MSOE Agrees To Voluntary Tax Payments On New Knapp St. Building

310 E. Knapp St. Photo by Mariiana Tzotcheva

The Milwaukee School of Engineering (MSOE) is agreeing to make voluntary tax payments to the City of Milwaukee as part of a $14 million deal to repurpose an office building into a new home for its Civil and Architectural Engineering and Construction Management (CAECM) programs.

“We really want to grow and expand,” said university president John Y. Walz to the Zoning, Neighborhoods & Development Committee Tuesday. “The demand for our students is outstanding, whether it’s engineering or nursing.” The university reports 2,571 full-time students.

The new building, 310 E. Knapp St., will literally bring the CAECM programs out of the basement. The programs are currently based in the partially-exposed lower level of the university’s campus center, 1025 N. Broadway. Despite the cellar-dwelling location, Walz told the committee that the CAECM programs boast a 100% placement rate.

The university, according to state real estate records, paid $1.09 million for the three-story, 59,429-square-foot building. It acquired the property from real estate developer and MSOE regent Kendall Breunig at a below-market rate.

As a nonprofit entity, MSOE would normally not be subject to property taxes, but the office building falls within the edge of the Park East Redevelopment Plan area. It’s a city-designated area with a corresponding tax incremental financing district created approximately two decades ago to coordinate the demolition of the Park East Freeway. A prohibition of new tax-exempt uses was instituted as part of a series of regulations.

The MSOE agreement, formally a Payment in Lieu of Taxes (PILOT), calls for the university to pay the city $100,000 annually, with a 2.5% annual escalator. The term of the agreement is for 10 years and can be mutually extended for additional five-year terms.

Breunig was to pay $234,528.43 in property taxes for the building this year based on a $9.3 million assessment. But that amount was likely to fall in future years as the lease expired for the U.S. Department of Homeland Security‘s U.S. Citizenship and Immigration Services office. Breunig, who leads Sunset Investors, bought the facility in 2021 for $4.75 million. A future location for the office has not been announced and the department did not respond to an earlier request for comment.

MSOE can avoid paying up to 75% of the annual PILOT in cash by making “public improvements” on city streets. “The university has been talking about slowing down traffic on Broadway,” said Lori Lutzka, Department of City Development development projects manager. The agreement specifically allows for “curb bump-outs, crosswalk improvements, lighting, hardscaping, and other public infrastructure improvements.” Lutzka said the in-kind provision would avoid the city needing to borrow money for improvements it already supports. The city must approve any improvement.

The proposal sailed through the zoning committee. “MSOE has been an outstanding corporate partner with the City of Milwaukee,” said area Alderman Robert Bauman. He said the students have a positive impact on the city and often end up living in the area, even if they come from outside the Milwaukee area. “They’ve often operated below the radar,” he said of the university.

He praised Walz for agreeing to the deal. “I know PILOTs are kryptonite,” said the alderman. He successfully got a church to accept a $10,000-per-year PILOT payment in 2021. The cash-strapped city is unique among its peers for its heavy reliance on property taxes, and a state-imposed cap on how much it can collect.

MSOE anticipates moving the CAECM programs into the building in fall 2024. When it announced the acquisition on March 2 it said it was “considering several potential academic uses.” The private university, which can apparently make swift decisions, is working with Ramlow/Stein Architecture + Interiors on the phased project.

Walz said that, in the past six years, more than $100 million in campus development projects were completed or are underway. MSOE announced plans last month to convert a recently-acquired duplex, located one block to the south, into a home for the university’s growing music program. Last year, it started construction on a softball stadium at 408 E. State St. and expanded locker rooms at the Kern Center. It’s also completed Viets Tower, a residence hall, and Diercks Hall, a computer science building. A plaza, completed last year, links the two facilities and encourages connectivity with the expanded campus and visitor center.

The full Common Council and the Redevelopment Authority of the City of Milwaukee must both still approve the PILOT plan.

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