The challenges of mall redevelopment

The former Wausau Center mall site will be a challenge no matter what happens

Business leader after business leader Monday night stood up and extolled the virtues of a project called Foundry on Third in front of city council members gathered for a special meeting.

It’s something we’ve seen before. Those same leaders spoke at every iteration of the Wausau Center mall redevelopment project appearing before city committees or the council. The message is the same: Wausau is falling behind its peer cities and will continue to do so if this project isn’t approved.

Wausau needs young professionals, they reason, and those young professionals want cool places to live downtown, not some boring old big box apartment outside of town. They want to walk to work, to grab breakfast, to check out the bars.

As one council member pointed out Monday, many of these same business leaders gave similar doom and gloom assessments about a deal that would have given failed mall company CBL, which originally owned Wausau Center, $4.1 million to move Younkers from the center of the mall location to the west anchor spot.

Then-Community Development Director Chris Schock told everyone that, without it, the mall was doomed to failure and would close, and downtown would fall with it. With it, the mall had a chance of turning back around. That wasn’t long before Younkers as a company completely failed.

The mall ultimately was closed, intentionally, and downtown today is in noticeable decline. Foot traffic, outside of special events, is a shadow of what it once was. Businesses are starting to close downtown. The latest closures include Sweets on Third and Honest J’s, the latest in a string of coffee shops in the spot that included The Ugly Mug, the Paisley Mug, and before that, Alister Deacon’s.

On the docket Monday wasn’t an approval of the project that would replace part of the mall: a 150-unit luxury apartment complex and mixed-use building that would fill a gap city leaders highlight in the downtown for livable places. That had already been debated and decided long ago.

On that docket was whether or not to grant an extension after the developer, T. Wall Enterprises, and the site manager, Wausau Opportunity Zone, failed to deliver on the development agreement with the city that dictated work should already have begun by now.

It’s not a new thing in city development history. Every project in the city’s flagship development area, Riverlife, has seen delays and often multiple developers. The only project to be completed in that area (outside of Wausau on the Water which kicked off the development zone) since the city started seeking development there in 2015 is the first apartment complex on the river, completed by the third developer to tackle the project. The former West Side Battery building still remains vacant, though city officials say the affordable apartments on the site proposed by Gorman ought to be happening soon. The project on Grand Avenue for affordable housing received similar delays in receiving low-income tax credits that support the project.

But the most disturbing delay came in the form of Frantz Community Investors in its now failed plans to develop the first RiverLife site on the Wisconsin River. Developer Mike Frantz kept stalling and asking for more time as he struggled with his capital stack. It turned out a development project in Green Bay descending into chaos led Frantz to struggle financially, and RiverLife got the brunt of that shortfall. As a result, the flagship development project was a hole in the ground for years until the project’s third developer ultimately finished the building.

Money is also central to the problems with the Foundry on Third development. As The Wausonian reported previously, T. Wall’s capital stack fell short. Why? WOZ Managing Director Chuck Ghidorzi said interest rates climbed, banks such as Signature fell in what looked like an inevitable banking crisis narrowly averted, and lending institutions needed to solidify their books and liquidity by halting a lot of lending.

Because of that, just having banks willing to work with the city project is a win, Ghidorzi says. Money is scarce for these types of projects in this inflationary environment (with construction inflation, always high, topping 35% according to Ghidorzi).

But there is still missing money, and it’s going to be tough to find, Ghidorzi admitted to me after the meeting. They’d solicited local accredited investors ¹ and didn’t have much luck.

I asked Ghidorzi how exactly they were going to get the funding. He said that would come from new investors, who would be providing loans and not gaining equity in the project. They would need to be given a sweetheart deal to come to the table, he says. When people can get 5% returns in a simple cash account, they have to sweeten the pot.

Where does that money come from? At the expense of current investors with equity in the project. That means people who put up money in exchange for ownership stake in the project will see far below the returns Ehlers had said were already a bit low for that kind of investment. ²

That means those investors, at least in the years while the loans are being paid off, will need to take a hit on their returns in order for the project to go forward.

All that complication is the reason there was a special city council meeting Monday. It’s clear some council members saw red flags in the project, some potential similarities to delays in the past. Some were likely considering canning the project altogether by rejecting the delay. Others believe that at this point, there isn’t much choice. With no alternatives on the table, downtown would go longer with a broken up concrete slab at its center.

Background

Right before the pandemic, two non-profit groups approached the city with a plan to buy the mall and redevelop it into something that would be useful for the city. Other venture firms were poised to buy the mall and bleed it dry of profits, while letting it run into the ground, they told city leaders. That turned out to not be entirely true.

The city ponied up $1 million in TIF money to help the group buy the mall. That group ultimately became Wausau Opportunity Zone, which is a for-profit entity comprised of two non-profits. (A fact I often see misstated in other media reports.)

In 2021, Wausau Opportunity Zone demolished the Wausau Center mall, using funding that the city of Wausau helped provide. Wausau leaders ultimately renegotiated this deal.

WOZ leaders said they didn’t plan to demolish the mall as early as they did but COVID-19 hastened the mall’s end. It still had far more stores left than the CenterPoint MarketPlace in Stevens Point did - Point only had two stores left when the mall closed. Wausau had several more than that. But that said, the writing seemed to be on the wall.

WOZ then partnered with T. Wall Enterprises, which nearly sued the city in a row over the city’s third RiverLife project. Some council members felt like WOZ pinched T. Wall from them, and based on the way Ghidorzi presented it to city leaders in a public meeting, it sounded exactly like that.

The city ultimately gave T. Wall Enterprises $10 million in tax incentives (including the interest and fees the city would pay) to help the company build the first of what T. Wall expected would be two projects on the former mall property: a 150-unit luxury apartment and mixed-use building with rents ranging from $800-$2,879.

That was supposed to start construction when the ground thawed in spring 2023. But months went by with no progress, and little word on why. City leaders said they were delaying the street work that coincides with the project to “better match the project’s start.”

Then, buried in a weekly update, WOZ announced that the Foundry on Third project would be delayed until 2024. Shortly thereafter, The Wausonian learned why: lack of investment. A number of local investors confirmed to The Wausonian that they were approached about investing in the Foundry project, well after it was originally supposed to have broken ground.

Which brings us to today.

WOZ’s offer

Ghirdorzi explained that WOZ would be covering the costs of any delays. He says WOZ has put $6 million into the project so far, and recently included another $450,000 committed to the project.

On Monday, the council essentially said they would like to see that in writing.

Following a closed session Monday, the city council stalled on approving the delay, instead directing staff to work with WOZ in order to solidify their promises into the new version of the development agreement.

According to the resolution, they directed staff not to take action on the default provisions included in the original developer’s agreement. Instead, they directed staff to include in the new development agreement language that reflects Ghidorzi’s statements about WOZ and T. Wall covering the costs of delays. They want that done in 60 days.

It wasn’t unanimous. Alderpersons Tom Kilian, Gary Gisselman and Lou Larson voted against the resolution, and in open session prior to the meeting with outside counsel they expressed concerns about the project.

Kilian made comparisons to the CBL deal mentioned above, and said the city has been poor in detecting red flags in the past in its dealings with private-public sectors. “And we’re seeing flags now, and hey, they’re red.”

The cost of inaction

There is plenty in the WOZ/T. Wall deal to give reasonable people pause. But what about the alternative?

In its current state, the former mall site looks like a war zone and it’s frustrating residents. Many expressed that on City Pages’ reader survey, due out in the Get with the Program magazine coming out in a couple of weeks.

Hitting the reset button will prolong that situation, regardless of whether or not it would ultimately be the right thing to do.

The Children’s Imaginarium is set to open this fall, and road work will continue on developing the street grid in the meantime. Work is also progressing on a new storefront for HOM furniture where it once connected with the mall.

The delays will also mean the project gets less in TIF funding. As Community Development Director Liz Brodek explained Monday, under the new timeline they would get one less reverse TIF payment. Essentially the company is receiving a $120,000 penalty for the delay.

And it’s not even in question that downtown needs housing. (It is a question that new apartments bring down prices, as we highlighted in this piece.)

In perhaps the most persuasive speech of the night, Malarkey’s Pub owner Tyler Vogt was nearly in tears talking about how more of his employees live outside the city than inside it. They commute from such places as Merrill, Marshfield and even Harshaw (a friend helping him out, he explains). “They would love to move into town,” Vogt says. “We’ve been missing residents for 20 years. Don’t make it another 20.”

The President of Ruder Ware Law Firm, Matthew Rowe, told those gathered that a young attorney who just started with the Ruder Ware firm moved into the apartments where Mountain Lanes was, but when learning about the Foundry expressed that he’d wished that was available when he moved to town.

When Ruder Ware hires an attorney in 2025, will that Foundry building be available? If all goes according to the newly amended plans, that should be the case. But that’ll depend on WOZ and T. Wall being able to attract new short-term investors to the project.

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1. It’s a fancy term for rich people. It’s defined as having either an income of more than $200,000 (or $300,000 with a spouse) or having a net worth of $1 million or more.

2. Ehler’s financial audit provided to the city detailed a roughly 9% CAP rate, which it said barely put it into acceptable territory already. For context, I have partial ownership in multi-family properties (not in Wisconsin) that pay more like 16%.