PLATTEVILLE — Six years and nine months after the City of Platteville started issuing citations against landlord Darrel Kallembach, 3½ years after the city won a court judgment against Kallembach, and five months after the city officially became the owner of 15 of his houses, the Common Council approved the sale of 12 of Kallembach’s houses in September 2014.
The purchaser of five of those 12 houses was River to Valley Initiatives, which bought the properties at 420 and 440 Southwest Road, 255 and 335 Division St., and 565 W. Cedar St., for a combined $125,208.76.
Nearly five years later, the house at 255 Division St. was replaced by a much larger house listed by Realtor.com as “Off Market” with estimated value of $311,600, sitting unoccupied on a lot without landscaping. The house at 335 Division St. has had work done, but the work is not finished.
The two lots next to each other on Southwest Road and the lot on West Cedar Street are vacant, nearly three years after new houses were to be built on those lots.
The West Cedar Street property has been assessed $6,124.84 in nonperformance penalties, and the liens on the property exceed the $16,000 sale price, according to city documents.
River to Valley is trying to sell the vacant lots to Droessler Properties LLC of Platteville, which purchased two Kallembach houses, at 185 Center St. and 430 S. Chestnut St., and replaced them with single-family rentals.
To sell the West Cedar Street property, which according to city documents is now appraised at $27,000, River to Valley is asking the city to waive the penalties against the property, and to allow Droessler to build a building that would be valued less than what River to Valley proposed.
River to Valley’s lender, Forward Community Investments of Madison, is also asking the city to waive the penalty, with a letter to the city saying that “While we were willing to take a price cut of $11,000 (appraised value vs. sales price), a further $6,000 decrease to the net sales proceeds would make us think twice as to whether we approve the sale.”
The council unanimously voted July 23 to table the request because the proposed developer’s agreement with Droessler arrived late due to the July 20 blackout in downtown Madison, including the offices of Axley & Brynelson, the city’s legal firm.
The Common Council needs to approve a different developer agreement for a sale because, according to Director of Community Development Joe Carroll, language in the original developer’s agreement — for instance, completion of construction by Jan. 1, 2017 — doesn’t apply to a new purchaser.
“We should waive this fee,” said at-large Ald. Barb Stockhausen. “Otherwise it comes back to us, and we would have to spend quite a bit of money on legal fees. … 1There’s so much more money involved in the future if we don’t.”
At-large Ald. Robin Cline said it was “kind of pointless” to include nonperformance penalties in future developer agreements “if we don’t put penalties in this agreement.”
The 255 Division St. and West Cedar Street houses were to be demolished and replaced by “affordable single-family” houses, with the West Cedar Street house valued at at least $165,000. The 335 Division St. house was to be renovated for “an affordable single-family residence for sale to an owner-occupied [low- to moderate-income] resident.”
Droessler’s plan for the West Cedar Street lot is to build a raised ranch or two-story house intended as a college rental, valued at at least $125,000 by 2022.
River to Valley planned to demolish the Southwest Road houses and build a three-unit townhouse with three bedrooms and 2½ bathrooms each, valued at at least $450,000, according to the bid documents. Droessler’s plan is to build a three-unit townhouse with two or three bedrooms per unit, valued at at least $375,000 by 2023.
The decrease in fair market value, council president Barb Daus said, “makes me believe that the product won’t be what we had expected. … Part of this was to build tax base in the city.”
“In a sense, we have lost money already,” said District 1 Ald. Isaac Shanley, given that the property is sitting vacant more than two years after buildings were supposed to be up. Shanley said the penalties on the Southwest Road properties total $15,731.26.
“I was not in agreement to sell to this company,” said Stockhausen. “And I made that real clear when we made all those agreements, and it was approved anyway. I know this company is not forthcoming when they make agreements.”
The city assessed $366,765.38 in fines and interest from more than 100 citations against Kallembach for 19 properties, including one just outside the city limits on Grant County B, between January 2008 and July 2010. Violations included allowing occupancy without a valid rental license, allowing occupancy of more than four unrelated persons, and second- and third-offense citations for allowing occupancy without a valid rental license.
The city then won a court judgment of $309,804.84 and a court injunction against Kallembach, who was jailed for five months in 2012 for violating the court order to provide the city with copies of his leases and to have his properties inspected.
The city used $288,341 of the fines and interest to purchase 15 of the 19 properties at a sheriff’s sale in January 2014, with two outside bidders outbidding the city on four of the properties.
The city decided to keep three properties, selling a property at Furnace and Elm streets later, and sell the other 12 by Request for Proposal, which stated that the city “will select the proposals that are determined to be the most advantageous to the community. This may include proposals that do not include the highest bid amount.” The highest bidder was awarded only three of the houses.
“The bid amount was not a major part of the scoring system, and we were looking for long-term value,” said at-large Ald. Amy Seeboth-Wilson in September 2014. “When you factor increased value, we’re going to increase property values by more than $900,000 if everything goes as planned.”
The council in 2016 rejected a proposal from River to Valley to modify its developer agreement for the West Cedar Street property to move the house at 420 Southwest Road to West Cedar Street. River to Valley moved the house at 440 Southwest Road to 515 Lutheran St.