Mall gamble

(First published in the September 19, 2019 issue of City Pages)

What’s at stake as local philanthropists pitch in $2 million, and ask the city for $1 million, to control Wausau Center’s future


Last week, a group of local philanthropists stepped forward with a proposition to buy Wausau Center mall for $3 million — a six-block downtown property that once was valued at around $70 million and is currently assessed at $10.3 million.

The hitch: They’re asking the city of Wausau to kick in $1 million toward the purchase, and give them the former Sears building (now owned by the city) and options on the attached parking ramps.

The really good news is that this would put a valuable, high-profile piece of property in the hands of local, community-minded people. But it’s also a gamble for the city, because the purchase would be just the beginning.

Wausau taxpayers could look at Stevens Point to consider the gambit. A little more than seven years ago, construction machinery started cutting a hole in CenterPoint MarketPlace in Stevens Point. The mall, barely half full in its best years, hung like an albatross around the neck of Stevens Point’s downtown. Only two stores remained open the last day the mall was in business.

The bank that owned the mall sued the mayor at the time, there was a court battle, and the city ended up paying nearly $9 million all told in order to turn part of CenterPoint into a campus for Mid-State Technical College, tear down the rest, and reconnect its Third Street, over the top of which the mall was initially built.

Wausau Center is different in some ways. It worked as a thriving regional shopping center for decades, and even during its decline is busier than Stevens Point’s mall ever was. But Wausau Center is losing hundreds of thousands of dollars per year. The last national store to open there, Hibbets Sports, was a tenant for only a few short years. HOM Furniture recently opened in a new anchor wing, but the other two (formerly Sears and JC Penney) are empty.

On the bright side, new stores and organizations have opened inside, and all are locally owned.

Wausau is being asked to contribute $1 million to the collaborative efforts of two foundations — the Judd S. Alexander and Dwight and Linda Davis foundations, collectively called the Wausau Opportunity Zone Fund — to buy the mall for about $3 million, adding $2 million of its own money. The purpose is to secure the mall and/or its footprint for a future developer, and prevent it from falling into the hands of a company that simply would extract as much revenue as possible while letting the building run into the ground.

The $1 million doesn’t cover any incentives the city would likely need to kick in to lure a developer — and make no mistake, there will need to be incentives.

The gamble is whether the ultimate hard-dollar cost is better than the long-term cost of having a dilapidated building at the city’s core. In Stevens Point, the direct cost ended up being $9 million.

Besides potential city incentives, a new developer could potentially take advantage of a little known portion of the 2017 tax bill created under the Trump Administration that provides tax incentives for developers in certain development zones — called Opportunity Zones. The mall happens to be in one.

Time crunch and TIF District gymnastics

It’s not uncommon for local philanthropists to hold key property for the right development. That’s what happened in Wausau under what’s now the Wipfli building and Dudley Tower on Scott and First streets.

In this case there is a time crunch. Rialto, the company that owns Wausau Center Mall, has another cash offer, according to Mark Craig, manager of Compass Properties, which has invested around $20 million in other downtown properties, including the Third Street Lifestyle Center and City Square office complex. Before joining Compass, Craig was the former manager of the mall, and helped pull together the players involved in the current Wausau Opportunity Zone Fund to buy the mall now. He warns that the WOZ group’s offer is the winning bid only in waiting. If the city doesn’t decide soon—within the next month of so—to chip into the deal, Rialto likely will go with the other offer.

Meanwhile, plans are being laid. Craig says an architect who specializes in “de-malling” distressed properties is coming to Wausau soon to take a first look. A Houston company specializing in distressed shopping centers, RockStep Capital, also is involved, Craig says.

What could the mall become? Right now the sky’s the limit. It could include office, retail, or entertainment, and likely some combination. Most likely the mall won’t remain in one piece, but sliced and diced to create new street patterns.

Leaders in Wausau are trying to avoid a similar scenario to Stevens Point’s, and are hoping to instead mimic something closer to Hilldale Center in Madison. Once a 247,000 square foot shopping center on the near west side of Madison, Hilldale was divided and turned into a mini downtown, with about 40,000 square foot of enclosed mall retail space, plus street-side stores. It also still includes a movie theater.

Does the city of Wausau have the $1 million to help make the purchase? Much of it can come from Tax Increment Financing districts, city Finance Director Maryanne Groat told city committees last week. It could involve districts #3, #8 and #12. The only problem? None of them currently contain the mall. No. 12 contains the empty Sears and JC Penney buildings, but not the main mall building itself. One of the districts would need to be expanded.

The city does have “mall” money though. Back at the end of 2015, the city approved a deal to move Yonkers from its south anchor location, to the vacant JC Penney building on the mall’s west side. That deal eventually fell through, stopped by Mayor Robert Mielke immediately following his election in April 2016, according to City Council President Lisa Rasmussen. But the more than $4 million needed for the project was already borrowed, designated for TIF districts #3 and #8. Some of that was diverted to the Riverlife and Second Avenue projects; but just shy of a million was allocated to the Fulton Street project, which could be used for the mall instead, Groat says. The Fulton Street project size decreased and the city got a $250,000 WEDC grant, she says. Groat’s plan is to take the money from TIF #3 and allocate it to # 8. “The million is available and the project plan is in place,” Groat says. “This is not a perfect situation but it is feasible.”

“If someone had told me 15 years ago that someone would be acquiring Wausau Center mall for about $3 million, I would have been stunned,” Rasmussen says. But the alternative — a New York liquidation firm buying and draining the mall, then suing the city over taxes—would be too much for the city, Rasmussen told City Pages. “The local group can surely do better,” Rasmussen says.

The mall already is trending local

Quinn Coyle, owner of Flashback Clothing Co., opened his mall store October 2018 in Wausau Center, including selling his own brand of clothing. He’s been busy with sales ever since, and now does traveling sales when he can. He goes to malls in Milwaukee, Minneapolis and hopes soon to sell in Chicago. Each line of retro-themed clothes is limited in production to 40 — once they’re gone, he never sells them again. That creates demand amongst customers who crave unique products. 

Coyle is one of more than a dozen local business owners who have set up shop in Wausau Center. The Gaming Emporium opened just this month. Next to it is a locally run dinosaur museum, Colossal Fossils. Across the way is the Wausau Children’s Museum. A woman’s golf clothing store opened on the opposite wing, and this summer a local restaurant serving pho and bahn mi sandwiches opened.

Locally owned businesses or organizations now make up nearly half of the 31 occupied spaces in the mall.

Right now there are 19 vacant spots. That figure would be worse if the mall relied solely on national retail locations typical of mall tenants. Those numbers don’t include the mall’s anchors — two are empty, and the former Yonkers space is now occupied by HOM Furniture.

Coyle says selling in the mall has not been a problem for Flashback, because he gets a big boost from social media. “I would love to help bring ideas to the project. Give our voice a chance,” he says about millennial adults like himself. 

The mall right now is serving an interesting purpose, for which Flashback serves as an example. Wausau currently lacks startup space for entrepreneurs looking to test their ideas, but the mall fills that purpose, says Wausau River District Executive Director Blake Opal-Wahoske.

What becomes of the mall is largely dependent on who shows up with money—and yes, a cinema is still on the table, Craig says. But Opal-Wahoske warns that, for the good of the rest of Wausau, the mall’s redevelopment should happen gradually, one block at a time. “Just opening up six blocks, ready to be filled, that will pull from downtown,” Opal-Wahoske says. Mixed-used, residential added to some retail would likely be the best fit, he says, and fits the city-funded Towers study, in which consultants determined that downtown needs more housing.

The mall is financially underwater, making it a tough sell for investors. Once earning $350 per square foot in a building that was valued around $70 million, its operations are now costing more than what it is taking in. Wausau Center is currently losing about $200,000 per year. The building is currently assessed at $10.3 million.

The basic idea is to get a healthy property on the city tax rolls, rather than allow an unhealthy one to drag everyone else down. Joe Mella, a Ruder Ware attorney chosen for his expertise in commercial real estate, is representing the Wausau Opportunity Zone Fund. Mella last week told city leaders the foundations aren’t concerned about getting their $2 million back. They just want to see a good use for the mall, and not have it fall into the hands of an asset depletion firm. Those investors would come in and buy the property at a rock bottom price, collect any income while drastically slashing operating costs, and run the place into the ground. Those are the companies Wausau Opportunity Zone Fund was competing against, Mella says.

Mella says the group proposed $3 million to outbid the low-balling asset depletion companies, who were bidding lower than that.

A zone of opportunity

The name Wausau Opportunity Zone Fund was chosen with a purpose. The mall happens to be located in what is called an opportunity zone, a relatively new concept that could help make the mall deal attractive to a potential investor.

Opportunity zones were created by the Trump Administration in the 2017 tax bill as a means to spark development with tax incentives for developers and investors. FinTech companies such as Fundrise even allow smaller scale investors to invest money specifically into opportunity zones.

An investor putting money into a project in the Opportunity Zone saves in a number of ways. It allows them to defer capital gains tax until 2026, reduces the amount owed by up to 15% after seven years, and the investor pays zero tax on gains from the opportunity fund itself.

There are more than 8,700 opportunity zones in the U.S., 120 of them in Wisconsin, according to the Wisconsin Housing and Economic Development Authority.

Just about every city in central Wisconsin has an opportunity zone—Merrill, Stevens Point, Wisconsin Rapids, Port Edwards, Nekoosa. The zones are areas designated as low-income tracts designated by the U.S. Census. Wausau has two zones that are side by side, their borders touching in downtown. The Wausau Center mall is one of them.

The name of the foundation’s LLC — Wausau Opportunity Zone Fund — is meant as a signal to potential developers, Mella told City Pages. That potential developer of the mall would be the first to use opportunity zone funding in Wausau, says Wausau Area Region Chamber of Commerce President and CEO Dave Eckmann.

Merge Urban Development Group, out of Iowa with offices in Madison, has specialized in taking advantage of the opportunity zones around the Midwest. Its nearest project is in Stevens Point, a mixed-use development on the former Lullaby Furniture Company site. They are also exploring a project at 120 Scott St. in Wausau, also mixed use focusing on housing.

Mella says that because the opportunity zone program is so new —on the books for about a year and a half — there are a limited number of developers set up to take advantage of the benefits.

Any proposal for a project for the mall will likely involve tax increment financing, which is one of the few tools available for economic development in Wisconsin, Mella says. “Wisconsin generally doesn’t have a full complement of tools for redevelopment,” Mella says. “Communities like Wausau have been actively engaged in TIF for redevelopment. They’ve gotten good at using it.”