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Mandel Group's plate overflows with apartment projects

5/12/2014 - Perhaps no real estate development firm in southeastern Wisconsin is busier right now with development projects in the metro Milwaukee area than Mandel Group Inc.

The firm's immediate pipeline of projects that are either under construction or could soon be under construction is filled with plans for three apartment development projects in and near downtown Milwaukee and four apartment development projects in the suburbs. The firm's list of planned downtown developments includes a three-phase addition to its North End development.

Mandel Group, a multi-family housing development firm, has a long track record in the area and studies the market carefully. The firm is expressing serious confidence in the metro area's apartment market with several development projects in the city and in the suburbs.

“We believe this is the right time (to build apartment developments so they hit the market) before the cycle ends,” said Mandel Group President Barry Mandel.

Several factors have combined to make the apartment market hot right now nationally and in Milwaukee, Mandel Group Chief Operating Officer Robert Monnat said.

Many empty nester members of the aging baby boomer generation are downsizing from single family homes to apartments, while at the same time the millennial generation, which is even larger than the baby boomer generation, is moving into the household formation age and in many cases its members are moving into apartments (as opposed to single family homes or condos) for lifestyle and financial reasons, he said.

The growing demand for apartments comes after years of little apartment development in the U.S., leading to stagnant supply levels. Multi-family housing development in the U.S. was dominated by condos from 2003-'07 as buyers, developers and banks responded to federal government policy that strongly encouraged homeownership and relaxed regulation of mortgage standards, which contributed to the subprime mortgage crisis, Monnat said.

After the collapse of the housing market and the Great Recession, condo development has been nearly nonexistent and many tenants, particularly younger adults, now prefer to rent after seeing the downside of the condo market.

After the Great Recession hit, banks became extremely reluctant to finance new real estate developments. But in the last year or two lenders and investors have become more willing to finance apartment developments because they, too, see the trends of rising demand, lack of supply and the apartment sector's solid performance over the past 25 years compared to other real estate asset classes, Monnat said.

Post Great Recession lending standards have made it harder for people to get a mortgage, increasing the demand for rental housing, and many who experienced a loss of net worth from the Great Recession have had to turn to the rental market for housing. Also, many potential buyers have lacked confidence in the housing market, choosing to rent instead.

The Milwaukee area's apartment market is experiencing similar trends to the national market, with rising demand and increased interest from lenders and investors. As a result, several apartment developments have been built in recent years, are under construction or are being planned. But perhaps no apartment developer in the area has more projects in the works than Mandel Group.

“We're busy right now because apartments are in high demand right now from users and investors,” Monnat said.

The improving job market is one of the biggest drivers of increased apartment demand, because that results in increased household formation, Monnat said. But as many young professionals with new jobs looked for housing in recent years, they found the pickings slim because of a lack of apartment development over the previous 10 years.

“The moment jobs came back (in 2012-'13) the apartment market demand spiked,” Monnat said.

All of these demographic and market trends are studied carefully by Mandel Group.

“We spend a ton of time trying to understand demographic trends,” Monnat said. “Demographics are the driver of our business.”

Low interest rates and low construction costs in recent years have made it easier for developers to put together apartment deals than in the past.

With so many factors pointing in favor of the apartment market, Mandel Group has decided the time is right for new apartment developments in downtown Milwaukee and in the suburbs.

“We've had no problem leasing up the apartments that we've built,” Monnat said.

For example, Mandel Group announced earlier this year that its 84-unit LightHorse 4041 project in Shorewood was 100 percent leased two months after completion. The firm's downtown properties are currently about 95 percent leased and its suburban properties are about 98-99 percent leased, Monnat said.

Most recent apartment development in the metro area has focused on downtown Milwaukee. The downtown apartment market is primarily attracting young professionals that want to live near the urban center's cultural amenities, restaurants and nightlife. Mandel Group has been active there and is currently planning three projects in and near downtown Milwaukee, including a three-phase addition to The North End at Water and Pleasant streets.

Demand for downtown apartments is healthy, but not “frothy,” Monnat said, which would require higher levels of job growth. The surge of downtown apartment development in recent years by Mandel Group and other developers will likely push that market to equilibrium by 2016, Monnat said. At that point new apartment development downtown will continue but at a considerably slower pace, he predicts.

Suburban apartment developments have not gotten as much attention as the downtown projects, but demand is healthy in the suburbs, especially from empty nester baby boomers who no longer want to maintain a large single family home and want to downsize but also want to stay in their community.

Mandel Group carefully selects the sites for its projects and in suburban areas seeks walkable, highly connected sites that are harder to find in those communities but appeal to apartment dwellers, Monnat said.

“We go into communities and find what we consider the best site in each of those markets,” he said. “Our challenge is to find the best site with the strongest attributes with respect to connectivity and walkability.”

Both downtown and in the suburbs, Mandel Group will have plenty to keep it busy for years to come. In addition to the projects in its immediate pipeline, the firm is in the preliminary stages of planning additional developments that could include an upscale apartment tower on Prospect Avenue on Milwaukee's East Side and creation of a mixed-use innovation district in the city's Walker's Point neighborhood.

“We're not doing (so many projects) to try to be the biggest,” Monnat said. “We're doing this to try to have a portfolio of the best properties.”

Mandel Group's immediate pipeline

City of Milwaukee projects

North End – Three more buildings, in addition to the three that have been built in the project at Water and Pleasant streets downtown, with a total of 413 apartments and a Fresh Thyme Farmers Market store.

Domus – A 132-unit apartment building planned for the Historic Third Ward. It would also have 7,000 square feet of space for fitness or outdoor recreation operations.

North Avenue – A 46-unit apartment building with a 17,500-square-foot Adventure Rock Climbing Gym facility, planned southeast of East North Avenue and Commerce Street.

Suburban projects

Whitefish Bay – Beaumont Place, an 83-unit, three-building apartment development under construction just north of the Silver Spring Drive retail corridor. About 40 percent of the apartments have been reserved. It is expected to be complete in 2015.

Sendik's Towne Centre – Construction for PrairieWalk, a 56-unit apartment development, will start soon at Sendik's Towne Centre, located southwest of Capitol Drive and Brookfield Road in Brookfield.

The Corners – Mandel Group has been hired by Marcus Corp. to handle development of 158 apartments at The Corners development in the Town of Brookfield. The 460,000-square-foot mixed use development will be built at I-94, Barker Road and Bluemound Road, and will be anchored by a Von Maur department store.

Innovation Campus – Mandel Group will build a six-building, 188-unit apartment development, called The Echelon, at the UWM Real Estate Foundation Inc.'s Innovation Campus development site northeast of U.S. Highway 45 and Watertown Plank Road in Wauwatosa. Construction of the apartments is expected to begin this year.
--Andrew Weiland, Biz Times

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