After a decade of hope and delay, construction could start this summer at the blighted, long-vacant Union Corners site on the East Side.
But a major financial hurdle on city financial investment remains before work starts on even the first piece — a UW Health clinic — of the multi-phase redevelopment with housing, commercial space and grocery store, pedestrian and bicycle connections and mostly underground parking.
To do the project, the city intends to convey its 11.4-acre site — worth $6 million for land and infrastructure improvements — to the developer, Gorman & Co., for $1.
But to do that transaction, Gorman must demonstrate a financing gap for the redevelopment of at least $6 million. The city and Gorman have been negotiating on the gap since late 2013 but have not come to a resolution.
Gorman submitted a new proposal on Friday.
“We’re not done yet,” city economic development director Matt Mikolajewski said of a financing agreement. “We don’t know exactly what the gap is. It’s been a moving target.”
Ted Matkom, Gorman’s Wisconsin market president, said he’s optimistic, but “we’re not doing anything until that’s signed. Once that’s resolved, it’s all systems go.”
‘No one’s place’
It’s been 10 years since the site was stripped of structures except a large billboard. A third-grader at Emerson Elementary School in 2006 — graduating this spring from East High School — has known only a sad, empty field of scruffy grass, litter and the homeless living from beaten campers and other vehicles along Winnebago Street.
Sometimes people drive radio-controlled cars on the flat concrete remnants of former structures that stood at the gateway corner of East Washington and Milwaukee Street. When there’s a lot of snow melt or rain, geese and ducks bob in temporary ponds in the field.
The site is attractive to the homeless because the police don’t harass people and it’s dark at night for sleeping because Winnebago Street has no lights, several people who stay there in vehicles said.
“We don’t like living in a fish bowl,” said Ryan Helgeson, who’s been living from his car there for a year. “(But) the minute they start pulling in a bunch of construction (equipment) and a bunch of people, I’ll find another place.”
The city hasn’t done an analysis of how the vacant lot has affected nearby property values but “it’s reasonable to assume there’s some influence,” city assessor Mark Hanson said.
“Now, it feels like no one’s place,” said Schenk-Atwood-Starkweather-Yahara Neighborhood Association chairman Brad Hinkfuss, who joined about 20 people for a neighborhood cleanup of the site last weekend. “It’s been kind of a pain. But a lot of it will go away when we get some activity there.”
Project gains momentum
There’s been hope before.
McGrath Associates, the former property owner, proposed a $100 million mixed-use project in 2004 that won broad support from city officials and residents and $4.9 million in tax incremental financing (TIF) support for a first phase. But the project stalled in a faltering economy in 2007.
The city, which had made infrastructure improvements at the site, acquired it for $3.57 million in 2010 and later launched a process to pick a new developer, choosing Gorman from among five respondents in late 2012.
It took nearly a year for the city and Gorman to sign a deal in October 2013 under which the city would convey the property for $1 to the developer, who would repay the city’s $6 million investment in land and public improvements through higher property taxes generated by the project.
In January 2014, Gorman offered plans that got a cool reception calling for a less-dense development, with more parking lots, less public space, and four-story apartment buildings near existing single-family homes.
But Gorman worked with the city and neighbors and won support for revised plans that moved the two-story health clinic to the west and put a taller, mixed-use structure with the grocery, commercial space and housing at the gateway corner. The city approved a general development plan for a multiphase project a year ago.
“That was the hardest piece,” said Ald. Marsha Rummel, 6th District.
Now, there’s momentum:
• UW Health has won land use approvals and hopes to break ground this summer on the $20 million, two-story, 60,000-square-foot clinic at East Washington Avenue and 6th Street.
• The state announced on April 23 that Gorman would receive $8.5 million in federal tax credits for a $13.1 million initial housing phase with 90 rental units — 76 for people with lower incomes — and 22,240 square feet of commercial space in two buildings north of Winnebago Street. The phase has land use approvals.
• Alds. Rummel and Larry Palm have set a neighborhood meeting for May 12 to discuss a proposed $20 million, five-story, mixed-use building with a 28,000-square-foot Fresh Thyme grocery store, 9,000 square feet of retail space, 102 apartments and parking at the gateway corner.
Gorman expects to submit detailed plans for the five-story building in mid-July, Matkom said. Concepts for two other phases — cooperative housing south of Winnebago Street and a small parcel west of Sixth Street — are still being shaped, he said.
“It’s been vacant for so long and such a mess” said Terri Martinelli, who grew up nearby and was helping pick up litter last weekend. As a member of Madison East Side Co-Housing, she said she hopes to someday move to Union Corners. “So it’s great to see it’s going to go to good use and great things are going to be put here. It’s going to be beautiful.”
Bill Rogers, who owns the Malt House Tavern with its Civil War-era bar at 2609 E. Washington Ave., has looked at the vacant lot since he bought the popular bar nearly seven years ago. He said he’s had no issues with the homeless but is looking forward to the project for several reasons.
Rogers is impressed with Gorman’s renovation of the former Pabst Brewery keg house in Milwaukee into the Blue Ribbon Lofts housing project and expects a quality project across the street. And there’s a business side. “I’m looking forward to a lot of construction workers over there getting thirsty by 4 p.m,” he joked.
Hinkfuss said, “Once you get that first big piece, I think it’s going to be catalytic for everything else.”
Financing gap narrows
But first, money.
To get the land for $1, Gorman must demonstrate the $6 million gap in financing. That can be influenced by estimates for costs, the private loan the project can attract, and rents for housing and commercial space. If Gorman demonstrates a smaller gap, the developer may have to pay the city for the difference, city officials said. If it shows a larger gap, Gorman would have to find a way to make the project work, they said.
In its initial response to the city’s request for proposals, Gorman sought $14.8 million in public assistance for an $83 million project.
The project and its financing gap have evolved over time, with Gorman and the city sometimes very far apart and the difference closing in recent months. In March, Gorman claimed a $28.6 million gap, which the city rejected as far too high. On April 7, Gorman claimed a $7.9 million gap while the city’s analysis showed a $5.2 million gap, easily the closest the city been to the $6 million.
Matkom, the Gorman representative, said the state’s late April announcement on tax credits for the low-income housing brings more certainty to financial projections. He said he believes the sides are getting close.
Already, the purchase and sale agreement of October 2013 has provisions that, if unchanged by a final TIF deal, would require exceptions from city TIF policy related to the developer’s guarantee of tax payments and equity participation, city attorney Michael May said.
The sides have already extended formal deadlines twice and last summer made an addendum to the original purchase and sale agreement. On Thursday, Gorman paid $10,000 to extend the negotiating deadline another 30 days.
Any TIF agreement must be approved by the City Council.
After past setbacks, some are concerned about completing the financing agreement, but there’s generally confidence about the project moving forward, Hinkfuss said. “I think a lot of people stopped paying attention because its taken so long,” he said. “Those who have been participating are pretty optimistic.”
The neighborhood will re-engage once Gorman submits detailed plans for the five-story building and its multiple uses, he said.
“It’s been a long slog with this project,” Rummel said. “We hope we get a good project out of it. We just have to figure out the TIF thing.”