Faith, developers are learning, costs more now than it did before the recession.
“We’re making loans,” said Mark Meloy, president and CEO of Madison’s First Business Bank. “But the dynamic that’s changed is that developers are being asked to put more of their own money into projects. There’s less certainty, less timelines. Everyone’s holding onto their own money.
“Before, a developer may have only had to put up 20 percent equity. Now they might have to put up 30 or 40 percent.”
But developers are balking at increasing their investment, Meloy said, because they do not want to risk their profit margins. Instead, he said, developers are seeking public investments.
It’s a market dynamic that’s playing out in Madison’s Park Street corridor, where there are plenty of plans but only tenuous financial commitments.
“Right now, everything is difficult,” said Tom Sather, president of Middleton-based Silverstone Partners Inc. “It’s a very challenging corridor to begin with, but even more for people who want to be the first guys in to redevelop.”
Sather is one of many developers who want to get in early. His company will seek Common Council approval Jan. 5 for a new senior housing project near Park Street and Fish Hatchery Road.
Across the street from the Silverstone site, Chicago-based Clark Street Development still is waiting to move on a mixed-use development to replace the former Bancroft Dairy.
Also in the corridor, Madison-based developer Pat McCaughey will seek city commission approval next month for a four-story apartment building with commercial space on the ground floor. He said he is targeting a March construction start, but he will wait until he finds a commercial tenant.
Alderman Tim Bruer, who represents portions of the Park Street corridor, said the interest proves Park Street is a corridor rich with opportunity.
“Where else do you have so many projects potentially ready to move?” he said.
That does not mean they will move, Bruer said. City officials are considering creating a tax-incremental financing district in the corridor, but he said TIF debates during the most recent city budget process shows the public is just as cautious about its money as banks and developers are about theirs.
TIF districts let municipalities borrow money to subsidize developments and pay for utility and street work that serves projects. Communities then use new taxes generated by the projects to pay off the debt.
“We want predictability and financial feasibility,” Bruer said. “This is still all about being able to get confidence.”
As far as banks are concerned, Meloy said, the confidence will be there as long as developers are willing to pay for it.
“The point of all of it is we’re in a time of economic uncertainty,” he said. “That equals risk, and from a bank’s perspective, the borrower has to have a plan to manage that risk.”