Waukegan revises deal for renovation of downtown buildings; ‘We're not giving a blank check'
Planning to renovate the two vacant downtown buildings into mixed-use projects with commercial space on the ground floor and apartments on the upper stories, the partnership asked the city for financial incentives based on future value.
When the council approved $1.725 million in incentives for the partnership on Feb.3, the money was to come back to the city through a downtown Tax Increment Financing District (TIF). Now, it is seeking the initial $900,000 from money generated by a different municipal fund.
Ald. Thomas Hayes, 9th Ward, is concerned the changes to the deal will create a situation where the city would be responsible for a shortfall of potentially $100,000 from the TIF, while Ald. Victor Felix, 4th Ward, believes the designated TIF or a different one will be sufficient.
The City Council voted 6-3 Monday at City Hall to modify the initial deal satisfying the partnership's request after its financial analyst determined the designated TIF may not be able to reimburse the entire amount.
Spending just over $3.7 million to refurbish the former YMCA at the northwest corner of County and Clayton streets, the building will have apartments on the upper floors and 6,700 square feet of commercial space.
About two blocks away, the partnership is starting to spend more than $1.6 million renovating 38 North Genesee St., which once housed a restaurant, into a multiuse structure with six residences on the top floors and 3,000 square feet at the ground level for retail or office use.
Lowell Jaffe, the lead developer with the partnership, said after the meeting the group needs financial assistance from the city to help it strengthen the downtown real estate market so the entire area can improve. The incentives represent 32.5% of the project's cost.
'The only way to make this work is to build the population of downtown and increase economic activity,' Jaffe said. 'Unless the city is willing to improve downtown, you won't see meaningful growth.'
When the deal was first approved in February, the city agreed to give the partnership an incentive of $900,000 to start, and another $825,000 as the buildings generated rent and added tax revenue from the TIF.
Stewart Weiss, an attorney with corporation counsel Elrod Friedman, said at the meeting though the TIF has the $900,000, the partnership's financial consultant is concerned there will not be enough generated in the TIF during its remaining 14-year life to cover the full $1.725 million.
'What they asked for is if there is any amount of the $825,000 that has not been paid for that the city would make good on that amount,' Weiss said. 'We believe it would not be more than $100,000, but we don't know that for sure.'
Removing the $900,000 from funds coming from the TIF, Weiss said it needed to be paid from a different city fund. On Feb. 3, some council members suggested it come from monies generated from gaming and cannabis sales and taxes. Felix suggested on Monday.
Hayes said creating a situation where the city might be required to pay the partnership because revenue from the development was insufficient was a risk he was unwilling to take. He is comfortable taking the $900,000 from money generated from gaming and cannabis.
'If their development doesn't go as well as they hope, as well as they're promising it's going to go, then we have to go find the money elsewhere and pay it to them,' Hayes said. 'Therefore, we're on the hook for that money. That sounds like a bad deal.'
Felix said if there is insufficient money in the TIF to satisfy the $825,000 due the developers over the next 14 years, money can come from neighboring TIF districts — two exist — so there is no risk to the city. He accused Hayes of trying to sabotage the transaction.
'That's not true,' Felix said referring to Hayes' concerns. 'It's all going to be there in (the TIF), we're there. We're not giving a blank check. It has to be paid back and we have contiguous TIFs we can use so they can get the funding they need. You're trying to shut the deal down.'
Before the discussion, Sam Yingling, another member of the partnership, said the $900,000 will be placed in a construction escrow and will not be disbursed until the contracted work is complete.
Shortly after the Feb. 3 meeting, Jaffe said the buildings on County and Genesee were the initial part of the first phase of a $315 million project, with 700 residences, 70,000 square feet of commercial space and a park. Yingling said the $1.725 million request is part of $52 million sought from the city.
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