The Tannery, an office complex development in a former Pfister & Vogel tannery complex on West Virginia Street in Milwaukee’s Walker’s Point neighborhood, has struggled with rising vacancies in recent years
The Tannery has about 325,000 square feet of space in four large buildings and three smaller buildings, not counting a large unimproved building. A redevelopment project by Atlas Development Corp. that converted the former industrial space into office space was completed in 1999. Occupancy peaked at about 85 percent in 2004-05. But in recent years, occupancy at The Tannery has waned as several tenants moved out.
In 2007, the Il Mito restaurant, located in a building at 605 W. Virginia St., which is part of The Tannery complex, closed. The space remains vacant.
In 2008, IndependenceFirst and its 95 employees moved out of a 30,000-square-foot space at The Tannery.
In 2009, American General Life Cos., a subsidiary of American International Group Inc. (AIG) closed its office at The Tannery, leaving the complex’s 72,000-square-foot Bottling House building at 700 W. Virginia St. vacant.
Also last year, The Business Journal Serving Greater Milwaukee moved out of 10,000 square feet of space in the complex’s Atlas Building.
However, The Tannery complex may be set for a rebound, especially considering the recent announcement that Aurora Health Care will move its corporate headquarters to the building that had been occupied by American General.
“It was a relief (to get Aurora),” said Peter Moede, co-manager for The Tannery. “It was very competitive. (The deal is) not a big money maker. But, it stabilizes the property. It gives us a large, stable tenant with a 15-year lease. Hopefully that helps us attract other quality tenants.”
American General still had four years left on the lease, so AIG was still paying rent for the space at The Tannery. But empty space creates a negative image of an office building, so it was important to get it filled, Moede said.
“You need occupied buildings, cars in the parking lot and people walking around,” he said.
The Tannery recently signed leases with two other smaller tenants. M.E. Dey & Co. will move in November from a building near the airport to 7,000 square feet of space in the Timbers Building, which is the largest building at The Tannery. The Bridge Health Clinics and Research Centers Inc. will occupy 5,200 square feet of space in the Atlas Building at The Tannery, which is the building that The Business Journal used to be in.
Despite the new tenants, there is still a significant amount of vacant space, perhaps around 30 percent, in The Tannery complex.
The market for tenants is extremely competitive and very much favors the tenants right now, Moede said. Some building owners are cutting non-profitable deals just to reduce losses, he said.
“We’re seeing a lot of negative deals,” Moede said. “Strong landlords are saying I can either lose this much or I can lose less if I do this deal. We’re seeing a lot of that. That makes it very difficult.”
The Business Journal moved to a building owned by a trust set up by Sen. Herb Kohl and located on Cathedral Square in downtown Milwaukee.
“Senator Kohl made them an offer they couldn’t refuse, numbers that didn’t really make sense,” Moede said. “There was no way we could compete with that. At the same time (The Business Journal) also wanted to be downtown.”
Earlier this year, Moede brought in additional investors in The Tannery to pay off the mortgage after the note on the property came due.
“We needed fresh blood and pockets that were deeper than what I have,” Moede said.
The new investors are local individuals, whom Moede declined to name. Moede and his family are now minority owners in The Tannery. The name of the new ownership group is LCM Funds 20 LLC.
With the mortgage paid off and new investors on board, The Tannery is better positioned to make aggressive lease offers to potential tenants and can afford to make more improvements to the campus, Moede said.
Moede plans to upgrade the landscaping, lobbies and other areas of The Tannery complex. In addition, a conference center with a large meeting room for groups of 50 to 100 and two or three smaller rooms will be built in the first floor of The Timbers building. Tenants at The Tannery will share the conference center. The project is expected to begin this fall, he said.
The Tannery has a similar feel as the Schlitz Park office complex, the redeveloped former Jos. Schlitz Brewing Co. brewery north of downtown. Both are campuses of cream city brick buildings, but Schlitz Park is larger.
The market niche for The Tannery is that it appeals to tenants seeking high quality, unique space near downtown at an affordable price, Moede said.
“I think we are in a good place because we are not your expensive downtown class A,” he said. “We’re a cheap date, but we have a quality product at an affordable price with a lot of parking.”
Improvements in the Walker’s Point area in recent years, including the nearby Iron Horse Hotel, could also help attract more tenants to The Tannery. The city is rebuilding and redesigning South 2nd Street, which Moede says should help attract more businesses to the area.
“That was an unattractive road and all it was, was a speedway to get in and out of downtown,” he said. “With the redesign it will be much more pedestrian friendly.”
Moede says he is actively pursuing several potential tenants for The Tannery, including potential restaurant tenants for the former Il Mito space.
“We’ve got quite few RFPs out there and we feel pretty good about some of them,” he said.
The Tannery is actually only part of 40 acres that Moede is working to redevelop. He plans to gut and redevelop four buildings located north of The Tannery and a set of railroad tracks, into residential space. The buildings have a total of 250,000 square feet of space. Little improvement has been done so far. About 12 apartment units were created and leased several years ago. Moede said he is in discussions with Oregon, Wis.-based Gorman & Company Inc. to use historic preservation tax credits for a renovation project to create apartments that would later be converted into condominiums. Moede wants to redevelop the buildings one at a time with Gorman.
Moede is also working on development of the Reed Street Yards, a vacant former rail yard located between the Iron Horse Hotel and the Harley-Davidson Museum. Moede plans to transform the 17-acre site into a water technology business park. The University of Wisconsin-Milwaukee plans to have its marquee building for its School of Freshwater Sciences in the Reed Street Yards development, which could provide a catalyst that helps attract water technology businesses to the site, Moede said. UWM is working on its design for the building, and on fund-raising, he said.
Construction of city infrastructure, including new streets, for the Reed Street yards should start next year, Moede said.
Stockton, Calif.-based American Micro Detection Systems Inc., a water technology company, plans to establish operations in Milwaukee and said The Tannery is its first choice for an office location, Moede said. American Micro Detection Systems makes analytical instruments used to instantly detect contaminants in water and other fluids. Initially its Milwaukee operation will have about 10 employees.
Smaller water tech companies such as Micro Detection Systems may prefer The Tannery and larger companies may prefer to build a new building in the Reed Street Yards, Moede said.
“We feel water companies will want to be close to (the UWM School of Freshwater Sciences),” he said. “Hopefully (the school) will attract other companies.”
