Rising construction costs are forcing major complications and changes for the massive Judge Doyle Square project Downtown, prompting the city to consider investing $11 million more to keep the $186 million redevelopment on track.
The public-private redevelopment will eventually bring a 252-room hotel, housing, retail and commercial space, a bicycle center and more than 1,000 parking spots in glass-sheathed buildings to the blocks that now hold the Madison Municipal Building and Government East parking garage.
But the estimated cost of the private first phase, including first-floor retail space, 160 parking stalls on the second and third floors, and 144 apartments on the next nine floors — all to be built atop an underground, 560-stall public parking garage behind the Municipal Building — has jumped from an estimated $32 million in April 2016 to $48.5 million, pushing the total project cost from $170 million to $186 million.
At that cost, developer Beitler Real Estate Services of Chicago has concluded the private elements on that block are not financially feasible, according to a memo Mayor Paul Soglin sent to members of the City Council Tuesday.
The rising costs are driven by several factors, including more detailed design of the buildings — especially the glass curtain walls, escalating costs for construction and rising interest rates, city project manager George Austin said.
If work on the private project doesn’t begin when the public garage and bicycle center are completed in April 2019, the city would be required to cap the underground ramp to comply with building code and zoning regulations.
On April 17, after exploring alternative uses including a grocery store, retailer or medical offices above the public garage, Beitler informed the city it would not pursue construction of the private project unless the city built the retail space, the private parking and structural slab to support the apartments, together called “the podium.”
As an alternative, Beitler asked if the city would lease it 150 stalls from the underground garage, which would leave only 370 public spaces. The city’s project team, however, deemed that option unsatisfactory because it too greatly reduced the public parking supply for Monona Terrace and other surrounding commercial uses.
The city, which has dug a massive hole and is beginning to build the underground garage, is considering options on how to proceed after the public garage and first-floor bicycle center are completed in April 2019. The retail space and additional above-ground parking need to be completed to make the structure ready for housing or another use above.
The city still intends to demolish Government East around Aug. 1, 2019, to make way for the second phase of the project, which will include a 252-room hotel, more housing, commercial space and parking.
City weighs options
On Tuesday, Soglin and Ald. Mike Verveer, 4th District, who represents the site, proposed implementing one of three options forwarded by a city staff team that would have the city build the podium at an estimated cost of $11 million. Under the resolution, which will be considered by committees and be back before the council on May 15, the city would cap the public garage, first-floor spaces, and additional parking and provide an opportunity to build a range of uses above it.
The option lets the city pursue the highest use in an important location in the central business district, Austin said, noting that Beitler had initially proposed above-ground public parking but was asked by the city to offer an alternative with underground parking that was eventually selected by the council.
The other options are to build a roof slab above the underground parking and first floor retail, which would cost $5.4 million but preclude the possibility of building more parking and uses above in the future without significant complications and costs, or to build the podium with one floor of parking at a cost of $7.5 million, limiting the development potential of the project.
Under the resolution, the city would:
- Increase the 2018 capital budget by $4.4 million from Parking Utility reserves to a total $50.4 million for the project. The funds would be repaid to the Parking Utility with interest by using ground lease revenues paid by Beitler, net revenue from the lease of retail space, and net revenue from the above-ground parking stalls.
- Direct city staff to amend an agreement with the city’s parking garage architect in an amount up to $700,000 to design the podium and prepare specifications for it and the demolition of Government East.
- Direct the Judge Doyle Square project negotiating team to work with Beitler on amending the current development agreement with a proposed revision ready by Nov. 15.
Currently, the capital budget has authorized funding of $45.96 million for public elements of the Judge Doyle Square parking structure, including $1 million for a bicycle center and $1.3 million for 40 city fleet spaces in the structure. But based on accepted bids, the structure is estimated to cost $39.4 million, leaving $6.6 million in unused spending authority, according to a fiscal note from city finance director David Schmiedicke.
The $4.4 million in the resolution would be added to the $6.6 million for a total of $11 million city investment, the note says. Under an existing agreement, Beitler is to pay the city $755,000 annually to lease the two blocks, with those amounts rising by 5 percent every five years. The parking utility could also net about $300,000 annually in revenues from the above ground parking spaces.
Based on that revenue stream, the $11 million would be repaid to the Parking Utility in about 12 years, the note says.
Currently, the Parking Utility reserves are being invested in anticipation of future needs, Schmiedicke said. The impact of using more funds for Judge Doyle Square will depend on the timing of when the Parking Utility will be doing projects, he said.
The city still expects the second phase, which includes the hotel, on the Government East block to function the same as initial plans, but it anticipates Beitler will offer some design changes given the evolving economic climate, Austin said.
A revised timeline for the project shows the underground parking garage will be largely complete by December, construction of the podium would start in February and end on June 30, 2019, with occupancy on July 15 of that year, the demolition of Government East garage starting on Aug. 1, 2019, and construction of the hotel starting that fall.