Today, an office tower from the 1960s is widely considered past its prime. Office buildings of that vintage typically have smaller floor plates and outdated systems that are unattractive to many modern office tenants.
Such structures, however, are prime candidates for conversion to residential use. At least that’s what several local developers say about the former Marshall & Ilsley Bank building at 770 N. Water St. in downtown Milwaukee.
In July, Wauwatosa-based development firm Irgens announced it was trying to sell the 21-floor M&I building. The firm acquired the 55-year-old building as part of its deal with BMO Harris to build the new BMO Tower, a 25-story office building that it completed in 2020, next to the former M&I headquarters. BMO Harris moved its Milwaukee office out of the former M&I building and into the BMO Tower.
Irgens planned a mixed-use redevelopment for the vacant former M&I building and considered several potential uses including hotel, office space or apartments. However, those plans were largely sidetracked by the COVID-19 pandemic. The most likely future use for the building is residential. Irgens indicated it lacks capacity for the project. In addition, the firm’s expertise is primarily in new office buildings and health care facilities. It has not done a multifamily development project. Those factors led the firm to move to put the building up for sale, seeking another developer to take on its redevelopment, Mark Irgens, the firm’s chief executive officer said in a statement.
“Our bandwidth with other projects being pursued is tight and having our first multifamily development be a high-rise adaptive reuse has led us to decide to see what interest there may be from high quality developers for this unique opportunity,” he said.
Converting office space into apartments could address two market issues: the need for additional housing and the glut of office space in the post-pandemic environment in which more office employees are working from home or in a hybrid arrangement, resulting in less market demand for office space.
But ongoing economic challenges for developers, including higher interest rates, higher construction costs and the many unknowns of rehabbing aging buildings, are impediments to bringing a project like this to fruition.
“(The M&I building) lends itself to a number of adaptive reuse opportunities. But this is a very tough time to be a real estate developer,” said Josh Jeffers, CEO of Milwaukee-based development firm J. Jeffers & Co.
Mandel Group senior partner Bob Monnat and Bear Development CEO S.R. Mills echoed Jeffers’ thoughts on the former M&I building and the feasibility of redeveloping it.
Jeffers cited two important questions: What will the rehab costs be? And will there be enough demand for the building’s end use?
In 2021, when Irgens was looking to rehab the building into about 230 apartments, the price tag was estimated at $90 million.
On the demand side, the downtown Milwaukee area has two apartment towers under construction: the 322-unit Couture and 333-unit Hines tower. With other projects proposed in the downtown area, some real estate experts are beginning to wonder if any more units could oversupply the luxury market.
But resetting the high watermark for the rental market probably wouldn’t be the goal for a redevelopment of the former M&I building. Jeffers said a redevelopment of the building could be similar to his firm’s conversion of a former Milwaukee Journal Sentinel building to housing, where rents are lower than in downtown’s luxury apartment towers, like the 7Seventy7.
J. Jeffers & Co. has done redevelopment projects on several older buildings.
“Because we were able to buy those buildings below the replacement costs and make strategic investment into them to convert the use, we’re able to make it financially feasible,” Jeffers said.
With about 290,000 square feet split between 20 floors, including first-floor retail, the former M&I building’s floor areas are much smaller than modern office buildings, making them unattractive for large employers, Monnat said.
But that is an asset when it comes to repurposing buildings for residential use, according to Jeffers, who was also interested in the nearby 100 East office building, a 35-story office tower that went into foreclosure and was acquired by developers who plan to convert it into apartments.
When asked to gauge their interests in purchasing the former M&I building, Jeffers and Mills declined to comment. Monnat said Mandel Group has its hands full with more than $200 million in other projects and probably wouldn’t take interest in the property.
