By Tom Daykin of the Journal Sentinel Oct. 16, 2011
It’s been 15 years since the former Pabst brew house last made Pabst Blue Ribbon on a rise overlooking the northern end of downtown Milwaukee. Now, the building is being converted into a 90-room extended stay hotel, with the former brewing kettles serving as part of the décor. Known as the Brew House Inn & Suites, the project has a groundbreaking ceremony Monday, with the hotel set to open at the end of 2012. The $18.8 million hotel, being developed by Oregon, Wis.-based Gorman & Co., is one of three new projects under way at the 21-acre former Pabst complex, now called The Brewery – one of downtown Milwaukee’s largest ongoing commercial real estate developments. Also coming to the site are the University of Wisconsin-Milwaukee’s $12.25 million School of Public Health, funded largely by a $10 million gift from the estate of The Brewery developer Joseph Zilber, and the $8.7 million Brewery Point Apartments, which will feature one- and two-bedroom units for elderly residents. Largely due to the recession and the tight lending standards that followed, the pace of construction at The Brewery has been slower than expected since Zilber’s group bought the site and some related assets for $13.5 million in August 2006. “When we got started in 2007, we didn’t know about 2008,” when the recession took hold and the global financial services industry nearly collapsed, said Michael Mervis, spokesman for The Brewery. Even so, The Brewery already holds five completed projects: A 40,000-square-foot office building, developed by Charles Trainer and Max Dermond within the former Pabst boiler house. Opened in January 2009, its tenants include Inland Cos., Albion Group Architects and Krukowski & Costello law firm. Blue Ribbon Brewery Lofts, a 95-unit apartment building developed by Gorman in the former keg house, which opened in January 2009. A pair of renovated adjacent office buildings, totaling about 43,000 square feet, one block west of the former boiler house, owned by investors Sonny Bando, Mark Chmura and Matt Chmura. In summer 2009, Cardinal Stritch University opened its College of Education and Leadership in one of the buildings. The 900-space parking structure for The Brewery, which opened in the fall of 2009. Best Place at the Historic Pabst Brewery, the former Pabst visitors center redeveloped by Jim Haertel. Best Place, which opened in spring 2010, includes a gift shop, Blue Ribbon Hall banquet room and The Little Tavern on The Hill.
Zilber got involved at the former Pabst site after an effort to create an entertainment and retail-oriented project, led by Wispark LLC, the development subsidiary of Wisconsin Energy Corp., failed to obtain city financing. Wispark and Cleveland, Ohio, developer John Ferchill bought the former brewery in 2002, six years after Pabst Brewing Co. closed it. In December 2006, the Common Council and Mayor Tom Barrett approved a $29 million financing package to help pay for Zilber’s project, including environmental cleanup work, demolition of some buildings, and construction of new streets and other public improvements. Property taxes generated by new and renovated buildings at The Brewery will pay back the city’s funds, plus interest, by 2031, according to the latest Department of City Development estimate. Once that $42 million debt is paid off, those property taxes go to the city, Milwaukee Public Schools, Milwaukee County and other local governments. At the end of 2010, The Brewery’s properties were valued at $30.6 million, including $21.3 million in new development since 2007, according to the Department of City Development. Even with the three new projects, however, The Brewery will be far short of the $200 million in estimated total property values that were expected once the entire project was completed. That estimate was created before the recession, and the final value will likely be a lesser amount, Mervis said. Still, despite a difficult economy, the project’s developers are generally pleased, Mervis said.
The Brewery has additional prospects, including one for the former bottling house and another that would use the former Pabst distribution center. Mervis declined to name those prospects. Astronautics Corp. of America has considered consolidating its Milwaukee headquarters and manufacturing at the distribution center site. But there’s been no word from company executives about whether those plans will proceed. Also, New York-based Whitestone Realty Capital LLC wants to convert the former malt house and adjacent grain warehouse into 124 upscale apartments for seniors. That $22.5 million project would be financed in part through a $12.3 million loan insured by the U.S. Department of Housing and Urban Development. If the department issues the guarantee, the loan would be made by selling bonds, with sale proceeds provided to Whitestone through the city. That carries some risk for the city. If Whitestone defaulted on the loan, the department could withhold portions of future federal community block grants to help make the loan’s payments. HUD provides those grants annually to cities. Whitestone’s proposal is stalled, said President Michael Zukerman, who says city officials told him they don’t have a program to service the loan. Zukerman said his firm recently offered to pay for the servicing, but city officials haven’t yet responded to that offer.
Spectrum of funding
Along with the city’s cash, state and federal funds have been used to help finance other Pabst projects. Blue Ribbon Lofts was partly financed with federal affordable housing tax credits, provided through the Wisconsin Housing and Economic Development Authority, and an authority loan, as well as federal and state historic preservation tax credits. To receive affordable housing credits, developers must lease apartments at below-market rents to people earning no more than 60% of the Milwaukee area’s median income. The Brewery Point Apartments project, being developed by St. Paul, Minn.-based CommonBond Communities Inc., also is using affordable housing tax credits. Other projects have qualified for historic preservation tax credits to help pay for renovations. Also, the parking structure was financed in part with federal New Markets Tax Credits, which help pay for commercial projects in lower-income areas.
Gorman is using historic preservation tax credits to help finance the conversion of the brew house into a hotel and the adjacent mill house into a restaurant. But most of the financing is coming from Chinese investors through the EB-5 program. That federal program allows a foreign citizen to obtain a U.S. residency visa by investing at least $500,000 that creates 10 jobs in a U.S. project or business. The two-year visa can be converted into a green card, which provides permanent U.S. residency privileges to the investor, the investor’s spouse and children. Gorman, which operates several apartment buildings, initially wanted to create apartments at the brew house. But when the recession struck, firm President Gary Gorman found bank financing had largely vanished. When Gorman turned to the EB-5 program, he learned that apartments didn’t qualify as an investment, so he instead looked into the feasibility of developing a hotel. The six-story former brew house, with its skylight, stained glass windows and copper brewing kettles, has design features that will fit in well with the future hotel, Gorman said. Initially, Gorman hoped to have a Hofbrauhaus restaurant and beer garden, but those plans fell through and the firm is now seeking a restaurant operator for the mill house. The hotel should attract business travelers and others who don’t want to stay in a “generic white box,” Gorman said. Meanwhile, his firm is eyeing another Pabst property for a possible future project. “We’d like to do more,” he said.