As the City of Milwaukee seeks a catalytic redevelopment of the Marcus Performing Arts Center parking structure site downtown, a Madison-based developer – still in its infancy – has emerged with an ambitious proposal.
With a $700 million price tag, the project could deliver the most residential units the city has ever seen in one development, the most office space since the COVID-19 pandemic rattled the office market and the biggest hotel built in downtown Milwaukee since the Hyatt Regency in 1979, as well as a significant amount of retail space.
If realized, the development would transform downtown Milwaukee and help advance several city goals. But some skeptics, including downtown Ald. Robert Bauman, are worried that the developers have bitten off more than they can chew, and that Milwaukee isn’t ready to digest a project of this size.
“I don’t think (the Department of City Development) adequately vetted the financial feasibility of what they’re proposing,” said Bauman, whose district includes the project site, located on North Water Street between East Highland Avenue and East State Street.
The project, proposed by Madison development firm Neutral – which rebranded in August from The Neutral Project – has defended its proposal, its leaders saying the firm can pull off the proposed development.
“Based on the mixed-use proposal we have in conjunction with the neighborhood that’s already there, we can be successful on the site and be very helpful for the city,” said Daniel Glaessl, chief product officer for Neutral.
The city-owned 2.4-acre site and its Marcus Center-owned 690-space parking structure has been eyed for redevelopment for at least 20 years, but multiple proposals haven’t come to fruition.
In 2002, Wauwatosa-based development firm Irgens Partners proposed an office and retail high-rise on the site. Irgens cancelled its plans in 2007 and, soon after, the Marcus Performing Arts Center issued a request for proposals for redevelopment of the site, with plans to either extend its lease with the city or negotiate ownership rights to the site. It subsequently pursued redevelopment plans for a ballet building and sports medicine clinic as well as an 11-story building with a restaurant, meeting area and offices, but those plans were eventually dropped as well.
Known by some Milwaukeeans for the massive and snow-to-melt pile created each winter by the snow pushed off the top, the block-long parking structure is sandwiched between the Marcus Center and the Water Street nightlife district.
Last September, the City of Milwaukee issued a new RFP seeking an “aggressive mixed-use development” for the site that would bring density and “create a landmark.”
Can the developer do it?
In July, Milwaukee’s Department of City Development selected Neutral’s proposal, unveiling eye-catching renderings of a multi-building development including residential, office, hospitality and retail uses, with public plazas and paths and buildings reaching new heights in the city.
Neutral’s proposal could include up to 750 residential units, which is more than three times what other developers pitched for the site and the largest multifamily project ever in the city of Milwaukee, with the next largest being Mandel Group’s $190 million, multi-phase North End development, which includes about 650 units.
This building, primarily built with mass timber, would be the state’s tallest at 55 floors, overtaking the U.S. Bank Center, which has held the title of tallest building in the state since it was built in 1973.
But can the market support such a project?
“I think (feasibility of the project) is a fair concern, but we have provided our third-party market analysis, and it shows a lot of demand for residential units in Milwaukee for 2028 and onwards,” Glaessl said. “…A project of this size would definitely be absorbable based on the market studies.”
Downtown Milwaukee has seen multiple high-end apartment developments in recent years, including 7Seventy7 and Ascent, both of which saw 12-month lease-up periods, which is strong, according to Gard Pecor, a senior market analyst with CoStar.
More recently, The Couture and 333 Water have come online and are – so far – seeing slower lease-up periods, indicating softened demand for high-end apartments in downtown Milwaukee currently, although demand for those units could pick up by the time Neutral breaks ground, Pecor said.
Neutral is planning on setting aside a portion of the development’s units as workforce housing, for those making between 60% to 100% of the area median income, said company partner and chief executive officer Nathan Helbach.
Workforce housing has significantly stronger demand in Milwaukee, according to Pecor, noting that Milwaukee has one of the tightest apartment markets in the country with low vacancies and rising rents.
The development could also include 190,000 square feet of office space, which would be the first major office building development in downtown Milwaukee since 2020, when BMO Tower and the Huron Building both opened.
“We have received some calls from potential tenants, and so there seems to be interest in class A office space,” Glaessl said. “A lot of things need to be figured out here, but there’s certainly some interest.”
Downtown Milwaukee’s office space vacancy rate is 17.6%, compared to 13.2% before the COVID-19 pandemic, according to the most recent report from the Commercial Association of Realtors Wisconsin. There’s about 230,000 square feet of available multitenant class A office space in the area.
“That sounds like a lot, but when you break it down building by building you can see that it’s pretty tight,” Pecor said.
The most contiguous space a user could get in a downtown office building that’s less than 10 years old is 57,000 square feet at the Huron Building, followed by about 27,600 at 833 East and 15,000 at BMO Tower.
“So that really eliminates all of the larger tenants that are possibly looking for new space,” Pecor said, pointing to tenants like law firm Michael Best & Friedrich, which occupies about 60,000 square feet at the BMO Tower as the building’s anchor tenant.
Office brokers who spoke to BizTimes for this story agree that landing a tenant that could occupy about half the building would be enough to get Neutral’s proposed project financed and off the ground, but they didn’t know of many tenants in the market currently looking for that amount of space, and tenants that might already be in the market would need to be pulled out of another downtown building.
“The office market is still challenged and that would be flooding the market with a lot of space,” said one broker. “The advantage for them is that, because there’s been no space developed (for several years) and not really any plans to develop any new space, they’d kind of be the only game in town.”
“I really can’t name that many tenants who are actively seeking much space in the near term,” another broker said.
According to current plans, the southwestern portion of the site could be occupied by a 300-room hotel.
“On the hotel side, The Trade opened a while back now and it has been pretty successful,” Glaessl said, pointing to the 205-room, nine-story Marriott Autograph Collection hotel that opened in May 2023 in Deer District. “We do think that this location, with its proximity to the performing arts center and Fiserv Forum and so on, that additional hospitality capacity would definitely be economically feasible.”
A hospitality industry expert said that with the recent expansion of the Baird Center, as well as the continued success of Fiserv Forum and its surrounding Deer District, now is the time for more hotel rooms to be built in downtown Milwaukee but noted that there are multiple hotel proposals downtown that have struggled to secure necessary financing and break ground.
Across all of the buildings in Neutral’s proposed project, there is about 40,000 square feet of retail space planned, which is also significantly more than what other developers proposed for the site.
“We have a lot of retail in our proposal – basically the entire ground floor – and we see in downtown that there is a lot of (food and beverage) but actually very little diversified retail offerings,” Glaessl said.
Along with local restaurants, boutiques and a coffee shop, the firm is hoping to land a grocery store for a large part of the retail space. That would be the second grocery store in that immediate area, with Fresh Thyme located just a few blocks north on the corner of North Water and East Pleasant streets, within the North End.
Retail brokers who spoke to BizTimes say that with the density proposed in Neutral’s development, neighborhood service-like retailers could be drawn there, but it would be a big change for downtown Milwaukee, where food and beverage operators typically perform best.
“We got calls from multiple people that were submitting RFPs (for the Marcus Center site) to get our opinion on the retail, and everyone I talked to I told to try to minimize the amount of retail square footage as much as possible,” one broker said. “We have so much retail space on the market, so we need more critical mass, more people.”
Additionally, the project could include 1,100 structured parking spaces, which would in part replace what the existing Marcus Center parking structure has, along with public plazas and walkways, which would connect the block to the surrounding area, according to Glaessl.
“We are trying to connect the urban tissue that we see with this project and provide this kind of focal point in downtown,” he said.
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A street-level rendering of Neutral’s proposal for the Marcus Center parking structure site.
Credit: Michael Green Architecture[/caption]
Private sector criticizes RFP process, TIF policy
As the city moves ahead with Neutral’s vision to breathe new life into the city-owned block, it’s doing so against a backdrop of one local developer criticizing the city’s RFP process, several local developers criticizing the city’s willingness to financially support development and an unimpressive record with RFPs.
In the past decade, the city has issued fewer RFPs for site redevelopments than in previous decades, and many of the RFPs that have been issued have not been successful. For instance, in 2016, the city sought development of a parking lot at North Vel R. Phillips and West Wisconsin avenues in Westown. After receiving two hospitality-based proposals, the city failed to negotiate with either and the site remained vacant. The city has since developed a portion of the site into Vel R. Phillips Plaza and issued a rolling RFP for the remainder of the site, which has not received any proposals after more than a year. Previously, in 2009, the city issued an RFP for the former U.S. Army Reserve site in the Bay View neighborhood, where nothing has been developed either.
“The city doesn’t have a great track record recently with RFPs,” Pecor said. “There’s a lot of pressure on the city to get this one right and make sure the city doesn’t end up with egg on its face.”
At the Marcus Center parking structure site, the RFP received three responses. Neutral’s proposal was selected over proposals from Milwaukee-based New Land Enterprises and The Richman Group, a firm based in Greenwich, Connecticut, that was planning on partnering with Milwaukee-based Northernstar Cos., according to DCD.
Richman Group’s $231 million proposal called for 106 market-rate apartments, 88 affordable apartments, 13,000 square feet of retail space and a 25,000-square-foot amenity area. New Land’s $350 million proposal for the site included 192 apartments, a 240-room hotel, 250,000 square feet of office space and 14,000 square feet of retail space, according to Bauman.
“I was a little surprised that we only received three proposals,” Bauman said. “If this site is so valuable and as valuable as everybody claims, then you would have thought it would have generated greater interest nationally than just three proposals.”
[caption id="attachment_594276" align="alignnone" width="1024"]
Site plan for Neutral’s development proprosal for the Marcus Center parking structure site.[/caption]
Tim Gokhman, managing director of New Land, agrees. Had the RFP been handled better, Gokhman said, it could have garnered several more responses.
On July 24, a hour before the city announced it had selected Neutral’s proposal, New Land withdrew its proposal from consideration and Gokhman sent a letter to DCD, blasting the department’s handling of the RFP process: “The RFP criteria and subsequent interview questions were handled unprofessionally and inconsistently…(DCD) had all the information it needed to make a decision by May 31st, which is when we were told to assume a decision would be made. That timeline has come and gone, with no warning, explanation or follow-up.”
“DCD’s lack of accountability and slow, inconsistent (and at times, inaccurate) communication during the RFP process is a clear indication of what the relationship would be like when the real complicated work starts,” the letter states.
Commissioner of the Department of City Development Lafayette Crump has defended DCD’s handling of the Marcus Center parking structure RFP, saying Gokhman’s criticisms of professionalism are not broad based.
While Gokhman is among the most vocal Milwaukee developers calling out the city, others share at least some of his views, particularly around the need for more consistency and clear, updated city policies around tax incremental financing.
The city has historically not considered TIF for market-rate housing or hotel developments, which is stated clearly in RFP documents for the Marcus Center parking structure site as well as the Vel R. Phillips and Wisconsin avenues site.
“For a project of this size and magnitude, it’s been very clearly communicated to the city by the real estate development community that projects like this (need) economic support from the city,” Gokhman said. “The city’s asking for a lot, things that are not asked for in traditional developments. When requests go above and beyond, then the support needs to go above and beyond. The expectations are not symmetrical. There’s a lot expected, and little provided.”
Being more aggressive and upfront about the incentives and support the city was willing to offer could have also encouraged more firms to submit proposals, according to Pecor.
“The city is really serious about seeing this to fruition, and they want to make this a big statement,” Pecor said. “I would think TIFing the site would be a no-brainer, and I would have expected it to be part of the RFP process.”
Crump has said that DCD is engaged with the development community with respect to how the city can improve its TIF policy and is assessing workforce housing metrics for its TIF policy.
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Will the Common Council support it?
DCD has proposed a one-year exclusive right to negotiation with Neutral, which DCD and Neutral leaders say will be used to refine the concept plans and further assess feasibility.
“With all of our projects, we run very transparent, open design processes. We invite everybody to participate,” Glaessl said. “I think throughout that year-long process, a lot of the concerns around density and mix of use will be clearer because we’ll have more time to work with it, listen to the community, potential tenants.”
That period needs to be approved by Milwaukee’s Common Council, however, where it’s already facing some resistance.
Last month, Bauman put forth a resolution requesting that the city hire one or multiple independent consulting firms to study the feasibility of what’s been proposed. Bauman said his primary concerns with Neutral’s proposal are related to the development’s scale, phasing and Neutral’s track record, citing that the firm only has one project currently under construction, in Madison, and its other Milwaukee proposal, The Edison, has taken a while to finance and still hasn’t broken ground.
“I have concerns (The Edison) project won’t even get finished,” Bauman said. “Now, to come forward with a project that’s substantially larger, I don’t think DCD adequately vetted the financial feasibility of what they’re proposing.”
Further, Bauman said the city has been burned by phased projects in the past, citing the Harley-Davidson Museum site redevelopment, which was supposed to include 100,000 square feet of office space that never materialized.
If an independent review finds Neutral’s proposal infeasible, Bauman said he’d like to see the process start over again.
“Go back to the drawing board and issue a new RFP,” he said. Asked what he’d like to see done differently in another RFP process, Bauman said, “I’d have to think about that.”
“I think that’s a dangerous precedent to set,” Pecor said. “Developers are experts in what they do, and they wouldn’t propose something that they don’t think they can do. They’ve all done their due diligence on what they think they can build. A study could take months, maybe a year, and every month you delay a project, it’s going to increase the cost of the project, too.”
If the third-party study determines Neutral’s proposal to be infeasible and the city re-issues the RFP, it could turn into a situation like at Vel R. Phillips and Wisconsin avenues site, where it’s a rolling RFP with no proposals, said Pecor.
Neutral leaders said the phasing of the project, which is anticipated to take about 10 years, will depend on when tenants come forward and demand arises for each use of the project.
“If the office tenants we are talking to, they want to move in at a certain date versus if another arrangement comes through, then we would prioritize that,” Glaessl said.
While a construction timeline for the first phase has not been outlined, construction wouldn’t likely begin for a few years, according to Glaessl, since the city has yet to approve DCD’s one-year negotiation period and individual components of Neutral’s project will still need to receive further city approval, be financed and the existing parking structure will need to be demolished.
Bauman’s resolution will likely be examined and voted on by the Zoning, Neighborhoods and Development Committee this month and, if passed, would go to the Common Council, which could take up to six months, according to Bauman. Mayor Cavalier Johnson could veto the item.
Separately, the Common Council will have to give DCD permission to enter into the contractual relationship with Neutral to begin the due diligence and negotiation process, which Bauman says doesn’t currently have support on the council.
“I have been given five pieces of paper regarding this process,” Bauman said. “I have a rendering of the Richman project, rendering of the New Land project, and two renderings of (Neutral’s). I have one piece of paper describing the proposals from a 30,000-foot view. I don’t think there’s eight votes on the council to grant the right to negotiate with (Neutral) without knowing more information.”
