After IKON Hotel Issues, Council Moves To Assert More Control of TIF Districts

Sears Market. Rendering by RINKA.

The repeated delays on Kalan Haywood‘s proposal to redevelop the former Sears department store at the intersection of W. Fond du Lac and W. North avenues, and the resulting loan modifications are causing some heartburn at Milwaukee City Hall.

The Redevelopment Authority of the City of Milwaukee (RACM), effectively an arm of the Department of the City Development (DCD), has granted loan deferrals in three successive years on a $4 million pre-development loan the city issued the project. Comptroller Aycha Sawa reported that the city will have foregone $540,000 in interest payments as a result of the deferrals.

As a result, Alderman Michael Murphy, one of three council members to vote against the initial loan in 2019, has now introduced legislation that would require the administration to secure council approval on modifying terms of a tax incremental financing (TIF) agreement that results in a fiscal impact on the city.

“This has become basically an interest-free loan,” said Murphy at a Tuesday meeting of the Zoning, Neighborhoods & Development Committee. “We will get that bill.” He said ultimately the city would need to make up the interest loss by transferring money from overperforming TIF districts.

Murphy said a retroactive review shows that his legislation would have been triggered only a couple of times in the past decade. “I don’t want to hamstring the department on minor modifications,” said Murphy. “I’m not looking to micromanage the department.”

“If there is a decision that is made that the city’s ultimate fiscal obligation is larger than what was approved, than the council gets to weigh in on that and that can’t just be done administratively,” said DCD Commissioner Lafayette Crump in summarizing the change to which his department is agreeing to.

Crump defended the city’s actions on the IKON Hotel project.

“What we sought to do at the RACM level was to avoid a default,” said Crump. “We felt like it was better to continue moving on the path we are on right now. Ultimately, it is our belief that we are protecting the city fiscally by continuing on the path we are. But that’s a fair conversation to have at the council level.”

In 2019, Haywood proposed to redevelop the former department store into an 82-room hotel and a conference center, the only such facility in the central city. But public financing support was marred in controversy given the perceived risk by some city officials, and little has come of the plan after initial demolition work took place. Then-Comptroller Martin Matson raised concern that there was a “significant risk” that Haywood would be unable to repay the loan and that the city could end up taking possession of the building in foreclosure. Haywood used the funding to support interior demolition work, architectural fees and repaying a loan used to purchase the property.

As part of receiving the third loan extension in August, Haywood introduced a new plan and new development team. The three-story building, 2100 W. North Ave., would be redeveloped into a brewery, art gallery, event space, office space and apartments known as Sears Market. The remainder of the 6.2-acre site would be carved up into separate parcels and redeveloped as housing. The Haywood Group has added architecture firm RINKA and developer and investment firm F Street Group to the development team, dropping Engberg Anderson Architects and other partners. “We are trying to figure this thing out,” he told the RACM board and cited the pandemic, rising interest rates and growing construction costs as reasons for delay.

Area Alderman Russell W. Stamper, II said he supported the extensions. “They were needed extensions,” said Stamper, a vocal supporter of the project from the get-go alongside then-DCD commissioner Rocky Marcoux. He said he understood that the city was not losing money, but was foregoing money it could have received.

“We are losing $540,000,” responded Murphy.

“But how?” asked Stamper.

“Because the bondholders have to paid for the loan interest that was taken out when you grant an extension,” said Murphy. “Since the developer is not paying it, it has to be paid by the taxpayers of Milwaukee.” The city didn’t make the loan to Haywood with cash, instead issuing its own debt to be offset by Haywood’s repayment.

“I think it is fair to say, at this current moment, the city may be out those interest payments depending on what gets negotiated down the road,” said Crump. He said it could also recoup the lost interest during a future refinancing, which he expects to happen should the project move forward. He cautioned calculating an exact amount today because of differences in interest rates, net present value considerations and the carrying costs if the city took posession of the property.

“I am much more interested than the process than this project,” said Common Council President José G. Pérez. He said he wanted the difficult project to succeed because he wanted to see other investments made in neighborhoods. The council president, who doesn’t formally sit on the committee, endorsed Murphy’s proposal.

Stamper was the lone individual to vote against the proposal. The full council is scheduled to vote on the matter on Oct. 10.

Sears Market Renderings

2019 Renderings

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Pre-Demolition Interior Photos

2019 Exterior Photos

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Related Legislation: File 230668