Milwaukee-area communities have woken up and embraced tax-increment financing (TIF) as a way to stimulate retail and commercial development. Unlike our neighboring state of Illinois, Wisconsin is not afforded the same luxury of allowing retail sales taxes to flow to municipalities, which allows for greater financial flexibility and helps offset the cost of infrastructure and municipal services as a result of retail development.
Wisconsin municipalities do not impose local sales or use taxes on purchases of goods and services. Based on a 5.6 percent tax rate for average Wisconsin communities, 5 percent flows to the state, 0.5 percent flows to the county and 0.1 percent would flow to a specially created district, such as a stadium or entertainment venue.
Dan Rosenfeld, Mid-America Real Estate
TIF allows cities or villages to finance commercial development in a designated area, called a tax incremental district (TID), to promote a tax base expansion and economic development.
The property taxes within the TID are placed in a special fund and are used to pay for improvements within the district. When the property values rise within the TID, the taxes paid on the increased value can be used to pay back public project costs, which otherwise can’t occur.
Developers eye mixed-use
Examples of this can be found all throughout the Milwaukee area with some relatively large projects.
Cobalt Partners, a Milwaukee-based developer, is completing two such projects. The first is White Stone Station, a $100 million mixed-use development spanning 65 acres in Menomonee Falls. The village assisted with the creation of a $26 million TID, allowing for the development of a Costco, 91,000 square feet of mid-box retail space, various restaurants, a Home2Suites Hotel and 318 high-end residential units.
Another Cobalt Partners project is 84South, a $200 million mixed-use development in the city of Greenfield. The city created a $43.5 million TID, allowing for 350,000 square feet of retail space, 170 apartments and a 130,000-square-foot medical office building. The property, slated for completion in 2019, will span 45 acres.
Milwaukee will also welcome an IKEA store next year as a result of TIF within Oak Creek. The city assisted IKEA with $18.7 million to ignite what will be a $50 million development of a 291,000-square-foot IKEA store, and 20 additional acres of mixed-use development. This project is sited along I-94 at Drexel Avenue, just south of Milwaukee.
Oak Creek also put its muscle behind an 85-acre redevelopment of a former Delphi manufacturing facility to create a $210 million development called Drexel Town Square. Upon completion later this year, Drexel Town Square will be home to city hall, the Oak Creek Library, a Meijer store, 230 apartments, a Towne Place Suites hotel, Froedtert Medical Facility, plus dozens of restaurants and small-shop retail.
Oak Creek saw this opportunity, with $37 million in TIF funds, as a way to recreate a downtown in the suburban setting.
On a smaller scale, the city of Milwaukee saw the use of TIF as a way to attract a grocer in an underserved part of the city. Wangard Partners, a Milwaukee-based developer, is building Freshwater Plaza. A 42,000-square-foot Cermak Fresh Market anchors the $47 million development, which also features 16,500 square feet of retail space and 72 apartments units. The city of Milwaukee created a
$5.3 million TID to assist Wangard Partners.
Unless the Wisconsin State Legislature decides to enact legislation allowing municipalities to capture retail sales tax, tax-increment financing will continue to be used to help stimulate and create commercial development projects.
— By Dan Rosenfeld, Principal, Director of Sales and Leasing, Mid-America Real Estate-Wisconsin. This article first appeared in the November 2017 issue of Heartland Real Estate Business magazine.