Updates on Proposals for Don Miller Properties on E. Washington

Yesterday the Council was briefed on the proposals and all the “challenges” to policies that the projects will face.

I got to the meeting about 5 – 10 minutes late. Brad Murphy from the planning department was explaining all the planning that has gone into the East Washington Corridor (BUILD Plan, neighborhood plans, etc) and the history behind reconciling the various plans. He talked about the key recommendations in the E Washington Corridor BUILD plan, the design guidelines and the ordinance. He says that the heights are an issue because the heights are not lining up with the plans submitted. Sorry to have missed that as it would be a good review for those who were not involved. Suffice it to say, there was a lot of thought and planning for the area.

Aaron Olver talked about the implementation of the plans. He talked about the relationships in the corridor to things in other surrounding areas. They are focused on the Don Miller site, they call it the 700 & 800 block north, and 700 south block. He points out it is by Breese Stevens and another block that will be potentially talked about soon. Olver talks about Shop Bob in the Marquip Building (200K sq. ft. of space), they had 200 employees when they wanted to move and are up to 300 now, a very rapidly growing company. They added 100 employees since they chose the site. Mullins Group owns a lot of the land on the Yahara side of the district. He says they are going to talk about the three proposals and flag some of the issues the developers will have and talk about the process.

Three Proposals
He says Rifkin has a proposal for 800 South. They also have an option to purchase a slice of property adjoining the property the city owns. Gephardt originally was going to do a tower on the 800 N block and that shifted to 700 N block. ULI submitted a plan for all three parcels and now are only doing the 800 N Block. Olver says that to do things strategically, it was important to have a master developer on the 800 N block. He says these plans are all conceptual still.

Rifkin has a tower, 5 floors facing East Washington, it might be two buildings, but there is a main office component with retail that will front on East Washington. They have structured parking with some traffic flow through the block and wrap the parking garage with commercial space, it has retail and office. They show a rendering.

Gephardt is residential tower, structured parking in the center and wrapped by three floors of retail and commercial, but primarily residential tower, he shows the original project, they put it on a new block, lower floors have office and retail wrapping front corner, structured parking and low density housing on east and then higher density tower.

ULI is commercial, retail and residential, part one is an office retail component, by Breese Stevens, phase 2 moves back and does 80 units of residential housing with a tray of parking under and elevated building, stage 3 is a parking structure with townhouses ringing it to conceal it and once parking is in place then build a second office/retail component, first office building is 3 stories, the other could be taller, maybe 4 stories, they show a rendering of scale and massing model.

Olver says people ask if this is the densest they can do. He says the tray of parking, if not more than 4 trays only has 450 cars in it, if they need three parking stalls per 1000 sq. ft. that is $150K sq. ft. of commercial office, if you have 20K sq. ft. floor plates, you have 7.5 floor plates, so it is close to maximum without 5 or 6 story parking structure.

Development Challenges
There is contamination on most of sites, they are doing a phase 2 environmental study at the moment. They may need BREWD grants or grants from the EPZ, DNR or state and there could be TIF. There is likely to be a need for environmental remediation. Also the soil conditions are poor, the water table is highl There are construction concerns of load bearing capacity of soil, this rules out underground parking, they might be able to dip it 4 to 6 feet into the ground but parking can’t go deep without hitting water.

Maniaci asks about water table and soil.

Olver says there are two things – ph contamination and fly ash buried there, these create environmental concerns, they may need to excavate or cap the soils, they will have to do borings and assess the capacity of the soil to bear weight and may have to do pilings.

Maniaci points out this is an old marsh, Olver agrees.

2nd concern, economic challenge, downtown rents are $19 – 24 sq. ft., capitol east area is $14 – 15 and suburbs are $14 – 18 per square foot and there they have surface parking. Downtown has parking structures, this area has downtown costs and suburban revenues and cuz there has been no significant investment this is an untested marketplace. The economics of early projects is challenging, you are likely to see TIF requests for structured parking.

No median break at the Livingston intersection – there is no turning into the north development it going east or no turning south if going westbound and there are corresponding exit challenges. They are working on a traffic analysis to deal with traffic, they want to keep traffic off the bike boulevard. You may see some treatment of that median break, one theory is that it may make sense to address the concern while the city owns the land and could use TIF funds and they might be able to amend the capitol budget this year and address it now so don’t impede development of parcels we own.

Billboard is also an issue, there is a permanent easement for this billboard and without addressing this no development will occur, that will be a challenge that will involve City of Madison. That’s a pretty strong statement, I”m sure there could be some development if they tried.

Other issues
Phasing – one issue is multiple residential components in an untested market, they are figuring out how to phase this so they are not competing and cannibalize the other projects. Also phasing is an issue within projects, there is structured parking with Rifkin, and so there will be interim surface parking, they need to grapple with how to control and work with developers to not get surface parking. They are likely to have to grapple with is how to build incentives and carrots and sticks to allow interim surface parking but encourage and require expensive structured parking and prevent long term surface parking lots.

Flip side is that the zoning code for surface parking lots require elements that are expensive, they do not want to spend money to fix up parking lot they will tear down soon.

Building height, esp. Gephardt, the proposed project is exceeding building height allowed under the ordinance, will we need to change the ordinance. They will present this on Thursday night, and have a dialog with the neighborhood, there are some questions because residential has go up to get better views and that creates value, they took a crane up and were surprised by how far they had to go to see water. Height is important to economics, there will be less TIF, less gap and if you stick to heights it’s economically not feasible, have to grapple with height vs. TIF dollars and if design is attractive enough with extra two floors. Ordinances allow 8 stories plus two if good design, I was unclear if they were saying they wanted to go above 10 stories. One upon a time there was a 16 story proposal for this area, but it was very expensive because of the soils issues and building the supports for the building, the neighborhood was kind of supportive because there was more open and green space in the project.

Tenant issues, tenants don’t plan space needs two years in advance, they will want security and sense of momentum to know that building will be ready when their leases expire, some interested tenants have leases that expire end of 2012 and 2013, but there are timing issues from tenants. There is also an issue with the untested market, its challenging to lock up tenants to make the projects happen, they need 80% lease up to get the financing from the banks.

Process issues
Process issues – this land was purchased with land banking money, $10M has been allocated to buy land and this was purchased with those funds because seller didn’t want to break it up, no developer would take on the challenge, so the city took it on. The city bought the land to to split it to allow development to occur piece by piece. They issued an RFP to gauge interest. They had to start somewhere. They put together AN ILLEGAL committee to look at how plans related to BUILD plan and economic feasibility and impact. Then the presented to the neighborhood and got feedback, it’s all on the website. The next step is options to purchase will start to get introduced, they are in the process of negotiating letters of intent to purchase. You will see staff recommendations to enter into agreements, Gephardt will come first, and they will be asked to work with them and approve letter on 700 N block, there will be potential inititatives to address development challenges, and then all the standard processes will happen as well, once developers have options and site control, they will spend money on architecture, design and neighborhood processes, and the TIF process.

Questions
Jill Johnson asks about cost of land, what does soils contaminated imply?

Olver says old holding tanks were buried in the ground, they have been removed, there are closed DNR sites there. There is also fly ash that is buried, fly ash has phs and metals in it, they are not dangerous as long as they are capped by parking or clean fill that is not contaminated. It is not severely contaminated, its not a superfund site, but to build residential property there needs to be some excavation of the soils around the tank sites or it has to be capped.

Johnson asks what environmental issues adds to the cost of the project.

Olver says that it will be in the 100s of thousands not millions.

Sue Ellingson asks about office vacancy rates – is it reasonable to think office uses are needed and will there be enough office tenants?

Olver says that is the critical question, the first property that will advance is Gephardt, that is residential, there is a 2% vacancy rate, there is an office component but it is small, so that will go first. ULI has a particular tenant that they are working with, they are currently not in the city, but they are interested in the area, it is a technology firm and it fits with the district. That will require them to lock in or find a new tenant – there is a side conversation about Epic and where their employees live and that they might live in the Gephardt project). The Rifkin plan has a slightly different tenant base, they are technology companies, they are not sure if they all have commercial demand, the market is uncertain, they are still exploring this. Olver says he is cautiously optimistic that some will move forward but doesn’t know if all three will.

Satya Rhodes-Conway says they won’t have plans unless there is 70 or 80% lease up, we still have do to these things regardless, and it’s on the developer to make it work. All we have is a letter of intent, they have to show the lease up before we move forward with land use approvals and financing,

Olver says it will be like bootstrapping where put a steak in the ground and assume something else happen and then take another step, they will be interdependent, but we’ll be protected, we won’t put in TIF until there is a project and the things we do in advance we would do anyways cuz we own the land.

Maniaci ask about the parking, says committee struggled with parking limitations, if one building is really tall it needs more parking.

Olver says that when the BUILD plan was created they anticipated multimodal transportation and some of that has not materialized, but we are hearing that there has to has to be adequate parking, the banks won’t finance if not adequate parking, but tenants are also nervous about parking and market place is fluid. On the square they can charge $100 – 130 per stall and in they suburbs there is free surface parking and this is in between and you can’t charge $100 per month but might be able to get some parking revenue but need structured parking to get the revenue. Structured parking is vital. In downtown like block 88 and 105 you will be able to bury parking and develop air rights but because of the water table you can’t put parking underground, maybe 5 feet, might be able to do a tray dipped in to the soil, not two or three trays of underground parking. Without all the transportation options we might want available in the medium to long term we will have structured parking if we want it to developr and without dedicating too much to parking, can’t get the density, the plan would allow for it. The exception is the uses, residential can be more dense.

Marsha Rummel asks if working with the parking utility at all? She comments that many people park in this area for free and then go downtown.

Parking utility is interested, but until demand can’t invest ahead of the market, we have to build the market first and then parking utility could be part of the solution, not sure why not meters there (people walk downtown)

Bruer asks about the forecasts on the land banking money. I couldn’t really hear what he all said, he was talking too softly.

Olver says he will articulate why land banking – he was not around for it.

Bruer asks why here?

Olver says his understanding is that Don Miller didn’t want to sell of the parcel in a piecemeal fashion, he has seen it elsewhere, seller is reluctant to do it in phases and hold on to the land indefinitely without security it would be taken down, because of this opportunity we decided we could bear the holding costs to split it into three parcels or more for development. Ooops, no, we are supposed to pass those holding costs along to the purchaser, that was the deal on land banking.

Bruer says something else I couldn’t hear.

Murphy says there are also many small parcels could have been sold off and lots of uses are permitted on the properties and it could have resulted in buildings that were not what we were looking for in the BUILD plan, it would have been bigger challenge to meet the goals.

Olver says TIF is Bruer’s second question, we haven’t seen any particular figures on it, no applications or pro formas have been submitted, we have no solid numbers. There is a reasonable possibility that they will not confirm strictly to the TIF policy, he says they may not conform with TIF policy because of factors he mentioned, environmental remediation and structured parking but can’t charge rents or parking fees. The economics of the projects will be dicey, esp. in high rise construction and when doing it to a high quality with great sensitivity to the area. It would be a beautiful thing if all the proposals would be at 50%, it is possible they will exceed that, he says when thinks about increment 0 – 50% requests are straight forward, over 100% is somewhat risky cuz requires you to use increment from elsewhere and you are betting that even though project won’t cover itself it is so catalytic or so valuable it will pay for itself and the rest is gray in the 50 – 100 range and 50% is not a magic number, it’s a reasonable goal in order to provide cushion and certainly that there will be increment left over for other improvements district wide, but they might come in over 50% but not over 100%. I guess he is willing to ignore TIF policy on a regular basis, that’s quite disturbing, if they want to change the policy, they should just do it instead of waiting til there is a project in front of them.

Bruer asks to what extent the developers are aware of the need to change policies.

Olver says they are aware of the challenges, it changes week to week, but they are aware of the challenges and willing to take on some risk to be part of this, there is excitement. There is an understanding it could be exciting, while risky, it could turn out beautifully for the city and the developers in the long run, but they have to weigh the risks and they don’t have a lot of feedback on if the market will be there particularly on the commercial side and if the if the banks believe in it the way the city does.

Bruer asks if the principal developer is firm on the height, are they being told that without the policy exceptions the project, for the the developer it’s do or die.

Olver says not sure they decided that, they have a preference for a taller building because views not strong til get up higher, in order to attract young professionals (and higher rents says Maniaci) they want views, he says they haven’t said do or die, it works economically it works better with more height, the question is how do we feel about it, do we like the design, there are a quantitative and qualitative facets, the design and TIF are related, when improve design then increase the costs.

Maniaci says that urban design districts can go higher, this block is 8 stories plus 2 additional stories if good design, there are differences across the street. The commercial jobs stuff and taller buildings are on the south but parking precludes tall buildings and the short side is where residential is but residential can be taller, they took the plan and ordinance and now projects at hand that are different.

Olver says people involved with the BUILD will admit not a lot of consideration was given to these blocks, the spent more time thinking about height in other areas. This was Breese and Don Miller and a gas station, when they looked at adjacencies we didn’t spend a lot of time thinking about height. It got lumped in with other decisions and now can think about what is appropriate. Interesting, I would disagree, there was a ton of thought put into these blocks with the Gorman project so we just didn’t need to talk about it so much.

Bruer asks if it is half soup?

Olver says Gephardt has to start soon, they need a go or no go in next 6 months.

Verveer asks for the PowerPoint.

Olver says he will put it in legistar and send it to them.

And that’s it, the went on to the very short, uneventful council meeting.