Call it an industrial-strength rebound for commercial real estate. Five years ago, there was not a single new industrial property under construction in the Twin Cities. But today business is booming. In April, Bloomington-based Cushman & Wakefield/NorthMarq tallied 10 local industrial projects topping 1.5 million square feet of space under construction across the metro. Projects include a new 217,000-square-foot production facility in Shakopee for California-based Shutterfly, a deal that Gov. Mark Dayton worked to help land.
But there’s much more. A new outlet mall is set to open in Eagan. A big expansion is underway at the Mall of America. Fancy new apartment buildings are going up all over town. Developers are busy again with medical, data center and hotel projects.
This spring construction workers began ripping apart a deteriorating parking ramp in downtown Minneapolis. The destruction clears the way for renewal: a gleaming new nine-story office building will rise on the site at the north end of Nicollet Mall for Fortune 500 company Xcel Energy Inc.
The build-to-suit project for Xcel is one of three big new office projects, including the Downtown East redevelopment (in the area around the new Vikings stadium), that will start construction this year. Combined, the projects will add nearly 1.5 million square feet of new office space. When the projects are finished in 2016, they will be the first new office buildings in downtown Minneapolis in 15 years.
“We’re all chasing some of the same deals,” says Tim Murnane, president and CEO of Opus Holding LLC, parent company of the Opus Group, which is developing the Xcel project. “The competition for build-to-suits right now is pretty ferocious.”
Construction cranes are sprouting like weeds across the metro. In Bloomington at the Mall of America, a $325 million hotel/retail/office expansion is underway, marking the largest expansion of the mall since it opened in 1992.
Industrial-Strength Comeback: Twin Cities commercial projects under construction
• Industrial: 1.55 million square feet
• Retail: 1.4 million square feet
• Medical Office: 449,000 square feet
“Money has come back into the real estate market,” says Bob Solfelt, vice president and general manager with Golden Valley-based Mortenson Development, a partner on the Mall of America project. “There are investment partners, both equity and debt, that make some of these projects feasible.”
As projects bounce back, jobs are returning. In 2013, the state posted the highest level for construction employment in the last five years. According to mid-April statistics from the state’s Department of Employment and Economic Development (DEED), Minnesota added more than 9,000 jobs in the 12 months through the end of March, a year-over-year gain of 11.1 percent for the industry in the state.
“It’s really outpacing all other sectors of the economy, at least over the last year,” says Steve Hine, director of the Labor Market Information Office for DEED, of the construction employment market in Minnesota.
Commercial development is now at its highest level since mid-2008, according to Bloomington-based Cushman & Wakefield/NorthMarq. The real estate firm is tracking 3.4 million square feet of new commercial projects under construction in the industrial, retail and medical office sectors across the Twin Cities.
New apartment projects are driving much of the rebound. The city of Minneapolis set a new record for construction building permits in 2013, with the project value of permitted projects topping $1.2 billion, largely for multifamily projects. That’s more than double the $547.6 million posted in Minneapolis in 2010, the recent low-water mark for new construction in the city. The brutal days of 2009 and 2010, when business ground to a halt, are slowly receding in the rear-view mirror.
Collin Barr is president of the North Central Region for Minneapolis-based Ryan Companies US Inc., and says that business is booming. “We’re more than double, if you just look at total volume, where we were in 2009.”
Ryan Cos. are building the new $63 million Lowertown Ballpark.
The Broadway entrance to the Lowertown Ballpark.
Riding the rebound: The Opus Group
The Opus name ranks among the titans of development and construction in Minnesota. But the company was badly bruised by the recession. Three of Opus Corp.’s five regional operating companies filed for bankruptcy protection in 2009. In 2010 Opus veteran Tim Murnane took the helm to lead a restructured firm, the Minnetonka-based Opus Group.
Murnane steered Opus back on course. The company now has about 329 employees, double the number of staffers when Murnane returned in 2010. Murnane says that Opus now has approximately $500 million of projects under construction or close to breaking ground. In March, the company opened an office in Phoenix as it continues to flex its muscles.
Murnane says that the revived Opus has focused on market-rate apartments and student housing, speculative industrial projects and build-to-suit office deals. Locally, the company’s marquee projects include the Nic on Fifth, a luxury downtown Minneapolis apartment tower opening in August, and the 222,000-square-foot building for Xcel Energy.
Opus is also betting big on the rebound of the industrial markets by pursuing “spec” (speculative) projects—that is, buildings without committed tenants. Murnane says that Opus currently has 2.5 million square feet of spec industrial projects under construction in several markets (Chicago, Indianapolis and Columbus, Ohio), as well as the 200,000-square-foot Valley Park Business Center in Shakopee, which has been a busy local niche for industrial projects.
“The spec industrial market is something that we’re definitely bullish on. I think the thing that distinguishes Opus in the market today is that we are taking development risk,” says Murnane. “We are putting our own equity into these development projects. In some cases we’re doing 100 percent [of] our own equity. In other cases we’re doing joint ventures.”
Opus was a newcomer to the multifamily market when it was part of the development team for Grant Park and the Carlyle in downtown Minneapolis. Now it’s one of the anchors of the Opus book of business.
“We diversified our approach. Our strategic plan called for us to make a concentrated effort to be in the student housing space and to take risk in that area … as well as in the multifamily market. That was part of our strategy,” reflects Murnane. “We’re in that space for the long term.”
While Opus has both development and construction arms, Murnane says that the company’s development division is driving the bulk of its business.
Even so, Murnane remains cautious about the big picture.
“The pace of the recovery has been kind of tepid. … I think it’s really premature to declare victory. This economy is not growing like it should or it could,” he says. “I think we all have to remember what 2008 and 2009 were like, because it doesn’t take long to get right back there.”
Ryan’s hope: Busy beyond Downtown East
During the downturn, Ryan Cos. rode out the tough times by doing work for some long-term customers. But that often meant traveling to other parts of the country for projects.
“In some of the toughest times for us in 2009, 2010, only about 30 [to] 40 percent of our work was in the state of Minnesota,” recalls Barr. “Now when I look at our workload, we’re about 80 percent in the state of Minnesota.”
The private, family-owned Ryan Cos., which now has 873 employees, posted revenue of $708.4 million in 2013, as new projects continued to surge. The company declines to disclose specific revenue figures for 2009.
Ryan’s project list is topped by the ambitious Downtown East redevelopment plan, which calls for 1 million square feet of office space in two new towers to be owned by Wells Fargo & Co. But the company is also finishing up a two-building expansion for Target Corp.’s northern campus in Brooklyn Park, totaling about 650,000 square feet of space. Both projects reflect a trend for larger companies looking to own their own property, rather than lease space in the multitenant market.
Barr has tallied up about 4.5 million square feet of major corporate facilities (3 million square feet built and developed by Ryan) and construction projects in the Twin Cities since 2012, counting projects in the pipeline such as the Downtown East deal, the Target project and the expansion of Minnetonka-based UnitedHealth Group Inc.
“That’s a big number for the Twin Cities metro area,” says Barr.
Ryan’s growing project list also includes the Shutterfly project in Shakopee, an 180,000-square-foot office/warehouse/manufacturing facility for Olympus Surgical Technologies America in Brooklyn Park, and an expansion of the Toro Co. headquarters in Bloomington.
In addition to corporate work, Ryan has also become a player in multifamily projects. The Downtown East plan will include 193 apartments; in St. Paul, Ryan is part of the team developing the Vintage on Selby, which calls for 210 apartments (208 developed by Ryan) and a Whole Foods grocery store. Barr says that Ryan is looking at apartment projects in other cities, including Chicago.
Ryan, traditionally a commercial developer, gravitated to housing projects because of the growth it saw for urban apartments and the available capital for multifamily deals, Barr says. The developer’s strategy? “Skate to where the puck’s going to be,” says Barr.
Looking ahead, Barr sees opportunities in health care (“We’re doing medical office buildings and clinics all throughout this region”), but a shakier outlook for hotels. “Those opportunities are spotty. It depends on the market, it depends on the location, it depends on the product type.”
Ryan looks to strike a 50-50 balance between third-party construction work, such as building the new $63 million Lowertown ballpark for the City of St. Paul, and development projects where it has an ownership interest.
The company is also expanding into senior housing, looking for projects where it can be a developer with an ownership interest in the deal. Ryan is a partner in the SilverCreek on Main, a planned senior housing in Maple Grove that will be the first senior housing project that Ryan has developed in Minnesota.
But Barr notes that the current uptick has not been as strong or consistent as past economic recoveries.
“This economic recovery is not robust from any measure,” says Barr. “It’s spotty. There’s pockets of growth. Probably the best overall commercial markets right now are industrial development and multifamily development.”