Certain Midwest commercial real estate markets are known for being resilient. Two of them? Milwaukee and Madison.
And when it comes to sectors that are performing well in these two Wisconsin markets, none compare to multifamily. The demand from both investors and tenants for multifamily space continues to soar throughout the Madison and Milwaukee markets.
Why? We spoke with Ralph DePasquale, managing director of investment sales with Berkadia about the strength of the apartment sector in these two markets. Here is what he had to say.
We often write about how resilient the Milwaukee and Madison commercial real estate markets have been. Are you still seeing this resilience? Are you still seeing steady development throughout the region?
Ralph DePasquale: Yes, although I think many would interchange the word “resilience” with “dependable” and/or “steadiness.” We are seeing steady development activity but, as is usually the case, we generally do not develop too far beyond demand. This usually alleviates the tremendous ups and downs experienced by other areas of the country.
What is behind this traditional resilience in the local CRE market?
DePasquale: I think that some of it is what I mentioned above, in terms of not overextending ourselves. But it also has to do with our core values; our great, smart and dependable workforce; and our quality of life.
In addition, it doesn’t hurt to have one of the best freshwater resources in the world at our fingertips. These are the things that are driving a number of companies to move to or expand here.
How high is demand from tenants and investors for multifamily properties in the Milwaukee and Madison areas?
DePasquale: The demand is very high, maybe at an all-time high since I have been working in the Milwaukee and Madison markets. It is high really through the state. When we have the privilege of marketing an asset in either of these markets of Milwaukee or Madison, we know that we will have a very strong response from prospective buyers. Renters have also found that great combination of jobs, growth and quality of life has created such a strong rental market.
What makes these two markets such attractive ones both for investors looking to purchase CRE assets and developers looking to build here?
DePasquale: That really goes hand in hand with all the things I mentioned above. In addition, in many cases, investors can buy, and developers can build, for a little less than in some other parts of the country, creating more opportunity for a little better return on investment or return on costs for developers.
Are there any development projects taking place in the region that you think will have a positive impact on the market?
DePasquale: One of the hottest development corridors in the country is I-94 between the Illinois state line and Milwaukee. Significant developments by Lilly, Microsoft, Amazon and Uline continue to drive new quality job opportunities, creating more and more demand for housing. In addition, the growth of these major companies will spur development of other companies and ancillary services. This is also happening to the west between Milwaukee and Madsion along that corridor.
What challenges do developers and investors face today when it comes to creating new developments or completing investment sales of existing multifamily properties?
DePasquale: Short answer: In the short term, the biggest challenge is the capital markets as well as development costs.
Interest rates are certainly higher than they have been in the recent past. But relative to historic levels, they are still at reasonable levels. We had gotten very used to rates that were not sustainable forever, but I think we have all been surprised by the volatility, in both directions, over the last 18 to 24 months. Things are still getting done, with one of the reasons being that there are just less opportunities to build and, especially, buy, so when they come along, investors are keen to figure out a way to make them work.
