Residential demand could lift downtown’s struggling west side

Anyone familiar with downtown Milwaukee knows that it has two distinct halves.

The east side of downtown (located east of the Milwaukee River and also known as East Town) is the city’s true central business district with its largest class A office buildings, the downtown’s high-end hotels, City Hall and condo towers overlooking Lake Michigan. The east side of downtown has an office space vacancy rate of 16.8 percent, but its class A office vacancy rate is only 9.8 percent, according to Xceligent Inc.’s first quarter data (the most recent available at press time).

The west side of downtown (located west of the river and also known as Westown) has the struggling Shops of Grand Avenue mall, large sports and convention venues (the BMO Harris Bradley Center, the U.S. Cellular Arena, the Milwaukee Theater and the Wisconsin Center), the Milwaukee Public Museum, the Milwaukee County Courthouse and the former Pabst brewery complex. The office market on the west side of downtown has struggled for years and has an office space vacancy rate of 29.9 percent, according to Xceligent’s most recent data.

UMB Fund Services Inc. plans to move its office from 803 W. Michigan St. on the west side of downtown Milwaukee about 1.5 miles northeast to the Schlitz Park office complex on the north side of downtown Milwaukee. UMB currently has 250 employees and occupies 77,000 square feet of space in the 131,600-square-foot Michigan Street building, which is owned by Zilber Property Group.

The 803 W. Michigan Street building is fully occupied with UMB and two other tenants. Zilber has offered to relocate one of the tenants to allow UMB to expand in the building. Considering the struggles of the downtown west office submarket, it could take a while to fill the building If UMB moves out, Zilber vice president Mike Mervis said.

A huge opportunity to revitalize the west side of downtown Milwaukee was missed last year when Kohl’s Corp. decided not to build a new corporate headquarters in downtown Milwaukee, instead making plans to build a new headquarters in Menomonee Falls. Kohl’s had considered building a new headquarters complex with more than 1 million square feet of space, for 4,500 to 5,000 employees, in the Park East corridor on the west side of downtown Milwaukee.

It all adds up to a bleak picture for the office market on the west side of downtown Milwaukee.

“I don’t anticipate seeing any growth in the office (market) west of the river anytime soon,” said Dan Jessup, executive vice president at Jones Lang LaSalle.

The retail real estate market continues to struggle throughout downtown Milwaukee, but it is particularly problematic on the west side of downtown which has a large amount of retail space (much of it vacant) along Wisconsin Avenue, including The Shops at Grand Avenue. In the city’s tax incremental financing (TIF) annual report, city officials disclosed that the Boston Store, the last department store in downtown Milwaukee, “is not profitable.”

The west side of downtown Milwaukee likely needs a significant amount of residential development to revitalize its retail real estate market and to eventually attract more office tenants as well. There are signs that the west side of downtown is having some success in attracting residential development and a much needed population boost.

Last year Barrett Visionary Development completed construction of The Moderne, a 30-story residential tower at the southwest corner of Old World Third Street and Juneau Avenue on the west side of downtown Milwaukee. The building has 203 apartments and 14 condominiums. So far more than 80 of the apartments have been leased and four of the condos have been sold. The first floor is occupied by Carson’s steak and barbeque restaurant, which opened recently.

The Moderne is the tallest building on the west side of downtown and also stands out as an upscale residential development in the neighborhood. If The Moderne is successful it will provide a major sign of the strength of the residential market for the west side of downtown.

The entire downtown area, and nearby neighborhoods such as the Third Ward and East Side, have attracted a significant amount of apartment development in recent years and has a high apartment occupancy rate.

“People want to be in an area that’s walkable,” said Rick Barrett, president of Barrett Visionary Development. “Walkability to me is the future of all development.”

Ultimately the west side of downtown, to be successful, needs to attract all types of development, not just residential, Barrett said.

“You need it all,” he said. “You need residential, retail, hotel, office. What’s appealing is the mix.”

The redevelopment of the former Pabst brewery complex has successfully attracted both apartment and office space tenants and construction of a new office building with 42,000 square feet of office space will break ground there in August.

But Barrett agreed that residential development might be “the spark” that begins to help turn the west side of downtown around.

Some residential projects on the west side of downtown could replace vacant office space there.

Blue Cross Blue Shield building

John Mangel III, vice president of business development and acquisitions for Chicago-based HSA Commercial Real Estate, has a contract to purchase the 10-story former Blue Cross Blue Shield office building at 401 W. Michigan St. on the west side of downtown. Mangel is still in the due diligence phase for the deal and said he is “exploring different (redevelopment) options right now.” One of the possible redevelopment options for the building is to convert it to a residential building, Mangel said. One source said converting the building to apartments for young professionals or college students is being considered by Mangel. The 236,218-square-foot building was occupied by Blue Cross Blue Shield of Wisconsin until 2006 and has remained vacant ever since.

700 W. Michigan St.

Kenosha-based Bear Development LLC plans to spend about $5 million to convert a 57,626-square-foot office building at 700 W. Michigan St. on the west side of downtown into an apartment building. The structure consists of two combined buildings, one a 5-story building constructed in 1910 and the other a two-story building constructed in 1949. Bear plans to convert the building to a 50-unit apartment building with eight market-rate units and 42 “affordable housing” units for residents with household incomes below the county median. In addition, 13 of the units will be reserved for residents with mental disabilities who need supportive services, which will be provided in the building by a local service provider and Milwaukee County.

Bear was awarded $469,150 in low income housing tax credits for the project from the Wisconsin Housing and Economic Development Authority (WHEDA).

Plankinton Building

Sunset Investors owner Kendall Breunig is converting the third floor of the Plankinton Building at 133 W. Wisconsin Ave. on the west side of downtown from office space into 31 apartments, which he says should be complete by the end of the year. Next year he plans to convert office space on the fifth floor of the building into 15 apartments. Breunig has already leased 30 of the apartments on the third floor, including 20 that are currently occupied.

The office market on the west side of downtown is “dead” Breunig said.

“If you land (a tenant) you’ve got to cut your price so much to compete…it’s a real dog-eat-dog market,” he said. “It’s very much a buyer’s market.”

But the downtown residential market is much stronger, making a conversion from vacant office space to residential space an appealing option for some building owners and developers, he said.

“I think there’s (demand) for twice as many (apartments) as there are (downtown) right now,” Breunig said. “Everybody I talk to in the area is full or close to (full). Milwaukee for the last 10 years, starting with the condo boom, the desirability for downtown living has continued to grow. Even after the condo boom ended the demand for living downtown has continued. There’s a lot more viability downtown than there was 20 years ago.”

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