Kohl’s takes scattered real estate approach

Kohl’s Corp.’s recently announced decision to drop its plans for a $250 million, 900,000-square-foot second corporate campus that it had planned to build in the Woodland Prime office park in Menomonee Falls means the company’s operations will remain scattered in several locations. The company has, or will soon have, operations in at least nine buildings in Menomonee Falls and the far northwest side of Milwaukee.

It is a far less expensive approach for the company, but some commercial real estate professionals in the region say it is an inefficient approach that raises questions about the company’s long-range real estate plans.
“It’s very inefficient,” said one Milwaukee commercial real estate source. “It’s certainly not a recruitment benefit to scatter people. But if you are focused on your business it’s not the worst thing in the world.”
Representatives for Kohl’s did not return phone calls seeking comment for this report.

Former InnoWare building

The company’s main corporate headquarters has approximately 800,000 square feet of space and is located at N56 W17000 Ridgewood Dr. in the Silver Spring Corporate Park in Menomonee Falls.
Instead of building a new corporate campus, Kohl’s recently purchased two buildings in Menomonee Falls to meet its expansion needs: the 300,000-square-foot former InnoWare building at W165 N5830 Ridgewood Dr., which the company bought for $15.2 million; and the 28,000-square-foot former ProHealth Care medical building at W165 N5595 Creekwood Crossing, which the company bought for $2.5 million.

Former ProHealth Care building

The former InnoWare building will be converted into a corporate facility for Kohl’s IT workers. The former ProHealth Care building will house an employee wellness center and fitness facility. The company’s current wellness center, a 24,000-square-foot facility located at W165 N5800 Ridgewood Dr., will be used as a childcare center.
All three of those buildings are located near the Kohl’s main headquarters building in the Silver Spring Corporate Park.

But other Kohl’s operations are located in facilities farther away. The company’s photo studio is located at 11300 W. Heather Dr. in Milwaukee, about eight miles from the headquarters. Its credit center is located in a 69,717-square-foot building at N54 W13600 Woodale Ct. in Menomonee Falls, about 2.5 miles from the headquarters. The company also has operations at 7800 N. 113th St. in Milwaukee and at 11100 W. Liberty Dr. in Milwaukee, both are about seven miles from the headquarters.
Also, last the company acquired the 53,000-square-foot 800 Woodland Prime building at W127 N7564 Flint Dr. in the Woodland Prime office park in Menomonee Falls, about 4.5 miles from the headquarters, when it acquired 105 acres for the second corporate campus. In cancelling its plans for a second corporate campus the company will turn the land back over to the village but will keep the Flint Drive building.
Kohl’s executives have not provided an explanation for the cancellation of the company’s plans for a second corporate campus, but issued a statement that said the acquisition of the former InnoWare and former ProHealth Care buildings provides the company, “an increase of over 40 percent of our current capacity.”
Some Milwaukee area commercial real estate sources say Kohl’s poor corporate performance may have led executives to drop plans for the second corporate campus. The company earned $986 million in the 2012 fiscal year ended Feb. 2, down 15.7 percent from $1.17 billion in fiscal 2011. For the first three quarters of fiscal 2013 the company reported earnings of $555 million, down 9 percent from $609 million in the first three quarters of fiscal 2012.
“It kind of seems to me they are deferring making an aggressive decision on their real estate because they have bigger issues to deal with,” a commercial real estate source said. “These guys haven’t had great results. They haven’t been going in the right direction.”
Another problem for Kohl’s real estate plans is that the size and location of its current headquarters makes it extremely difficult for the company to sell so it is likely stuck with that facility for the long term, said a commercial real estate source.
“I think a lot of this is premised by the 800,000-square-foot dinosaur that this all started revolving around,” he said. “What do you do with that? That headquarters on Silver Spring is a limitation. When you’re riding high and you can do anything it tends to make the limitations not so limiting. It’s one thing when everything is going great. But now they don’t have a blank check.”
Kohl’s decision to end its development agreement with the village of Menomonee Falls and give back the 105 acres to the village where it had planned to build a second corporate campus indicates that the company’s latest plans are not a temporary Band-Aid approach, another commercial real estate source said.
“It would surprise me if it’s a Band-Aid since they are giving up on opportunity to build a campus,” he said. “But this apparently does ensure that they’re going to remain long term in Menomonee Falls, which is very positive for the region.”
Last year, Kohl’s had considered plans to build a new corporate headquarters in downtown Milwaukee, but then dropped downtown as a consideration and announced plans to build a second corporate campus in Menomonee Falls. Now that the company has dropped the plans for a second corporate campus, one commercial real estate source said the possibility exists that the company will later re-consider plans to move some of its headquarters operations to downtown Milwaukee.
“It would be catalytic if they could bring some of that downtown,” he said.
“I bet (Kohl’s future facility plans in the region) will be driven by business and not by real estate,” another source said.

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