RACINE — Cardinal Capital, the developer behind the Ajax redevelopment, is asking the city to apply for a second loan from the state Board of Commissioners of Public Lands, which the city in turn would provide to Cardinal at a higher interest rate in order to complete the project on time.
The city applied for one such loan for $900,000 as part of the incentive package for the project. The loan was secured by a Cardinal corporate guarantee as well as a subordinated lien against the property and Cardinal is required to pay debt service on the loan monthly.
Now due to COVID-19, the $2.4 million in investment equity needed and committed for the market-rate portion of the project will likely be stalled for as much as two years, according to the briefing memo prepared by City Administrator Jim Palenick.
In order to have the project continue moving forward, Cardinal has asked the city to take out a second loan for $2.4 million to be repaid within 24 months.
Terms of the loan
The proposed terms are that Cardinal will pay interest only during the 24-month term. The city will receive the loan at 2.5% interest, or $5,000 a month, and Cardinal will pay the city 3% interest or $6,000 a month. The $2.4 million principal would be repaid at the conclusion of the loan, when the equity initially committed to the project would be available.
In addition to the interest paid to the city, Cardinal will provide a lien against the market-rate portion of the project, subordinate only to the first mortgage and will execute a corporate guarantee.
“Given the value of the project and of Cardinal Capital, this will serve to assure the city it is incurring virtually no risk,” the memo read.
Clearing the way
The City of Racine and Cardinal, which is based in West Allis, finalized a development agreement for the former Ajax industrial site on the 1500 block of Clark Street.
Cardinal purchased the property and started asbestos remediation last fall so once the agreement was in place, Cardinal was able to bid out the actual demolition and get the wrecking ball rolling by the first week of February.
By early March, the properties on Clark Street and Junction Avenue could see each other for the first time in decades across the southern portion of the lot which had been mostly cleared.
When razing is completed, the only structure that will remain standing is the former Pabst Pub at the corner of 16th and Clark streets. Cardinal plans to use the historic building for a management office, a community room and a Racine Police Department community-oriented policing, or COP, house.
Cardinal plans to turn the demolition site into 141 new apartment units, including 54 “affordable” units. Cardinal President Erich Schwenker said the affordable units will be pegged to income and range from about $700 to $900 per month. Those units will need to be completed this year to qualify for housing tax credits.
The development will also include 87 market-rate units, which will range from about $1,500 to $1,700 or $1,800 monthly.
The council is scheduled to vote on the loan at its virtual meeting at 7 p.m. on Tuesday. The meeting is set to be live-streamed on the City of Racine, On the lake Facebook page.
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