Seeking to resolve a legal dispute and deliver a new hotel for Monona Terrace on schedule, Mayor Paul Soglin is proposing a deal that would replace the developer on half of the $186 million Judge Doyle Square project Downtown.
To do that, Soglin is asking taxpayers to pay Beitler Real Estate Services, of Chicago, $700,000 to release its development rights on the block that holds the Madison Municipal Building. Beitler would be required to begin construction of a hotel on the other half of the two-block project, which currently holds the Government East parking garage, sooner than initially required.
The mayor’s proposal, the latest attempt to amend a development agreement with Beitler to resolve a dispute over part of the project on the Municipal Building block, could fundamentally change the look of the redevelopment, as different architects and developers could work on each of the two blocks.
Currently, Beitler is to develop the hotel and housing on the Government East block and more housing — all in glass-sheathed buildings — above a massive underground public parking garage, first-floor retail and private parking on the Municipal Building block.
But the city and Beitler have been in dispute over part of the project on the Municipal Building block, with Beitler threatening to sue the city for tens of millions of dollars.
Late last year, the City Council twice rejected a previous deal that made a $600,000 payment to Beitler with Beitler giving up the rights to limited retail and private parking on the Municipal Building block but retaining development rights above it.
The proposed amendment and its $700,000 payment, due in a lump sum 10 days after the amendment is approved, would eliminate the potential for litigation over the Municipal Building block and free the city to find another developer to build a housing or commercial project there. The city just completed a $30.2 million renovation of the landmark Municipal Building.
The amendment would also place a 20-year restrictive covenant on a hotel being built on the Municipal Building block if Beitler builds a hotel on the Government East block, and accelerates the pace of development on the Government East block.
“Since the council rejected the last proposal, I’ve been negotiating with Mr. Beitler and trying to come up with a resolution that would be acceptable to a majority of the council and him,” Soglin said Thursday.
“It’s a significant improvement over what we had in December,” City Attorney Michael May said.
If the council approves the amendment, the city would likely issue a new request for developer proposals for the main part of the Municipal Building block, the mayor said, adding that the implications for timing, cost and design on that block are uncertain.
“I’m taking this one step at a time,” Soglin said. “Right now, the main objective is the construction of the hotel and coming to an agreement with the Beitler organization on the project.”
The change “doesn’t mean whatever development eventually occurs (on the Municipal Building block) can’t be designed in a complementary fashion,” said Downtown Ald. Mike Verveer, 4th District, who is co-sponsoring Soglin’s proposed resolution.
Ald. David Ahrens, 15th District, Beitler’s most vocal critic, blasted the deal.
“Now, they want us to give $700,000 for us to give the development rights to another party?” he said. “This is in addition to the $1.5 million ‘development fee’ when they developed nothing and have forfeited half the project. Why shouldn’t we sue Beitler to return the fee?”
The Beitler organization could not be reached Thursday.
The city’s Finance Committee will discuss the proposed amendment at 4:30 p.m. Monday. The council will consider the amendment Tuesday.
Cloud of litigation
The proposed change to the development agreement comes only days before the council was to consider for a third time the previous proposed amendment that included the $600,000 payment to Beitler and concessions from the developer.
Beitler sued the city in June after the council authorized $11 million to construct first-floor retail, two levels of private parking and a structural slab, collectively called the “podium,” above the underground public parking ramp now being constructed on the Municipal Building block. Beitler claimed the city was trying to seize its rights to develop those private elements, while the city maintained Beitler asked it to consider building the podium due to rising construction costs.
In August, Beitler dropped the lawsuit, and the two parties negotiated the $600,000 payment that would have explicitly given the city the right to build and own the podium. In October, the council voted 10-8 in favor of the payment, failing to reach the 11 votes needed to pass.
On Nov. 13, the council by a 14-6 vote rejected an amended development agreement that included the payment and new concessions by Beitler.
After the last vote, Beitler sent a memo to city officials saying it doesn’t want to sue but that plans to transfer part of the project from private to public ownership “will result in a lawsuit for damages associated with the entire project in excess of $40 million.”
Soglin and May warned of potential costs, delays and other impacts of litigation, and the city has been in discussions with Beitler to find a resolution. The council delayed a vote on the $600,000 deal until Tuesday.
An existing deal
The city and Beitler, May has said, have an existing, binding development agreement, adding, “the city cannot simply throw Beitler off the development and move to a new proposal.”
Under the existing deal, Beitler has two years after the public parking garage is done to begin construction on one of three main private elements: apartments on the Municipal Building block, the hotel or apartments on the Government East block.
“From the very beginning of our relationship with Beitler, (the Municipal Building) block has been the most complicated given the public and private components,” Verveer said.
With the amended agreement that was to be considered a third time Tuesday, the city would pay the $600,000 and Beitler would give the city the right to build and own the podium. Also, Beitler agreed to build the hotel first, move its startup from 24 to 18 months after the public garage opens and move up dates for the other building startups. The city doesn’t have to demolish Government East until Beitler applies for a building permit before hotel construction begins, saving the city up to $700,000 to cap that site if Beitler doesn’t move forward immediately.
Soglin’s substitute amendment would preserve key aspects of the previous proposal, including the earlier startup for construction of the hotel and the timing of demolition of Government East.
“It’s neater and cleaner having Beitler responsible for just one block,” Verveer said, adding that some previous council skeptics should welcome the proposed deal.
But the amendment doesn’t provide a date when the hotel would be completed, Ahrens said. He predicted that Beitler would ultimately seek tax incremental financing (TIF) support for the project, and that the deal leaves the city in the “same dire situation that the mayor opposed last month: the danger of changing developers.”
The future of the Municipal Building block above the podium “to a large degree is up to the City Council,” Soglin said. The council, he said, will determine if another request for proposals is issued and any further public investment in the redevelopment is needed.
Currently, the city is providing a total $50.4 million for the project for the parking structure, a bicycle center and the podium.
Beitler was to make $775,000 lease payments for both blocks, but under the substitute amendment, the company would be responsible only for $575,000 payments for the hotel and housing on the Government East block.
Other developers have expressed interest in the Municipal Building block but would likely seek TIF support, Soglin said.