Game-Changing Commercial Real Estate Developments
Is the economy slowing down? Not if you keep watch on construction cranes in the Twin Cities.
Development of new apartments, hotels, and industrial properties remains particularly robust. But there are also select office and retail projects underway.
We zeroed in on 10 large projects that all have game-changing potential in their respective markets. These aren’t blue-sky plans that someone dreamed up. The list includes developments that just opened, are under construction or close to starting, and some multiphase long-range projects that are already underway.
Market experts who keep waiting for apartment demand to slow down can keep waiting. Brent Wittenberg, vice president with Minneapolis-based Marquette Advisors, says that nearly 6,000 market-rate units were completed in 2019 and another 8,000 apartments could be delivered this year. Beyond that, his firm is projecting another 18,000 units in 2021 and 2022. Marquette Advisors tracks the rental market closely and publishes the quarterly Apartment Trends report. (It exclusively tracks market-rate units and does not count affordable, student, or senior housing.)
Community development and planning staffers in a number of cities throughout the metro say there’s little sign that developers are cooling on new apartments.
“We’re not seeing any slowdown,” says Karen Barton, community development director for St. Louis Park, of apartment projects.
“I think we continue to see strong fundamentals for multifamily,” says Phil Cattanach, director of real estate development for Minnetonka-based Opus Development Co. LLC. Opus is currently under construction on Vesi North Loop, a 218-unit project along the Mississippi River in downtown Minneapolis. The project is slated to open in June.
According to the local office of Los Angeles-based CBRE Group, there are currently 2.9 million square feet of industrial space across the metro. Of that, one million square feet is spec. The growth of e-commerce continues to be a strong driving factor for new industrial space.
The local industrial market is “as strong as ever right now,” says John Ryden, senior vice president with CBRE and a veteran industrial space broker.
As for hotels, downtown remains busy, but some suburbs are also bustling. There are currently two hotel projects under construction in Eagan and four underway in Bloomington.
“The trends in Bloomington are pretty clear,” says Schane Rudlang, Port Authority administrator with the city of Bloomington. “The market for hotels continues to be strong. The market for multifamily residential continues to be strong. And the market for office is not.”
Here are the big projects on our radar.
On medical office development: “The real estate fundamentals don’t really get too sideways. There isn’t really over-development; they’re pretty capital-intensive projects. The market’s been stable. It’s been somewhat recession-proof.” —Jill Rasmussen, principal, Davis commercial leasing
Eleven condo tower
Developers: Ryan Cos. US Inc. and Arcadia LLC
Location: Downtown Minneapolis
The multifamily market remains dominated by new apartment projects. Eleven is a rarity: At 41 stories, this luxury condo tower will rank as the tallest residential building in Minneapolis. Developers did not disclose how much it cost but billed the project financing as “the largest construction loan ever secured for a condominium project in the state of Minnesota.”
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Prices for units in the 118-unit tower start at $900,000. Developers found one of the last riverfront sites in downtown Minneapolis for the project, which broke ground in October 2019 and is set for completion in late 2021.
10 West End office building
Developers: Ryan Cos. US Inc. and The Excelsior Group
Location: St. Louis Park
Speculative office developments—starting construction without a single lease signed—are very rare these days. But partners Ryan Cos. and the Excelsior Group saw an opening for a “spec” project in the West End area near the intersection of Interstate 394 and Highway 100. The West End micromarket has the lowest office vacancy in the Twin Cities. An “If you build it, they will come” mentality reigns: Developers think tenants already want to be there but don’t currently have the option of choosing a new building outfitted with the latest amenities. The 343,000-square-foot 10 West End building is under construction and slated to open in early 2021. If all goes well, there are plans for a second phase: 20 West End, which would be a similarly sized office building.
Scheels new retail store
Location: Eden Prairie Center, Eden Prairie
Nobody’s building big stores anymore? Nobody told Scheels, the Fargo, North Dakota-based retailer of sports, hunting, fishing, and camping apparel and gear. Scheels new Eden Prairie store is in a class by itself at 250,000 square feet: bigger than big box. (The company is opening a 330,000-square-foot store in Dallas in April.) The project will stand on the site of the mall’s former Sears store and will also include a 16,000-gallon aquarium, a 45-foot-high Ferris wheel, and its own restaurant (Ginna’s CafÃ©). The store is slated to open on July 11 and will replace the 30,000-square-foot store that Scheels has had in the mall since 2006. “We’ve been looking in the cities for quite some time,” says Jason Loney, vice president of store development for Scheels. “For this market, it fits what we’re trying to do.”
On the biggest development opportunities: “We’ve got three multifamily projects that we’re in the planning phase on. We will look to develop more grocery, mixed-use, or grocery-anchored centers where it makes sense. There’s still some room in certain markets for some grocery developments.We’ve been pretty focused on the first-ring suburbs.” —Mike Sturdivant, director of real estate development, Paster Properties
RBC Gateway office/hotel/condo tower
Developer: United Properties
Location: Downtown Minneapolis
The site of the demolished Nicollet Hotel sat empty for more than 25 years as a city-owned surface parking lot. After many years of failed development attempts, seeing a major tower underway on the site qualifies as a small miracle. RBC Wealth Management-US will lease 310,000 square feet of the tower’s 531,000 square feet of Class A office space. Minneapolis-based Pohlad Cos., which owns project developer United Properties, will also be a tenant. The project includes a 222-room Four Seasons Hotel, the first five-star hotel in the state of Minnesota. The unique mixed-use project also includes 31 condos. The project, under construction, is slated for completion in late 2021 and will add a strong exclamation point to the north end of the Nicollet Mall.
St. Paul Gateway apartments and hotel
Developer: Kaeding Development Group LLC
Location: Downtown St. Paul
That patch of dirt to the northwest of Xcel Energy Center in downtown St. Paul has been a patch of dirt for a long time. Historically, the site was known as “Seven Corners,” but the city is now billing it as the Gateway. Bloomington-based Kaeding Development is under construction on two adjacent projects, a 120-room Courtyard by Marriott hotel and the 144-unit Arlow on Kellogg apartments. The hotel is slated to open in early 2021; the apartments will follow that summer/fall. The project is a shot in the arm at a key site for downtown St. Paul, which sees only a fraction of the development activity as Minneapolis.
Fillmore Minneapolis music venue and Element Downtown Minneapolis hotel at Target Field Station
Developer: United Properties
Location: Downtown Minneapolis
By this point, you’d think that there would be no more room to build anything in the North Loop area of downtown Minneapolis. But you’d be wrong. In mid-January, Minneapolis-based United Properties announced completion of a one-of-a-kind project for the Twin Cities: A single 150,000-square-foot building housing two very different components. The 156-room Element Downtown Minneapolis hotel opened in mid-January. Under the same roof is the Fillmore Minneapolis, a new 1,850 capacity music hall that began holding concerts in mid-February. Now you just have to find a place to park.
On a housing trend to watch: “If you take a look at the fundamentals, we are still not building enough housing. The biggest change will be affordable housing. There’s going to be a unique change whereby cities start taking advantage of their own tools. I think cities will fill that void.” —Tony Barranco, senior vice president of real estate development, Ryan Cos. US Inc.
Developer: Solomon Real Estate Group
It’s been a long road to redevelopment, but Eden Prairie-based Solomon Real Estate Group has big plans for this 12.5-acre Edina site. Solomon is finished with the first phase of the parking ramp and is now under construction on two retail buildings with a combined 11,500 square feet that will bring restaurants to the site. Ultimately, plans call for two hotels, two office buildings, more retail, and a public plaza. Iowa-based Hawkeye Hotels is slated to start building the Barrett Hotel this spring. Solomon principal Jay Scott is hoping to be able to start construction on a new five-story, 160,000-square-foot office building soon. “We obviously need a lead tenant to kick it off,” Scott says. “I hope that we’re in the ground with that early 2020.”
Developer: Bader Development
St. Louis Park-based Bader Development acquired the 22-story, 113-unit Calhoun Tower in late 2016 with big plans. In 2018, the city of Minneapolis approved a plan with two towers and a total of 744 units on the site. That’s been tweaked: Bader is now planning a single tower plus some smaller buildings that will still include roughly the same number of units. Bader is hoping to get underway on 620 units in late spring: a tower with 369 units and two seven-story buidlings. It still ranks as one of the metro’s largest apartment projects.
Omni Viking Lakes Hotel
Developer: MV Ventures
The Wilf family, which owns the Minnesota Vikings, made their money in real estate but have not done much development in Minnesota until Viking Lakes began taking shape on a 200-acre site in Eagan. The Omni Viking Lakes Hotel, the latest piece of the picture, is currently under construction and slated to open on October 1. It will have 320 rooms and 25,000 square feet of conference space. The city of Eagan approved the site for a mind-boggling 3.2 million square feet of development. The plan includes approximately one million square feet of office space and 1,000 residential units on the site. Two of the apartment buildings with a combined 261 units are slated to start construction at the beginning of April. As for the commercial space, John McCarthy, senior managing director of the Minneapolis office of New York-based Newmark Knight Frank, says, “Right now we’re letting the market drive what is needed.”
On the outlook in Rochester (where Mortenson is proposing the 125,000-square-foot Discovery Square Two): “There’s a lot of multifamily that’s been delivered there. I think we’re always keeping an eye on what’s possible in Rochester. We’re being really intentional with the tenants that we’re trying to court.” —Brent Webb, development manager, Mortenson
Developers: Canterbury Development LLC and various other developers
Even Shakopee isn’t too far flung for large development projects. Bloomington-based Doran Cos., in a joint venture with Canterbury Development LLC, is close to completing The Triple Crown, a 321-unit apartment project. Occupancy starts in June. A second phase with approximately 300 additional units could start late this year or in the spring of 2021. Other developers are expected to build senior housing, a hotel, and a potential headquarters office for a regional business.
Burl Gilyard is TCB’s senior writer.