A $9.3 million Milwaukee loan will help the Moderne high-rise grow at the corner of Old World Third Street and Juneau Avenue.
The developer of The North End in the city’s Park East area wants some of the same fertilizer.
But Milwaukee should be developing an exit strategy from the lending business even as the city negotiates a loan deal for construction of the North End, a 155-unit downtown apartment building, said Rocky Marcoux, commissioner of the Milwaukee Department of City Development.
“It is not in our interest to be a bank,” he said. “We have a lot more to do with the city’s assets. We don’t need to start taking on the risk that banks are paid to take.”
The city’s break from the lending world can’t happen soon enough, according to some industry observers.
“I would argue that a bank would be willing to make a loan if it’s a good loan,” said Kurt Bauer, president of the Wisconsin Bankers Association. “Municipalities don’t have the expertise in making loans.”
Milwaukee, Marcoux said, only stepped up with partial financing for the Moderne and, possibly, The North End because the financial market was teetering on collapse and almost no money was available. Both housing projects were long in the works, he said, and the city is not likely to lend money to developers proposing future projects.
There is always risk with development projects, and essentially borrowing money for private developers can affect the city’s bond rating and interest payments, Marcoux said.
Still, The Mandel Group Inc., Milwaukee, wants an $8 million loan from the city for the second phase of The North End.
According to a consultant’s analysis, the city’s loan should not exceed $3.4 million.
Dick Lincoln, a senior vice president with Mandel, said the group would respond to the consultant’s analysis within two weeks. He would not elaborate.
Beyond the $8 million loan, the city spent or agreed to spend $4.8 million of tax incremental finance money for construction of the portion of the Riverwalk adjacent to the Mandel property.
TIF districts let municipalities borrow money to subsidize developments and pay for public work that serves the projects. Communities then use new taxes generated by the projects to pay off the debt. If the development does not fully occur, it is more difficult or takes longer for the debt to be repaid.
Mike Ruzicka, president of the Greater Milwaukee Association of Realtors, said it’s important for the city to stay in the lending game. Banks are easing up a bit, he said, but developments still need help.
“The banks have been holding real estate’s head under water,” Ruzicka said. “They’ve just let them come up for a breath. It’s not over.”
Bauer said the bankers association’s most recent survey of top Wisconsin bankers showed the No. 1 reason for not lending money was low demand followed by increased regulation of the industry.
“If you want to borrow money, you have to show you have the cash flow,” Bauer said. “If you want money for an office building, you have to show that you have signed leases. That’s only prudent.”
Ken Simonson, chief economist for the Associated General Contractors of America, said money is still tight but the future for multiunit housing developments is “brightening rapidly.”
“Banks are being pressed hard to reduce their exposure to real estate,” Simonson said. “But capital is very good at finding its way to a place where it can grow.”
He said young adults are renting longer than in the past, another factor driving apartment development as opposed to single-family and condominium demand.
Although Simonson said he was not familiar with the Milwaukee loan situation, he said he doesn’t think government should be involved in lending to developers.
“Generally speaking,” Simonson said, “the private sector does a better job than the public sector in allocating money.”