JDS Development’s bid to bring booming Exact Sciences Corp. to the massive Judge Doyle Square redevelopment Downtown has captured the imagination of city leaders but carries big questions, including substantial public support for the project.
JDS, composed of the Hammes Co. of Madison and Majestic Realty of Los Angeles, has proposed a $186.4 million to $203.2 million redevelopment featuring a 210- to 250-room hotel, a “Civic Core” with a public food hall, conference center and more, up to 350,000 square feet of office space for Exact Sciences, and parking.
The City Council voted Tuesday to pursue exclusive negotiations with JDS despite getting three other proposals on May 1 for the redevelopment of blocks that encompass the Madison Municipal Building and Government East parking garage.
“There has never been a private initiative of this magnitude,” Mayor Paul Soglin said.
A special city negotiating team must now determine if Exact Sciences can fill so much office space, if the hotel is right to serve Monona Terrace and the Civic Core worth city investment, and if public costs that could exceed $65.5 million are doable and prudent.
The city, in its request for developer proposals, said public funds would only be used to support parking and that city land and air rights be purchased at fair market value.
But JDS is seeking between $10.3 million and $11.4 million for what would be the city-owned shell of the Civic Core, and it has proposed lease rates for the Civic Core and private parking that are below market rate. It’s also offering less than the appraised value for land and air rights on the two blocks. In all, city support beyond parking could exceed $15 million.
The city has considerable resources for the project, including $20 million to replace Government East parking and a highly successful tax incremental financing (TIF) district that could deliver tens of millions of dollars.
Soglin said he currently sees no reason to use TIF for anything but parking but that the city didn’t envision the Civic Core, which is important to Exact Sciences, and will see what negotiations produce. “Talk to me in a month,” he said, declining to comment on specifics.
Negotiations are unfolding under a rare, tight timeline for such a major project due to Exact Sciences’ strong desire to break ground by December so it can get its fast-growing workforce that thrives on collaboration under one roof.
Hammes president Robert Dunn and Exact Sciences chairman and CEO Kevin Conroy are convinced the project is right for Judge Doyle Square and that disagreements can be resolved.
“I wasn’t convinced we could do this six months ago,” Conroy said. “Now, I see how it can be done. Now, it is clear to me. We just don’t have a lot of time.”
Said George Austin, the city’s project director: “There are significant issues that need to be negotiated. The timeline is very accelerated. It’s somewhat daunting. But the potential of bringing an employer the size of Exact Sciences Downtown is worth making every effort.”
The negotiations, which began with a three-hour meeting Friday, can alter or refine the project.
JDS is proposing to invest $130.8 million to $137.7 million, with public costs of $55.6 million to $65.5 million for public and private parking, and the shell of the Civic Core.
The proposal centerpieces Exact Sciences, which created the first and only federally approved, DNA-based, noninvasive colorectal cancer screening test. The company currently has headquarters on the West Side and a new lab in the Novation Campus off Rimrock Road.
Exact Sciences would bring 400 educated, well-paid employees Downtown when the new facility opens in 2017, and it projects 650 workers there by 2023, company spokesman J.P. Fielder said. Clinical testing and a customer call center would continue to grow at the Novation Campus, he said.
But some wonder if all the growth will happen.
“We’re making a huge bet that this is the sure thing,” said Ald. David Ahrens, 15th District. “What happens if we get left with 350,000 square feet of office space Downtown? That’s a very big hole to fill.”
Conroy notes Exact Sciences has a unique product with strong patents and huge population of potential users. The company, which introduced the colorectal test in the fourth quarter of 2014, saw completed tests jump 175 percent in the first quarter of 2015 and projects another 64 percent increase in the second quarter, Fielder said. It continues to develop tests for other forms of cancer and has other advances in the pipeline, Conroy said.
The company, which had revenue of $1.8 million in 2014, is projected to grow that to $1 billion by 2019, said Jeff Elliott, senior equity research analyst in life sciences and diagnostics for Robert W. Baird & Co.
Exact Sciences is looking to enter a 10- to 20-year lease for the office space, Conroy said, adding, “Once we’re Downtown with a thriving company in the most exciting part of the city, our employees are not going to want to move out of Downtown.”
Dunn strongly expects the same, but said offices will be designed so they can be used by other tenants and that the second phase, if Exact Sciences doesn’t need it, could be offices, housing or more hotel space.
JDS is proposing an “urban hotel” with 210 to 250 rooms with access to the Civic Core to deliver “full service” hospitality like a Hilton suggested by consultants but at a significantly lower capital cost.
But based on data and consultant recommendations, the proposal doesn’t deliver what’s needed to maximize Monona Terrace, said Deb Archer, president of the Greater Madison Convention and Visitors Bureau.
Consultants recommend a 350- to 400-room, full-service hotel on the Municipal Building block with a 250-room block for the convention center, Archer said. It should have a high-profile national operator with a restaurant, fitness facilities and 10,000 to 15,000 square feet of meeting space on-site, she said.
Such a hotel, combined with the Hilton Madison’s 150-room block, would create a 400-room block and let the city compete for a new tier of profitable conventions and conferences, she said.
Dunn said he hasn’t seen evidence the market can support 400 rooms and that a more modest hotel with access to the Civic Core and restaurants on both blocks lets it function like a full-service hotel.
After two years of effort and two separate requests for developer proposals, Soglin noted, the city has been unable to land a 400-room, full-service hotel. “We’re going to have to do the best we can,” he said.
A public-private partnership on the Civic Core is critical to mitigating costs of locating Exact Sciences Downtown, Dunn stressed.
The city would fund and own the Civic Core shell at a cost of $10.3 million to $11.4 million, with JDS leasing space for $10,000 annually and private partners spending $10.8 million to $11.4 million to complete and furnish spaces.
The Civic Core, Dunn said, would benefit Judge Doyle Square, Monona Terrace, Downtown businesses and the larger community. JDS has projected the entire project would boost annual public revenue through property and other taxes, increased values of surrounding property, and other streams at $10.1 million annually, repaying investments in six or seven years.
Conroy said the Civic Core — where Exact Sciences and the community would connect — is “very important” to the company and losing it “would put the project at risk.”
“We’re not just building an office building Downtown,” Fielder added. “We want to make this a community center in the heart of Downtown.”
JDS proposes 1,410 to 1,540 parking spaces with some underground on the Municipal Building block but most of them under and across Pinckney street at a public cost of $45.4 million to $54.1 million.
The city’s Parking Utility has roughly $20 million to replace Government East parking, with JDS proposing the city use TIF or other means to build city-owned spaces for Exact Sciences, the hotel and other private elements of the project. JDS would lease private spaces for $40,000 a year.
While the city has appraised the land and air rights to be redeveloped at $11.2 million, JDS is offering roughly $2.2 million for the private pieces of the project.
The existing TIF district, set to close in 2022, had $19.5 million in surplus funds at the end of 2014, city finance director David Schmiedicke said.
The surplus is projected to grow — excluding new development at the Square — to $50 million to $55 million by 2020, Schmiedicke said. A very rough estimate would have the JDS proposal adding $5 million to $10 million to the sum by 2020, he said. Under state rules, any spending of TIF funds from the district must occur by fall of 2017.
If the TIF district is allowed to close with a surplus, those funds would be allotted to the city, county and school and technical college districts, who would have a say in new spending in the district.