Commercial real estate deals are still taking place in southeastern Wisconsin, but, according to industry sources, they are smaller and fewer in number than a year ago.
Missing from the local scene are corporate entities locating offices in the area. Indeed, the trend recently has been toward consolidation of corporate offices to major metropolitan areas – a trend that is pulling leased space away from Milwaukee toward larger cities.
The state of the economy has left downtown Milwaukee’s office sector with an 8% to 10% vacancy rate, according to Polacheck Co. Executive Vice President Bill Bonifas.
Bonifas said in the months ahead, the new class A office properties slated for Milwaukee’s downtown will do well once they are online, but owners of less expensive space will have to jump through some hoops in order to hold and attract tenants.
"The high quality, new space will do OK," Bonifas said. "The lower end of the market will benefit from splitoffs from the major law firms. The mid-level buildings will have to be very careful. Generic B space with no renovation – nothing new and exciting – is in trouble."
Competition from the suburbs – where parking is more available – could spell trouble for the mid-market, according to Bonifas.
"The size of the city makes the suburbs so proximate," Bonifas said. "It is not like Chicago, where it takes you an hour to get across town. And downtown parking adds $3 per square foot to rental rates."
Commercial broker Sam Dickman Sr., whose company concentrates on industrial property, indicated that indecisiveness was common in his sector of the industry, as well. But while deals are materializing more slowly than in years past, Dickman stressed that he has seen worse.
"Some people who are younger than I am haven’t been through tough economic times," Dickman said. "This is not near as severe as some of the things we have seen in the ’70s and ’80s. But confidence hasn’t been restored yet, so people are sitting on the fence, waiting."
While purchasing decisions among publicly traded companies are slow, according to Dickman there are plenty of people interested in investing in real estate and smaller companies interested in purchasing their own facilities.
The investment end of the business is very strong," Dickman said. "There is a lot more money chasing deals out there than there are deals. … We are seeing more activity in the sales side of the business than the leasing end. Faced with the choice of owning or being a tenant, local companies prefer to have at least some ownership."
Smaller projects a go
While lenders and entrepreneurs are both shying away from risky, highly leveraged deals, smaller neighborhood-based projects are still chugging along.
According to Milwaukee Economic Development Corp. (MEDC) Vice President David Latona, loan applications for larger projects are scarce, and applications from manufacturers have been nil.
"But we are doing more neighborhood projects," Latona said. "We are seeing investment in the community rather than loans to manufacturing companies. Retail, service industries, service businesses – things that are not going to create a huge number of jobs or import capital – but the jobs are servicing the community. This increases property values – which everybody saw on their most recent assessment."
Typical of these small, neighborhood developments is the additional location of Lena’s Food Market at 3334 N. Holton Ave, in Milwaukee. The grocer already operates a store at 2322 W. Oak St. Lena’s owners – Derrick, Gregory and Anthony Martin – are using their $1.2 million loan to lease and make improvements to the 21,784-square-foot former Kohl’s store and fill it with fixtures and inventory. Legacy Bank financed the loan, and worked with the brothers on financing for their initial location as well.
Lena’s serves a niche market by specializing in southern meat specialties not carried by other nearby grocers like Jewel and Outpost Foods.
"People don’t want to drive too far to the malls," Latona said. "They want more things in the neighborhood."
Other MEDC-funded neighborhood-based development projects include National Ace Hardware near Howell and Morgan, and Meinecke Ace Hardware on 50th and Capital.
The Meinecke project, according to Latona, "is doing so well they might not need our money."
In the meantime, according to Latona, the word on the street is that manufacturing projects are flat as a pancake.
"The guys that have their loan approved, they are not drawing on it because they want to see how the economy goes," Latona said. "Things in some cases are picking up for these guys. Two years ago, if they were getting these orders in, they would be looking at adding capacity. But now they don’t want to do something until they really know they need it."
July 5, 2002 Small Business Times, Milwaukee
