Morningstar places loan for 100 East building on its watchlist

Available space, cash flow for downtown Milwaukee office tower has national group concerned

100 East sold in $416.9 million portfolio deal

The amount of available space in one of the most prominent downtown Milwaukee office towers has landed a loan for the building on a national credit rating organization’s watchlist.

100 East placed on Morningstar Credit Ratings’ watchlist

Morningstar Credit Ratings, LLC believes occupancy at the 100 East building will drop from 83 percent to 60.4 percent in December 2019 when law firm Michael Best & Friedrich moves out

Morningstar said it recently placed a $51.9 million loan on the 100 East building on its watchlist “because of a high amount of space available for lease and sublease. This, along with our tepid outlook for the Milwaukee office market, could further crimp net cash flow, which is down 21.6 percent since underwriting.”

The loan matures in September of 2026.

Michael Best currently occupies 90,806 square feet of space in the building at 100 E. Wisconsin Ave. The law firm will move to the new BMO Tower, under construction at 790 N. Water St., when its lease expires.

Morningstar also believes The Marcus Corporation, which occupies 48,159 square feet at 100 East, plans to vacate when its lease expires in November 2020.

“According to CoStar Group, Inc., 177,602 square feet, or 40.8 percent of the gross leasable area, is available for both direct lease and sublease,” the Morningstar report states. “We believe this indicates that The Marcus Corporation, which occupies 48,159 square feet, plans to vacate as well when its lease expires in November 2020. The Marcus Corporation…has shown interest in moving, based on published reports. Adding to our concern, Wells Fargo has an October 2021 lease termination and contraction option.”

The Marcus Corp.’s Edison Place, a 20-story, mixed-use development in the Park East Corridor has been in the works for some time. Early renderings showed an eight-screen movie theater, 162,000 square feet of residential space and 113,800 square feet of office, although the company has not yet moved forward with plans.

Morningstar researchers believe filling vacant space in 100 East will be a challenge, despite stable market projections. The 35-story office building has a total of 435,443 square feet of space, according to the Morningstar report. City records indicate it is a 465,960-square-foot building.

“The law firm’s availability (has been) widely known since late 2016 and CoStar is showing an average of 17 months on market for vacant space,” the Morningstar report stated. “We’re concerned about the large amount of available space that could ultimately become vacant.”

In addition, John Hawks Pub, the building’s riverfront restaurant that was located at 100 East since 1990, has been closed since October 2016. The space has not been released.

Santa Monica, California-based Hertz Investment Group LLC purchased 100 East from Chicago-based Equity Commonwealth as part of a four-property, $416.9 million office building portfolio deal in September 2016.

The 100 East building sold for $78 million. The building, which was built in 1988, is assessed by the city of Milwaukee at $72.3 million.

“Although we do not forecast a loss, our analysis suggests the property’s value stands at $53.7 million, down 35.8 percent from underwriting and resulting in a 96.6 percent loan-to-value ratio,” the Morningstar report states.

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