Midwest Airlines HQ campus in Oak Creek could be vacant awhile

The former Midwest Airlines corporate headquarters campus is for sale, and Midwest’s owner, Indianapolis-based Republic Airways Holdings Inc., will soon vacate the facility located at 6744 S. Howell Ave.

The campus has two buildings with a total of 120,883 square feet of office space and 761 parking spaces on 27.25 acres. It is owned by Lake Forest, Ill.-based The Westminster Funds, which has hired CB Richard Ellis’ Oak Brook, Ill., office to handle the sale.

The list price for the property is $14.9 million.
Operations at the Midwest Airlines headquarters have been scaled back since the airline was acquired by Republic in July of 2009. Republic consolidated some of Midwest’s corporate functions, including finance and human resources operations, at its Indianapolis headquarters. Midwest’s sales and marketing staff was moved to space at Mitchell International Airport in Milwaukee.
The only operation remaining at the Oak Creek headquarters campus is a reservations call center. In May, the call center will be moved to space at the airline’s maintenance center at the airport.
That will leave the former Midwest headquarters vacant.
Republic is in the process of integrating the operations of Midwest Airlines and Denver-based Frontier Airlines, which Republic acquired in October. The company was to announce the new name of the combined airlines this week, but the new name had not been announced at press time.
For months, Midwest Airlines has been operating essentially as a virtual airline, as the Midwest brand has remained but its planes and flight crews were replaced by Republic.
“On November 3, 2009, Midwest Airlines Inc. ceased to exist as an actual operating airline and we allowed its Department of Transportation air carrier operating certificate to lapse,” Republic said in its annual report submitted to the Securities and Exchange Commission. “We plan to fully integrate the operations of Midwest and Frontier as promptly as is feasible, which we anticipate will be substantially completed by the end of 2010.”
Earlier this year, Republic said it planned to add 800 jobs, including maintenance, call center and flight crew employees, in the Milwaukee area, doubling the company’s employment here. So far, the company has added about 400 of those jobs, Midwest Airlines spokesman Jim Reichart said, but ultimately none of them will be at the Oak Creek headquarters campus.
Midwest Airlines’ lease on the Oak Creek corporate campus does not expire until 2018. That could help attract a buyer, although investment commercial real estate buyers typically prefer to have a lease commitment of 10 years or more on a property that they buy, said Dan Jessup, president of Brookfield-based Grubb & Ellis|Apex Commercial.
In addition, Midwest Airlines does not pay property taxes on the property under a state property tax exemption for airlines with hub facilities in the state. But it is unclear if that exemption will remain in place now that Republic is vacating the facility. Oak Creek Mayor Dick Bolender said city officials hope to collect property taxes on the property when another tenant moves in and will look into the city’s ability to collect taxes when the building has been vacated by Midwest Airlines.
An increasing number of commercial real estate investment buyers are eyeing properties in the Milwaukee area looking for properties to purchase, commercial real estate brokers say. One of those buyers may decide to purchase the Midwest Airlines corporate campus.
“There are people with money in the market looking for opportunity,” said Jack Jacobson, principal with Brookfield-based NAI MLG Commercial. “They are coming from all over the country.”
However the $14.9 million asking price is probably too high, Jacobson said. Even without spending any money on improvements to the campus, an owner would have to charge $12.50 per square foot in rent, which is high for Oak Creek, he said.
The property will sell but, “maybe at as much as a 20-percent discount,” from the listed price Jacobson said.
Eventually, the Midwest Airlines lease will expire and whoever purchases the Oak Creek corporate campus will be faced with the task of filling the 120,000 square feet of office space. It is one of the larger blocks of office space in the southern suburbs, which is a less prominent office submarket in the metro area. The main office submarkets in the area are in downtown Milwaukee and in the Brookfield/Wauwatosa area.
“What do you do with 120,000 square feet of office space in Oak Creek?” Jacobson said. The property owner may need to turn the buildings from their current single tenant setup into a multi-tenant format. But there are already some quality office buildings in Oak Creek that still have vacant space, he said.
“There’s plenty of opportunity in existing buildings in Oak Creek,” Jacobson said.
However the overall office space market in Oak Creek is still small, and a large space added to the market would probably fill up eventually, Jessup said.
“There is so little office product (in the Oak Creek area), I think they could fill the vacant space over time,” he said.
Most of the Milwaukee area’s office tenants, especially large users, move between downtown and western or northern suburbs and avoid the southern suburbs, with the notable exception of Northwestern Mutual Life Insurance Co., which built a campus in Franklin.
There are some large office tenants in the market that could fill a large amount of space in the Midwest Airlines campus, if they decided that the property was the right fit, Jacobson said. Many of the office tenants in the market are focusing on downtown locations but at least one, CH2M Hill, is looking at the entire metro area. That firm’s Milwaukee office is currently located in the Honey Creek Corporate Center on the west side of Milwaukee.
Several office tenants in the market are considering moves to new developments. However, the capital markets for commercial real estate are currently extremely tight. A developer of a new office building likely needs to prelease about 75 percent of the space to obtain financing for the project.
The owner of the Midwest Airlines campus could have a major advantage over developers of proposed buildings.
“There is an advantage to having an existing building in place,” Jacobson said.

Sign up for BizTimes Daily Alerts

Stay up-to-date on the people, companies and issues that impact business in Milwaukee and Southeast Wisconsin

Andrew is the editor of BizTimes Milwaukee. He joined BizTimes in 2003, serving as managing editor and real estate reporter for 11 years. A University of Wisconsin-Madison graduate, he is a lifelong resident of the state. He lives in Muskego with his wife, Seng, their son, Zach, and their dog, Hokey. He is an avid sports fan and is a member of the Muskego Athletic Association board of directors.

No posts to display