Mrej February 2016 by REjournals

VOLUME 32, NUMBER 2

February 2016

CBRE’s Freytag and Karkula: Plenty of office activity in the Minneapolis suburbs today What amenities do companies want when they are looking for office space in one of the suburbs?

By Dan Rafter, Editor Urban centers are getting all the press today. But the suburban commercial real estate market is soaring, too, today in the Twin Cities area. Minnesota Real Estate Journal recently spoke with Jim Freytag and Brent Karkula, office brokers with the Minneapolis office of CBRE, about the strength of the suburban office market here. Both brokers agreed: The suburban office market isn’t an afterthought today. It’s a first choice for many companies. Minnesota Real Estate Journal: We all hear a lot about what office users want when it comes to urban office properties. But what about in the suburbs?

Jim Freytag: We work in the suburbs and some in down Minneapolis and the urban core. We have a pretty good perspective on a whole lot of things. The tenants today are looking for amenities in the suburbs today. It’s often about walkability. People want to be near a lot of service amenities. They want their employees to have access to food options over their lunch hours. They want their employees to have access to workout amenities. They want their office buildings to be located near apartments or near hotels for when employees have Suburbs to page 16

Multifamily development soaring in Detroit, Minneapolis and Chicago – but affordability remains a challenge By Dan Rafter, Editor

ultifamily development remains hot across the Midwest. For proof of this, look to the key Midwest cities of Minneapolis and St. Paul. These two cities saw significant new apartment projects in 2015, projects that added hundreds of new apartment units to these metropolitan regions.

And these cities will see even more multifamily development in 2016. RENTCafe, a national apartment search Web site and a part of research company Yardi Matrix, provided some interesting numbers to Midwest Real Estate News. According to RENTCafe, Minneapolis saw the addition of 11 new rental developments with more than 50 units each in 2015. These additions brought 1,905 new apartment units to the Minneapolis market, with

the WaHu student-housing development adding the greatest number, 329 units. In St. Paul, RentCAFE reported, two new apartment projects of more than 50 units each opened, bringing 362 new multifamily units to the city. Vintage on Selby led the way here with 210 new units. These cities are hardly outliers. Developers are adding multifamily units to Kansas City, Indianapolis, Multifamily to page 18

February 2016

Contents

Minnesota Real Estate Journal

FEBRUARY 2016 • VOLUME 32, NUMBER 2

CBRE’S FREYTAG AND KARKULA: PLENTY OF OFFICE ACTIVITY IN THE MINNEAPOLIS SUBURBS TODAY MULTIFAMILY DEVELOPMENT SOARING IN DETROIT, MINNEAPOLIS AND CHICAGO – BUT AFFORDABILITY REMAINS A CHALLENGE

COMPANIES, NOT JUST RESIDENTS, FLOCKING TO THE URBAN HEART OF THE TWIN CITIES

ENCOMPASS, INC.: DELIVERING INNOVATIVE ENGINEERING SOLUTIONS—HIGH AND WIDE

Page 3

Departments PEOPLE

NEWS

Minnesota Real Estate Journal (ISSN 08932255) Copyright © 2016 by the Minnesota Real Estate Journal is published for $85 a year at 12 times per year by Jeff Johnson, 13700 83rd Way North, Suite 206, Maple Grove, MN 55369. Monthly Business and Editorial Offices: 13700 83rd Way North, Maple Grove, MN 55369 Accounting and Circulation Offices: Jeff Johnson, 13700 83rd Way North, Maple Grove, MN 55369 Call 952-885-0815 to subscribe. Application to mail at Periodicals postage at Maple Grove, MN, and additional mailing offices (if applicable). For more information call: 952885-0815. ©2016 Law Bulletin Publishing Co. No part of this publication may be reproduced without the written permission of the publisher.

Page 4

Minnesota Real Estate Journal

February 2016

People a division of Law Bulletin Publishing Co.

Cushman & Wakefield/NorthMarq Recognizes Top Employees 13700 83rd Way N, STE 206 Maple Grove, MN 55369 For information call 952-885-0815

Publisher | Managing Editor Jeff Johnson jjohnson@recg.com Associate Publisher Jay Kodytek jkodytek@recg.com Consulting Editor Dr. Tom Musil tamusil@stthomas.edu Conference Manager | Art Director | Graphic Designer | CE Specialist 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. 13700 83rd Way N, STE 206 Maple Grove, MN 55369 For information call 952-885-0815

Cushman & Wakefield/NorthMarq (www.cushwakenm.com) recognized two long-time employees for their exceptional work throughout 2015 with its annual President’s and Community Service Awards. Chosen by Cushman & Wakefield/NorthMarq President Jeff Eaton, each award recognizes the outstanding contributions of the individual to the business and the community. Both were announced at the annual Cushman & Wakefield/NorthMarq employee meeting held in late January. • 2015 President’s Award – Long-time Cushman & Wakefield/NorthMarq Executive Director Paul Donovan was given the company’s highest honor after posting one of the best years of his 13-year brokerage career in 2015. Donovan is a leader and teacher to those around him, sharing the lessons he’s gathered with both members of his own team and others throughout the company. Paul, in collaboration with many Cushman & Wakefield/NorthMarq employees, particularly Jaclyn May and Jeremy Striffler, was involved in several high-profile transactions in 2015, including lease renewal and/or relocation of top law firms Winthrop & Weinstine and Lindquist & Vennum, the sale of the former Minnesota AIDS Project headquarters and location and opening of a new Blue Cross and Blue Shield of Minnesota office in northeast Minneapolis. Paul’s continued hard work for both leading companies and non-profits alike shows his versatility and great work ethic as a commercial real estate broker. Paul joined the company in 2001 and holds a bachelor’s degree in Accounting from Marquette University. • 2015 Community Service Award – A tireless advocate for the homeless, Cushman & Wakefield/NorthMarq Director Deb Carlson has risen to Vice Chair of the Board of Directors of Beacon Interfaith Collaborative, a non-profit organization dedicated to ending homelessness through housing, shelter and advocacy. Deb is a 20-year real estate industry veteran, and frequently ranks among the company’s top professionals, but she’s also known for her dedication to serv-

ing both the industry and community. When she’s not working to further Beacon’s mission, she’s also a frequent volunteer for both the International Council of Shopping Centers and the Minnesota Shopping Center Association, among other industry organizations. Deb, an alumna of the University of Minnesota, first joined Cushman & Wakefield/NorthMarq in 2003.

Cresa Minneapolis promotes Nicole Nelson to Senior Advisor Cresa Minneapolis, Inc. is pleased to announce Nicole Nelson has been promoted to Senior Advisor. In her new role, she will continue leading and providing exceptional real estate advice and service to our clients. She is known for her ability to coordinate multiple projects efficiently, and excels at building rapport with her clients. “Nicole’s exceptional service has greatly benefited her clients and has made her an important member of our Cresa Minneapolis team” said Tom Sexton, Managing Principal. Nicole is additionally an active Board Member with the International Facility Management Association (IFMA) Minneapolis/St. Paul Chapter which fosters the growth of the facility management profession in the Twin Cities.

StuartCo Hires Heather Miller as Portfolio Director StuartCo, one of Minnesota’s largest apartment management firms, announced that it has hired Heather Miller to oversee a portfolio of properties totaling just over 1,200 units including their newest development in Edina, One Southdale Place. Ms. Miller has over 18 years of experience in multi-family housing. Her career includes 16 years at CSM Corporation, beginning as an on-site manager before being promoted to a regional manager position. Most recently, she spent a year with Pinnacle Management Services as a regional manager overseeing a portfolio of 11 properties. Her extensive background includes affordable housing, new construction and property rehab projects. Ms. Miller was the 2014 MHAMADACS Award recipient in the Portfolio Manager category, and also a 2008 MADACS nominee in the Community

Manager category. She is very active in the MN Multi-housing Association (MHA) and has been involved with the Ronald McDonald House Charities, Children’s Miracle Network, Hope for the City, and Feed My Starving Children. She and her family reside in Hastings, MN.

Cresa Minneapolis promotes Steve Dorgan to Managing Principal Cresa Minneapolis, Inc. is pleased to announce Steve Dorgan has been promoted to Managing Principal. As a leader on national and global levels in the Cresa organization, Steve will continue providing the highest levels of expertise and service. “Steve’s leadership and passion for client service make him an integral member of our Cresa Minneapolis senior management team” said Tom Sexton, Managing Principal. Steve has spent 26 years in the commercial real estate industry in a variety of capacities, including government, development, and consulting. In addition, he is an active volunteer, board member, and committee member for multiple nonprofits and community organizations in St. Paul and the surrounding areas.

Cushman & Wakefield/NorthMarq Promotes Seven Brokers Cushman & Wakefield/NorthMarq (www.cushwakenm.com) announces the promotion of seven brokers from its Transaction and Advisory Services division. Mike Ohmes, Executive Vice President – Transaction and Advisory Services, had this to say, “These individuals are all very deserving of these promotions. Together, these team members represent 71 years of service to our organization and work tirelessly on behalf of their clients.” Bob Revoir promoted to Executive Director. A broker in the office market segment, Revoir represents both building owners and tenants in the Twin Cities suburban market with a roster of clients including Sun Capital Advisers, Travelers and United Properties. Throughout his nearly 20-year career with Cushman & Wakefield/NorthMarq, Revoir has represented several People to page 20

Page 6

News Dougherty Funding LLC closes $18.2 million loan for refinance and renovation of Lowry Square Building Dougherty Funding LLC has closed an $18.2 million loan for the refinance of the Lowry Square Building, located in St. Paul, Minnesota. Loan proceeds will be used by the Borrower, Lowry Building, LLC, to refinance and renovate the existing 11-story, 155,511 SF multi-family and commercial building that was built in 1926 and was operated as the Lowry Hotel for most of its existence. The building currently contains 135 apartment units, 3 floors of office space that is leased to the Ramsey County Attorney’s Office, and a to-be-built first floor and rooftop Restaurant. The building is connected to the downtown St. Paul skyway system and is conveniently located in the core part of the St. Paul CBD with close proximity to the new Central Station stop of the Green Line Light Rail, the Mississippi River

Minnesota Real Estate Journal

and its biking trail and major downtown St. Paul employers. Dougherty Funding LLC serves as lead lender and servicer for the loan.

Oppidan Completes Sale of White Bear Marketplace National property development firm Oppidan Investment Company today announces that it has sold White Bear Marketplace, a retail center it recently developed at the intersection of Highway 694 and White Bear Avenue in White Bear Lake, Minn. White Bear Marketplace includes a Cub Foods, Planet Fitness, Northern Tool, and Starbucks. The 118,627square foot retail center sits on a 12.8acre site previously occupied by Kmart. The 61,000-square-foot Cub Foods store is the first store built by Cub since 2008 and incorporates state-of-the-art services, products and amenities designed to enhance the customer experience. “Cub Foods, Northern Tool and all of our tenants are well known brand names that made White Bear Marketplace a highly marketable property,” said Paul

Tucci, a developer with Oppidan. “We were very pleased to work with these long-standing clients again on such a successful development.” Minneapolis-based CBRE Investment Properties Group represented Oppidan in the transaction.

Dougherty Mortgage LLC closes $3.5 million Fannie Mae loan for Carpenters Cove Apartments Dougherty Mortgage LLC, a full service national mortgage banking firm, recently closed a $3.5 million Fannie Mae loan for the refinance of Carpenters Cove Apartments, a 164-unit market rate multifamily apartment property located in Dallas, Texas. Property amenities include laundry facilities and a children’s playground. The Fannie Mae 10-year term, 30-year amortization loan was arranged for borrower Dallas Carpenters Cover Apartments, Ltd. through Dougherty’s Vienna, Virginia office.

February 2016

Timberland Partners Announces Start of Construction at 333 on the Park Timberland Partners recently closed construction financing and began construction on 333 on the Park in Saint Paul’s historic Lowertown district. The project will convert the once predominantly vacant Sibley Square at Mears Park office building into 134 market rate apartments with first floor retail space. The building itself was originally constructed in 1913 as the Gordon and Ferguson Building, which specialized in leather goods, furs, hats and caps. The property is well suited to a loft-style apartment conversion with an ideal location on Mears Park. Stunning interior and exterior features include concrete columns, marble accents, a classically inspired cornice and terracotta facade. The project architect is Minneapolisbased Kaas Wilson. The $41.5 million project is being financed with a HUD insured mortgage loan secured by JLL Capital Markets

Page 8

Minnesota Real Estate Journal

and equity derived from the sale of Federal and State Historic tax credits. Hopkins-based Frana Companies is the general contractor on the project. Construction will be complete with apartments ready to occupy in March 2017.

Dougherty Mortgage LLC closes $9.9 million Fannie Mae loan for Las Colinas Apartments Dougherty Mortgage LLC, a full service national mortgage banking firm, recently closed a $9.9 million Fannie Mae loan for the acquisition financing of Las Colinas Apartments, a 177-unit market rate multifamily apartment property located in Austin, Texas. Property amenities include two laundry facilities, courtyards with barbecue and picnic areas, a community room and a children’s playground. The Fannie Mae 12year term, 30-year amortization loan was arranged for borrower 1500 Reagan Hill LLC through a partnership with Old Capital Lending and Dougherty’s Minneapolis, Minnesota office.

Dougherty Mortgage LLC closes $7.9 million Fannie Mae loan for La Jolla on Meadowbrook Dougherty Mortgage LLC, a full service national mortgage banking firm, recently closed a $7.9 million Fannie Mae loan for the acquisition financing of La Jolla on Meadowbrook, a market rate multifamily apartment property located in Fort Worth, Texas. The Property was constructed in 1985 and includes 160 units located throughout 8, two-, three- and four-story apartment buildings. Property amenities include a clubhouse building with a community pool. The Fannie Mae 10-year term, 30year amortization loan was arranged for borrower TS Asset Meadowbrook LLC through a partnership with Old Capital Lending and Dougherty’s Minneapolis, Minnesota office.

MARCUS & MILLICHAP ARRANGES THE SALE OF A 19,801-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 Cedar Hills Shopping Center, a 19,801-square foot retail property located in Minnetonka, Minnesota, according to Craig Patterson, Regional Manager of the firm’s Minneapolis office. The asset sold for $2,605,000. Sean Doyle, Cory Villaume, 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 private investor. The listing team also secured and represented the buyer, a partnership. Speaking with Mr. Villaume, “This transaction is a great example of continued investor demand for well-located neighborhood centers. This asset generated multiple offers, and ultimately sold to a local investment group involved in a tax deferred exchange. The center had some vacancy, giving the new ownership the opportunity to increase value.”

February 2016

Cedar Hills Shopping Center is located at 10976 Cedar Lake Road in Minnetonka, Minnesota.

Doran Construction Honored as General Contractor of the Year at Minnesota Construction Association Annual Gala At its Awards of Excellence gala on January 27 at the Minneapolis Golf Club, the Minnesota Construction Association (MCA) honored Bloomingtonbased Doran Construction as General Contractor of the year for 2015. In presenting the award, the MCA recognized Doran Construction’s rapid growth in the industry and its stellar reputation for excellence in building large multi-family residential projects in the Twin Cities market. Kelly Doran, owner and founder of the Bloomington-based company gave credit to “an outstanding team of leaders and an extremely talented group of project managers, construction superintendents and administrative staff. We all know that success doesn’t come easy, so

EXTEND THE LIFE OF YOUR ROOF Learn to identify roof deficiencies and apply that knowledge to your roof. Properly maintaining your roof will prolong its life!

KNOW YOUR OPTIONS Understand the roof types and installations available to you and how they will perform on your building.

Page 10

this honor is about people working very hard, with a passion for quality and paying great attention to detail.” Scott Casanova, Senior Vice President of Construction, noted that since 2010 Doran has built over 20 multifamily and mixed use projects. “While we are very proud of our record building multi-family, our crews are very good at construction in general. For us, it’s about staying ahead of the curve and serving our customers. Whether a project is big or small—retail, multifamily or office—we go at it with integrity and a proven process for success.” Casanova pointed to the company’s recent completion of Latitude 45, a 13story 319-unit Class A Market Rate apartment project developed by Alatus and located on Washington Avenue South in Downtown Minneapolis. “This was a 409,000 square foot posttension concrete structure that we completed under budget and ahead of schedule—that’s something to be proud of.

Minnesota Real Estate Journal

New Leases Signed at Brookdale Corporate Center Stewart Capital Partners announced that they have completed four new lease transactions at Brookdale Corporate Center with the following tenants: • Brooklyn Center School District Offices, represented by Neil Kolatkar, CBRE • Brooklyn Center Sports & Injury Clinic, represented by Alon Ventura, CCIM, A-1 Asset Management, LLC • Dr. Jeffery Jaeger, DDS, represented by Gary Lally of Hoyt Properties • National Benefits Group, LLC, represented by Tom Desautel of CBRE "On behalf of the property owner, Stewart Capital Partners, we are excited about the momentum and quality of leasing activitiy at Brookdale Corporate Center,” said Dick Schadegg, leasing agent for Brookdale Corporate Center and President of Schadegg Commercial Real Estate. “Brookdale Corporate Center provides the perfect blend of service, quality environment, excellent freeway access and afford-

ability. And due to the tight office market along I-394 corridor, we have begun to see a migration of tenants to Brookdale Corporate Center which is only 5 minutes away from the intersection of I-394 and Hwy. 100." Schadegg said. Brookdale Corporate is a recently renovated, two-building office campus centrally located ten minutes from downtown Minneapolis at the intersections of I-94/694 and Highway 100 in Brooklyn Center, Minnesota. Each building is comprised of six stories totalling 228,000 square feet. Major tenants include Kidney Specialists of Minnesota, University of Minnesota Physicians, Merkle, Savvy Sherpa, National American University, Carson, Clelland & Schreder Law Offices, Endodontic Associates Limited and First Step Group.

CBRE Multifamily Announces $35 Million Sale of Eagan Apartment Community CBRE announced today that it has

February 2016

sold the 231-unit apartment community Royal Oaks in Eagan, Minnesota. Keith Collins, Abe Appert, and Laura Hanneman of CBRE’s Minneapolis office represented the seller, ML Casa III, LP, an entity controlled by TIAACREF (New York, NY). Timberland Partners, Inc. based in Bloomington, Minnesota, purchased Royal Oaks for $34,950,000. The deal closed Friday. Timberland Partners plans to renovate the clubhouse and to continue the apartment home update program that the seller had started. Timberland Partners currently owns more than 10,700 apartment units and 550,000 square feet of commercial property in 12 states. Royal Oaks was built in 1987 and is located in the east metro suburb of Eagan near major retail and employers in the area. The property has a full amenity package with an outdoor swimming pool, clubhouse with fitness center and community room, along with a playground and picnic/grill areas. News to page 18

Page 12

Minnesota Real Estate Journal

February 2016

Companies, not just residents, flocking to the urban heart of the Twin Cities By Dan Rafter, Editor The trend is a strong one: Residents are moving in increasing numbers to the urban center of the Minneapolis/St. Paul area. Developers are rushing to add multifamily units to meet this demand. But the push toward downtown living is also bringing new companies to the center of Minneapolis and St. Paul, something that is changing the office market here. Minnesota Real Estate Journal recently spoke with Dick Keller, first vice president with the Minneapolis office of CBRE, about the increasing activity in the downtown Minneapolis/St. Paul office market, and the trends he sees for the future of this sector. Live/work/play: Tenants are focused today on downtown CBDs or suburban markets that have a lot of amenities. They are going after these live-work-play environments. There is a lot of that in downtown Minneapolis, so companies are migrating toward that market. They want to attract the best employees, and to do that they need a presence in the downtown. A nation-wide trend: Minneapolis isn’t alone in this trend. There was a real good example of this in Chicago, for instance, when Motorola Solutions moved from the suburbs back to the city’s downtown. A lot of companies

today are looking for the synergies they get in a CBD area. At the same time, the residential component in downtown Minneapolis has exploded. Companies are now concerned about drawing from the best pool of talent possible. Being downtown opens up more of an opportunity for them to draw from the entire metro area versus being isolated in a suburb. Low unemployment: We’re lucky, too, in that we have a low unemployment rate in Minneapolis. Historically, the unemployment rate in Minneapolis usually hovers about 2 percentage

points below the national average. That is indicative of the fact that we have a pretty strong office market. It makes sense, then, that companies would want to rent an office in the center of town where they can better compete for the best workers. High-tech boom: We are still seeing high-tech industries consuming much of the office space in the center of town. These users are looking for that brick-and-timber feel. A lot of landlords have responded to this, including Class-A buildings, by taking out ceiling tiles and going back to cement floors. That’s a real difference compared to 10 or 15 years ago. Back then we would never want to show a space that didn’t have an acoustic tiled ceiling or carpeting. The swing of the pendulum has been quite interesting. Today, there is also more of an emphasis on open space, collaborative space. A lot of these high-tech companies want a space that feels more fun. Some of the more astute landlords have catered to that trend and have revamped their spaces accordingly. Hot in the North Loop: The North Loop submarket of Minneapolis is one of the hottest office markets we have

right now. In our 2015 report, this neighborhood had an office vacancy rate in the area of 7.1 percent, which is a little less than half of what the office vacancy rate is for the overall metro area. It is a fairly small market, but it is a hot one right now. Three key industries: The three major industries that have accounted for most of the leasing activity in 2015 in the office market are healthcare, which has accounted for about 26 percent of the leased office space, legal at 22 percent and accounting and business services at 21 percent. When you add those three industries up, those sectors account for 69 percent of the leasing activity last year in the office market. Waking up in St. Paul: The St. Paul CBD office market has historically been pretty sleepy in the past. There is a lot of government space over there. But nonetheless, it is an important market. It had an absorption of 220,000 square feet last year. In the previous 10 years, the cumulative absorption in the office market here was a negative Downtowns to page 18

Page 14

Minnesota Real Estate Journal

February 2016

Company Profile

Encompass, Inc.: Delivering Innovative Engineering Solutions—High and Wide Edina Firm Makes a Habit of Solving Difficult Problems, from Holding Back Hillsides to Restoring Burned-Out Churches

he management of Encompass, Inc., Eden Prairie-based consulting engineering firm, never knows what challenges may walk in their door on any given day. It could be (and has been) holding back a collapsing hillside in the Kenwood neighborhood of Minneapolis, restoring a historic church in Shakopee after a major fire, supervising the total re-cladding of the exterior of a 15-story condo tower plagued by water intrusion, or managing the replacement of thousands of failed window systems in another Minneapolis development. Whatever the project, the firm routinely lives up to its name, providing all-encompassing forensic engineering and architectural services to a wide swath of clients and projects across the Upper Midwest and nationwide. Encompass’ recent caseload has

been even more challenging—simultaneously juggling the rehabilitation of historic signs on top of an 8-story condo complex in downtown Minneapolis while also supervising the repair of the failing stone facades of dozens of retail storefronts spanning the U.S. Two iconic neon signs dating from the 1930s atop the North Star Lofts building located on Minneapolis’ riverfront---recently restored and redeveloped as luxury condominiums—had reached a stage of deterioration that began to pose safety problems for street-level traffic below. Portions of the metal framework supporting each of the signs, one on top of the building’s vacant penthouse facing the river, and another on the side facing downtown, were rusting badly and at risk of total collapse. Although the neon on both signs had been dark for many years, they were floodlit and still sufficiently visible and prominent to distinctively brand the condos below them, among the earliest and most desirable luxury condo conversion projects in the city.

Roger Hale, president of the North Star Lofts homeowners association, summed up the project and its importance very simply: “Restoring historic signage on a historic building in a historic district---and a great amenity for the entire neighborhood because of their prominence on the skyscape.” Kate Grutzmacher, director of business development for FirstService Residential, the firm managing the building for the homeowners’ association, said the rehab of the 85-year old signage was the last step in a total restoration of the building, including tuckpointing of its entire exterior—work that was also supervised by Encompass. “When the association decided to go forward with the complicated—and expensive—rehabilitation of the signs, Encompass was the clear choice to coordinate the project,” she said. “We had a long history with them, and they had a proven track record of solving difficult problems for us and other owners.” “Rehabilitation involved removing the signs, along with their 30-foot tall

supporting framework, and lowering them eight stories to the street below while carefully protecting the original materials and structure for repairs,” said Nate Wilson, P.E., Encompass staff engineer who led the project. Since being reinstalled in late fall after work was completed, the signs once again shine over downtown Minneapolis, looking much as they did when they were put in place in the early 1930s, but now with LED lighting rather than neon. Encompass’ evaluation of the signs’ condition and their prospects for being restored and rehabilitated were key to negotiating a $243,000 grant from the State Historic Preservation Office, according to Hale. The balance of the project’s $350,000 cost was covered by the association’s reserves If you are a major national retailer and suddenly have 120 stores across the country faced with the same building failure issue, responding quickly is mandatory, but even “quickly” may not be fast enough. Encompass to page 18

Page 16

Suburbs From page 1

visitors coming to town. They want entertainment options for after work, restaurants and bars, that type of thing. The most notable area in the suburbs that fits that is the West End area in St. Louis Park. You have the Shops at West End, a number of watering holes, a movie theater. There have also been a number of apartments built in that area. There’s a grocery store right there. A lot of office users say they want to be right there. MREJ: What else are office users looking for in the suburbs? Freytag: Many want to be close to some green space. We are marketing one of the new Ryan projects in the Downtown East development, the Millwright building. That building is going to be new construction designed to look like a 100-year-old vintage warehouse building. It will have brown brick and will be pedestrianfriendly. There will be a fourth-floor terrace for green space and best-inclass bike storage on the ground floor

Minnesota Real Estate Journal

of the building. If people want to ride their bikes to work, they can ride them right into the building. There are going to be lockers and showers, too, so you can clean up after yourself. MREJ: So owners are spending more on filling their buildings with amenities? Brent Karkula: Back in the day, building owners might renovate some corridors with new carpeting and wall coverings and wait for market to come to them. They would fill their buildings through increased demand. Now landlords are taking a hard look at the amenity packages and condition of buildings. They are not just spending $100,000 to do this, they are spending millions to reposition these buildings. It is effective. They buy them for a certain price and sink money into the common areas. The rental rate you can offer is still significantly lower than new construction. Freytag: The bad news is that rental rates are going up. The good news is that owners want to provide a work environment so that tenants are feeling better about paying that higher rent. The tenants feel that they are get-

ting some bang for the buck. We as a group, I can think of five different buildings that we have traded recently. The owners are looking at what do we need to do to spiff up the image of these buildings. They want to make them as modern as possible. There is not a lot of new construction happening in the suburbs. Market fundamentals will help push up the occupancy and rental rates because of that. When you couple that with these owners looking to make investments in these assets, you are looking at some good long-term value in the suburbs. Tenants will see some nice office product come out of these improvements. MREJ: It sounds, then, that there is still a solid demand in the Twin Cities market for suburban office products. Freytag: Not everybody wants to or needs to be downtown. Not every company needs to have a location downtown. There is a movement to create a new urban suburban type of development. Suburbs are trying to create their own urban feels. It is possible to create suburban developments that are walkable and that are located near shops and restaurants and other

February 2016

amenities. That is what people are looking for today. Not everyone wants their offices to be downtown. Not everyone has a workforce that is under 35 that wants to walk to work, go to the bars and the head back to work until 10 p.m. Karkula: If you are someone like an accounting company, you don’t need to be in downtown. You don’t want to deal with the headaches that come with being downtown. Healthcare is another industry that is very loyal to the suburbs. United Healthcare has many buildings in Minnetonka and Eden Prairie. Prime Therapeutics stays loyal to the suburbs. Where is your workforce? Where are your labor pools? You then base your decision on that

Page 18

Minnesota Real Estate Journal

February 2016

Multifamily From page 1

Cincinnati and Louisville, too. In fact, they're building new apartment developments in cities all across the Midwest. This leads to the big question: Are developers adding too many apartment units in some markets? Is there a chance that supply will outstrip demand in certain regions? Paul Fiorilla, associate director of research with Yardi Matrix, said that this isn't a worry yet, especially in the downtowns of large urban markets, where the majority of the new apartment developments are rising. The demand in most urban markets -though there might be a bit of oversupply in Austin, Houston or maybe Washington D.C. -- remains higher than the available supply, Fiorilla said. "There are a whole bunch of reasons," Fiorilla said. "Populations are increasing in urban areas, and in particular in the prime 20- to 34-year-old renter group. Strong job growth is producing high numbers of household formations. Homeownership rates are showing no signs of recovering because of individual preferences, credit issues and the difficulty in affording down payments. Millennials and retiring Baby Boomers are increasingly choosing urban areas to live." Apartment vacancy rates are evidence of all this, Fiorilla said. He said that nationwide, multifamily vacancy rates average about 4 percent, which is quite low. "Even if supply oversteps demand in some markets, the increase in the vacancy rate would still only put market vacancies closer to historical norms, which we don't see as a serious problem," Fiorilla said. The amenities When people do move into downtown multifamily developments, what amenities do they want? Fiorilla said

that many of the most sought-after amenities are being provided not by the multifamily developments, but by cities themselves. "Cities are becoming much more livable than they were in the past," Fiorilla said. He pointed to the investments many Midwest cities have made in parks, bike paths, shopping and entertainment options. At the same time, crime in most cities has actually dropped significantly, he said. The amenities that apartment buildings are offering, though, are impressive. Fiorilla cited gyms, pools, shared workspaces, fast online connectivity and on-site restaurants as some of the most popular apartment perks today. This is all good news. But it doesn't mean that the multifamily market does-

n't face challenges. One of the biggest? The new supply of apartment buildings is overwhelmingly targeted toward the high-end buyer. Renters seeking new affordable multifamily projects won't find much available to them. "If there is a concern about supply, it is in the arena of affordability," Fiorilla said. "The increasing cost of land and labor has made new construction very expensive, so many developers say they can only make needed returns by building units marketed to upperincome renters. The problem with this is an obvious one: There are only so many upperincome rental households out there. This means that the new apartment supply is increasingly geared toward those earning bigger incomes while a significant portion of the demand for

Downtowns from page 12

Encompass from page 14

25,000 square feet. St. Paul’s office market is starting to come alive. That’s good news for the overall office market in this region.

The problem? Manufactured stone veneer facing on many of the stores, most of them built within the last five years, was loose and in some cases falling off, usually directly over the main store entrance and customer walkways. The falling veneer, applied using traditional “surface applied” methods by the facilities’ original contractors was much more than an aesthetic issue—it posed real dangers and risk of harm to the chain’s employees and customers. The retailer recognized immediately that it needed outside help, and identified Encompass as one of the few firms who could handle a problem of its scope and urgency. “Given the urgency and the short duration of time to fix the problem, there was no way the retailer’s small corporate staff could fly to 120 locations, gauge the scope of the problem in each situation, find solutions and coordinate the work,” said Kent Jones, P.E., principal for Encompass. “It was clearly a case that required ‘drop everything else’ attention when we were called.”\ Working with a four-month deadline, Encompass launched a crash program, fielding a team of consultants who analyzed the problems and developed repair scopes

A resilient market: We have a diverse business market here. We have a lot of different types of companies in our market. When we get hit by the whims of the economy, we are not hit as hard as some other markets. Because of our diversification, we tend to see a quicker and deeper recovery. That is accounting for this nice growth in the office market that we are seeing. Today, Minneapolis has become pretty attractive to the tech sector, which is good to see. So that bodes well for the future.

new rental units is actually coming from low- and middle-income renters. Fiorilla said that cities are trying to address this problem through developer tax credits and rental subsidies for low-income renters. Cities are also requiring developers to set aside a certain number of units in their marketrent apartment projects for low-income residents. But these solutions are imperfect fixes, Fiorilla said. "Even if successful, these efforts can only address a very small portion of the problem," he said. There is hope, though. Fiorilla said that increased apartment development in urban areas can only help solve this rental inequity.

for each store needing immediate repair. Their analyses identified multiple causes, among them “contractor failure, weather installation challenges, unclean surfaces that resisted bonding and a range of other causes,” said Jones. Although the failures were occurring nationwide, spread from coast to coast, the problem was particularly acute in states in warmer climates. The Encompass team developed site-specific solutions, “producing no less than 40 sets of drawings covering several types of building designs,” said Jones, “before we could actually begin coordinating the repair work,” a timeconsuming process that left just a very short window in which to complete the actual repairs. The project was further constrained by the retailer’s fall deadline for completion, in time for the start of the all-important holiday shopping season. “Encompass got it done within the timeline we were given,” said Jones. “On the first of November, work on every one of the stores was complete, looking good, and most important, safe for both employees and customers.”

Page 20

Minnesota Real Estate Journal News from page 8

MARCUS & MILLICHAP ARRANGES THE SALE OF AN 82,436-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 Valley Ridge Mall, an 82,436-square foot retail property located in Stillwater, Minnesota, according to Craig Patterson, Regional Manager of the firm’s Minneapolis office. The asset sold for $8,694,000. Adam "AJ" Prins, Matthew Hazelton, Sean Doyle and Cory Villaume, investment specialists in Marcus & Millichap’s Minneapolis office, had the exclusive listing to market the property on behalf of the seller, a developer and additionally, secured the buyer, a private investor, from outside Minnesota. Speaking with Mr. Villaume, “This transaction is a great example of how investors from outside the local market view Minnesota as a great place to invest their money. I think it further demonstrates our ability to attract buyers from outside of the Twin Cities to shopping centers with local credit tenant.” Valley Ridge mall is 82,436 square feet and was nearly 100 percent occupied at the time of the sale. There are 29 tenants in the building; most of which are local. The mall is located at 1250 Frontage Road West in Stillwater, Minnesota.

People from page 4

institutional owners of Minneapolis suburban office projects. He has earned the designation to the Society of Industrial and Office Realtors (SIOR), where he has served on its advisory board. He is also a member of the Minnesota Commercial Association of Realtors (MNCAR) and is a former board member. Jen Helm promoted to Senior Director. Specializing in tenant representation and sales/leasing of retail and hotel properties in the Twin Cities, Helm has been with Cushman & Wakefield/NorthMarq for nearly 15

SOLD! 6 Acre Lot with a 31,000 sf. office building and a 40,000 sf. industrial building off Highway 280 and 94 in St. Paul Jodi Walfoort of Atlas Commercial Realty, LLC recently closed the sale of 2515 Wabash Ave in St. Paul, MN. The property is 6 acres and includes a 31,000 sf. office building and a 40,000 sf. industrial building off of Highway 94 and 280 in St. Paul. Suntide Commercial was the listing broker and property manager and Jodi Walfoort was the seller’s representative. Eric Rapp from Colliers was the buyer representative. The building was purchased by Sunrise Banks. “We are excited about the purchase of this property and our future home for Sunrise Banks’ Holding Company”, says Nichol Beckstrand, Sunrise Banks Holding Company President. “Construction is planned to start by the second quarter of 2016 with an expected move-in date of January 2017“.

PCL Breaks Ground for New Hennepin County Service Center

Dougherty Mortgage LLC closes $11.8 million Fannie Mae loan for The Cove at Pleasant View Dougherty Mortgage LLC, a full service national mortgage banking firm, recently closed an $11.8 million Fannie Mae loan for the refinance of The Cove at Pleasant View, an 88-unit market rate multifamily townhome property located in Pleasant View, Utah. Floor plans include 2- and 3bedroom options with granite countertops, full size washer and dryer, 9 foot ceilings and 2 car garages. Residents have access to an on-site outdoor swimming pool, tot-lot, fitness center and clubhouse. The Fannie Mae 12year term, 30-year amortization loan was arranged for borrower Westates Investments, LLC through a partnership with Wasatch Capital Group and Dougherty’s Dallas, Texas office.

Dougherty Mortgage LLC closes $8.5 million Fannie Mae loan for Timberock Apartments

PCL Construction broke ground on Hennepin County’s new South Minneapolis Regional Service Center. Located at Lake Street and Hiawatha Avenue, the project includes a 5-story, 100,000 sf office building on top of a 400 stall, 3 level parking structure. It is the first phase of a transit-oriented master planned development by L&H Station Development, LLC an entity related to Launch Properties. The project architect is BKV Group

Dougherty Mortgage LLC, a full service national mortgage banking firm, recently closed an $8.5 million Fannie Mae loan for the acquisition financing of Timberock Apartments, a 216-unit market rate multifamily apartment property centrally located in San Antonio, Texas. Units are smoke free and feature a dishwasher, pantry, balcony or patio and an extra storage unit. Community features include a laundry facility, barbecue area and swimming pool. The Fannie Mae 10-year term,

years. She provides strategic planning, market research and site selection for clients including Hilton, Panera and Raising Cane’s. In 2014, she was named the first female president of the Minnesota Commercial Association of Realtors (MNCAR). She holds the Certified Commercial Investment Member (CCIM) designation; has served as a board member with the Minnesota Shopping Center Association (MSCA) and the Minnesota Commercial Association of Real Estate (MNCAR). Jen is also a member of the International Council of Shopping Centers (ICSC), the Minnesota Shop-

ping Center Association (MSCA) and the Minnesota Commercial Association of Real Estate (MNCAR). Sydney Johnson promoted to Senior Director. An accomplished member of the industrial brokerage team, Johnson specializes in landlord and tenant representation, both leasing and sales, in the west metro industrial market. Her team has completed more than 500 transactions during the past 10 years encompassing over 6 million square feet. She is an active member of several organizations, including the National Association of Industrial and Office Properties (NAIOP), where she served

February 2016

30-year amortization loan was arranged for borrower 7220 Marbach, LLC through a partnership with Old Capital Lending and Dougherty’s Minneapolis, Minnesota office.

MARCUS & MILLICHAP ARRANGES THE SALE OF CULVER’S IN TUCSON - A 4,052-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 Culver's 1st Avenue, a 4,052-square foot net-leased property located in Tucson, Arizona, according to Craig Patterson, Regional Manager of the firm’s Minneapolis office. The asset sold for $2,345,000. Brian Klancke, Sean Doyle, Cory Villaume, Adam "AJ" Prins and Matthew Hazelton, 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. Donald Morrow, Regional Manager with Marcus & Millichap’s Phoenix office, assisted in closing this transaction. Speaking with Mr. Klancke, “The subject property was constructed in 2013 and was sold as a Sale-Leaseback with a 15-Year Absolute Net Lease. This transaction speaks to the continued vitality of the net-lease marketplace fueled by capital migrating from costal markets seeking a better yield.” Culver's 1st Avenue is located at 4810 North 1st Avenue in Tucson, Arizona.

three years as a Community Enhancement co-chair, is a member of the Awards of Excellence Committee and was named Volunteer of the Year. She is also a member of the Minnesota Commercial Association of Real Estate (MNCAR), where she has been a member of the programs committee for 6 years. Jason Sell promoted to Senior Director. Since joining Cushman & Wakefield/NorthMarq in 2000, Sell has excelled in providing comprehensive real estate services to company owners People to next page

Page 22

Minnesota Real Estate Journal People from previous page

and real estate investors in the Minneapolis, St. Paul North and Northeast industrial markets. Sell is part of the Minneapolis - St. Paul Industrial Team, which has established itself as the top industrial sales and leasing team in the market. Sell is an active member of the National Association of Industrial and Office Properties (NAIOP) and the Minnesota Commercial Association of Realtors (MNCAR). Erik Ordway promoted to Senior Associate. With four years of experience in commercial office leasing and a specialty in the North Loop district of downtown, Ordway concentrates his efforts on key buildings in the central business district of Minneapolis. This is exemplified by his leasing efforts at the successful TractorWorks Building, which has become notable for its sustained occupancy above 90 percent. Ordway serves on several community boards, including Como Friends and the White Bear Lake Restoration Association. He is secretary of the Dellwood Foundation, which grants approximately $300,000 annually to various philanthropic organizations around the Twin Cities metro. Ann Stahley promoted to Senior Associate. As an office market broker out of Cushman & Wakefield/NorthMarq’s St. Paul office, Stahley’s primary focus is in multi-market accounts and assisting on local project work primarily on medical office building listings. With a long history in the commercial real estate industry, she is currently

an active member of the St. Paul Building Owners and Managers Association (BOMA) and is a member of both the BOMA Broker’s Group and St. Paul Marketing & Leasing committees. Jeremy Striffler promoted to Senior Associate. A five year veteran of Cushman & Wakefield/NorthMarq, Striffler provides lease, buy and sell services for corporations, nonprofits and education organizations looking for office space while supporting site selection, client relations and project management. In addition to his active involvement in the Minnesota Commercial Association of Realtors (MNCAR) and the National Association for Industrial and Office Properties (NAIOP), he is the Co-Chair of the Young Leaders Group for the Minnesota chapter of the Urban Land Institute (ULI). He also volunteers with Second Harvest Heartland, a Minneapolis-St. Paul food bank, and with Loaves & Fish, a nonprofit meal program in Minnesota.

ACKERBERG Adds Clark as Senior Development Manager ACKERBERG announced that Frank T. Clark, LEED AP, has joined the firm as a Senior Development Manager. In this role, Mr. Clark will create and manage opportunities within the Development Department for a diverse and growing commercial portfolio in the Twin Cities and greater Minnesota markets. He will lead on the day-to-day development processes, including land acquisition and entitlements; systems

development and implementation; market analysis; investor and owner relations; and financial analysis. Prior to joining the ACKERBERG team, Frank Clark held management positions with Hines from 2007 to 2016, and with Pulte Homes from 2004 to 2007. Most recently at Hines, Frank was responsible for directing the LEED volume certification of properties in Midwest and Southeastern regions, totaling over 50 million square feet and was responsible for managing operating budgets, capital improvements, and marketing for over one million square feet of urban, Class A real estate. “We are thrilled to have Frank join our team. His integrity, insight, and team approach make him a perfect fit for Ackerberg. We look forward to his strong contributions”, said Stuart Ackerberg, CEO of ACKERBERG. ”I am excited for the opportunity to join such a dynamic team and to help create truly great places for people to live, work, and thrive,” remarked Mr. Clark.

Delbert Feenstra of Knutson Construction receives Builder of the Year award Knutson Construction is proud to announce Delbert Feenstra, of Knutson’s Rochester division, has been named Builder of the Year by the Rochester Area Builders (RAB) Association. Out of five nominees, Feenstra was selected by the association’s Board of Directors, an honor recognizing him for his time, enthusiasm, and dedication

February 2016

to the association over the past year. Feenstra has been an active member of the RAB for nine years. In 2015 Feenstra served on the Development and Permit Process Advisory Committee, Program Committee, Board of Directors, and the Executive Committee. “I am honored to be recognized by the RAB with this award,” said Delbert Feenstra, senior estimator. “I have a strong belief in the mission of RAB and have been honored to be apart of the association. At Knutson we deeply value our business partnerships and the RAB has helped us to strengthen those relationships in the Rochester community.”

2016 HealthCare and Medical Properties Conference March 24, 2016 Golden Valley Country Club 7001 Golden Valley Road Golden Valley, MN 55427 7:15 AM Registration 7:30 AM Hot Buffet 8:00 AM – 12:00 PM Program

Speakers Include: Mark Nordland, Principal, Launch Properties Chris Dolan, Shareholder, Fredrikson & Byron, P.A Mary Ranum, Shareholder, Fredrikson & Byron, P.A. Kristin Blenkush, Shareholder, Fredrikson & Byron P.A. Chris Jacobson, Associate, CBRE Raymond Piirainen, Director of Real Estate, Fairview Health Systems Stephanie K. Statz, Interior Designer, RSP Architects Andrea Walsh, Executive Vice President and Chief Marketing Officer, HealthPartners Danielle Gathje, Facilities Manager, Allina Health Stephen H. Brown, Exec. Director Healthcare Real Estate Advisory, Cushman & Wakefield Northmarq Mary Welder, Communications and Community Relations Director, Destination Medical Center

8:00 AM Fitting a Square Peg in a Round Hole: Medical Users in Non-Medical Buildings • Why would a landlord and tenant do this? • How can you be clear about expectations? • What lease issues arise? • What construction challenges are encountered?

9:30 Break 9:40 AM Industry Experts Analyze Needs and Opportunities • What are healthcare providers real estate needs and how are they changing • How we handle site assessment • New Development vs.retro fitting existing properties • Leasing requirements and building partnerships • Future trends and predictions in the healthcare and medical property industry.

10:30 AM Destination Medical Center Update Around the Six Sub-districts and the Development Plan • What is Destination Medical Center • Why is Destination Medical Center good for MN • Deep dive into the Destination Medical Center sub districts • Timelines • Q&A

11:10 AM State of the industry • What does the health care industry look like here and around the country • Development, where is it happening and why • What does the investment and acquisition market look like and where’s it headed • Economic forecast • Future Trends and Opportunities

12:00 PM Adjourn and Networking

8:45 AM Developing, Investing and Leasing Healthcare Facilities • Near term development – what does it look like and why • How to make a lease a win/win • How to handle tenant improvements • How does leasing activity look in the healthcare industry and what does the future hold • How to negotiate owners and how to get deals done • What does the investment and acquisition market look like • Future trends and opportunities