The real estate community is being presented with an opportunity to reimagine what the downtown Milwaukee Johnson Controls International Plc. complex could be, following the company’s announcement that it will leave and move its 1,300 employees to Glendale.
While many industry experts said the 420,000-square-foot complex at 507 E. Michigan St. is a prime candidate for a mixed-use project, others argued it provides a chance for Milwaukee to land a major corporate user.
JCI will remain in downtown Milwaukee for two years while it seeks a buyer for the property. It has tapped CBRE Inc. to market the property for sale.
“Johnson Controls is very proud of the 507 Building downtown and its legacy. However, the company is also focused on the eventual transition to our Glendale campus where it will serve as our most efficient and productive office environment,” the company said in an emailed statement.
BizTimes Milwaukee spoke with a number of local real estate developers, all of whom said an adaptive reuse project makes sense for the downtown Johnson Controls complex, particularly for multi-family housing and hotel rooms.
Considering the possible uses for the complex, Josh Jeffers, president and chief executive officer of Milwaukee-based development firm J. Jeffers & Co., said in a recent interview the multi-family market has remained strong. And though hospitality has been hit hard by the pandemic, Jeffers said there may be more demand in the future once it’s back to business as usual.
He said his firm will be watching the Johnson Controls complex closely and will possibly try to acquire it.
Gard Pecor, senior market analyst with CoStar Group Inc., said that since 2015, more than a million square feet of downtown Milwaukee office space has been turned into apartments or hotels. Another 600,000 square feet is in the process of redevelopment.
“It’s a highly active conversion market for office properties, especially older office properties,” he said.
But some in the local commercial real estate industry are not as quick to jump on the adaptive-reuse bandwagon for the complex. They contend it presents Milwaukee with an opportunity to land a large corporate user.
“It would be fantastic if there was a single user that would purchase it, and move their corporate headquarters in there,” said Kevin Armstrong, president of Founders 3 Commercial Services Inc. “It could potentially be a fantastic opportunity for somebody to do that.”
Armstrong acknowledged that opportunities for massive corporate relocations are scarce, but they do exist. He pointed to the recent relocation of Rexnord to 111 W. Michigan St. downtown, as well as in-progress corporate projects including Michels Corp.’s R1VER and Rite-Hite’s new headquarters.
Andrew Jensen, principal with Cushman & Wakefield | Boerke, said the Johnson Controls vacancy may be a good time for the real estate community to shine the spotlight on downtown Milwaukee by talking up the complex’s location and the market’s strengths such as its skilled labor force and low pay rates relative to coastal cities.
“This is a world-class facility,” he said of the complex.
Jensen conceded that 420,000 square feet is a lot of space for a single corporate user to fill, particularly for the Milwaukee market. He said something along the lines of 100,000 square feet makes sense there, with the remaining space being converted to other uses.
Whatever happens to the complex, Armstrong said he expects at least a portion of it to remain as office space.
“Based on its location near the Third Ward, The Hop, being on Michigan (Street), the hotels that are there, I think it has a real opportunity for a good portion of it still remaining as office,” he said.
Industry experts also said they do not see Johnson Controls’ move to the suburbs as the start of a broader migration out of the city’s center.
Pecor said it goes against what the market has been seeing in recent years – companies choosing to move closer to downtown. He noted recent moves like engineering firms HNTB Corp. and GRAEF-USA Inc. to the Two-Fifty building and The Avenue development, respectively. Even more recently, North Shore Healthcare relocated its headquarters from Glendale to the HUB640 building.