The Daily Reporter – WI Construction News & Bids Wisconsin's Construction Authority
Waukesha-based Cobalt Partners LLC and the city of Cudahy are expected to finalize a development contract Friday to convert a former city landfill into retail property.
Cobalt is taking on the risk for the development.
Scott Yauck, Cobalt‘s principal owner, will pay upfront to develop and clean the landfill between Lake Parkway and South Pennsylvania Avenue south of Layton Avenue. Under the terms of the deal, Cudahy will repay Cobalt up to $3 million on its initial investment if the big-box retail center proposed for the property adds $18 million in property values, as predicted by Yauck.
Yauck said there are no retailers committed to taking over the property, but he expects to have a company on board once remediation work is complete in 2012.
Cobalt will be responsible for removing environmental and structural hazards. Yauck said the waste removal and site preparation will cost between $7.5 million and $10 million.
“We incur the risk if the tax revenues don’t accumulate as projected going forward, but we feel comfortable with the revenue we’ll be able to create,” Yauck said.
Such agreements in which developers pay up front — rather than municipalities paying for infrastructure and street work through a tax incremental finance district — were more common before the recession, said Mike Mooney, chairman of Brookfield-based developer NAI MLG Commercial. Among the 15 public-private TIF districts his office has organized, not one has been financed by the developer.
“Never done developer-funded TIF because we don’t think it makes any economic sense from the developer’s side,” Mooney said. “In our mind, there’s a complete imbalance of upside.”
But many municipalities no longer have the money to dedicate upfront.
“Like most communities right now, economic times are tough, so we’ve been very sensitive to ensure everything we do mitigates the risk to the taxpayers,” said Lara Fritts, director of Cudahy’s department of economic development.
Cobalt not only assumes financial obligation but also environmental responsibility for the property. Tom Wentland, waste management engineer for the Wisconsin Department of Natural Resources, reviews requests to develop on former landfills around the state. While exemptions are in place to build on a landfill, he said, it is unusual.
“Even with proper construction methods, it’s just better to build somewhere else,” Wentland said. “Why take the risk of building on it if you don’t have to?”
But Yauck said the property is far too valuable. The property represents nearly 1 percent of Cudahy’s total land yet accumulates no tax revenue. If his development succeeds, Yauck said, the property will account for 2 to 3 percent of the city’s total property tax roll.
Yauck said if the cost of cleaning up the property runs higher than anticipated, there is contingency money and insurance available.
“It’s an opportunity to take an unproductive asset and make it productive,” he said. “This area will effectively be better than new, and without any residual landfill materials.”
