After reaching a deal with Madison in January to return development rights for half of the two-block Judge Doyle Square project to the city, records obtained Monday show Beitler Real Estate notified the city over a month later that it was “impossible” to complete its portion of the project.
On Feb. 15, Beitler Real Estate sent the city a notice of default through its attorney. In it, Beitler claimed that the way the city zoned the block that currently holds the Government East parking garage is preventing construction of a private hotel and apartment complex there from moving forward.
“In reviewing this matter internally with Beitler, it has become clear that there was a systematic effort to thwart Beitler’s ability to complete either the Block 105 hotel or the Block 105 apartment notwithstanding the terms of the development agreement,” said James L. Oakley, partner at Thompson Coburn, LLP, in the notice of default.
In response to the notice, Assistant City Attorney Kevin Ramakrishna said Beitler’s accusation that the city misled the developer on zoning and building requirements “is nothing short of bizarre.”
“Frankly, (Beitler’s) allegations that the city took unilateral covert actions to change zoning for selfish and nefarious reasons are false, senseless, insulting and unprofessional,” Ramakrishna said.
City officials also said Beitler’s notice of default is invalid because the developer did not include specific actions for the city to “cure any alleged default.” Further, the city sent its own letter of default to Beitler outlining several demands.
City Attorney Mike May said in an email sent to the City Council Friday that the Judge Doyle Square staff team hopes to work with Beitler to construct a hotel on Block 105, but he said he considered the notice from Beitler "both disappointing and troubling."
May said Monday the notice from Beitler was "surprising." He said the city is in an "unusual" position where the developer has sufficient zoning to build the property but is alleging that the city is not allowing the firm to build.
"We’re still hopeful we can go ahead and build, but they’ve got some things they have to do in order to build and I don’t know why they aren’t doing them," May said. "We’re ready and willing to do what needs to be done, so that they can begin to build and they’re telling us, 'No, no you won’t let us.' I don’t know how we can convince them that we will let them."
Because of his concerns, May asked the Finance Committee to schedule a closed session for March 25 to discuss the status of the project. May asked that City Council members keep the recent developments confidential and refer any media questions to the mayor’s office.
When asked about the disagreement after a mayoral candidate forum Monday night, Mayor Paul Soglin did not comment. Oakley did not immediately respond to requests for comment.
If the issues cannot be resolved, Ramakrishna said the development agreement could be terminated, there could be potential litigation or the city finds another solution.
"We have continued to work with Beitler over the past month in order to resolve the issues cooperatively and move ahead regardless of the notices," Ramakrishna said Monday. "Obviously we are working toward getting a completed development, and that is the main goal."
In the notice of default, Beitler accused the city of failing to have “reasonably cooperated with Beitler” over the development of the property and application process for land use approvals for the private development.
Beitler argued that the city changed the zoning for Block 105, which requires Beitler to build the hotel and housing tower at the same time. Beitler maintained that it never planned to build both structures at the same time.
The city's response said the zoning for Block 105 includes one general development plan and two specific implementation plans and that the city has informed Beitler of this in several instances. Further, the city clarified that Beitler needs a phasing plan for the project, which is separate from the development and implementation plans, that does not require City Council approval.
“The city has repeatedly offered to assist you with the process but instead of pursuing it, you falsely allege that the city has made it impossible to obtain timely finance and otherwise develop any portion of the private development,” Ramakrishna said, addressing Beitler Real Estate.
The city also sent its own letter of default to Beitler asking the developer to, within 30 days, submit “unequivocal written commitment” to construct the private development. In addition, the city is requiring Beitler to submit documentation showing:
- That it is impossible for Beitler to obtain financing and otherwise develop any portion of the private development.
- Beitler’s efforts seeking and responses related to obtaining financing.
- Anything the city did or did not do to create the "impossible condition" that Beitler alleges is occurring.
- All current construction plans, drawings, specifications, schedules, cost estimates, financial projections and statements.
The city also pointed out that in Beitler’s notice, the developer identifies obstacles that existed as of and before agreeing to receive a $700,000 payment that the City Council approved Jan. 8 in exchange for development rights to Block 88.
“Beitler should have informed the city that it did not intend to perform under the development agreement at the time the parties negotiated the $700,000 payment,” Ramakrishna said. “Beitler’s failure to do so is significant, and may give rise to claims by the city not only for breach of the development agreement but for potential tort and equitable claims.”
The city demanded that Beitler hold the funds in trust for “probable repayment” to the city.
History of disagreement
The major downtown redevelopment project known as Judge Doyle Square encompasses the blocks housing the aging Government East garage and the Madison Municipal Building. It aims to bring a new underground municipal parking garage and a hotel to serve Monona Terrace, return two parcels back to the tax rolls, create a pedestrian-friendly environment on Pinckney Street and connect the Capitol to the terrace.
The notice of default is the latest disagreement between the city and its development partner, which is based in Chicago.
In January 2018, Beitler informed the city that the cost of constructing the podium the part of the project located above the new parking garage on Block 105 that includes a structural slab, first-floor retail and two levels of private parking — was out of their budget.
This led to the city’s decision to pay $11 million for the podium to ensure its viability as a future development site and make sure the public ramp would not close in the future. In response to the city’s decision, Beitler sued the city, arguing that Madison “unilaterally seized” this part of the project. The developer later dropped the lawsuit.
Most recently, the city paid Beitler $700,000 in exchange for the development rights to Block 88, bordered by the Madison Municipal Building, East Wilson, South Pinckney and East Doty streets. This decision was meant to resolve a dispute over the podium and minimize risk of future litigation. The city is seeking applications for projects on Block 88 that include apartments for tenants with low- and moderate-income levels.
Ald. David Ahrens, District 15, said he could not comment on the merits of the notices of default. However, he questioned the city waiting about a month to inform alders about the new dispute and reiterated his opposition to Beitler Real Estate as a development partner
"From the very beginning, Beitler has not been a partner to which we want to develop a property downtown and that was evident from the beginning," Ahrens said.