Last updated on March 17th, 2020 at 01:36 pm
The Housing Authority of the City of Milwaukee, through its development arm Travaux Inc., plans to construct a 32-story mixed-income tower to fill a niche it claims is not being met in the Milwaukee area.
This spring, officials unveiled the housing authority’s (HACM) plans for Convent Hill South, which would go up at the corner of Knapp and Milwaukee streets. The roughly $150 million tower would have as many as 350 affordable and market-rate residential units, 40,000 square feet of office space, 13 townhouses along Milwaukee and Knapp streets and amenities typically found in upscale high-rises, such as a swimming pool and fitness center.
Scott Simon, vice president of development with Travaux, said Convent Hill South is a unique project for the area. However, it would not be different from high-rises built elsewhere in the U.S., in communities that contain inclusionary zoning requirements. Such requirements ensure a portion of units are set aside for low-income families.
“By definition we are filling a niche that a lot of other communities are having filled with mixed-income developments on all sides,” he said.
Milwaukee is not able to enact such requirements due to state law, said Simon. Elected leaders in 2017 considered an inclusionary housing proposal for certain properties that receive assistance from the city, but the city attorney’s office said such a move would be illegal.
Amy Hall, a HACM spokeswoman, added that the revenue generated from the market-rate and commercial tenants will help finance necessary capital improvements on Housing Authority properties. Financing those improvements has become more difficult in recent years due to shrinking contributions from the federal level, she said.
“What this allows us to do is provide a funding stream that allows us to maintain our portfolio and generate the money that goes back into HACM,” Hall said.
In addition, there’s a shortage of both affordable units and housing overall, according to Travaux.
Simon said there is a shortage of affordable units across the nation. In Milwaukee specifically, the shortage is made apparent by the waiting lists for various HACM properties, he added.
“We’re hoping to provide as many new units over the next number of years that we can to accommodate the demand,” he said.
As for market rate, Simon said it appears vacancy rates are falling below 5% in the market. And according to market research, 5% appears to be the equilibrium in the market, he said.
“That tells us there is greater demand than there is supply at the moment,” Simon said.
As of mid-October, schematic design on the project was at 90% completion, he said. The project team had also completed outside market research and was still determining the appropriate unit mix. Further, the team will also have to determine what percent of the area’s median income renters would need to be earning in order to qualify for the affordable units.
Simon said he expects the unit mix and affordability levels will be finalized within the next six months.
Also to be finalized are development design and construction documents. Simon said each of these steps will take at least three months, and that’s after an additional month needed to complete schematic design.
From there, Travaux will piece together the project financing.
“There’s many options we’re looking at right now, the first and primary being the Opportunity Zone funds that are available,” said Simon, alluding to the fact that the site falls within a federal and state designated Opportunity Zone. This program was created in 2017 by federal lawmakers to encourage investment in projects located in distressed areas.
Simon said he expects Opportunity Zone funds to make up somewhere between 15% and 20% for an equity contribution on the project.
Other financing options include various HUD programs, offerings from Fannie Mae and Freddie Mac, and more conventional options, such as mezzanine and equity debt.
Travaux also plans to bring on a construction manager as well as a property manager. Hall said in late October that HACM expected to issue a request for proposals seeking a construction manager within the next couple weeks. A separate RFP for property management would be issued further into the future.
Travaux was incorporated in 2015 as a nonprofit entity that’s independent of the housing authority. However, it is an “instrumentality” of HACM, Simon said.
“Which means we follow the same rules and guidelines as the housing authority, but we act independently,” he said. “As a non-for-profit, anything that we earn is pushed back into the housing authority for the general missions (of) providing additional housing, additional amenities for the residents of Milwaukee that are in need.”
Travaux has three divisions consisting of development, construction and property management. Travaux oversaw the development and construction of the Westlawn project on the city’s north side, as well as other projects. It’s also slowly taking over the management of some of its existing properties, Simon said.
Hall said a chief reason Travaux was created is related to “legacy costs” associated with employees of the housing authority. HACM employees receive city pension and benefits; Travaux employees do not.
“So that helps reduce the cost in terms of employees,” she said.
Hall said she’s unaware of other housing authorities in the state that have instrumentalities similar to Travaux. However, they are more common nationwide. In fact, the U.S. Department of Housing and Urban Development encouraged the creation of an entity such as Travaux, she said.
When asked whether Travaux has the ability to develop projects not used by HACM, Simon said, “those are items that are being worked out right now.” He said the organization is providing not-for-profit assistance for outside entities and is looking to combine with other housing authorities to assist them in their projects, but its full capabilities are “still being examined.”
Questions, concerns from developers
Given the unprecedented nature of the project, coupled with the fact that residential towers aren’t built too often in Milwaukee, Convent Hill South has grabbed the interest of a number of those in the private real estate development community.
However, they aren’t readily offering their concerns publicly.
The Milwaukee-area developers contacted for this story either declined to comment on the record or did not respond to requests for comment.
Those who gave their thoughts did so anonymously, out of concern of potentially falling out of favor with the city.
Developers said they were surprised and perplexed when they first learned of the project, questioning why the housing authority would create an entity that essentially competes with the real estate community, rather than seek out partnerships with private developers.
One developer questioned the reasoning for a residential tower. He said a high-rise is far more expensive than several mid-rises, which would effectively provide more units at a lower cost. He argued that the Milwaukee market is only able to take on a certain number of residential towers. What’s more, there are a number of towers proposed for downtown by private developers already. It may have made sense if all the units in Convent Hill South were affordable, so as not to take away from the market for these other projects, the developer said.
As to why HACM chose to go with Travaux on this project and not a private partner, Hall noted the housing authority has 15 years of development experience on its own. She also pointed out the fact that any revenue Travaux takes in directly benefits HACM. Private developers, on the other hand, keep those development fees.
Simon, meanwhile, explained the reasons for building a high-rise rather than something at a smaller scale.
“We don’t have control over what is going on in the private sector,” he said. “That’s fully market-driven, as we believe our market-rate products will be as well.”
Some developers are looking for state and local assistance for their projects, which Travaux likely won’t need to do because the parcel is in an Opportunity Zone, Simon said.
And the limited availability of real estate on the Lower East Side necessitates Travaux build up, he said. If Travaux did not build a high-rise it would actually limit the number of units that it could offer on that particular site, he added.
“If the demand were being filled for the affordable units in the private sector, there would not be demand for us to bring a mixed-income building in the marketplace, but there is a demand for it,” Simon said, addressing concerns of this project impacting other planned towers.
One question by developers still remains unanswered, however. That is whether the tower, if eventually constructed, will be subject to property taxes.
“That will depend on the financing for the project so that is unknown at this time,” Hall said.