In a 1.5-mile corridor near the Milwaukee River, from Juneau Avenue and Old World Third Street in downtown Milwaukee to the intersection of North Water Street and Humboldt Avenue on the East Side, there are three apartment developments under construction, and another that was just completed, with a total of 566 units.
Four other projects planned for the area could add another 200 units.
The apartment construction is a reflection of an increased demand for apartments in the downtown area since the housing market collapsed during the Great Recession, said Rick Barrett, developer for The Moderne, a 30-story residential building with 203 apartments that is under construction downtown.
“A lot of people just don’t want to be tied down (with a house),” he said. “They realize that the American dream comes with some ramifications.”
The downtown market should be able to absorb the new apartments, said Mandel Group Inc. chief operating officer Robert Monnat. Mandel Group’s luxury apartment portfolio is currently 97 to 98 percent occupied, he said.
“The projects we’re talking about are generally smaller than the (apartment) projects that were done (downtown) in the past,” Monnat said. “These are not the Yankee Hills of the past. Historically, this is not a lot of apartments.”
During the condo boom before the Great Recession there were virtually no new apartments built, Monnat said, and, some apartments were converted to condos. When the condo market collapsed market demand shifted to apartments, but the downtown apartment supply had not grown for years.
“What people forget is for six or seven years, no one built apartments,” Monnat said. “Then all of a sudden the market shifted, and the units that were available have been absorbed quickly. There is plenty of demand to support more new construction.”
All of the apartment developments in the area that are currently under construction received some public assistance for their financing package, in the form of tax-exempt bonds, affordable housing tax credits, loan guarantees from the federal government or city of Milwaukee loans.
Milwaukee-based Mandel Group Inc. recently closed on financing and broke ground for the second phase of its North End development, which is located west of the intersection of North Water Street and East Pleasant Street. The project consists of 155 apartments in two buildings, one along the Milwaukee River and the other along Pleasant Street. The first phase of the project, completed in 2009, was a five-story building with 83 apartments and 12,000 square feet of retail space.
Twenty percent of the units in the second phase of the North End will be offered at “affordable” rents, because a portion of the project was financed by the sale of tax-exempt Midwest Disaster Area Bonds by the Wisconsin Housing and Economic Development Authority (WHEDA). The project also received a $4.6 million loan from the city of Milwaukee.
Market rate units at the North End will rent for $1,400 for a one bedroom unit and $2,050 for a two bedroom unit. The affordable units, leased to tenants whose household income is less than 60 percent of the county’s median income, will be $703 for a one bedroom unit and $837 for a two bedroom unit.
Across the Milwaukee River from the North End, is the recently completed 140-unit Beerline B apartment development. The project received affordable housing tax credits through WHEDA and 119 of the units will be at below-market rents. Fox Point-based General Capital Group and Schlitz Park owners Gary Grunau and Scott Sampson co-developd the Beerline B project.
“We have enough applicants to fill the building plus some more,” said Carmello Maddente, marking director for General Capital Group. Some applicants are still going through the approval process, he said.
“We’re just trying to sell the connected lifestyle, living downtown with the urban amenities,” Maddente said. “It’s such a great, thriving area of downtown.”
“There is no shortage of demand for affordable (apartment) units, given the economy we are in today,” Monnat said. Affordable housing has a negative connotation to some, which does not accurately reflect the true nature of the product, he said.
“I don’t think people really understand what affordable housing is,” Monnat said. “It’s not just for the poor. A huge percentage of it is young people that don’t have a lot of money yet, but are upwardly mobile. People who are just out of school, working service industry jobs. You’re going to see a lot of those apartments filled with a fairly young demographic.”
Meanwhile, the most striking apartment development in the area has to be The Moderne, a 30-story building under construction at the southwest corner of Juneau Avenue and Old World Third Street. The Moderne will have 203 apartments, 14 condominiums and 7,000 square feet of retail space.
After the U.S. financial markets collapsed in 2008, Barrett sought a public-private partnership to finance the project. The AFL-CIO Investment Trust provided a $42 million loan for the project, backed by the U.S. Department of Housing and Urban Development’s 221(d)4 program, and the city of Milwaukee provided a $9.3 million loan.
The project is attracting interest from people who want to take advantage of the city views from the building, which will be the tallest structure west of the river in downtown Milwaukee, said Barrett.
“What’s really exciting I think is the people that we are getting interest from, some live downtown, but a lot of them live in the suburbs or other cities, so we are not cannibalizing existing buildings downtown,” he said.
Monnat predicts The Moderne will lease up slowly.
“It’s going to be an expensive place to live,” he said. “A high rise has a certain appeal from a lifestyle standpoint, but it’s not going to be a category killer that dominates the market.”
The Moderne is not the only project in the area to receive financing backed by HUD.
Wauwatosa-based Wangard Partners Inc. is building the 68-unit 1910 On Water apartment building at 1910 E. Water St. on Milwaukee’s East Side. Wangard Partners received a loan guarantee from the U.S. Department of Housing and Urban Development (HUD) for $9.6 million in financing for the project. The financing will be provided by St. Paul, Minn.-based Oak Grove Capital.
Despite the strength of the downtown apartment market, rents are still too low for developers to build major apartment projects there without some type of government assistance, Monnat said.
“It still costs us too much to build in this market, relative to the rents we receive,” he said. “It’s still challenging to build larger projects without some sort of (subsidy). Our rents are higher, but our expenses are too high.”
High property taxes in the city of Milwaukee are the biggest cost challenge, Monnat said.
In addition, banks are still reluctant to provide financing for real estate developments.
“The banks are just beginning to talk about doing debt financing again,” Monnat said.
Three other apartment development projects have been proposed in the downtown/East Side area and another half-built project could emerge from receivership this year. Milwaukee-based Dermond Property Investments plans to build a four-story, 34-unit apartment building at the northwest corner of Pleasant and Jackson streets on Milwaukee’s East Side. The apartments will be one-bedroom and studio units. If the project receives city approval, the 4,076-square-foot, 112-year-old former Joey’s Italian Restaurant building on the property will be demolished to make way for the new apartment building. However, some aldermen have balked at the project saying it is out of scale with the neighborhood.
Chicago-based Blackwatch ’68 Properties plans to build a 14-unit apartment building at 1530 N. Jackson St. on Milwaukee’s East Side and just north of downtown. The four-story building will be built on an 8,574-square-foot vacant lot.
Oak Park, Ill.-based RSC & Associates is still trying to build its Park East Square project in the Park East corridor, but the project has been delayed for years. Rich Curto, the chief executive officer of RSC & Associates, filed a Chapter 7 petition for personal bankruptcy reorganization last year. However, Curto said his personal bankruptcy filing would not affect the Park East Square project, which includes plans for a 120-unit apartment building on the downtown Milwaukee block bounded by North Jefferson Street, East Lyon Street, North Milwaukee Street and East Ogden Avenue.
Another delayed project in the area could move forward this year. A half-built development at the southeast corner of Water Street and Juneau Avenue has been halted for about three years and has been mired in receivership. The project, which was to have a 126-room Staybridge Suites hotel and 34 apartments, could finally emerge from receivership this year and resume construction. However, the eventual buyer of the property will have to determine how the building will be used. That means the amount of apartments planned in the building could increase or decrease.
Once the apartment buildings are completed the new residents who move in could provide a boost to retailers in the neighborhood.
“More vitality is what you want,” Barrett said. “That’s what makes a city great.”
However, downtown needs to add a lot more residents, probably three times as many as it has now, to become a vibrant downtown, Monnat said.
“Our whole goal (with the North End) was to create a new neighborhood,” he said. “The more stuff that fills in, the better off we’re going to be in that regard.”
