Carlyle Apartments, 2803-2821 E. Belleview Pl. Photo by Jeramey Jannene.

Milwaukee metropolitan area apartments could draw substantial interest from investors in 2022, in part due to a below-average vacancy rate.

That’s according to a new report from Marcus & Millichap, a leading provider of commercial real estate services.

Despite slow population and wage growth, the Milwaukee rental market is likely to see its average rental prices grow and vacancy rate fall in 2022. The average rent is expected to climb to $1,360, a 4.6% increase.

One of the leading factors causing that is the tight home sales market. “The median home price jumped from roughly $269,000 at the end of 2019 to $339,000 in the late stages of last year. Over that same span, the median household income advanced by just 2.1%,” says the report.

The Milwaukee area’s apartment vacancy rate is below the national average, and Marcus & Millichap forecasts it will drop further to 2.7% this year. The supply of new apartments, or lack thereof, will help. It’s estimated that 1,100 units will open in 2022, the lowest total since 2013. Most of the new units will be in Waukesha County.

Increasing interest rates are also expected to fuel rental demand by slowing home sales.

The mix of factors leads to first-year yields on Milwaukee apartment investments that are more than 100 basis points higher than those in other cities. The first-year returns, according to the report, are highest (capitalization rates in excess of 7%) on older buildings in the northwest suburbs.

The national investment forecast report ranks Milwaukee 32nd out of 46 studied markets, roughly in line with the metropolitan area’s population rank. But it’s ahead of Washington D.C., New York City, Chicago, Philadelphia, Detroit, Cleveland, all of which are far larger.

Most of the cities ahead of Milwaukee are in the south. The only Midwest cities ahead of Milwaukee are Indianapolis (24), Kansas City (28), Columbus (30) and Minneapolis-St. Paul (31).

“Inflation worries highlight the strong potential of multifamily properties as a favorable option in such a climate. Appreciating property values and the ability to adjust rents contribute to the positive outlook and are likely to draw new buyer demand this year,” says the report about the nation as a whole. “The search for yield amid an increasingly competitive bidding environment will compel investors to consider assets across a greater selection of markets. This corresponds with a demographic shift to secondary/tertiary cities that is benefiting apartment operations.”

The report breaks the multi-family apartment market into three classes, where A is new, high-end housing and C is older, unrenovated apartment buildings.

Marcus & Millichap estimates that much of the rental, and investor, interest might occur in class B and C units in the southern suburbs along Interstate 94.

What about the city proper? “Revitalization projects Downtown such as the Harbor District could present upside potential for investors. The crop of older buildings in the core may be utilized for value-add strategies,” says the report.

Capitalization rates on class A and B buildings in the greater downtown area, as well as Brookfield, Wauwatosa and West Allis, are expected to remain in the 5% range.

But the report is not designed to predict the performance of individual investments, and instead presents a high-level look at the regional market.

The report is also not intended as an explicit guide to where investors should place their money, but it does note one potential opportunity. Marcus & Millichap refers to Milwaukee as an “under the radar” market from a national investment standpoint. “As a result, buyers often face less competition acquiring assets, despite lower entry-costs and higher yields than many other metros,” says the report.

Weekly Recap

Stalled East Side Project To Resume

Work is expected to resume soon on the redevelopment of a Lower East Side office building into apartments.

A zoning change request was submitted in 2019 to convert The Fenwick Building, 1442 N. Farwell Ave., to a 65-bed assisted living facility. And by 2020 construction work on the project was well underway.

But, at least visibly, little happened in 2021. The six-story building ended up being sold in August to the contractor involved with the project, invalidating the building permits for the project.

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City Sold 249 Foreclosed Homes in 2021

If you’re looking for a house, the City of Milwaukee would love to hear from you. The city regularly sells homes it acquires through tax foreclosure to new owners.

At a press conference Wednesday, Acting Mayor Cavalier Johnson announced that in 2021 the city sold 249 improved properties (lots with a house, commercial building or another structure on them). Johnson, who became mayor at the end of that year, said that exceeded the Department of City Development‘s goal by more than 10%.

“The City of Milwaukee doesn’t want to hold onto property that could be home for a local family because it’s no good to do that. Those properties become drains on our resources at the city,” said Johnson. “We prioritize selling homes to owner-occupants which adds greater stability to our neighborhoods and we hope it helps those homeowners build wealth for themselves and their families.”

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City Grants Supporting New Homes in Josey Heights

Brenda Brown and her husband, Henry, have been living in the lone house on North 20th and West Walnut streets for over 13 years.

After building their home in 2008, they expected more homes would follow. But the economy crashed, and new neighbors never came.

Now Brenda Brown is a part of efforts to get people back into the Walnut Circle and Josey Heights neighborhoods near downtown.

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Farewell To The Express Library “Branch”

There is now one fewer public library branch in the city.

Since 2014, the Milwaukee Public Library operated an express branch at the corner of N. 64th St. and W. Silver Spring Dr.

But unlike the 13 remaining libraries — offering in-person staffing, air conditioning and thousands of items — the express library more closely resembled a large vending machine.

The machine, one of four in the country at the time of its installation, held approximately 350 items. Billed as a 24-hour library, patrons could use their library card to grab a book or DVD like one might use a credit card to buy a soda.

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Interval Coffee Will Open In Bay View

Interval plans to open a new cafe in Bay View at 2266 S. Kinnickinnic Ave.

It will be the third cafe for the fast-growing coffee roaster and purveyor. Led by Ryan Hoban, the first cafe opened at 1600 N. Jackson St. in 2018. A second cafe, run in partnership with Milwaukee Artist Resource Network, opened in the Historic Third Ward last year.

The new cafe will fill the space recently vacated by Stone Creek Coffee. The larger chain closed its cafe in December after failing to reach a resolution on who should repair a leaning wall involving the cafe, building owner and city.

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Developers Plan 299 Affordable Apartments

Four Milwaukee projects are among the 49 applications submitted to the Wisconsin Housing and Economic Development Authority (WHEDA) for low-income housing tax credits. It’s the lowest number of city projects submitted in recent years.

The credits are the most common tool used to create affordable housing in Wisconsin and require developers to set aside a pre-determined number of units at a discounted rate for those making no more than 60% (with few exceptions) of the area’s median income for a period of at least 30 years.

In 37 communities across Wisconsin, developers are seeking to build or rehabilitate 2,952 apartments through the program, 2,685 of which would be affordable.

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Northwest Side Planet Fitness Gets Approved

A former Home Depot garden center is poised to be demolished and replaced by a Planet Fitness gym.

The new gym would be adjacent to what is now a Pick ‘n Save grocery store at 7401 W. Good Hope Rd.

The gym chain, with more than 2,250 locations, markets itself as a low-cost “Judgement Free Zone” that caters to casual users. Membership starts at $10 per month.

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Tia Cannon Will Lead Fond du Lac and North BID

The North Avenue Marketplace Business Improvement District is under new leadership.

Tia Cannon now leads the organization, which represents the commercial properties and businesses located near the intersection of W. Fond du Lac Ave. and W. North Ave.

“We are elated to have Ms. Cannon as our new BID Manager. Ms. Cannon embodies the energy, passion, and vision needed to make Marketplace BID 32 a destination for business investment in the city of Milwaukee,” said Marketplace BID 32 Board Chair, Steven M. DeVougas, in a statement issued Dec. 21. “I look forward to working with her, as we build on the legacy of those who have preceded us.”

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