Li Yang could not leave Canada because she did not have child care during her children’s spring break.

The 900,000-square-foot mall opened in 1972 and closed in 2003.

State law allows a raze order to be issued when repair costs exceed 50% of the building’s value. The Department of Neighborhood Services estimated in 2019 that repairs would cost $6 million and the attached buildings were only assessed for $81,000. The underlying 46.5 acres of land are assessed at more than $2 million. In 2008, Black Spruce paid $6 million for the property. Sosnay ruled in the city’s favor in October, but Black Spruce is appealing that ruling.

Black Spruce also owes the city more than $1 million in unpaid taxes, but in a court filing city officials said they didn’t want to attempt to seize the property through tax foreclosure because Black Spruce could pay off a portion of the balance to block the move.

The property, based on social media posts and four suspicious fires, has become a frequent site of trespassing in the past year.

Foley, Phoenix in-house counsel Heather Niski declined to answer questions after the hearing. Phoenix has previously redeveloped a number of large structures, including a J.C. Penney’s distribution center in Wauwatosa into an Amazon distribution center. It redeveloped a former Lowe’s big-box store at Midtown Center into a warehouse. Several properties that ring Northridge have been redeveloped for industrial uses. Phoenix’s director of acquisition and lending, Patrick Dedering, was also present at the hearing.

Phoenix is led by Frank Crivello.

August 2022 Photos

April 2019 Photos

UPDATE: This article was updated with additional information about the maintenance worker’s death and legal resolution.

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