Waukesha files lawsuit against condo developer

Michael Sears/Milwaukee Journal Sentinel
October 20, 2009 Waukesha condo of John Daguanno and wife Jane Daguanno. Its in the Townhomes at Mill Reserve development. Its along the Fox River, in the downtown area. Exterior of development's rear side with all the decks, looking across the Fox River.
Published on: 9/30/2015

The developer of the Townhomes at Mill Reserve is facing a lawsuit from the city of Waukesha for allegedly breaching obligations to a development agreement the two parties reached eight years ago.

In the lawsuit filed by City Attorney Brian Running and Assistant City Attorney Julie Gay on Sept. 21 in the Civil Division at the Waukesha County Courthouse, the city claims it has lost $211,813.70 due to Mill Reserve LLC's breaches and is demanding that money as well as prejudgment interest and taxable costs from the developer.

The lawsuit says the developer has failed to attain the increased levels of value as described in the development agreement for the condos and has not made the payments to the city in lieu of the lost tax dollars, as the developer agreed to do under such circumstances.

Running and Gay said the city and Mill Reserve LLC entered in a development agreement for a project known as the Mill Reserve Condominiums in November 2006. The condos, located at St. Paul and Wisconsin avenues along the Fox River, opened in 2008 after a combined bookstore and apartment building was torn down.

The city's lawsuit against Mill Reserve LLC — whose registered agent is John Ogden Jr. — says the development agreement required the city to acquire the property at its own cost.

The city was forced to relocate tenants and demolish the structures previously on the property at no cost to Mill Reserve LLC. The city also conveyed the property at no cost to Mill Reserve LLC and has made payments it owed under the agreement, according to the lawsuit.

Developer's obligations

Running and Gay said the city fulfilled its obligations to the agreement, while Mill Reserve LLC breached its obligations because it guaranteed specific increased value as a result of the first two phases of the project.

According to the agreement, the developer was guaranteeing that $4.5 million of market value be added to the property by Jan. 1 2011. The new value should represent an assessment based on the full market value of land and improvement within the development, including the first phase of 21 units.

The agreement also notes the developer should pay the city $22,000 per $1 million and should guarantee an additional $5.5 million of market value to be added to the property by Jan. 1, 2013. The payment is deemed in lieu of taxes.

The additional market value should represent the subsequent phases of the project and the final 34 units in the final development plans.

Gay said the developer has not paid in full the tax value it guaranteed through two development phases.

Ogden's take

There was just one problem with these projections and plans, Ogden said: To date, only 11 condo units have been built and Phase 2 never materialized.

"It was a tough situation," Ogden said. "Real estate, especially condos, was struggling then. So it was very bad timing."

Ogden said he felt his company was put in a challenging predicament from the get-go because the city wanted expensive condos, even if the market couldn't support it.

The listing price for the condos when they opened was $380,000, but Ogden said it's even been difficult to sell them at $220,000.

"Sales are so slow, and that tells us that the market isn't there," Ogden said. "We wanted more moderately priced condos. But they wanted a higher value."

Ogden added the condos are paying taxes to the city into the tax-increment financing district but the projected value couldn't be reached because of the problems that materialized after the TIF district was created.

"Taxes are being paid," Ogden said. "It's just not reaching the value."

Ogden said he will respond to the city's lawsuit within the necessary 20-day period.