Josh Jeffers saw his company’s 2017 purchase of a Westown office building as a good long-term investment.
The 20-story tower at 633 W. Wisconsin Ave., known as the Clark Building, had healthy occupancy, rising rents and amenities that office tenants were looking for at the time. But all three of those things changed following the COVID-19 pandemic and subsequent shifts in the office market.
“One of our jokes internally was that at this point we could just say the space is free, and I’m not sure that we would find tenants for it,” Jeffers said. “I think that’s not specific to this building. I think that’s just kind of the state of the world right now.”
Jeffers is the president and chief executive officer of his namesake company, J. Jeffers & Co., which, until 2020, primarily focused on development and historic rehabilitations of office space. Since then, the company has been pivoting into other types of development and is now taking on the Clark Building in a redevelopment project that Jeffers said could be among the firm’s most challenging.
Office market trends downward, apartment market holds strong
Built in 1964 as a speculative investment by a Tennessee company, the 231,000-square-foot Clark Building was later bought by gas station tycoon Emory Clark, founder of Clark Oil, and housed Milwaukee’s Greyhound bus station in its 450-stall parking garage.
Jeffers bought the building for $16.2 million in 2017 and, through 2020, the building’s occupancy held at more than 80%, according to Jeffers. But since then, several tenants have left or reduced their space considerably.
In November, Milwaukee County, the building’s anchor tenant, informed Jeffers that it was moving out of its 40,000-square-foot space, bringing the building’s occupancy to under 30%, “which is too low,” Jeffers said. “That was really the last domino to fall.”
That coupled with a softened office market, which recently hit a new high vacancy rate of 19.8% in the metro Milwaukee area, according to the most recent report from the Commercial Association of Realtors Wisconsin, prompted Jeffers’ decision to “pull the trigger” and begin work to convert the building into a new mix of uses.
Class A office buildings are still holding strong even after the pandemic rattled the office market, Jeffers said, but there’s increased demand to offer the kinds of amenities and services almost reminiscent of a full-service hotel.
“If that’s kind of where the bar is going, if you have to provide that level of amenities, services for office workers, then that means you have to rethink the space,” Jeffers said. “In other words, for a building like this, if we wanted to keep it as office, we’d have to put so much money into it that we might as well be changing its use.”
Jeffers plans to keep the first eight floors of the Clark Building for commercial use and add amenities to make the space more attractive for office users – relocating the building’s remaining tenants there – while converting the building’s upper floors into 228 apartment units and turning the former bus terminal into additional amenity space.
About 212 of those units would be designated as affordable housing for households making less than 60% of the area’s median income, making it the largest affordable housing development in downtown Milwaukee, according to Jeffers.
A demographic Jeffers thinks the building will be particularly appealing to is service workers in downtown Milwaukee who currently commute from outlying neighborhoods with more affordable housing.
“We’re right outside Deer District. Westown has a tremendous number of service industry workers, whether they work in hotels, the arenas, and it’s just hard to afford living downtown,” Jeffers said. “Milwaukee’s had a very good attitude towards affordable housing, but it tends to be more in the neighborhoods. Downtown is just so expensive it’s hard to make the numbers work.”
Jeffers said the firm decided to go with affordable housing units because, given the building’s age, they knew they were never going to compete with new “luxury” towers.
“From a rental rate perspective, I actually like that,” Jeffers said. “It’s part of our business model. If you take the 333 (Water) building, there are only so many renters in Milwaukee that can afford it. You are at the very absolute top and that’s a pretty competitive place to be. If you think about the whole renter pool as kind of like a pyramid that gets bigger as you go down, we price the apartment units to be accessible to a much broader pool of prospective renters, so we can lease the building’s units up more quickly and keep them stabilized more easily.”
J. Jeffers & Co. previously found success converting the former offices of the Milwaukee Journal Sentinel a few blocks away into housing at a mix of price points, which helped inspire the firm to pursue a similar project at the Clark Building.
“I had been thinking about converting this building to housing for a while actually, we just never thought it would make any sense to do it,” Jeffers said.
[caption id="attachment_607147" align="alignnone" width="1280"]
Inside the former Greyhound bus terminal space, which is currently used as storage and could become amenity space.[/caption]
Solving the puzzle
There’s an appealing simplicity to the idea of converting office buildings into housing. The premise suggests that two problems – an office glut and a housing shortage – could be solved at once. The idea, however, is less like a sweeping fix and more like a set of intricate puzzles.
Those pursuing office conversions must solve for window placement, structural columns and elevator shafts that shape where walls go; for floor plate sizes that determine how many units can fit on a floor and how far the interiors will be from natural light; for construction costs that affect rent rolls; and for how to plan such invasive construction on infill sites that have already been built up.
At the Clark Building, Jeffers said the building’s design is actually a “grand slam” on the design front: The building has floor plates of about 10,000 square feet, which is rather conducive to an apartment building since even the most interior parts of the floor are not too far from the nearest window. For comparison, at the Journal Sentinel building, the floor plates were about 50,000 square feet and required J. Jeffers to cut columns out of the center to create light wells.
Despite being a logical project from a design perspective, this will be in J. Jeffers’ top three most challenging adaptive reuse projects.
“This is an urban infill location, like on steroids,” Jeffers said.
Completing construction will be a very tedious task given the building takes up a full city block and is surrounded by two busy downtown streets. Further, remaining office tenants will need to be able to access the building during the construction process.
Financing and timeline
Jeffers anticipates construction work on the building to begin in the spring of 2026, with units available for the 2027 leasing season.
In addition to securing zoning approval from the City of Milwaukee, the project will need to put together a complex capital stack. Jeffers said the firm is hoping to get the building listed on the National Register of Historic Places, which will make it eligible to receive historic tax credits to finance the project. Jeffers is also planning to pursue tax incremental financing from the city under its affordable housing TIF policies.
In addition, Jeffers is pursuing affordable housing tax credits. The Wisconsin Housing and Economic Development Authority recently rejected the project’s concept plans, which takes it out of the running to receive state affordable housing tax credits, though the project can still receive the federal affordable housing tax credits that it relies on more heavily.
“It’s not a problem,” Jeffers said of the WHEDA rejection.
