Is the LaSalle Plaza Purchase the Start of Downtown’s ‘Reset?’
Amidst the perpetual shift in downtown office space, Eden Prairie-based Hempel Real Estate has reentered downtown Minneapolis for the first time since 2015 with the purchase of the LaSalle Plaza.
It’s no secret office space downtown has struggled to retain both tenants and workers. This has driven down the property value of large office towers, which Hempel, it seems, is just beginning to capitalize on.
In a call with TCB, Hempel’s chief operating officer Nicholas Monson declined to comment on how much the company paid for the 30-story, 621,000-square-foot office tower located between Hennepin and LaSalle avenues, but he confirmed that it was far less than what it would have cost to purchase two years ago. While Hempel is not sharing the final price tag for the property, Hennepin County property records place the building’s market value at $76.4 million, down from its peak market value of $103 million in 2021.
“We do expect there’s going to be a continuing kind of reset of values downtown,” Monson said.
But he also noted developers’ favorite buzzword of late “flight to quality.” Commercial tenants aren’t looking for the cheapest option, he said. They’re looking for office space that will make employees want to come to the space. With this in mind, Hempel has plans to renovate the more than 30-year-old building, which features a Crave restaurant in its lobby, and provide new amenities to tenants. This includes small adjustments like the addition of a pickleball court on the first floor and upgrades to the building’s fitness space. Hempel also plans to fully update the building’s elevators. But the firm is also trying to offer new services like a concierge driver service offering a Cadillac Escalade ride for building occupants on the go.
One primary driver for the “flight to quality” is that businesses are generally now looking for less space, Monson said. This was another reason the LaSalle building appealed to Hempel. There are already around 40 tenants in the building filling about 70% of the tower. LaSalle Plaza features 20,000 square foot floor plates. This “manageable” office size makes adjusting spacing for tenant needs far easier, he said.
“If you’ve got a tenant that needs 4,000 square feet (of space), we can accommodate that a little bit easier on the floor plates at LaSalle Plaza compared to an IDS for example that has really large (floor) plates or even The Dayton’s Project, which has massive floor plates.”
Cost of redevelopment also played a role in the decision to purchase an existing tower. Redevelopment of a building would cost far more than purchasing in the current market, Monson said.
“There’s a reset happening and we’re buying this building at a fraction of what it would cost to rebuild it,” he said. ” You couldn’t rebuild this building in today’s market. It just wouldn’t work. So what that does is it allows us to do a lot of things downtown we think some other buildings aren’t at a point of being able to do.”
The acquisition of LaSalle Plaza involved property-assessed clean energy (“PACE”) financing, preferred equity, a ground lease, and traditional mortgage financing, according to a news release announcing the deal. The real estate firm bought LaSalle from Northwest Mutual, which took possession from the previous owner, Teachers’ Retirement System of the State of Illinois, according to the Star Tribune.
And Hempel has plans in the works to purchase more downtown, according to a statement by company CEO Josh Krsnak.
“After selling our last high rise in Downtown Minneapolis in 2015, we have been patiently waiting for asset pricing to adjust,” he said. “We are starting to see seller expectations come in line with today’s market dynamics. We intend to be a very active player in the downtown real estate market in the years to come.”