Archive for the ‘Wisconsin’ Category

The Edgewater: The debate that just won’t die

Wednesday, January 18th, 2012

The Edgewater: The debate that just won’t die

SHAWN DOHERTY | The Capital Times | sdoherty@madison.com | Posted: Wednesday, October 19, 2011 8:30 am

One fall day in 2008 Bob Dunn met with Madison City Council President Tim Bruer to talk about his plan to fix up the Edgewater hotel, a faded old beauty on the shores of Lake Mendota. Dunn’s folks got married there, but his interest in the place is not wholly sentimental. He works for the Hammes Co., a multibillion dollar development company that primarily builds health care facilities, but has also done work on major sports stadiums, including Lambeau Field in Green Bay.

Dunn had been meeting with Mayor Dave Cieslewicz to lay the groundwork for an $80 million (now estimated at $98 million) renovation of the Edgewater, so he told Bruer he figured he could move the project through the necessary hoops quickly and start construction on it within a few months.

Bruer chuckled. He wasn’t about to let some hot shot developer tell him how to play in his own sandbox. “Your dog has fleas and it won’t hunt,” he recalls telling Dunn, whom he now knows well enough to call Bobby. (He also said something about the project sinking faster than the Titanic, he says.) “You might be great at building mega stadiums and health clinics but you don’t know anything about local politics.”

Bruer was right, Dunn says now. Just getting the project approved has been an arduous haul involving several major design changes and dozens of meetings in front of various commissions, committees and councils. Complaining neighbors and gadfly critics have been ever-present. And it’s not over. Recently re-elected Mayor Paul Soglin’s proposed budget slashes city tax incremental financing for the project to $3.3 million from $16 million, which means that City Council members will need to wade back into the controversy if they want to restore it during upcoming budget deliberations.

It’s like a horror movie character that just won’t die. “I didn’t sign up for this,” groans rookie Ald. Lisa Subeck.

So why won’t the Edgewater stop haunting us?

I like Landmarks Commission Chairman Stu Levitan’s answer the best: “Because it hasn’t been built yet.” Hard to argue with that.

But this is Madison, where we like to ponder our development projects, so I’ll dig into the city’s psyche. Lots of interesting theories there about how the hotel represents aspects of our past that we don’t want to let go of. The original 1948 structure is one of the city’s most beloved landmarks, except for its unfortunate 1970s addition, which like so much else built in Madison during that decade is downright ugly. Bob Dylan, Elvis Presley and Elton John hung out at the Rigadoon Room and big bands played on the roof as the sun set.

Little people were welcome, too. Ald. Mark Clear still remembers the times his dad would dock the boat at the pier and buy him a soda. It was the pinnacle of excitement for a kid back then, he says.

Many of us have such fond memories of the place, which might explain why so many of us are so emotional about it. Also, it has become a harbinger of the direction of development in Madison, where we have been experiencing a sort of identity crisis. People like former Mayor Cieslewicz argue that our stodgy city needs to get over what he calls its “fear of heights” and literally grow up with bigger, taller buildings. Others like Levitan argue that we need to preserve the lovely old buildings and character that make Madison Madison.You can also point to a perfect storm of political factors that have made this debate so contentious, including big-money backing, an ambitious former mayor, and the resistance of a strangely effective rag-tag group of opponents that now has critical support from the current mayor.

A trove of city documents including lobbying records kept by the city clerk and a box stuffed with notes handwritten by Cieslewicz aide Mario Mendoza offer a new look at some of the dynamics and the behind-the-scenes maneuvering that led to this deal. (Mayor Paul Soglin’s office allowed me to look through the box after I started asking about Edgewater’s unusual tax incremental financing arrangement.)

Interviews with more than two dozen key players in this drama complete a picture of a mayor and an administration that — far earlier than most people knew — formed an alliance with the developer to push this project through, and in some cases around, the city’s approval processes.

“To have such involvement was unusual,” concedes Clear, an early supporter of the project. “You think gosh, it’s just a hotel.

But it took on a life and personality of its own that came to be uniquely Madison. And as it took on that life, more and more people spent more and more time and energy on it. It became this giant vortex.”

It was a vortex that spit Cieslewicz out and sucked Soglin in. Many election observers say it was neighborhood opposition to the Edgewater deal that caused Cieslewicz to lose ground in vote-rich downtown wards nearest the hotel, leading to his narrow defeat in April.

Dunn says, however, that Cieslewicz should have been even more “involved” in the fight. He certainly seemed plenty involved to me. The internal memos detail conversations the mayor and his aide Mendoza had with Dunn, project coordinator Amy Supple, Dunn’s sister Sarah Carpenter and other Hammes representatives about how to navigate flak the project was encountering from neighborhood opponents.

They show the mayor meeting one day with chief critic Fred Mohs, who warned that there would be a “heck of a fight,” while meeting another day with the developer to discuss creating an alternative neighborhood group more sympathetic to the project. They depict efforts to get city staff to help build a case for the project and strategies for wooing alders for excruciatingly close votes. The mayor’s office kept a running tally on score sheets of where alders stood on the various issues and whether they were “yes” or “no” votes.

In many ways, in fact, this battle resembled a political campaign more than a local development matter. Landmark X, the limited liability company Dunn set up to oversee the hotel project, spent $331,000 on lobbying in 2009, 2010 and the first half of this year — an “eyebrow raising amount,” says Mike McCabe of the Wisconsin Democracy Campaign, which tracks the influence of money in state politics.

City affairs blogger and former Ald. Brenda Konkel says the most she can remember being spent on lobbying for a single project before is $100,000 on the Hilldale Shopping Center. “A lot of people are under the impression that Madison is good, clean government and that money doesn’t impact decisions here. But clearly if you have one side that can spend millions of dollars against another side that is just regular old citizens, they will get drowned out,” Konkel says.

Dunn, however, says he considers the hundreds of meetings and phone conversations with city officials and staff documented in these records “project development,” not lobbying.

Then, when Paul Soglin took office in mid-April, the lobbying stopped. The reports show nothing but white space. As the big bucks lobbying halted, though, a band of regular critics dubbed “frequent fliers” by alders for their relentless appearances at council meetings got a second wind. The best known of the bunch is Fred Mohs, the wealthy local developer noted for his dapper suits and for trotting around with an enormous architect’s model he had made of the project for $17,000. Mohs has spent $100,000 on a lawsuit that is holding the project up in the courts right now, and he has fought the renovation ferociously
from the start.

In September 2008, he invited Bruer to his mansion on the hill for a little lamb chop lobbying. His wife, Mary’s, day book lists the menu: “toast points with cream cheese and tomatoes, lamb chops, fresh asparagus, and parsley buttered potatoes and peach sundaes.” Mohs recalls that Bruer was about an hour late, stayed for three hours, and ate four lamb chops. He alsorecalls that Bruer told him that Mayor Cieslewicz had promised the Edgewater would be fast-tracked, avoiding the necessity of approvals from several city commissions and committees. (Cieslewicz strongly denies this.)

Edgewater backers including Clear and Bruer like to portray the battle as what they call the “Bob and Fred Show,” the clash of two very different but very stubborn developers, one old school and the other young and brash.

But others have been fighting the project hard, too.

A handful of them regularly meets at the east side home of local historian Dave Mollenhoff and his real estate agent wife, Leigh, or at cafés to share the latest documents they have dug up. They have been firing off missives to alders trying to get them to oppose what Mollenhoff calls a “sweetheart deal.”

One of the latest missives from Mollenhoff is called the Edgewater’s “list of shame.” Phil Ball, an aide to Soglin decades ago and a Vietnam vet, spends hours on the phone trying to prod reporters into covering various aspects of the deal because he is outraged by its use of public tax dollars that he feels should be going to the public schools instead. Peter Ostlind, a preservationist, and Susanne Voeltz, a downtown public relations consultant have spent hours fighting the plan.

And then there is Ledell Zellers, a Mansion Hill neighbor and preservationist; Paul Reilly, a former city comptroller; and John Jacobs, a state worker who sneaks downstairs to pore over city records while his wife is sleeping. John Martens, who served on the Madison Zoning Board of Appeals, is an architect who got involved after he scrutinized the renderings of the project

given to the public. He took a tape measure and went to the Edgewater and discovered, he says, that the much “ballyhooed public access” grand staircase being depicted in the drawings was twice as wide as it actually would be when built.

And of course now there is Soglin, whose early support for the project soured once he learned more about the way it was awarded $16 million in tax incremental financing (TIF), an extraordinarily high allocation that required several exceptions to usual city policy. Under TIF, cities lend money for developments and then recoup the loan over time with increased property tax payments generated by the improvements.

Shortly after becoming mayor, Soglin met with staff to ask them about the Edgewater. “It was even worse than I thought,” he told me during a recent interview. “I was distressed because the staff had been directed to arrive at a conclusion. They were directed to devise a city TIF project that provided the developer the necessary $16 million because Bob Dunn walked into this office and said ‘I want $16 million.’ That is unprecedented.” (Dunn confirms that he told the city he needed $16.8 million to make the project work right from the start.)

When he was mayor in previous years, staff called the shots, Soglin said, not the developer, and that’s how he intends the process to work again. “We’re going back to the old ways of doing things around here,” he says.

It’s clear from Mendoza’s handwritten memos that Dunn focused his attention on the mayor’s office. Reading the first of those notes, from July 30, 2008, it was clear to everybody that the project had the potential to be big at this first meeting with the mayor.

Mendoza writes Bob Dunn’s name and then the word “destination” on his stationery, with notes that the hotel project would cost $80 million to $85 million and that Hammes has $4.5 billion to $5.5 billion in current projects. Also noted is the developer’s plan to increase the 107 rooms at the hotel to 200 and to nearly double parking stalls owned by neighboring

National Guardian Life. (That company, by the way, also stands to profit from the Edgewater renovation, since it owns a third of the hotel and will be paid several million dollars for that share and a portion of land needed for the expansion.)

By the time plans for the Edgewater publicly debuted on the front page of the Wisconsin State Journal on June 28, 2009, as “a new city living room,” Dunn and the mayor had already joined forces. The mayor met the developers at least 10 times in 2009, according to lobbying records (none were filed for 2008 despite Mendoza’s notes showing contacts had been made), and Mendoza talked with them on at least nine occasions. The records also note many other meetings the developer had with council members or city staff.

Several sources who asked not to be identified told me that as the process unfolded, great pressure was put on members of city commissions and committees, on alders, and on city staff to get the project moving. Ald. Mike Verveer even claims tohave seen staff “bullied” into bending rules for the project. “And when I say bullied I mean in an insulting way told by political staff in city hall that the professional staff needed to interpret ordinances in particular ways and policies in particular ways and to grease the wheels for this proposal,” he says. “Many city staff and alders have battle scars from Edgewater. In my 16 years I’ve never seen anything like it.”

One of those battle-scarred employees describes getting calls from the mayor’s office, from alders, and from angry neighbors and opponents of the project. “It was just chaos. It was like having 15 chefs in the kitchen throwing crap in the pot and it tasted like crap,” this person recalls.

The degree to which the mayor and Mendoza were involved at the front end of working on the Edgewater with the developer was unusual, according to Brad Murphy, who was and remains head of the city’s planning department. “The more active involvement of the developer working directly through the mayor’s office and meeting with the mayor was just very different,” he said. “Most of the projects’ developers work through the agencies that are reviewing the project.”

Murphy says there was no “directive” from the mayor to do anything in particular on the project, but adds that “we certainly knew the mayor was supportive of the project and wanted to see the project get to the point where it was approved.”

Cieslewicz defends his active role in pushing the project forward and his close work with the Edgewater developers, saying the project was “beautiful” and that the city desperately needs to create more jobs and pump up its tax base.

“So I was strategizing with other supporters of the project. How does that make me a bad guy? The mayor is not a judge. He is not supposed to be unbiased. Why is it wrong for a leader to take a strong position? I did do everything I could to make the project happen. That is what leaders are supposed to do.”

Leadership also means getting staff to back his decision, Cieslewicz says. “Compared to the way Paul pushes people around,” he says, “I’m little Orphan Annie.”

The mayor’s office fought side by side with the developer for the project right up until the last moment. On the Friday before the City Council’s pivotal vote on May 19, 2010, Mendoza hired two consulting firms for $5,000 each to quickly put together reports for the Tuesday council meeting. The report by Hunden Strategic Partners sent to alders concludes: “The project is very worthy and it will add to the destination appeal of downtown Madison.”

Meanwhile, emails from alders right before the vote made it clear they were overwhelmed and confused and depending on staff for guidance. One sent a Blackberry phone message to Comptroller Dean Brasser asking for financial information: “Boy there is nothing simple about this one, eh?” the message asks. “You are correct,” Brasser replies, sending the alder details about the TIF request. “It is anything but simple.”

More than a year later, it still is anything but simple. About the only thing that is certain is that the key players in this drama do not intend to back down. Dunn says he has already invested millions of dollars into the project, that he has never walked away from a deal before or given up such a battle before, and he does not intend to now.

“I have just one focus,” he says, thumping the table with his hand for emphasis.

“I don’t spend my time worrying about b — — – like lawsuits. We will see this problem through to a conclusion.”

Mohs says he will continue to fight the project in the courts as well. And Soglin says he is determined to hold his ground, too.

“I’m not popular with this decision but it’s the right decision,” he says. “I was not elected to this office to be a potted palm.”

His old friend Levitan predicts Soglin will veto the entire budget if council members defy him and restore the TIF funds.

“Let’s put it this way,” Levitan says. “If there is a $16 million TIF in the 2012 budget for Edgewater we should just put out an all-points bulletin because we will have a mayor missing in action.”

One thing that might chase this monster away is an even bigger development battle, and one appears to be brewing. Several people predict that the $10 million plan by Jerry Frautschi and Pleasant Rowland to redo a stretch of State Street might end upan even more emotional and complicated mess. It also involves the ambitions of big players in town, big bucks, big preservation issues, and a debate about what we want the heart and soul of our city to be.

Ald. Larry Palm says he is ready, even if his colleagues are not.

“Sometimes I wonder if my fellow council members realize they are politicians,” he told me recently. “They want to think that they are just good citizens of Madison helping out. No, this is politics.”

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Monona Terrace backers say Madison needs bigger hotel to play in big leagues

Wednesday, January 18th, 2012

Monona Terrace backers say Madison needs bigger hotel to play in big leagues

MIKE IVEY | The Capital Times | mivey@madison.com | Posted: Wednesday, July 13, 2011 5:00 am

When Acres USA was planning its 2012 national conference, the Austin, Texas-based sustainable agriculture group took a good look at Madison.

On many levels it seemed like a perfect fit. The conference is billed as the nation’s premier showcase for commercial-scale sustainable and organic agriculture, regularly drawing some 1,500 attendees.

Held each December as farmers are planning the upcoming season, the event covers all facets of eco-agriculture, from crops and weed control to livestock management. More than 100 suppliers display the latest technology designed to produce profits without harming the environment.

But when Acres USA saw the limited number of hotel rooms attached to the Monona Terrace Community and Convention Center, it stopped right there.

“If the space on paper doesn’t look doable, we don’t bother making a site visit,” says Kathy Walters, events planner for Acres USA.

Wisconsin’s climate alone wasn’t the stumbling block — it was the layout of available hotel space. “That time of year you certainly don’t want people spread all over town,” says Walters.

Indeed, the 2011 Acres USA conference is in Columbus, Ohio, and the 2012 event is scheduled for Louisville, Ky. Neither would qualify as a warm weather destination.

Therein lies one of the major obstacles to turning Monona Terrace into the economic engine many envisioned when the $67.5 million city-owned center opened in 1997.

While the Frank Lloyd Wright-inspired facility has certainly lured events to Wisconsin’s capital city, analysts say the lack of attached hotel space continues to hinder its ability to land the major events that fill public coffers, not to mention bars, shops and restaurants. The fact that Madison will soon feel the impact of a 10 percent pay cut for most public employees has only heightened concerns about dwindling entertainment sales downtown.

A 2008 consultant’s report estimated Madison has lost some $50 million in convention business over the past decade and will continue to bleed business to places like Milwaukee, Des Moines and Wisconsin Dells that can offer a large block of rooms attached to meeting space.

But three years after that report, the city seems little closer to getting a high-rise hotel to offer the number of rooms needed for groups of 2,000 or more, the size that can generate significant sales revenue and taxes.

A combination of the weak economy and mixed signals from City Hall has made it unlikely any new hotel will rise in the short term. There are doubts whether financial assistance for another hotel will pass political muster, given the failure of the city-backed Hilton Madison Monona Terrace to meet ambitious tax revenue projections. And existing hotel owners question the need for more rooms, given the city’s low occupancy rate.

Even the much-publicized Edgewater hotel redevelopment, a project that would compete with Monona Terrace as much ashelp it, is facing continuing hurdles, not the least of which is financing.

“If somebody wanted to do a $10 million Hampton Inn in Madison today they could probably still get it financed,” says Bruce Lowrey, a national hotel analyst with Rockbridge Equity. “But a $100 million project in this lending environment?

You’d need to bring $40 million to the table just to get the discussion going.”

• • • •

Deb Archer, head of the Greater Madison Visitors and Convention Bureau, is among those eagerly awaiting more hotel rooms. She says the longer the city goes without adequate space for large events, the more business will go elsewhere. The visitors bureau did land a 1,200-attendee event for the U.S. Fish and Wildlife Service this week at Monona Terrace. But there have been as many misses as hits.

In addition to Acres USA, which the bureau estimated would have had a $1.06 million economic impact, the city recently lost out on hosting the annual conference of the American Speech-Language-Hearing Association. That event, with an estimated spending impact of $819,000, ended up in Milwaukee at the Midwest Airlines Center, which boasts more than 1,200 attached hotel rooms.

“We had everything in line but lost out and the hotel issue was a big piece of it,” says Archer.

The room issue was central to the 2008 Hunden Strategic Partners report, a $40,000 analysis that urged Madison to move as quickly as possible to get a new hotel constructed. The Madison Hilton at 9 E. Wilson does connect to Monona Terrace via a walkway but at 240 rooms is considered too small for larger events. There are another 500 rooms within four blocks of the convention center, including at the Inn on the Park and Concourse Hotel, but many event planners are leery of asking attendees to walk very far, especially in cold weather.

“Monona Terrace is a compelling architectural gem and provides excellent water views,” the Hunden report notes. “However, due to limited hotel options, its business cannot grow substantially unless the hotel room supply in Madison can accommodate additional room night bookings. Until the recommended hotel is developed nearby, the center will likely stagnate or decline in performance.”

The latest numbers do suggest that Monona Terrace’s performance has plateaued although it’s difficult to determine whether the recession is more to blame than a lack of hotel space.

Monona Terrace generated $3.9 million in event revenue in 2010, according to the latest figures from the city. That’s up from 2009 but down from the two years prior.

Bill Zeinemann, director of marketing at Monona Terrace, also notes that hotel room taxes of 9 percent rebounded slightly last year, to $8.3 million in revenue for the city, after dropping from a record high of $8.7 million in 2008.

That’s a bit of good news considering the city annually pours $5.4 million of that revenue back into Monona Terrace for operations and debt service. The subsidy is justified by the estimated $37 million in economic impact the center generated last year, according to the Baker Tilly accounting firm, although that’s well below the $53 million impact touted in a 2005 analysis.

But even with the room tax and Monona Terrace numbers rebounding slightly, the city is not in a position to help support a new convention center hotel in the near term, warns City Council President Lauren Cnare.

“I can’t imagine any way that could happen given what we’re working with,” she says.

Cnare says a new hotel is one of those projects that sounds good but simply isn’t in the cards given the tight budget. She says an anticipated drop in funding from the state is only exacerbating the situation.

“At this point, we’ll just have to try and maximize what we’ve got (in terms of hotel space) and move on from there,” she says.The opening last year of Hyatt Place at 333 W. Washington Avenue did add 151 more rooms to the downtown supply, although that hotel is outside the 1,200 foot distance event planners consider close enough for convention attendees.

Still, Archer says those additional rooms did help convince the Congress for the New Urbanism to bring its national conference here in June.

“They were interested in coming here right after Monona Terrace first opened but we didn’t have enough hotel space at that time,” she noted.

• • • •

Just two years ago, the city seemed awash in downtown hotel proposals.

Then-Mayor Dave Cieslewicz, in a July 2009 blog post, talked about having a “nice problem” of four major hotel projects in the works even in the middle of a recession: the $107 million redevelopment of the Edgewater; a $46 million proposal from the Fiore Cos. for a hotel and new library on West Washington Avenue; plans from Apex Property Management for a $100 million, 300-room mixed-use project on Wilson Street; and the Marcus Corp.’s idea of using the Madison Municipal Building to anchor a second convention center hotel downtown.

To date, none have materialized.

The Edgewater, a project being helped with $16 million in public financing, remains tied up in a court battle with project opponents. But downtown  Ald. Bridget Maniaci is confident the lawsuit, which is now before the state Court of Appeals, will be dismissed and the project will move forward.

“It’s absolutely still on track,” she says.

Edgewater developer Bob Dunn of the Hammes Corp. has maintained from the beginning that financing is not a problem. To that end, the developer is pursuing $4 million in federal new market tax credits, an application that hinges on the area being considered “low income” because of the large number of students.

Fiore failed to reach an agreement with the city over its library plan and appears out of the picture. Apex backed off, its president says, because of a lack of support from the mayor’s office.

“I think (Cieslewicz) hitched his wagon to Edgewater because it seemed like the lowest hanging fruit at the time,” says Bruce Bosben of Apex. “But if he’d had any experience in business he’d have realized that spending $100 million for a 100-room hotel was going to be problematic.”

Bosben says he’s still interested in pursuing a hotel on the 300 block of West Wilson Street on property his firm owns. The site is just two blocks from Monona Terrace, well within the distance identified by Hunden as close enough to serve a convention center.

“If the mayor wants to talk to me, I’d be happy to listen,” he says.

But Mayor Paul Soglin — who had worked as a consultant for Apex on its hotel before defeating Cieslewicz in the April election — appears to have his sights set on the Madison Municipal Building block and the block across the street that includes the 53-year old Government East parking ramp, which needs replacing.

On Monday, the city Board of Estimates approved spending $388,000 to hire Kimley-Horn & Associates to begin more detailed planning for the two blocks now being referred to as “Judge James E. Doyle Square” in honor of the father of former Gov. Jim Doyle. Most of that money will come from a federal “TIGER” transportation grant that was to have helped in planning for a train station to serve the now-shelved Amtrak connection to Milwaukee.

In an interview last week, Soglin says he is pushing forward to get a new convention center hotel built, acknowledging that generating more revenue at Monona Terrace is a top priority for the city. “Our objective is to get a second hotel on that site as soon as possible,” he says.Last year, the city Planning Department proposed $9 million in public financing for a Monona Terrace hotel in its 2011 budget request but that request was nixed by Cieslewicz.

While Soglin is short on details, he says the 2012 capital budget may include a proposal for tax increment financing or other help for a private developer. “I’ll be able to tell you more in another 30 or 45 days,” he says.

Tentative plans call for using the Madison Municipal Building, a historic landmark, as the lobby and ballroom space for a hotel. The vacant lot behind the building would be used for underground parking, with a hotel tower constructed on top.

The aging city-owned Government East parking ramp would be razed for a new office building. Some of that space could house city offices currently located in the municipal building.

One thing missing from the plan is a public market, which Cieslewicz had envisioned as part of any new parking structure.

But Soglin says adding a public market there “only complicates the project.”

• • • •

For its part, the Milwaukee-based Marcus Corp. maintains it’s still interested in moving forward, even though it hasn’t submitted a formal plan to the city and there are no project timelines.

“We’ve danced with Marcus for many years on this and the recession got in the way but they are seemingly serious again,” says downtown Ald. Mike Verveer.

Most significantly, Marcus enjoys the right of first refusal for buying the Madison Municipal Building site, a deal that dates to its 1999 agreement with the city and then-Mayor Sue Bauman to build the Hilton. Basically, the property cannot be sold to another developer unless Marcus signs off, an ironclad arrangement that could preclude another developer from getting involved.

“We see the potential this project has to take two aging blocks of prime real estate and turn them into an attractive, pedestrian friendly center that not only preserves the historic municipal building, but also leverages the city’s investment in the convention center, which we hope will help to attract more convention and meeting business,” says David Merritt, senior vice president of development with Marcus Hotels & Resorts.

Marcus is now teaming with Urban Land Interests, the Madison-based real estate firm that successfully redeveloped a neighboring block on the Capitol Square into office and commercial space.

Urban Land Interests President Brad Binkowski says his firm is in the early stages of designing some 1,400 parking spaces that could replace Government East and provide parking for both a hotel and office building. The plan includes a big dig to put a five-level parking deck underneath Pinckney Street. At $30,000 per space, a parking facility of that size would approach a cost of $40 million.

Any project of that magnitude would require both city involvement and a private partner developer with deep enough pockets to make it all happen.

“It’s no secret it’s a tough market out there for financing,” says Binkowski. “But we were able to develop during a time when people thought we couldn’t. Those with some financial capacity and experience can still get things done.”

At the same time, investors looking to get into the hotel market today could simply buy a distressed property out of foreclosure.

“The worst part of it now is that no lender wants to take a risk,” says Bosben. “If you really wanted to invest in a hotel property it might make more sense just to buy something already out there for 40 cents on the dollar.”

And there is also the issue of whether the local hotel market can absorb another 400 rooms.

Steve Zanoni, general manager of the 356-room Concourse, the city’s largest hotel, opposed a city subsidy for the Edgewaterand is equally skeptical about the need to support a high rise on the opposite side of the Square from the Concourse.

“Monona Terrace is a beautiful facility and has been very successful,” he says. “But the problem is that cities are so overbuilt on convention centers right now they are having to buy business by giving away space. I’m not sure Madison is in a position to compete like that.”

Indeed. Madison’s hotel occupancy rate hovers around 57 percent, down from 62 percent in 2006, according to the latest figures from Smith Travel Research, the nation’s leading travel research firm. The national occupancy rate stood at 57.7 percent as of May 2011, down from 63.1 percent in 2006.

Madison’s average daily room rate is also stuck at $85 per night, down from $91 in 2008. Those are the key figures lenders consider closely when deciding whether to loan money for a new hotel project. The national average room rate is $100.

Jeff Higley of HotelNewsNow.com, an industry trade publication, says things are thawing on the lending side although it might take another 18 months to see much building activity.

“I think lenders are feeling more comfortable about hotel projects as the industry’s fundamentals continue to rebound from the recession,” he says. “Average daily rates are beginning to reflect strong demand. That’s driving a rise in net operating income, which is a key metric lenders use when making decisions about loans.”

Still, any private developer looking at a hotel to serve Monona Terrace would certainly demand some kind of city subsidy whether for parking, land or bricks and mortar. That could prove a tough sell given the contentious debate over tax increment financing for Edgewater and the failure of the Marcus-owned Hilton to meet city tax revenue projections.

In 1999, Marcus received $10.9 million in TIF to build the parking structure for the hotel. The city also put in an additional $1.7 million for the skywalk that connects the hotel and the convention center.

That level of support was based on projections the hotel would generate $682,476 in property tax revenues by 2009. Last year, however, it paid just $417,646 as its assessed value fell from $20.4 million to $18.8 million.

All told, the Hilton has paid $4.2 million in property taxes over its lifespan, barely a third of what it received in TIF.

“That’s the problem when you get all these rosy predictions,” says former City Council member Jed Sanborn, long known as a budget hawk. “I’m afraid the council never sees TIF as real money, but it’s like any other spending. As with so much of what government does these days, it just starts to take on a life of its own.”

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EDITORIAL: Keep open mind on Downtown Madison hotel (The Wisconsin State Journal)

Monday, May 11th, 2009

The Wisconsin State JournalMcClatchy-Tribune Regional NewsMar. 26–Given the challenging economy, it might seem like an odd time to be talking about building a major hotel in Downtown Madison.

But the need is real and the potential rewards are great for the city and region.

City officials should keep talking with the potential developer to try to reach a tentative deal that’s good for everybody. Any pitch for a public subsidy deserves scrutiny yet shouldn’t be dismissed out of hand.

Monona Terrace, the city’s Frank Lloyd Wright-inspired convention and community center on Lake Monona, needs more hotel rooms within a couple blocks to attract bigger conventions. A study by Hunden Strategic Partners of Chicago suggests Monona Terrace could pull in more than 100 additional events and millions more in revenue if it had a few hundred more rooms to accommodate larger groups.

After the Marcus Corp. of Milwaukee built the 14-story, 236-room Hilton Madison next to Monona Terrace in 2001, the number of conventions doubled. But the city never considered the single hotel sufficient. And now convention business has leveled off.

So the city is negotiating with Marcus to build a 320-room hotel, likely connected to the convention center by skyway or tunnel. Marcus would restore and convert the historic Madison Municipal Building into a hotel with a tower for guest rooms behind it. The tower would sit on a new parking facility with spots for the city and hotel guests.

The 450-space Government East parking garage across the street would then be demolished to make way for a multi-use project including three floors of city office space.

The outline for the project is intriguing and worth consideration. But any amount of public investment will have to be balanced against competing needs elsewhere in the city.

Downtown Ald. Mike Verveer says he’s keeping an open mind. So should other city officials and taxpayers.

More convention business would help Downtown Madison stay vibrant — something everyone in the region should want. A healthy and fun business climate Downtown can help lure top employers and good-paying jobs while deterring crime and boosting city revenue from its hotel tax.

A lot of questions remain, but so does a big opportunity.

Madison should try to move this exciting project forward in a cost-effective way.

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Madison, Marcus Corp. intensify talks on hotel to serve Monona Terrace

Tuesday, March 24th, 2009

From Madison.com

Madison, Marcus Corp. intensify
talks on hotel to serve Monona
Terrace

By DEAN MOSIMAN
608-252-6141
March 23, 2009

City officials are speeding up negotiations with a developer on a major hotel to serve Monona Terrace — a controversial and costly proposal that would use the landmark Madison Municipal Building.

The hotel would be the centerpiece of a complicated redevelopment over two blocks that would add perhaps 320 hotel rooms, likely connect them to the convention center by skyway or tunnel, restore the Municipal Building, provide new parking facilities and deliver a separate mixed-use project with new city office space.

“We’re communicating on a weekly basis, sometimes more frequently,” Mario Mendoza, aide to Mayor Dave Cieslewicz, said of talks with Marcus Corp. “There’s a lot to be excited about, but we’re not there yet. We don’t know for sure that a deal is a go.”

While some in the hotel industry oppose any city subsidy toward another private hotel, a new study says a hotel close to Monona Terrace is vital to ensuring its long-term success.

“If another hotel isn’t built, we’re concerned about falling further behind our competition,” Monona Terrace Director Jim Hess said. “It’s critical for the future of Monona Terrace and Downtown Madison.”

Marcus, based in Milwaukee, opened the 14-story, 236-room Hilton Madison at 9 E. Wilson St. next to Monona Terrace in 2001 and has first option to build across the street in a parking lot behind the Municipal Building or the adjacent Government East parking garage site. But that hotel has never been viewed as big enough to consistently draw large conventions to Monona Terrace.

‘A complicated deal’

Marcus officials could not be reached to comment for this story but have confirmed the company’s interest in a new Downtown hotel project. Mendoza said the biggest challenges are financing and figuring out how the city and hotel would share a parking garage. The hotel and parking portions of the project alone are worth an estimated $78 million; the city hasn’t estimated the value of the mixed-use project across the street.It’s not clear if or how the city might help Marcus make a project economically viable, Mendoza said.

The city could reduce the cost of the property, appraised at $11.7 million, or use tax incremental financing (TIF) to help with the parking garage or skywalk.

“It is a very complicated deal,” Mendoza said, adding that the sides should know if a project is feasible in the next few weeks.

If the city and Marcus can’t make a deal, the city would likely move ahead with planned improvements for the Municipal Building, keeping it for city employees, and build a municipal parking garage behind it.

If a deal is struck, the redevelopment could start in 18 months to two years, Mendoza said.

Losing business?
City officials and others in the business community contend the $67 million convention center, based on a Frank Lloyd Wright design and opened in 1997, is losing business because it can’t offer enough hotel rooms nearby.

A new study by Hunden Strategic Partners of Chicago and funded with $40,000 in room tax money supports that view.

The study said Madison’s current hotels don’t meet the needs of convention planners or match what they can get from competitors. Just two hotels — the Hilton and Best Western Inn on the Park — are within the industry standard of 1,200 feet of the convention center, it said. The number of conventions at Monona Terrace doubled after the Hilton opened in 2001 but have stagnated at about 70 per year, Hess said. The new study estimates that since 2001, the city lost 81,000 attendees with an economic impact of $50 million due insufficient hotel space near Monona Terrace.

Hunden recommended a 400-room hotel, which it estimated would result in 117 more events at Monona Terrace, 200,000 more attendees, $8.2 million more in net revenues, and $4.6 million more in room taxes between 2012 and 2016. Site constraints forced negotiators to scale that back, but the impact is still likely to be significant, backers say.

“It’s been one of our key issues,” said Deb Archer of the Greater Madison Visitors and Convention Bureau, which supports a new hotel but is neutral on the question of a public subsidy.

Public money questioned
Marcus was able to secure public financing for the existing $31.2 million Hilton — a move that was controversial then for the same reason the new proposal is today. Marcus got $9.5 million in TIF support and $1 million for a pedestrian bridge between the hotel and convention center. Stephen Zanoni, general manager of The Concourse, 1 W. Dayton St., the city’s biggest hotel with 356 rooms, said he worries a city subsidy through land or TIF would unfairly draw customers from existing facilities.

“We’re not against the hotel being built. We are against the city subsidizing it,” Zanoni said, noting that the Concourse recently made $3.5 million in renovations.

Ald. Mike Verveer, 4th District, who represents the core Downtown, said he supports the concept of a new hotel but has heard from operators who oppose a subsidy.

“I’m opened minded,” Verveer said of a subsidy. “I would hope it’s not necessary.”

City Council President Tim Bruer said that while the city may be reluctant to directly finance the hotel, there are parts of the development where the city and Marcus have a mutual interest that may merit subsidy.
This could be an invaluable spark plug,” Bruer said. “The city absolutely needs to completely explore every avenue.”

Possible phases for a new Downtown hotel:

  • Marcus Corp. would acquire the Madison Municipal Building block, appraised at $11.7 million.
  • The city would build a parking garage behind the Municipal Building. Early talks called for an 800-space ramp (600 for the city and 200 for the hotel), but negotiators may now be discussing something smaller.
  • The city would move employees from the Municipal Building to a temporary location.
  • Marcus would refurbish the Municipal Building, a neo-classical revival style building built in 1927 and on the National Register of Historic Places. Marcus would use it as the main hotel entrance and locate ballrooms, meeting space and perhaps some guest rooms there. A hotel tower would be built above the new parking garage and would likely be connected by skywalk to Monona Terrace.
  • The city would demolish the 450-space Government East parking garage across the street and build a multi-use project including three floors of city office space.

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