Last updated on May 13th, 2019 at 02:36 pm
The Park East Freeway corridor redevelopment of this jewel of prime development land is slowly, slowly moving forward after years of being stigmatized and hindered by political debate and governmental restrictions on development. In fact, private landowners just to the north of this area announced recently that Manpower Inc. will be relocating its headquarters to a site on Martin Luther King Drive with financial assistance from the City of Milwaukee. This development momentum may spill over into smaller sites located where our infamous freeway once stood.
Likewise, the Park East’s industrial cousin, the city’s 140-acre Menomonee River Valley business park, has some sputtering momentum. The construction of Palermo Villa’s new manufacturing facility and the extension of Canal Street through to the Miller Park parking lots are examples of progress that can be seen as you drive on Interstate 94 and look south at 35th Street. These are positive signs that this business park may someday be a "Class A" industrial location.
However, an inherent problem lies embedded within the strategy and the marketing of this business park by the City of Milwaukee. The city and Menomonee Valley Partners, a nonprofit partner, have taken a stance against the commercial real estate development community by restricting speculative-based development.
Speculative development is allowed, but only to some extent. To build in this business park, a developer must prove that they are providing at least 16 jobs per acre before a transaction can be closed on the land. Therefore, in order for a developer to build a standard, 50,000-square-foot speculative building on four acres, the investor must sign up pre-leased tenants that will bring in at least 64 jobs. This stringent restriction is wrong for the short and long-term success of the business park.
Why? First, restricting development to only user-occupied, specific-use facilities limits the pool of companies that will entertain the idea of locating in the valley. The development of the Palermo facility makes great headlines, but the reality is there are very few manufacturers in the entire southeastern Wisconsin industrial market searching for 150,000 square feet of space. The majority of the industrial users fall within the 5,000 to 20,000-square-foot range. These smaller industrial companies tend to either buy small buildings on less than one acre or they lease space in a business center.
Milwaukee has always been an "if you build it, they will come" town when it comes to industrial real estate. Pre-leasing is very difficult even if you have the best location in the heart of the metro area. Smaller tenants need to be able to walk into a facility, open and close the door, and physically touch the real estate before they will execute leases. If the valley does not allow speculative development, it will miss out on opportunities to attract these smaller, job-providing tenants. Competing speculative developments in West Milwaukee, West Allis, and the Stadium Business Park in the City of Milwaukee will land tenants quicker because the real estate is ready for occupancy.
Second, by restricting development to user-occupied specific-use facilities, the business park will not be in a good long-term position to re-tenant the buildings after they are vacated by the initial occupant. Using the Palermo facility again as an example, this specific-use food manufacturing building will not easily be re-used if Palermo decides to leave. The space is currently being specifically built-to-suit for this particular operation, and the pool of food manufacturing occupants in our market is very limited.
For example, the former Schreiber Foods cheese processing facility on Springdale Road in Waukesha was a single-use food building that sat vacant for nearly four years and eventually was demolished to make way for a new movie theater. To avoid these ugly situations of long-term vacant unusable buildings, the city must trust the free market to provide a quality product that will lease in the valley.
Industrial developers interested in investing in this area have the savvy, experience, knowledge and resources to build speculative buildings that will retain their long-term value and functionality.
Developers build "spec" projects with marketable clear heights, floor thicknesses, loading doors, power sources, lighting, etc., that will be flexible for a wide array of tenant (manufacturing, distribution, and technology) uses and will continue to lease when future rollover occurs.
Third, speculative development will bring tax base and family-supporting jobs to the city’s business park in the Menomonee Valley quicker, if it is allowed.
The aforementioned developments in the Stadium Business Park and West Milwaukee are solid examples of smart speculative construction. The Miller Park Way corridor is currently booming with demand for new, quality industrial space.
Manufacturers, wholesalers and industrial service providers are flocking to this area because of its central location and its close proximity to a deep and skilled labor force.
High-quality speculative buildings in this submarket, when completed and filled, command values in the $60 to $65 per square foot range. These buildings are rapidly leasing three to four months after completion, and thus, they are returning tax dollars immediately. More importantly, existing speculative developments in this area south of Miller Park have been successful in attracting suburban companies back into this central location and bringing their jobs with them.
With a combination of owner-occupied and speculative based development, the Menomonee Valley Business Park has tremendous potential to be a "Class A" business park and possibly even rival the Zoo Interchange as the premier location for industrial companies. Palermo is an admirable anchor, and they will hopefully kick off development momentum within this park. However, if you take a look around at recent business park success stories such as Pleasant Prairie’s Lakeview Corporate Park, New Berlin’s Westridge Business Park, and Menomonee Falls’ Silver Spring Corporate Park, they all have a balance of owner occupied and speculative based development.
The development community believes in the valley and is poised to invest its money alongside Palermo. City officials have the opportunity right now to keep this progression moving and to not allow this eyesore to sit vacant any longer, if they will allow speculative development to occur in the Menomonee Valley.
