RACINE — A $33 million proposal to turn the abandoned Zahn’s Department Store building into the Hotel Verdant is once again moving forward, despite some difficulties due to the COVID-19 pandemic.
The City Council voted unanimously on Tuesday to amend the original agreement with The Main Attraction, LLC, that should allow the project to be brought to fruition. The council discussed the matter in closed session before voting to amend the agreement with the developer. Wisconsin law allows municipalities to meet in closed session for negotiations.
“It is an exciting proposal that we have before us,” Mayor Cory Mason said. “We have all talked about the Zahn’s building for decades and what would become of it.”
The building has been vacant since Zahn’s went out of business in 1981.
Amended development deal
In December 2019, the city approved a development incentive with The Main Attraction, whose parent company is Dominion Properties of Milwaukee.
According to a memorandum created for the City Council by Finance Director Kathleen Fischer, there were pandemic-related challenges that required the city to amend the original agreement.
The three areas of amendment were: commencement date, parking and financing.
- The commencement was originally slated for January 15, 2021, but that has been moved to July 15, 2021 with a targeted opening date for June 2022.
- Parking was originally intended to be in the 441 Lake Ave. ramp, but that parking is no longer available. Under the amended development agreement, 100 parking stalls will be allocated between the McMynn Ramp and the Civic Center Ramp.
- Lastly, under the original agreement, the city agreed to loan the developer no more than $4 million as a development incentive. Due to the pandemic, private hotel financing is no longer available. Therefore, the city agreed to increase the loan amount to $5.5 million.
The city will borrow the money from the Wisconsin State Trust Funds, which is managed by the Board of Commissioners of Public Lands. The city is obligated to repay those funds within 20 years.
However, under the agreement, the developer is required to pay back the city within 88 months, or a little more than seven years. The interest rate will be 4.25% for the first 36 months and 4.75% thereafter. The loan will be interest-only for the first 24 months, payable semi-annually.
Net new construction
The proposed Hotel Verdant represents many benefits to the city, not the least of which are budgetary.
Two immediate examples are the estimated $20 million valuation, and the property tax revenue that comes with it, along with the expansion of the budget through net new construction.
The valuation is important for understanding how the city could benefit from the development. A $20 million valuation could equal approximately $200,000 per year in additional property taxes for the city.
Additionally, it represents an expansion of the tax base.
The inability to grow the city tax base beyond the current borders of the city, combined with levy limits placed on municipalities by the state, results in a structural deficit where the cost of running a city out paces the revenue it receives. The only way city leaders say Racine can get out of structural deficit is to expand its tax base through net new construction.
In this case, the hotel will allow the City of Racine to expand its tax levy by approximately $200,000.
The city council responded to the project with much enthusiasm. In praising the project, they noted the positive benefits of new jobs, further development, and the potential for an increase in tourism.
Alderman John Tate II, president of the city council, said the old building has been empty as long as he could remember and it was special to him to see it become something.
The project is Racine Works-compliant, which will ensure that at least 20% of the labor will be City of Racine residents.
Tate took the long view and said having 60 to 80 additional jobs in the city, with people earning a living wage, meant that those people could afford to purchase a home, raise their families, and stay in Racine, which are all important goals for local leadership.
He acknowledged this one project is “not the end all be all for the city, rather it is one of the components we need to see going forward in order to build the city into what we need it to be.”
Alderman Natalia Taft took the opportunity to note the Hotel Verdant is the first project in Racine utilizing New Markets Tax Credits.
Established in 2000 by Congress, NMTC provide businesses an incentive for developing in low-income communities by giving investors a tax credit against their federal income tax liability.
Alderman Trevor Jung took the opportunity to praise the developers for their commitment to sustainability.
Christopher Adams, the chief technical officer for Dominion Properties, said in an interview on Tuesday the hotel will feature a sustainable plan, to include solar panels and a green roof; that is, vegetation that is planted on the roof.
Adams said he is working on getting the hotel LEED (Leadership in Energy and Environmental Design) certified.