Redevelopment Plans Dropped For Downtown Post Office

Don’t expect the United States Postal Service to abandon its downtown facility, Milwaukee Main Post Office, anytime soon.

The property, 341 W. St. Paul Ave., was sold Tuesday to an affiliate of Postal Realty Trust. The New York-based company owns more than 880 properties leased to USPS.

The trust acquired the Milwaukee property, with 941,109 square feet of space, for $15 million from Chicago-based R2 Companies, ending the company’s plans to redevelop the property.

R2, in partnership with Polsky Holdings, bought the post office and distribution center for 2015 for $13.1 million and released a redevelopment plan in 2016 that included a mix of housing and offices spread across two new towers and the base of the existing four-story building.

The proposal would have taken advantage of the property’s frontage on the Menomonee River and its proximity to the Milwaukee Intermodal Station and The Hop.

But that plan never progressed, with USPS picking up an option to stay in the building. R2 ultimately attempted to evict USPS in court, but the case was dismissed.

R2 CEO Matt Garrison said despite the dismissal, the case was a success because USPS made “significant repairs” to the building.

But while R2 continued to add properties in Milwaukee, including The Tannery office complex, 214-228 E. Erie St. and ASQ Center, it didn’t find a path forward on redeveloping the post office complex. USPS can renew its downtown lease through 2040.

It wasn’t a loss for the firm.

“This asset fit our strategy of buying assets with asymmetric upside and manageable downside,” said Garrison in a LinkedIn post. “In this case, we generated significant free cash flow backed by U.S. government credit while we pursued opportunistic outcomes, the definition of a covered land play. We exited to a [real estate investment trust] with a low cost of capital, and will reallocate to new opportunities, with the strategy of managing risk while setting up for opportunity.”

Does this mean the end for R2 in Milwaukee?

“Milwaukee is a great city and relative value, and we have significant holdings there with our creative office properties,” said Garrison.

USPS has flirted with leaving the downtown facility before.

In 2008, a plan was released to relocate the mail processing operation to suburban Oak Creek near Milwaukee Mitchell International Airport. But those plans never proceeded past the Great Recession. In 2019, USPS advanced a plan to build a smaller Oak Creek facility that immediately replaced only the organization’s existing airport area operations.

The downtown building was constructed in 1968 to the designs of Miller, Waltz & Diedrich Architects. It spans the Canadian Pacific mainline and once relied on direct railroad access for moving mail. Today mail primarily enters the building by semi-trailer, with buildings using a bridge that connects with the S. 6th St. bridge on the west side and a ramp down to N. Plankinton Ave. on the east side. And while more than a thousand employees route mail for much of the state on the upper floors, a post office operates on the first floor for more local transactions.

R2 has ambitious plans in Chicago, where it is redeveloping a portion of the long-industrial Goose Island and planning to build a retail complex spanning Interstate 94. The company recently sold a historic Chicago building for a hefty premium as a result of an immersive Van Gogh exhibit.

The Milwaukee USPS distribution center wasn’t the only one to sell recently. Juneau Station, a 38,193-square-foot building at 606 E. Juneau Ave., was sold in August for $3.74 million.

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