MATC rendering update (copy)

Hovde Properties proposed building a 10-story office building on part of what is now Madison Area Technical College's Downtown campus.


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 Drury will do with the portion 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 of the site, 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.

Plan chosen for high payments

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.

MATC officials said a chief reason why 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, issues 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 had to be addressed in the 98-year land lease, he said, declining to share further specifics.

Ald. Mike Verveer, 4th District, who represents the site, 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 property facing Wisconsin Avenue, Drury could shape plans for the full block, or MATC could seek another developer for the site that was to be developed by Hovde.

Drury had told city officials and the neighborhood that it intended to seek designation for the MATC buildings and seek state and federal historic preservation tax credits to support the hotel project, Verveer said. 

In the past, state and federal tax credits could each cover up 20 percent of qualified reimbursement expenses -- a total $12 million to $16 million for a $40 million project. But the new state budget caps assistance at $500,000 and the GOP federal lawmakers are considering an elimination of 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 Wisconsion 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."