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Milwaukee's Moment

Source: Midwest Real Estate News
January 1, 2006

An industrial focal point and America’s “tool-box” for decades, the city of Milwaukee has undergone such a dynamic demographic shift that some expect its economy to shift as well.

Companies that gave people well paying jobs before have either subsided or remained, but they are still fewer in number compared to city’s glory days in the late 1960s and ’70s.

Just one measure of the city’s comeback is its downtown population, in 2000 16,359, a 13 percent change from 1990.

Downtowns filling in with housing and retail to accommodate those residents are a national trend, and in that respect Milwaukee’s downtown renaissance is a little late in coming.

Providing the framework for this shift from old industrial city that empties out at five o’clock to a city with a bustling string of businesses and residential districts is Milwaukee’s abundant supply of warehouse product.

The warehouse vacancy rate is 6.7 percent with 116 million square feet of industrial space in Milwaukee County. In all, Milwaukee County still accounts for 71 percent of the metro’s industrial base.

Most consider the metro to be the area between Lake Michigan all the way to Waukesha Going west and from Mequon on the north all the way to Muskego to the south.

There’s an ongoing discussion as to whether or not Milwaukee will grow into Racine, 32 miles south and, even on a longer-term basis, form a single metro with Chicago. For now developers are purchasing land near the Wisconsin-Illinois border and as development increases it’s likely the debate over whether or not the metro is growing into Chicago and it into Milwaukee will as well.

For the time being Milwaukee is still a city on its own, often compared to Chicago. But perhaps a truer comparison is that between Milwaukee and Detroit and Milwaukee and Minneapolis with the following question in mind: Is Milwaukee, with its rich industrial legacy, however small it is compared to its heyday, headed toward a manufacturing heavy Detroit, a financial services hub that Minneapolis is, or something altogether different?

Bill Bonifas, an executive vice president with The Polacheck Co. Inc., says the answer to that question illustrates two points: Why Milwaukee is different than Detroit and Minneapolis and where the city’s headed.

“You can’t say Milwaukee is going in the direction Detroit is because to begin with Detroit has a more spatial dynamic whereas the money is located in Milwaukee.

“Though I think our momentum matches that of Minneapolis, I don’t think we’ll end up like that city either because that’s such a regional center for finance that Milwaukee is, and will have to be, a combination of the two.”

Perhaps disconcerting for those bent on oversimplifying Milwaukee as a city, as an economic entity or as a community, it’s hard to define it as just one thing. It’s likely the expectation when first driving into Milwaukee is to see smokestacks and charcoal-gray smoke as it wisps into the sky. But chances are if you live in the area, you’ll have more of chance to see it from your high-rise condo tower along the lake or river.

The city’s Third Ward is considered by many to be Milwaukee’s hottest residential district. There you’ll find warehouse spaces converted into lofts and some commercial development, including Inland Cos. office and retail development.

The 5-story building at 222 East Erie Street will include 18,000 to 20,000 square feet of street-level retail space and about 70,000 square feet of offices on its upper floors.

The building was sold in September to 222 East Erie Associates LLC group, which includes some of Inland’s partners and some principals of Chicago-based A. Epstein and Sons International Inc., an architectural, engineering and construction management firm.

It would be safe to say that commercial real estate professionals anticipate commercial development to follow residential development soon.

A project the scale of Wispark’s now rejected PabstCity was supposed to be just such a large-scale development; a national-attention grabbing, mixed use redevelopment on the site of the Pabst Brewery. Included in the proposal were residential units, retail and an entertainment component, of which the House of Blues would play a large part.

All that was needed was an incentive from the city. But when votes expected to be for the PabstCity development were suddenly against, the national-attention getting development fizzled away.

Wispark LLC soon sold to local real estate investor Joe Zilber and proposals will be back on the table, but this time with changes planned.

“We’re currently discussing with the city and the community ‘What makes a great neighborhood?’” says Mike Mervis, Zilber’s assistant.

“Our intent is to work very closely with the city to propose something everyone will be proud of.” Complications arise all the time when trying to create a major development in a big city. Anything can come up, a zoning issue, brownfields contamination, communications and marketing considerations on a citywide scale. But most believe what killed the Pabst City development for the time being was politics, in specific, the other venues in Milwaukee, which would have to compete with the House of Blues.

Yet others say they welcome the development.

“We needed something like this,” says Bonifas. “Milwaukee still hasn’t had that major development to take us to the next level.”

The Washington DC-based Brookings Institution recently published a paper titled "Who Lives Downtown." Milwaukee’s downtown is described as on the verge of “takeoff.” The city ranked tenth in the country in number of residents aged 25 to 34, which some refer to as the “creative class.”

But some would say there’s still too strong a conservative business climate to back such projects as Pabst City. Sure the downtown population has increased, there’s a Santiago Calatrava designed art museum on Lake Michigan and there are many neighborhood streets lined with boutiques.

But some would also say that those companies developing condos in Milwaukee that are also based in Milwaukee are few in numbers and the rest are from outside the state, many from Chicago.

Near Barry Mandel Group’s new construction condo tower North of the city is Chicago-based NVG Residential Inc.’s condo conversion on the lake.

The Landmark on the Lake Condominiums is a 275-unit building and will offer condos at price ranges starting at $200,000 to $700,000.

Nick Gouletas, CEO of NVG Residential Inc., says after a number of successes in and around Chicago, including a recent condo project in Chicago’s Lincoln Park neighborhood, the leap into Milwaukee was easy.

“The cost of construction is the same in Milwaukee as anywhere else but I can see all this untapped potential. You’d have to go back 10 years to find so much opportunity in Chicago.”

Gouletas says prices for a condo in or near downtown Milwaukee are so much more affordable than in Chicago he anticipates many of his buyers to be Chicagoans looking for a deal and a view.

There are a few Milwaukee based companies moving into the Chicago market. Development company Irgens Development LLC recently opened an office in Chicago.

John McGregor, senior vice president with Irgens, says though the company is still very active in the Milwaukee market and plans to be; moving into Chicago was a necessity.

“To keep up the pace we were moving at we had to go into Chicago, especially if we wanted to maintain the number of projects we have currently,” says McGregor. He expects a growth in number of office users downtown, but slowly.

To look at vacancy rates for Milwaukee’s office market—16 percent overall—indicates a soft market. Compare that with its industrial vacancy rate of 8 percent and suddenly one can argue that perhaps there are many industrial owners in Milwaukee playing it safe and holding onto their property. This while the economy’s turn last year hasn’t impacted the office market.

A common catchphrase often heard when discussing Milwaukee’s economy is “things aren’t so bad.” Some even say the business community is complacent.

Brokers say there are still a lot of family run businesses in Milwaukee. So most of the time they prefer to ride out the cycles instead of selling.

With a number of Fortune 500 companies in Milwaukee, most say it is not in danger of becoming a decaying city. A recent indication would be Manpower Inc.’s pending decision to stay in downtown. Manpower is Milwaukee’s second largest company behind Johnson Controls Inc.

According to a paper recently written for The Brookings Institution office development is the final piece in a 12-step downtown development process.

Considering the other 12 steps, it would seem Milwaukee is close to achieving its ascent as a large, cultured, economically vibrant city.

“I think it’s a progression,” says Bonifas. “We’ve had plenty of the residential, and we’ll see more retail. Office is next.”

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