Housing, economic rebound, office moves all good for downtown Milwaukee
By Mark Kass, for SBT
The surge of housing in downtown Milwaukee, an economic rebound and several large tenants looking at possible relocation has prompted an upturn in the downtown’s office and retail market for the first time since the early 1990s.
In fact, for the first time since 1992, construction is under way on two new office buildings — and two more are on the drawing board.
"It is definitely showing signs of life," said Patrick Gallagher, president of Siegel-Gallagher, a Milwaukee real estate brokerage. "A lot of companies have put off major decisions with 9/11 and the economic downturn. But they have put off those decisions long enough to see that the sky is not falling. Things are now starting to pick up."
So much so that Gallagher has proposed a 24-story, 300,000-square-foot office tower, which could include a hotel, retail and condominiums, at the southeast corner of North Broadway and East Wisconsin Avenue. Development would not begin on the project until an anchor tenant was secured and up to 200,00 square feet would be pre-leased, something Gallagher is optimistic will occur in the near future.
"There are several opportunities out there that we are trying to work with," he said. "I am very bullish on Milwaukee, and believe that we can put something together. This has the potential to be a very nice project."
The second office building on the drawing board is a $100 million office, retail and new parking structure that has been proposed on the current site of the Marcus Center for the Performing Arts’ parking structure on North Water Street. Irgens Development Corp., a Wauwatosa development firm, has proposed the project.
Mark Irgens, president of Irgens Development, said his firm is studying the feasibility of the Marcus Center project to determine if it can line up the necessary financing and enough anchor tenants.
"We are talking to a number of tenants to see what we can put together," he said. "There are a number of options out there, and we are trying to see if they make sense for us."
Irgens is also currently building the 209,000-square-foot 875 East, 875 E. Wisconsin Ave., one of two office buildings on which construction started in 2002. The two buildings were the first new major office buildings developed in Milwaukee since 1992.
Irgens has leased out 85,000 square feet in the eight-story, $49 million office building, including 55,000 square feet to Artisan Partners, a Milwaukee investment firm, which is moving from the 1000 North Water tower at 1000 N. Water St.
Construction also started in 2002 on the 220,000-square-foot Cathedral Place, located at the southwest corner of East Wells and North Jackson streets. Developer Joel Lee, of Van Buren Management, has leased out about 65% of the space, including 60,000 square feet to Whyte Hirschboeck Dudek, a Milwaukee law firm. He also has a lease for about 30,000 square feet with Executive Director, a Milwaukee firm.
The 18-story development will also have 30 condominiums, 25,000 square feet of retail space and a 940-space parking structure. It is expected to be completed in September 2003.
Lee said the project’s location and visibility has made it attractive to prospective tenants.
"We’ve had to hustle for all of our tenants, but we have been successful," he said. "Every deal is a tough deal right now because most of the activity is musical chairs. You are not seeing a lot of new tenants moving into downtown."
Michael Finn, senior vice president of Associated Bank, which is financing the project, said it was an exciting development that would change the face of that area of downtown.
"There has been a long gap between developments in downtown, but this is going a great development," he said. "It has a great location and a mixed use that will make it very successful."
The new projects have come forward as the result of several larger tenants entering the office market, said Gallagher and Irgens.
In fact, two large tenants, GE Medical Systems and Foley & Lardner, issued requests for proposals in early 2003 for large amount of Class A office space.
GE Medical’s information technologies division is looking for up to 200,000 square feet. The rapidly growing firm is currently located in the Woodland Prime Office Park in Menomonee Falls and has said it would consider downtown locations.
Several developers said they were unsure whether GE Medical would locate in downtown Milwaukee because of its need for a large amount of parking, something that is hard to come by in downtown. Lee suggested that a site on the former Park East Freeway, which is being torn down, would be an ideal location for the firm.
Foley & Lardner, one of downtown’s largest office tenants, currently leases 232,000 square feet at the U.S. Bank Center, 777 E. Wisconsin Ave., but its lease expires in February 2005. Most observers expect a huge fight for the prestigious law firm, which has been in its current location since 1974.
"There is a real possibility that Foley & Lardner would move, but you know that U.S. Bank is not going to let them go easily," Lee said. "It is going to be a real dog fight."
William Bonifas, a partner with the Polacheck Co., a Milwaukee real estate brokerage, said the recent activity in downtown Milwaukee has calmed a lot of fears.
"In February 2002, there was a tremendous amount of nervousness because you had two office buildings being proposed and you had the implosion of Arthur Anderson, which left 60,000 square feet at 100 East," he said. "Now, I’m very hopeful. If there is no war in Iraq or it is very short, I believe people will be freed up to make some decisions and commitments that they have been holding back on."
Bonifas said The Marcus Corp.’s decision to relocate to 55,000 square feet at the 100 East building, 100 E. Wisconsin Ave., along with the U.S. Forest Service’s decision to move to the Gas Light Building, were good signs for the downtown office market.
"There are some holes out there now, but no one owner has a particularly large problem," he said. "Having one building with a lot of space can cause a lot of problems because that owner can panic and drop his rates, which impacts everyone else."
While the Milwaukee downtown market has seen a downturn in recent years, most real estate observers said it has not seen the volatility that other markets have, such as Chicago, Boston, Atlanta and Denver.
Several recent Milwaukee studies have predicted that the downtown market may be on the verge of reversing the trend of losing tenants to suburban office buildings.
"Those other cities have more of a boom-and-bust environment," Gallagher said. "In the good times, they see more growth. But in the tough times, they see more downsizing. Milwaukee is much more stable and that is a positive for this city."
Added Bonifas, "Some of those cities have huge problems because of the failure of the dotcoms. Cities such as San Francisco, Minneapolis and Chicago have a tremendous amount of sublease space available that is going to take years to work off. Milwaukee has been lucky in that it has not had those problems."
Bonifas said he is starting to see a trend of suburban office tenants again looking at downtown for possible sites.
"It is just the beginning of the trend, but we are working on several deals in which suburban firms are willing to consider downtown, which is something they have not done in the past," he said. "We’ll have to see if they work out in the end."
As developers look for more growth in downtown for both office and retail, they all pointed to two areas, the land beneath the Park East Freeway, which is being torn down and the former Pabst Brewing complex on the west side of downtown, which is slated for redevelopment.
"There is a lot of land under the Park East that is going to be opened to development," Gallagher said.
Along with strengthening the link between Schlitz Park Office Park and downtown, tearing down the Park East will open up 26 acres of land – now used mostly for parking lots – for an estimated $250 million in housing, office and retail developments, according to the Milwaukee Department of City Development (DCD)
"Our plan envisions a mix of uses throughout the Park East Corridor, including residential, office, retail and entertainment," said Julie Penman, commissioner of DCD. "The plan also encourages the extension of the Riverwalk along the Milwaukee River."
As for the Pabst property, real estate observers are waiting for plans to be finalized for its redevelopment.
In 2002, Juneau Avenue Partners, a partnership formed by Wispark LLC, the development subsidiary of Wisconsin Energy Corp. and Ferchill Group, a Cleveland development firm, acquired the former Pabst Brewing Complex.
The developers are working on detailed plans to convert the properties into a $300 million complex of restaurants, nightclubs, loft apartments and offices, Work has started on the environmental cleanup at the 21-acre Pabst complex, which is bordered by West Highland Avenue, West Winnebago, North 8th and North 11th streets.
Bonifas said both the Park East and the Pabst areas would allow for suburban-type office development, making it easier for downtown Milwaukee to compete with suburban office parks.
"Just because of the amount of land available, you are going to be able to put together some development with free parking and other amenities that the suburbs can offer," he said.
Irgens said the third area that is attracting interest in the Walkers Point neighborhood, located south of downtown. He said the new Sixth Street Viaduct has opened many people’s eyes to this neighborhood.
"I had no idea that project would open up that area of town like it has," he said. "It really has a lot of potential for growth that I don’t think many people saw before."
March 7, 2003 Small Business Times, Milwaukee
