McHenry mulls incentives

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McHENRY – Aldermen will consider Monday giving Cunat Inc. $2 million in incentives to build a five-story mixed-used complex next to Landmark School.

If approved, the building will be the city’s third – and most valuable – project along the Riverwalk and the fourth in a tax-increment financing district. The project hinges on a land-swap deal that District 15 has discussed but not yet approved.

The proposal for the former City Hall site includes a 6,900-square-foot restaurant and a 3,600-square-foot private club on the first floor and at least 24 condos on the remaining floors. A three-story parking garage will have 132 spaces, about two-thirds which will be for the public.

Proposed incentives include $1.05 million for the parking deck and $250,000 for temporary public piers. The incentives, except for $250,000 in waived permit and development fees, will be paid as the parcel’s increased property value generates revenue for the TIF fund.

Under tax-increment financing, tax revenue from increasing property values within the district is funneled toward projects city leaders think will help revitalize the district, City Administrator Doug Maxeiner said.

Providing profit

Generally, the projects would not be profitable without those incentives.

Maxeiner said Cunat Inc.’s sizable pledge to the McHenry Riverwalk Foundation, which is being paid in three installments and will fund the pathway’s extension east, did not influence negotiations on the developer’s agreement. He said the developers would have pursued the project without the Riverwalk and had first struck a deal with property owner Ned Nuemann before approaching city staff members.

Rather, city officials try to negotiate a deal the makes a stellar project profitable but allows the new property-tax revenue to repay the incentives within seven years.

In Cunat Inc.’s case, leaders estimate that it will cost $17.5 million to build the project over two years, according to the draft developer’s agreement. They expect to bring in $12.6 million for the condominiums and $3.3 million on the commercial space. After adding the $2 million in incentives, Cunat Inc. is projected to make a $400,000 profit.

That’s similar to the city’s agreement with Curtis Commercial Inc. to build a complex with 27 condos and 10 to 12 retail spaces across the street. Leaders estimate that the project will cost $13.1 million and bring in $11.7 million, according to the developer’s agreement. The city promised at least $2 million in incentives, including selling the old Medical Arts Building site for $10, which would produce a $608,000 profit.

The city originally estimated that Curtis Commercial’s project would produce the property-tax revenue to cover the incentives within six years if it broke ground in August, as stipulated in the agreement. But the lending market crunch pushed the developer’s lender to have more of the project sold before receiving the loan, which is delaying the project’s start, Maxeiner said.

Maxeiner said aldermen likely would amend the development agreement to reflect the later starting date.

For the Cunat proposal, city officials estimate that the project will produce $5.2 million in increment, which will cover the incentives as well as other revitalization efforts.

Early response

Aldermen will discuss the Cunat proposal publicly for the first time at the Monday meeting, which starts at 7:30 p.m. at City Hall, 333 S. Green St.

Third Ward Alderman Jeff Schaefer complimented the proposal’s  public parking spaces.

“If we’re going to develop the downtown, we are going to need some more parking,” Schaefer said.

But Second Ward Alderman Andy Glab said, as with other downtown projects, he did not think local streets could handle the traffic that it would attract.

“My reservations more than anything else is traffic,” Glab said. “We’re consolidating people into an area where we already have some traffic problems.”

Previous developer incentives

McHenry has established three incentive packages for projects within the tax-increment financing district:

 – Curtis Development, 1110 N. Green St., at least $2 million, including $1.3 million in land and site preparation.

 – Lanco Development Co., which built 20 town houses on Waukegan Road, about $500,000.

 – Ron Bykowski, about $29,000 to replace sidewalks and reimburse permit fees for the former Eby Brown building, 3710 W. Elm St.