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Consideration of approval of a term sheet with the Mandel Company for the Harlow and Hem Development at 7470 Blanchard Street
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Submitted by:
John Ruggini and Mark Hammond
Department:
Finance and Development
A. Issue
Previously, the City approved a term sheet with Mandel Group (the “Developer”) in 2022 to construct a mixed-income apartment on several parcels located at 7463 and 7487 Hardwood Avenue and 1330 North Wauwatosa Avenue. The Developer initially proposed to construct a 130-unit apartment consisting of studio, 1, 2, and 3-bedroom units. Changing market conditions and cost issues with that design resulted in a redesign of the development and a renegotiation of the terms. A new term sheet is recommended for approval.
B. Background/Options
Previously, the City approved a term sheet with Mandel Group (the “Developer”) in 2022 to construct a mixed-income apartment on several parcels located at 7463 and 7487 Hardwood Avenue and 1330 North Wauwatosa Avenue. The Developer initially proposed to construct a 130-unit apartment consisting of studio, 1, 2, and 3-bedroom units with 22-units reserved for households with incomes at or below 80% of the area median income (AMI) and 4-units reserved for households with incomes at or below 30% AMI. In return, the City previously agreed to provide a Tax increment district (TID) assistance as follows:
1. Municipal revenue obligation (MRO) note in the maximum principal amount of $5.59 million to be repaid from 90% of the annually generated tax increment over an anticipated 20-years on a pay-as-you-go basis; and
2. Issuance of tax-exempt bonds to provide $3.2 million of upfront assistance for construction of 115 public parking stalls.
Unfortunately, the development never commenced, and market conditions changed which negatively impacted the financial feasibility of the development. In 2024, the Developer approached the City with a revised development and an increased TID assistance request. The Developer now proposes to construct a 157-unit market rate apartment consisting of studio, 1, 2, and 3-bedroom units located at 7463 Hardwood Avenue, 7460 Blanchard Street, and 1330 North Wauwatosa Avenue (the “Project”). Instead of having affordable units in the Project, the Developer has proposed to make a $471,000 contribution to the City’s affordable housing fund. In addition, the Developer would construct and maintain 94 public parking stalls. Construction is proposed to start this spring with an anticipated development cost of approximately $54 million or $343,000 per unit.
The public sector financial advisory firm, Ehlers, at the request of the City, conducted a review of the Project, specifically the budget and pro forma based on industry standards for construction, land acquisition, and project costs; as well as to ensure that all development costs, rental revenues, and expenditures have been appropriately accounted for and considered. Based on their review, they conclude that TID assistance as follows is supported for the Project:
1. MRO note in the maximum principal amount of $3.88 million to be repaid from 75% of the annually generated tax increment less administrative costs over an anticipated 17-years on a pay-as-you-go basis; and
2. Issuance of tax-exempt bonds to provide $1.5 million of upfront assistance for construction of 94 public parking stalls; and
3. Issuance of taxable bonds to provide $3 million of upfront assistance to offset a portion of extraordinary costs associated to the Project.
The analysis supporting this conclusion will be provided as a confidential memo from Ehlers as it requires disclosure of proprietary financial information only provided by the Developer under conditions of confidentiality and is the subject of on-going negotiations.
The Project is located within the City’s TID #11. In consultation with the City Assessor to determine an estimated market value for the Project, it is projected to generate over $510,000 of annual tax increment once fully assessed which supports the TID assistance described above and meet the City’s requirement of maintaining a 125% debt coverage ratio on all existing TID expenditures as well as the public assistance warranted for the Project.
The Developer will be available in open session to describe the project and Keith Dahl from Ehlers will be available for the closed session discussion.
C. Strategic Plan (Area of Focus)
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D. Fiscal Impact
Based on Ehlers review, the recommended Tax Increment financing for this project can be supported by the increment generated by this project when combined with existing increment within Tax Increment District 11 to ensure a 125% debt coverage ratio as required by City policy.
E. Recommendation
Based on Ehlers review of the Developer’s pro forma and under current market conditions, the Project may not reasonably be expected to occur solely through private investment within the near future. The cost associated with development of the Project is only feasible, in part, through public financial assistance from the City. Ehlers concludes and staff concur that an MRO note in the principal amount of $3,880,000 with an interest rate the lesser of 6.00% or the Developer’s actual rate of financing, and payable from 75% of the annually available tax increment less administrative costs over an anticipated term of 17 years, as well as $4,500,000 of upfront proceeds to offset a portion of the cost associated to the extraordinary costs is supported for the Project.
recommendation
The Committee may convene into closed session regarding this item pursuant to Wis. Stat. §19.85 (1)(e), to deliberate or negotiate the purchasing of public properties, the investing of public funds, or conducting other specified public business, whenever competitive or bargaining reasons require a closed session. The Committee may reconvene into open session to consider the balance of the agenda.