Interest in Cudahy hotel, commercial development project picking up steam
The developer, Cobalt Partners, says it needs financial help from Cudahy for the hotel project.
The improving economy is reviving interest for a possible hotel and other new commercial buildings in Cudahy, but the project's developer says it needs city financial help.
Cobalt Partners in 2010 received a preliminary commitment of just under $2.5 million in city funds to help finance the purchase of a 24-acre former landfill and pay for its environmental cleanup.
The money would be repaid to the city through property taxes generated by development at the site, located between the Lake Parkway and S. Pennsylvania Ave., south of E. Layton Ave., and through other new construction within two tax incremental financing districts.
But because of the recession, the state Department of Revenue substantially reduced the estimated value of properties within those tax districts just before a planned city bond sale needed to borrow the money to help finance Cobalt's development.
As a result, the bond sale was canceled.
Meanwhile, Cobalt has so far spent $1.6 million, mainly $1.25 million to buy a 20-acre portion of the former landfill from the City of Milwaukee and $183,000 to purchase 4 acres from Milwaukee County. The firm also has conducted environmental tests, received state approval for an environmental cleanup plan and created conceptual site plans, said Scott Yauck, a Cobalt co-owner.
A hotel operator and other businesses, including a drugstore chain and hardware store, are showing interest in the site, Yauck said.
Also, St. Louis-based Commercial Development Co., which specializes in redeveloping properties that need environmental cleanups, plans to partner with Cobalt on the project, he said.
But Cobalt lacks money to continue efforts to redevelop the site, Yauck said. The firm is paying interest on the money it borrowed to buy the property, but has only been partly compensated through city funds generated by the tax district.
So Cobalt wants city officials to provide upfront cash to help pay for an environmental cleanup and additional work that would lead to new development, which would then generate the property taxes to help pay back those funds.
Once the money is paid off, the property taxes from the tax district would flow to the city, its school district and other local governments.
Under the proposal, Cudahy would borrow $1.6 million by selling bonds, said Brian Biernat, city economic development director. He said property values within the city's tax incremental financing districts have stabilized over the past year.
Because the city's borrowing costs are lower than Cobalt's borrowing costs, the city can reduce its development-related interest payments by $1.1 million, according to Ehlers and Associates Inc., a consulting firm hired by Cudahy to provide advice on operating its tax incremental financing districts.
Also, the city's action would show a good-faith effort to fulfill the commitment to help finance the project, Biernat said. By not providing the money, the city could end up with an undeveloped property that's burdened with a large amount of debt, he said.
The Community Development Authority's board will meet Tuesday to discuss the proposal, which also would require Common Council approval.
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