Under continuous term agreements with the Redevelopment Authority of the City of Milwaukee, SB Friedman has served as a key advisor to the City for nearly 15 years on numerous major TIF projects.
Multiple projects have been structured such that TIF proceeds are being loaned to the project on a subordinate basis to fill financing gaps; our work has included underwriting, creating pro forma cash flow models to analyze various loan payback and sensitivity scenarios, projecting the impacts of the TIF revenues and loan payback on the feasibility of the TIF district, deal structuring, and term sheet development for these projects. Sample projects performed under this engagement include the following:
SB Friedman conducted an economic feasibility study for the proposed East Michigan TID and provided deal structuring support for the City’s consideration of a TIF financing package for The Couture project. The Couture, which is proposed as a redevelopment of the existing obsolete Milwaukee County Downtown Transit Center, is a planned 44-story mixed-use development comprised of approximately 302 market-rate apartments and almost 50,000 square feet of retail and restaurants. The project also includes an integrated multimodal transit hub, public plazas and natural indoor/outdoor spaces. SB Friedman performed a TIF capacity analysis to determine whether incremental property taxes generated by the project would be likely to support debt service on bonds for the public improvement components, as well as financing for a segment of Milwaukee’s proposed streetcar system whose terminus would be at the Couture site.
Results: The Couture has cleared several interim milestones including winning federal approval to replace the pre-existing transit center. Demolition of the transit center has recently occurred, and the project is currently under construction.
Manpower, Inc. World Headquarters
SB Friedman conducted a financial review of a proposed project to accommodate a 280,000-square-foot world headquarters for Manpower Inc., a global staffing company, within Downtown Milwaukee’s Schlitz Park development. The project was anticipated to add more than 1,000 jobs to Downtown Milwaukee, and to contribute to the revitalization of the Park East and Beer Line areas of the city. The project also included a Historic Tax Credit-financed renovation of an adjacent power plant building.
SB Friedman reviewed the proposed project and its need for TIF assistance and projected incremental property tax revenues likely to arise from the project. We also assisted the City extensively in negotiating the terms of TIF assistance to the project and developing a deal structure that limited City financial risk. The agreed-upon TIF contribution from the City was substantially less than the amount originally requested by the developer.
The agreed-upon financing structure included construction of a parking garage, which would ultimately be owned by the City, as well as a developer guarantee to reinforce the payoff of tax increment district borrowing. City assistance was a combination of grant and loan financing, with debt repayment tailored to match projected project cash flows.
Results: The project is now complete and occupied.
SB Friedman conducted a review and structuring of a TIF-funded loan from the City of Milwaukee to facilitate development of the Moderne rental apartment project in the Park East district, the tallest building in the City of Milwaukee (and the State of Wisconsin) west of the Milwaukee River. The City engaged our firm to analyze the developer’s request for a TIF-funded loan to supplement a HUD 221(d)4 senior debt guarantee. This innovative structure allowed the project to access sufficient debt in challenging credit markets, while providing the City with several recourse measures and credit protections. The resulting City loans total $9.3 million, and were split into a senior construction loan for the for-sale residential portion only, plus a junior mezzanine loan. In an innovative structure, the latter loan was provided at a true “mezzanine” interest rate of over 16%, reflecting the potential ability of the project to support this type of financing. This also reflected the City of Milwaukee’s desire to provide financing at market or near-market rates to address the lack of private mezzanine capital in the capital markets at the time this project was obtaining funding.
Results: The City of Milwaukee Common Council approved the loan package, and the project was completed in 2013. The majority of the City’s loan has been repaid; the remainder is projected for retirement in 2017 with the final sales of top-floor residential units.
North End Phase 2
SB Friedman evaluated a developer’s request for a TIF-based subordinate loan package to assist North End Phase 2. In reaction to evolving market conditions, the developer converted what was formerly a condominium phase to a 160-unit apartment phase. Of these units, 32 were income-restricted affordable, offered to households earning 60% of AMI. Phase 2 also included 2,300 square feet of retail space. SB Friedman assisted the City extensively in underwriting and structuring a TIF-based loan facility to serve as a subordinate layer of financing behind senior tax-exempt Midwest Disaster Area Bonds. On behalf of the City, we led the process of developing a detailed term sheet for the City’s financing, as well as detailed sensitivity analyses on the developer’s debt coverage, equity returns, and the potential cash flows to a deeply subordinated class of “B Bond” holders. SB Friedman also provided updated TID revenue projections reflecting the revised amortization timeframe for the Park East TID in light of the changes in economic conditions, the potential loan repayments from the Phase 2 project, and the additional property tax revenues. These findings, in addition to a summary of the firm’s “gap analysis,” were packaged as an economic feasibility study for public consumption as part of the TID plan amendment documents.
Results: North End Phase 2 is complete and fully leased.