As the U.S. economy continues its slow recovery from the Great Recession, commercial real estate development is picking up again.
In the Milwaukee area, several key commercial real estate projects are hanging in the balance. Several decisions must be made soon, and the impact of those decisions will shape the region to a significant extent for years to come.
Some major commercial real estate developments are moving forward in southeastern Wisconsin, including:
Simon Property Group’s substantial renovation of Southridge Mall in Greendale, which will include the addition of a Macy’s department store.
Marcus Corp.’s plans for The Corners in the Town of Brookfield, which will have 370,000 square feet of retail space (including a Von Maur department store) and about 50,000 square feet of office space.
The redevelopment of the former Pabst brewery in downtown Milwaukee, led by Zilber Ltd.
The University of Wisconsin-Milwaukee’s Innovation Park project in Wauwatosa and School of Fresh Water Sciences project in Milwaukee.
None of those projects is complete yet, and some of them have not even broken ground, but all have made significant progress with some key commitments in place and decisions made.
However, the outlook for several other major projects is uncertain as local officials and members of the business community eagerly await their outcome.
Crucial decisions will be made in upcoming months on two key development projects that will have a dramatic impact on the metro Milwaukee area: the location of a new Kohl’s Corp. corporate headquarters and the location of a new office building for Northwestern Mutual Life Insurance Co. Inc.
Meanwhile, several other important development sites or projects are languishing, and local officials are trying to move them forward, but with little success so far. They include: the Park East corridor in downtown Milwaukee, the future of the Bradley Center in downtown Milwaukee, the struggling Shops of Grand Avenue in downtown Milwaukee and the former Delphi site in Oak Creek.
However these projects turn out in the coming months and years, they will collectively make a significant impact on the southeastern Wisconsin commercial real estate landscape.
The Kohl’s decision
As first reported by BizTimes Milwaukee earlier this year, Kohl’s executives have been considering plans for at least a year to build a new corporate headquarters with perhaps 1 million square feet of space. The company’s current headquarters off of Silver Spring Drive in Menomonee Falls is cramped.
“(The Kohl’s headquarters project) is the most important deal going on today in southeastern Wisconsin,” said Mike Mervis, vice president of Zilber Ltd.
Kohl’s representatives have been extremely tight-lipped about the project publicly, and they have demanded that anyone involved or potentially involved in the project also remain publicly silent about it.
Earlier this year, the Menomonee Falls Village Board approved the creation of a new tax incremental financing (TIF) district in the Woodland Prime business park area. Many have assumed that Kohl’s eventually would select that site for its new corporate headquarters. However, the company has not announced a decision, leaving some to speculate that other sites, including downtown Milwaukee, are still under consideration.
Real estate industry members say the most important thing is to keep the company’s headquarters in southeastern Wisconsin. Still, the company’s headquarters location decision will have a major impact on the region. If Kohl’s pulls its corporate headquarters out of Menomonee Falls, it would be a huge loss for that community, but it would provide a significant boost for whatever community it would be moved to.
Downtown Milwaukee supporters say the company should move downtown to help it attract young fashion industry professionals.
“It’s going to be important for Kohl’s to be located in an urban area to attract the people that will be working for them over the next several decades,” said Barry Mandel, president of Mandel Group Inc.
“(Downtown) is where the action is,” said Gary Grunau, president of Grucon Group LLC. “That’s where the sharp, young, talented employees want to be. This is where the young people want to live and work.”
Northwestern Mutual
Northwestern Mutual plans to demolish a 16-story, 451,964-square-foot office building on its downtown Milwaukee campus. The company said the building, while safe, requires extensive improvements and no longer can serve the firm’s long-term needs. The company said it will replace the building with a new building at the downtown campus or at its Franklin campus, or a combination of both.
The company first developed the Franklin campus, located northwest of South 27th Street and Drexel Avenue, when it built a 500,000-square-foot office building in 2004. Then in 2008, it added a 386,000-square-foot addition to the Franklin campus.
Milwaukee and Franklin officials have been in talks with Northwestern Mutual representatives about the newest project. The company said it will take about a year to determine the size and the location of the project.
“They’ve always maintained a strong commitment to downtown,” said James T. Barry III, president of Cassidy Turley Barry. “I would think there would be pressure, internal and external, to come up with something downtown. I think it would be sad if we lost the jobs and the space downtown with nothing left in its place.”
About 1,100 employees work in the building that Northwestern Mutual plans to tear down. If the company decides to build a replacement building at the Franklin campus and moves the employees there, it would be a huge blow to downtown Milwaukee and a major gain for Franklin and Oak Creek. The construction of Northwestern Mutual’s Franklin campus already represents a missed opportunity for downtown Milwaukee.
Former Delphi site
Troy, Mich.-based Delphi Corp. filed for Chapter 11 bankruptcy protection in 2005 and in 2008 closed its Oak Creek plant, located on an 85-acre site southwest of Howell and Drexel avenues, as part of its restructuring.
The plant was torn down, and the site remains vacant. The large property sits at a key location along Howell Avenue (the main commercial corridor in Oak Creek) and along Drexel Avenue, which will gain access to Interstate 94 when the state completes the addition of on and off ramps.
The property was purchased earlier this year by Wispark LLC, the real estate development division of Milwaukee-based Wisconsin Energy Corp. Wispark president Jerry Franke indicated the company plans to do a mixed-use development on the site.
After a few public hearings earlier this year, a consultant hired by the city of Oak Creek crafted a town center plan for the Delphi site, which would essentially create a downtown for the community. The city is considering plans to build a new city hall and library at the site.
The concept plan for the Delphi site also includes retail, restaurant and residential development.
Meanwhile, the future is unclear for three key downtown Milwaukee sites: the Bradley Center, the Park East corridor and the Shops of Grand Avenue. Little progress has been made to move development or redevelopment projects forward for these properties.
Bradley Center
For years, Bradley Center and Milwaukee Bucks officials have indicated that the 23-year-old arena is not sufficient to generate the revenue necessary to keep an NBA franchise in Milwaukee for the long term.
The loss of the Bucks would be devastating to several downtown businesses, including hotels, bars and restaurants that rely on the Bucks’ annual 41 home games to generate traffic downtown and bring customers through their doors. Those businesses are already feeling the pain from the NBA lockout.
The Bucks are faced with many of the same problems that confronted the Milwaukee Brewers in the 1990s before Miller Park was built: a poor team, fan apathy and a league labor and revenue model that puts small market franchises at a significant disadvantage.
The fight to build Miller Park was a bare knuckles political brawl, and it occurred when the economy was much stronger. In today’s post-Great Recession economy and hyper-charged political environment, there is little political will to fight for tax money to build a new arena for the Bucks. Political leadership on the issue has been virtually nonexistent. Metropolitan Milwaukee Association of Commerce (MMAC) president Tim Sheehy has floated the idea of extending the Miller Park sales tax to pay for a new arena, but the notion has not gained any traction with public officials.
The best option could be to extend the Miller Park sales tax, but only for Milwaukee County, since Milwaukee gets the most of the benefit from a downtown arena, Grunau said.
Mandel also suggests an extension of the Miller Park stadium tax. The Bucks should contribute to the project as well, he said.
“I’m one of the most anti tax people,” Barry said. “But I would be willing to consider extending the Miller Park tax. It’s so important from a civic image standpoint to have pro teams, particularly in a downtown setting.”
Others doubt tax money could be used to build a new arena.
“There’s never going to be another Miller Park,” Mervis said.
Park East
The Park East freeway spur, which ran along the north side of downtown Milwaukee, was torn down about seven years ago in hopes of opening up a large swath of land for development. However, little development has occurred in the Park East corridor, which remains mostly vacant.
Even so, Mervis is bullish on the future of the Park East corridor.
“I think the Park East corridor in the next five years will become the main entrance into the city,” he said.
Zilber Ltd.’s successful efforts to redevelop the former Pabst brewery could be replicated in the Park East corridor, Mervis said.
Some development has occurred around the corridor, including the ManpowerGroup corporate headquarters and the first phase of Mandel Group Inc.’s North End project.
The only project that has been built where the freeway itself once stood is the Aloft hotel.
Most of the land that was underneath the freeway spur is owned by Milwaukee County. The county has been unsuccessful in its attempts to attract any development to its Park East property.
Milwaukee County Executive Chris Abele, who was elected last year, has pledged to increase cooperation with city of Milwaukee officials to step up efforts to attract development to the Park East corridor. But so far little progress has been made on additional Park East development.
City, county, state and federal incentives will likely be necessary to make projects work in the Park East corridor, Mandel said. Public subsides should be provided for projects that create jobs. “That’s where the focus should be,” he said.
The future of the Park East corridor is up in the air until Kohl’s decides where to build its new corporate headquarters, Grunau said. If the company decided to move downtown, the Park East corridor is the most likely location.
East of the Milwaukee River, the Park East corridor will probably eventually attract mostly residential development, Grunau said. West of the river is less clear, especially if Kohl’s does not build there. The area could be the best location for a new arena to replace the Bradley Center.
Shops of Grand Avenue
The Shops of Grand Avenue has struggled for years with a high vacancy rate, low-quality tenants and a lack of foot traffic.
The mall was acquired last year by Stamford, Conn.-based Five Mile Capital LLC, which now faces a foreclosure suit on the property from Wells Fargo Bank.
City officials have said the 450,000-square-foot mall needs to be reinvented with different uses. One new approach the mall is taking is an effort to attract a cluster of small creative, technology and innovative firms.
The mall should be split with about half of its use for retail and the other half for other uses, such as start-up businesses and artists, Mandel said.
Another idea for the mall could be to add a “boutique casino” that would provide another entertainment destination for convention attendees, Mandel said.
Only a small portion of the mall should remain retail, said Barry. The rest should be for education uses and a “funky office component.”
“The idea of a downtown, enclosed mall is increasingly difficult to pull off,” he said.
Grunau suggests that neighborhood stakeholders Wisconsin Energy Corp., Zilber Ltd., The Marcus Corp. and the Wisconsin Center District form a community development group to purchase and redevelop the mall, targeting its retail offerings to college students to take advantage of the proximity to Marquette University and the Milwaukee School of Engineering.
“You have a massive student population a few blocks away,” Grunau said.
However, Zilber Ltd. has no interest in a project with the mall, Mervis said. Instead community leaders need to find out what the bank plans to do with the mall, he said.
The mall needs a quality owner that is willing to take risk and is smart enough to provide an offering that the marketplace wants and will support, Mervis said.
“We keep trying to fit square pegs into round holes,” he said. “We shouldn’t keep trying to do what doesn’t work. If it doesn’t work, we should try to do something else.”
The post-Great Recession landscape provides an extremely challenging environment for commercial real estate development. Capital markets for commercial real estate have improved, but remain tight. The economic recovery remains sluggish. The political environment is hyper-partisan.
“Nobody alive today has any experience in an economic and political environmental like this,” Mervis said. “None of us has ever been here before.”
As a result leaders in the public and private sectors will have to be creative to advance major economic development initiatives.
“The same old same old will not work,” Mervis said. “If we’re not creative and flexible, we will suffer the consequences, and they will be severe.”
