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Approval of a term sheet with MSP Real Estate, Inc. to construct affordable multi-family apartments at the Burleigh Triangle
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A. Issue
MSP Real Estate, a Midwest development company with a track record in Wauwatosa for developing successful multi-unit residential projects for a range of income levels is requesting Tax Increment Financing assistance for an 80 unit project at the Mayfair Collection at 11500 West Burleigh Street. A term sheet between the City and the developer is under negotiation.
B. Background/Options
Tax Increment District 7 - Burleigh Triangle was created in 2013 to redevelop a blighted property centered around an abandoned Roundy’s warehouse. The master plan for the site calls for a mixture of retail, residential and office uses. The City of Wauwatosa received an application from MSP Real Estate, the developer, for financial assistance through Tax Increment Financing (TIF) to fund portion of the eligible costs related to the construction of an approximate 80-unit mixed income affordable housing project as shown on the map below. The project will include 1, 2 and 3-bedroom housing units within 2 buildings that are dedicated for both families and seniors within each respective building. The income levels of the units will be a mix of 30%, 50%, 60% and market rate levels. The land use has been approved by the Common Council and the full Planned Unit Development packet can be found here: <http://wauwatosacitywi.iqm2.com/Citizens/FileOpen.aspx?Type=1&ID=3910&Inline=True>
The developer has requested $2,275,909 of financial assistance through tax increment financing (TIF) from the City. City assistance would be the final source of funding required for the project to proceed. The other funding sources include Wisconsin Housing and Economic Development Authority tax credits, Federal Home Loan Bank Affordable Housing Program grant, Developer equity and a Milwaukee County Affordable Housing grant.
Staff will share in closed session more details on the terms of the TIF assistance which is currently under negotiation. The purpose of this open session memo is to discuss the impact of the proposal on the TIF District including infrastructure necessary to facilitate the development.
The table below describes the current financial status of Tax Increment District 7. The District was established in 2013 with a 27 year life that will expire in 2040. It had a base value of $20.1 million when it was created and over the past 10 years, that value has increased 878% (City average of 380%) to $183.7 million. At 2.03% of the City’s total equalized value, TIF 7 is the most successful of the City’s current districts in that measure. For every dollar invested to date, $4.57 of property value has been created compared to a current average of 4.63. The only negative indicator is that as of the end of 2022, the District had a negative cash balance of $279,288. The City purposely drew down cash to avoid additional borrowing for the demolition of the Schoeneck warehouse and internal road construction knowing that the District has an annual average positive surplus of approximately $400,000.
The MSP proposal requires $2,275,909 in tax incremental financing assistance due to the number of affordable units (56 of 80) and the level of affordability (30-80% of median income). In addition, the following expenses are required for the development:
an estimated $1,109,000 is required to relocate public utilities that will be privately owned but eventually dedicated to the City. (see attached)
architectural and design fees totaling $114,298 incurred to date for master plan design work (see attached)
$288,000 in incentives provided to the developer as part of a prior agreement for unfunded phase II utility and public amenities incurred (see attached development agreement - section 10)
$82,344 for procurement equity and inclusion monitoring
$16,300 for construction inspection and monitoring
$20,000 for financial analysis consulting support
Working with a financial consultant, staff modeled the impact of these costs on the life of the Tax Increment District assuming the MSP project creates $7,200,000 in additional incremental value and the full TIF request is funded. Under these assumptions:
The Debt Coverage Ratio dips to a low of 1.28 in 2024 but grows steadily thereafter, averaging 9.1 over the remaining life of the District. City policy requires a ratio of 1.25.
The cash balance remains negative until 2024 and then grows steadily. It would reach $36.5 million by 2040 assuming no additional development or liabilities. This is a hypothetical scenario. The District would either use those funds for additional project expenses, public improvements (such as a pedestrian/bike crossing over the railroad tracks to Currie Park) or close the District early.
Based on this analysis, the Tax Increment District can support the expenditures necessary for the MSP development.
C. Fiscal Impact
The proposed expenditures would utilize existing Tax Increment District 7 funds and would have no impact on the General Fund.
D. Recommendation
Assuming approval of the proposed term sheet by both the City and MSP Real Estate, staff recommend that the Committee authorize the following expenditures:
1. $2,275,909 to be disbursed per the final approved term sheet to MSP Real Estate for extraordinary expenses associated with providing affordable housing.
2. Up to $1,200,000 in Tax Increment District 7 funds for the relocation of utilities necessary for the MSP Real Estate project
3. Reimburse Citadel Property Advisors (formerly HSA) for architectural and design expenses totaling $114,298 incurred to date for master plan design work
4. Pay Citadel Property Advisors $288,000 in incentives provided to the developer as part of a prior agreement for unfunded phase II utility and public amenities incurred.
5. Pay up to $16,300 to Mannedge Consulting for an assumed 18 months of construction inspection and budget to actual construction analysis.
6. Pay up to $20,000 to Baker Tilly for consulting support in the analysis of this TIF request and its impact on Tax Increment District 7.
Staff recommend a level three fund transfer be approved to amend the Tax Increment District 7 2023 budget for these expenses as appropriate.
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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.