One day, about a year ago, when he showed up for work, Randall Crocker, the president and chief executive officer of Milwaukee-based law firm Von Briesen & Roper S.C., noticed that workers were preparing to put a large sign for one of his firm’s competitors on top of the office building that they both occupy.
Von Briesen & Roper occupies about 65,000 square feet of space in the 411 Building, located at 411 E. Wisconsin Ave. in downtown Milwaukee. Another law firm, Quarles & Brady LLP occupies even more space in the building, and as an added benefit, has a large sign on top of the building.
Crocker says he does not mind sharing the building with Quarles & Brady, but would rather not be in a building with their sign on top of it.
“It’s kind of hard to be in a building when your competitor has their sign on the roof,” Crocker said. “I wouldn’t want to be Chrysler in the GM building.”
Recently, Von Briesen announced that it is in the market for “new and larger office space in Milwaukee.” The firm is seeking 75,000 square feet of space with an option to grow into additional space in the future. The firm hired Terence McMahon of The Boerke Company to help it look for new office space.
Crocker said the firm has not ruled out any location, including remaining in the 411 Building. However, staying put is not the preferred option, he said.
“If all other things were equal, the 411 Building would not be our first choice because of that sign on the roof,” Crocker said.
However, the firm may have a hard time finding another viable option for its headquarters.
Although the downtown office space vacancy rate is at about 20 percent, there are only a handful of buildings downtown that have enough vacant space to accommodate Von Briesen and, other than the 411 Building, none of them are class A office buildings. The firm wants to be located in a class A office building, Crocker said. The firm has not ruled out locations outside of downtown Milwaukee, but has always been located downtown and would prefer to stay there, he said.
Von Briesen could be an anchor tenant for a new development, but the capital markets are so bad right now developers say it is extraordinarily difficult to obtain financing for a major new commercial development.
“All projects are in a coma,” said Joel Lee, owner of Milwaukee-based Van Buren Management Inc. Financing for major commercial development “doesn’t exist,” Lee said.
However Mike Mervis, assistant to Zilber Ltd. founder Joseph Zilber, said financing can be obtained for major developments, but the terms banks are requesting are far less favorable for developers than they were a few years ago. As a result, many projects are not feasible in the current financial market.
Banks are now seeking about 40 percent in equity financing, compared to 20 percent for similar deals for commercial development projects a few years ago, Lee said. Sources for equity financing, such as hedge funds, tend to favor projects in larger markets, he said.
The increased requirements for equity would appear to favor developers with a stronger cash reserve, such as Zilber, over less experienced developers that rely more on financing.
A few years ago Lee was working on an office building development called Washington Square on the block east of the Pfister Hotel. He said that project technically is still alive but will not get built unless the capital markets improve.
Lee is one of several developers that was working on an office building project in downtown Milwaukee a few years ago.
“All of the ideas that were around a couple of years ago are probably all still in people’s heads,” said CB Richard Ellis senior vice president Steve Palec. “All it takes is an adjustment and they are ready to spring out of the blocks. I think you really are looking at timing issues, if you look at the lead time that goes into a major new project. Does (a tenant) have enough time to wait for the (financial) world to get back to normal?”
One possible development project that could accommodate Von Briesen is planned for the site just south of the U.S. Bank Center at 777 E. Wisconsin Ave. The property is owned by Minneapolis-based U.S. Bancorp, which is building a new parking structure on half of the block, and is leaving the other half vacant for a future development. U.S. Bank has given Brookfield-based Hammes Co. an exclusive option to develop that site. Hammes has “had conversations” about the project with Von Briesen, said U.S. Bancorp vice president Joe Ullrich.
No specific plans have been established for the site, Ullrich said. However, he did say that the building would include its own indoor parking spaces. He also said that the annex parking structure on the block to the east could also provide parking spaces for a new development, or could be the site for a second phase of a new development.
Because of its size, resources and experience Hammes is “in better position than most developers” to put together a financial package for the development, Ullrich said. U.S. Bank would be the primary lender for the project, he said.
However, the development will need commitments from more tenants than just Von Briesen to get financing and break ground, Ullrich said.
Palec and Ullrich said there are other potential office tenants in the market, but they declined to name them.
In addition to Von Briesen, several major office tenants in downtown Milwaukee will have leases up for renewal between 2013-15 including Marcus Corp., Wells Fargo and Quarles & Brady said Inland Companies vice president Lyle Landowski. But most of them will likely renew their leases at their current locations, he said. The exception could be Von Briesen.
“I don’t think they want to stay (in the 411 Building,),” Landowski said. “They really do want to do something. I think they’re tired of playing second fiddle to Quarles & Brady. They want their own show.”
Other developers that were working on proposed office projects a few years ago that could resurface include: a development on the parking lot next to the Milwaukee Athletic Club, a development on the site of the Marcus Center parking structure, a mixed-use development that NAI MLG Commercial was working on along the Milwaukee River in the Park East corridor and an eight-story, 155,000-square-foot office building that Wangard Properties planned to build on top of a parking garage just south of the eight-story 875 East Wisconsin office building at 875 E. Wisconsin Ave.
The redevelopment of the former Pabst brewery by Zilber could also provide space for Von Briesen.
“We will be actively participating in the RFP process and we will be offering (Von Briesen) office space in historic buildings at the Pabst, in a new building at the Pabst or in a new building that would be built elsewhere downtown,” said Mervis.
The new building planned by Zilber “elsewhere downtown” has not previously been disclosed publicly. Mervis declined to provide more details about that project.
Von Briesen’s existing lease at the 411 Building expires in 2013 and the firm wants to make a decision about its future office space by May of 2011, Crocker said.
A developer would need about two years to build a major new downtown building, Lee said.
With so few options, Von Briesen might end up staying in the 411 Building.
“The 411 Building is a great building,” Crocker said.
In recent years several other downtown Milwaukee law firms, including Godfrey & Kahn, Quarles & Brady and Foley & Lardner, have entered the market for office space, but ultimately decided to stay put in their current locations. The one exception is Whyte Hirschboeck Dudek, which moved in 2003 from the Chase Tower at 111 E. Wisconsin Ave. to the Cathedral Place building at 555 E. Wells St.
“In the last couple of years there have been other bigger tenants in the market,” said Jack Jacobson, principal of Brookfield-based NAI MLG Commercial. “The history has been they stay where they are.”
