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Guest column: A tale of two stories

in Opinion

By Keene Winters

This is a tale of two stories. What are two stories worth and which story do you believe?

Keene Winters served two terms on the Wausau City Council from April 2012 to April 2016. (Photo credit: Life Touch)

Back on March 13th, Mike Frantz announced that he would be adding two stories to the proposed mixed use building in the east riverfront development. That got me wondering about which of the two stories most readers believe? Some are in the camp that believes the riverfront project is meeting its deadlines and on-track to be wonderful. Others believe that there is neither a plan nor the money to move forward.

The surprise announcement of the additional floors was greeted as good news by people in the first camp. Mr. Frantz told the council that the addition would raise the value of the project’s taxable real estate from $23 to $27 million. People in the second camp were left wondering how such extravagant numbers could suddenly spring into being. It was either the best of times or the worst of times, depending on who you spoke to.

As a practical matter, it should be noted that this major change order creates some impediments to the project advancing. It means there will have to be both a revised building plan and a revised business plan.

The revised building plan needs to be completed and filed with the state before construction can begin on the mixed use building. Unfortunately, state filings can get backlogged this time of year because everyone is getting ready for construction season.

Moreover, at least a basic program statement or some precursor to the revised building plan is needed to complete a new business plan. There has to be some list of the rentable spaces to project gross income and information about the square footage to project parts of the operating costs.

The business plan, in turn, is critical to raising money. Equity investors (i.e., owners) will want to know what the buildings will be worth. The market value of commercial buildings is based on the income it can generate for its owners. Lenders will be curious not only about the value of the asset as collateral, but will also want to see that the property can generate sufficient cash to stay in business and make its loan payments.

Has anyone seen any revised plans yet?

Based on my reading of source documents, it is my opinion that a revised business plan that supports a real estate valuation of $27 million would be hard to construct. The sizes of the buildings are fixed, and they are unlikely to be able to produce materially higher rents than contemplated in the original business plan.

Here are the data I see. In its June 28, 2016, analysis of the original building business plan, the city’s financial consultants, Ehlers, used a capitalization rate of 8.5%. A capitalization rate or “cap rate” is a term used in the valuation of commercial real estate. It is defined as the net operating income of a property divided by its fair market value. Knowing two of the inputs of the equations allows a person to solve for the third.

In this case, Mike Frantz promised an assessable property value of $27 million with the two additional stories. If we multiply that number by 8.5%, we get an expected annual net operation revenue of $2.30 million ($2,295,000 to be exact). That fills one blank in the table below.

Without the additional floors, Mike Frantz said the buildings was worth $23 million. Multiply that by 8.5 percent, and we have a second number for the table.

Those figures are higher than in 2016 Ehlers analysis. It placed net operation income for the apartment building at $715,247 in 2022 and income for the mixed use building at $491,288. Together, that totals only $1.20 million. Keep in mind that the consultants also went on to express concern that the rents used in that model were too high for the Wausau market. That makes me skeptical that rents can go much higher—and certainly not 50%-to-60% higher.

We can make a rough adjustment to the Ehlers numbers for two additional floors on the mixed use building and round out the table.

Using the cap rate, it is possible to convert the numbers back to building valuations. Again, the recent numbers are significantly higher than what was projected in the original business plan with or without the two additional stories.

So, who is a person supposed to believe?

These new numbers have been out for a month without any documentation to back them up. By the end of April, Mike Frantz should provide the City of Wausau with a revised business plan, and the city should turn it over to its financial consultants for a professional evaluation. Such a significant change to the project’s plans should not go this long without explanation.

Unfortunately, getting the silent treatment from their city government is nothing new for the citizens of Wausau. It happened after the city borrowed money to give to CBL & Associates to save the mall. It happened after the city bought the Sears building to give to Micon Cinemas. I have a bad feeling that we have been here before; the silence means there is no good news to report.

This controversy has a simple solution. All that is required is for Mike Frantz and the city to “come clean” to the public about what is going on and do so immediately.

Editor’s Note: This is one in a series of opinion editorials by Keene Winters on decision-making at City Hall. Winters served as an alderman in Wausau from 2012-2016. Opposing viewpoints are welcome; email guest editorial submissions and letters to the editor at

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