With a low class A office space vacancy rate in downtown Milwaukee of about 8 percent, several developers are again marketing proposed office building developments to potential tenants.
But to attract those tenants, developers need to convince them that their project is "real," meaning that it has momentum and is likely to actually get built. So many proposed downtown office developments never make it off the drawing board and many tenants are reluctant to invest time in pursuing them if they have little chance to actually get built.
Of all of the office projects currently proposed in downtown Milwaukee, Irgens' 833 East Michigan project may be the furthest along and the Wauwatosa-based developer appears to be making a push to convince the marketplace that it is "real." Irgens recently signed a development agreement with U.S. Bank to purchase the U.S. Bank Center annex parking structure at 833 E. Michigan St., where it plans to build an 18-story, 350,000-square-foot office building.
The Godfrey & Kahn law firm is committed to be the anchor tenant for the building. The firm would occupy about 100,000 square feet of space in the top four floors of the building and would move there from the former M&I Bank headquarters building at 780 N. Water St.
Irgens says it also has letters of intent from a 24,000-square-foot fitness center and a 20,000-square-foot office tenant, but declined to name those tenants. The fitness center tenant would be Wisconsin Athletic Club, according to sources.
The building also will have a restaurant along Michigan Street, a fifth floor terrace overlooking Lake Michigan and a connection to the U.S. Bank Center Galleria.
With a total of about 145,000 square feet committed, the project needs an additional tenant or tenants to occupy 25,000 to 30,000 square feet of space to get it off the ground, said Mark Irgens, chief executive officer, president and manager of Irgens.
Bill Bonifas of CBRE is handling leasing for the building, and launched the marking effort at the beginning of this month.
"We think this (project) has a great deal of momentum," he said.
Other potential tenants for the building include law firms, accounting firms, investment firms and technology firms said Bonifas, who declined to name any specific examples.
Quarles & Brady LLP, the anchor tenant of the 411 Building at 411 E. Wisconsin Ave., is in the market for downtown office space. The law firm has issued an RFP to office building developers for about 150,000 to 175,000 square feet of downtown office space. Although it currently shares the 411 Building with another major law firm, Von Briesen & Roper, commercial real estate sources said it is unlikely the firm would move to the 833 East Michigan building with Godfrey & Kahn.
Other tenants that are in the market for office space that could move to the 833 East Michigan building include accounting firm Ernst & Young and investment firm Artisan Partners, according to sources.
Tenants that move to the building might not be seeking additional space, Bonifas said. Many office tenants have developed a "change in preferences" and desire more modern office space, he said. There is not much to choose from downtown. It has been about 9 years since a new multi-tenant office building was built downtown.
In addition to attracting tenants, Irgens must put together a financing package for the project. U.S. Bank will sell the property to Irgens and will assist in providing financing for the development. Irgens plans to seek a yet to be determined amout of public financial assistance for the project, which could include some combination of tax incremental financing (TIF), new markets tax credits and Midwest disaster area bonds. Irgens plans to have a smaller parking component in the project (with 323 on-site parking spaces), by utilizing other nearby parking structures, which he said will reduce the amount of public financial assistance necessary.
However, Alderman Robert Bauman, who represents the downtown area, said TIF might be a tough sell for the project if the project is only attracting tenants that are already downtown. The relocation of Godfrey & Kahn will create a vacancy in the former M&I headquarters building, at the same time BMO Harris is already scaling back its local presence.
But the new building could take advantage of a national trend of more firms moving from suburban offices to downtown areas, Bonifas said.
Meanwhile, Milwaukee County officials are hoping to attract development to the site of Downtown Transit Center, located just to the east of the 833 E. Michigan St. site. Four developers, including Irgens, have submitted proposals for the property, which is currently under-utilized as a bus garage.
A development at the Downtown Transit Center site could block views of Lake Michigan for tenants in the 833 East Michigan building. However, Bonifas said he hoped city and county officials would work with the firm chosen to build on the Downtown Transit Center site to position a development on the property to best complement the 833 East Michigan building. Regardless, 833 East Michigan tenants should still be able to see the lake to the northeast and southeast and a building on the Downtown Transit Center site, if well designed, could also provide an interesting view.
"I think you will have 85 percent lake view and hopefully 15 percent beautiful building view," Bonifas said.
For the 833 East Michigan project, the rest of this year will be spent working on attracting tenants, gaining city approval and putting together a financing package for the project, Bonifas said. If that work is completed by the end of the year, construction could begin in early 2013 and be complete in 2015.
"2012 is the year we hope to deliver the goods," he said.