VOLUME 30, NUMBER 5
Š2014 Law Bulletin Publishing Co.
May 2014
Industrial REITs continue their strong performance Minneapolis market one of the stronger
By Dan Rafter, Editor
R
EITs are performing well these days, something that comes as no surprise to David Harker, executive vice president for the central region of First Industrial Trust. Harker says that prices for industrial properties continue to increase. At the same time, demand for modern industrial facilities is on the rise, he says. Cap
rates continue to be at record lows. In other words, it's a good time to invest in industrial real estate. And it's a particularly good time to invest in markets like Minneapolis and Chicago, ones that Harker says are particularly strong today. "The fundamentals in industrial real estate are very good," Harker said. "That is why so many investors are looking at this sector. The vacancy rates in industrial are low. I'd say the industrial vacancy rate in the Chicago market is probaREIT to page 21
Wayne Schiferl: Helping developers bring affordable housing projects to Minnesota By Dan Rafter, Editor
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ayne Schiferl, a tax partner in the construction/real estate group of accounting firm Baker Tilly Virchow Krause, LLP, has extensive experience in affordable housing and real estate land development. Schiferl also boasts a deep understanding of what it takes to plan for affordable-housing projects and is skilled in the use of the Low Income Housing Tax Credit to help bring more of these projects to Minnesota. Schiferl recently spoke to Minnesota Real Estate Journal from his office in Minneapolis about the help he and his fellow real estate accountants can bring to developers. Minnesota Real Estate Journal: How did you get involved in the real estate end of accounting?
Wayne Schiferl: It happened by default, as most things happen. I grew up in a real estate family. I went to school to become a CPA. After graduating, I went to Arthur Anderson where I was put on the real estate group. That was in 1988. I spent five years on the real estate group, up to 1991. That was probably, if you remember, the worst time to be in real estate. I learned all I
Schiferl
could there and moved on to a niche real estate accounting firm. It was a small firm with big clients. I spent a lot of time there structuring multi-family and Section 8 deals. I spent a lot of years learning and honing my skills there. About seven years ago, my firm merged with Baker Tilly. We have a great affordable-housing practice now. We deal with the whole lifecycle of real estate, from finding equity and debt to helping with structured transactions. We work on new-construction consulting. We help clients maximize the value of their properties. We help clients with exit strategies if they want to exit their properties. We work on refinancing opportunities for clients who want to take the cash flow out of these properties or improve the cash flow in them. From inception to exit, we handle all of the Schiferl to page 23
May 2014
Contents
Minnesota Real Estate Journal
Departments
MAY 2014 • VOLUME 30, NUMBER 5
1
Page 3
INDUSTRIAL REITS CONTINUE THEIR STRONG PERFORMANCE MINNEAPOLIS MARKET ONE OF THE STRONGER
PEOPLE
4
NEWS
6
RESOURCE GUIDE
22
WAYNE SCHIFERL: HELPING DEVELOPERS BRING AFFORDABLE HOUSING PROJECTS TO MINNESOTA 14
BMO HARRIS’ PETROVSKI: READY TO BUILD ON SUCCESS
16
SAVING MONEY BY REDUCING WATER CONSUMPTION
18
NAIOP MEMBERS AND THEIR BUSINESS TENANTS CHALK UP TWO BIG WINS IN 2014 SESSION
22
MUNICIPAL CONSTRUCTION TAKING OFF IN THE TWIN CITIES, UPGRADING AND EXPANDING PUBLIC SPACES
23
RECENT APPELLATE DECISIONS REQUIRE PROMPT GOVERNMENTAL DECISIONS ON BROADER VARIETY OF APPLICATIONS RELATING TO ZONING
The Minnesota Real Estate Journal (ISSN 08932255) is published monthly for $85 per year by Law Bulletin Publishing Company, 13400 15th Ave North STE C, Plymouth 55441. Phone: 952-885-0815. Periodicals postage paid at Minneapolis, MN. POSTMASTER: Send address changes to Minnesota Real Estate Journal, 415 State Street, Chicago IL 60654. Lanning Macfarland, Jr. chairman; Sandy Macfarland, CEO; and Brewster Macfarland, president. Back issues $10.00. Subscriptions are non-refundable. For more information call 952-885-0815. ©2014 Law Bulletin Publishing Co. No part of this publication may be reproduced without the written permission of the publisher.
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Minnesota Real Estate Journal
May 2014
People a division of Law Bulletin Publishing Co.
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Publisher | Managing Editor Jeff Johnson jjohnson@rejournals.com Associate Publisher Jay Kodytek jkodytek@rejournals.com Consulting Editor Dr. Tom Musil tamusil@stthomas.edu Conference Manager Alan Davis adavis@recg.com
EDITORIAL ADVISORY BOARD JOHN ALLEN Industrial Equities ROBERT ANGLESON Navigator Real Estate RICK COLLINS Ryan Cos. US Inc. JEFF EATON Cushman & Wakefield/NorthMarq MARK EVENSON ULG Equis PATRICIA GNETZ US Bank TOM GUMP TAG Consulting JON HEMPEL Hempel Properties DAVID JELLISON Liberty Property Trust CHAD JOHNSON Hellmuth & Johnson BILL WARDWELL Colliers International GEORGE KLUEMPKE Braun Intertec JEFFREY LAFAVRE CBC Griffin Companies WADE LAU Founders Properties MIKE LE JEUNE Fabcon JIM LOCKHART WIPFLI DUANE LUND Exchange Realty PATRICK MASCIA Duke Realty Corp. CLINT MILLER Cushman & Wakefield/NorthMarq DR. THOMAS MUSIL University of St. Thomas WILLIAM M. OSTLUND CBC Griffin Companies WHITNEY PEYTON CB Richard Ellis MIKE SALMEN Transwestern STEWART STENDER Stewart Capital Partners
a division of Law Bulletin Publishing Co. 13400 15th Ave North Suite C Plymouth MN 55441 For information call 952-885-0815
Ackerberg Adds Staff at Calhoun Square The Ackerberg Group announced that they have added two new staff members at the recently acquired Calhoun Square, located at 3001 Hennepin Avenue, in the Uptown area of Minneapolis, Minnesota. Angela Richter has joined the firm as Property Manager for Calhoun Square, a 170,521 square foot shopping center. Angie is responsible for daily management of Calhoun Square, communicating with the department personnel, tenants, owners and service providers. She takes a proactive approach to property management, team development, risk management, tenant retention/relations, budgeting, rent collections and concise reporting play an imperative role in her continued success. Angie has more than 12 years of experience in commercial property management and has managed over 1.5 million square feet of industrial, office and retail properties for Welsh Companies/Colliers International and NAI Everest. Brian Trinh has been hired as the Marketing Manager for Calhoun Square. With over seven years of experience, he has earned numerous awards for his innovative and creative projects. After graduating from the University of Iowa, Brian returned to Minneapolis to pursue and develop his passion for marketing. He developed successful marketing strategies through collaboration, strong leadership, and a drive to succeed. By utilizing consumer research to develop winning strategies, he has been able to create game changing strategies to target and capture audiences that traditionally ignore typical marketing strategies. Brian has served on the board of directors for the MN American Marketing Association and Aegis Foundation.
The Opus Group® Announces Appointment of Christy Lewis as Director of Business Development The Opus Group (Opus) announced today that Christy Lewis has been hired for the newly created position of director of business development of Opus Design Build, L.L.C. In her new role, Lewis will be responsible for the organization’s business development strategy and will build
relationships with clients, consultants and industry contacts to support the company’s business objectives. “We’re extremely pleased to add Christy to our team,” said Dave Bangasser, president and CEO of Opus Design Build, L.L.C. “Her strong background in sales and business development as well as her extensive network of industry relationships will be assets for our organization as we continue to expand our portfolio of work, particularly in the area of third-party construction.” With nearly 20 years of experience in commercial sales and marketing, Lewis comes to Opus from Doran Companies Construction, where she was director of business development. Other previous professional experience includes roles at Hallmark Building Supplies and Facility Systems, Inc. “This position allows for unique opportunities to expand Opus’ business by demonstrating the value of an integrated design-build team,” said Lewis. “I’m looking forward to bringing these opportunities to the table and expanding on the strong partnerships Opus already has in place.” Christy Lewis studied business management and marketing at Mankato State University. She is a member of several industry organizations, including NAIOP, the Commercial Real Estate Development Association, Minnesota Commercial Real Estate Women (MNCREW), the Institute of Real Estate Management (IREM), and Minnesota Shopping Center Association (MSCA).
CSM Corporation Promotes John Ferrier to Vice President Architecture 12-year Company Veteran Set For Expanded Design and Leadership Duties CSM Corporation today announced it has promoted John Ferrier to vice president, architecture. Ferrier will continue to lead the design aspects of all CSM business lines including commercial projects and residential and hotel architectural projects, as well as manage the architectural team. In his new role, Ferrier also will be involved in the organization’s corporate leadership and strategic planning initiatives, and he will continue to be a key contributor to its Lean Team and Leadership Council. Ferrier joined CSM as a project archi-
tect in April 2002, and he was promoted to director of architecture in 2008. He played a pivotal role in the design of major projects including the Lexington Preserve IV, and the remodels of Bonaventure Shopping Center and the Burnhill Plaza Shopping Center. The LEED-accredited professional also developed the organization’s Sustainable Design Guide, which is used to outline strategies for energy-efficient, sustainable design. “John has provided CSM with a high level of design excellence for more than 12 years,” said Andy Deckas, president of commercial properties, CSM. “He is a true professional who will continue to drive our architecture capabilities and lead our organization from a strategic design perspective.” Ferrier has earned many award recognitions during his tenure at CSM. His designs have garnered several Commercial Real Estate Development Association (NAIOP) Awards of Excellence, the Minneapolis/St. Paul BusinessJournal’s Best in Real Estate Award and, most recently, the STARR Award for Renovation/Interior Remodel. In addition, Ferrier has received the CSM Award for Outstanding Achievement in 2008 and the CSM Award for Outstanding Leadership in 2013 for his continued contributions to CSM. “I am extremely honored by this new opportunity,” said Ferrier. “I have had the privilege of working with an amazing group of people for the last 12 years and am excited to be a part of CSM’s future.” Prior to joining the CSM architecture team, Ferrier gained experience at several Twin Cities architectural firms including BWBR, Setter Leach and Lindstrom, and HouwmanArchitects. He has earned multiple designations over his 15-plus year career in architecture. He became a licensed architect in 2007, a certified interior designer in 2010. He earned his National Council of Architectural Registration Boards (NCARB) certification in 2008. Ferrier graduated from North Dakota State University withdegrees in environmental design and architecture. He volunteers his time with Hope for the City and Ronald McDonald House Charities.
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Minnesota Real Estate Journal
May 2014
News MARCUS & MILLICHAP ARRANGES THE SALE OF A 3,524-SQUARE FOOT NETLEASED PROPERTY Marcus & Millichap (NYSE: MMI), a leading commercial real estate investment services firm with offices throughout the United States and Canada, today announced the sale of Arby's restaurant, a 3,524-square foot net-leased property located in Cambridge, Minnesota, according to Craig Patterson, regional manager of the firm’s Minneapolis office. The asset sold for $1,730,000. Adam "AJ" Prins, Matthew Hazelton and Mike Marzinske, investment specialists in Marcus & Millichap’s Minneapolis office, had the exclusive listing to market the property on behalf of the seller, an individual/personal trust. The buyer, a private investor, was secured and represented by Ryan Cockerill and Simon Jonna, investment specialists in Marcus & Millichap’s Detroit office. Speaking with Mr. Hazelton, “This asset received multiple offers within the
very first week of marketing. The transaction is another example of continued demand for assets that produce longterm, stable returns.” Arby's restaurant is located at 2350 2nd Avenue SE in Cambridge, Minnesota.
CBRE’s Multifamily Group Announces Sale of Burnsville Property Chicago, IL based Redwood Capital Group recently acquired the 304 unit Raven Hill Apartments in Burnsville, MN. Abe Appert, Keith Collins and Laura Hanneman of CBRE’s Minneapolis office represented Condor Corporation. Bill McDougall, Assistant Vice President of Acquisitions for Redwood said, “We’re very excited about Raven Hill. Its location right at I-35W and Burnsville Parkway is very strong, allowing residents easy access to Heart of the City, Burnsville Center, the Mall of America and the I-494 employment
corridor. Further, given the overall strength of the Burnsville submarket, we’re confident our value-enhancement strategy, which includes reconfiguring and modernizing the property’s amenities and upgrading the unit interiors, will be very well received.” This was the Redwood Capital Group’s second apartment acquisition in the Twin Cities. They purchased the 534 unit Hampshire Hill apartment community in Bloomington in 2011.
CSM Corporation Announces Two Spec Projects in the NW Market Plans include office/warehouse space in Brooklyn Park and bulk warehouse space in Rogers CSM Corporation today announced plans to develop two speculative commercial real estate projects — a 202,000-square-foot office and warehouse facility in Brooklyn Park, Minn., and a 270,000-square-foot bulk warehouse facility in Rogers, Minn.
“We are eager to begin these speculative development projects, and see great potential in both the Brooklyn Park and Rogers communities,” said Scott Moe, vice president, leasing and development, CSM. “There is a limited supply of properties in the Northwest market, and an aggressive demand to attract businesses to the area. Going spec on these two sites allows us to take advantage of existing assets and add value to our portfolio, strengthening marketplace position.” The Brooklyn Park project, Phase I of the office park development, will be located on a portion of the 31 acres of raw land in the Northeast quadrant of 93rd Avenue North and Broadway, just south of Highway 610. CSM originally owned 17 acres and recently purchased an additional 14 contiguous acres to create space for this project. Plans call for a 28’ clear height office and warehouse facility that will feature upscale design elements including exterior glass. The project, which is listed with Dan Swartz and the CBRE team, is designed to
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accommodate manufacturing, assembly and light distribution, in line with Brooklyn Park’s goals to attract employment opportunities to the community. CSM is actively seeking final approvals with the City and plans to break ground mid-summer 2014. “The area boasts great transportation avenues, close to Highways 169, 610 and 694, and a community eager to welcome new businesses and employment opportunities,” said Moe. The Rogers project will be located on 17 acres of land CSM has owned since 2007. The bulk warehouse facility will be strategically located in the Northwest quadrant of South Diamond Lake Road and Brockton Lane North, to provide businesses with good access to major transportation avenues such as I-94. The warehouse facility will feature a 32’ clear height, adding additional capacity to the already successful industrial and warehouse park in the area. This project is listed with Mark Sims and the Cassidy Turley team. CSM has received municipal approvals and, upon completion of the structural drawings, will break ground in early summer 2014.
Minnesota Real Estate Journal
“We are looking forward to working with the Rogers community and developing this project,” said Moe. “Rogers is an excellent distribution area and will make a desirable and user-friendly home for businesses.” CSM plans to deliver on both the Brooklyn Park and Rogers projects in the first quarter of 2015.
UNIVERSITY CENTRE AT 1919 Earns EPA’s ENERGY STAR® for Superior Energy Efficiency University Centre at 1919, located along the Energy Innovation Cooridor (EIC) in St. Paul’s Midway and managed by MetroPlains Management, has earned the U.S. Environmental Protection Agency’s (EPA’s) prestigious ENERGY STAR, the national symbol for protecting the environment through superior energy efficiency. This signifies that the building performs in the top 5 percent of similar facilities nationwide for energy efficiency. "For the second year in a row, University Centre at 1919 is pleased to accept EPA’s ENERGY STAR in recognition
of our continued energy efficiency efforts,” said Jason Sklar, Property Manager. "Through this achievement, we have demonstrated our commitment to environmental stewardship while also lowering our energy costs.” Commercial buildings that earn the ENERGY STAR use an average of 35 percent less energy than typical buildings and also release 35 percent less carbon dioxide into the atmosphere. University Centre at 1919 improved its energy performance by managing energy strategically across the entire building by making cost-effective improvements to its building wherever feasible.
GROUNDBREAKING CEREMONY HELD AT SOUTHDALE MEDICAL CENTER New Medical Office Building under Construction On May 14, 2014, an official groundbreaking ceremony was held for a new 4-story medical office building at Southdale Medical Center in Edina, MN. The project is being developed by Investors Real Estate Trust (IRET), a real estate
May 2014
investment trust headquartered in Minot, ND, and will include construction of a 57,000 square foot medical office building adjacent to the existing Southdale Medical Center and demolition of the existing parking ramp, which will be replaced by a new 5-level, 1,180-stall parking ramp. Construction management services are being provided by Silver Oak Development, Inc. of Oakdale, MN. The new ramp will be shared by all three buildings comprising Southdale Medical Center. The new medical office building, 6565 France Avenue South, will be connected on first floor and lower level to the existing buildings on the campus, which is connected to Fairview Southdale Hospital by a tunnel system. As part of the project, a number of other improvements will be made to the existing Southdale office campus, including new elevator systems to better serve the new parking ramp, a centralized delivery area that can accommodate larger trucks and delivery vehicles as well as other improvements. "We are pleased to start work on expanding and improving Southdale Medical Center with the addition of a new campus-con-
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nected medical office building, which will feature the latest in energy efficiency systems and medical office design, as well as a new parking ramp to replace the existing structure that was built over 50 years ago," said Tom Wentz Jr., executive vice president and COO of IRET. "The current Southdale offices are basically full and the current parking ramp has served its purpose and no longer meets the needs of our current customers. While we understand the inconveniences and challenges such a large project creates, these improvements are necessary in order to meet the growing demands and medical office needs of not only the surrounding community, but the entire region, and are designed to support Fairview Hospital in its mission of improving the health of the communities it serves.” The entire project is estimated to take approximately 15 months and will be completed in twophases. The first phase will involve construction of the new medical office building and the south half of the new parking ramp, which are estimated to be completed by June 2015. The second phase will involve comple-
Minnesota Real Estate Journal
tion of the north half of the parking ramp with an estimated completion of September 2015. “We are diligently planning to maintain a safe and pleasant environment during our 15-month construction period. Communicating the specifics of each phase of work, posting signage, and providing free valet parking for patients is critical to the success of our project,” explained Paul Reinke, President of Silver Oak Development, Inc. “We have taken extraordinary measures to protect the patients, visitors, and staff at Southdale Medical Center.” The two existing buildings within Southdale Medical Center are currently over 96% occupied. Jill Rasmussen, principal of The Davis Group, which has been retained to lease the new medical building, stated, "Pre-leasing activity has been extremely strong and we are expecting the new building to be fully leased by the time it opens." Tenants will benefit from the efficient design of the office space in the new 57,000 square foot building. Collaborative Design Group is the project architect and structural engineer
and PCL Construction Services, Inc. is the general contractor. The project is expected to create in excess of 175 construction jobs.
The Opus Group® Announces Project with St. Catherine University The Opus Group (Opus) announced today a contract with St. Catherine University for a 41,500-square-foot expansion and renovation project on the school’s main campus in St. Paul, Minnesota. Opus will expand the university’s existing 59,000-square-foot Butler Center to accommodate its varsity athletic programs and offer state-of-the-art student wellness and athletic facilities. The project will help improve the center’s functionality and draw new students to campus. “We’re looking forward to working with St. Kate’s during this exciting time for the campus and its students,” said Craig Larson, vice president of Opus Design Build, L.L.C. “They’re a valued partner, and our collaboration on this
May 2014
project will make Butler Center the best possible facility for current and future students, as well as faculty, staff and alumnae.” As part of the project, Opus will add 31,500 square feet of new space to the existing three-story Butler Center. The addition will feature separate varsity locker rooms and lounge space, a cardio room with fitness equipment, a dance studio, as well as a one-story, multi-purpose training center. Opus will also redesign the front entry to include a controlled access point for added security and access to events in the arena. Ten thousand square feet of previous gymnasium space in the neighboring Fontbonne Hall will be renovated into additional university classroom space, which will connect to Butler Center. Opus will also install a new elevator to improve the building’s accessibility. “We are excited to work again with the Opus team on another creative campus improvement project,” said Thomas Rooney, vice president for finance and administration and chief financial officer, St. Catherine University. “The Fontbonne Hall and Butler Center renova-
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tions encompass our mission of cultivating an innovative spirit and providing a premier baccalaureate college for women. They will also enhance our relationship with the local community. This project provides us a unique opportunity to advance new innovative academic programs, enhance our vibrant campus life, and fulfill objectives within our 2020 Vision Strategic Plan while allowing the University to benefit from historically low debt financing rates.” Construction is scheduled to begin in May 2014. Renovation of Fontbonne Hall is slated for completion prior to the start of the 2014 fall semester. Full project completion is scheduled for February 2015. Opus Design Build, L.L.C. will serve as the design-builder and Opus AE Group, L.L.C. will serve as the designarchitect.
MARCUS & MILLICHAP ARRANGES THE SALE OF A 17-UNIT APARTMENT BUILDING Marcus & Millichap (NYSE: MMI),
Minnesota Real Estate Journal
a leading commercial real estate investment services firm with offices throughout the United States and Canada, today announced the sale of Maryland Avenue Apartments, a 17-unit apartment property located in Saint Paul, Minnesota, according to Craig Patterson, regional manager of the firm’s Minneapolis office. The asset sold for $666,667. Dan Linnell, investment specialist in Marcus & Millichap’s Minneapolis office, had the exclusive listing to market the property on behalf of the seller, a partnership. The buyer, a private investor, was also secured and represented by Dan Linnell. Speaking with Mr. Linnell, “This property, which sold at 96 percent of its original list price, was the fifth and final property we listed and successfully closed over the past 12 months for this same partnership. In total, the five properties consisted of 121 total units.” Maryland Avenue Apartments is located at 1952 & 1956 Maryland Avenue East in Saint Paul, Minnesota. The property is surrounded by a quiet residential neighborhood and features
unique courtyard style private entryways, 16 one-bedroom units, one (1) two-bedroom unit, and had a total occupancy of 94 percent at the close of escrow.
Marcus & Millichap ARRANGES THE SALE OF a 16,564-SQUARE FOOT RETAIL PROPERTY Marcus & Millichap (NYSE: MMI), a leading commercial real estate investment services firm with offices throughout the United States and Canada, today announced the sale of Western Avenue Marketplace, a 16,564-square foot retail property located in Faribault, Minnesota, according to Craig Patterson, regional manager of the firm’s Minneapolis office. The asset sold for $2,965,000. Matthew Hazelton and Adam "AJ" Prins, investment specialists in Marcus & Millichap’s Minneapolis office, had the exclusive listing to market the property on behalf of the seller, a limited liability company. The buyer, a private investor, was secured and represented by Brian Klancke and Sean Doyle, invest-
May 2014
ment specialists in Marcus & Millichap’s Minneapolis office. Mr. Klancke stated, “The asset will be able to capitalize on its strategic position within the marketplace due to its close proximity to other major retailers such as Walmart and the Faribo West Mall (which has seen some recent major re-tenanting). This center is a microcosm of renewed leasing activity around the metro area; acting as a catalyst for increased demand from the investment community in quality brick and mortar retail.” Speaking with Mr. Hazelton, “This transaction was a great example of continued interest for quality product. The asset offers a stabilized and well-balanced rent roll, and is in a good location with good traffic drivers. All of this lead to multiple offers, and ultimately the property sold to an investor out of southern Minnesota.” Western Avenue Marketplace is located at 300 Western Avenue in Faribault, Minnesota. News to page 24
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Minnesota Real Estate Journal
May 2014
BMO Harris’ Petrovski: Ready to build on success By Dan Rafter, Editor
J
ohn Petrovski is the new managing director and head of U.S. commercial real estate with BMO Harris Bank. Though he will be based in Chicago, he will oversee commercial real estate operations across the Midwest, including in Minnesota. Minnesota Real Estate Journal recently spoke with Petrovski about his long real estate career and his goals for BMO Harris. Minnesota Real Estate Journal: Congratulations on your new position. You must be excited. John Petrovski: Right now it’s like a new pair of shoes. It doesn’t feel quite perfect yet, but it is definitely getting there. It’s real exciting. I was head of originations in my most recent job for eight cities, six of them in the Midwest. I touched a great number of deals. I teamed up with Chicago folks to call upon some clients here. I did some Chicago deals, deals in other Midwest cities like Minneapolis, Milwaukee, Madison, Indianapolis and Kansas City. So I’m eager to build on that.
John Petrovski MREJ: What are your goals for BMO Harris? Petrovski: I’d like to build on our successes. Coming through the downturn was a real tough time for banks and real estate companies. In the last couple of years we’ve hit our stride with new business. We’re working with great clients on exciting new developments. I’d like to continue and improve on that. MREJ: Are you seeing more deal
activity today than in the last year or two? Petrovski: Nationally, most people would say that the real estate markets have recovered. Some on the coast now have values that are above where they were in 2007. Some of the Midwest markets are chasing a bit. But the trend is moving in the right direction. The economy is growing, adding jobs. Because of that, people are able to enjoy real estate more. They need more real estate. We did not see as much development during the downturn. We need new office and retail development. The apartment phenomenon is well-documented. There is a lot of pent-up demand for high-quality rentals. MREJ: How strong are some of the individual markets in the Midwest? Petrovski: Chicago is doing very well. It’s the largest city in my market. It’s a headquarters for BMO Harris Bank. It’s a large city with a really strong urban core that people commute to and live in. There is a lot of opportunity here for real estate to trade and be developed. Minneapolis is another city with a lot of population and job growth, and it’s jobs and population
that drive the need for real estate. Minneapolis has perhaps the best growth dynamics of all the Midwest cities. For the others, places like Milwaukee, St. Louis, Kansas City and Indianapolis, the growth dynamics are a bit less. That brings good and bad news. The good news is that they are not being overdeveloped. The not so good news is that they don’t need that much development. They do present a finite number of development opportunities. We are active in them, though. MREJ: You mentioned the multifamily market a bit ago. Do you expect that market to stay as hot as it has been? Petrovski: That market is extremely hot. I don’t see it staying as red-hot as it is now. But it will stay strong. The trend toward rental housing will continue with both empty nesters like myself and the younger population like my kids. Younger consumers want to avoid driving. They want to live closer to where they work. They enjoy cities. The demographic winds are at the back of multi-family. I expect that to continue. There has been a big slug of new Petrovski to page 20
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Minnesota Real Estate Journal
May 2014
NAIOP Members and Their Business Tenants Chalk Up Two Big Wins in 2014 Session By Duane Arens, Director of Public Policy NAIOP, The Commercial Real Estate Development Association-Minnesota Chapter
I
n a legislative session dominated by higher profile, more controversial issues, including a billion dollar bonding bill, medical marijuana, and levy reductions among others, NAIOP’s “Capitol Hill” team was able to pull out victories on two issues that, although more obscure, had substantial potential cost implications for the state’s commercial real estate industry, our business tenants and investors.. Sales Tax on Warehousing & Logistics Services Killed Most important of these was the repeal of the sales tax on warehousing and third party (3PL) logistics services. Proposed and passed in the twilight days of the 2013 session, when legislators were searching every nook and cranny of the state’s economy for new sources of revenue, the tax was not scheduled to take effect until April 1 of
this year. However, in the words of Jonathan Lamb, president of the Minnesota Warehouse Association, during its short life “this terrible tax already had a chilling effect on the warehousing and logistics industry,” one that still hangs over the industry today. For NAIOP members, it represented a shadowy, but looming, threat of lost tenants and significant amounts of vacant space being dumped on the market. Pat Mascia, an attorney with Briggs & Morgan and former regional vice president of Duke Realty, spoke for many industrial property owners when he said that “because of the many layers in how these services are delivered, most property owners do not know which of their tenants are affected by the tax, to what extent, or how large a part of their portfolio such users make up.” Logistics services by their nature are also very mobile. As one 3PL company owner said, commenting on the impact of the tax, “We’re basically an industry of pallets and racks, and we can be across the river and in Wisconsin in a matter of days.” The “hit” the industry would have
taken if the tax was left to stand was multifold. At a sales tax rate of 7.875, the maximum, it was projected to raise more than $95 million for the state’s general fund in fiscal 2014-2015, on estimated warehouse and logistics industry sales of $1.2 billion. But the Minnesota Department of Revenue projected that the amount would grow to $184 million in subsequent bienniums. How? “We were never able to get a clear idea from the state regarding where that growth in tax revenues was projected to come from, or from which industry codes,” said Lamb, “but we suspected that over time there would be a much broader definition of who is subject to the tax, perhaps extending it to dock and river operations around the state, as one possibility.” NAIOP-Minnesota took a leadership role in the fight to kill the tax, working with the Minnesota Chamber of Commerce and more than thirty other trade and professional groups in mounting a coordinated effort to repeal not only the warehousing tax but two other B2B taxes due to take effect at the same time, arguing that their repeal should
be the first use of the state’s forecasted $1.2 billion surplus. The months-long statewide effort included heavy involvement on the part of NAIOP’s leadership and members. Brandon Champeau, assistant vice president, United Properties, chair of the public policy committee, did an outstanding job, testifying three times before tax committee members on the “real world” impact of the warehousing tax. Mark Nordland, president of Launch Properties, NAIOP Minnesota president, and other chapter members joined in, writing letters, making phone calls, and meeting with their representatives. We also reached out aggressively to the media, garnering strong editorial support from the Minneapolis Star Tribune, St. Paul Pioneer Press, Duluth News Tribune, and the Minnesota Real Estate Journal. Our full court press paid off, with legislators repealing all three B2B taxes early in the session. Commercial-Industrial Property Tax Shift Of equal concern was the threatened NAIOP to page 20
Page 18 NAIOP from page 18
change in the State General Tax that would have shifted commercial property taxes from lower value properties to all other C-I property taxpayers, largely owners of higher value buildings and the tenants who actually pay the tax bills. Proposed legislation would have excluded the first $1 million of a building’s value from taxation, transferring the burden of making up for the combined $80 million in lost revenue to all other business properties valued at more than the $1 million exclusion. The threatened provision, ostensibly offered as a boon to Minnesota’s small businesses---contained in the House bill, but not in the Senate version--posed a real challenge for our industry. Debate in conference committee could have had three possible outcomes, two of which would have been bad news for NAIOP and the industry: adopt the House bill containing the shift; adopt the Senate bill, which did not; or combine the two, which would have folded it in. Fortunately, it was the Senate bill that prevailed, killing the exclusion and the related shift, at least for this year. Another shift gathering speed is the rising value of C-I properties, particularly office and industrial. As these values continue to increase, they offer a recipe for tax increases to be imposed
Minnesota Real Estate Journal
on commercial properties, said Mark Haveman, executive director of the Center of Fiscal Excellence. “However, because tax burdens are distributed area by area,” he said, “it’s difficult to predict where those increases might begin to occur.” “The legislature successfully brought down levies, but the drumbeat for tax relief for citizens continues. Legislators are still trying to insulate property owners from their property taxes,” he said, adding new risks of increases in the months ahead for C-I property taxpayers. Local Budget Transparency Legislation Now a 2015 Session Priority Due to the short session and a crowded agenda, NAIOP’s proposed legislation calling for greater transparency and uniform reporting of local budgets and spending never made it to the table. However, Rep. Jim Davnie will be refining the language of the draft bill before introducing it again in the 2015 session, with possible interim hearings later this year. The goal of the legislation is to move the budgeting process upstream, so taxpayers can gain a fuller understanding of local spending in time to play a productive role in setting community priorities and in decision making.. NAIOP’s challenge over the coming months will be to keep the momentum for change going, while preserving and
expanding the broad base of support that has been building over the last year, including editorial endorsements of our proposed legislation by the Minneapolis Star Tribune, St. Paul Pioneer Press, St.Cloud Times, Duluth News Tribune and the Rochester Post Bulletin. Undoing the Wrong-Headed Amendments to Estate Tax Law The poorly crafted and harmful changes in Minnesota’s estate and gift tax laws enacted last year were not addressed in this session. The amendments established only the second state gift tax in the nation, but of even greater concern for the real estate industry, placed a new estate tax on non-Minnesota residents who, as investors, have an indirect interest in real property located here. Pointing to the amendment’s unintended consequences if left to stand, Stewart Stender, president of Stewart Capital Partners, said “it will give the Minnesota business climate another black eye,” at a time when CEO Magazine ranks the state 34th best in the nation for business. Added Charlie Pfeffer, president of Pfeffer Company: “If it is not addressed and corrected soon, it and a whole collection of things” imposed on investors in the past couple of years “are bound to make capital think twice in the future about investing here.” Undoing these
May 2014
amendments will be among the issues we plan to pay close attention to in the 2015 session. What’s Ahead Legislatively for Minnesota’s Commercial Real Estate Industry? As Lisa Dongoske, executive vice president, Cushman & Wakefield / NorthMarq, says, “no one legislative session makes or breaks our state’s economy.” “It will take a few years to analyze the impact of this session. But the effect of legislative actions on the mindset of employers is important, and we increasingly hear about Minnesota businesses re-thinking their plans to invest and grow here,” she added. “In that respect, the results of the 2014 legislative session, coming on top of the 2013 session, send an over-riding message: elections matter, beginning with this November! Our challenges at the Capitol underscore why we must elect individuals who understand what it takes to develop and expand Minnesota’s economy,” she explained. “That’s why it’s imperative that we strengthen the voice of business at the legislature.”
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Saving money by reducing water consumption Bloomington, Minn.-based H2O I.T. We are a water conservation company that manufactures and engineers custom solutions with a 30% to 60% reduction in their facility annual water and sewer costs. As you are aware, in today's green economy, many facility commercial building owners / property managers across the country have initiated sustainability goals / requirements. Due to the challenging facility management environment of: • Rising water sewer costs • Shrinking budgets • Reduced Staffs • Having to do more with less tools and resources • not having accurate information to make better decisions Many Facility Managers and building owners are looking outside the box for effective ways to not only reduce their energy cost but also their annual water cost. H2O I.T. Started out as a division of a major utility company, we have over thirty years experience with major facilities across the country. H2O I.T. conducts an in depth water Consumption Analysis . These
Analysis give businesses the tools to create customized water-reduction strategies. Companies save enough in water costs to use these savings to pay for H20 I.T.'s services. Jeff Dirkers, founder and partner of the company, recently spoke about the savings that commercial building owners and managers can save by reducing their water use. Question: Can you give us a brief summary of what your company can do for the owners and managers of commercial buildings? Jeff Dirkers: We are a water conservation company and a manufacturer. We specialize in water Management. By being a manufacture we can engineer a customized cost effective solution with a typical annual water sewer budget savings of 30 to 60 percent. Q: What are some of the ways in which you can help building owners reduce their water consumption? Dirkers: We look at buildings’ internal water footprint (consumption). From there, we can deliver a customized strategy to eliminate only the water that they are wasting. For us as a manufacturer, it’s all about func-
tionality. We want to make sure that everything works and eliminate the wasted water sewer consumption. Q: Where is water most commonly wasted in commercial buildings? Dirkers: That’s not an easy question to answer because every building is different. We typically look first at your Sinks, Showers and toilets. This is not a 1.6 blanket approach, since we are a manufacture we can build a custom Solution. We retrofit your existing facility's fixtures to a flow rate that will function. We have gone into facility's and taken their 1.6 toilets and increased the flow rates with under a year payback. We can literally add water to save Water. We call our approach Smart Thinking, you don't save, you don't Pay. With our Free water analysis We will look at all the water that is being consumed used, whether it be in chillers, sub-metering and outside irrigation. You never know where the waste is going to be coming from. Sometimes a building’s irrigation systems might be old and failing. Every facility is a little bit different. But because we are a manufacturer, we can manufacture the products they need to meet their specific challenges. Q: How serious of an issue is water loss for commercial buildings? Dirkers: Most building owners look at their water bill as a fixed cost. It is something that they just pay. They might try to think of ways to reduce
their bills, but there aren’t a lot of options out there for them. H2O I.T water Analyses combined with our ability to deliver custom Solutions is so important as we Analyses their annual water consumption through our unique analysis processes. We can take a closer look at a building’s water usage to determine where the problems are. Then we can create specific customized solutions for those problems. Q: Do building owners balk at paying for any changes that you recommend? Dirkers: We do have financing plans. But the good thing is that we can fund most of the project costs out of the existing budgets of the buildings we look at. The money for the improvements is usually already in their budgets. (Money they're currently paying to the utility company each month) By making our changes, they can reduce the money going to the utilities. They can then use these savings to pay for our improvements, reducing their long-term water bills. Most building owners are surprised to hear this, and most are receptive to the fact that they will enjoy a quick return on investment if they go with our suggested changes. For more information please go www.h2oit.com or contact Brent at brentc@h2oit.com
Petrovski from page 14
supply. That will get absorbed, but it will take time. That might pinch a bit the encouragement of new development. Overall, though, the multi-family market will be strong. That property type will do well. MREJ: How excited are you to be working here in Chicago? Petrovski: Being in Chicago is what gets you excited about being in real estate. Real estate is the study of where people live, work, shop and play. Chicago is an international city. There are so many wonderful architectural amenities and developments. Here you can team up with strong development clients and pursue new projects . That is exciting. You can add to what is already a famous skyline. You can build something that you are proud of. When you walk by with your kids and family, you can point to a building and say that in some small way you contributed to this building. MREJ: A lot of real estate pros tell me they enjoy being able to work on something as tangible as a building. Petrovski: I get excited about working on projects that you can touch and see. They are large. They add to the betterment of the city. MREJ: What do you enjoy most about this business? Petrovski: I also like the intellectual challenge. I like the competitive environment. Whether you are investing or lending, you go into a market and compete with others. There is always that excitement of competing but doing it in a prudent manner that makes financial sense. What it boils down to is that this is an intellectually challenging career.
May 2014
REIT From page 1
bly as low as it's been since 2000. We have had 15 quarters of positive absorption. Rents are moving higher, especially in the Interstate-55 market. Why wouldn't investors want to look at the Chicago industrial market?" The numbers are good Numbers from the National Association of Real Estate Investment Trusts -NAREIT -- back up Harker. The association reported in its most recent outlook that REITs remain a solid source of income for investors. According to the association, U.S. REIT returns strongly outpaced the S&P 500 in April, and significantly outperformed the broader equity market in the first four months of this year. The FTSE NAREIT All REITs Index was up 2.88 percent in April, according
to the association. At the same time, the FTSE NAREIT All Equity REITs index was up 2.99 percent while the FTSE NAREIT Mortgage REITs Index was up 1.86 percent. And how did the S&P 500 perform in April? According to NAREIT, the S&P 500 was up during the month, but only by .74 percent. That performance pales in comparison to the returns generated by REITs during the month. For the first four months of the year, the FTSE NAREIT All REITs Index was up 11.7 percent, while the FTSE NAREIT All Equity REITs Index was up 11.76 percent. During the same period, the FTSE NAREIT Mortgage REITs Index was up 13.23 percent. All three indices outperformed the S&P 500, which was up just 2.56 percent for the first four months of the year. Industrial REITs performed well during the first four months of the year, too. According to NAREIT, although the industrial REITs it tracked actually saw their total returns drop slightly this April when compared to the same month in 2013, industrial REITs have shown a strong overall performance for the first four months of the year. NAREIT reported that returns on industrial REITs were up 10.44 percent during the first four months of 2014.
Minnesota Real Estate Journal
Local activity Harker said that First Industrial Trust has not purchased any industrial properties yet this year. The company, though, did add a Class-A bulk distribution facility of 627,000 square feet in Southeast Wisconsin during the fourth quarter of 2013. That purchase represented an investment of more than $26 million. Mid-year in 2013, First Industrial Trust also purchased a 509,000-squarefoot property at the busy and desirable intersection of Interstate-55 and Interstate-80 in the Chicago market. First Industrial has been busy, though, on the industrial leasing side, Harker said. "We are certainly in the market looking for high-quality distribution assets," Harker said. "But so far, we have not found anything we really like in the Chicago market. Obviously, with prices going up, we are being even more particular with what we acquire." What is First Industrial looking for?
Harker said that the company would like to acquire bulk distribution space that is less than 15 years old. Harker also prefers 32-foot clear heights and properties that have less than 3 percent of their space committed to office use. Also on Harker's wish list? Plenty of trailer parking. "That is really big right now, really desirable," Harker said. "People want excess trailer parking. They also want plenty of back doors." Although First Industrial does a lot of investing in the Chicago market -- Harker says that no market in the Midwest has a better supply of industrial assets than does the Chicago market -- the company has also enjoyed recent success in the Minneapolis market. "We are looking for a slightly different product in Minneapolis than we are in Chicago," Harker said. "You don't have the big-box distribution centers in the Minneapolis market like you have in Chicago. But we have been busy in Minneapolis during the last few months." First Industrial, for example, purchased an industrial facility in Minneapolis during the first quarter of this year, a 250,000-square-foot property for which it spent $13.4 million.
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Municipal construction taking off in the Twin Cities, upgrading and expanding public spaces By Paul Kolias
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ately, those of us in the construction industry who work with cities are seeing an increase in projects that either upgrade or expand existing public spaces to serve multiple purposes. It’s a trend we are seeing across the Twin Cities, from pools to police stations. The projects represent a vast scope of work, from interior renovations and mechanical upgrades, to exterior work such as parks, playing fields and more.
But why all this activity now? According to a recent survey by the League of Minnesota Cities on cities’ fiscal conditions, 71% of cities reported an increase in their ability to meet needs in 2013, the largest increase since the organization started this survey. And 73% of cities predicted more favorable fiscal conditions in 2014. While cities obviously have many places to allocate their funds, a new building or improvements to an existing one can be a big expenditure. And the projects RJM Construction has been selected for by local cities are def-
initely big expenditures – most are in the $10 to $15 million range. Cities are approaching these large projects smartly and maximizing their construction dollars today more than ever. Many are updating existing recreational facilities to accommodate multiple purposes, and upgrading aging infrastructure. Here are a few examples: In Eden Prairie, a 16,450-sq.-ft. addition to its existing Aquatics Center will provide new facilities for both the competitive and casual swimmer: two competition lap pools, a warm water
Paul Kolias leisure pool, waterslide, spa pool and locker rooms. The new space has something for everyone from competitive swimmers to little ones. Also for the City of Edina, we are adding three new playing fields to Pamela Park, including a synthetic turf playing field, a sand peat natural grass playing field, and a natural grass playing field. And with a series of new walking paths being installed to connect to the city-wide trail system, the new Pamela Park will accommodate many kinds of outdoor activities. Aside from recreational facilities, cities also are taking this opportunity to upgrade aging infrastructure. The City of Rogers has elected to purchase an existing building to relocate its police station. Once complete, the new police station will have two levels of offices and an indoor garage. RJM Construction also completed a new police station for the City of Medina earlier this year. By upgrading existing facilities, adding onto them, or relocating them, these cities are making investments in their communities that will meet citizens’ needs and last for many years to come. For when all is said and done, recreational facilities are assets that everyone can enjoy. As a project executive at RJM Construction, Paul Kolias carries out work on community projects, providing preconstruction and construction services from conception to completion. Paul can be reached at 952-893-7593 or paul.kolias@rjmconstruction.com.
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Recent Appellate Decisions Require Prompt Governmental Decisions On Broader Variety of Applications Relating to Zoning By Julie Nagorski
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pening the door to compel state agencies and local governments to act swiftly on a wide range of applications, a pair of decisions from the Minnesota Supreme Court and Court of Appeals recently clarified state law requiring governmental action on requests “relating to zoning,” with this phrase now more expansively-defined. This clarification of Minnesota law allows applicants for governmental approvals of all sorts to credibly demand that their applications be considered and decided within 60 days. Because the consequence for the government’s failure to act promptly is automatic approval of the application, a strong incentive to comply with the law exists. Minnesota Statutes since 1995 have provided: [A]n agency must approve or deny within 60 days a written request relating to zoning, septic systems, watershed district review, soil and water conservation district review, or expansion of the metropolitan urban service area for a permit, license, or other governmental approval of an action. Failure of an agency to deny a request within 60 days is approval of the request. Minn. Stat. § 15.99, subd. 2. The statute contains other provisions, including a definition of “agency” to include departments within the executive branch and political subdivisions of the state, i.e., counties, cities, townships, and their decision-making boards. Although the statute allows agencies to extend the sixty-day dead-
line in certain circumstances, the law is oftentimes referred to as the “60 Day Rule.” For years following its enactment, the 60 Day Rule generated significant litigation, with landowners and developers challenging the scope of different provisions and enforcing their rights to automatic approval of their applications due to violations. In 2001, a landowner whose application for a building permit that was not acted upon within 60 days sued for automatic approval, arguing that the request “related to zoning.” Advantage Capital Mgmt. v. City of Northfield, 664 N.W.2d 421 (Minn. App. 2003). To determine the meaning of the statutory phrase, the court of appeals examined several earlier decisions and legislative history suggesting that the 60 Day Rule applies only to “zoning applications.” It therefore rejected the landowner’s arguments, holding that the 60 Day Rule applies only to “zoning applications” – such as requests for re-zoning, conditional use permits, subdivisions, variances – rather than “all land-use decisions that might be tangentially connected to zoning.” Following the Court of Appeals’ 2003 decision in Advantage Capital, the appellate courts did not decide additional disputes concerning the nature of applications “relating to zoning,” with the exception of a decision that the 60 Day Rule did not apply to an application for a text amendment of a zoning ordinance. Motokazie! Inc. v. Rice Cnty., 824 N.W.2d 341, 343 (Minn. App. 2012). In September 2013, however, the Minnesota Supreme Court decided that
Schiferl From page 1
real estate needs of our clients. MREJ: You’ve helped a lot of clients access the Low Income Housing Tax Credit. How important is this credit to the development of affordable housing today? Schiferl: The tax credit is the crux of today’s affordable-housing market. Section 8 has been cut back dramatically. The only redevelopment tool for creating affordable housing now is the Low Income Housing Tax Credit. If that credit goes away, the number of housing units that can be preserved as affordable will dramatically drop. It’s a great preservation tool. It works not only for development and the jobs that development brings, but also for providing and preserving housing for those who otherwise couldn’t afford it. Without that credit, affordable housing doesn’t work . MREJ: Can you share with me an example of how you’ve recently helped a client with an affordable-housing challenge? Schiferl: I had a client who had an old Section 8 deal, a deal that was 25 years
an application under Minneapolis’ heritage preservation ordinances to modify a building that had been designated as a historic landmark, even though it was not a zoning application, was controlled by the 60 Day Rule as a request “relating to zoning.” 500, LLC v. City of Minneapolis, 837 N.W.2d 287 (Minn. 2013). It determined that the 60 Day Rule applies when an application “has a connection, association, or logical relationship to the regulation of building development or the uses of property.” The court highlighted a number of such connections between the application at issue and Minneapolis’ zoning ordinance and decided that those connections were sufficient to render the application subject to the 60 Day Rule. The court thus clarified that the 60 Day Rule is not as narrowly-limited as it had been understood for the decade since Advantage Capital was decided. Next, in December 2013, the Court of Appeals decided that an application to MnDOT for a driveway permit was a request “relating to zoning” and controlled by the 60 Day Rule. Kottschade v. State of Minn., No. A13-1034, 2013 Minn. App. Unpub. LEXIS 1139 (Minn. App. Dec. 23, 2013). The court analyzed a number of connections between the application at issue and the legally-permissible uses of the property and decided that those connections were adequate to render the application related to zoning and subject to the 60 Day Rule. Because MnDOT failed to act on the application within 60 days (instead waiting 63 days), the court held that the application was automatically approved. The court reached this conclusion over MnDOT’s objections that the driveway would be unsafe.
Under these two recent decisions, a wide variety of applications may be deemed to “relate to zoning” and, therefore, subject to the 60 Day Rule. These appellate decisions will undoubtedly result in landowners and agencies more closely scrutinizing whether current and future applications relate to zoning. Landowners and developers should also examine past applications that were submitted and denied. The application itself, the nature of the approval sought, the rules controlling the agency’s consideration of the application, the zoning ordinance, and many other factors must be analyzed to determine whether sufficient connections exist. If the proper interrelation exists, and the agency failed to timely act on the application, then it is automatically approved. If the agency refuses to acknowledge the automatic approval status, however, litigation to obtain a court order compelling the agency to approve the application must be brought. The two recent appellate decisions, therefore, may result in an increase in the number of applications that agencies promptly act upon and in further court clarifications regarding the reach of the 60 Day Rule. Julie Nagorski is an attorney at Larkin Hoffman Daly & Lindgren Ltd. practicing in real estate litigation. She represented Mr. Kottschade in successfully arguing that the 60 Day Rule applied to his driveway permit application.
or so old. With Section 8 properties, the cash flow on HUD rent and subsidies isn’t much. You don’t make a lot of money on cash flow with a HUD deal. You get the money upfront. We were able to help the client with an application to the Minnesota Housing Finance Agency for a 9 percent tax credit. With that credit in place, our client was able to find a new investor in the project. The new investor bought into a new partnership with our client. Together, they were able to rehab the entire housing development in Rochester, Minnesota. They put in new cabinets, carpets, windows and siding. They brought everything up to code. They basically refreshed the whole property. MREJ: What impact have the renovations had? Schiferl: The client still has the Section 8 subsidy. But because the client was able to rehab the entire property with the additional money from Minnesota Housing Finance Agency credits, the property is now repositioned for another 15, 20 or 30 years. As part of the rehab work, they replaced all the old oil boilers with high-efficient gas boilers. That dropped 30 percent to 40 percent of the development’s utility costs. What was once a property with no cash flow has now become one with a steady cash flow for our client. The maintenance costs of the development have gone down, too. This was really a storybook project. Everything just clicked. Schiferl to next page
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Schiferl from previous page
MREJ: What was your client’s reaction to this? Schiferl: The client wasn’t all that surprised. My clients do count on me to get this stuff done for me. The client was very happy, though. I helped them coordinate everything. It takes a while. This client had never done a credit deal before this one. This whole process from the very beginning took about four years. From the time when we actually started the project it took about four years. We had to buy out an old investor, find a new investor, get applications in and approved and close on construction financing. We had to arrange permanent financing, too. It was not an overnight type of deal. It’s all very complicated. MREJ: Are people in the construction and commercial real estate industries aware of the work that accounting professionals like you do in this field? Schiferl: A lot of people think that all we do is tax and audit work. But there is a lot of work that we do in conjunction with attorneys and consultants. A lot of my clients come to me with some wide-ranging problems. It’s my job to do what I can to find them solutions. We want to educate everyone on the tax credits available to them. We want to educate them on what is out there for them.
News From page 12
Cushman & Wakefield | NorthMarq Represents Aurora Investments LLC in Lease with Pacific Dental Services Cushman & Wakefield | NorthMarq (CWN) www.cushwakenm.com represented Aurora Investments LLC in a lease for 5,000 sq. ft. with Pacific Dental Services at Chaska Commons, 200 Pioneer Trail, Chaska, Minn. Located at the intersection of Highway 41 and Pioneer Trail, Chaska Commons is anchored by Rainbow Foods, Petco and Home Depot. Founded in 1994, PDS is one of the country’s leading dental support organizations, providing supported autonomy that allows dentists to concentrate on clinical excellence and the highest levels of cost-effective comprehensive patient care. Aurora Investments is a real estate investment firm. CWN’s Brad Kaplan represented Aurora Investments in the transaction.
Kraus-Anderson plans for growth under one roof Realty, Construction, Capital and Mortgage Operations collaborating to create a new headquarters building in downtown Minneapolis Kraus-Anderson® (KA®) has announced plans to consolidate its Twin
Cities operations under one roof in a new, build-to-suit LEED facility in downtown Minneapolis. The company has been headquartered in downtown Minneapolis since 1897. Its current headquarters building at 525 S. Eighth Street was constructed in the mid-1970s. “We’re working to create a modern, sustainable environment that complements the renewed vitality of east downtown, and reflects our collaborative approach and values,” said KA Chairman and CEO Bruce Engelsma. The proposed new KA headquarters, to be located at the southeast corner of Eighth Street S. and Fifth Ave. S., will house approximately 250 KA employees, double the current number downtown, with room for future expansion on the site. Consolidation will include employees from the Kraus-Anderson Construction office in Circle Pines and the Kraus-Anderson Realty Company office in Bloomington. The new building will also house Kraus-Anderson Mortgage and Kraus-Anderson Capital, as well as the parent corporation, KrausAnderson Companies. “It’s the old story of the contractor who’s so busy working on everybody else’s projects, they don’t have time to build their own,” said Al Gerhardt, Kraus-Anderson Construction Company COO. “Now is the time.” Kraus-Anderson is in growth mode. The construction company has hired more than 100 new employees over the past 12 months and is currently active in 10 states, with sales exceeding $790 million in 2013. Recent significant projects include the 420,000-square-foot
MREJ: What do you enjoy most about working with real estate clients? Schiferl: It is never the same. There is always a different project or a different issue. It is not mundane. Every situation is different. You can’t put the information into a flow chart that tells you to do this or do that. Everything has its own unique twist. Just look at all the regulations and tax-law changes that we see. There was once a time when they’d pass a law and it would remain on the books until someone removed it. Now it’s on the books for a couple of years you hope they extend it. Things change so quickly today. MREJ: When you’re not working, how do you like to spend your time? Schiferl: I’d like to say I spend my free time running. But I can’t really say that. I do like to spend time with my family, though. I enjoy the time I can spend with my family. I do this work so that I can spend time with them. That’s what it’s about.
Gundersen Health System Legacy Building in La Crosse, Wis.; 114,000square-foot Duluth International Airport Terminal, and The Marshall, a 584,000square-foot, 317-unit student housing/mixed-use project near the University of Minnesota in Minneapolis. Kraus-Anderson Realty leases and manages more than four million square feet of commercial property and has developed more than 500,000 square feet of commercial properties over the past five years, including medical office, retail, apartments and senior housing properties. Significant development activities currently under way include senior housing communities Deephaven Woods in Deephaven, Minn. and Engel Haus in Albertville, Minn. The company is also collaborating on the redevelopment of a 100-acre corporate campus in Woodbury, Minn. for mixed-use corporate, retail, medical office building and restaurant tenants. Kraus-Anderson Capital serves clients primarily in the five-state region and recently expanded its activities into the surging Williston, N.D. market. “Plans for the new KA headquarters facility are still in early development but our goal is to create a highly collaborative environment with leading edge technology,” said Mike Korsh, vice president and director of development for Kraus-Anderson Realty. Planned amenities include a training center, cafeteria, fitness center, formal and informal meeting areas, and an appealing, welllandscaped exterior. “We’re getting input from our employees and also working closely with the City and the
neighborhood to make the new facility an asset to all stakeholders.” The new building is being designed by Pope Architects. Construction of the new headquarters is expected to begin in the fall of 2014, with a 12-month schedule for completion. In addition to Minneapolis, the company will retain its regional construction offices in Madison, Wis., Minot, N.D., Duluth, Bemidji, Rochester and its yard operations in Circle Pines. Kraus-Anderson Insurance, one of the region’s largest privately held independent insurance and risk management firms, will continue to operate from its offices in Burnsville. “We’re reinvesting in downtown Minneapolis, and reinvesting in our employees,” added Engelsma.
Oppidan Investment Company Developing Wooddale Flats Condominiums in St. Louis Park Minneapolis-based Oppidan Investment Company, a national property development firm offering a full range of real estate services, today announces that it has purchased the former Most Holy Trinity Catholic Church, located at 3946 Wooddale Avenue S. in St. Louis Park, and will develop the site into a condominium complex. Wooddale Flats will include six buildings housing a total of 33 condominium units. The first building will hold three units and the remaining five buildings will hold six each. Each building will have a shared rooftop deck for building
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residents along with one private rooftop deck available for purchase. To provide a greater level of owner privacy, the three-story buildings will have a townhouse feel. There will be no long hallways or common walls between living areas, and some units will be multilevel. All condominiums will be end units that feature three exterior walls with windows. Each unit will have wood floors, stainless steel appliances, and multiple bedrooms and will come with one garage. Units are between 1,342and 1,990-square feet. Construction of the first condominium building is expected to begin in late May or early June. It is expected to open in January of 2015.
Transwestern Tapped by Elion Partners to Lease 416,786-Square-Foot Office Building Transwestern’s Minneapolis office today announces it has been hired by Florida-based Elion Partners to lease the 416,786-square-foot office portion of City Place, a mixed-use development that will span 100-acres at Interstate 94 and Radio Drive in Woodbury, a suburb of Minneapolis. City Place, named for Elion Partner’s vision of bringing a work/play city environment to the suburbs, will be anchored by the existing office building and complemented by restaurants, retail space and a hotel that are slated for construction pending site plan approval from the City of Woodbury. The work and play elements of City Place will be connected through a series of trails that include a lake and park. “City Place will be a destination, not just another office property,” said Mike Salmen, a Transwestern partner and leader of the team hired to lease the project. “We haven’t seen anything like this on the east side of the Twin Cities, and people are really going to like what City Place has to offer. City Place will have the amenities, conveniences and services required to attract elite talent and impress clients.” City Place has been designed through a collaborative process with the City of Woodbury and Kraus Anderson, Elion Partners’ joint venture partner in the development. “We are looking forward to working with Elion’s team as they go
Minnesota Real Estate Journal
through the city’s approval process,” said Woodbury Mayor Mary Giuliani Stephens. “This property has tremendous potential, and we’re excited for this development to evolve into another cornerstone of economic growth for the City of Woodbury.” “We’ve formally applied for site plan approval and everything continues to move on target per the development plan,” said Juan DeAngulo, managing principal at Elion Partners.
ELION PARTNERS AND CBRE JOIN UP TO LAUNCH THE MARKETING OF THE ICONIC SUBURBAN WORLD SITE IN UPTOWN CBRE Minneapolis is pleased to announce they have been awarded the listing contract for the Suburban World site in Uptown. Elion Partners, a Florida investment firm, recently purchased the property at 3022 Hennepin Avenue South which can accommodate a single retail tenant with a requirement ranging from 2,500 square feet to 6,229 square feet. Elion has received HPC approval to bring retail to the site while maintaining the historic integrity of the well positioned building. “Elion is committed to the Twin Cities. We are all about location, so we are beyond enthusiastic about entering the urban market of Uptown. It doesn’t get any better than this”, says Shlomo Khoudari, managing principal at Elion Partners. “We are truly excited to continue our partnership with Elion Partners in to Uptown. The historical nature of the building and its high profile location make this a one-of-a-kind opportunity for Matt, myself, and CBRE to market”, says David Daly of CBRE. The CBRE team of Matt Friday and David Daly will prospect single-tenant retail and restaurant end users to occupy the available space.
Deephaven Woods Senior Living opens Deephaven Woods Senior Living, a new senior living community located on the campus of The Church of St. Therese in Deephaven, Minn., will open on May 1, 2014. St. Therese Catholic
Church has partnered with Ebenezer Society to form St. Therese Senior Living, LLC, a joint venture that has developed and built Deephaven Woods. Deephaven Woods Senior Living fulfills the Church of St. Therese’s desire to further its mission by providing a housing option to the region’s growing senior population. Deephaven Woods Senior Living is managed by Ebenezer Management Services, which provides daily operational and management services. Constructed by Kraus-Anderson and designed by Pope Architects, the new senior living community is located on a 14-acre site, part of the church’s 26-acre campus. The two-story development consists of 78 units of independent, assisted living, memory care and care suite apartments, and is enhanced by onsite amenities including a chapel, underground parking garage, two-story lobby, and outdoor patios, porches, gardens and walking paths. Deephaven Woods also offers chef-prepared meals, a bistro, club room, community room, movie theater, salon and spa, and intergenerational activities through the Church of St. Therese school. “We are very excited to offer new resources to help older adults in the western metro have access to a full range of senior living choices, programs and care,” said Susan Farr, vice president of new business development for Ebenezer Management Services. Ebenezer specializes in caring for those with long term memory loss, such as Alzheimer's disease and other dementias. Ebenezer has helped thousands of elderly seniors improve their memories, socialization, and confidence levels over the years. The Deephaven Woods project is another in a long-term partnership between Kraus-Anderson and Ebenezer Management Services. Ebenezer Society (www.FairviewEbenezer.org) has over 95 years of history providing senior housing and community centered care for older adults. As part of Fairview Health Services, Ebenezer helps older adults and others to lead more independent, healthful, meaningful and secure lives.
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BOMA GREATER MINNEAPOLIS ANNOUNCES ELECTION OF OFFICERS AND DIRECTORS The Building Owners and Managers Association (BOMA) of Greater Minneapolis is pleased to announce the election of the following officers and directors to serve the 2014-2015 term.
Elected as Officers for a one-year term: President: David K. Wright, FMA, RPA, Vice President U.S. Bank Corporate Real Estate Vice President: Kimberly K. Ihle, CCIM, CPM, RPA General Manager, CBRE Secretary/Treasurer: Michael A. Hagen Property Manager, The 614 Company Elected to three year terms were: Ted S. Campbell, Ryan Companies US, Inc. Cindy M. MacDonald, Kraus-Anderson Realty Company
Continuing Board members are: Kevin A. Connolly, Cushman & Wakefield / NorthMarq Lynette M. Dumalag, Nelson Tietz & Hoye, Inc. Susan J. Goldstein, Xcel Energy Brett K. Greenfield, Colliers International Tanya J. Hemphill, CCIM, CPM, RPA, Investors Real Estate Trust Thomas W. Heuer, Aspen Waste Systems Patrick M. McQuiston, Target Corporation Amy J. Wimmer, Hines
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Minnesota Real Estate Journal
Minnesota Real Estate Journal 2014 CONFERENCE SCHEDULE for more information or to register www.rejournals.com/conferences
January
10
2014 Apartment Summit
January
17
Residential Real Estate Summit
January
28
2014 Construction Conference
February
5
Appraisal and Valuation Summit
February
21
Condominium Summit
March
7
Opportunites in North Dakota
March
26
Healthcare & Medical Properties
April
16
Student Housing Summit
April
24
Capital Markets Conference
May
2
10th Annual Land Conference
May
22
2014 General Module Education Course
May
30
Retail & Restaurant Summit
June
6
High Performance Space & Data Center Summit
June
10
Energy Summit
June
13
Property & Facility Management Conference
July
11
Duluth & NE Minnesota Real Estate Summit
September
5
Real Estate & Construction Contractors Summit
September
17
Hotel & Hospitality Conference
September
24
St. Cloud Real Estate Summit
October
3
Downtown Development Conference
October
30
Senior Housing Summit
November
7
Using Tax Credits and Grants for Real Estate Development
November
25
Industrial Real Estate & Economic Development Conference
December
5
Office Summit
December
12
Brownfields and Urban Redevelopment
December
17
Building Efficiency & Energy Summit
Contact:
Jeff Johnson
Jay Kodytek
Publisher/General Manager Direct: 952.405.7780 jjohnson@rejournals.com
Associate Publisher Direct: 952.405.7781 jkodytek@rejournals.com
May 2014
Christopher Dolan
REAL ESTATE SERVICES Continental Property Group, Inc. 1907 Wayzata Blvd, Suite 250 Wayzata, MN 55391 Tel-952-473-1700 www.leasespace.com
Monroe Moxness Berg 8000 Norman Centeer dr. #1000 Minneapolis, mn 55437 952-885-5999 www.mmblawfirm.com
REAL ESTATE EDUCATION MN Real Estate Exchangors Henry votel 651-426-1610 Www.mree1031.com Info@mree1031.com