With the passage of
Milwaukee Public Schools’ $252 million property tax referendum and with commercial properties comprising 40% of assessed real estate in the city of Milwaukee, the city's commercial real estate owners are bracing for the long term impact.
Milwaukee voters narrowly passed the measure Tuesday, with a difference of only about 1,720 votes. MPS officials say the funding increase is needed to prevent about $200 million in budget cuts — cuts they say are due to state-imposed property tax caps. The referendum faced well-funded opposition led by the
Metropolitan Milwaukee Association of Commerce, which said the district was simply asking for too much money, especially as the district’s test scores indicate that students are not making adequate academic progress.
The referendum is projected to increase Milwaukee property taxes by about $2.16 per $1,000 of property value. For a $200,000 home, that's an increase of $432, but for expensive commercial properties, the increase will be far greater.
Milwaukee's top 10 taxable property holders by property value are estimated to pay more than $6.5 million in additional real estate taxes due to the referendum, according to a document circulated by the business community that was provided to BizTimes Milwaukee.
Northwestern Mutual, the city's top property owner by value, is poised to pay more than $1.3 million in additional real estate taxes, according to the document. Northwestern Mutual chief executive officer John Schlifske was a vocal opponent of the referendum.
Among those 10 property owners, six of them are owners of multifamily housing properties. They include, Berrada Properties,
Mandel Group, Weidner Investments, Katz Properties, New Land Investments (a
New Land Enterprises affiliate) and Metropolitan Associates.
In March, 90% of property managers said they would increase their tenants' rent if the referendum passed, according to a survey conducted by MMAC.
"The impact of this ill-advised referendum is that a rent surcharge of roughly $40/month or $480/year would be added on top of normal rent increases that keep pace with operating expenses, as leases are renewed or new leases signed," said
Bob Monnat, senior partner at Mandel Group, noting that his opinion was a personal one and not reflective of Mandel's. Mandel will pay an additional $925,000 in taxes as a result of the referendum.
"Property taxes – which includes the school tax component - represent the single largest expense of owning and operating income producing real estate in Milwaukee," Monnat said. "I expect that some will look to cut back other expenses that contribute to the quality of the buildings that comprise our city – that’s certainly not a good outcome."
For every single dollar of property tax increases, the value of real estate goes down around $18, according to
Tim Gokhman, managing director at New Land. On a 100-unit building assessed at $20 million, its taxes will go up $40,000, and its value will drop about $727,000.
Further, for the real estate developers who own a lot of their properties like Mandel and New Land, the added operating costs will make it more challenging for them to build new multifamily housing.
"With increased construction costs, interest rates, and now taxes, new construction will make even less sense," Gokhman said. "Moreover, the financing gaps will get bigger where rents can’t go up and where housing is most needed — workforce and affordable housing (because those rents are capped by federal entities)."
And that creates problems for the city's overall affordability in the long term because, as demand for apartments rises, there could be less supply to meet that demand.
It's a similar dynamic for companies that own retail, office, industrial or other commercial property.
Also in the city's top 10 taxable property holders is real estate firm Irgens, which owns downtown office buildings including 833 East and BMO Tower and will pay an additional $500,000 in taxes. Similarly, U.S. Bank Corp., which owns the multitenant U.S. Bank Center downtown will pay an additional $575,000.
Most office leases today are structured in a way that the tenant pays a lot of the costs to operate the building, including real estate taxes, according to
Jenna Maguire, vice president and office broker at
Colliers.
"So those tax and referendum costs are going to be passed through immediately," Maguire said. "It's something that's going to impact tenants bottom line, unfortunately, but at this point I don't know if it's substantial enough to be a detriment to leasing activity."
Though Maguire said she's hopeful the increase won't be a deterrent to office users already located in — or looking to move to — the City of Milwaukee, others worry what rent and tax increases will mean for future growth in the city's economy.
"It will certainly (affect) our ability to attract and retain residents and businesses based on affordability," said
Tracy Johnson, chief executive officer of the
Commercial Association of Realtors Wisconsin (CARW). "The property tax in Milwaukee is amongst the highest in the country and is one of few tools municipalities have in Wisconsin to support services."
In the wake of the referendum's passage, opponents like MMAC and the Greater Milwaukee Foundation are urging transparency and accountability as the school district serving 69,115 students embarks on plans to spend the influx of taxpayer dollars.
"A stronger performing MPS is critical to Milwaukee’s success and its ability to thrive and grow," Gokhman said. "MPS needs to be successful, but this tax increase will come at a price, and with counterproductive consequences. I hope we use the next 4 years to find a better solution than to keep increasing property taxes."
