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Private Investors Save the $98 million Edgewater Hotel in Madison Wisconsin
by Offering Developer, The Hammes Co.,  Millions the City Refused to Give

Hopes to Break Ground this Fall

By Dean Mosiman, The Wisconsin State JournalMcClatchy-Tribune Regional News

July 29, 2012--Developer Robert Dunn is forging ahead with a $98 million rebirth of the historic Edgewater hotel, but with no public financial assistance and a new investment by a group including philanthropists W. Jerome Frautschi and Pleasant Rowland.

Dunn, resurrecting the most controversial, polarizing development project in years, intends to follow plans approved by the city two years ago and break ground this fall.

The Hammes Co. president is closing a $16 million financing gap that stalled the project -- a sum he hoped the city would cover with public assistance -- with an investment from a small group including Frautschi and his wife, Rowland, who donated $205 million to build Overture Center.

Dunn said he and the group strongly believe in the project's potential to benefit the region and have completely restructured financing for the redevelopment. The group is willing to take a lower rate of return to make it work.

"We want to get this done," Dunn said. "We think it's a landmark project that will have a lasting impact for generations to come."

The Frautschis, who also have proposed an $11.6 million redevelopment of the 100 block of State Street, could not be reached.

Mayor Paul Soglin was cautious. "I'm pleased to see they can accomplish it without $16 million in public financing," he said. "I'll reserve other comment until staff has had a chance to examine this."

Dunn said he will restore the Art Moderne style of the original hotel, built in 1948, cut the size of a 1970s addition, set a public terrace atop it overlooking Lake Mendota, create a staircase to the lake and erect a nine-story tower, the most controversial part of the project. If he makes no major changes, Dunn must submit only proof of financing and a construction contract to get a building permit.

The new Edgewater will have 189 rooms, up to 10 luxury condos, banquet, meeting and retail space, restaurants, a pier and docks, and underground parking. Public elements and access to them negotiated with the city remain.

The financial breakthrough brought cheers for a new city attraction, access to the lake, jobs and building the tax base.

"It's just a great opportunity for our destination," said Deb Archer, president of the Greater Madison Convention and Visitors Bureau.

Others expressed dismay.

"I'm disappointed to hear it," said Mansion Hill neighborhood resident Fred Mohs, the project's most outspoken critic who launched an unsuccessful court challenge. "It's not about me. There are people all over the city who have a problem with this development."

Mohs, who believes the project violates the neighborhood's historic district, said still he'd like to stop it but doubts he can. "Nothing comes to mind," he said.

Dunn intends to get a building permit, break ground for the Downtown and campus-area attraction on UW-Madison's homecoming weekend Oct. 26, and finish the project in the late spring of 2014.

Investors committed to project

After a contentious, exhausting review, Dunn won city land use and public finance approvals for the project in May 2010. But the redevelopment got tied up in an unsuccessful court challenge and was thought doomed after the City Council slashed public financial support from $16 million in the 2011 budget to $3.3 million this year -- a sum Dunn said wouldn't work.

After the council's decision, Frautschi and a few others asked how they could help, Dunn said.

Dunn and the investors came together because of their belief in the vision for the project and the impact it can have on the city, university and state, the developer said. The group is putting community interests ahead of investment returns to let the project progress without public financing, he said.

Hammes will not be involved in the project, Dunn said, adding he and the new ownership group are bringing an unprecedented level of private capital to a Madison project and using some borrowing. The amount of investment is fairly equal among Dunn and other members of the group.

Dunn, who has had a purchase contract to buy The Edgewater for four years, said he was confident enough about the hotel's prospects that he bought it last week.

"It's heartening and exciting they were able to overcome the obstacles that stood in the way of the project," said Greater Madison Chamber of Commerce president Jennifer Alexander.

Ald. Bridget Maniaci, 2nd District, who represents the area, said she always had faith it would happen. "I applaud the generous members of our community for seeing the value for our city of this project," she said.

But Ald. Mike Verveer, who represents the 4th District nearby and opposed the project, had mixed emotions.

The new tower, he said, fits poorly in the historic Mansion Hill neighborhood. But he's pleased the property will get needed investment and taxpayer money won't be used.

The project that refused to die

An international developer with Madison roots whose parents were married at The Edgewater, Dunn announced his intention to buy the hotel in 2008, and the next year unveiled a proposal to redevelop the beloved but worn property, which has hosted Elvis Presley, Bob Hope, Bob Marley, Indira Gandhi, George H.W. Bush and others.

Dunn battled to win approvals and public financial support in a twisting, novel-like saga involving the city's movers and shakers, historic preservationists, neighborhood activists and labor unions.

The Landmarks Commission refused and nearly killed the project, saying it was too big for the historic district. But the Urban Design and Plan commissions endorsed it.

The council, in a 12-hour meeting that ended at 7:40 a.m. on May 19, 2010, overturned the Landmarks Commission for the first time ever and gave land use and financing approvals.

Mohs and neighborhood resident Eugene Devitt sued the city but lost in Dane County Circuit Court and the 4th District's Court of Appeals, and the state Supreme Court refused to take the case.

But the lawsuit caused uncertainty with lenders and undermined Dunn's efforts to secure private financing.

In April 2011, Soglin ousted predecessor Dave Cieslewicz, who championed the project. Soglin, who campaigned against what he called out-of-control city borrowing, secured a cut in public financing for the project to the $3.3 million in the 2012 budget.

At the start of the year, the project seemed dead. The Supreme Court's refusal in February to hear the Mohs-Devitt appeal seemed destined to be an inglorious footnote.

Dunn, whose company has handled billions in development including Lambeau Field, Miller Park and the NFL stadium for the New York Giants and Jets, pondered a lawsuit, but the investors will let him complete the project.

Although he has questions about meeting terms of the land use agreement, Soglin said Dunn's financing is an internal matter because he's not seeking public financing.

"We believe it's a new chapter for Madison," Dunn said.

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No TIF needed after all

The project that once needed one of the largest public subsidies in Madison history apparently will go forward with none, a far better deal for city taxpayers.

Developer Robert Dunn insisted the $98 million redevelopment of The Edgewater hotel needed $16 million in tax incremental financing (TIF) assistance to help build a public terrace and staircase, move the location of a planned hotel tower, and cover some costs related to moving underground parking to an adjacent property.

Dunn previously put the value of the public improvements at $32.4 million.

Under TIF, the city freezes the value of property in an area, called a TIF district, and uses tax revenue from growth for private development and public improvements. After the money is repaid, higher valued property returns to the regular tax rolls.

But the TIF request became controversial for its size and the number of exemptions needed from city policies. It also would have required extending an existing State Street-area TIF district to include the hotel property, which would have kept the increase in property value off the tax rolls longer, denying the city, school district and other taxing entities additional revenue for roughly a decade.

The city ultimately extended the TIF district to include The Edgewater and approved the $16 million in the 2011 budget. But after a legal challenge forced a delay in the project, the city shaved the TIF aid to $3.3 million in the next budget, bringing the project to a halt.

Now, because Dunn has secured an investment from philanthropists W. Jerome Frautschi, his wife, Pleasant Rowland, and others, the developer will seek no TIF assistance.

That means the city won't have to borrow money for the project, an estimated $750,000 in annual taxes can contribute to repaying expenses in the TIF district, and the district can be closed sooner, returning tax revenues from growth to all taxing entities.

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(c)2012 The Wisconsin State Journal (Madison, Wis.)

Visit The Wisconsin State Journal (Madison, Wis.) at www.wisconsinstatejournal.com

Distributed by MCT Information Services



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