Tom Daykin

Milwaukee Journal Sentinel

The bevy of construction cranes hovering over downtown Milwaukee reflect an extraordinary commercial real estate boom that is reshaping the city's skyline and transforming the ways its people live, work and play.

Simply put, we are witnessing the remaking of downtown Milwaukee.

Two large office buildings overlooking Lake Michigan. A pair of apartment towers, part of an ongoing boom in higher-end rental housing. An arena for the Milwaukee Bucks and other events with a futuristic design that — love it or hate it — is architecturally light years away from the building it's replacing.

The city's downtown is seeing a historic surge in commercial development, with more than $1.4 billion in projects underway.

"This is a big deal for Milwaukee," said Mark Eppli, professor of finance and Bell Chair in Real Estate at Marquette University. "This level of development is unprecedented. With the additional development in the city, especially in hotels and apartments, Milwaukee is becoming a 24-hour city where tourists, business people and residents come to live, work and play. The current development cycle will be transformative for the city."

Among the biggest projects anchoring the boom:

The $524 million Bucks arena.

Northwestern Mutual's $450 million office tower and $100 million apartment high-rise.

The $137 million BMO Harris Financial Center office tower.

The $122 million Couture apartment high-rise.

The $80 million conversion of the Warner Grand Theater into the Milwaukee Symphony Orchestra's performance hall.

The $50 million Westin Hotel.

Large projects already completed over the past year include the $101 million 833 East office building, the $53 million latest phase in The North End apartments and retail development, and the $52 million Kimpton Journeyman Hotel.

Finally, there are several new and ongoing downtown-area developments below the $50 million mark, including apartments, offices and hotels.

The number of projects and their likely impact amount to the largest burst of downtown development since three new office towers and other large buildings opened in the 1960s, said Michael Mervis, a longtime commercial real estate executive and retired vice president of development firm Zilber Ltd.

Helping drive the demand for new buildings are trends that also are playing out in other cities, include a greater affinity for downtown living among both millennials, generally defined as people born from 1980 through 2000, and older empty-nesters.

There's also a growing desire among millennials to work downtown, with suburban businesses moving there to better recruit and retain talent. Meanwhile, local pent-up demand for new hotel rooms has been unleashed.

To be sure, the new developments — which are generating tax revenue and jobs for one of the nation's poorest cities — could face some headwinds: Job growth remains slow throughout Wisconsin, including the Milwaukee area. Even Northwestern Mutual, downtown's largest employer, has been reducing its workforce because low interest rates have hurt returns on the company's investment portfolio.

That could mean fewer people to rent apartments, work in offices, and patronize stores, restaurants and other businesses.

Still, what's been happening in downtown Milwaukee over the past few years "seems unprecedented," said Tom Zale, Northwestern Mutual vice president and head of the company's real estate subsidiary.

Northwestern Mutual announced in December 2012 it would develop the new office tower to accommodate long-term growth at its downtown campus. The 32-story building, 745 N. Prospect Ave., will be completed in August after nearly three years of construction.

The office tower is the single most important project in the recent downtown building boom, said city Development Commissioner Rocky Marcoux.

The project sent "a huge message" on the future of downtown to investors and other companies, Marcoux said, including some that have since relocated from the suburbs.

Downtown provides an attractive environment for Northwestern Mutual's workforce, Zale said.

The walkable nature of downtown, with its numerous restaurants, business-class hotels and cultural attractions, also helps 833 East, an 18-story office building that opened a year ago at 833 E. Michigan St.

It took over three years for developer Mark Irgens to attract enough tenants to secure financing for the building, which is anchored by the Godfrey & Kahn law firm.

By contrast, Irgens' plan to develop the 25-story BMO Harris Financial Center, anchored by BMO Harris Bank and the Michael Best & Friedrich law firm, came together within about six months. Irgens announced that project in December, with construction to begin this fall.

An improved economy and the growing desire by younger professionals to work downtown helped speed the project.

"They want to be ... where things are happening," Irgens said.

The phenomenon partly reflects a shift away from owning homes, Zale and Eppli said.

Downtown for residents

Northwestern Mutual is building a 34-story, 324-unit residential high-rise that is to open in May 2018 at 795 N. Van Buren St.

It will be about four blocks from The Couture, a 44-story tower with 312 apartments that developer Rick Barrett will build at 909 E. Michigan St.

Barrett's firm, Barrett Lo Visionary Development LLC, recently demolished a former bus facility at that lakefront site and plans to begin building The Couture this fall after finishing site work. It would open in late 2019.

Barrett, whose projects include the Moderne high-rise that opened in 2012 at 1141 N. Old World 3rd St., was planning The Couture years before Northwestern Mutual announced it would develop a nearby apartment tower. That news affirmed his belief that there's strong demand for luxury apartments overlooking the lake.

"They're very, very astute," Barrett said about Northwestern Mutual, which owns nearly 19,000 apartment units nationwide. "There's no way they would do that without a positive outlook."

The Moderne has many younger renters. Barrett said The Couture will draw more affluent people, including empty-nesters, who want an apartment that shows that they have "made it."

The Couture's financing includes $17.5 million in city funds for public improvements, including a transit concourse that will feature the new downtown streetcar.

Downtown for visitors

Wealthier travelers, especially business travelers, are the target of most of downtown's new hotels.

Those include the 158-room Kimpton Journeyman, which opened in July at 310 E. Chicago St., in the Historic Third Ward, and the 220-room Westin, which opens in June at 550 N. Van Buren St.

The burst in new downtown hotel development over the past five years or so party reflects an improved economy.

It's also the result of pent-up demand for new, larger rooms with more amenities, said Doug Nysse, who operates Arrival Partners LLC. His firm works with Jackson Street Partners LLC, which is developing the Westin and also developed the Aloft, SpringHill Suites and Marriott hotels.

Marcus Corp.'s long dominance of downtown's higher-end hotel market for years dissuaded others from building new hotels, Nysse said. Marcus and Jackson Street Partners have competing development plans for a city-owned lot at W. Wisconsin Ave. and N. 4th St. that depend on a possible expansion of the neighboring Wisconsin Center convention facility.

With new downtown hotels opening, industry data shows occupancy rates and average daily room rates have remained strong, he said.

"The pie has actually grown," Nysse said.

The hundreds of new hotel rooms mean downtown Milwaukee is now closer to its peer cities in terms of its supply growth, he said.

The development has even spread west of the Milwaukee River, an area that traditionally lagged the rest of downtown.

"If I worried, I worried about West Wisconsin Avenue, and the west side of the river," Marcoux said.

Downtown entertainment

Some larger developments in that area helped set the stage for the more recent burst of investment, Marcoux said.

They include the decade-long redevelopment of the former Pabst brewery into The Brewery, which includes a hotel, apartments, offices and, opening in April, a small brewery operated by Pabst Brewing Co. The $200 million development was launched in 2006 by the late Joseph Zilber, founder of Zilber Ltd., and includes up to $29 million in city funds.

The most visible project on downtown's west side is the new Bucks arena, financed in part with $250 million in state, county and city cash. It opens in fall 2018, just north of the BMO Harris Bradley Center — which will be demolished to make way for future developments.

The arena is driving nearby privately financed projects, including 90 apartments that will be attached to the new arena parking structure; the Bucks' new training facility and an adjacent Froedtert & Medical College of Wisconsin clinic; and the Bucks' entertainment center.

Except for the entertainment center, those projects are on the Park East strip, a 10-acre stretch left vacant when a former freeway stub was razed in 2003.

That land languished until Milwaukee County gave the parcels to the basketball club's new owners. The group, led by New York investors Wes Edens, Marc Lasry and Jamie Dinan, realized the new arena's chances of success would be tied to nearby commercial developments.

"Having a sports arena on an island is not a good business proposition," said Peter Feigin, Bucks president.

Major projects pending on downtown's west side include plans by The Shops of Grand Avenue's new owners to redevelop that long-troubled property into offices, a supermarket and other new uses, and the Milwaukee Symphony Orchestra's proposed conversion of the long-vacant Warner Grand Theater, 212 W. Wisconsin Ave., into its new performance hall.

Grand Avenue is still seeking anchor tenants to help propel its redevelopment, which could begin major work this year. Symphony officials plan to begin their renovations this fall if fundraising continues to progress.

Eppli says the robust commercial downtown developments are sustainable.

"Overall, I am very bullish about the amount of development in the city and believe that it is justified — i.e. this is not a cycle of overbuilding based on irrational exuberance. Apartments, hotel and office space is being absorbed as quickly as it has been built," Eppli said.

The potential downside

There are, however, signs that the development pace may slow down. The biggest concern is job growth.

A new Brookings Institution study of the nation's 100 largest metropolitan areas ranked the Milwaukee area 53rd in economic growth from 2010 through 2015.

"There's no real evidence of an employment boom downtown," said Marc Levine, a University of Wisconsin-Milwaukee history professor and director of UWM's Center for Economic Development.

Indeed, even as some suburban businesses have relocated there, other large downtown employers, including Northwestern Mutual, Assurant Health, Extendicare Holdings Inc., JPMorgan Chase & Co. and the Milwaukee Journal Sentinel, have together eliminated hundreds of jobs in recent years.

"We not only don't have job growth. We have job losses," said Robert Monnat, chief operating officer of Mandel Group Inc., developer of several downtown-area apartment and condo projects.

Slow job growth "is a threat to further development in our community," said 833 East developer Irgens.

Mandel Group this summer will open the 155-unit fourth phase of The North End apartments and retail development, located along N. Water St. at E. Pleasant St., and the 132-unit Domus apartments, 441 E. Erie St.

Construction is to begin later this year on the 88-unit final phase at The North End, which will bring that $200 million project at a former tannery site to 651 apartments and 60,000 square feet of commercial space. It received $8.5 million in city financing.

But a possible fall start for Mandel's $100 million 235-unit Portfolio apartment high-rise, at 1350 N. Prospect Ave., is facing "a lot of volatility in the financing markets right now," Monnat said.

Meanwhile, construction hasn't started on several apartment developments announced over the past year or so.

Still, downtown's RiverWalk, museums, live performance venues, lakefront and other assets will help it continue attracting employers and residents over the long term, developers said.

"There's a lot here to attract more professionals," Irgens said.

Both Irgens and Monnat said there should be a greater focus on attracting white-collar jobs, with Monnat saying the lower cost of doing business in Milwaukee vs. Chicago is a particular advantage.

"We need to attract far more smart, highly educated millennials to the city," Monnat said.

Other tactics to strengthen the local workforce should include stronger enforcement of hiring programs for jobless city residents on developments that receive public financing help, said Levine, of UWM.

Requirements tied to the Bucks arena and the Northwestern Mutual office tower are training and employing Milwaukee residents in the construction trades, but have fallen short on other projects.

Even if some projects never happen, what has already occurred throughout downtown is having a big impact, said Danielle Coterel, a Historic Third Ward resident and president of the Downtown Neighbors Association.

Coterel and fellow residents would love to see a downtown Target store and another grocery store. But the projects that have happened, along with those that are being built, have already helped make downtown a great place to live, she said.

"There's so much going on downtown," Coterel said. "You're within steps of anything."

Tom Daykin can be reached attdaykin@jrn.com