Milwaukee-area apartment building boom slows down with some developments delayed or downsized

Things have changed since fall 2015, when David Winograd unveiled plans to develop a 12-story, 164-unit luxury apartment development in Walker's Point.

Construction costs increased, Winograd said. More importantly, several other new apartment projects surfaced in downtown Milwaukee and nearby neighborhoods.

So, Winograd canceled his plans to build the $30 million development, which would have overlooked the Milwaukee River at 234 S. Water St., just downstream from the Pittsburgh Ave. bridge.

"We just felt it was not the right time," Winograd said.

That project's demise is a high-profile example of a drop in apartment development activity throughout the Milwaukee area, including its suburbs. Other projects are proceeding, but with substantially fewer units, while some developments have been delayed.

"There's this tremendous slowdown suddenly of new units coming to the marketplace," said Robert Monnat, chief operating officer of development firm Mandel Group Inc.

The delayed projects include future phases of River House, a large development along the Milwaukee River at 1785 N. Water St.

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River House's first two buildings totaling 243 apartments are nearly complete, with residents starting to move in. That first phase, with monthly rents ranging from $1,255 to $3,055, is a $40 million investment.

But plans to begin construction on two more buildings, adding about 200 more apartments, are on hold until developer Atlantic Realty Partners Inc. determines "an appropriate time to start," said President Richard Aaronson.

"Obviously, there's a good bit more product coming online on an annual basis than there has been in prior years," he said. "We need to be a little bit more cautious going forward."

Construction hasn't yet started at three developments proposed at nearby sites by Wangard Partners Inc.

The firm in December 2015 proposed a $47 million, seven-story building with 250 apartments and 70,000 square feet of stores, restaurants and other retail space on a vacant lot bordered by N. Water St., N. Broadway, N. Milwaukee St., E. Lyon St. and E. Ogden Ave. Wangard would buy that site, in the Park East strip, from Milwaukee County.

One month later, county officials approved Wangard's plans to expand its Avenir development, 1437 N. Jefferson St., just east of the firm's Park East site. The Avenir's two additional five-story phases, totaling $31.2 million, would add 146 apartments and 4,700 square feet of retail space.

Finally, Wangard last May received city approval for its proposed $24 million project at N. Water and E. Brady streets. The four-story building would have 92 units and 4,500 square feet of retail space.

The firm continues to pursue all three projects, but there are no definite construction start dates, said Stewart Wangard, chief executive officer.

Part of that hesitation is tied to the large number of new apartments being built nearby, he said. About 1,200 new apartments are being completed in 2016 and 2017 within a three-mile radius of the firm's three projects, Wangard said.

"We knew that there was going to be a spike," he said. "We're now working through that."

Meanwhile, some lenders are taking a more cautious approach to apartment developments, Monnat said.

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

The slowdown also is showing up in the suburbs.

Bear Development LLC now plans to develop buildings totaling around 220 apartments on S. Lake Drive, between E. Howard and E. Denton avenues, in St. Francis. Bear had previously received city approval for buildings totaling 317 apartments.

The firm downsized the St. Francis proposal after seeing rent declines among similar developments because of a surplus of units.

Also, Fiduciary Real Estate Development Inc. reduced the unit count at its planned Greenfield project, at the 84 South mixed-use development, from 360 to 268 apartments. 84 South is being developed on a site bordered by Interstate 894, W. Layton Ave., S. 84th St. and S. 92nd St.

The latest project to downsize is The Hills, in Milwaukee's Brewers Hill neighborhood near downtown. Royal Capital Group LLC, which received Common Council approval in July to build about 200 units, now plans to drop around 50 units from that count.

Market is still strong

Despite the canceled, delayed and downsized projects, most developers say the overall demand for new, high-end apartments remains strong throughout the Milwaukee area.

"We still feel good about the market," said Aaronson, whose firm is based in Atlanta.

Developers say the numbers of younger millennials and older empty nesters who want to live in apartments, especially in or near downtown, continues to climb in Milwaukee and other metro areas throughout the nation.

Those trends, along with an increase in hotel construction, new offices and other large projects, including the future Milwaukee Bucks arena, have created a downtown building boom that is reshaping the city's skyline. One of the biggest projects is The Couture, a 44-story tower, with just over 300 apartments, that is planned near the lakefront at 909 E. Michigan St.

Even as Fiduciary downsizes its Greenfield proposal, the firm recently started construction on a Wauwatosa project known as Synergy at The District.

Its first phase will feature two five-story buildings totaling 268 apartments and 50,000 square feet of retail space. It will be part of The Mayfair Collection mixed-use development, east of Highway 45 and north of W. Burleigh St.

Mandel Group is starting construction on the final phase of The North End, a group of apartment and retail buildings near N. Water and E. Pleasant streets. The North End will total 651 apartments and 60,000 square feet of commercial space when the last building is completed by the end of 2018.

And Atlantic Realty, which is finishing the 236-unit Reserve at Mayfair, 11011 W. North Ave., Wauwatosa, is planning a construction start by the end of June at the 194-unit Reserve at Brookfield, 13701 W. Blue Mound Road.

Meanwhile, plans for additional apartment buildings, both in the downtown area and the suburbs, continue to surface.

Still, the development surge is expected to bring a higher Milwaukee-area vacancy rate, and a reduction in the rate of growth for rents, in 2017, according to a report by commercial real estate brokerage Marcus & Millichap. 

"The increase in the supply pipeline is something we're watching," said Tom Zale, a vice president at Northwestern Mutual Life Insurance Co., which is building a 324-unit apartment high-rise, at 795 N. Van Buren St., that will open in May 2018.

Tom Daykin can be reached at  tdaykin@jrn.com