Milwaukee’s Economy on the Grow; Strong Demand for Affordable Housing
By Caitlin Jones & A. J. Johnson
8 min read
BOTH IN SUPPLY AND demand, Milwaukee continues to be a vibrant market for tax credit housing. Contrary to many other “Rust Belt” cities, Milwaukee appears to be on the grow from an increasing numbers of jobs and a resurgent economy. The downtown in particular is attracting ever more businesses and residents.
A recent announcement by the U.S. Census Bureau containing revised population estimates showed Milwaukee catapulting past Washington, DC, Seattle, and Boston to become the nation’s 22nd largest city. Milwaukee (pop. 602,782) is Wisconsin’s largest city and the economic center of the Milwaukee-Racine-Waukesha metropolitan area (pop. 1,753,355). According to the Census Bureau, Milwaukee’s population grew by 1% between 2000 and 2006. The state Wisconsin Department of Administration predicts the city’s population to grow by 3.3%, to 622,738, by 2025.
Founded by French missionaries and fur traders, Milwaukee was incorporated as a city in the 1840s. Large numbers of German immigrants helped create steady growth in the city’s population, which peaked at 741,324 in 1960.
Milwaukee was well known as a beer brewing center and once home to four of the nation’s leading brewers — Schlitz, Pabst, Blatz, and Miller’s. Today, only Miller’s remains, operating the nation’s oldest still-functioning brewery. Leading employment sectors in Milwaukee today are education and health services along with manufacturing. Other major segments are trade industries, professional and business services, government, leisure and hospitality, financial services, and construction.
Columbus, OH-based RED CAPITAL Research reports 12,500 new jobs were added to Milwaukee’s economy in the 12 months ending 8/31/07. It forecasts payroll growth of between 9,000 and 12,000 new jobs for all of 2007, and 8,000 in 2008.
Milwaukee has one of the lowest median household incomes for renters among major U.S. cities, according to City-Data.com Forum. Its 2007 median family income was $50,270, compared with $57,008 for Chicago, $62,223 for Minneapolis, $56,544 for nearby Madison, WI, and $50,758 for Racine.
Rents/Vacancy Levels
Reis, Inc., a real estate data vendor, reports that average rents for all local multifamily units grew by 1.2% in the second quarter of 2007, and 0.7% in the first quarter. Average effective monthly rents increased by 2.8% to $783 from the year-ago period; average asking rents, up 2.2% to $819.
According to RED CAPITAL’s October 2007 report, Milwaukee’s apartment sector — already tight — continued to intensify in the second quarter of 2007. The overall multifamily rental occupancy rate grew by 0.4% from the previous quarter, to 95.6%. This rate reflected an increase of 1.1% from a year earlier.
Reis expects demand to stabilize as 146 new units are added to the local inventory in the second half of 2007 and 838 new units in 2008. Rental occupancy is expected to fall by 0.4% by year-end 2007, and even further in 2008.
HUD FY 2008 Fair Market Rents by apartment size for the Milwaukee-Waukesha-West Allis metro area are: studios, $558; one-bedroom, $665; two-bedroom, $795; three-bedroom, $1,002; and four-bedroom, $1,032.
New low-income housing tax credit (LIHTC) developments are typically bearing rents comfortably below conventional market-rate apartment rents. “When we look to new deals, we want to see LIHTC rents at least 10% below market rate,” said Bill Boerigter, manager of multifamily housing lending and credits for the Wisconsin Housing and Economic Development Authority (WHEDA), the state agency that allocates housing credits.
Affordable Housing Picture
“Milwaukee continues to be an active market for affordable housing,” said Boerigter. “Milwaukee’s activity is a function of developer interest, a receptive city, and a large quantity of well-located land with re-development potential,” he noted.
Boerigter said the ratio of annual developer demand for housing credits to supply has traditionally been — and remains — about 2- to-1, both statewide and for the Milwaukee area.
He cited several factors that make Milwaukee particularly attractive for new development of LIHTC projects. “There are several qualified census tracts within the city [which allow a 30% larger credit amount]; Milwaukee has a very willing, savvy and proactive city government partner that understands redevelopment and tax credits; and finally, as an older city, Milwaukee has large number of redevelopment opportunities,” Boerigter explained.
He continued, “We encourage developers [of proposed new LIHTC projects] to provide a market study and to come in with rent structures below the neighborhood markets. This demands a high level of research because the product that comes on line might have to be priced several hundred dollars below “˜tax credit’ minimums. Unfortunately, this is not the type of thing that most developers do first.”
Boerigter added, “We have become more diligent about this over the last five years because there really hasn’t been much change in the basic structure. The problem is if [a developer has] targeted incomes of 50% of the median income and those incomes have not increased appreciably, the developer or property management company is getting squeezed by increasing costs. This pattern figures to continue over the next five years.”
One Developer’s Experience
One active LIHTC developer in the Milwaukee area has been Madison-based Gorman & Company. The firm has averaged two tax credit developments per year — both rehabilitation and new construction — in Milwaukee over the last dozen years, but it wasn’t always so easy to develop LIHTC properties, said Gorman & Company Chief Operating Officer Tom Capp.
He described his company’s struggles with one of its first LIHTC projects, the 72-unit Menominee Parkway apartments outside the city. “We received major opposition from a variety of sources,” he said. “The problem was the image of tax credit housing in other cities; our project was a quality development with amenities like a swimming pool and an exercise room.We struggled to get it approved, but soon afterward we developed a 180-unit market-rate development down the street.”
Gorman’s experience with Menominee Parkway helped shape the strategy and direction of the company to where it is now. “We focus on revitalizing neighborhoods where housing could be seen as inspiring economic development,” Capp explains.
He noted there is plenty of affordable housing in Milwaukee, but much of it is substandard. “What we and the city are trying to do is make sure that new affordable housing is well thought out and can provide additional value,” Capp said. “We see our greatest opportunity as attracting people into neighborhoods that might not have considered with the end results of an upgrading of the neighborhood.”
One example is the transformation of an historic warehouse in the Walker’s Point neighborhood into a 98-unit affordable rental development called Historic 5th Ward Loft Apartments. “Walker’s Point was a rough neighborhood,” Capp said, “but within two years after our project opened, another $130 million in housing development flowed into this area.”
Maria Prioletta, redevelopment and special projects manager for the city of Milwaukee, sees the resurgence of the city’s downtown as a major driver of local population growth. “We’ve been adding 400 to 500 housing units a year in the Downtown area,” she said. “There are a lot of corporate relocations in or near the Downtown area as well, and need for affordable housing for working people near their jobs.” Prioletta also said Downtown is attracting emptynesters from the suburbs.
Projects in Milwaukee have been awarded more than 45% of Wisconsin’s annual LIHTCs on average over the last three years, and Prioletta expects this trend to continue. In 2006, she said, an additional 471 LIHTC units were completed in Milwaukee, representing 45% of Wisconsin’s total 2006 credit authority. Figures for prior years were 430 units (44%) in 2005, and 617 units (48%) in 2004.
Boerigter said parts of the Milwaukee area with the greatest potential for new housing credit development are the Park East Corridor, just north of Downtown, and the old warehouse district, just south of Downtown. He noted that the Park East corridor has opened up due to the demolition of an old freeway, and “there are huge chunks of land near the Bradley Center (Milwaukee’s professional basketball arena). This is just awesome real estate and the city is looking toward all kinds of redevelopment here.”
As for promising submarkets, Boerigter singles out West Allis, Cudahy, Grafton and Greenfield. Capp adds Racine and Sheboygan to this list.
Boerigter said major active syndicators of LIHTC projects in the Milwaukee area include Wachovia, PNC MultiFamily Capital, Apollo Equity Partners (RBC Capital), National Equity Fund, The Richman Group, and Great Lakes Capital Fund. In addition to Gorman & Company, he cites General Capital Group and SunStarr Real Estate as leading for-profit LIHTC developers in the Milwaukee market, with major nonprofit developers including Common Bond Communities National Church Residents, and Heartland Housing.
—James T. Berger
