Madison is locked in a major new spat with a developer that could delay or jeopardize a hotel and apartments in the massive, two-block Judge Doyle Square project Downtown.
Even if the sides work things out, Beitler Real Estate of Chicago no longer intends to design the hotel and apartments as shimmering glass-sheathed towers and plans to replace underground parking with a swimming pool, city documents say.
The city and Beitler have been tangling for nearly a year over parts of the long-sought project. Legal issues were seemingly resolved in early January, but the sides are now claiming that the other is in default of a development agreement. Beitler claims city actions have made it “impossible” to get timely financing, and the city is threatening termination of the development agreement. Litigation is possible.
The city, for at least eight years, has wanted to redevelop parts of blocks that now hold the landmark Madison Municipal Building and aging Government East parking garage south of Capitol Square. In 2016, after several misfires, the city chose Beitler to develop both blocks with plans eventually emerging for a $186 million project with hotel, housing and commercial space in three glassy buildings and underground parking.
But in January, to resolve a legal spat over part of the project, the City Council approved paying Beitler $700,000 in exchange for the developer giving up its rights to develop the Municipal Building block. The city recently issued a new request for proposals for housing or commercial uses there, and responses are due next month.
Beitler, meanwhile, was to proceed with the development of a roughly 250-room hotel to serve Monona Terrace and 204 apartments in separate towers on the Government East Block.
Now, the sides are at it again.
In a Feb. 15 letter, Beitler claims city actions have made it “impossible” to obtain timely financing and “otherwise develop any portion of the private development.”
Beitler claims the city has failed to reasonably cooperate with the redevelopment and on land use approvals; acted in bad faith by “covertly and unilaterally” modifying the type of zoning relief needed; and required the developer to simultaneously obtain financing and begin construction of the hotel and housing on the Government East block. Beitler gave the city 30 days to fix the problems or face further actions.
The city, in two March 14 letters, claims Beitler is in default of the development agreement and that “its failure to cure its defaults and provide assurances of future performance will result in termination of the development agreement as permitted and the city’s exercise of its other remedies.” The city gave Beitler 30 days to respond.
The city’s Finance Committee is scheduled to discuss the situation in a closed meeting on March 25.
Mayor Paul Soglin referred questions to the city attorney’s office. City attorney Michael May said the city was surprised by Beitler’s notice, both sides are continuing to talk and the city prefers that Beitler secure any final approvals and proceed with its project.
“Right now, I’m not certain where we stand,” May said.
James L. Oakley, an attorney representing Beitler, said he had to get permission from his client to offer comment and had not replied by Monday evening.
As the sides argue, the city is completing a $50 million, 560-space public underground parking garage on the Municipal Building block to replace Government East. The City Council has approved $11 million to construct ground-level commercial space and two floors of private parking — collectively called the podium — above the underground garage.
It was the City Council’s vote in May 2018 to approve funding the podium that prompted Beitler to sue Madison in June. The developer argued the city unilaterally seized its development rights on the podium, while the city maintained Beitler asked it to consider building that portion of the project due to rising construction costs.
Beitler dropped the lawsuit in August, and the two sides continued negotiations.
On Jan. 8, after twice rejecting deals to resolve the dispute, the council voted 15-0 in favor of an amendment to the development agreement that paid Beitler the $700,000 in exchange for the developer giving up rights on the Municipal Building block and requiring Beitler to accelerate construction of a hotel.
Hotel and housing
The current dispute seems to be about zoning and final approvals, centering on: the city’s requirement that the developer come up with a plan for building the hotel first, followed by the apartments; the major alterations of changing the exterior materials, adding a swimming pool and removing parking; and standard project details required before the city issues a building permit.
In the Feb. 15 letter, Oakley said Beitler’s claims are based on some “recent exchanges” between Soglin and Paul Beitler. According to the letter, it’s become clear that previous city actions and the city’s current position with respect to zoning for the project “will prevent Beitler from performing as contemplated in the development agreement.”
Beitler never intended to build the hotel and apartments concurrently, Oakley’s letter says. It notes that the January amendment to the development agreement calls for closing on financing of the hotel within 18 months of completion of the parking garage across the street, and financing for apartments within 30 months of opening that garage.
The city is unfairly trying to put expenses on Beitler to satisfy zoning conditions for both buildings at once when the developer isn’t required to build them at the same time, the letter says. Capital markets are troubled by the idea of conditional zoning and simply want a statement that the project has zoning approvals, Beitler has previously told the city.
The city sees it differently.
It is Beitler that repudiated the development agreement in its notice that it won’t be able to obtain financing and perform obligations within deadlines, a March 14 letter to the developer from assistant city attorney Kevin Ramakrishna says.
Beitler’s allegations are “false, senseless, insulting and unprofessional,” it says.
Step by step?
The city hasn’t tried to make Beitler obtain financing and begin construction of the hotel and apartments at the same time, Ramakrishna’s letter says. The amended development agreement sets forth separate and distinct dates for each element, and a phasing plan can be secured through an administrative process, it says. A major alteration approval is always required for significant changes to the project, it says.
But Oakley’s letter says the phasing plan is a new recommendation resulting from the city’s failure to process and approve the originally proposed zoning. It’s “ridiculous” to believe Beitler will have a fair chance of approvals given the animosity that the City Council and city representatives have shown toward the developer, it states.
That argument is “utterly groundless,” Ramakrishna’s letter says, noting that the council approved the $700,000 payment and a room block agreement for the hotel, and the city has continued to offer assistance for the project.
The city is demanding that Beitler rescind its notice of default and put the $700,000 in a trust for possible repayment to the city for potential breach of the development agreement.