VOLUME 35, NUMBER 8
©2019 Real Estate Publishing Corporation
August 2019
Renovations, modernizations powering Minneapolis office market
By Dan Rafter
S
teady. That’s the word Tom Tracy, executive director with the Minneapolis office of Cushman & Wakefield, uses to describe the office sector in his city. And the numbers back him up: In the first half of 2019, the Twin Cities area absorbed about 560,000 square feet of office space.
This doesn’t qualify as a boom. But it is good activity. And, in good news for this sector, Tracy says he expects the Minneapolis-area office market to remain as steady throughout the rest of 2019 and into 2020. “The market isn’t necessarily super robust,” Tracy said. “But we do like that it is steady. There is steady leasing activity in the market. There is a lot of investment sales activity. And there are some exciting projects going on, both new construction and a lot of
redevelopment of older office space. The next 12 months look to be interesting ones for us.” That redevelopment part is interesting. In markets across the Midwest, developers are modernizing older office space. This is important to companies that want to attract and retain the best talent. These companies need offices that look new and have the amenities that today’s workers want. If they can’t offer that? They’ll struggle when Downtown to page 12
Retail Evolution Continues in the Twin Cities By Liz Wolf
T
he state of the Twin Cities retail market appears to be a mixed bag. While some landlords and retailers are successfully figuring out how to meet the consumers’ changing tastes and shopping habits, others are struggling to stay afloat in this ever-evolving retail environment.
“It’s a situation of the haves and have-nots,” says Peter Dugan, a vice president at CBRE’s Minneapolis/St. Paul office, who specializes in tenant representation retail services. “I think the successful retailers are meeting the customer where the customer is -catering to their wants, not so much their needs, but their wants.” A “retail shakeup” has occurred with the rise in online shopping and the downfall of many department stores and big-box retailers.
National retail bankruptcies and store closures impacting the metro have included Sears, Kmart, Herberger’s, Toys “R” Us and Babies “R” Us. However, it’s “far from gloom and doom” since in many cases, national retailers were performing relatively well in the Twin Cities, and many are located in high-demand, high-traffic trade areas, according to Cushman & Wakefield’s July 2019 Compass Report. Retail to page 8
August 2019
Minnesota Real Estate Journal
Featured Stories
AUGUST 2019 • VOLUME 35, NUMBER 8
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Departments PEOPLE ON THE MOVE 4 BREAKING GROUND CLOSINGS
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RENOVATIONS, MODERNIZATIONS POWERING MINNEAPOLIS OFFICE MARKET RETAIL EVOLUTION CONTINUES IN THE TWIN CITIES
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THE GLEN AT VALLEY CREEK TO OPEN IN OCTOBER TO SERVE WOODBURY’S SENIOR POPULATION ON REDUCED, FIXED INCOMES
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GETTING CREATIVE WITH WORKFORCE, AFFORDABLE HOUSING
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Minnesota Real Estate Journal (ISSN 08932255) Copyright © 2019 by the Minnesota Real Estate Journal is published monthly except combined in March & April for $85 a year by Jeff Johnson, 7767 Elm Creek Boulevard, Suite 210, Maple Grove, MN 55369. Monthly Business and Editorial Offices: 7767 Elm Creek Boulevard, Suite 210, Maple Grove, MN 55369 Accounting and Circulation Offices: Jeff Johnson, 7767 Elm Creek Boulevard, Suite 210, Maple Grove, MN 55369. Call 952-885-0815 to subscribe. For more information call: 952-885-0815. Periodical postage paid at Maple Grove and additional mailing offices. POSTMASTER: Send address changes to Minnesota Real Estate Journal, 7767 Elm Creek Boulevard, Suite 210, Maple Grove, MN 55369 ©2019 Real Estate Publishing Corporation. No part of this publication may be reproduced without the written permission of the publisher.
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President | Publisher Jeff Johnson jeff.johnson@resummits.com Vice President | Publisher Jay Kodytek jay.kodytek@resummits.com Chief Financial Officer Todd Phillips todd.phillips@resummits.com Consulting Editor Dr. Tom Musil tamusil@stthomas.edu Conference Manager | Art Director | Graphic Designer | CE Specialist Alan Davis alan.davis@resummits.com
United Properties Appoints Gordy Stofer to New Role as Vice President of Capital Markets United Properties announced today that Gordy Stofer will assume a newly created role within the company as vice president of capital markets, effective Nov. 1, 2019. United Properties created the new role as part of a strategic organizational change based on the growing needs of the business. Increasing use of outside equity partners in the development business led to the need for a position to work primarily on identifying capital partners and communicating with them regularly. In this new role, Stofer will report to Eric Skalland, chief financial and administrative officer, United Properties. As vice president of capital markets, Stofer will be responsible for monitoring capital markets, assisting in sourcing
equity capital for various projects (both development and portfolio assets) and managing capital relationships as a primary representative of United Properties. Stofer will also provide feedback to company management regarding capital market trends, sources, rates and structures, as well as support for decision making and strategy. “We’re pleased that Gordy will be taking on this new and important role at United Properties,” said Eric Skalland. “Gordy brings a unique skill set and wide array of contacts across the Minnesota and Denver markets to the role. He is a natural fit for the position, and we’re thrilled to have him on board.”
Scott Peterson joins United Properties as vice president of hospitality and residential development
August 2019
Properties as vice president of hospitality and residential development, effective Sept. 3, 2019. In this new role Peterson reports to Bill Katter, president and chief investment officer, United Properties Development. Peterson joins United Properties with more than 13 years of residential and hotel experience across various markets. Most recently, he served as senior director of development and construction for CSM Corporation in Minneapolis over a five-year period in which his team executed on more than $200 million of lodging projects, delivering several hundred newly constructed units. Prior to that he held senior construction management and land acquisition roles in the Lake Tahoe, California; Kauai, Hawaii; and Las Vegas, Nevada, markets.
United Properties announced today that Scott Peterson has joined United
EDITORIAL ADVISORY BOARD JOHN ALLEN JEFF EATON MARK EVENSON PATRICIA GNETZ TOM GUMP CHAD JOHNSON BILL WARDWELL JEFFREY LAFAVRE WADE LAU JIM LOCKHART DUANE LUND CLINT MILLER DR. THOMAS MUSIL WHITNEY PEYTON MIKE SALMEN
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Minneapolis Retail Absorption of 344,718 SF Drives Vacancy Down to 7.3% in H1 The Minneapolis retail market saw 344,718-square-feet in positive net absorption in H1 according to a new report by CBRE, driving down the vacancy rate to 7.3%, a 0.3% drop from H2 2018. Overall asking rates fell slightly to $19.24-per-square-foot, a 5 cent decrease from H2. Calhoun and the Ridgedale submarkets continue to be the exception across the metro, with above-average asking rates at $27.68per-square-foot and $26.94-persquare-foot, respectively. “While we have had some recent closures and bankruptcies from junior big-box retailers, several discount retailers have taken advantage of the market and have filled those vacancies,” said CBRE’s Peter Dugan. “Regional malls have also implemented new ways to stay competitive, incorporating new anchor tenants and mixed-use development in their build-
ings.” Despite the onset of online grocery, brick-and-mortar grocery continues to grow and represent the largest retail leases across the Twin Cities, as Cub Foods leased a 46,127-square-foot property in Minneapolis, the largest in H1, followed by the CBRE represented ALDI lease of a 24,998-square-foot property in St. Paul. Aldi is scheduled to have 70 stores in Minnesota by the end of 2019, second only to Cub Foods. There is also more than 1 millionsquare-feet of retail currently under construction, including the 245,000square-foot Scheels store in Eden Prairie, the 185,000-square-foot Twin Lakes Station in Roseville and the 206,209-square-foot Menards in Apple Valley.
Dougherty Mortgage LLC closes Fannie Mae loan for Vista Pointe Apartments Dougherty Mortgage recently closed a Fannie Mae loan for the acquisition financing of Vista Pointe Apartments, a
252-unit market rate multifamily apartment property located in Albany, Georgia. The property includes fourteen three-story buildings, as well as a single-story leasing office/clubhouse and two single-story laundry buildings. Property amenities include a playground, swimming pool, tennis court, volleyball court and fitness center. The 12-year term, 30-year amortization loan utilized Green Rewards and was arranged through a partnership with Pinnacle Financial Group, Inc., a Marcus & Millichap Company.
JLL Capital Markets completes sale of $22.8 million three-building office park in Kansas City JLL Capital Markets experts completed the $22.8 million sale of Executive Centre I, II & III, a three-building office park situated on 14.1 acres and totaling 222,426 square feet in Overland Park, Kansas. The buyer was Kansas City-based Brain Group. ManNews to page 18
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August 2019
The Glen at Valley Creek to Open in October to Serve Woodbury’s Senior Population on Reduced, Fixed Incomes The CDA purchased the 2.3-acre site, quality affordable housing, health care The apartment project leased up quickly, which is a testament to the strong demand which previously had been owned by a outcomes improve, which makes a for affordable housing options for those refuse hauler. The Glen is breathing smarter use of public resources.” Help ease demand for affordable sennew life into the underutilized property. 62 and older. By Liz Wolf
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he Glen at Valley Creek, a 42-unit, affordable senior-housing apartment building, is slated to open Oct. 1 on a redevelopment site in Woodbury. Construction of the three-story, $12.8 million project began in spring 2018. The Glen is located at the intersection of Valley Creek Road, Afton Road and Tower Drive. The developer/owner is the Washington County Community Development Agency (CDA), which owns and operates more than 1,100 units of affordable housing throughout Washington County. The Glen is one of three CDA developments built in the last 10 years aimed at creating more housing options for lower-income seniors to address the lack of supply of affordable rental options.
“It’s an ideal site since it’s close to city hall, the post office, the library, the YMCA, and retail and medical off of Radio Drive,” notes Melissa Taphorn, deputy executive director at the Washington County CDA. To acquire the land, the CDA accessed funding from the city of Woodbury. The development is primarily funded with tax-exempt bonds and tax credit equity from Enterprise Community Investment Inc. Minnesota Housing Finance Agency awarded funding through a new state pilot program focusing on approaches to senior housing that support aging in place/aging in your community. “We’re only one of two developers that were awarded funds [through the pilot program],” Taphorn points out. The other project is the Mysa House in Mora, which is providing 24 units of affordable senior housing for that community. Taphorn adds that “studies show that when individuals move into
ior living The Glen is intended to help ease the demand for affordable, independent living for seniors in Woodbury. The high demand for age-restricted affordable housing primarily comes from the fact that many seniors are living on reduced and fixed incomes. Currently, 30 percent of people in Minnesota age 65 and older live solely on Social Security, according to the Minnesota Housing Partnership. As seniors live longer, there is a growing population of elderly residents who are outliving their assets. Washington County has the second-highest cost burden rate for seniors in the state; 69 percent of seniors pay more than 30 percent of their income toward housing costs. The Glen apartments will be rented to people age 62 and older whose income is below 50 percent of the area median income, which for Woodbury is $35,000 for a one-person household. Six of the apartments, however, are des-
ignated for seniors with rental subsidy. Those units will be below 30 percent of the area median income, which for Woodbury is $21,000. Two of these units will be set aside for veterans. To achieve this level of affordability, debt service had to be limited. Over $3.8 million of subordinate funding from the Metropolitan Council, Senior Care Communities, the CDA, the city and the state was secured, which makes up 30 percent of the total development cost. There’s a strong and growing need for such units, and the project leased up extremely quickly. “Prior to the county’s investment, there were only 61 units available within the city for this type of need, so adding an additional 42 is a significant number,” Eric Searles, senior planner for the city of Woodbury, says. “The demand is very strong, and the city looks forward to identifying other opportunities with Washington County CDA and other partners,” he adds. Washington County’s senior population is projected to grow 84 percent by 2035. The Glen to page 16
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August 2019
Retail
Hot trends to watch Experiential retail is key
From page 1
These spaces are ripe for expanding retailers. Despite recent store closures and bankruptcies, many junior and big-box vacancies are being filled by “both new and existing concepts that seem to be thriving,” notes CBRE’s First-Half 2019 Retail Market Report. Since there are few big-box concepts seeking space, however, many boxes are being split up to accommodate multiple tenants. “The landlords that are doing well are creative in the reuse,” Dugan notes. “If you get back a department store, and you’ve got three or four junior boxes that want to get into your mall, you cut it up and now fill it that way.” Recent examples of expanding retailers backfilling space include Aldi, Xperience Fitness, Hobby Lobby, HOM Furniture and Sierra Trading Post. And new retailers continue eyeing the market, says David Daly, senior vice president of retail brokerage at CBRE. He’s been giving tours to retailers trying to identify locations. “Some are new to the market while others are in the market and totally reinventing their store program,” Daly notes. “The good retailers are not getting stagnant.”
Peter Dugan
David Daly
Some data In the first half of 2019, the retail vacancy hit 9.7 percent – the highest in nine years – Compass reported. However, fewer big boxes came back to the market. Only one significant big-box vacancy occurred in community centers, and in mall space, Sears closed at Mall of America and in St. Paul. (More recently, Walmart and Kmart both announced store closures in St. Paul’s Midway). Meanwhile, CBRE reports that roughly 1 million square feet of retail space is under construction and the net
Riverside, Minneapolis
asking rate is $19.24 per square foot. The product type that performed best in the first half was neighborhood centers with a positive absorption of 215,000 square feet, according to Colliers International | Minneapolis-St. Paul’s Second-Quarter 2019 Retail Market Report. Non-traditional users were the largest contributor to positive gains in neighborhood centers, which included medical and storage users.
One big trend occurring is landlords are filling big-box vacancies with alternative uses and experiences that shoppers can’t find online. Restaurants, fitness, co-working, food halls, medical, grocers and entertainment are all seen as alternatives to e-commerce. The Compass Report cites examples like Rosedale Center adding SeaQuest aquarium in the former Ruby Tuesday’s space. Scheels is redeveloping the former Sears site at Eden Prairie Center. Life Time is building an upscale health club/co-working space in the old JC Penney space at Southdale Center, and Mall of America is planning a massive water park. Another trend is Class A malls are expanding into mixed-use concepts by developing housing, entertainment, restaurants, office space and hotels in their underutilized parking lots.
Retailers still rightsizing “There’s a whole lot of right-sizing going on,” says Deb Carlson, a director in the Twin Cities office of Cushman & Wakefield. Retailers are rightsizing their brickand-mortar stores, which is fueled by Retail to page 10
Uptown, Minneapolis
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Minnesota Real Estate Journal
to be entertained.” Retailers like Home Goods, TJ Maxx and Burlington sell overstock, closeouts, last season’s products, overruns and returns from other apparel companies. Part of their appeal is the hunt, Carlson says. “If I don’t grab it today, it’ not going to be here tomorrow,” she notes. “It’s terribly entertaining. That’s part of the reason those formats do so well.”
Retail from page 8
several factors including their focus on omni-channel strategies. Some retailers may want to get out of a location and consolidate two locations into one, reducing their footprint in a market, Carlson notes. Kohl’s is an example of a retailer shrinking some store locations nationally and leasing excess space to Planet Fitness or Aldi. Kohl’s also has a partnership with Amazon in which it will accept Amazon returns. All of these strategies are devised to help drive traffic to its stores.
Retailers presence
expanding
Lack of large-scale development
omni-channel
Retailers that take a “two-pronged approach to brick-and-mortar stores as well as online sales have a much better chance of success,” CBRE reports. Traditional retailers recognize they need an e-commerce presence and are working to build an omni-channel platform that delivers a “seamless customer experience,” Compass notes. This is particularly important for retailers targeting millennials and younger generations. “Keep watching those retailers that aren’t doing both brick-and-mortar and internet together well,” Carlson says. “If you can’t do both well, your odds of
August 2019
Deb Carlson succeeding go way down.” Meanwhile, the market is also seeing more “clicks-to-bricks” retailers opening physical stores including Love Your Melon, Untuckit, Warby Parker, Casper and Bonobos. Meanwhile, Tie Bar, Frank & Oak and Everlane are reportedly looking for Twin Cities locations.
Who’s hot and expanding? Internet-resistant, daily-needs retailers like grocers, fitness concepts, medical users, service retailers, value retailers and fast-casual restaurants are fueling leasing activity, reports Cushman &
Terese Reiling-Holden Wakefield. Expanding value retailers and offprice players include TJX’s concepts, Ulta, Five Below, PetSmart, Aldi, Total Wine, Pet Supplies Plus and Sierra Trading. “The value players still seem to be doing just fine,” Carlson notes. “If you want to look at the growth factor in all of this, it’s still the value player.” Part of the attraction for consumers is the “treasure-hunt” experience. “Part of it is we want to save a buck,” Carlson says, “but part of it is consumers are lazy and bored and they want
No large-scale, greenfield retail developments are on the horizon, except Avienda in Chanhassen, which is on hold, and a new Lunds & Byerly’s in Apple Valley, Compass reports. The lack of available prime land near population centers, the complexity of doing these big developments, and the fact that there are fewer large retailers that want to anchor them are factors behind this lack of big-scale projects, Dugan points out. The rising cost of new construction is also a significant challenge, Daly adds. “There are also huge challenges with the labor shortage, and obviously with some of the tariffs, and land prices have risen,” he says. Developers are having a difficult time justifying new construction, and ultimately, creating a margin that they can retail to next page
August 2019
bring that cost to the retailer through rents. Much of the construction occurring is “reimagining current space,” Daly points out. For example, Kraus-Anderson plans to redevelop Southtown Shopping Center in Bloomington after anchors Herberger’s and Toys “R” Us vacated the center. Plans call for a mixed-use development that could include entertainment and a mix of smaller retailers. Also, smaller, mixed-use redevelopment with ground-floor retail/commercial under apartments or office space is a growing trend.
The emergence of the 'amenity lease' In urban markets, where there’s significant mixed-use development occurring, landlords, owners or developers looking to attract one-of-a-kind tenants to their office buildings or upscale mixed-use apartment developments have a new tool: It’s called the amenity lease, and it’s a new-to-market concept quickly gaining momentum in the Twin Cities, says Terese Reiling-Holden, vice president at Colliers International | Minneapolis-St. Paul. Reiling-Holden says it’s a way for these new projects to land a unique, local retail tenant or restaurant that dis-
Minnesota Real Estate Journal
tinguishes the building’s brand and contributes to lease-up by increasing the value of the project. It could be a successful, local chefdriven restaurant concept or high-end fitness concept, for example. “We’re seeing landlords approaching successful, local tenants that offer a certain vibe, an amenity and a destination,” Reiling-Holden notes. “These tenants contribute a hip factor and ambience to the overall project, and are considered more of a component of the overall project. Reiling-Holden explains that an amenity lease is when a landlord or developer pays for the majority of buildout costs for the user that they want in the project. “The tenant doesn’t have to pay the huge capital costs to get into the space,” she says. “The landlord covers these costs as part of their capital budget, and the tenant and landlord often work together on a mutually agreeable concept. The tenant pays rent, but it’s often a lower market rent or a combination of percentage plus a lower base rent. In exchange, the tenant brings their unique concept to the project and operates the business.” Reiling-Holden notes that’s a big change for a landlord to pay out of pock-
et for all of the capital costs – not the tenant. But adding a unique, stand-out amenity to a building elevates the profile and helps to attract new tenants, she adds.
Shorter leases/pop-ups Many landlords are becoming more flexible with space, including smallerformat stores and pop-up shops. Some retailers are seeking shorter-term leases and early termination clauses to test a market without an expensive commitment. “Because retailers are trying to constantly stay in front of trends, and it’s tough to see what the market will be in five years, they’re looking for shorterterm deals,” Daly notes. He says it’s difficult to adapt to the market or adjust stores if retailers are locked into longterm leases.
The ‘watch list’ Despite progress, additional shakeout is expected. The “watch list” of possible closings includes JC Penney, Lowe’s, Cost Plus World Market, Pier One, H&M, Forever 21, and Bed, Bath & Beyond, Compass reports. Specialty retailers include Gap, Charlotte Russe, Victoria’s Secret, and Abercrombie and Fitch.
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Global marketing research firm Coresight Research predicts there could be 12,000 store closures nationally by the end of this year. The local market is still feeling the effect of national closings, but it has slowed. More closings, however, are expected. “This year for the most part – retailers and all of us around retail -- will be happy with the year,” Carlson says. “But we’re all a little nervous as to what’s going to happen next year. When you look at the economic indicators, they’re softening a little bit.” Carlson says 2020 will be a “watchand-see year. Things are softening and everybody is a little more tentative,” she notes. She says retailers are really watching their sales and their bottom line. “I don’t think it’s going to be a recession, but I think everyone is nervous about it,” Carlson adds. “Decision-making has become more tentative.”
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Minnesota Real Estate Journal
August 2019
Downtown From page 1
competing for the best workers. That’s why there is so much office redevelopment activity taking place in and around downtown Minneapolis today. Tracy calls them “existing properties that have been reimagined and established as almost new properties.” Fifth Street Towers, a two-building office property in downtown Minneapolis, is a good example. A twoyear renovation project ended at the towers in 2017. The 1.1-millionsquare-foot property received largescreen TVs, an amenity floor, lounge space, a bar that can be rented, new conference rooms and a wellness center. That wellness center includes napping pods for employees who need a brief break from the work day. The Baker Center, a four-building complex also in downtown Minneapolis, received its own renovation. It included the addition of a media wall, two-story entry atrium and a rooftop deck that offers panoramic views of downtown Minneapolis. The new fitness center that is part of an entire amenity floor is a highlight of this modernization project. Expect more of this. Wildamere recently purchased the two-tower Oracle & International Center in down-
town Minneapolis and is planning its own upgrades to this iconic property. Lingerfelt Commonwealth Partners earlier this year purchased Two22, a 730,000-square-foot, 42-floor office tower in Minneapolis. Lingerfelt is planning renovations to this 1985 property. “There is a whole slew of new redevelopments planned for Minneapolis because of recent office sales,” Tracy
said. Also earlier this year, Starwood Capital Group purchased the 57-story Wells Fargo Center in downtown Minneapolis, spending $315 million to do so. Starwood plans its own renovations for this building, one that will add modern amenities to the space. “They will be changing the look and feel of that lobby,” Tracy said. “Right now, it has the feel of a big, open bank
lobby. Starwood is looking to change the perception of that building in town. These are all exciting projects for our city.” Is this normal activity for downtown Minneapolis? Maybe not. Tracy says that the number of redevelopment projects in the city’s office market is higher than usual. There isn’t as much groundup development taking place here, but Downtown to page 14
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Downtown from 12
the redevelopment projects will change the local office market. “When you talk about the square footage in office space that has either seen redevelopment or is in the process of being redeveloped, there is a lot of activity,” Tracy said. “These redevelopments are almost like adding new buildings to the market. It creates competition. It creates a movement of tenants. There is new interest from tenants about what is happening in the market.” What new amenities do the owners of these office properties need to add to attract tenants? Tracy says that is becoming difficult for owners to set themselves apart today. That’s because there are so many redevelopment projects now taking place. Tracy says that five years ago, if you added a fitness center, tenant lounge and comfortable lobby, your office renovation would have stood out and attracted the attention of potential new tenants. As Tracy says, you would have been one of the few renovation projects in town. “The opportunity now is to continue to evolve the amenities you offer and how those amenities are incorporated into your office building,” Tracy said. “You will continue to see some of the same amenities and features going forward. But what is your take on those?
What look and feel and vibe are you trying to create?” Tracy says that today’s office tenants do want spaces that are comfortable. But they also want these spaces to sophisticated. This doesn’t mean formal or overly luxurious. But companies want space that is at least somewhat sophisticated, space that makes it clear that this is an office in which people are coming to work, that the building is a place of
commerce. Tracy says that he expects the Minneapolis office market to remain a busy one, and that the area will see a steady flow of office absorption in the coming months. In the first half of 2019, the Minneapolis CBD absorbed 207,000 square feet of office space. Tracy said that he expects that number to increase slightly in the second half of the year and
expects to see up to 500,000 square feet of absorption in the sector for all of 2019. “That is typical of the last couple of years, and I don’t see any reason why this pace wouldn’t continue,” Tracy said. “Based on the health of the market, I don’t see why that wouldn’t happen.”
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Minnesota Real Estate Journal
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Getting Creative with Workforce, Affordable Housing By Marsha Goff, Executive Vice President of Merchants Capital in Saint Paul According to a May 2019 report by the Family Housing Fund, there is a lack of affordable housing in the Twin Cities area and, if the shortage isn’t addressed, could impede the region’s ability to maintain our high quality of living, as well as attract new businesses and build up its future workforce. While there is no silver bullet, there are many innovative ways to open doors to attainable homes, reduce cost burdens for families in our community and solve this expanding need. Below, find three key examples of how lenders have brought creativity to workforce and affordable multifamily housing developments in our region.
The Redwell One new complex, dubbed The Redwell, provides affordable housing to the North Loop – one of the hottest and highest rental rate neighborhoods in Minneapolis. In addition to providing mixed-use, affordable housing
in this booming district, the new development is located near mass transit stations and has nearby access to the interstate and intersects several trails and parks along the Mississippi River. The development was structured with $16 million in construction and permanent financing through a Fannie Mae Mortgage-Backed Security (MBS) as Tax-Exempt Bond (M.TEB) Forward loan. The M.TEB loan, the first ever with Hennepin County Housing and Redevelopment Authority as bond issuer, had the lowest permanent rate to date for the M.TEB program. Creative in nature, Fannie Mae’s MBS as M.TEB is considered a “onesize-fits-all” bond solution. By combining the ease of the MBS execution with all the benefits of tax-exempt bonds, borrowers get a lower interest rate and significant savings over the life of the loan. This execution can be used to finance the new construction and rehabilitation of Multifamily Affordable Housing (MAH) properties. The unique structure of this loan
was an enjoyable challenge for all parties, including the city and county partners who worked alongside Merchants Capital and the developer for this project. The ability to close within a tight timeframe to meet bond requirements, and also bifurcate the commercial component to meet the Low-Income Housing Tax Credits (LIHTC) investor requirements, allowed the development team to break ground on this much-needed affordable housing project faster.
Hyacinth Apartments Located in Saint Paul, the Hyacinth Apartments provide 52 units of workforce rental housing. The project is a naturally occurring affordable housing (NOAH) offering studio, one bedroom and two bedroom apartments with a mix of 30% Area Median Income (AMI), 40% AMI and 50% AMI affordability. Prior to the acquisition and refinance, the property was not subject to any rent restrictions or regulatory agreement and was being marketed as a value-add property, with potential for loss of affordability with a sale. The new owner purchased the property with the intention of maintaining affordability. Merchants Capital assisted the new owner in obtaining Freddie Mae financing, working collaboratively with The Greater Minnesota Housing Fund (GMHF). The financing of Hyacinth Apartments was unique in the fact that the transaction was part of the first phase of the GMHF NOAH Impact Fund, a public-private philanthropic partnership established to preserve NOAH in the area. The fund has two goals: bring new resources to affordable housing and create a replicable model. Funders include three community banks, state government, local government, philanthropic organization and sponsor. These funders provided $25 million to invest in NOAH properties and another $7.5 million for credit enhancement. As part of the refinance, the owner was able to leverage financing, keep units affordable via a long-term Regulatory Agreement, and benefit from the lower interest rates provided by the Freddie Mac Targeted Affordable Housing (TAH) program.
Technology Park Apartments The 164-unit Technology Park Apartments in Rochester, which Merchants Capital and other partners broke ground on earlier this year, is the first-ever development to be funded with this loan product in the state of Minnesota. Freddie Mac’s Non-LIHTC Forward loan is “an unfunded, forward commitment for affordable housing developed by nonprofits and subsidized, rent-restricted affordable housing developed by for-profit
developers for new multifamily construction or substantial rehabilitation.” The product is creating quite a buzz among the broader housing sector, as it reduces the amount of unknown variables for developers and gives them the tools needed to reduce the shortage of affordable housing. Essentially, this loan program allows developers to secure favorable terms for affordable and workforce housing projects. “We appreciate the opportunity to assist in the development of this housing community and the chance to help close Rochester's affordable housing gap,” said Michael R. Dury, president of Merchants Capital in a statement about the project. “We were able to simplify the process with our ability to provide the construction financing through our parent company, Merchants Bank, and also offer the Freddie Mac NonLIHTC Forward Commitment product for the long term permanent financing.” As a region, opportunities to create jobs in desirable locations with sufficient housing choices for potential workers will be key to our economic competitiveness. The creativity of lenders, along with public-private partnerships, are a crucial component of this. The problem of housing affordability is complicated, and Merchants Capital appreciates the opportunity to assist in closing the gap. We recognize more workforce and affordable housing developments – and innovation within those developments in terms of financing and other offerings – is the solution to the nation’s multifamily housing crisis. Marsha Goff is the Executive Vice President of Merchants Capital in Saint Paul. Merchants Capital is a multifamily, affordable, and healthcare lender offering a direct way to access fixed rate, long-term, nonrecourse financing via its bank, Merchants Bank of Indiana, all with a single point of contact.
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August 2019
The Glen from page 6
Taphorn notes, “The CDA is very focused on communities reaching their goals, and in this case, helping the city of Woodbury reach their senior-housing affordability goal. We want to try to find a way to serve our senior population who are on fixed incomes, which is usually very low, and who want to age… and thrive in their community.” The project’s design The Glen was thoughtfully designed to meet the needs of independent seniors as their needs evolve over time. “One of the big focuses of this project was on aging in place,” explains Michelle Baltus Pribyl, a principal at St. Paul- based Cermak Rhoades Architects, the project architect. “It’s independent living, but there’s a whole range of abilities of folks that might be living there, and that range of abilities can change for individuals over time,” she says. “We really looked hard at different ways of addressing that and
accommodating people’s different abilities, so they can stay here as long as they like and as their health allows.”
One significant focus of design was promoting social interaction, Baltus Pribyl says.
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Amenities include an activity/family room where residents and their grandchildren can do arts and crafts; a community room to host larger gatherings for holiday meals, book clubs or game nights; a fitness room, a front screenedin porch; a reading room with a fireplace; and a welcoming lobby. Also, outside the building are landscaped areas and walking paths. Lighting was another focus. “Sometimes extra lighting is needed as people age as they might have sight issues,” Baltus Pribyl points out. Cermak Rhoades Architects installed large windows in the units and also in the hallways and stairways for daylight, in addition to extra decorative lighting in the hallways. The architect also addressed way-finding. Since all three floors are laid out identically, they gave each floor a unique identity by using different accent colors. Wide hallways include handrails and seating areas to gather or rest. Inside the units, design features include in-home laundry, walk-in closets, and wide doorways that can accommodate walkers and wheelchairs. Bathrooms include grab bars, showers with handheld faucets and seats, and vanities with roll-under space. In kitchens, instead of base cabinets with deep shelves, there are pull-out drawers for easier access. The facility also has a covered dropoff area at its entrance and underground parking. “We’re very excited about this project,” Taphorn says. “It takes a lot of partnerships including the city, the county and the community.”
August 2019
News from page 3
aging Director Steven Buss handled the sale on behalf of Minneapolisbased Onward Investors. Executive Centre I, II &; III is 81 percent occupied with 93,000 square feet of new leases in the last 24 months. The buildings were constructed between 1981 and 1983 and benefited from a 2016 renovation including upgraded common areas and amenity spaces, new landscaping and signage, and a new 1,153-square-foot fitness center. “Executive Centre has a prime location at I-435 and Metcalf in the marketleading College Boulevard submarket,” said Buss. “The new owner has opportunity to capitalize on the recent renovations and leasing momentum to bring the property to a stabilized occupancy.”
Founders Properties, L.L.C. Launches Fifth Real Estate Investment Fund to Further Expand its Offerings in Growth Markets Founders Properties, L.L.C. announced the purchase of three properties as part of the company’s newly launched Income Fund V, which focuses on stable, core and core+ industrial and office properties throughout the United States. Income Fund V will target $80-$125 million worth of equity investments. The first three acquisitions, two industrial buildings and an office building located in North Carolina and Indiana, serve as the inaugural milestone for the fund, totaling $36 million and approximately 368,646 in square footage. “These three acquisitions perfectly fit our existing portfolio of investments and have allowed us to officially kick off fundraising efforts for our next income fund,” said Chris Courneya, vice president of investments and acquisitions. “We feel confident about the long-term stability of all three assets and they complement our overall investment strategy of diversification across multiple strong growth markets.” The purchases consist of two properties in North Carolina, Spring Forest
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Business Center, a 156,036-squarefoot office building located in Raleigh, and Keisler, a 149,987 square-foot industrial building located in Conover. The third property acquired for this fund is located in Indiana, Vincennes, a 62,623-square-foot industrial building, in Indianapolis. Notable tenants include, Mednax, Inc., Allstate Corporation, and Essity AB. Over the next three years, Founders’ goal is to purchase between 15-20 property assets to complete Fund V, with a focus on investing in growth markets and the right blend in assets that will generate a long-term, stable income stream. These recent acquisitions mirror Founders’ foundational investment strategy, centered on an overall goal of portfolio diversification, and stability of industrial and office assets.
Exciting Changes at Minnetonka Office Building The Ridgehill The Ridgehill Professional building is experiencing a number of exciting changes this year. Physical changes include a recent lobby upgrade, reworking of the entry drive including a new parking lot and a new monument sign to be installed in September. Tenant changes include a new 5 year lease with Learning Strategies, Inc., an expansion of Finale’ Hair Removal and Facial Rejuvenation to include the new Advanced Aesthetic Laser Training center, a newly constructed rehabilitation facility for NovaCare as they relocate within the building, and a new lease with Stauber CPA. Additionally, Engstrand Family Dentistry has operated their office here for over 25 years. There is currently over 11,000 square feet of prime first floor space that the owners are looking to fill which will bring even more changes. The Ridgehill Professional building is located at 2000 Plymouth Road across from Ridgedale in Minnetonka.
Titan Development & Investments and The Opus Group® Announce Completion of The Maven on Broadway
Titan Development & Investments (Titan) and The Opus Group (Opus) announced today the completion of a 154-unit, mixed-use apartment and retail development in Rochester, near the Mayo Clinic’s main campus. This project was designed to meet the increasing demand for multifamily housing options in the vibrant downtown core. The building offers a mix of units ranging from studios to penthouses, including 20 furnished units. Tenants have access to various amenities including a green roof space with a swimming pool and fire pit; a club room; fitness center; lounge; roof top deck; tenant storage, dog wash and bike storage. The mixed-use building also has 9,000 square feet of available ground-level retail space. “We’re thrilled to deliver a new, modern multifamily living option in the core of a global medical destination that fosters Rochester’s growth,” said Nick Murnane, director of real estate development at Opus. “The city, DMC and all stakeholders involved were key to the success and timeliness of this new mixed-use building in the community, which has experienced strong preleasing activity.” As part of the City of Rochester’s Destination Medical Center (DMC) initiative, this project will serve the broader vision to create a truly integrated downtown community. The DMC initiative is a public-private partnership to position Rochester as the world’s premier destination for health and wellness. The DMC (www.dmc.mn) is the largest economic development initiative in Minnesota and one of the largest in the nation. “The support shown by DMC and the city of Rochester has been incredible and we are thankful for their partnership to help make this project a reality,” said Andy Chafoulias, CEO of Titan. “It has been great to see the community’s excitement about how the unmatched upscale amenities of The Maven are helping transform the downtown area and meeting the luxury market demand.” Opus and Titan were the co-developers of the project, and Titan provided
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the construction management. Opus was the design-builder, interior designer, architect and structural engineer of record.
Elevate at Southwest Station Apartments is Now Open in Eden Prairie Timberland Partners, a privatelyowned real estate investment, development and management firm, has announced that Elevate at Southwest Station Apartments in Eden Prairie is now open. Elevate features 222 contemporary studio, one-, two-bedroom, and penthouse apartments, located steps from the SouthWest Station Metro Transit Center and the planned SouthWest Station LRT stop for the Green Line extension. The project also includes just over 13,000 square feet of retail space, offering a variety of restaurants, retailers and services. It will also be home to Brick & Bourbon craft bar & eatery, which is hoping to open by the end of the year. “Elevate is a true example of transit orientated development. A mixed-use, mixed-income project that contains great connections to not only transit, but also to parks, biking trails, area employers and entertainment,” said Ryan Sailer, Vice President of Development with Timberland Partners. “It’s a great addition to Eden Prairie, but more importantly it provides our residents a home that is as convenient as it is luxurious.” Elevate residents will enjoy a rooftop courtyard overlooking Purgatory Creek Park with pool, outdoor kitchen and bocce court. Additional amenities include a community room, family game room, co-working space, package center, heated indoor parking with bike storage, playground, indoor/outdoor dog run, and pet spa. The fitness offerings include a yoga studio and fitness center with the latest cardio, strength, and CrossFit equipment, in addition to a virtual fitness ondemand studio.
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August 2019
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