Commercial condominiums are widely popular on the coasts and in some southern areas, but are still slow to catch on in the metro Milwaukee area, say some area commercial real estate professionals.
More building owners in the area are offering commercial condominiums, especially as an option to leasing, but sales are still slow, building owners say.
“They’re not selling,” said Kevin Armstrong, senior vice president of CB Richard Ellis. “But certainly more people are aware of the office condominium. More people are trying to learn about them.”
Gardner Group LLC is redeveloping the former P.H Dye House at 320 E. Buffalo St. in Milwaukee’s Historic Third Ward. The eight-story, 160,000-square-foot building has retail space on the first floor, 11 residential condos on the top floor and office space on the other floors. Gardner is offering the office space for lease or for sale as commercial condos. About 40,000 square feet of the office space in the building is occupied and about 80,000 square feet of office space is still available.
“Everybody has been leasing so far,” said Michael Gardner, owner of Gardner Group. “For the most part when we first came out with the (commercial) condos, people thought it was a great idea. But so far, everyone has been leasing.”
Commercial condominiums offer the same advantages of ownership, including the ability to build equity, that a residential condominium has compared to renting an apartment.
But the downside of owning a commercial condominium is that a business that wants to expand its space or move might not be able to do so very easily if it owns its space, especially since the Milwaukee area commercial condominium resale market is still weak.
Commercial condominiums are also better for local firms that know they are going to be around and less appealing for the local office of a national firm, which at some point may want to close or move its Milwaukee area office, Armstrong said.
“You really have to be the right firm,” Gardner said. “Since they are so new the secondary market is not flush yet. If you are a growing business you can get boxed in. If the market was as flush as the residential condo market, that problem would go away.”
The building owner can help by leasing space around the commercial condo and including expansion options as part of the deal for the buyer, said Kendall Breunig, owner of Franklin-based Sunset Investors LLC.
Last year Sunset Investors purchased the third and fifth floors, a total of 83,000 square feet of space, of the Plankinton Arcade building at 161 W. Wisconsin Ave. in downtown Milwaukee. Breunig plans to renovate the space and offer it for sale as commercial condominiums. Currently about 50,000 square feet is available.
Sunset Investors is also working to redevelop the 265,000-square-foot former Hack Furniture building at the southwest corner of North Plankinton Avenue and East St. Paul Street in downtown Milwaukee. The commercial space in the former Hack building will be available for purchase if tenants want to buy instead of lease the space. Sunset Investors is still trying to obtain historic preservation and new markets tax credits from the state and federal governments to make the project work. Interest from prospective tenants has increased dramatically since the building’s cream city brick exterior was cleaned, Breunig said
Many of the commercial condominiums offered in the Milwaukee area are in unique historic buildings such as the P.H. Dye, Plankinton and Hack Furniture buildings. Those buildings are more popular for buyers because they are purchasing a one-of-a-kind space property that can’t be duplicated and will rise in value because it is attractive to other office space users, Armstrong said. Other historic buildings with owners who are offering commercial condominiums include the former Beck Carton building at 311 E. Chicago St., owned by Weas Development, and the former Antique Center building at 341 N. Milwaukee St. owned by Badger Pacific Equity Partners. Both are historic buildings located in Milwaukee’s Historic Third Ward.
“The more successful (commercial condominiums) have been the unique properties,” Armstrong said.
But some owners of non-historic buildings are also offering commercial condominiums. For example, Inland Companies plans to build three one-story buildings with about 48,000 square feet of total space in the Mitchell International Business Park in Cudahy. The space will be sold as commercial condominiums for office space or light industrial space.
Commercial condominiums are becoming more popular in the area, Breunig said. There are an increasing number of opportunities to buy commercial space in the Milwaukee area, he said. However there is still a lack of buyers, so commercial condo owners may have problems if they want to sell their units.
“If you need to re-sell, it’s hard to say how long it would take,” Breunig said. “It’s much more popular in other metropolitan areas. It’s very popular on the coasts and Chicago has a fair amount of it. We tend to follow behind those areas. We tend to be much more conservative.”
Office building owners in the area are struggling to fill vacancies and finding buyers for office condos is even harder, Armstrong said.
“The overall office market, even the leasing market, in Milwaukee is not as dynamic as some cities,” he said. “The process just takes longer.”
