The changing face of Madison: A new downtown development boom is all about apartments

Downtown Madison is witnessing an incredible burst of development and it's being driven by an interest in new, high-end, big-city style apartments. It's arguably the greatest shift in the Madison landscape since the grand opening of West Towne Mall in 1970 ushered in decades of growth on the city's edges, what critics often derided as urban sprawl.

"I've spent almost two decades working on downtown issues and I've never seen this level of development," says Ald. Mike Verveer. "It's left a lot of us very busy trying to keep up."

Of the $337 million worth of new development projects in the city this year, nearly two-thirds — some $213 million — are apartment projects. Most, but not all, are in the central city and most include structured parking and some kind of commercial use of the lower floors.

Single family homes account for only $47 million or just 14 percent of the total investment. And condominium development appears to be all but dead with just $2.4 million in new construction in that category in 2013.

Those breakdowns are nearly a complete about-face from the height of the real estate boom in 2006 when developers put up $76.6 million in single family homes, $96.2 million in condos and only $36 million in apartments.

Certainly, downtown Madison has witnessed memorable building spurts over the past 20 years.

In 1997, the city celebrated the long-awaited opening of the Frank Lloyd Wright-designed Monona Terrace Convention Center. A few years later, the nearby Hilton Hotel followed.

During the real estate run-up of the 2000s, the downtown experienced a flurry of condominium developments that lured new residents — along with some empty-nesters — back to the Capitol Square. University Avenue also saw a series of student-oriented apartment projects that brought high-rise development to that busy corridor.

The UW-Madison got into the development game as well, pursuing a variety of projects including the Wisconsin Institutes for Discovery, a new Union South, expansion of its medical campus and updates to its residence halls.

And who can overlook the Overture Center, the Cesar Pelli–designed concert hall and arts center made possible by the generosity of Pleasant Rowland and Jerry Frautschi?

But the pace of new development fell to just $84.7 million in 2010 during the economic slowdown — less than a fifth of the $468 million worth of new projects in 2006, the biggest year on record.

Since the Great Recession ended, however, the urban core has seen a development boom. High-density apartments aimed at young professionals are changing the face of Madison in ways that longtime residents might never have imagined.

"The conversation around planning, development, preservation and zoning is very exciting right now," says Katherine Cornwell, a newcomer to Madison herself who took over as director of the city Planning Division in 2013 after relocating from Denver.

Those closest to the action say several factors have contributed: historically low interest rates, a pent-up demand for new apartments, the ongoing draw of the university and the incredible growth of Epic Systems, which has surged past American Family Insurance to become the largest private-sector employer in Dane County with more than 6,200 full-time positions.

"The real news is the sheer volume of new units brought onto the local market," says Tom DeChant, a member of the city's Urban Design Commission.

DeChant says nearly all the momentum is coming from the private sector, with developers continually referencing Epic when asked what's driving the luxury downtown apartment market.

"It's not totally surprising that 20- and 30-somethings with education and decent income wouldn't want to live in vinyl-clad Verona and strongly prefer downtown Madison," he says.

Peter Benson, vice president of business banking at Park Bank, says real estate developers saw the amount of vacant commercial or office space around town and changed directions coming out of the recession.

"Investors are turning away from commercial projects to something with a higher demand and a historically lower risk factor, like rental housing," he says.

While the market for existing single family homes has rebounded, more people would apparently prefer to rent a new apartment rather than buy a house or condo. Some saw their parents or friends lose money on their homes or lose them altogether in foreclosure. Others don't want to be tied to a mortgage or simply don't want the hassle of homeownership.

"We're seeing this shift away from single-family homes and condos from young, affluent people who love the quality of life that Madison has to offer, but are not ready to make a permanent commitment," says Brad Binkowski of the development firm Urban Land Interests.

ULI recently opened the 116-unit Seven27 apartments on Lorillard Court near the J.H. Findorff & Son construction company headquarters on Monona Bay. The project features amenities like a dog-washing station, bike repair area, a full gym and party deck with three TVs, Apple TV and Roku, the streaming entertainment device.

Epic employees make up more than a quarter of the tenants at Seven27, Binkowski says, but the mix includes people who work at Google, Lands' End and Promega. The average age is 33 with a household income over $60,000. Many are brand new to the area.

"Fifty percent of the people we lease to at Seven27 are from out of town, out of state or out of the country," says Binkowski.
Although developers are clearly responding to the market for new apartments, some say the city has also made a conscious effort to encourage more development, changing its image from a NIMBY college and government town that "can't put two sticks together" into a place that welcomes and encourages the private sector, too.

"I think there is a new attitude within the Municipal Building, and perhaps in the community, that sees new construction as something potentially good for the city, rather than just something that developers take from the city," says Doug Kozel of KEE Architecture, Inc.

A change in the process started in 2007 when Madison began to update its zoning code to comply with the state's Smart Growth law, which required all municipalities in the state to have updated comprehensive land-use plans and zoning maps to match.

All citizens were encouraged to participate in the meetings that followed. Stakeholders like Capitol Neighborhoods, Inc., and the Greater Madison Chamber of Commerce were heavily involved, in some cases down to a block-by-block review of which types of buildings might go where.

In general, the new city of Madison zoning map is aimed at discouraging urban sprawl while promoting more compact development. It clears up outdated lot lines that made it difficult to renovate homes in older neighborhoods and recognizes newer land uses like "live-work" units and community gardens.

"Our new zoning code and redefined approval process has allowed less controversial construction projects to move smoothly through City Hall," says campus area Ald. Scott Resnick.

But not everyone is ready to give the city too much credit.

"I tend to think the boom is more a reflection of the market responding to past and current conditions than it is of the city proactively driving any progress," says Park Bank's Benson.

Binkowski agrees, saying that despite a lot of talk about a new streamlined approval process, getting a project through the various review panels and past skeptical neighborhood groups can still prove daunting.

"The pendulum might be swinging a bit but the political approval process hasn't changed that much," he says. "What's saving the city is a population that wants to be downtown."
No matter the cause, the changes haven't come without conflict.

Residents in the Dudgeon-Monroe Neighborhood got a taste of the process earlier this year when pushing for alterations to a proposed 4-story, 21-unit mixed-use apartment building at the corner of Monroe and Knickerbocker Streets. The project from developer Fred Rouse, which enjoyed the support of Ald. Sue Ellingson and was narrowly approved by the city council, left many residents angry over what was happening to their beloved neighborhood of single family homes and quiet side streets.

A potentially bigger fight is brewing on the near east side where a proposal to build a 10-story, 190-unit mixed-use apartment project at 722 Williamson St. has run into some staunch opposition over the height, density and amount of parking.

Baldwin Development Group recently reduced the size of the project and has shown a willingness to work with the neighborhood. But more work needs to be done, says Michael Jacob, president of the Marquette Neighborhood Association.

"You can give-and-take a project to death but one with this much impact deserves to hit the sweet spot and I think we'll get there," says Jacob.

As it stands, the project doesn't meet the zoning code and would need a conditional use permit from the Plan Commission to proceed. It also doesn't adhere to an older neighborhood plan that limits building heights on the 600 through 1100 blocks of Williamson Street.

All of the building activity has certainly been a plus for Findorff, which is looking at adding another 20,000 square feet of office space to its 35,000 square-foot headquarters at 300 S. Bedford St. The company has about 150 office employees.

"We were able to hold onto almost all our people during the recession and now we're glad we did," says Findorff president Dave Beck-Engle.

But with more high-end apartment projects in the pipeline, the concern at some point becomes overbuilding. With some of the condos built in the 2000s still unsold — Weston Place near Hilldale, for example, remains less than 70 percent occupied — some are wondering just how many high-end apartment units the city can handle.

In 2013 alone, the city has seen nearly 1,500 housing units added, almost all apartments, with another 2,200 somewhere in the works.

While vacancy rates citywide remain low, the number of units in the pipeline has raised the question of whether developers are heading toward trouble by adding so many new apartments in such a short time.

"I haven't seen any study assessing the total housing demand but you wonder if Madison could slip from under-built to over-built if the apartment boom continues," says Urban Design Commission member DeChant.

DeChant says he's already hearing reports that the apartments at University Crossing, the $100 million redevelopment of the former Erdman headquarters at University Avenue and Whitney Way, are only 30 percent rented.

"This might just be a location issue, or it might be the first indicators of over-supply," he says.

And with more projects coming on line, from the proposed 12-story apartment behind the Hilldale Shopping Center, next to Weston Place, to the long-awaited redevelopment of the 800 block of East Washington Avenue, it's an issue that will certainly be scrutinized