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Spec Development: Build it and they will come

An increased demand for space is driving spec warehouse development growth in the area

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December 16, 2022

SHEBOYGAN – A recent groundbreaking in the SouthPointe Enterprise Campus in the City of Sheboygan, officially kicked off the construction of an industrial speculative building – a light- and heavy-industrial use facility – aimed at fulfilling a growing demand.

Mark Schwei, executive vice president of Consolidated Construction, said the project, which is being built strategically located on Horizon Drive, is the result of an ongoing need for available industrial buildings to meet the area’s growth in manufacturing, transportation and logistics and other industries as identified by the New North regional marketing and economic development corporation.

“We, meaning the brokerage community, the economic development community and a number of private businesses, have realized there’s a growing need for additional manufacturing, light industrial and warehousing space in Northeast and North Central Wisconsin,” he said. “We work selectively with communities to try to find which communities feel they have a need and would be willing to help participate in a public-private partnership.”

Schwei said the public-private partnership is what helps get these types of projects off the ground.

“The community usually helps us either with discounted land or some type of (tax increment financing) TIF incentive to help with infrastructure,” he said. “The cost of projects these days are higher than what they were – maybe 30% more than they were a couple of years ago. So, that assistance from the city and their desire to participate is critical to the success of the project in being able to keep our costs in line so we can offer competitive lease rates.”

Schwei said Sheboygan is one of those places.

“Our brokerage partner – NAI Pfefferle – set us up with meetings with the City of Sheboygan,” he said. “They said they could use a launchpad for the South Pointe Industrial Park, and that this building would fill that need. We collectively felt there was demand in the area for space like we are going to provide, and we went out then and raised private equity and debt to fund the project. The city helped us with an incentive package that included discounted land and some infrastructure help.”

Schwei said this project is a great example of a successful public-private partnership.

“As not only the design-builder but also an investor, Consolidated Construction Company is confident in the bullish economy in the manufacturing and industrial sector in the Sheboygan market,” he said. “(It) started with market demand awareness brought forward by the City of Sheboygan and NAI. We look forward to working with local businesses interested in expansion, and it’s also a great project to jump-start the Southpointe Industrial Park.”

Dane Checolinski, commercial real estate advisor with NAI Pfefferle, said industrial space is in high demand and short supply throughout the I-43 corridor, so it’s encouraging to see new space coming to the Sheboygan market.

“This building will be a great fit for manufacturing, warehouse/distribution, assembly and other types of industrial and flex users,” he said.

Consolidated Construction developed the architectural design for the facility and will serve as the general contractor. 

The Sheboygan 100,000-square-foot project, Schwei said, is Phase 1 – which is expected to be completed by June 2023.

He said if tenants want to make changes to the base building, completion on those details could be pushed out to July or August 2023.

He said there is the potential for an additional 100,000-square-foot expansion in the future, for a total of 200,000 square feet.

Schwei said as construction kicks off, those involved are now on a hunt for tenants.

“We’ve had conversations with a number of interested parties that would come into the space,” he said. “The interest ranges from small, industrial manufacturing companies to larger distribution companies that may want the entire facility and additional square footage beyond that. We’re developing 100,000 square feet now. The site can go beyond 200,000 total. So, there is the capability to build larger facilities needed by a user, or a Phase 2 of equal size.”

Wrightstown project
Schwei said the same criteria that put the Sheboygan project in motion also contributed to the construction of a similar facility along County Road DDD just east of Interstate 41 in Wrightstown – which is near completion.

“We’re completing that building this month,” he said. “We’ve just signed one lease at 30,000-plus square feet. We’re in the middle of inking a second lease for 40,000. So, we’ll have about 25,000 of space left, and we’re not even done with the building yet.”

Schwei said discussions are already taking place in regard to a Phase 2 project.

The development allows for the future expansion of an additional 160,000 square feet.

Strong manufacturing industry
Schwei said much of the increased demand can be credited to Wisconsin’s strong manufacturing sector.

“Manufacturing is strong in Wisconsin in general, and North Central and Northeast Wisconsin for sure,” he said. “There’s a number of growing manufacturing companies that are looking for additional space because they built out the property they currently live on. So, that’s the demand.”

Schwei said the leases in Wrightstown are for a refrigeration company that services food industries and an electrical firm that has a contracting and manufacturing business.

“So, these are typical of just homegrown Northeast, North Central Wisconsin businesses that are growing due to the general demand for manufacturing in our area,” he said.

// rendering shows what a 100,000-square-foot spec warehouse development in SouthPointe Enterprise Campus in the City of Sheboygan will look like when completed early next summer. Submitted Rendering

Part of that, Schwei said, is the low manufacturing unemployment rate.

According to the U.S. Bureau of Labor Statistics, the unemployment rate is lower than 2%.

“The truth is, the economy in Wisconsin is still strong in the manufacturing sector,” he said. “They’re still very strong, and they see their future as strong. So, that’s what’s driving (the demand).”

Schwei said part of the success behind projects such as these is equity partnerships.

“One of the interesting things about our projects is we try to bring equity partners that have a vested stake in the success of the entity,” he said. “So in this case, Consolidated Construction is an equity partner and NAI is an equity partner. When you have a broker and a contractor, both of which are large variables in the success of a project like this, we all have the same vested interest in the end, which is to provide a successful project together on behalf of the tenants.”

Schwei said projects like these can also spark other growth in the area.

“What’s interesting is, when you have space available like this, it spurs conversations with businesses that are looking to expand,” he said. “And sometimes the space we have isn’t ideal for what they want, but we are able to help direct them to other land and other types of buildings that would help them. So, there are projects spawning beyond just the project of the speculative buildings, which is pretty nice and is great for the area.”

Schwei said conversations are taking place in other communities, which could lead to additional projects in the future.
“We move around from community to community, we work with economic development directors and we try to understand where future demand is,” he said.

Schwei said one particular aspect that could affect future projects is rising interest rates.

“Eighty percent of this project is funded through a bank and debt, and if the interest climbs too much, then it will force our lease rates to be higher than the market rate,” he said.

Schwei said these projects showcase the Northeast Wisconsin area’s commitment to growth.

“It’s important to create the awareness that the community is bullish about business and pursuing efforts to grow, and it’s important for publicity of the project,” he said. “That’s why we host groundbreakings – to recognize and thank the city for their efforts and participation and to gain momentum for the project.”

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