Once upon a time, the Downtown alderman was king of Milwaukee development. For 15 years, that area had been booming, driven by the explosion of new condos. But not anymore. “Slowing down would be the wrong word,” Ald. Bob Bauman says of new developments. “They’ve stopped.”
As the economy tanked, real estate developers suddenly found it impossible to get financing. Banks simply won’t lend. In January 2009, the Park East 22-story Palomar condo and hotel hybrid was killed because of poor sales. In July, Catalyst, the mixed-use project at West Wisconsin Avenue and North Fourth Street, died.
Desperate developers have turned to the city, asking Bauman and his Common Council cohorts for help with financing. The city kept The Moderne, at Juneau and Old World Third, afloat with a loan in excess of $9 million that was granted in November. Bookends North at East Kilbourn and North Van Buren is another candidate. Developer Tim Gokhman says it needs $3 million to $4 million from the city, but the Common Council is wavering.
And even as occasional projects somehow secure financing, a slight issue remains: There are no buyers. “Generally speaking, the absorption rate on condominiums continues to be much slower than it would otherwise be,” says developer Barry Mandel, with considerable understatement.
Even high-profile projects that got financing before the recession have run into problems finding buyers for new condos. Perhaps the most disastrous example of this is Park Lafayette at 2000-2038 N. Prospect Ave. Of the project’s 281 units, only eight condos have closed, and financial issues abound – a New York-based bank claims the Chicago-based development group owes more than $100 million, a hefty price tag for a practically empty building. Now, a Milwaukee-based court-appointed receiver is paying Park Lafayette’s utility bills – while strategizing how to move units.
“Demand is way off,” says Milwaukee Development Corporation President Pat O’Brien. Suburban empty-nesters and young professionals, the two groups driving the condo boom, are hesitant to purchase amid so much economic uncertainty. “The recession has caused everyone to put a lot of decision-making on hold,” Bauman says. “The condo market will probably be challenged for years.”
Unable to wait for this, developers are turning condos into high-end rentals. Some are even writing condos entirely out of plans. Gokhman’s Bookends North is opting for a strictly high-end rental project.
The Moderne is taking a less-drastic approach. It began as condos in 2007, but now it’s billed as a mixed-use development: 14 condos, 203 apartments and 7,500 square feet of retail space. Even upon its completion, some speculate its units won’t be very desirable. With no lake or river views and a high price per square foot ($2, when much of the market is valued at $1.70), the $2,000-per-month spaces might not move quickly. If there’s one amenity that can sell a condo or rent a unit, it’s a water view.
As developers switch from condos to rental units, they may create a glut of the latter. In a tight market, Mandel says he used to lease a vacancy between one and 30 days. Now, with a market overloaded with supply, turnover can take two months. The plague of mortgage foreclosures, followed by rising unemployment and the 50,000 jobs Milwaukee lost last year, have contributed to the stagnant situation.
Mandel predicts it will take at least three years for the market to recover. “We may come out of the recession earlier,” Mandel hedges. “But the national job market will lag, and Milwaukee tends to lag behind the nation.”
There are exceptions – some projects that seem to be successful. Renner Architects’ BreakWater Condominiums, 1313 N. Franklin Pl., has sold 73 of the building’s 101 units, apparently appealing to whatever demand is left in the market. “During the boom years of 2000 to 2007, a lot of projects were financed that were ill-conceived and greatly compromised, and those are the projects that are not selling,” Renner contends.
Downtown’s golden ticket remains its surroundings, with so many views of the lake, the river and surrounding high rises. Not to mention its variety of living options. The boom didn’t come by accident. “The development community was recognizing a trend happening across the United States,” Bauman says. But can those halcyon days return?
“Absolutely,” he says.
