Shifting Retail Landscape

Last updated on May 13th, 2019 at 02:39 pm

The retail real estate landscape in metropolitan Milwaukee will undergo a dramatic transformation in the second half of 2006. On Nov. 2, Columbus-based Steiner & Associates will open the redeveloped Bayshore Town Center. The mall in Glendale is being expanded from about 500,000 square feet of retail space to a mixed-use development with about 1 million square feet of retail space, 160,000 square feet of office space, 50,000 square feet of entertainment space and 200 condominiums and apartments. The redevelopment project is costing about $300 million.

Steiner & Associates has already announced several new tenants for Bayshore Town Center, including: California Pizza Kitchen, Brooks Brothers, Bravo! Cucina Italiana, Devon Seafood Grill, J. Jill, Coldwater Creek, Cameron’s Steakhouse, H&M, Cheesecake Factory and L.A. Fitness. Steiner also announced that Barnes & Noble, which had a store in the mall before construction began, will have a store there after the project is complete.

In addition, a source familiar with the Bayshore project said Trader Joe’s will open a store there, and Steiner is also negotiating with Apple to open a store there.

Almost half of the tenants announced by Steiner are restaurants, and more are coming.

“There will be more restaurants. I can’t specify how many,” said Phill Trewyn, a Milwaukee spokesman for Steiner & Associates.

The mall has remained open during the project, and several of the stores that were there before work began, including the anchors Sears, Kohl’s and Boston Store, will remain after the project is complete.

Bayshore will alter the retail landscape in the Milwaukee area by bringing new retailers to the region and by offering a different concept to compete with the traditional malls in the market. Bayshore will be the area’s first mixed-use town center development, which is designed to mimic old-fashioned downtown areas with a mix of stores, restaurants, residences and offices.

For years, Mayfair Mall in Wauwatosa has dominated the metro Milwaukee retail landscape. The bigger and better Bayshore will provide more competition for Mayfair, but retail observers expect both to succeed.

“The pie isn’t necessarily getting split up into smaller pieces,” said Bruce Westling, president of Brookfield-based NAI MLG Commercial. “The pie is getting larger. There is an opportunity to keep retail sales in southeastern Wisconsin and prevent them from going to Chicago. The trade area for Bayshore will go all the way up to Sheboygan. It’s going to be a destination.”

“It’s going to get shoppers that have left the north shore to shop, to stay and shop on the north shore,” said Peter Glaser, vice president and retail broker for Milwaukee-based The Polacheck Company Inc. “It will take some pressure off of Mayfair. The market can handle it. Mayfair is still going to be the premier shopping destination in Milwaukee.”

“It will have a huge ripple effect on the north shore,” Westling said. “It will benefit Silver Spring Drive, and it will help strengthen the office market on the north shore.”

Once the Bayshore project is complete, attention will turn to western Waukesha County, where two more major retail developments are planned. Developers for both projects will be working during upcoming months to overcome hurdles.

Robert Lang, owner of Delafield-based The Lang Companies, plans to build a $200 million lifestyle center southeast of Interstate 94 and Highway C. The development would be a mixture of stores, restaurants, office space and residences. It would, in effect, extend downtown Delafield south of I-94. Lang is partnering with Indianapolis-based Lauth Property Group on the project. But the project has been opposed by some nearby residents, and Lang is working on obtaining approval for the project from city officials.

Just two freeway exits west on I-94, Pabst Farms Development and Chicago-based General Growth Properties Inc. plan to build a 1-million-square-foot regional shopping center. Construction is expected to begin in 2008. The shopping center would be built on 110 acres northeast of I-94 and Highway 67.

However, about 43 acres of that land is controlled by Aurora Health Care, which plans to build a hospital there. Pabst Farms needs the land for the retail project, so the developer and Aurora are negotiating to allow the hospital to be built south of I-94 in the Town of Summit.

Other significant retail developments are occurring at sites scattered throughout southeastern Wisconsin.

•    More retail development is replacing abandoned industrial buildings on Miller Park Way in West Milwaukee. That includes a retail development with a Menards store and a Pick ‘n Save store that Mequon-based General Capital Group and Milwaukee-based Boulder Venture Inc. are building on the former Hotpoint appliance manufacturing site at West Lincoln Avenue and Miller Park Way.

“The landscape is really changing there,” Glaser said. “All of the old industrial buildings are coming down.”

•    In the Town of Richfield, Cabela’s is building a 165,000-square-foot outdoor gear store on a 60-acre site at U.S. Highways 41 and 45. The project is expected to attract additional retailers to the area in southeastern Washington County.

•    In Grafton, the Highway 60 and I-43 interchange remains the hot spot for retail development in Ozaukee County. A Costco store will anchor a 390,000-square-foot retail development that will be built by Menomonee Falls-based Continental Properties Co. on a 54-acre site northwest of the interchange. Construction is expected to begin later this year.

•    In the city of Milwaukee, Oak Brook, Ill.-based Inland Western Retail Real Estate Trust Inc. is adding 100,000 square feet of retail space to Midtown Center at 5700 W. Capitol Dr. Office Depot, Anna’s Linens and Barefeet Shoes will have stores in the expanded space. Midtown Center has provided a significant boost to the central city. The expansion will make it fully built out, Glaser said. The success and completion of Midtown Center could attract other stores to the area.

“You’re going to see other properties start to get redeveloped,” Glaser said. “You’re already seeing some of that in the area.”

On the city’s east side, Whole Foods plans to open its first Wisconsin store in the Columbia St. Mary’s Prospect Medical Commons building that is under construction at the corner of East North Avenue and North Prospect Avenue. The 54,000-square-foot store is expected to open later this year. Other retailers are thinking about joining Whole Foods in the dense east side area.

“Whole Foods is the ground zero of retail in the city right now,” said Jim Barry III, president of Milwaukee-based Colliers Barry. “That’s where a lot of retailers are looking and saying, ‘The demographics work here.’ On North Avenue, east of Humboldt, every property seems to be in play. You’re going to see a pretty radical shift.”

“I think everybody is waiting to see Whole Foods open and see the (Columbia St. Mary’s) hospital (project) progress a little more,” Glaser said. “I think it is going to be a hot retail area.”

Also in the city of Milwaukee, the redevelopment of the former Pabst brewery could finally move forward later this year. Zilber Ltd. plans to close on its purchase of the property from Juneau Avenue Partners LLC on or before Aug. 15, said Mike Mervis, assistant to Zilber Ltd. chairman Joseph Zilber.

The company is negotiating with city officials on a public-private partnership to redevelop the brewery into a mixed use neighborhood. If an agreement is reached, site work could begin later this year, Mervis said.

Office building developers watching R.W. Baird

One year ago, Milwaukee-area office building developers were waiting for Manpower Inc. executives to decide where they wanted the company’s headquarters to be. Manpower considered several Milwaukee County locations before choosing the downtown site along the Milwaukee River.

This year, the Milwaukee-area office market has been mostly quiet, but commercial real estate observers are watching Robert W. Baird & Co. Inc. to see if the company decides to move its headquarters out of the U.S. Bank building at 777 E. Wisconsin Ave. in downtown Milwaukee. The company is seeking proposals for about 250,000 square feet of office space. It may decide to stay put, or the company could decide to move, triggering construction of a major new office building.

Several buildings have been proposed in downtown Milwaukee, but have remained on the drawing board because they have been unable to attract an anchor tenant.

Robert W. Baird could make a decision later this year about its office space plans.

There is one other significant office tenant that is in the market for new space and could trigger construction of a new downtown office building, said William Bonifas, executive vice president of the office group for Polacheck. He declined to name the firm.

The downtown office market is flat, but there is still interest in new buildings, Bonifas said. The best chance for a new downtown building to get off the ground is for it to have a mixture of office, residential, retail and possibly hotel space, he said.

“I believe new (downtown) projects could get off the ground,” Bonifas said. “The office portion may only be a few hundred square feet. The market could handle that.”

One problem for the Milwaukee-area office market is that many of the area’s financial services companies are not growing enough that they need more space, Bonifas said.

However, some office tenants in the area are expanding. Construction began this year on one major office development, and two more are expected to begin later this year.

Gilbane Building Co. has begun construction of a 280,000-square-foot, four-story office building just west of the Milwaukee River and just south of West Cherry Street in downtown Milwaukee for Manpower. When construction is complete next year, the company will move its corporate headquarters there from Glendale.

Northwestern Mutual Life Insurance Co. plans to begin construction this fall on a six-story, 400,000-square-foot expansion of its Franklin campus at South 27th Street and West Drexel Avenue. The expansion will provide room for 1,100 new employees. The $85 million project is expected to be complete in 2008.

West Bend Mutual Insurance Co. plans to break ground this year on a $57 million, 194,000-square-foot expansion of its headquarters at 1900 S. 18th Ave. in West Bend.

Downtown Milwaukee lost a major office tenant recently when Blue Cross Blue Shield of Wisconsin moved about 750 workers from 401 W. Michigan St. downtown to Summit Place at 6737 W. Washington St., West Allis. Now, the owner of the Michigan Street building, New York-based iStar Financial Inc., is trying to find a way to fill the vacant 236,000-square-foot structure.

That could be difficult, said John Czarnecki, vice president of Brookfield-based Apex Commercial Inc. Many office building owners in the area are struggling to attract tenants, he said.

“(The office market in the Milwaukee area) is extremely depressed right now, in terms of activity,” he said. “Both (the suburbs and downtown) are very slow right now. It’s tough to make a living as a broker right now doing just office.”

The combination of weak demand for office space in the area, rising operating expenses and rising interest rates could cause problems for building owners. Building owners who overpaid for their properties in recent years may struggle to sell them without taking a significant loss, he said.

“The market needs to correct itself, and the rising interest rates are going to do that,” he said. “These buildings are getting less and less profitable and rates are going up.”

Industrial spec

development on the rise

The vacancy rate for industrial real estate in the Milwaukee area is at about 7.5 percent, up a bit compared with last year, Barry said.

“We’re not as strong as we were a year ago,” he said. “I think we are now in the middle of the pack (compared to other metro areas).”

Industrial space vacancy rates for the area have been low in recent years, in part because of a low amount of speculative development. However, industrial space speculative development is finally starting to pick up in the region, especially in the south side of the metro area, including Franklin, Oak Creek and in Milwaukee near Mitchell International Airport. Several projects are in various stages of development.

Those areas are attracting industrial space development because they have land available that is close to the freeway, the airport and between Milwaukee and Chicago. As a whole, the region has few suitable places for new industrial development, brokers say.

One area that could attract more development is the Menomonee River Valley in Milwaukee. Real estate brokers say industrial space users are still interested in the valley, despite the political debate that caused New Berlin-based to drop its plans to move to an industrial park that the city is developing in the valley. Some elected officials complained that had too many seasonal jobs and did not pay high enough wages to occupy valuable land in the valley.

“There still is interest in the Menomonee Valley despite the political shenanigans that has really undermined what is a very important redevelopment project for the city of Milwaukee,” Barry said. “I think that’s one of the most disgusting and discouraging experiences between Milwaukee government and the Milwaukee business community I’ve seen in a long time. That’s exactly the type of company we should be all over to bring into the valley. The whole world of our political leaders is going through this very slow tectonic shift from a labor union big government mindset to the modern age. It’s painful to watch the casualties along the way. But it has to happen.”

“(The politicians would) like to see manufacturing, with higher wages,” said Roger Siegel executive vice president of Polacheck’s industrial group. “I think they are going to give it a shot. It’s a worthy goal. I guess they are going to have to see what the next year to 18 months brings. I think there is interest in the area. There is a capable and motivated workforce.”

Despite the fairly low vacancy rate and increase in speculative development of industrial space, southeastern Wisconsin manufacturers are still struggling, Siegel said.

“Anecdotally the local manufacturer and the local industrial company is doing O.K. but there hasn’t been a ton of growth,” Siegel said. “Since 2005, the growth in manufacturing has been sluggish at best, and I think it’s been reflected in our market. You don’t see a lot of buildings for sale because you don’t see a lot of companies moving to larger locations. Buildings for sale sit longer, even though fewer are available. You’re dealing with a very sluggish manufacturing economy. I don’t think it’s going away. I think it’s evolving and it’s going though an evolution that’s not very smooth. As long as the economy stays as it is, I think it will be a slow transition to better times. But, if we continue to see increased prices for fuel and energy and if interest rates go up, it’s going to be tough. Everybody is looking around wondering what is going on. I think the stock market reflects that the past few weeks. People are a little nervous now.”

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