To say that commercial real estate in Wisconsin has become increasingly attractive to out-of-state investors would be a bit of an understatement.
Big city – and big money – investors from New York, California, Florida, Colorado and even Minnesota and Ohio have for years been drawn by the high rates of return they can get from industrial, multi-family and retail properties here in the Dairy State. But in recent years, that interest has seemed to increase.
To get a deeper look at the trend, BizTimes went on a bit of a data dig, and it turns out buyers from out of state have indeed been putting millions more of their dollars into the local market in recent years.
Between the start of 2018 and the end of 2021, commercial real estate in Wisconsin saw a nearly seven-fold increase in the amount of money spent by buyers from California, New York, Florida and Colorado, spending roughly $175.3 million in 2018 and $1.3 billion in 2021, according to data analytics platforms Catylist and REDIComps. The biggest hike was between 2020 and 2021, when investments more than doubled, jumping from $597.9 million to $1.3 billion.
Last year’s purchases included more than $354.8 million in industrial buildings; $550 million in retail properties, ranging from auto repair shops to big box stores; $202.3 million in office buildings, ranging from corporate facilities to medical office buildings; $58.2 million in multi-family buildings; $36 million in hotels; $36.8 million in specialty buildings like assisted living facilities; and $108.2 million in land sales, including mobile home parks in Fond du Lac and Chippewa counties.
While Wisconsin has long been attractive to out-of-state investors, Tom Shepherd, a partner at Colliers | Wisconsin, traces the most recent uptick in interest to a $400 million portfolio purchase of Wisconsin and Chicago industrial buildings by New York-based investment firm Blackstone in early 2020. The sale included 14 industrial warehouses in southeastern Wisconsin.
“(Out-of-state investment) has always been there, but it has picked up over the last few years,” said Shepherd. “A deal like the Blackstone portfolio validates your market. … (It makes other investors say), ‘We have heard good things about (Wisconsin), let’s go in and dive into the fundamentals.’”
What continues to make the state so attractive to out-of-state investors – especially to investors from places known for high real estate costs like California, New York and Florida – is the return.
An investor can sell a property in California that has a 3% capitalization rate, Shepherd said, and then use that money to buy a property in Wisconsin with a 5% to 6% capitalization rate.
And while Shepherd doesn’t believe the market will continue to see the kind of activity it did in 2021, there is still plenty of interest from those out-of-state buyers hunting for “better returns.”
“There are still multiple bidders. We track bid activity, and it’s maybe 20% to 25% from peak market, but there are still buyers that are interested,” he said, adding that the company typically has four or five buyers interested in many of the properties it takes to market.
“The industrial market has never been stronger, despite the headwinds. There is still 9 million square feet plus of industrial development in the pipeline. … It’s almost like, ‘Get in line,’” he said.
Andy Hess, a principal at Milwaukee-based Founders 3 Real Estate Services, agrees.
“With the investment deals that I am seeing today, the trend is to see multiple offers from out of state, and it is not unusual to see most, if not all the interest, come from out-of-state buyers,” Hess said. “There are lots of reasons for it, but the real estate market fundamentals are very strong here.”
Those strong real estate fundamentals also draw buyers from out of the country, he said, pointing to last year’s $100 million sale of the Leonardo DRS buildings – a 373,000-square-foot manufacturing facility and 119,000-square-foot corporate office building – in Menomonee Falls to California-based Bascom Group LLC and London-based Capital Trust Group.
And Hess doesn’t see investors losing interest in the state anytime soon.
“There is so much equity across the country looking for good real estate deals, eventually investor capital just flows here,” he said.