City loan for north side hotel wins early OK despite risk

A proposed $4 million city loan to help develop a boutique hotel on Milwaukee’s north side has received another city approval — despite a report that it carries a significant risk for taxpayers.

Developer Kalan Haywood plans to convert a three-story, 240,000-squarefoot former Sears store, at 2100 W. North Ave., into the 80-room Ikon Hotel.

The $32 million development would include an adjacent newly built conference center with 24,600 square feet, as well as a rooftop restaurant and streetlevel co-working space in the former Sears building.

The hotel and conference center would have an estimated assessed value of $3.6 million.

Along with loan payments from Haywood, that would provide enough property tax revenue to pay back $4 million within 18 years, according to a Department of City Development report. Haywood would pay about half of that debt.

The difference between the project’s cost estimate and its assessed value shows how challenging it is to finance.

And that was reflected in a report from city Comptroller Martin Matson.

The proposed loan would increase the city’s property tax base, Matson’s report said.

“However, there is significant risk the City will not recover this $4,000,000 investment in the proposed (tax financing district), and the proposed (tax financing district) will not be able to break even,” the report said.

The report said the comptroller’s office hasn’t yet received the Ikon’s projected income.

That makes it impossible to determine whether Haywood would be able to repay the loan.

Also, Haywood hasn’t yet secured financing for the development, the report said.

Without complete financing, the project could be modified, delayed or canceled — again putting the city loan at risk, it said.

If Haywood defaults on the loan, the city could end up owning the property, the report concluded.

The Common Council’s Zoning, Neighborhoods and Development Committee voted 5-0 to recommend approval for the loan. It also needs full council approval.

Matson’s report wasn’t discussed at Tuesday’s committee meeting.

But Development Commissioner Rocky Marcoux said it was unusual for the city to provide project financing before other funding sources are secured.

Marcoux said the city loan would help Haywood secure private financing sources.

He also said the Ikon Hotel is “very important” to the neighborhood, which has seen new developments in recent years but is still marked by poverty and a lack of investment.

Finally, Marcoux said, city officials “have a high degree of confidence” in Haywood, whose other developments include such affordable apartment buildings as the Germania Building, 135 W. Wells St., and City Place, 506 W. Walnut St.