Several major developments to break ground in 2014

This should be a very active year for commercial real estate development in the Milwaukee area.

A huge new hotel will open in the Menomonee Valley. Northwestern Mutual will complete demolition of a 16-story office building and then begin construction of a 32-story office tower to replace it. Construction is expected to begin for The Corners retail development in the Town of Brookfield and for Drexel Town Square, which will create a mixed-use downtown in Oak Creek.

Meanwhile, Kenosha County continues to attract major developments including a 1 million-square-foot distribution center and a 500,000-square-foot distribution center for Amazon.com.

Northwestern Mutual will build a 32-story office tower at its corporate headquarters campus in downtown Milwaukee.

Hotels

Construction is expected to begin in spring for The Corners, a retail and apartment development in the Town of Brookfield. It will be anchored by a Von Maur department store.

One of the most noteworthy developments that will be completed in the region during 2014 will be the 18-story, 381-room hotel at Potawatomi Bingo Casino, 1721 W. Canal St., Milwaukee. Construction of the hotel is expected to be complete this fall.

Since late 2012, the downtown Milwaukee hotel market added 422 rooms with the 205-room Marriott Hotel, the 127-room Hilton Garden Inn hotel and the 90-room Brewhouse Inn & Suites. Potawatomi leaders say the new hotel at the casino will attract new visitors to Milwaukee, but it will be interesting to see if the downtown hotel market will be able to absorb such a large increase in room supply.

So far the additional supply that has been added recently has not hurt the downtown Milwaukee hotel market. For the first 11 months of 2013 the downtown hotel market had an occupancy rate of 67.4 percent, up from 67.2 percent for the first 11 months of 2012, and up from 66.5 percent for the first 11 months of 2011, according to Smith Travel Research Inc. Average daily rate, and revenue per available room (RevPar) were also up in the first 11 months of 2013.

In addition, HKS Holdings LLC plans to develop an eight-story, 158-room Kimpton hotel at 200-216 S. Broadway in Milwaukee’s Historic Third Ward. The hotel is expected to open in 2015. Kimpton Hotels & Restaurants will manage the hotel operations.

Office

The most notable groundbreaking for 2014 will be the start of construction for the $450 million, 32-story, 1.1-million-square-foot office tower that Northwestern Mutual Life Insurance Co. will build at its downtown Milwaukee corporate headquarters campus. The building will replace a 16-story, 452,000-square-foot office building. Demolition work for that building began in December and will be complete this fall. Then construction work will begin for the new building. The new tower will house 1,100 employees that had been housed in the building that is being torn down, and another 1,900 employees that the company plans to add by 2030.

“We cannot overstate the impact of Northwestern Mutual and their commitment to downtown,” said Lyle Landowski, a partner with Colliers International|Wisconsin. “I think in many ways (the project) is an affirmation of many of the trends (that are in downtown Milwaukee’s favor).”

City of Milwaukee officials hope the Northwestern Mutual project provides momentum for more development in downtown Milwaukee. One proposed downtown office project that could break ground in 2014 is the 17-story, 358,000-square-foot office building planned by Irgens at 833 E. Michigan St. The building would be built one block south of the new Northwestern Mutual Tower and it would be anchored by the Godfrey & Kahn law firm.

“This project will happen,” Landowski predicted. “They will break ground in spring.” His firm will be a tenant in the building and is leasing space in the project for Irgens.

Just east of the 833 E. Michigan St. site is where developer Rick Barrett plans to build The Couture, a 44-story mixed-use tower that will include a hotel, luxury apartments and retail space. But the project faces a potential legal challenge from parks advocacy group Preserve Our Parks, which says the site was originally in the Lake Michigan lakebed and that the state’s public trust doctrine forbids private development there.

Northwestern Mutual is not the only insurance company in southeastern Wisconsin that is planning a massive expansion of its corporate headquarters. Sheboygan-based property and casualty insurer Acuity plans to build a $130 million, 260,000-square-foot expansion of its corporate headquarters at 2800 S. Taylor Drive Acuity’s headquarters, which was last expanded in 2004, currently has 400,000 square feet of space and houses about 800 of the company’s 980 employees. Once the expansion is complete, the 660,000-square-foot facility will have space for 1,600 employees. The project is only the first phase of a 20-year headquarters expansion plan for Acuity. In 20 years the company plans to expand its headquarters to 2 million square feet of space, enough space to accommodate 4,000 employees.

Retail

One major retail project will be completed in 2014 and several others will break ground.

The first phase of Chicago-based HSA Commercial’s mixed-use Mayfair Collection project, northeast of U.S. Highway 45 and Burleigh Street in Wauwatosa, will be complete in April. The first phase of Mayfair Collection will have 270,000 square feet of retail space and tenants will include Nordstrom Rack, Saks Fifth Avenue OFF 5th, Dick’s Sporting Goods, Old Navy and Ulta Beauty.

“The opening of Mayfair Collection will be a huge success this year,” said Peter Glaser, first vice president for CBRE in Milwaukee. “This center will fill a void for larger promotional retailers who want to be located near Mayfair Mall.”

Also in Wauwatosa, a 138,000-square-foot Nordstrom store will be built at Mayfair Mall. Construction of the high end department store is expected to begin in February or March and the store is expected to open in the fall of 2015.

The Corners development, which will have 390,000 square feet of retail space, including a Von Maur department store, is expected to break ground this year on a 19-acre site at I-94, Bluemound Road and Barker Road in the Town of Brookfield. The project will also have about 160 luxury apartments developed by Mandel Group. Construction for The Corners is expected to begin in the spring of 2014 and could be complete in the fall of 2015.

Major progress is expected this year on the Drexel Town Square project in Oak Creek, one of the most unique developments in the region. The project, planned at the former Delphi plant site southwest of Drexel Avenue and Howell Avenue, will create a downtown in Oak Creek. It will have a significant amount of retail space including a Meijer store, retail outlots along Drexel and Howell avenues, and a traditional Main Street with retail space on the first floor and apartments above. The project will also include a new City Hall, library, town square park, hotel, medical office building and fitness center.

In addition to the Drexel Town Square project, Grand Rapids, Mich.-based Meijer plans to enter the southeastern Wisconsin market with stores planned in Grafton, Sussex, Waukesha, Wauwatosa, and Kenosha. The addition of the Meijer stores will shake up the region’s grocery market in 2015, Glaser said.

Walmart is also planning to increase its presence in the region with plans for stores in Brown Deer, New Berlin and in the Pabst Farms development in Oconomowoc.

Industrial

The industrial market remains the strongest real estate sector in southeastern Wisconsin and dwindling inventory could result in more industrial development in the region in 2014. The region had an industrial space vacancy rate of 6.0 percent and absorbed 1.4 million square feet of industrial space in the third quarter of 2013 (the latest data available), according to Xceligent. Some big property sales near the end of 2013 likely pushed the vacancy rate under 6.0 percent, said James T. Barry III, president of Milwaukee-based Cassidy Turley Barry.

The dwindling supply of industrial real estate is leading to shortages of space in some parts of the region, especially in Waukesha County and Kenosha County, Barry said.

“That means there is room for new product to come to the market,” he said.

Industrial development is particularly hot in Kenosha County, which is attracting distribution centers that want to be between Chicago and Milwaukee and some Illinois firms that choose to move north of the state line.

New York-based private equity firm KTR Capital Partners will build a 1.1-million-square-foot distribution center and a 500,000-square-foot distribution center in Kenosha for Seattle-based Amazon.com. Total Amazon employment in Kenosha could reach 1,575 at the two facilities. Amazon hopes to have both buildings completed by the end of 2014.

Kenall Manufacturing Co., a commercial lighting manufacturer, plans to move its corporate headquarters and manufacturing operations from Gurnee, Ill. to a new, $32 million, 354,000-square-foot building that it will construct on a 34-acre site at 104th Avenue and 55th Street in Kenosha.

New industrial development this year will likely continue to primarily be build-to-suit projects instead of speculative developments, said Jeff Hoffman, vice president with Pewaukee-based Judson & Associates.

“If businesses are at a point that they need to do something (to expand their space), new construction will pick up,” he said.

Any spec development that does occur in the region will likely occur in Kenosha County, Hoffman said. The Amazon.com project is “huge” and could attract others, Hoffman and Barry said. Expect another 1 million square feet of development in Kenosha County this year that has not been announced yet, Hoffman said.

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