Uptown: Sick Corner or Healthy Opportunity?

Uptown: Sick Corner or Healthy Opportunity?

Parasole’s abandonment of the old Figlio space has observers asking whether something’s wrong in Uptown.

The one constant in Uptown is change. But for over a quarter century, the southeast corner of Hennepin and Lake was helmed by a restaurant owned and operated by Edina-based Parasole Restaurant Holdings. For most of those years, it was Figlio, the casual Italian eatery that had typified the modern Uptown; from 2009 to 2011, it was the more upmarket Il Gatto. Parasole even minted a billboard campaign based on its longtime presence, cheekily boasting: “Working the Corner since 1984.”

But as 2011 ended, Parasole not only closed Il Gatto, it walked away from months of unpaid rent and an ongoing lease (say sources; Parasole declined comment), and the corner entirely. It blamed a failed concept, initially badly executed, but in the end seemingly just too ambitious for the Uptown audience. But Parasole also cited a commercial real estate market that the company says is rendering Uptown uninhabitable for all but the highest volume businesses. The legendary corner is now looking for a tenant.

Andrea Christenson, restaurant leasing expert at the Minneapolis office of commercial real estate firm Cassidy Turley, observes that rents in Uptown are “second to Mall of America” and the $50 per square foot rents at Calhoun Square are equal to MOA. “It’s the highest rent in town, and there’s no lunch business,” she says. “How do you make those numbers work?”

Parasole cofounder and CEO Phil Roberts says that Il Gatto wasn’t “doing the revenue to justify the rent. And you need $6.5 million to $7 million in [annual] revenue to make it with that rent.” Il Gatto is the first restaurant Parasole has closed under duress in many years. Roberts does not deny Il Gatto never caught on, but he also notes that “Figlio was only doing four and a half million at the end.

His point is that as rents in Uptown have risen, it takes more than a solid performer to pay the bills. It takes a big hit, a veritable money machine.

“The rent increases haven’t tracked [those of] the rest of the Twin Cities,” says Christenson. “But sales in Uptown have been strong, so people have raised rents.”

But it’s more than the rents that have changed in Uptown. The retail crossroads has morphed in the last decade, says longtime Uptown developer and resident Stuart Ackerberg: “The party crowd has changed Uptown. It is out of balance.” Ackerberg believes Uptown now attracts more non-residents than residents—predominantly young adults coming for the hard-drinking bar scene (and summer rooftops). Parasole’s two remaining Uptown restaurants, Chino Latino and Cafeteria, cater to that clientele.

Parasole’s Roberts used to boast of Uptown’s near-perfect demographic mix: affluent young families and empty nesters to the west of Hennepin Avenue, trend-focused young adults in apartments to the east. But many of those west-of-Hennepin types are avoiding Uptown, put off, say observers, by parking costs and the hard-partying clientele. But most importantly, “what has changed for Uptown,” says Roberts, “is competition.”

Alan Ackerberg (Stuart’s cousin), who manages real estate for Parasole, says “I’m not convinced Uptown is the magnet it once was.” He points to competition for diners from the Shops at West End’s half-dozen eateries (and free parking) at 394 and 100, the Excelsior and Grand development (also in St. Louis Park, and just down the road from Uptown), nearby Lyn Lake, Northeast Minneapolis, and the bumper crop of acclaimed neighborhood restaurants popping up all over south Minneapolis.

The answer for Uptown, say many of its principal businesspeople, is a more diverse commercial mix. “Uptown needs more apparel to be viable,” Roberts believes. Says Stuart Ackerberg: “Uptown needs a daytime population. All your retail revenue has to be earned after 5 p.m. here. That’s why a lot of traditional retailers, such as flower shops, soft goods, et cetera, left Uptown a decade ago.”
Ackerberg says there is a reason that Uptown has become dominated by watering holes and national retailers: the former tend to be highly profitable and pay premium rents, while the latter are often content to break even or operate at a modest loss in Uptown, since the high-profile location delivers marketing intangibles.

For nearly three decades, Calhoun Square has been the straw that stirs the drink in Uptown, and it remains so today, though years of ownership transition and construction have muddied the waters. Marketing manager Kara Simons says that the urban mall’s years-long renovation concluded in 2011 and the center was 75 percent leased at year’s end. She says the goal is to replace Il Gatto with a local restaurant (prospective tenants were reportedly kicking the tires even before Il Gatto closed). That may be tough to pull off. Roberts’ estimate of $6-million plus in revenues to cover costs in the Figlio space means Il Gatto’s successor would need to be among the top 10 or so grossing restaurants in the Twin Cities.

“I would expect a national or regional chain to go in there,” says Stuart Ackerberg. “Maybe someone like [Chicago-based] Lettuce Entertain You,” which already operates local restaurants Wildfire, Big Bowl, and several MOA dining spots.

Christenson isn’t so sure, noting that national restaurateurs are bearish on the Twin Cities due to its high property taxes and lack of a subminimum wage for tip-compensated employees. Either way, she does not see a recalibration coming: “Uptown is and will remain an entertainment district.”

Stuart Ackerberg believes that it’s in Calhoun Square’s interest to attract national tenants: BlackRock, the New York investment concern that owns the mall, “overpaid initially, and then they put a lot of money into the renovation and parking expansion. They will want out, and bringing in national tenants helps them market the center.”

Ackerberg sees only institutional owners in Calhoun Square’s future, and suggests that a mix of national chains (with inherently better creditworthiness) makes the mall more valuable if and when it is sold. Most of the recent additions to the center, including CB2, Timberland, and AT&T, are national retailers; so are those that have come to dominate the block of Hennepin opposite the mall. Starbucks, which was part of Calhoun Square pre-renovation, is rumored to be looking at the long-empty space under the Uptown Theater’s marquee just north of the Hennepin-Lake intersection.

Calhoun Square does have some modest competition on the horizon. Stuart Ackerberg’s long delayed Mozaic development will be complete this month, and open to office and commercial tenants in the spring. Its 65,000 square feet of office space is a far cry from the expansive two-tower project that riled neighbors nearly a decade ago. The Great Recession rendered all subsequent variants moot until the current modest, parking-heavy iteration.

If Ackerberg can find tenants and financing for a planned second phase of Mozaic—comprising up to 150,000 square feet of commercial space—to be built on the Lagoon Theater parking lot, he believes enough office tenants will make Uptown home to support a more diversified retail base, though perhaps not lower rents.

Ackerberg also sees the plethora of new apartment buildings under construction around Uptown as a positive force. “A critical mass of new residents will put pressure on the restaurant scene to upgrade and adapt,” he says. “What exists in Uptown now is pretty one-dimensional and tired.”

Christenson, Roberts, and the Ackerbergs all remain bullish on Uptown. The question is whether it swings further toward a postcollege-oriented entertainment district, or whether new residents and office workers can, as Stuart Ackerberg hopes, “bring Uptown back into balance.”

Nostalgists will be pleased to know such balance may include a healthy dose of retro. “We still own the Figlio name,” says Parasole’s Roberts. “It could live again.” Just not on the corner.