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Mall owners default on ground lease by missing payment, audit

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By Shereen Siewert

WAUSAU — The current Wausau Center mall ownership group is in default of its ground lease after failing to make two years of revenue payments and submitting related audits, according to city officials.

Wausau Center is largely owned by a Miami-based investment firm, Rialto Capital Management. The former Sears building, however, is owned by the city of Wausau and the former Younkers space is owned by a separate entity. Though Rialto owns the rest of the mall, they lease the ground beneath and the air above the building. That arrangement was negotiated in 1983, when the mall first opened.

As part of the lease agreement, the mall owners pay three fees: funds for the parking ramps, lease fees for the mall itself, and an annual payment based on the percentage of profit the mall earns. Of those, only the annual profit percentage payments are in default, according to Finance Director Maryanne Groat. City officials in 2016 agreed to waive the payment due in 2017 as part of negotiations related to the planned theater development, which failed to materialize. But payments due in 2018 have also been withheld, Groat said.

Council member Dennis Smith asked why members of the council were not informed of the issue sooner and had a sharp exchange with Groat during the meeting.

“How did we allow this to happen?” Smith asked Groat. “It’s been two years and we haven’t negotiated on the theater in what, 18 months and we’ve not been able to collect the money that’s due us?

“I can’t get out the checkbook and write the check for them,” Groat answered.

“I don’t expect you to, but I do expect you to collect the money that’s due us and I don’t expect to wait two years to get it,” Smith replied.

Smith also questioned why outside counsel is being used to negotiate with and collect funds from the mall owners when the city has two attorneys on staff.

“We know these people, we know where they are,” Smith said. “We couldn’t just call them up ourselves, the city, and say ‘you owe us the money; here’s the lease’?”

“We have done that,” Groat said.

“So what did they do, tell us to go pound sand and they’re not going to pay us?” Smith asked.

Groat said using an outside attorney made sense because of specific past successes in dealing with the mall owners.

Accompanying the annual profit percentage is an independent audit performed each year to ensure the calculations are correct, Groat explained Tuesday to members of the finance committee. No audit has been submitted for the 2018 payment.

Though the city has collected more than $4 million in revenue payments over the past three decades, the annual amounts vary considerably from year to year, ranging from a high of more than $300,000 to a low of about $34,000, the last amount the city received, Groat said.

And if the mall isn’t making a profit at all, the owners could be relieved of any obligation to make those payments, she said.

Groat said she is unaware if a notice of default has been issued. A default triggers several potential actions, including Rialto ultimately having to turn the building over to the city, Groat told the committee.

“[Rialto] will pay it,” Groat said. “They will ultimately have to pay it.”

Alderman Dave Nutting also requested city staff try to arrange an in-person discussion between Rialto and the council.

Members of the committee urged staff to take an aggressive stance in the situation. Yet, Smith noted that the actual amount owed, which has not yet been calculated, could conceivably be overshadowed by outside legal fees required to collect the overdue payments.

“If we are owed $50,000 and we spend $100,000 trying to get it, that wouldn’t make us look very bright, would it?” said Smith, who requested an update on how much the city has already spent on legal fees associated with the mall.

Also during the meeting, Mayor Rob Mielke read a statement urging the mall owners to either take a pragmatic approach to redevelopment or consider selling the property. The same statement was read last week to members of the economic development committee.

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