Real estate development has slowed considerably during the recession, and many real estate development firms are sitting on the sidelines, absorbing losses for now and hoping to ride out the storm.
However, the owners of Glendale-based HSI Development Partners LLC, a new full-service real estate firm, see opportunity in this down market and are hoping to take advantage.
The firm recently completed its development of a 155,000-square-foot building in Milwaukee’s Menomonee Valley for Derse Inc.‘s new headquarters, and now HSI is planning two new apartment complex developments.
HSI’s co-owners and principals are Ryan Schultz and Brett Haney. They founded the company in 2007. Before they started the firm, Schultz was the director of development for Milwaukee-based Fiduciary Real Estate Development Inc., and prior to that he was vice president of development for Brookfield-based MLG Development. Prior to forming HSI, Haney was a senior development coordinator for MLG Development.
The success of the Derse building development establishes credibility for HSI as Schultz and Haney plan to grow the company and pursue more projects. The building is a signature project for the firm, and Schultz and Haney believe they can use it to help them attract investors and bank financing for future projects
“This (Derse building) is a track record for us,” Schultz said. “We delivered the project under budget and on time.”
The $9.6 million building has 30,000 square feet of modern office space, featuring views of Miller Park, and 125,000 square feet of warehouse and production space. About 150 people work in the building. Schultz and Haney expect the building to receive a LEED silver rating. LEED features in the building include: efficient lighting system, efficient HVAC system, thicker pre-cast concrete panel walls with insulation, an exercise area, a bike rack, hybrid parking spaces and a low flow water system. The energy efficiency features increased the cost of the building by about 1.5 to 2 percent, which Derse will recoup after about 10 years of lower energy costs, Haney said.
Schultz and Haney say they have received numerous offers to buy the Derse building, but they have no plans to sell.
“This is a long-term hold for HSI,” Schultz said. “This is a way of establishing ourselves in the development community.”
Looking ahead, HSI is looking to develop and purchase real estate, mostly industrial and multi-family properties. The firm also provides brokerage and property management services.
Unlike older more established firms, a new real estate firm such as HSI benefits by not carrying a lot of baggage from real estate deals that have gone bust when the real estate market collapsed in 2007.
With the real estate market depressed, Schultz and Haney think now is their time to buy and grow. Supported by investors, whom they decline to name, they plan to be aggressive.
“The next two to three years are going to be the best years of my life to buy real estate,” Haney said.
“We can’t afford to sit on the sidelines,” Schultz said. “This is our opportunity. We have to take advantage of it.”
HSI plans to develop The Enclave, a four-story, $18 million, 150-unit apartment complex at the site of the former Derse headquarters at 1234 N. 62nd St. in Wauwatosa. The 100,000-square-foot former Derse building will be demolished. HSI hopes to begin construction on the project by this fall.
The site is one of the few available for apartment development in Wauwatosa, Schultz said, and the neighborhood is undergoing a transition from industrial to multi-family residential with retail and parkland and greenway spaces.
HSI has not determined how much the rents will be at The Enclave, but the rents will be higher than the adjacent The Reserve apartment complex, Haney said. The Enclave will feature high end finishes, plus a green roof deck and garden, a media room, a community gathering area and a fitness facility.
HSI also plans to develop River Pointe Commons, a five-story, $16 million, 95-unit apartment complex at 1887 N. Water St., along the east side of the Milwaukee River in downtown Milwaukee. Construction on the project probably will not break ground until 2010. HSI previously pitched the property as a site for a new University of Wisconsin-Milwaukee residence hall, but UWM picked another site so HSI retooled its plans for the property. Amenities planned for River Pointe Commons include boat slips, a rooftop observation deck, media room and a fitness facility.
HSI’s riverfront property is next to the former Gallun Tannery. A vacant building, formerly a printing facility for Pro Graphics Inc., on the HSI property will be demolished to make way for the apartment building project.
The area along the Milwaukee River has attracted several condominium developments that have gone up in the area in recent years, especially in the Beerline area on the other side of the river from HSI’s site.
The challenge for the River Pointe project is that renters in the city have a lot of other options to choose from.
“The difference in Milwaukee is you’re competing with so many other projects,” Schultz said. “It’s a competitive environment you don’t have in Wauwatosa.”
Schultz and Haney said they have raised the equity portion of the financing for both apartment building projects, but they still need bank financing for them. However, they are confident that once they get government approval for the projects they will get the bank financing. Unlike the Derse building, which is 100-percent owned by Schultz and Haney, they will be part-owners of the apartment buildings, along with other investors.
HSI’s desire to develop apartment complexes is an example of the market shift away from condominium development, which largely collapsed with the bursting of the housing bubble, to apartments, which maintain high occupancy levels. People who do not plan to stay in a residence for a long time often prefer apartments, especially now that it is so difficult to sell a condominium. The tight financial markets also make renting more appealing than buying to many consumers.
“People are looking at apartments as a much more viable option,” Schultz said.
Meanwhile, Schultz and Haney are planning to expand their business with additional partners that will create opportunities to do business in other parts of the country, including the south and the Chicago area. They are talking to two potential limited partners that could join the firm and help it expand.
However, even if HSI does expand its geographic reach, the company will remain based in the Milwaukee area, Schultz and Haney said.
“A conservative market like Milwaukee is always going to provide us with a stable base,” Haney said.
A 13,225-square-foot CVS Pharmacy store is being planned for the Shoppes at Fox River development at 1200 W. Sunset Dr. The shopping center, being developed by Opus North Corp., is being built on the former site of a Fleming Cos. Inc. food distribution center. The 500,000-square-foot shopping center will be anchored by Target and Pick ‘n Save stores and will also have Sonic, Buffalo Wild Wings, Sport Clips and Noodles & Company as tenants.
Waukesha State Bank plans to build a 4,9050-square-foot branch at the southeast corner of Racine Avenue and Les Paul Parkway.
R&M Distributing plans to build a 21,220-square-foot distribution center on a 2.63-acre site at 3330 Gateway Road in the Gateway West Commerce Center.
Lam Virasith plans to open a restaurant called Flaming Grill in the former Chalet Restaurant building at 6215 W. National Ave.
Suzanne Ball plans to open a restaurant and bar called 88 Keys Piano Martini Lounge in a 2,500-square-foot space at 7211 W. Greenfield Ave. in downtown West Allis. The restaurant will have seating for about 75.
Milwaukee Area Technical College plans to re-locate the Mortuary Science Department from 1309 S. 70th St. to a 8,700-square-foot space at 1205 S. 70th St.
Joseph Cannariato plans to open Jing Well Acupuncture and Natural Medicine Spa in a 700-square-foot space on the second floor of a multi-tenant building at 8410 W. Cleveland Ave.
Hallman Lindsay Quality Paints recently opened a store in a 4,000-square-foot space in the 3010 Retail Center in the Helsan Business Park in Richfield. The building and the business park were developed by Germantown-based Helsan Development Co. LLC.