Tighter credit and slow real estate sales are dampening the once-exuberant Downtown condo market, causing serious trouble for one of Milwaukee’s most ambitious projects.
Former state legislator-turned-developer Scott Fergus surrendered control of his Third Ward project, First Place, to a court-appointed receiver, attorney Michael Polsky, in February. The 151-unit riverfront development at 106 W. Seeboth St., overlooking the confluence of the Milwaukee and Menomonee rivers, is one of Downtown’s largest single-phase condo developments. But it’s not likely to be the only one to suffer from the perfect storm brewing in the residential real estate market.
Polsky, who has spent 28 years working with financially troubled companies, says he’s been approached about becoming the receiver for several other projects, but he refused to identify them. Developers are tight-lipped. A week before he gave up all of his rights to First Place, Fergus was still saying the project was doing well.
Now, Polsky will attempt to work out agreements with First Place’s creditors and complete the project. Some First Place buyers, including Milwaukee restaurateur Sandy D’Amato and his wife, Angie, pulled out of the project after earlier delays. Others have stuck with it, including noted fiction writer Susan Engberg and her husband, architect Chuck Engberg, who designed the couple’s 1,700-square-foot unit. Susan Engberg describes Fergus as a visionary who got caught in the unfortunate timing of a national credit crisis.
A number of Downtown condo projects have faced construction delays in recent years – in some cases because they allowed buyers to overcustomize their units, industry sources say – but First Place faced complications that put it in another league entirely. Among the developer’s problems were mounting debts, construction cost overruns and litigation related to the firing of construction management firm Hunzinger in August 2006.
Fergus, who founded KeyBridge Development in 2003, was new to the Downtown condo market when he began First Place and another Downtown condo project, the 601 Lofts, in 2004. In 2005, his firm announced plans for an equally ambitious Racine condo project, Pointe Blue, the “largest-ever lakefront development in Racine.” He abandoned that project in December 2007 after he was unable to secure financing.
Fergus did not respond to phone calls, but according to listing agent Coldwell
Banker, 65 percent of the 601 Lofts were sold at press time. Meanwhile, 55 percent of First Place’s were sold, as were five of the 11 units at 320 Condos, a Third Ward project on the top floor of the P.H. Dye House, which was also developed by KeyBridge. But KeyBridge is no longer involved in any of the projects. Hexagon Investments is now managing 601 Lofts and Gardner Investments is managing 320 Condos.
Condo shoppers should look for a builder who’s been through a few cycles in the marketplace, advises Mandel Group Chief Operating Officer Bob Monnat. Mandel Group sold 70 percent of its University Club Tower units before it began construction. That’s conservative, but Monnat says, “We knew the market could turn … The more aggressive a project is, the more caution a developer should have in his approach to doing business.”
Polsky, the appointed receiver, began closing on First Place’s sold units in mid-February, and he says that none of the development’s debts will attach to the individual units, leaving at least some early buyers happy about their investment. Their units have appreciated $50,000 or more since they locked in their preconstruction price.
As for the Engbergs, who were among the first occupants, they love their new home. “The energy of living on these two rivers coming together is palpable,” says Susan Engberg.
Lots are shrinking. Small yards are twice as popular today as they were a generation ago, and that’s not counting condominiums.
In 1976, just 18 percent of new homes were on lots smaller than 7,000 square feet, or about one-sixth of an acre. By 2006, that had doubled to 36 percent of all freestanding single-family new homes sold.
The trend hasn’t affected those who love the wide open spaces. The percentage of new homes on lots larger than a half-acre has remained stable at 12 percent for more than 30 years. – by Mary Van de Kamp Nohl