Selling and leasing the Pabst Brewing Co. redevelopment project might be difficult, according to one industry insider.
Harvey Rabinowitz, a visiting professor of real estate at the University of Michigan at Ann Arbor – now on leave from the school of architecture at the University of Wisconsin-Milwaukee – has concerns with the project relative to its location, size and the state of the market.
"It is very big to take on, given Milwaukee’s office vacancy rate and the number of new projects already in process," Rabinowitz said. "The location is across Sixth Street, which kind of forms a barrier. Housing would be hard to fill – there is lots of competition. In terms of offices, I am not sure what the availability of Class C space is around the country. It seems like there would be a lot of vacancies with the number of dot-coms that have gone out of business."
The slowdown in the economy in general, according to Rabinowitz, is a concern, particularly since the economic downturn and associated policy changes are affecting the use of leased space by government. Developer Jim Haertel says that governmental users including Milwaukee Area Technical College, the Milwaukee Police Department and the Milwaukee School District are chief prospects.
"Government entities do rent C space," Rabinowitz said. "The county did rent C space at the Schlitz Park. But government is not growing as fast as it used to."
Expensive job
But Rabinowitz said that timing problems with the project extend beyond concerns over the economy.
"It will also be a little distracting for about a year as they turn the spur into a boulevard," Rabnitowitz said, referring to the demolition of a portion of the adjacent Park Freeway/Highway 145. "They are looking at a year of demolition and who knows how many years of construction. For some time it will be tough to get to, especially from 794."
Rabinowitz also stressed that the enormity of the project and what is likely to be a slow lease-up will require a developer with deep pockets.
"A developer has to be well-capitalized, to have deep pockets to hold on for a while," Rabinowitz said. "It is such a large complex that you can only rent a bit of it at a time. You have to bear the holding costs of the whole project unless they get rolling options – if they don’t have to buy it all at once."
The fact that Haertel plans to find other third-party buyers for some structures may offset that concern.
"That is a smart move," Rabinowitz said. "If they sell some buildings at closing, that gets them out of it. They can probably sell some at retail. But developers are cautious these days because they are looking at the markets; things are a bit iffy since the decline of the stock market and Sept. 11."
Location not ideal
While the Pabst property is located immediately adjacent to downtown, Rabinowitz pointed out that it is not situated as well as other C-class office properties.
"It is in an out-of-the-way location," Rabinowitz said. "The Tannery and others are more central – more toward the Third Ward or more toward the East side."
Rabinowitz again compared the Pabst property to the Schlitz Park development, which is immediately across the Milwaukee River from downtown. At time of purchase, the complex consisted of 1.6 million square feet of space under roof. But because developers purchased the property for about $1 per square foot of space, according to Raninowiz, they were able to tear down some structures in order to create much-needed parking space.
"Sampson Investments and Grunau Project Development bought it, and they had deep pockets," Rabinowitz noted. "They were also ahead of the game because they had some parts that were working, and others where people could move in pretty directly. The Brown Bottle (formerly the Schlitz on-site tavern) was working. And the property was on the river."
April 26, 2002 Small Business Times, Milwaukee
