Benefiting from Wisconsin’s condominium law

Traditionally, real estate ownership has been limited to two-dimensional platted parcels of land, with limited opportunities to stack “vertical ownership” on a parcel. The limitations of two-dimensional ownership make it very difficult to create vertical developments that can be separately owned and financed. The condominium form of ownership allows for three-dimensional, stacked ownership of property interests upon an underlying two-dimensional parcel, which permits great flexibility in providing multiple ownership and financing opportunities.

Essentially, what the Wisconsin condominium law does is allow for the creation of three-dimensional parcels of real property (i.e., “boxes of air”) to be owned, taxed, mortgaged, and used separately and permanently. These three-dimensional parcels can be separately situated within the same building or within multiple adjacent and/or connected buildings on the same block. In turn, these separately owned condominium units could be constructed, financed, leased, managed, and operated independent of one another, even though they are situated within the same encompassing real estate development project.

In addition to separating a property into ownership units, the Wisconsin condominium law allows for the establishment of “common elements,” which are physical spaces, infrastructure, mechanical systems, utilities, and similar types of improvements or real property interests within the condominium development that are deemed owned by all of the owners of units, with the benefits and obligations of such ownership proportionally shared. In addition, some of these common elements may be designated as “limited common elements,” meaning that certain specific units are determined to have the benefits and burdens of ownership and use.

The conventional and more common uses of the condominium law have typically included classic residential high-rise and townhouse condominiums. However, as development trends continue to shift toward in-fill urban development and redevelopment opportunities, the condominium law provides a very flexible and efficient tool for multi-use commercial development projects in which multiple owners desire to own, operate, and finance separate components of a project. Accordingly, projects incorporating a single building or multiple integrated buildings that include retail, office, residential, parking, and, in some cases, publicly owned and used components can be structured through the condominium form of ownership to allow for several distinct ownership units that can be separately operated and managed with varied public and private financing sources. The flexibility afforded by the application of the condominium law often is critical in assisting a developer with addressing the types of construction, financing, use, and operation challenges that can arise in the redevelopment of an urban in-fill site.

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Especially in rapidly growing urban areas like Madison where there are a significant number of in-fill redevelopment opportunities, the condominium law is often used to help shape and structure projects with multiple commercial components and uses. Take, for example, a city block like Madison’s University Square, which is situated at the crossroads of the UW campus and Downtown Madison. This fairly recent redevelopment of a single-story mall takes full advantage of the flexibility afforded by Wisconsin condominium law as it incorporates separately owned and financed units, including private student housing, university office and student resources, a variety of private retail spaces, a public pedestrian walkway, and parking. Other Madison-area developments making use of the Wisconsin condominium law include several blocks of the Capitol Square with office and retail development, commercial and residential projects along the East Washington corridor and State Street, recent hotel developments, and even certain higher education campus facilities and civic spaces.

The condominium law has become an important tool in allowing developers and owners of real property to think creatively about maximizing development and redevelopment opportunities. As the trends of development in the Madison area continue to focus on in-fill redevelopment opportunities and the stacking of multiple uses upon smaller parcel footprints, we can expect that the condominium law will continue to play a critical role in shaping the evolution and growth of Madison as a unique urban area.

Matthew Carlson is a partner and a member of Michael Best & Friedrich LLP’s Transactional Group and Land and Resources Practice Group. His primary practice is concentrated on commercial real estate, including representing clients in sales and acquisitions, leasing, development, construction, land use, and entitlement approvals, and the formation of commercial and residential condominiums. He can be reached at mccarlson@michaelbest.com, (608) 257-7473.

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