The spread of the coronavirus across the globe has impacted essentially every aspect of the real estate industry, with southeastern Wisconsin being no exception.
Market uncertainty from the outbreak caused the Wisconsin Center District to push back issuing bonds to pay for the expansion of the downtown Milwaukee convention center. The decision could delay the project’s groundbreaking next year by months.
In Waukesha, a planned luxury apartment project in that city’s downtown was halted after an investor backed out. Atlanta-based Campbell Capital Group LLC notified city officials in early March that an investor had pulled money out of The Reserve at Waukesha, a development consisting of 186 residential units and 2,100 square feet of commercial space about a block west from the southwest corner of St. Paul Avenue and Barstow Street.
Michael Campbell, founder and managing member of Campbell, said in a recent interview that the investor decided he was going to sit on the sidelines as the U.S. dealt with the coronavirus outbreak and accompanying economic uncertainty.
Campbell is now seeking between $11 million and $14 million in equity to put the project back on track.
“I love that deal and I’m still working on it,” Campbell said.
BizTimes reached out to a number of development departments in other Milwaukee-area communities. Officials with Milwaukee and Franklin said that, as of mid-March, they hadn’t heard of any developments suffering a similar fate.
One other roadblock to planned developments, however, are city office closures and canceled meetings. Communities such as Kenosha, Racine and Oak Creek have recently sent out cancellation notices for plan commission meetings and public hearings.
The Waukesha project was set to receive $4.75 million from the city through tax incremental financing. Jennifer Andrews, Waukesha community development director, said the financing assistance was just one public meeting short of being approved by city officials. She said the city remains behind the project, and the development agreement will be ready for signatures whenever Campbell finds a new investor.
Tom Shepherd, partner at Colliers International|Wisconsin and lead of the firm’s Wisconsin investment services team, said he expects to see a greater impact from the coronavirus on the commercial real estate industry in the coming weeks and months. He said the real estate market has been on a sustained peak — in terms of activity, pricing and liquidity — since 2016.
People knew the time would come that the market would start trending downward, but that happening by way of global pandemic was not in anyone’s “wildest imaginations,” he said.
“I’d be naïve to say there wasn’t going to be a little bit more of a fallout,” Shepherd said. “Real estate is not immune to uncertainty and volatility. We’ve had an unbelievable 11-year run, just like the stock market.”
He predicted most deals in the marketplace that had pending offers would still move forward. For instance, earlier this month a New York investor new to market still went forward with the acquisition of a Class A office building in the area, even as markets were reacting to the pandemic.
“Real estate is a transaction-based industry that just can’t stop,” Shepherd said.
But buyers and sellers looking to do transactions later this year could put those plans on hold, he said. For example, if someone was going to launch an investment sale in early May, they may now hold off until July or August.
“What the impact could be in real time to deal flow would be, I think, extended market periods for properties, perhaps extended due diligence periods where people are more patient with each other,” said Shepherd.
Experts in residential real estate predicted the coronavirus outbreak would have an immediate cooling effect. Those effects could be short-lived or could last a while depending on the progression of the outbreak.
Mike Ruzicka, president of the Greater Milwaukee Association of Realtors, said the effects would likely be comparable to the Sept. 11, 2001 terrorist attacks. In the wake of those attacks the market was put “on hold” for about a month before normalizing.
At press time, it did not appear that active construction projects were being shut down due to COVID-19. Mike Fabishak, chief executive officer of the Associated General Contractors of Greater Milwaukee, said he had not heard from any members about their projects being put on pause.
However, contractors are being more thoughtful and paying extra attention to potential workplace exposure and other safety best practices, he said.
“We have put a premium on safety for decades,” said Fabishak. “The pandemic is new to us, the capacity to mitigate issues around safety is not.”
AGC of Greater Milwaukee’s membership largely consists of vertical contractors that use union labor.
Milwaukee-based construction firm Greenfire Management Services LLC recently sent out an email notification that it was continuing to build at all of its jobsites. However, Greenfire has asked office personnel to work from home, started conducting electronic meetings and began restricting travel. It implemented a policy restricting anyone from a jobsite if they showed symptoms such as a fever or difficulty breathing, and has increased the frequency of environmental cleaning at all locations.