MATC rendering update (copy)

While plans to convert MATC's Downtown Education Center into a hotel will proceed, plans for a 10-story office building along Wisconsin Avenue, seen in this rendering, have been scrapped.

HOVDE PROPERTIES

A developer that planned to build a 10-story office building on Madison Area Technical College’s Downtown property and pay MATC as much as several million dollars per year to lease the site is backing out of its part of a larger $131 million project.

The decision by Hovde Properties of Madison to drop its $80 million office building raises new questions about what development will fill part of the block-sized parcel just off the Capitol Square instead, and whether the college will take in less revenue from the lease than officials had hoped.

“There were just a number of issues with the underlying land lease,” Hovde president Michael Slavish said. “We just didn’t have a confidence level moving forward.”

Drury Southwest, a Missouri hotel company that had partnered with Hovde to develop the site, will continue to pursue its plan to renovate MATC’s Downtown Education Center and turn the building into a 197-room hotel.

Drury officials “will work with the college to create a development plan for the remainder of the site,” MATC spokesman Cary Heyer said in a statement Friday.

Heyer did not say what will happen with the part of the site on which Hovde planned to build the office building, if Drury will partner with a new developer, or how much Drury is expected to pay the college for a ground lease, citing ongoing negotiations with the company.

Heyer said MATC officials hope to finalize an agreement with Drury “in the coming weeks,” which would be subject to approval by the college’s district board.

A call to Drury’s office was not returned Friday.

MATC officials said the loss of Hovde will not affect the college’s other major facilities project: its plan to build an expanded campus on the current site of a state office building on Madison’s South Side. Heyer said that’s because funding for the South Side campus is coming from a number of private donations worth as much as $21.3 million.

The college says its timeline for vacating the Downtown Education Center isn’t changing either — MATC still hopes to be out of the building by the end of 2018, so the renovation can start in early 2019.

Hovde and Drury had each expressed interest separately in the site when MATC asked developers to submit their qualifications for the project. But while Hovde was one of five finalists selected to submit redevelopment proposals, Drury was not.

The companies later became partners, with Drury leading the renovation of the existing building and Hovde taking on the office building, with a grocery store and retail, on the rest of the campus.

Plan chosen for

high payments

MATC officials said a chief reason they chose in April to pursue the Hovde and Drury project was because the firms told the college they could pay far more in annual rent than any of the other developers.

The companies’ proposal said their annual payments on the 98-year ground lease could start at $750,000, and rise to over $4.5 million by the end of the lease.

Over the life of the agreement, MATC officials said, the Hovde and Drury proposal would bring in $200 million — about double the payments of the second most lucrative proposal, from Alexander Co. of Madison.

“After you look at the numbers and everything else and the type of firms that (Hovde and Drury) are, I think the majority is going to say, ‘This is something you have to do,’” Daniels said in April. Heyer said Daniels was not available for an interview Friday.

The proposed payments were not overly optimistic, Slavish said. But when the sides began negotiating the details of the land lease, problems emerged, he said.

“When you go into actual specifics of a lease document, a lot of details came forward that gave us cause for concern,” Slavish said.

Hovde had concerns about issues such as a changing economy, interest rates and market risks that he said needed to be addressed in the 98-year land lease, declining to share specifics.

Ald. Mike Verveer, 4th District, who represents the area where the site sits, said he had been having regular discussions with the development team until the last few weeks. “This is largely surprising to me,” he said.

Future of site unclear

With Hovde out, it’s now unclear exactly what the full redevelopment will look like.

Among possible options: Drury could proceed with the hotel and take on a partner for the portion of the property facing Wisconsin Avenue that was to be developed by Hovde; Drury could shape plans for the full block; or MATC could seek another developer for the area Hovde planned to develop.

Drury had told city officials and the neighborhood that it intended to seek National Park Service designation of the MATC buildings as certified historic structures and seek state and federal historic preservation tax credits to support the hotel project, Verveer said.

It’s unclear, however, if, or how much, Drury is currently relying on tax credits to finance the project.

In the past, state and federal tax credits could each cover up to 20 percent of qualified reimbursement expenses — a total of perhaps $12 million to $16 million for a $40 million project. But the new state budget caps assistance at $500,000, and GOP federal lawmakers are considering reducing or eliminating the federal credit.

Downtown stakeholders had reacted “very favorably” to the hotel use and adaptive reuse of the MATC’s historic buildings, Verveer said.

Now, “it begs the question of what’s the future of the Wisconsin Avenue side of the block and how will Drury accommodate parking for the hotel,” he said. The availability of historic tax credits for the project “is a concern for me.”

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Nico Savidge is the higher education reporter for the Wisconsin State Journal.

Dean Mosiman covers Madison city government for the Wisconsin State Journal.