Industrial v Wisconsin

Will Foxconn make southeast Wisconsin hale or frail?

Will Foxconn make southeast Wisconsin hale or frail?,ph1
Left to right: House Speaker Paul Ryan, Foxconn chairman and CEO Terry Gou and Wisconsin Governor Scott Walker.

Last summer, officials from Taiwanese manufacturing giant Foxconn arrived at the beautiful Milwaukee Art Museum overlooking Lake Michigan. While they may have done some sightseeing, they really were there to sign a memorandum of understanding with Wisconsin Governor Scott Walker to create an LCD factory in the Badger State.

The $10 billion facility will be constructed in Mount Pleasant, in Racine County, and should be operational by January 2019. The company has promised to employ 13,000 people, but those jobs don’t come cheaply. On top of the $3 billion in tax breaks that the state has committed, the village and county have finalized a $764 million package to the company.

Before a single shovelful of dirt moved on the project, speculation was rampant on the factory’s impact on the local commercial real estate ecosystem. Will Foxconn drain an already strained labor pool, or will it kick start a stronger industrial sector in the submarket?

“It’s landed in an area where there hasn’t been a lot of local growth. There’s been a lot of growth in Kenosha, but Racine county has lagged a little bit. This is a gamechanger,” said Jerry Franke, consultant to and former president of WISPARK, a Milwaukee-based real estate development firm. “With Foxconn just starting to become a reality, versus a lot of conjecture, I think there’s a lot of tire-kicking going on.”

However, Franke—who is forming a new development consulting firm, Franke Development Advisors, LLC—believes that the market will respond. “I think this summer we’ll start to see more real interest in the support industries that want to be near the Foxconn campus,” he said.

Since there aren’t any recent examples for a development of this nature in this market, it is difficult to predict with certainty what the outcome will be. “We suspect those impacts will change over time—in type and magnitude—as the project gets developed,” said Chad Navis, director of development, Zilber Property Group.

Change might not be immediate and it might wax and wane as the southeast Wisconsin market responds. “At times, there may be an impact on the availability of construction materials and labor,” Navis said. “At other times, there might be few labor force impacts.”

As labor shortage is a concern even without Foxconn, the state of Wisconsin and economic development agency, Milwaukee 7, are pursuing talent attraction efforts. This includes partnering with staffing companies as well as community and four-year colleges.

This may also involve active campaigns to draw people in from Illinois, though that migration has been happening on its own for years. According to the Illinois Policy Institute, an 86,000-person population shift has transpired from Illinois to its northern neighbor over the last decade. Perhaps, however, Foxconn needn’t deplete Illinois of any residents. It’s position roughly halfway between Chicago and Milwaukee puts the site within reasonable commuting distance of both labor pools.

“Racine County has a pretty good supply of available labor, and I think the real unknown out there is how much underemployment there is,” Franke said. “The unemployment numbers look good, but I still think there are a lot of people that would like to have higher level jobs. So I think there is going to be some movement up within the labor pool to fill jobs that have better wages and better benefits associated with Foxconn and its suppliers.”

If the question is will Foxconn ignite the local market, Racine County’s lackluster performance relative to its neighbors may be an indication. Kenosha and Milwaukee Counties have both seen a good amount of development over the past few years. Racine might be ripe to finally play catch up.

“Notwithstanding any near- and mid-term impacts, we believe … that the development will, in the long run, be an economic engine that will result in new industry employment opportunities and spin-off development,” Navis said.

The industrial heritage in southeast Wisconsin has produced a lot of organic industrial development, with local firms expanding into newer facilities rather than a lot of out-of-area companies moving in. Foxconn is most definitely an out-of-area company. Others may hear the bell it has rung and come to the area as well.