Oct. 10–The city has slashed the assessed value of the redeveloped Edgewater hotel from $64.8 million to $17.1 million based on new income and expense information for 2015.
The revised assessment, made after The Edgewater challenged the $64.8 million value, comes largely from using a more standard method of determining values of hotels but also reflects more sluggish performance than projected due to delays in fully opening the property.
The lower value still leaves The Edgewater atop city hotels in assessed value per room.
"If you look at other hotels in town, this is still in line with other assessments," Edgewater chief operating officer Amy Supple said. "(But) clearly there's been an impact with delays in construction in getting to a full ramp-up of the hotel. I feel good about where we're going. Is it where we thought we'd be? No."
The Edgewater, built after a bitter and lengthy fight, was partially opened in fall 2014 and assessed at $23.8 million for last year.
The hotel, now fully open, was initially assessed at $64.8 million for 2015.
The assessment covers the 201-room hotel, its hospitality operations and a public terrace with sweeping views of Lake Mendota.
It doesn't include hotel furnishings valued at $8.6 million or four single-family condominiums near the top of the 14-story new structure assessed at a combined $11.1 million.
Assessments are used to determine property taxes. The Edgewater paid $577,213 in taxes for the hotel and terrace in 2014.
The Edgewater owners challenged the $64.8 million assessment for the hotel and terrace for 2015 as exceeding fair market value, claiming a value of $16.4 million.
The city's Board of Assessors, made up of assessors from the city Assessor's Office, on Wednesday agreed to reduce the value to $17.1 million. The change reduces the hotel's value from $321,000 to $87,800 per room, which is still higher than the next-highest, the 240-room Hilton Madison Monona Terrace, valued at $86,050 per room, city assessor Mark Hanson said.
The Edgewater isn't sure if it will appeal the $17.1 million assessment to the city's citizen Board of Review, Supple said.
The city based its $23.8 million value for 2014 on estimated cost of construction and level of completion at the start of that year, Hanson said. The city didn't have information for an assessment based on actual income and expenses, a standard criteria for commercial properties like hotels and office buildings, he said.
The Edgewater didn't respond to initial requests for construction costs or income and expense information to determine the original 2015 assessment, so the city again based its assessment on estimated cost of construction and level of completion, Hanson said.
The hotel owners, as part of their appeal, submitted actual income and expenses from August 2014 through June 2015 and estimates for July 2015 through the end of the year, a report from assessor Jeff Huemmer's report says. "The income and expenses submitted are reasonable and should be used in the valuation of the subject property," it says.
The city anticipated the challenge due to the methodology used, and based on earlier income and expense projections, expected a value of roughly $33 million, Hanson said.
The actual income and expenses, however, produced a lower value, he said.
The Edgewater expects room income of $8.9 million, food and beverages of $9.2 million, and total income of $19.4 million, in 2015, Huemmer's report says. After subtracting $15.9 million in expenses, net income is projected at $3.5 million.
"The income just isn't there to justify a higher value," Hanson said.
Due to construction delays, the hotel opened with only a quarter of its rooms available, and the Boat House restaurant — one of three in the facility — didn't open until this summer, Supple said. "That's a reality we're dealing with," she said. "The delays in construction have had an impact. There's no question. We're still ramping up."
Sharon McCabe, associate director at the Graaskamp Center for Real Estate and a senior lecturer in the Real Estate and Urban Land Economics Department at UW-Madison, said the income approach is commonly used to value hotels but that in this case the assessor is using income in the hotel's time of transition. "This is not going to be the ultimate value," she said.
The hotel's contractor, J.H. Findorff & Son, and others have filed construction liens on the property, but The Edgewater has placed blame on Findorff for cost overruns, missed deadlines and quality problems.
