Prior to the Great Recession, the downtown Milwaukee condo market was booming. New condo towers shot up along the lakefront and several old warehouses were transformed to residential use.
Many of those projects were successful. But some developers overestimated the strength of the downtown Milwaukee condo market and their projects failed as the Great Recession and the collapse of the national housing market drastically reduced the demand for downtown Milwaukee condos.
Mandel Group Inc., perhaps the most prominent multi-family housing developer in the Milwaukee area, stopped building downtown condos a few years ago, but has continued to do some apartment development. In addition, the company has been hired to clean up two of the biggest failed developments from the downtown condo market collapse.
In 2008, Mandel Group was hired to complete the First Place on the River project at 106 W. Seeboth St., on the Milwaukee River. The original developer, KeyBridge Development Group, ran out of money and could not complete the project. Mandel Group was hired to complete the project for the banks that had financed the project, including Madison-based AnchorBank.
Mandel Group had to complete the construction of the building, which it re-named The Point on the River. Several of the condos were under contract, but few of the sales had closed. Now, Mandel Group has completed the sale of 102 of the building’s 147 units.
Recently, Mandel Group was hired to clean up another failed downtown condo project: Park Lafayette. The twin, 20-story towers, located at Prospect Avenue and Lafayette Place on the East Side, have 280 residential units. Originally built for condos, most of the units are being leased as apartments.
Park Lafayette offers different challenges than First Place on the River, said Mandel Group chief operating officer Robert Monnat. One advantage for Park Lafayette is the stigma of living in a failed real estate development is greatly reduced in the market place today.
“There have been so many failed projects, that stigma has left,” Monnat said. “This should be easier to gain market acceptance. People aren’t as sensitive to that as they used to be.”
Park Lafayette was developed by Oak Brook, Ill.-based Renaissant Development Group LLC. Only eight of the condo sales were completed. The 280-unit development is currently two-thirds occupied by renters.
The project was doomed from the beginning because it was too large for the downtown Milwaukee market, Monnat said.
“It was just so super-sized for this market,” he said. “Even in the best of times that we ever had, this project had very little chance of succeeding.”
In the downtown condo market’s strongest boom years the market absorbed about 800 condos a year. The Park Lafayette project dumped supply equal to 35 percent of the yearly absorption for the market’s peak years. That was way too much additional supply for the market to absorb, Monnat said.
“This happens a lot of times with Chicago developers,” he said. “They come to Milwaukee, misjudge the market, they overbuild, and the project fails. Milwaukee is a fragile real estate market and developers have to make sure their projects are of the right size.”
Another problem for Park Lafayette is the level of finishes in the units was not sufficient for the prices that were charged for the condos, Monnat said.
The Park Lafayette project was financed by LongView ULTRA Construction Loan Investment Fund, a union pension fund that wanted to invest in a major building project with union laborers. The pension fund directed its funding for the project through New York-based Amalgamated Bank.
Unable to sell an adequate amount of condos in the project, Renaissant Lafayette LLC, which was formed by Renaissant Development Group for the Park Lafayette project, filed for bankruptcy. The property was sold at auction and recently purchased by Amalgamated Bank for $55 million.
That was about half of what the bank was owed from Renaissant for the project.
Amalgamated Bank made a stalking horse bid of $55 million and no other qualified bidder out-bid them. So the bank was unable to recover any of the money it was owed for the project, but it was able to take ownership of the building.
“They took it back and in essence established the market (value of the building) at $55 million, which is still high,” Monnat said.
He declined to estimate the true value of the property.
“It’s curious that no one bid higher,” Monnat said.
Mandel Group originally got involved with the Park Lafayette project in October of 2009, when it was asked to be the receiver for the project as part of a foreclosure action by the bank. As the receiver, Mandel Group worked to make sure the bills for the property were paid and the company worked to determine the value of the property, Monnat said.
In December of 2009, Renaissant Lafayette LLC filed for bankruptcy, which put the matter into the hands of a federal bankruptcy court and temporarily ended Mandel Group’s involvement in the property.
In February of 2010, Amalgamated Bank hired Mandel Group to do more analysis work on the property.
In December of 2010, the bank’s bid to acquire the property was approved. The sale closed in late January and the bank hired Mandel Group subsidiary Mandel Property Services Inc. to take over the management and leasing of Park Lafayette.
Mandel Group has plans to improve the performance, and therefore increase the value, of the property, Monnat said. Operations have to be refined and some aesthetic improvements will be made, he said.
“There are a number of things we are looking at,” he said. “Some of it is in operations, others are in aesthetics, including improvements in some of the common areas. When (the improvements) happen, it will have better results.”
Mandel Group plans to meet with tenants in the buildings to find out what improvements they would like to see, Monnat said.
“Think of it as a car that needs a tune-up,” he said. “The whole thing needs a tune-up.”
The property will be marketed under the name Park Lafayette Towers and a grand-reopening is planned for mid-April.
The apartments in the buildings have one to three bedrooms and rents range from $1,100 a month to $4,000 a month.
Mandel Group will work to fill all of the 272 apartment units in the Park Lafayette Towers. Although two-thirds of those units are currently leased, many of those leases are up for renewal in the spring and summer.
Despite all of the problems that the Park Lafayette project has had, Mandel Group believes it has two significant attributes that it can sell to potential tenants: the views and the location.
Perched on a bluff overlooking Lake Michigan, the units at Park Lafayette have views of the lake and downtown Milwaukee.
“There are tremendous views when you get on the upper floors,” Monnat said.
The location is in the heart of Milwaukee’s East Side and is within a short walk of Veteran’s Park and numerous restaurants, bars, stores and the Oriental Theatre.
“If you are kind of an active lifestyle person this property is as well positioned as anything you are going to find,” Monnat said. “It’s just a great location.”