In February, Dallas-based Westmount Realty Capital LLC invested in the Milwaukee market, purchasing a portfolio of 10 underutilized industrial buildings in the metro area.
Most of the buildings were built in the 1970s, needed major capital improvements and had numerous rolling leases and vacancies.
Westmount, which purchased the 1.7 million-square-foot portfolio from Oak Brook, Ill.-based CenterPoint Properties for $61 million, took a proactive management role and listened to its local real estate brokers.
The effort paid off.
In 10 months, two of the most underperforming buildings in the portfolio have been sold, bringing in a profit of $1.8 million, and the eight remaining properties in the portfolio are one lease away from full occupancy.
“We’re 114,000 square feet from full vacancy,” said Stephen Kanoff, founding partner, director and chief investment officer of Westmount. “It’s not a matter of if, just when.”
The vacancy is at 7501 N. 81st St., a 183,958-square-foot industrial building that was constructed in 1987 and renovated in 2010.
“Westmount has taken a proactive management role and let us be aggressive; it has been a great team effort,” said Chad Vande Zande, principal with the Boerke Co.
Vande Zande works with Westmount as a special consultant and was familiar with all of the properties because of his previous role working as part of the team selling the properties for CenterPoint.
“Westmount is like a lot of different investment groups,” Vande Zande said. “They are a national player – not huge, but cover a lot of markets. I think they have been a good addition to our community.”
Boerke Co. principal Jeff Hoffman took the lead on the portfolio.
A year before Westmount entered the Wisconsin market, the firm purchased a similar-sized portfolio in Chicago. Milwaukee’s proximity to Chicago was attractive to Westmount, as were its demographics, Kanoff said.
Kanoff would love to buy another portfolio in Milwaukee, but it has to be another large transaction – in excess of $20 million.
“We’re chasing yield and we’re having to go to secondary markets, like this one, where there is less competition with other buyers,” he said.
Ten months after his initial investment, Kanoff continues to believe investing in the Milwaukee area was the right decision.
“We’re not geniuses; there were just a lot of potential deals on the table that the previous owner was not responding to – that is part of what attracted us to the deal,” he said. “We were able to make the most of those potential leases.”
He also knew when to sell buildings that were not enhancing the portfolio.
The first was a 100,000-square-foot, 46-year-old property that was 22.4 percent occupied at 11925 W. Carmen Ave. in Milwaukee.
The Carmen Avenue building was a problem from the beginning, Kanoff said, but the Boerke Company was able to find a needle-in-the-haystack with a tenant to make use of the space.
“In the case of that building, we were just lucky sometimes,” Kanoff said. “Our business plan consisted of selling some of the less homogenous buildings and we felt it was the appropriate time to sell.”
Kanoff purchased that property for $1.4 million and sold it for $2.8 million to Hilmot Corp., a manufacturer and installer of conveyor systems, which moved its operations from the City of Pewaukee to Milwaukee and more than doubled its space.
The second building sold by Westmount from the Milwaukee area portfolio was a 36,468-square-foot, 45-year-old building at 2450 S. 170th St. in New Berlin. The firm purchased it for $840,000 and sold it to Sharp Products for $1.25 million.
That sale was a double win, Kanoff said, because his company was able to secure a buyer without spending capital to improve the building.
In addition to the building on 81st Street, Westmount still owns seven buildings located in the Milwaukee metro area:
- 5401 W. Donges Bay Road, Mequon, 442,188 square feet
- 7025 W. Parkland Court, Milwaukee, 226,109 square feet
- 2900 S. 160th St., New Berlin, 183,480 square feet
- 9251 Fountain Blvd., Menomonee Falls, 182,000 square feet
- 16800 W. Ryerson Road, New Berlin, 180,284 square feet
- 6736 W. Washington St., West Allis, 113,372 square feet
- 16405 W. Lincoln Ave., New Berlin, 91,473 square feet
Now that he has a homogenous group of eight buildings that are 92 percent occupied, when will Kanoff sell?
“There are no immediate plans to put them on the market,” Kanoff said. “Now we’ll enjoy the cash flow of having them leased. It’s yin and yang. If you sell early, the IRR (Internal Rate of Return) is higher, but your cash on cash multiple is lower. It’s more heart than science.”
The plan, he said, is to maximize the length of the remaining terms of the leases and then decide.
“With multiple tenants, rent roll is always organic and you come to a point in time when all of those lines converge, you sense the market is taking a turn and it’s time to sell or we’ve maximized it to the point where we’ve gotten enough cash flow and sell,” Kanoff said. “It’s a whole recipe. You can’t bake a cake and leave out an ingredient. Timing is everything.”
