TAX-EXEMPT BONDS TO FINANCE MILLION-DOLLAR LAKEFRONT SENIOR UNITS (ALSO TAX-FREE)

[Above: This is not your grandmother's nursing home! Artist's rendering of $83 million, 88-unit tax-exempt expansion planned for St. John's on the Lake, Milwaukee] 

 

FINANCING LOGJAM BROKEN

ZIEGLER SET TO PRICE BONDS FOR 

MILLION-DOLLAR TAX-EXEMPT SENIOR HOUSING EXPANSION

BUT NEW LAW MAY PUT BUILDING ON 2010 TAX ROLL

Special to the Readers of Milwaukeeworld.com 

By Michael Horne

And The Milwaukee World Hound Dog Team

The plans to expand St. John's on the Lake, 1840 N. Prospect Ave., Milwaukee, with the construction of a new tower are moving along after a long delay occasioned by the collapse of the financial markets for old folks' homes. The facility on N. Prospect Avenue in Milwaukee will add 88 units " featuring breathtaking views of Lake Michigan from our prestigious East Side location," according to the promotional materials for the project, expected to commence next month, October, 2009, and to be completed in 2011.
Units will begin at 1,100 square feet.
Seventy-five percent of the units have been reserved -- a number that, for a real estate project, virtually ensures success and guarantees financing.

Both the units to be developed and the bonds used to finance the project are tax-exempt -- a huge advantage for a construction project in a competitive market and what may be described as a considerable taxpayer subsidy of of luxury housing.  

Financing will be arranged through Ziegler Wealth Management, a division of B. C. Ziegler and Company of West Bend. Approximately $83 million in federal income tax-free bonds will be issued through the Wisconsin Health and Educational Facilities Authority [WHEFA] to finance the project.

That's $943,181 per unit!

"Technically, they are not a debt, liability, or obligation of the State of Wisconsin," the WHEFA website notes.  [The bonds are repaid through project revenues; WHEFA receives no direct tax support.]

"Since interest earned on the bonds is exempt from federal income taxation, they can be marketed at lower interest rates, which reduces the cost of borrowing," the agency continues.

TYPICAL WHEFA PROJECTS FUNDED BY EXEMPT BONDS

Current WHEFA projects include $8 million for hospital equipment at Agnesian Health Care of Fond du Lac, $55 million in refinancing bonds at Beloit College, an $11 million first mortgage at Door County Memorial Hospital, $180 million for Froedtert & Community Health, among other projects. [See list.] The closest project to St. John's is $12 million financing for Pine Haven Christian Home and its planned 24-unit Assisted Living Apartment Complex in Oostburg. That clocks in at $500,000 financing per unit -- half that of St. John's, and there are differences between  independent living, like the proposed St. John's expansion and Assisted Living, like the Pine Haven and other projects.
Assisted living provides such things as dressing, personal care, housekeeping, laundry, meal preparation, medication monitoring, at a much greater cost for infrastructure than independent living facilities, and a far greater percentage of non-residential space per square foot developed, to account for offices, kitchen areas, laundries, etc. These items are much less a factor in Independent Living facilities like St. John's.


BUT HOW OFTEN ARE MILLION DOLLAR HOUSING UNITS EXEMPT FROM PROPERTY TAXES?

Traditionally, hospitals, assisted living facilities, nursing homes, dormitories, hospices and other similar housing have been exempt from real estate taxes. However, it seems a stretch to extend this real estate tax exemption to luxury units that will cost nearly a million dollars apiece to develop.
Your typical hospital unit or dorm room does not contain "master bedrooms, washer, dryer, fully equipped kitchens, walk-in closets, and terraces with all residences, guest suites [also tax-exempt--Ed.] and aquatic center with indoor pool" as will St. John's. Nor do most tax-exempt projects include "signature residences" on the top floor. [The existing St. John's, half of which will lose its lake view with the construction of the new facility, already features a number of two-bedroom, two-bath units combined from the original one-bed, one-bath units dating to 1978.]

WILL ADD $2 MILLION ANNUAL BURDEN TO COUNTY PROPERTY TAX PAYERS

So why should such above-and-beyond amenities be beyond the reach of the assessors in Wisconsin?
Based on the $83 million cost of construction, and on 2008 tax rates, the exemption for the proposed St. John's Home expansion, will cost almost $2 million to the following units of government:

• City of Milwaukee -- $671,470
• MPS                     -- $684,750
• County                  -- $348,600
• MATC                  -- $161,020
• MMSD                 -- $113,710
• State                      -- $ 14,940

ASSESSMENT COMMISSIONER REVIEWING OPTIONS UNDER NEW LAW

Milwaukee Commissioner of Assessments Mary Reavey sent this message to Milwaukeeworld suggesting her department is reviewing legislation signed into law in July that may provide an opportunity to tax units such as those proposed for the St. John's expansion:

Dear Mr. Horne,

Thanks for your email.  Like you, I saw the article about the $83 million in bonds being offered by St. Johns.

There was a provision in the Governor’s budget bill drafted and signed in early July that attempts to clarify the exemption for benevolent retirement home housing.  These provisions take affect for the January 1, 2010 assessment roll.  Right now myself and others (including the Department of Revenue) are in the process of devising a procedure that will implement this.  The intention of the new legislation is to limit the exemption.  Here is a synopsis of the provisions:

·         All units whose fair market value is 130% over the county average equalized value are assessable.  In determining the fair market value of each unit the assessor must eliminate the value of the common area.

·         A maximum of 30 acres is exempt

·         If over 50% of the units are determined to be taxable, all of the common area becomes taxable.  If 50% or less are taxable all of the common area is exempt.

·         The retirement home must be non-profit and benevolent to qualify for exemption.

Due to the new legislation we will  be reviewing all the retirement home exemptions.  From what I know about St. Johns at this time it is likely that the new addition will be taxable.  The  final decision will be made after the procedures are determined and they submit an application.  Thanks for your interest in this matter.  Please let me know if you have any other questions.

--Mary Reavey

FIND OUT IF THE $83 MILLION TAX-EXEMPT BONDS ARE A GOOD INVESTMENT FOR YOU

Representatives of Ziegler Wealth Management will hold an informational meeting Wednesday, September 23rd, 2009, at St. John's on the Lake, 1840 N. Prospect Ave., Milwaukee, for the purposes of discussing the merits of the proposed bond issue, and whether it's a good investment for you. Why at 6 per cent, a modest half-million dollar investment would yield a tax-free $30,000 per year, more than what it costs to live in a two-bedroom St. John's Independent Living unit!

Remember, with tax-free bonds, the more you make, the bigger the break!

--Michael Horne