Exploring Milwaukee: The Hidden Gem of the Midwest

Nestled quietly in the heart of the Midwest, Milwaukee, WI often goes unnoticed amidst the bustling discussions about larger cities. It’s no surprise; I was once in your shoes. My initial impression of Milwaukee was limited to thoughts of sprawling Wisconsin farmlands. Milwaukee is merely a 90-minute drive from the vibrant Chicago. Don’t just take my word for it—open Google Maps and see for yourself.

Much like its illustrious neighbor, Milwaukee boasts a plethora of attractions—stunning architecture, great cuisine, a captivating lakefront, and an undeniable positive energy. But here’s the unexpected twist: Milwaukee lacks the infuriating traffic that often plagues larger cities. Oh, and did I mention that it is home to the world’s tallest mass timber building? Yes, you read that right—the world’s tallest.

For those discerning multi-family investors, particularly those seeking a robust cash flow strategy, Milwaukee should unequivocally find its place on your radar. How does it stack up against its neighboring giant, Chicago?

Comparing Metrics: Cap Rates and Vacancy Rates

As of the first quarter in 2022 and 2023, Milwaukee boasted average cap rates of 6.3% and 6.2% respectively. Chicago, on the other hand, clocked in at 5.6% for both years’ Q1 periods.

Vacancy rates also paint a compelling picture: Milwaukee secured a vacancy rate of 4.3% in Q1 2023, while Chicago faced a slightly higher rate at 5.5%.

Unveiling Price Per Unit

Like any major metropolitan area, Milwaukee’s property values can fluctuate dramatically from one block to the next. For the sake of simplicity, let’s divide it into distinct segments:

• Southside, Northside, Westside: $40K – $60K per unit
• Lower/Upper East Side: $80K – $125K per unit
• New Developments in Suburban Markets: $200K – $245K per unit

Notable Transactions  

The year 2023 has undeniably been intriguing for the Milwaukee real estate landscape. The current trend reflects a slowdown in deals, attributed to rising interest rates. However, the standout trend is the surge in portfolio sales.

As of August 17, 2023, a notable 3040 units have changed hands. An impressive 43% of these units were part of portfolio sales, totaling a substantial 1333 units.

Adding to the intrigue, three transactions accounted for a whopping 43% of total units sold:

• Blankstein Enterprises: 12 buildings comprising 784 units sold to Katz Properties for $83.9 million.
• Blankstein Enterprises: 5 buildings comprising 335 units sold to Berrada Properties for $18.4 million.
• Atid Properties: 11 buildings comprising 214 units sold to Enigma Properties for $14.3 million.

A Challenge on Milwaukee’s Horizon

While Milwaukee’s enticing price points and promising returns make it a sought-after market, the city grapples with an abundance of aging housing stock. The existing property values within many submarkets present significant challenges to extensive renovations, hindering the modernization of housing. This in turn, impacts the city’s ability to attract and retain a skilled workforce.

My admiration for the Milwaukee market knows no bounds. Conversations with those who’ve experienced Milwaukee firsthand brim with affection. However, for the uninitiated, doubts about embarking on this journey linger.

The same applies to investors—those who’ve embraced Milwaukee’s potential adore it, while skeptics ponder their first steps. Uncertainty stems from a lack of knowledge about where to begin.

For any inquiries about the Milwaukee market, don’t hesitate to reach out.