Things are looking up for the mall project; but yet another failure on Riverlife
Prospects for T. Wall Enterprise’s 50-unit, market rate apartment complex proposal looked pretty grim late last year.
Chuck Ghidorzi, following a meeting in which the City Council approved a one-year extension for T. Wall after the company struggled to come up with the necessary funding, laid it out for me when I asked him how they expected to get the money needed.
He told me T. Wall would have to offer very favorable terms to investors to get the funding it needed to complete the capital stack. That meant those on the equity side — those who would actually own part of the project — would have to take a hit on their returns.
Ghidorzi didn’t tell me the terms of the deal, but I found them out later. Send T. Wall your money for 10 years, and have the potential to make 3x your money after that ten years, or a 30% APR. But you can’t touch it for five years, and get quarterly distributions after 5 years. For the most park your money is locked up for 10 years. None of the investors I spoke to sounded keen on the deal.
What a difference a few months makes. Today, in February 2024, T. Wall’s mall project looks like a done deal, while The Wausonian learned Friday that S.C. Swiderski’s RiverLife project is dead in the river.
I told the mayor recently that I didn’t think there was much chance the mall project was going to happen.
But, my analysis was based on outdated information. Development Analyst Nick Patterson told the city’s Economic Development Committee, in the first live update since the city approved the extension (supposedly updates have been included in council packets somewhere, without being noticed, which seems odd), says the bank lending environment has completely changed since last year.
Patterson said that lenders last year essentially said “hey, great project, but we’re just not lending right now.”
Travis Hicks in Ingrams explains what was going on in 2023, before saying that prospects for development should start looking up:
For most of 2023, banks focused on their liquidity positions and maintaining strong asset quality. The result was a more conservative approach to lending. Underwriting a new project became more difficult for a couple of reasons as the two main components of underwriting a construction loan came under pressure: 1) Costs for materials and labor continued to increase, and 2) Substantially higher financing costs made it even tougher.
Patterson points out those costs are starting to come down, and that now banks are more open to lending again. They’re confident now that the capital stack is in place to go ahead and build.
Meanwhile, Patterson says their team has been tracking prices, in order to obtain materials at the best rate. For instance, he says items such as sheet rock and dry wall are maintaining steady prices, and steel is down 5% in prices. And overall multi-family construction inflation in the past 12 months has been around 2% for the past 12 months, which is actually lower than typical (construction inflation is typically a couple of points higher than consumer inflation).
Patterson says T. Wall Enterprises is confident that they will be starting construction May 15.
But city hall would heard the opposite from S.C. Swiderski staff only a day later.
Another Riverlife failure
Just when city leaders were probably celebrating a win on the Wausau Center mall site, they got a punch in the gut from S.C. Swiderski.
The company on Wednesday sent notice to city hall that they won’t be building a mixed-use apartment complex on the Riverlife development site after all.
Why? In S.C. Swiderski’s own words:
SC Swiderski and the City of Wausau regret to announce that the proposed multi-use project in Riverlife is currently unfeasible due to unfavorable economic conditions.
Swiderski’s statement talks about high interest rates, high constructions costs, and economic uncertainty.
That seems to be kind of the opposite of what T. Wall’s Patterson said. According to him, construction costs are coming down or stable, and banks are lending again. Interest raters are high, of course, but expected to come down this year.
Was Swiderski counting on the Fed to drop interest rates? While many expected a cut already, the Fed has indicated rate cuts are coming this year as the economy stabilizes (CNBC):
To combat ongoing inflation, it raised the federal funds rate 11 times between March 2022 and July 2023. After its December 2023 session, the Fed forecasted it would make three quarter-point cuts by the end of 2024 to lower the benchmark rate to 4.6%.
Meanwhile, the S&P 500 hit all times this week, hitting above 5,000 for the first time in history and is up 5.65% on the year. And unemployment has remained low, at 3.3%, despite a number of tech industry layoffs.
And, Wausau reported the highest-ever net new construction:
It seems strange then to cite economic conditions. A project that looked doomed at the mall suddenly sees a turnaround. Why is the environment good for one builder, and not for the other?
City Council Member and Mayoral Candidate Doug Diny sent out a press release following city hall’s announcement asking many of the same questions we just did.
So I decided to ask the city’s community development director about the disparity.