Meanwhile, the Milwaukee commercial real estate industry is still waiting for major office development decisions from two of the region's most prominent corporations (Kohl's and Northwestern Mutual), three hotels are under construction (and a fourth will break ground soon) in Milwaukee and several retail developments are moving forward in the region.
The most noteworthy real estate development that will be completed in southeastern Wisconsin during the second half of 2012 will be The Moderne, a 30-story residential tower at the southwest corner of Juneau Avenue and Old World Third Street in downtown Milwaukee. Real estate industry observers will be watching the project closely to see if it is successful.
The Moderne will have 203 high-end apartments and 14 condominiums. The first floor retail space of the building will be occupied by Carson's Prime Steaks and Famous BBQ, which is considered by some critics to be one of the top restaurants in Chicago.
The Moderne could provide a major boost to the west side of downtown Milwaukee, which has for years lagged behind the development of the downtown's east side. The building will be the tallest structure on the west side of downtown. Old World Third Street has numerous restaurants that could benefit from a population influx in the neighborhood.
Rick Barrett, the lead developer for The Moderne, assembled a creative financing package for the project. The AFL-CIO Investment Trust provided a $42 million loan, backed by the U.S. Department of Housing and Urban Development's 221(d)4 program. The city of Milwaukee provided a $9.3 million loan.
It will be interesting to see if tenants will fill The Moderne so that the city loan and the HUD-backed loan will be repaid. If not, critics will surely complain that the federal government and the city should not have provided support for the project.
The Moderne offers a unique product for Milwaukee: a residential high rise on the west side of the downtown area. Most residential high rise buildings have been built near the lakefront. The Moderne's location offers unique views of the downtown area and the Milwaukee River, plus a location near several Old World Third Street restaurants and the Bradley Center.
Barrett hopes the view and nearby amenities help attract residents to The Moderne.
"We have a tremendous amount of interest," Barrett said. "We're just starting to take contracts."
The pro forma goal for The Moderne is to have 34 apartments leased by the end of this year. Barrett expressed confidence that goal will be achieved.
"We're going to exceed our pro forma," he said.
So far only two of the condos in The Moderne have been reserved.
"There's a lot of interest (in the condos), but not as much as we'd like," Barrett said.
Apartment leases and condo sales should pick up once the building is complete and people can see the finished project, he said.
"People need to get in there and turn the key," Barrett said.
The Moderne is expected to be complete in September and Carson's could open in November.
Meanwhile, on the East Side Wangard Partners plans to complete construction of the 68-unit 1910 On Water apartment building, located at 1910 E. Water St., in mid-September. The project received a HUD loan guarantee for a $9.6 million from St. Paul, Minn.-based Oak Grove Capital.
In Wauwatosa, HSI Properties Inc. is building a two-building 152-unit apartment complex, called The Enclave southeast of Martin Drive and North 62nd Street. The first building, completed in April, has about 93 percent of its 76 units leased. The second building, which will be complete around Aug. 1, has 33 of its 76 units leased.
"By fall we'll be 100 percent full in both buildings," said HSI principal and owner Brett Haney. "The Wauwatosa (apartment) submarket has been overlooked for some time. There haven't been a whole lot of quality apartments developed in Wauwatosa (in recent years)."
Another area that is attracting apartment development is the North Shore. WiRED Properties is nearing completion of construction of a four-story building with 20 apartments and 8,100 square feet of retail space in the 4500 block of North Oakland Avenue in Shorewood.
Mandel Group earlier this year broke ground for a mixed-use development that will be built at 4041 Oakland Ave. in Shorewood. The building will have 84 apartments, 200 public parking spaces and a Walgreens store.
Mandel Group also plans to build a three-building, 103 unit luxury apartment development on parking lots south of East Beaumont Avenue between North Santa Monica Boulevard and North Consaul Place in Whitefish Bay.
Mandel Group executives have said they believe there is pent up demand for quality apartments in the North Shore area, which includes Shorewood and Whitefish Bay, because of a lack of apartment development in that area for years.
Back downtown, Wangard Partners and RSC & Associates are moving forward with plans to build a 181-unit apartment development in the long vacant Park East corridor. The area has attracted numerous residential developments in recent years including the North End (which is adding a second phase that is under construction) and The Moderne.
Demand for multi-family development is healthy and has been more successful lately in attracting financing, said Blair Williams, president of WiRED Properties.
"Capital is pretty efficient at flowing to deals that are able to get done," Williams said. "Lenders are much more comfortable with multi-family as an asset class. It's a strong asset class. Great projects will continue to do well. More questionable projects will not."
The metro Milwaukee area's office market remains soft with a vacancy rate of about 20 percent. However the downtown class A market is in much better shape, with a vacancy rate of about 8 percent, according to the latest Xceligent data. And there are finally some signs of improvement for the downtown class B market, said Lyle Landowski, a partner with Colliers International|Wisconsin.
"During the last 90 days there's been more class B office users running around the market (downtown) than I've seen for some time," he said.
With a lack of available class A office space downtown, developers continue to explore plans for a new office tower. One project appears to have significant momentum, will seek to gain additional tenants during the upcoming months, and could break ground next year.
Wauwatosa-based Irgens plans to develop an 18-story, 350,000-square-foot office building at 833 E. Michigan St., at the site of the U.S. Bank Center annex parking structure. The building would be anchored by the Godfrey & Kahn law firm, which would occupy about 100,000 square feet in the top four floors of the building.
In addition to Godfrey & Kahn, Irgens has letters of intent from the Wisconsin Athletic Club for a 24,000-square-foot fitness center and from a 20,000-square-foot office tenant for the building. With a total of 145,000 square feet committed, the project needs an additional tenant or tenants to commit to occupy 25,000 to 30,000 square feet of space to get the project off the ground, said Mark Irgens, chief executive officer, president and manager of Irgens.
In addition to seeking additional tenants, Irgens will also be working on putting together a financing package for the project. U.S. Bank, which will sell the property to Irgens, is a partner in the development and will assist in financing, Irgens said.
"We are excited to move this project forward and we firmly believe that it is achievable in both size and scope in today's economic environment," Irgens said.
Meanwhile commercial real estate industry observers are still waiting for location decisions for two major office development projects.
Earlier this year Menomonee Falls-based Kohl's Corp. rejected overtures from Milwaukee officials to build a new corporate headquarters in downtown Milwaukee, despite a $125 million city incentive package.
Kohl's has said little publicly about the headquarters project. Some commercial real estate observers say the company may have put the project on hold after a couple of disappointing quarters caused executives to refocus on the company's core business. However the Menomonee Falls headquarters remains cramped and at some point it appears the company will have to address its space needs.
The village of Menomonee Falls recently purchased 33 acres of land in the Woodland Prime office park and some have speculated that the village is preparing a site for Kohl's.
The other major office development decision is expected from Northwestern Mutual Life Insurance Co. by the end of the year. The company plans to demolish a 16-story, 451,964-square-foot office building at its downtown Milwaukee campus. The company is doing an analysis to determine if it should build a replacement building downtown or at its Franklin campus. It's also possible that the company will build new buildings at both campuses.
Northwestern Mutual is in the process of acquiring a 153,720-square-foot office building at 733 N. Van Buren St., near its downtown campus. It plans to remodel the building, which will provide space for employees while the 16-story building is demolished and a replacement is built.
The Forest County Potawatomi Tribe plans to begin construction in mid-July for a 382-room, 20-story hotel that will be built next to its Potawatomi Bingo Casino, located in the Menomonee Valley in Milwaukee. Construction is expected to be complete in 2014.
Three other hotels are under construction in downtown Milwaukee, with completion expected in 2013. Jackson Street Management is building a 200-room Marriot hotel, wrapping around the Johnson Bank building southwest of Wisconsin Avenue and Milwaukee Street. Rosemont, Ill.-based First Hospitality Group Inc. is redeveloping the 125-year-old, 6-story, 92,000-square-foot Loyalty Building at 611 N. Broadway into a 128-room Hilton Garden Inn hotel. Oregon, Wi.-based Gorman & Company is redeveloping the former Brew House building and Mill House building at the former Pabst brewery into a 90-room hotel to be called the Brewhouse Inn & Suites.
Several retail developments are making progress in the Milwaukee area.
A $52 million renovation project for Southridge Mall is nearing completion. The mall added a Macy's department store earlier this year.
Indianapolis-based Simon Property Group Inc., which owns the mall, hopes the updated appearance and the new, upscale, department store will attract additional shoppers and tenants to the mall.
A new 135,000-square-foot Target store will open at the Underwood Crossing development at 12821 W. Blue Mound Road in Brookfield. The development will also include a Trader Joe's grocery store.
The most significant retail development in the region is still in the planning stages, but tenants could be announced during the second half of 2012. The Marcus Corp. is working on plans for The Corners, a $125 million shopping center that will be built southwest of Bluemound Road and Barker Road in the Town of Brookfield. A 140,000-square-foot Von Maur store will anchor the shopping center.
The industrial real estate sector is one of the healthiest in the southeastern Wisconsin commercial real estate market. The vacancy rate has fallen steadily since 2010 and is now around 7.5 percent, according to Xceligent. The low vacancy rate and healthy absorption levels during the last two years have prompted some developers to contemplate doing speculative developments. However financing remains difficult for spec projects so few spec developments have been announced. One exception is a 54,000-sqaure-foot speculative industrial building that Zilber Property Group plans to build at the southeast corner of South Emmer Drive and Beloit Road in New Berlin.