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Consideration for approval of a term sheet for tax incremental financing with Cream City Real Estate Investments LLC for a multi-family development at 2825/2835 N. Mayfair Road
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Submitted by:
Mark Hammond and John Ruggini
Department:
Development and Finance
A. Issue
Cream City Real Estate Investments LLC (the “Developer”) has submitted an application requesting Tax Incremental Financing (TIF) to support the development of Latitude 43, a 92-unit market-rate apartment building located at 2825/2835 N Mayfair Avenue. The project would be located within a to-be-created Tax Increment District No. 17 (TID 17).
B. Background/Options
Project Overview
The proposed development consists of a 92-unit market-rate apartment building at 2825/2835 N Mayfair Avenue. The project site currently comprises two parcels that will be combined prior to construction commencement. The development will include a mix of unit types designed to meet current market demands.
The Developer originally requested a construction loan from the City in the amount of $1,460,105 and a Municipal Revenue Obligation (MRO) Note in the principal amount of $2,900,000, repayable from 85% of the annually generated tax increment over a 15-year term. In lieu of incorporating affordable units within the project, the Developer has proposed making a $100,000 contribution to the City’s Affordable Housing Fund.
Current Market Conditions
The multifamily housing development market is currently facing significant headwinds that make projects like this particularly challenging to finance and execute. Rising construction costs, elevated interest rates, increased material expenses, and labor shortages have substantially impacted development feasibility across the region. These market conditions have resulted in the delay or cancellation of numerous residential projects throughout southeastern Wisconsin. The confluence of these factors has created a financing environment where even well-conceived projects in strong locations struggle to achieve financial feasibility without some form of public-private partnership.
Despite these challenges, market analysis indicates strong demand for quality rental housing in Wauwatosa, particularly in locations with good accessibility and amenities.
Financial Analysis
An independent financial feasibility analysis was conducted by Ehlers to evaluate the project’s economic viability and the appropriateness of the requested TIF assistance. Ehlers reviewed the project budget and pro forma based on industry standards under current market conditions, examining development costs, available funding sources, financial structure, underwritten financial assumptions, Developer contributions, rental rates, operating expenses, and projected cash flows.
Based on their review, Ehlers concluded that the Developer’s original request for financial assistance exceeded what is necessary for the project to be financially feasible. Ehlers recommends that financial assistance be structured only as an MRO Note in the principal amount of $2,850,000, to be repaid over a 16-year term from 80% of the annually generated tax increment, at an interest rate equal to the lesser of 5.50% or the Developer’s actual rate of financing on their permanent first mortgage.
Key findings from the Ehlers analysis include:
- The base value of the two parcels comprising the project site will be approximately $2,277,000, based on the equalized value as of January 1, 2026
- Upon completion and stabilization, the estimated market value of the project is $21,896,000
- The TID is projected to generate approximately $378,633 in annual tax increment upon completion and stabilization
- Total tax increment anticipated to be generated and paid to the Developer on a PAYGO basis is $4,677,474 over the term of the MRO Note
- With the recommended public assistance, the Developer is projected to achieve a 13.8% internal rate of return (IRR) at year 10, assuming a 6.00% capitalization rate; without assistance, the project would yield only a 9.1% IRR, which is below the market return necessary to attract the equity required for feasibility
- The Developer is projected to achieve a 9.5% average annual cash-on-cash return over the 16-year MRO Note term, which falls within the industry standard range of 9-11%
- The recommended TIF structure utilizing a Pay-As-You-Go (PAYGO) method is the preferred approach for municipal TIF incentives, as it shifts risk from the City onto the Developer
TID Creation
This project would require the creation of a new Tax Increment District, designated as TID 17. The TID would comprise the two parcels at 2825/2835 N Mayfair Avenue needed for redevelopment. The base value certification will be based on the equalized value as of January 1, 2026.
Affordable Housing Contribution
In lieu of incorporating affordable units within the project, the Developer has committed to making a one-time contribution of $100,000 to the City of Wauwatosa Affordable Housing Fund. This contribution will help the City advance its affordable housing objectives while allowing the project to maintain its market-rate financial structure necessary for feasibility.
Economic Impact
The project will generate significant property tax increment that will be available to support the development and contribute to the City’s tax base. Upon completion and stabilization, the development is projected to have a market value of approximately $21,896,000, representing a substantial increase over the current base value of $2,277,000.
C. Strategic Plan (Area of Focus)
This project aligns with multiple areas of the City’s Strategic Plan:
Economic Development: The project represents significant private investment in the community and contributes to the tax base while activating underutilized parcels along the N Mayfair Avenue corridor.
Housing: The development adds 92 market-rate housing units to the community’s housing stock, helping to address regional housing demand and providing quality rental options for residents who wish to live in Wauwatosa.
D. Fiscal Impact
To be discussed in closed session.
E. Recommendation
Staff recommends approval under the terms provided in the Ehlers analysis and sending this to the Common Council for consideration.
This recommendation is based on the following considerations:
• The project addresses a demonstrated market need for quality rental housing in a challenging development environment
• Independent financial analysis by Ehlers confirms the project’s viability and the appropriateness of the recommended assistance level
• The Ehlers analysis appropriately reduced the Developer’s original request to ensure public assistance does not generate excessive returns
• The affordable housing fund contribution of $100,000 advances important community objectives
• The project will generate significant new tax increment from a substantial increase in assessed value
• The PAYGO structure protects the City’s financial interests by ensuring payment only occurs as increment is actually generated
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.