The commercial real estate sectors in Milwaukee and Madison aren’t immune to the challenges of an unpredictable economy. But these challenges haven’t stopped developers from building here, tenants from leasing space in these markets or investors from closing real estate sales here.
Why? Both Milwaukee and Madison remain resilient, buoyed by a strong labor force, great location, affordable costs and top-notch attractions such as Milwaukee’s Deer District and the University of Wisconsin campus.
We spoke with Tomás Clasen, attorney with Reinhart Boerner van Deuren, and Ralph DePasquale, managing director of investment sales with Berkadia, about the strength of the commercial real estate markets in these two Wisconsin cities. Here is what they 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.
Tomás Clasen: The Milwaukee area market continues to show relative resilience. While national trends have trickled down into the Milwaukee marketplace, there is still substantial value to be tapped in the region.
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.
Clasen: Milwaukee remains a very livable market with room for continued growth both downtown and in the suburbs. Of course, Milwaukee is not immune from national trends and policies, so development in some sectors has slowed. That said, there remain projects to be completed that can, and hopefully will, continue to foster economic growth in the area.
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.
Clasen: Multifamily and mixed-use developments continue to be proposed throughout the Milwaukee area. Some municipalities have taken a proactive approach to engaging and fostering these developments and are seeing these efforts pay off. I am excited to see these new projects come online over the next year or so.
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.
Clasen: Milwaukee is a fantastic city that remains relatively affordable in juxtaposition to other larger cities throughout the Midwest. As such, both local and national companies are looking to expand their presence throughout the area. Additionally, there remains ample room for growth both in Milwaukee’s downtown and in the suburbs.
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.
Clasen: Any development that is activating vacant or underutilized space will not just have a positive impact on the market, but the larger community that such developments are located within by adding additional tax base. As such, the proposed developments in the Deer District downtown and larger multifamily/mixed use developments in Milwaukee’s suburbs will all have positive impacts on the area.
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.
Clasen: With federal tariff policy in flux, it is difficult for folks to establish construction and rehabilitation budgets. Accordingly, these cost variables are making it harder for folks to pencil their deals, so some deals that would have occurred a couple of years ago are being shelved or put on hold.
