The two largest tenants in downtown Milwaukee's second largest multi-tenant office tower are in the market exploring their future office space options, which could include moving to another building, new or existing.
Quarles & Brady, a Milwaukee-based law firm that occupies 186,000 square feet on the top seven floors of the 411 East Wisconsin Center building at 411 E. Wisconsin Ave., and
Von Briesen & Roper s.c., another Milwaukee-based law firm that occupies 96,000 square feet across four floors of the building, are both considering their options for new office spaces.
Both companies are significant tenants in the downtown market and have leases that expire in 2028.
With new office buildings as possible destinations, and the possibility of creating a large vacancy at the 411 building, their respective decisions could send ripple effects through the local office market, commercial real estate sources said.
Von Briesen has been a tenant at the 411 building since 1985 and "
is keeping all of its options open in the downtown real estate market," said Susan Lovern, president and CEO of von Briesen.
As remote and hybrid work trends persist, recently Lovern told BizTimes that 30% of von Briesen's staff are working from home on any given day, and the firm will not need as much office space in the future. However, it will continue to have a major real estate footprint despite changes in the workplace, she said.
Von Briesen did not share how much space it was seeking or which destinations it was considering.
Quarles & Brady has been the anchor tenant of the 411 building since 1986.
"W
e have started to look at options for when our lease expires and there are several that we are considering," said Dave Fleisher, chief operating officer of Quarles & Brady.
Quarles & Brady did not comment on where the firm is looking for space and exactly how much space it needs, but sources said the firm will be shrinking its office footprint in its next home. In 2022, it
sought to sublease the top two floors, or about 46,600 square feet, of its current office, but eventually took the space off the market without subleasing.
To be sure, neither firm has made arrangements to move yet and could decide to stay put, as both have done in the past when their leases were up for renewal.
Limited options
Both firms are seeking "class A space downtown," commercial real estate sources said, which, at their size, leaves them with few options.
"Class A is always kind of a subjective term," a local office space broker said. "You ask 10 brokers what buildings are class A and you'll probably get 10 different answers. But, in Milwaukee, as new buildings have broken ground over the last five or so years, the bar for what truly defines a class A building has started to shift to newer construction."
Among the stock of newer downtown office buildings, the most contiguous space available is at The Huron Building, 511 N. Broadway, with 57,600 square feet. A move there would mark a significant reduction in office space for either firm and would also entail sharing the building with another high-profile law firm,
Husch Blackwell.
Other new buildings like BMO Tower or 833 East only have 14,600 square feet and 10,600 square feet of available contiguous space, respectively, marketing materials show.
Among second-generation, class A buildings, options are also limited. The U.S. Bank Center only has 27,300 square feet of contiguous space available. The Associated Bank River Center has 46,000 square feet and 1000 N. Water St. has 23,000 square feet.
Chase Tower, built in 1961 with a substantial renovation last year, could offer up to 109,000 square feet, however, and 310W has 210,000 square feet.
[caption id="attachment_609241" align="aligncenter" width="1024"]
East Wisconsin Avenue in downtown Milwaukee. Image from von Briesen[/caption]
The limited supply of contiguous class A space has led some commercial real estate sources to speculate that new office buildings could be on the short list for one or both law firms.
In Deer District, a Chicago firm has
proposed building an approximately 250,000-square-foot office building. At the Marcus Performing Arts Center parking garage, a Madison development firm has
proposed a 190,000-square-foot office building as part of a broader redevelopment project.
Detailed plans have not been released for either of those projects.
Commercial real estate experts said that with any new office building development in the post-pandemic market, developers would need to pre-lease a significant amount of the building in order to gain investor and lender confidence, as well as navigate high construction costs and interest rates. This makes construction timelines for new buildings tricky to pin down and would result in significantly higher rents than at existing buildings in the city.
For comparison, brokers said the 411 building is doing deals around $17-$19 per square foot, while newer class A buildings like The Huron Building are doing deals around $21-$24 per square foot. A brand new building would cost tenants upwards of $35 per square foot.
"The crux of the matter is, can you optimize your square footage enough to make up for the difference in rental rates?" an office broker said.
Another option for Quarles & Brady and von Briesen could be the former Johnson Controls complex downtown, which is being
rebranded as The Patent Block under its new owner,
Bear Real Estate Group. Bear plans to refresh the building's office space, located at 507 E. Michigan St., and bring up to 247,000 square feet to the market.
411 building's future uncertain
The 411 East Wisconsin Center building is currently 23% vacant— a reasonably strong position to be in amidst the softened post-pandemic office market.
However, if both Quarles & Brady and von Briesen were to sign leases elsewhere that number could balloon to more than 60%, potentially leaving the building's owner and listing brokers with 443,000 square feet of empty space.
"If they were to lose two tenants like that, that would be devastating, and I don't know how they would backfill that," one broker said.
Office brokers agreed that would be a challenging number to overcome, but agreed the building is still in good condition and is well managed.
Sources said the building's owner, Glencoe, Illinois-based private equity firm
Middleton Partners, has been "making all the right moves recently," adding tenant lounges and amenities and refreshing the lobby.
"That leads me to believe that they're committed to weathering the storm and are prepared to backfill space if they have to," another office broker said.
Some brokers said the building's relative affordability to other class A office buildings, and the potential large blocks of vacant space, could position the building as an attractive landing spot for other large tenants in the region or even for an out of state tenant.
Middleton Partners, which did not respond to request for comment,
purchased the 411 building in 2017 for an undisclosed amount. Commercial real estate brokerage firm
Colliers handles leasing for the building and did not respond to request for comment.
BizTimes reporter Sonia Spitz contributed to this story.
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