MREJ January 2024

YEAR in REVIEW ©2024 Real Estate Publishing Corporation

January 2024 • VOL. 41 No. 1

A turbulent 12 months:

Looking back at the challenges – and successes – of 2023

By Dan Rafter, Editor

Nominations are Open!

A

tough year? That’s an understatement. Commercial real estate professionals faced a variety of challenges in 2023, with the continued pressure of high interest rates leading the way.

But it wasn’t just rates that made this year such a difficult one. Construction companies faced continued supply chain disruptions, struggling to get the materials they needed to complete their projects. These same companies struggled to Review to page 18

A fascinating, but challenging, year: A look back at 2023 with Capital Partners’ Peter Mork

By Dan Rafter, Editor

T

he big story of 2023? It’s undoubtedly been higher interest rates and the slowdown in commercial sales that they caused.

We spoke with Peter Mork, managing partner of Edina-based Capital Partners, about the impact that interest rates have had on the industrial sector, the asset type in which the company specializes.

Here is some of what he had to say.

A challenging 12 months: I will say that 2023 was a fascinating year. Our company owns and manages industrial real estate. From a tenant side, this was a good year. Tenants were expanding. Rents remained strong. We could charge more to fill our vacancies than we did the year before.

Industrial real estate has been strong this year. Vacancies remain low and will continue to remain low in 2024. New construction has dropped off and with va-

cancy rates already low before that happened, tenants won’t have as many choices to consider when they are looking for new space in 2024. It’s a landlord’s market right now.

But sales activity … But 2023 was also fascinating because it was such a bifurcated market. You had the capital markets side of the business that had some huge years pre-COVID. We would be looking at big portfolio deals every week. But then interest rates Mork to page 27

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CONTENTS

January 2024

1 Looking back at the challenges

12 Back to the office in 2024?

– and successes – of a turbulent year: A tough year? That’s an understatement.

Will more workers return to their offices

in 2024?

1 A look back at a fascinating 2023 with Capital Partners’ Peter 12 Black Friday sales were up this year: Mork: The big story of 2023? It’s undoubtedly been the slowdown in commercial sales.

4 Higher rates caught many developers flat-footed:

We spoke with commercial finance veteran Rafi Golberstein, chief executive officer of PACE Loan Group in Edin Prairie

6 Investors still gravitate toward the apartment sector:

Even with the challenges of high interest rates, investors still believe in the multifamily market

But they spent far less time

in physical stores.

14 Coming January 2024 - the Corporate Transparency Act:

What

it is and what the real estate industry needs to know

16 Best practices for Midwest industrial borrowers

as a downturn

looms

28 News Briefs:

The latest commercial real estate deals, promotions and milestones in the state of Minnesota.

8 Government workers are being summoned back to the office.

What does this mean for the office sector?

10 As housing becomes more expensive, more are choosing the renting lifestyle: Not only are more people renting today, more are doing this by choice.

Minnesota Real Estate Journal Copyright © 2024 by the Minnesota Real Estate Journal is published bi-monthly for $85 a year. 7767 Elm Creek Boulevard, Suite 210, Maple Grove, MN 55369. 952-405-7780.

For more commercial real estate news and information, please visit our website www.rejournals.com ©2024 Real Estate Publishing Corporation. No part of this publication may be reproduced without the written permission of the publisher.

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January 2024

President | Publisher Jeff Johnson jeff.johnson@rejournals.com Managing Editor Dan Rafter drafter@rejournals.com Senior Vice President Jay Kodytek jay.kodytek@rejournals.com Chief Financial Officer Todd Phillips todd.phillips@rejournals.com Art Director | Graphic Designer Alan Davis alan.davis@rejournals.com Managing Director National Events & Marketing Kaitlyn LaCroix kaitlyn.lacroix@rejournals.com

PACE Loan Group’s Golberstein: Higher rates caught many developers flat-footed

By Dan Rafter, Editor

7767 Elm Creek Boulevard, Suite 210 Maple Grove, MN 55369 For information call 952-885-0815

EDITORIAL ADVISORY BOARD JOHN ALLEN JEFF EATON MARK EVENSON PATRICIA GNETZ TOM GUMP CHAD JOHNSON BILL WARDWELL JEFFREY LAFAVRE WADE LAU JIM LOCKHART DUANE LUND CLINT MILLER WHITNEY PEYTON MIKE SALMEN

W

ho would argue that higher interest rates weren’t the biggest financial story this year? Certainly no one in the commercial real estate business.

Higher rates choked off the flow of commercial real estate investment sales. They stamped out new commercial construction. And they led to a frustrating year for developers, brokers and commercial financing professionals.

But what about 2024? Now that the Feder Reserve Board has signaled that it is done boosting rates, and might cut them next year, will commercial sales activity pick up? And will it be easier for owners and developers to acquire the commercial financing they need to bring their projects to life and acquire new properties?

We spoke with commercial finance veteran Rafi Golberstein, chief executive officer of PACE Loan Group in Edin Prairie, Minnesota, about the impact that interest rates have had on commercial financing throughout the last 12 months and what he expects to see in the coming year.

Here is what he had to say.

We all know that higher interest rates were a huge story in 2023. What impact did you see in the local Twin Cities CRE market?

Rafi Golberstein: What is interesting about the rates we’ve seen this year is that historically they’re not that high.

I’m fairly young to the industry. I started my career in 2006.

But back then, interest rates were higher than what they are now. There has been an entire generation of developers over the past 15 years who started their careers after the Great Recession ended who have never experienced interest rates at the level we are seeing today. Historically, though, these rates are not crazy.

There was a whole slew of developers who had no way of understanding how to develop when rates are like this.

Older developers understood. They know that this is a cycle. Rates go up and rates go down. They understood that these rates are Rafi Golberstein high, but not historically crazy.

The higher rates caught some folks flat-footed. A lot of people didn’t think about stress-testing their assets at higher interest-rate levels to see how they would perform.

How did these higher rates affect commercial real estate?

Golberstein: The effect has been a huge slowdown.

Many developments ground to a halt. A lot of deals that were on the finish line stalled out. This has led to a lot of sunk costs, a lot of predevelopment work getting shelved.

All the work people did on legal issues, getting permits, the specs, it has all been shelved. Those projects might be mothballed for the next 12 months.

Rates to page 30

January 2024

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MINNESOTA REAL ESTATE JOURNAL

January 2024

The enduring strength of multifamily: Investors still gravitate toward the apartment sector

By Dan Rafter, Editor

E

ven with the challenges of high interest rates, investors still believe in the multifamily market, with the latest research from Newmark showing that this sector continues to outrank any other asset classes when it comes to attracting investor dollars.

In its third quarter U.S. Multifamily Capital Markets Report, Newmark said that multifamily assets have accounted for 32.4% of all investment sales in the commercial real estate sector as of the end of the third quarter. That makes multifamily the most popular choice for investors, even outranking the industrial sector.

Mike Wolfson, author of Newmark’s report and managing director of multifamily capital markets research for the company, said that investors’ affinity for multifamily shouldn’t be surprising: The demand for multifamily units among renters remains high and isn’t expected to lessen anytime soon.

The challenges of the single-family housing market are a big reason for this. Wolfson said that the supply of single-family homes is far below the demand for housing. This makes it more difficult for buyers to find single-family homes.

And when they do find homes that fit their needs?

They are often too expensive, as the price of single-family homes has risen rapidly in the last three years. Higher mortgage interest rates aren’t helping, either. When these rates are at 7% or higher, it makes it more difficult for buyers to afford the monthly mortgage payments necessary to buy even a median-priced home in major markets.

Many buyers are facing bidding wars for the homes they want to buy, Wolfson said. And these bidding wars are only boosting the need for more multifamily units.

“If 30 people bid on a home, you might end up with 29 of those bidders who need to live in a multifamily unit for another year,” Wolfson said.

Steady demand

Demand for multifamily units has been strong for most of this year, according to Newmark’s report.

Newmark says that 171,000 multifamily units were absorbed in the second and third quarters of 2023.

That’s up from the same quarters last year when multifamily absorption came in at a negative 148,000 units.

And the reason for these numbers? Many renters might like to enter the single-family housing market.

But they’re struggling to find a home with today’s low supply of for-sale properties.

“Every major market throughout the country is not building enough single-family homes,” Wolfson said.

“There are very few active listings on a historic basis.

Then there are the higher interest rates. Those are pushing others out of the market.”

Research from the Mortgage Bankers Association backs up Wolfson’s points. According to the association’s Purchase Index, the number of people applying for mortgages to buy a home was down 20% for the week ending Nov. 24 when compared to the same week a year earlier.

Challenges ahead, too

Mike Wolfson

“People are not slowing down their lives or having families. They need transitional housing, and the multifamily market is a huge beneficiary of that,” Wolfson said.

Consumers are also facing financial challenges that are keeping many from buying a home. Younger adults are still burdened with student loan debt. Consumers are again racking up debt on their credit cards, with the Federal Reserve Bank of New York reporting that cardholders had an average credit card balance of $5,733 in the second quarter of this year.

“This all sets up well for multifamily housing,” Wolfson said. “Many people can’t afford a home in major markets. This is a national story, not just one happening in New York or Chicago. It’s pretty much every market. There are a lot of people in the prime age group of 21 to 35 who want to become homeowners. But they can’t afford the down payment to buy a home or they can’t afford the monthly payments that come with higher-priced homes. The rental market is a huge beneficiary of this.”

This doesn’t mean that the multifamily sector doesn’t face challenges. One of these challenges? According to Newmark’s report, $682 billion in multifamily loans are scheduled to mature from 2023 through 2025.

Wolfson said that not all these loans will mature on schedule, with banks and lenders extending some of them. But many loans will mature during the next three years. And that could bring plenty of volatility to the multifamily sector.

Wolfson said that these maturing loans could bring opportunities to investors with some owners forced to sell, possibly at lower prices. Lenders might be forced to take over properties that they don’t want to own.

They, too, might be willing to sell at lower prices.

“That $682 billion of loans might not all mature during the same time frame,” Wolfson said. “But even if they don’t, maturations will happen. That could set off a lot of activity.”

Another challenge in today’s multifamily sector?

Sellers and buyers still can’t agree on sales prices for multifamily properties. Because of this, sales volume remains low compared to past years.

Wolfson, though, says that this state of inactivity can’t last forever.

“People have to transact in this business,” he said.

“There has been a high level of inactivity. The market has stalled. But we see fundraising going on. We are hearing that people are more willing to meet at a middle price than they were six months ago. That is encouraging.”

No one can predict the future, but Wolfson said that he expects a slow fourth quarter of this year and a first quarter of next year that would rank as “not great” when it comes to multifamily sales. But in the latter half of next year? That’s when Wolfson said that he expects multifamily sales activity to start increasing again.

“Transactions need to happen,” Wolfson said. “It will come. But it won’t be like flipping on a switch. It will be gradual.”

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MINNESOTA REAL ESTATE JOURNAL

January 2024

Government workers are being summoned back to the office. What does this mean for the office sector?

By Dan Rafter, Editor

M

ore than 400,000 federal employees will be required to come into their offices two to three days a week by January of 2024, according to research from JLL. What impact will that have on the struggling office sector? Maybe not as much as office brokers would like.

The size of the public workforce is dwarfed by the private sector. And JLL’s numbers only apply to federal workers, not to those in state or city governments. The future health of the office sector is dependent far more on private companies bringing their workers back to their cubicles, meeting rooms and conference rooms.

Still, any sliver of good news is a positive for the office sector, which is still reeling from the work-fromhome movement that has flourished since the 2020 start of the COVID pandemic.

That, at least, is the view from Bob Hunt, group managing director for government and education with JLL. He said that federal agencies requiring their workers to report to the office at least on a hybrid basis might provide yet another push for private-sector employers to do the same.

“The federal agencies aren’t asking workers to come back to the office five days a week. They just want them back two or three days a week or maybe five days during a pay period,” Huntt said. “It’s not like everyone is trooping back to the office on a full-time basis. But it is better than nothing.”

A changing office?

A start?

JLL reported that 16 federal government agencies have announced return-to-the-office mandates.

What these agencies require, though, varies. JLL said that many federal agencies are requiring all employees to be in-person at least two to three days a week. Others are requiring managers, supervisors and senior-level staff to report to the office only at agency headquarters buildings.

Hunt said that the actions of state and city governments, though, might have a more lasting impact on the office market. He said that many city workers have returned to the office long ago, partly to serve as an inspiration to the private sector.

“Government is a generic term. Not all levels of government operate in the same way,” Hunt said.

“Look at city governments. They are at the front line of dealing with the crisis of nobody wanting to be in the cities anymore. Now city governments are being more aggressive in mandating that their workers return to the office at least three or four days a week. If they don’t show up in the city that they take care of, what does that say about them? How can they encourage private-sector companies to bring their workers back to the office if they’re not doing it themselves?”

Hunt said that state governments are interesting to watch, too. He said that different state agencies are taking wildly different approaches when it comes to bringing employees back.

Bob Hunt

Some state workers remain fully remote five days a week. Others are coming back to the office on a fulltime basis. Still others are working on a hybrid basis, spending some of their time in the office and the rest of it working from home.

“State agencies right now are all over the spectrum,” he said. “Some are making decisions that are politically motivated. Others are making decisions that will help them best attract and retain workers. But as time goes on, it looks like more government agencies, just like with private sector companies, are moving toward the hybrid arrangement.”

According to an Office of Personnel Management survey conducted in the summer of this year, 89% of federal employees had some type of remote-work agreement. But only 14% of federal employees reported that they teleworked every day, while 40% said that they teleworked from one to four days a week. The survey found that 32% of surveyed employees didn’t telework at all.

Private-sector employees have relied on a host of incentives to bring their workers back to the office.

Some are relying on punitive measures, saying that workers who don’t agree to return to the office on at least a part-time basis will be fired. Others are reworking their office space to make it more friendly for collaboration and brainstorming. Some companies are moving from large footprints in aging office buildings to smaller spaces in higher-quality properties.

Hunt said that the mission of the office is changing.

Today, office space is more frequently used for collaboration and brainstorming.

When employees are occupied with busy work, they can stay home and do it there. When they need to come up with new ideas or brainstorm new policies, products and services, they can meet with their fellow workers in offices designed to foster collaboration.

“What is the value of the office?” Hunt asked. “It is becoming a space for collaboration, socialization and mentoring. I have a tremendous fear for people coming out of college and entering the workforce. If they are working remotely or in a hybrid environment, who is going to be their mentor? Who is going to show them the ropes? Then there is the innovation side.

When you are wrestling with a big problem, there is no better way to solve it without getting into a room with whiteboards and wrestling it down.”

The problem for government employees? Most government office spaces aren’t designed for innovation or collaboration. Many of them remain old-fashioned cubicle farms.

Despite this, JLL found that federal and state governments are hesitant to alter their office spaces.

In a recent JLL survey on hybrid work, only 10% of government clients said that most workers will transition to shared seating. That is significantly lower than the 41% of private sector clients who said that they are moving toward shared seating.

Government to page 10

MINNESOTA REAL ESTATE JOURNAL

January 2024

9

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January 2024

Another boon to the multifamily market: As housing becomes more expensive, more are choosing the renting lifestyle

By Dan Rafter, Editor

N

ot only are more people renting today, more are doing this by choice. The reason? Housing prices and interest rates are making owning a single-family home more expensive than ever. And many consumers are choosing to avoid these costs by renting instead of buying.

That’s one of the key findings from a new survey by investment and management firm Knightvest.

Knightvest conducted its poll from Nov. 20 to 30, surveying more than 4,100 U.S. apartment renters.

One of the more surprising results? A resounding 59% of respondents said that they choose to rent.

Of course, that also means that 41% told Knighvest that they feel compelled to rent because of the prohibitive cost of homeownership. Breaking it down further, 51% of Millennials and 54% of Gen Z said that they willingly embrace the rental lifestyle.

The top three reasons for renting given by survey respondents: • The ever-increasing expense of homeownership (acknowledged by 62% of respondents) • The allure of reduced maintenance and repair duties (claimed by 51%) • And the flexibility to uproot and relocate at will (a factor for 35%).

In a surprising twist, 31% of renters express either ambivalence or disinterest in homeownership altogether.

“The decision between renting and buying has become increasingly nuanced within this dynamic macroeconomic environment,” said David Moore, founder and chief executive officer of Knightvest.

“It’s intriguing to see our data align with the anecdotes we hear from residents. When communities are built on quality, service and care, apartments transform into coveted havens where residents not only live but thrive across various stages of life.”

Another interesting fact? A total of 29% of renters surveyed said that had owned a home in the past.

Among Baby Boomers in the rental sphere, a substantial 71% have previously owned a home, with their decision to move to renting attributed to the appeal of fewer maintenance hassles.

The survey found that Gen Z is slightly more enthusiastic about homeownership than their Millennial counterparts, with 29% of the younger generation saying that they are enthused about owning a home while only 25% of Millennials said the same.

The survey also highlights how difficult buying a home today, with 74% of respondents admitting that their dream of homeownership has been pushed

Government from page 8

The survey also found that 41% of government clients don’t anticipate any shared seating, compared to only 13% of private-sector clients who told JLL the same thing.

Hunt said that many government agencies don’t have the budgets to remodel or revamp their office spaces, and they certainly don’t have the funds to move into newer buildings. This could hurt these agencies when they compete for talent, he said. And it could also make it more difficult for government agencies to convince their workers to return to the office.

“If your employees have options and they only have a crummy office to go to, why would they not work remotely?” Hunt asked. “What does that outdated office space do to your retention efforts over time? You irritate your workforce,

further away by the rise in mortgage interest rates.

Of this group, 79% reveal that their homeownership timeline has elongated by several years or indefinitely.

How much money do different generations think they need to own a home? According to Knightvest’s survey, Millennials say that they need a yearly income of $139,000 to afford a home today, while Gen Z follows closely with a reported requirement of $137,000.

whether you are in the public or private sector. People will consider their options. If one company makes them come into the office four days a week and the other makes them come into the office two days a week and gives them free coffee and nice shared working spaces? They’ll choose that second company.”

Hunt said that governments are just now starting to wrestle with how to bring their employees back to the office. The future, though, looks to be the hybrid approach, he said.

“It’s a people thing,” Hunt said. “No one saw this change coming. But once the pandemic hit and people started working from home, they realized how much they hated their commutes. They realized how compromised their worklife flexibility was. This was a mega worldwide change.”

January 2024

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MINNESOTA REAL ESTATE JOURNAL

January 2024

Back to the office in 2024? New survey says 62% of companies confident it will happen

By Dan Rafter, Editor

W

ill more workers return to their offices in 2024? A new report from real estate technology firm VTS suggests that a majority of companies feel strongly that the answer to that question is “yes.”

And that should be welcome news to the brokers and developers working in the office sector.

VTS commissioned an independent study to determine corporate tenant needs and expectations by surveying more than 400 business leaders. The findings from this research have been gathered into VTS’ first-ever Global Workplace Report.

The data in the report will be released in a total of four waves in the coming months, with each data focused on addressing unique aspects of the workplace. The first wave of data, released this week, focuses on workplace strategy and how companies are handling the return-to-office.

VTS found that 62% of companies surveyed are currently executing a hybrid work strategy, while 38% of global companies have brought their employees back to the office full-time. According to the VTS report, 52% of companies require employees to come to the office one to four days a week.

Only 10% of companies are taking a remote-first or office-optional approach, according to the survey results.

Why do companies want their workers back in the office? A total of 36% of companies surveyed said that in-person collaboration and community ranked as the top reason to encourage their employees to return to in-office work, at least on a part-time basis.

VTS’ survey, though, suggests that companies are adjusting to a new way of working. A total of 52% of surveyed companies said that they are navigating a work environment that includes employees work-

ing from their homes, shared spaces in their office buildings and flex spaces.

Companies in the VTS report, though, said that they aren’t rushing to expand or shrink their office space. According to VTS’ survey, 69% of companies say their office space is the right size to meet their current needs, while 19% said that their office is too small and 12% saying their office is too large.

Black Friday sales were up this year. But consumers still spent less time visiting physical stores

By Dan Rafter, Editor

P

eople might have spent plenty of money on electronics, toys, clothing and other gifts on Black Friday this year. But they spent far less time in physical stores.

That’s the key finding from a look at this year’s Black Friday spending patterns by pass_by, an AI-powered geospatial insights platform.

According to pass_by, total visits to physical stores on Black Friday this year fell by about 21.51% when compared to 2019. pass_by estimates that this represents a decrease of $1.6 billion of in-store purchases in 2023 when compared to the same shopping holiday four years earlier.

This shouldn’t be overly surprising news to anyone who’s watched the retail sector. Online sales continue to rise, and that holds true during the holiday shopping season, too. A growing number of consumers prefers to shop with their laptops or smartphones, avoiding crowded retailers.

The most successful retailers today, then, rely on the omnichannel approach, offering both brick-andmortar shops and a robust online presence. Those brick-and-mortar locations often provide consumers the chance to window shop, studying different items

that they’ll then buy later from the retailer’s online store.

Sam Amrani, chief executive officer of pass_by, said that this year’s holiday shopping trends show that consumers are willing to spend. They just want options with how they shop.

“While overall foot traffic on Black Friday has seen a decline, our data reveals a nuanced picture,” Amrani said in a statement. “Specific sectors like electronics are bucking the trend with significant growth, and certain brands have experienced remarkable surges. This shift underscores the evolving consumer behaviors and the increasing importance of targeted marketing and customer experience.”

Black Friday store visits were down 3.77% this year when compared to last year, according to pass_by.

Relying on data from Mastercard and other sources, pass_by says that this represents a decrease of about $92.74 million in in-store purchases.

This doesn’t mean that all retailers are seeing foot traffic decrease in their physical stores. According to pass_by, in-store visits to electronics retailers increased 7.73% the week of Black Friday when compared to the same period in 2022.

Brands that showed significant increases in instore visits on Black Friday this year compared to 2022 included Akira, where in-store visits were up 61.43%; Shoe Station, which saw in-store visits jump by 52.09%; and Bealls Outlet, which saw in-store visits rise by 45.60%.

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January 2024

Coming January 2024 - the Corporate Transparency Act: What it is and what the real estate industry needs to know

By Monica D. Pelkey

S

tional security, intelligence and civil and criminal law enforcement; the Department of Treasury in connection with tax administration; and with the Reporting Company’s consent, to financial institutions in connection with their anti-money laundering compliance (e.g., know-your-customer) obligations.

mall business owners of legal entities, new or existing, that are part of the real estate industry need to be aware of the Corporate Transparency Act (the “CTA”), a new federal law regarding reporting requirements that takes effect Jan. 1, 2024.

The CTA will require broad categories of domestic or foreign legal entities created or doing business in the U.S. to file reports on themselves, their beneficial owners and company applicants.

When are Reporting Companies Required to Report?

New entities created on or after Jan. 1, 2024, will need to report the information required by the CTA within 30 days after the entity is formed; however, a proposed amendment (yet to be adopted) may change this deadline to 90 days. Existing entities formed prior to Jan. 1, 2024, will need to report the information required by the CTA no later than Jan. 1, 2025.

What is the CTA?

The CTA was created to combat terrorism, money laundering, tax abuse and other financial crimes and seeks to fill in the beneficial ownership gap present in existing U.S. anti-money laundering laws.

The CTA seeks to resolve the beneficial ownership gap by requiring entities to electronically submit with FinCEN information on all of the direct or indirect beneficial owners of the entity.

Potential Impacts of the CTA

What Entities are Required to Report?

The CTA requires certain existing and new domestic and foreign corporations, LLCs, LLPs, LLLPs, most limited partnerships and other business entities, including any entity that is created or registers by filing a document with the Secretary of State or a similar state agency (each a “Reporting Company”), to report certain Beneficial Owner Information (“BOI”). General partnerships, sole proprietorships, common law trusts and any entity that does not file with the Secretary of State’s office are not considered Reporting Companies.

The CTA, however, excludes 23 types of entities that may fall under the definition of a Reporting Company, so business owners are encouraged to review the CTA to determine if their entity qualifies for an exception(s). Many financial institutions (such as banks, credit unions, broker/dealers, investment companies, etc.), insurance companies, tax-exempt entities (e.g., 501(c)(3), etc.), governmental authorities and “large operating companies,” defined as companies that employ more than 20 full-time employees operating at a physical office in the U.S. and having a taxable income of more than $5 million gross receipts or sales, fall within one of the 23 exceptions.

After considering the exceptions to the Reporting Company definition, which then may be subject to further conditions and disqualifications, the CTA is focused primarily on small, closely held entities.

Who is Considered a Beneficial Owner?

Beneficial owners are individuals that, directly or indirectly, either exercise substantial control over the company or own or control at least 25% of the ownership in terms of such entity. This can include multiple individuals; there is no maximum number.

Substantial control means those individuals holding positions or exercising authority having ability to renew or appoint senior officers or board of directors, having substantial influence over important

Monica Pelkey

decisions made by the company (business, finance, structure, etc.), and other substantial control over the company.

For a trust, ownership interests may include trustees with authority to dispose of assets, beneficiaries who are sole recipients of income and principal or can denote distribution of assets, and grantees with right to revoke trusts or withdraw assets. Beneficial owners are not individuals that are acting on behalf of another (nominee, intermediary, custodian, etc.), minors, future unvested interest holders through inheritance, employees acting solely as an employee and not as a senior officer, or creditors.

What Information Needs to be Reported?

Reporting Companies will report the BOI, which includes the Beneficial Owner’s legal name and birthdate; residential address; and universal identification photograph from a passport or driver’s license. The obligation to report the BOI is an ongoing requirement, which means if the Beneficial Owner changes its name or its residential address, the BOI needs to be updated within 30 days to FinCEN. Once the BOI of an individual is reported with FinCEN, a single identifier will be issued to the individual, which can be used for purposes of subsequent BOI reporting for other reporting companies in lieu of resubmitting the required personal information.

Additionally, the individual or individuals who participated in the entity’s formation or registration will be required to report similar information, as the company applicant.

The BOI filed with FinCEN will not be available to the public but will be disclosed only to federal, state and local law enforcement agencies in na-

Many entities involved in the real estate industry may have to file the BOI with FinCEN. For example, if a homeowner association does not fall within the tax exemption category, or if an entity is a business trust that files with the state, each may have to report to FinCEN. The BOI has to come from an individual – if an entity owns 50% of a Reporting Company, the reporting requirements fall to the beneficial owners of the entity owning 50% of the Reporting Company.

Any individual that willfully provides, or attempts to provide, false or fraudulent BOI, or willfully fails to report or update BOI to FinCEN may be liable for a civil monetary penalty up to $500 per day that the violation continues, and for a criminal penalty of a fine up to $10,000 and/or imprisonment for up to two years.

The CTA will change the way entities are formed, creates ongoing compliance obligations and will significantly impact liability for prior noncompliance specific to mergers and acquisitions.

While owners of companies are not required to have an attorney file the BOI with FinCEN, doing so may help navigate the complex rules and assist in mitigation or avoidance of serious penalties.

This article is an overview of the CTA, does not constitute legal advice and does not provide an indepth, entity specific discussion. Please contact the business law attorneys at Monroe Moxness Berg PA with questions relating to the CTA. Monica Pelkey is an associate attorney at Minneapolis-based law firm Monroe Moxness Berg PA. She focuses her practice on commercial real estate transactions.

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MINNESOTA REAL ESTATE JOURNAL

January 2024

Best practices for Midwest industrial borrowers as a downturn looms

By Brian Good, iBorrow

T

hroughout the recent turbulence in the commercial real estate market, the industrial segment has served as one of the few bright spots for Midwestern borrowers and investors. Rents have continued to grow at a moderate but steady pace.

Deals have continued to get done, with borrowers and investors having better access to capital in the segment despite the pullback of regional banks from CRE lending.

For those of us who have seen a few economic cycles, however, it’s clear that warning signs are beginning to flash, even in the industrial space.

According to Lee & Associates’ Q3 2023 North American Market Report, vacancy rates in key Midwestern markets including Chicago, the Twin Cities, Cincinnati, Columbus and Kansas City, Kansas, all increased in the third quarter on both a year-overyear and quarter-over-quarter basis. Absorption in key Midwestern markets is down year-over-year, as is new space coming online.

For borrowers in the Midwestern industrial segment, then, it will be critical over the next several months to take stock of their various investments and business plans, and to think proactively about working with their lenders to ensure that their loans remain in good standing.

Following are some key best practices that can help these borrowers prepare to weather a potential downturn:

I. Be aware of your options.

Lenders are often willing to work with borrowers with whom they have good relationships. They can give borrowers more time to pay back their loans, adjust their interest rates or other terms and even upsize their loans (within reason).

Newer borrowers sometimes think that loan terms are set in stone once a transaction closes, and that complying with those terms is a binary proposition, especially during tough times.

In fact, the borrower/lender dynamic frequently offers more options than they realize, as long as they work to keep the relationship strong. Being aware of this – and working with lenders that have exhibited flexibility in the past – can make all the difference when a borrower encounters turbulence in the market.

II. Maintain consistent dialogue with your lenders.

Maintaining strong lender relationships during a rough stretch is all about communication. At iBorrow, we continually remind borrowers to tell us early and often if a problem emerges.

If a borrower suddenly stops responding to a lender’s emails, or worse, stops providing required information like quarterly financial reports or bank statements, the lender relationship can turn south very quickly.

most extreme position and consider them to be in default.

This mentality leads some borrowers to use hardball tactics when conditions get challenging, like threatening to hand over the keys to a property as a test of the lender’s resolve. They unfortunately take the short-sighted route to try to force the lender into more favorable terms, when they could have found a win-win solution simply by maintaining a better rapport.

The fact is that hardball tactics most often result in a kind of self-fulfilling prophecy, turning a solvable problem into a standoff in which neither side wins.

IV. If necessary, investigate refinancing options before a downturn hits.

Brian Good

On the other hand, those that proactively and consistently stay in touch often find that their lenders become their most valuable partners when challenges appear.

As an example, one iBorrow client recently found that the costs of improving and leasing up a vacant industrial property that it had just purchased in a Midwestern MSA were going to come in $600,000 higher than expected.

The borrower was willing to pay the extra cost directly to make the lease work, but the loan documents dictated that those excess funds needed to be funneled through the lender to avoid mechanics’ liens. That would have involved putting the funds in escrow – an outcome the borrower wanted to avoid.

Without strong communication from the borrower, our team might not have felt comfortable working with it to find a mutual solution to this problem. In this case, however, the borrower went out of its way to keep us in the loop. The borrower let us know about the issue right away and did not try to obfuscate the situation to avoid the escrow.

As a result, we agreed to allow the borrower to pay the extra costs without iBorrow’s involvement. This solution streamlined the situation for the borrower, helped to avoid the escrow restrictions and resulted in an even stronger borrower/lender relationship.

III. Don’t assume your lender relationship has to be adversarial – and don’t play games.

Borrowers who have not encountered difficult conditions before often think of their relationships with lenders in ‘us vs. them’ terms. If they can’t adhere to the exact terms of a loan agreement, they assume that the lender will immediately take the

Most industrial leases are structured with three- to five-year terms, meaning that borrowers can sometimes ride out a short-term downturn, even if they have a shaky relationship with their lender. It’s also possible to repair some damaged lender relationships by increasing communication or taking steps to proactively make payments early.

In some scenarios, however, borrowers may want to take stock of their existing lender relationships and ask whether it would be beneficial to switch to another lender before conditions worsen in the industrial segment.

For borrowers whose lender relationships have frayed significantly – and who have access to other sources of capital – it may be wise to explore a fresh start elsewhere, rather than risking further strain on the relationship should a downturn hit.

Conclusion

Midwestern industrial borrowers who have become accustomed to relatively smooth sailing in that CRE segment may soon find themselves in unfamiliar waters as industrial conditions worsen.

Although industrial continues to look significantly better than other segments today, warning signs are emerging for sharp-eyed market watchers.

However, by taking a proactive approach to maintaining strong communication with lenders, being aware of their options and avoiding the temptation to ‘go silent’ or play hardball, Midwestern borrowers and investors in the industrial segment can put themselves on firm footing to come through the looming challenges, keep their loans in good standing and fulfill their business plans.

Bria Good is managing partner of iBorrow, a nationwide direct lender that provides short-term bridge financing to commercial and multifamily property owners.

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MINNESOTA REAL ESTATE JOURNAL

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January 2024

Review from page 1 find labor. And when they were able to get the materials they needed for new multifamily buildings or distribution centers? Their prices had risen to new heights, making it more expensive to build anything.

Developers struggled to find financing for their projects, as many banks pulled out of the construction-lending business while they waited for the Federal Reserve Board to finally stop tweaking interest rates.

Then there’s the continuing story of the workfrom-home movement. With many employees still working remotely, chunks of office space remain empty. This includes a significant portion of the office space throughout the Minneapolis-St. Paul market.

Today, the owners of office space are scrambling to add amenities that employers hope will encourage their workers to return to their conference rooms and cubicles.

The slowdown in sales has even hit the commercial real estate sector’s two strongest asset classes: multifamily and industrial. While it’s true that investors consider these asset classes to be the darlings of the commercial real estate business, it’s also true that many investors aren’t even sinking their dollars in these assets thanks to uncertainty regarding the economy and interest rates.

So, yes, it’s been a tumultuous year. And who knows what 2024 will hold?

Here’s a look back at the stories that Minnesota Real Estate Journal covered in 2023, complete with commentary from the brokers, developers and other CRE professionals who’ve worked through the ups and downs of the last 12 months.

The E in Edina was a rare office success story in 2023

Rising interest rates and construction industry challenges

Commercial construction developers and contractors navigated a tough industry in 2023. Many projects stalled because of high interest rates. It remained difficult for companies to get needed mate-

rials to their job sites. And many had to put projects on hold because materials costs had risen so high.

Then there was the challenge of finding enough labor to staff those job sites that were still active, a challenge that remains as 2023 barrels through its final month.

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January 2024

Review from page 18

We looked at this particular challenge early in 2023 when we spoke to Ken Simonson, chief economist with the Associated General Contractors of America about that industry organization’s 2023 Construction Hiring & Business Outlook report.

A total of 80% of respondents cited in the AGC report said that they were struggling to fill some or all their salaried or hourly craft positions. Only 8% told the AGC that they were having no difficulty in finding enough workers.

Simonson told us in January that the construction industry’s hiring challenges stretch back decades, starting when schools began scrapping their vocational education programs and guidance counselors and parents began steering students to college degrees and indoor jobs.

“It’s been a chronic issue,” Simonson said.

The issue has persisted even though the construction industry has generally paid its workers well for entry-level jobs, Simonson said. He pointed to numbers from the Bureau of Labor Statistics showing that for 20 years through 2019, construction jobs paid a premium of about 21.5% to people entering the workforce directly after high school.

“The pandemic has changed people’s choices in some ways,” Simonson said. “Job openings have been running at record levels. Openings have come down somewhat from the peak but are still running much higher than before the pandemic. Preferences have shifted, too. People have gotten used to working from home or on a hybrid basis with flexible hours. That isn’t possible when you are working on construction sites. Maybe you have a greater need to be close to your kid’s school. You don’t get that if you are at the top of a crane.”

Another big challenge for construction companies? How do you move projects forward when high interest rates and rising materials costs are making every build more expensive?

Tom Schmall, vice president of project development for Minneapolis-based Mortenson, said in an October story that those commercial construction projects that are moving forward are those designed for very specific users.

Spec construction, though, has come to a standstill, Schmall said, even in sectors such as multifamily were demand for space remains high.

“Some of it is a conundrum,” Schmall said. “You talk about housing. Apartment deals are happening, but not at the pace they once were. Still, there’s a huge demand for housing. With such a strong need, you’d think that at some point the fever has to break. We need more housing. But the higher rates are keeping projects on the backburner.”

Cathy Schmidt, president and chief executive officer of Minneapolis-based Stahl Construction, told us in October that the construction industry’s challenges have resulted in a shortage of new construction, especially in high-demand sectors such as multifamily.

“The Twin Cities market needs new apartment units,” Schmidt said. “We have a long way to go before web build enough to meet the demand. Then there’s the fact that we are building a lot of new luxury units when what we really need are affordable units. It’s not easy for developers to make the numbers work when it comes to affordable housing.”

Enhanced amenities helped The E in Edina dramatically lower its vacancy rate.

Developers typically rely on tax and other financial incentives from governments to make affordable housing projects work. That won’t change in the future, Schmidt said.

“You have to put all the right pieces together,” Schmidt said.

Of course, higher interest rates remained the biggest story in commercial real estate throughout 2023. These higher rates stalled commercial real estate sales and slowed new development. And as the year ended? Those slowdowns hadn’t eased, even as the Federal Reserve Board appeared to have reached the end of its interest-rate tweaks.

Troy Blizzard, vice president and general manager with Mortenson, told us in October that everyone in the commercial real estate business was talking about interest rates.

Blizzard compared it to the supply chain issues that commercial construction companies faced during the height of COVID: Everyone knew about those issues, too, and everyone was hyper-focused on them. The same is happening today with interest rates, with everyone in the real estate industry waiting to see when sales and development activity will rebound.

Blizzard, though, said that not all sectors have been equally hit by the higher rates. He pointed to high-tech or industrial manufacturing. Activity remains strong in this area, even when it comes to sales and new construction, he said.

“The high-tech businesses are still humming.

That business can overcome the interest-rate discussions,” Blizzard said. “There is no slowdown in people wanting data centers even with the higher rates. But other markets like hospitality and residential are seeing a slowdown because of higher rates.

The impact of interest rates is broad, and everyone knows it.”

An office market that remains in limbo

One of the bigger stories of 2023? The challenges hitting the office sector.

The Twin Cities and state of Minnesota wasn’t unique: Office vacancy rates rose throughout the country as a large number of employees continued to work from home at least on a part-time basis. This has led many companies to shrink their office square footage, moving from larger spaces to smaller but higher-quality spaces as a way to entice employees back to the office.

This has taken a toll on the office markets across the state, especially in the urban centers of cities.

Downtown Minneapolis and St. Paul, for instance, continue to face soaring office vacancy rates in their downtown business districts.

And as 2023 draws to a close, there’s been little evidence that employers are eager to gobble up more office space.

But there were office success stories in the Twin Cities market, and we covered one in early 2023: the strong performance of The E, a 107,000-squarefoot office tower in the Minneapolis suburb of Edina.

City Center Realty Partners signed four new tenants at this building in late 2022, positioning The E as a rare office market success story as 2023 began.

The new leases brought The E to 75% leased.

That’s quite an accomplishment: The office tower, jointly owned by City Center Realty Partners and Contrarian Capital Management, started 2022 completely vacant.

What’s behind the success at this building? A $7.5 million renovation, completed at the end of 2021, helped. So have the amenities, everything from a high-end on-site fitness center to the refurbished lobby with fireplace. And the location, in the highly desirable Edina community, has been a bonus, too.

But Eric Anderson, executive vice president with City Center Realty Partners, told us that the bulk of this leasing success can be traced back to planning: The owners of this building put in the work to make the space as attractive as possible to tenants and their employees.

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“We were pretty methodical in our strategy for The E,” Anderson said. “We set out to buy an asset in a really good location. And we knew we were going to invest in common areas and shared amenities.

The amenities we put in create a third workplace.

I hate that term, ‘third workplace.’ But we really did focus on creating areas where our tenants can come down and utilize seating that is not in their office. We created these comfortable other spaces for them to work.”

Anderson said that tenants are looking for a healthful office environment that fosters team morale. And that is something that successful office buildings will provide in 2024 and beyond.

“The office sector is going through an era of change,” Anderson said. “Employers are looking to bring their employees back to the office. They want and need something that provides energy, something that will make their employees excited.”

Another owner made big improvements to its office property last year. Excelsior Group launched a multi-million-dollar renovation at 7500 Flying Cloud, a 202,000-square-foot Class-A office building in the Minneapolis suburb of Eden Prairie. We reported on these efforts in July.

The building’s owners told us that this work will bring a slate of new tenants to the building, all of which will focus on the new amenities as a way to entice their employees back to the office.

“We know that offering the very best workspaces and tenant amenities is an important factor for

Not all development stalled in 2023. Stahl Construction, for instance, worked on the construction of the St. Francis City Hall and Fire Station in St. Francis, Minnesota, this year. companies to develop a thriving and productive workplace,” said Chris Culp, chief executive officer of The Excelsior Group, in a statement. “The significant investments we are making at 7500 Flying Cloud will create unsurpassed tenant experiences.”

The renovation, designed by RSP Architects, were designed to bring new social spaces to the

property, including an exclusive club lounge with a bar area, liquor lockers and a golf simulator.

The updates also included a tech-infused training room and what designers are calling the “war room,” a larger meeting space designed for full-day strategy sessions. These upgrades will complement 7500 Flying Cloud’s existing amenities, including a full-service café and large-scale fitness center.

Review to page 24

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January 2024

MINNESOTA REAL ESTATE JOURNAL

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Review from page 22

Brent Karkula, managing director with JLL, and Laura Farrell, senior associate at JLL, are leading the leasing efforts for 7500 Flying Cloud. Both told us in July that the new amenities should help drive up occupancy levels at the building.

“Ownership was at a crossroads with this building,” Karkula said. “It doesn’t feel dated. It doesn’t feel tired. But the ownership group knows what tenants are looking for today. They decided that if they went through with this renovation, they could make this building a best-in-class property. It would be an example of the absolute best quality office building in the Twin Cities market.”

Office renovations have not been uncommon during the last several years throughout Minnesota.

We profiled one big player in this trend, Minneapolis-based architecture firm NELSON Worldwide, for our September issue. NELSON Worldwide has handled more than a dozen office repositioning jobs in the last two years in the Twin Cities. The firm has designed plans that call for everything from adding worker-friendly amenities to skyscrapers to improving the walkability and outdoor meeting areas of sprawling office parks.

And NELSON Worldwide’s work updating office spaces hasn’t been limited to downtown Minneapolis or St. Paul. The architecture firm is also repositioning outdated office buildings in the suburbs. Recent projects include the Crest Ridge office building in Minnetonka, Minnesota, which NELSON Worldwide helped convert from a single- to a multi-tenant building, and Golden Hills, an office development in Golden Valley, Minnesota, that was transformed from a Class-B property to Class-A. John “Ozzie” Nelson Jr., chief executive officer of NELSON Worldwide, told us that both recent suburban projects focused on reducing office footprints in favor of adding a large amount of shared office space.

That makes sense: Tenants today want communal areas in which to host client meetings, grab lunch with colleagues, brainstorm new ideas or work outside of a traditional cubicle or office.

Nelson in that September story told us that companies eager to get their employees back in the office need to offer these workers a reason to leave their home offices, at least two to three days a week. The owners of office buildings can help by embracing creative redesigns of the properties that they own.

“There are a lot of peripheral factors at work here,” Nelson said. “The CEO might believe that everyone should be back at work. Cities might be putting pressure on CEOs to get people back because of the economic impact having office workers back downtown can have. I get all that. But it’s important for people to understand that the ability to work hybrid and virtual has been a reality for 10 years.

We just needed a crisis to embrace it. There is no putting the genie back in the bottle. Now it’s about what do we do to move forward with the new office environment?”

One way to move forward? Building owners need to offer amenities that make it worthwhile for employees to return to the office. That means adding those communal workspaces, outdoor spaces and wellness-focused perks like restaurants that serve

The renovations at 7500 Flying Cloud in Eden Prairie included the addition of new social spaces.

This is another example of a building owner turning to enhanced amenities to help attract new tenants during a challenging time for the office sector. salads, wraps and other healthy meals and fitness centers that might offer personalized classes or onsite yoga sessions.

It might also mean putting in the work to turn a Class-B office building into a Class-A facility, Nelson said. That might be expensive, but it could pay off in the long term.

“No two office buildings are the same,” Nelson said. “You need to look at what your particular asset.

It is an ‘A,’ ‘B’ or ‘C’ building? Is it in the city or suburbs? Then you need to look at your own situation in terms of vacancies. What do you think your vacancy rate will be in three years?”

An industrial market that is holding its own

High interest rates impacted different sectors in different ways, but none have emerged unscathed.

That’s true for industrial, too, one of the most resilient CRE asset classes during the last decade-plus.

Industrial specialists working in Minnesota told us that this year was a challenging one, with higher interest rates slowing both the sales and development of industrial assets. In good news, though, these same professionals said that the fundamentals of the industrial market remain strong, and demand for new warehouse and distribution space is still high.

In our April issue, commercial real estate pros dealing in the industrial market told us that they were hoping for a strong industrial market in 2024.

“The rapid rise in interest rates over the last half of 2022 and into 2023 has had a dramatic effect on real estate investors and their appetite to develop new speculative buildings or buy existing buildings,” said Paul Hyde, co-founder of Minneapolis-based Hyde Development, in that April story.

This shouldn’t be a surprise. As Hyde says, the cost to borrow money to buy or develop industrial space rose suddenly this year, with interest rates at one point jumping from 3.5% to about 7%. Because of this, the owners of industrial space had to increase rental rates for tenants to make up for their higher mortgage payments.

“That has had a chilling effect on new developments,” Hyde said.

The higher rates have also slowed the sales of industrial buildings. But Hyde said that this isn’t an entirely negative development.

Hyde said that the industrial market, though not a bubble, was overheated before interest rates began rising. As he says, investors were buying new buildings that were empty just so they could find a place in which to invest their money. They weren’t concerned that there weren’t tenants in the space yet to pay rent.

“That is not healthy in the long-term,” Hyde said.

“There were prices being paid for existing buildings that were higher than we’d ever seen. I think this slowdown in sales is setting our market up for a strong and sustainable next cycle.”

What the higher rates haven’t impacted yet, Hyde said, is leasing activity. The demand among tenants for industrial space remains high, Hyde said. Owners with vacancies in existing buildings or those building new industrial space were still finding plenty of tenants to fill those empty slots.

Why? Consumers still want the products that they order to show up on their doorsteps quickly.

Companies, then, need to populate warehouse and distribution space that allows them to ship their products across the country in less time.

“It’s not just Amazon, either. Everything is now being held to that overnight delivery model,” Hyde said. “That consumer and business demand is driving the need for more industrial product. That’s one of the reasons why there hasn’t been a slowdown in industrial product. It’s one of the reasons why there hasn’t been a slowdown in demand.”

Mark Kolsrud, vice chair with the St. Louis Park, Minnesota, office of Colliers, told us in the same story that the steady demand from tenants has been encouraging.

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NELSON Worldwide designed an airier, more inviting lobby space at Minneapolis’ AT&T Tower in an effort to attract tenants eager to get their employees back to the office But Kolsrud did say that the amount of new industrial construction has slowed in the Twin Cities market.

“Speculative development has largely come to a stop,” Kolsrud said. “Now it is better to have a tenant in tow. With that, we are also seeing fewer industrial sales.”

At the same time, industrial rents throughout the Minneapolis-St. Paul market have grown during the last five years, Kolsrud told us. This has helped keep vacancy rates low in industrial space throughout the region, he said.

Industrial landlords want to earn market-rate rents. When it is time for their tenants to renew, they propose a higher rent. Tenants then explore the market to see if they can find the same quality of industrial space at a lower cost.

The challenge? Industrial rents have risen throughout the market, Kolsrud said.

“Tenants often find that they can’t save any money even if they move,” he said. “So they negotiate a renewal at their current locations. The rent growth in some ways is keeping tenants in their current locations for a longer time.”

The challenges facing the industrial market didn’t mean that all Minnesota developers in this space stopped new construction. In our April issue, we highlighted Minneapolis-based commercial real estate firm Ryan Companies’ latest project, a pair of speculative industrial buildings in the 610 Zane Business Park in Brooklyn Park, Minnesota.

Construction started on the pair of industrial facilities in early April, with an expected completion date in October or November of this year. The two buildings will bring a total of 325,000 square feet of new industrial space to the Twin Cities market.

Dan Mueller, vice president of real estate development with Ryan Companies, told us for that story

Hyde Development’s Northern Stacks Project in Fridley, Minnesota. that the spec industrial buildings are just the latest additions to the mixed-use 610 Zane Business Park that the company started developing several years ago.

The first addition to the park was a Hy-Vee grocery store that opened in 2016. To bring this project to fruition, Ryan worked with the city of Brooklyn Park to rezone a portion of the site. The 100,000-squarefoot flagship store features a full grocery, Market Grille restaurant, pharmacy, wine and spirts store and convenience store with a drive-through Starbucks.

That first addition to the park was key, Mueller said.

“The Hy-Vee is a nice anchor to the development,” he said. “It’s a nice amenities hub for the business park’s tenants. We have sidewalks that connect all the tenants to the Hy-Vee and the ancillary retail that has been developed around it.”

A retail evolution

This year has been a surprisingly strong one for innovative retailers in Minnesota and across the country. Consumers haven’t been afraid to spend

26

MINNESOTA REAL ESTATE JOURNAL

January 2024

Review from page 25

this year, even as they worry over higher prices and interest rates.

Retailers that have thrived today are those that embrace the omnichannel approach, building a robust online presence while also operating busy brick-and-mortar locations. Those physical storefronts often act as showrooms designed to entice customers who then return home to make their purchases online.

Indoor shopping malls, though, have often struggled, this year and in years past. The Minneapolis-St. Paul area is a bit of an anomaly, home to Bloomington’s Mall of America, an example of an indoor mall that is booming with business.

Successful malls today, both outdoor and enclosed, are evolving, adapting to meet the changing demands of consumers.

We spoke with Dan Spiegel, senior vice president and managing director at Coldwell Banker Commercial, for our Apil issue about what the future might hold for indoor malls.

The challenge for mall owners? Spiegel told us that what works in one location might not work in another. Indoor miniature golf and adult-themed bowling alleys might bring in big crowds in some communities. In other locations, creating a downtown feel with pedestrian-friendly walking paths and center greens might be the better option.

It’s up to mall owners to decipher what will work in their community and then make the changes happen.

“Everything depends on location,” Spiegel said. “It depends on what customers are looking for in a location. Often, people are looking for a reason to go to a mall. If you can provide that, you can help bring in the traffic. Maybe shoppers will come to bowl or see a movie. If they can get drinks afterwards or do some shopping, they might be more willing to spend more time at a mall.”

Mall of America in the Minneapolis-St. Paul market remains a good example of this, with everything from Crayon-making lessons to rollercoasters and sharks acting as draws.

“Mall of America is what so many other malls are trying to turn into,” Spiegel said. “That mall was ahead of its time in terms of offering people a destination.”

Some developers are adding multifamily units to retail centers. Spiegel told us that this a trend that is gaining momentum.

“We are in the first phase of this now,” he said.

“Developers are waiting for the results to see how successful it is.”

The trend, though, makes sense. As Spiegel says, the country needs more housing. And it especially needs more apartment units.

At the same time, people are interested in living in a community in which they can walk to restaurants, shops, movie theaters and bars. Apartment units built in an outdoor mall setting can provide this.

“The multifamily component provides that urban lifestyle but often in a suburban location,” Spiegel said. “People will drive for a downtown, urban experience. But they want it in the suburbs. They don’t want to have to drive to the downtown of a major city. They want that downtown experience closer to home in the suburbs.”

A rendering of one of the industrial buildings being built in the 610 Zane Business Park in Brooklyn Park, Minnesota.

A trend that supports this? Mall owners are increasingly working to turn their outdoor retail centers into more pedestrian-friendly areas. This means the addition of grass-lined walkways and central park areas with seating.

But the retailers surrounding these green spaces?

They are often the type you’d find inside an enclosed mall, places like the Gap; trendy soap maker Lush; sports apparel company Lids; or American Eagle apparel.

The feel, though, is of a pedestrian-friendly downtown community.

“There might even be apartments over the stores,” Spiegel said. “The current consumer trend is a desire for that pedestrian, urban feel. That is the new kind of mall that is doing well today.”

A new approach to healthcare real estate

Early in 2023, we spoke with Jay Johnson, practice leader for healthcare with JLL, about the rising demand for outpatient healthcare facilities across Minnesota and the country.

Johnson said that patients are only going to continue to seek medical care outside of major hospitals. Johnson told us that this means big changes for hospital systems, medical grroups and developers.

When we asked Johnson if the country had enough outpatient medical facilties? His answer was to the point: “That depends on what you mean by ‘enough.’ But the short answer is ‘no.’ We are going to continue to see growth in outpatient facility types and locations.”

The broad reason for this? Johnson said that the U.S. population continues to age with people seeking more care, especially preventative care.

Then there’s the fact that patients have enjoyed successful health results when they get treatment at outpatient facilities.

Patients also prefer traveling to offices and outpatient clinics that are easier to get to. They like being able to park right outside the office instead of having to navigate through a crowded parking garage as they would when visiting a major hospital.

“People have to drive longer distances to get to hospitals,” Johnson said. “It can be very congested with parking. Finding your way around the hospital campus can be stressful. Navigating the maze of the campus can be very challenging. The outpatient care side is much easier to get to and more convenient for patients. It is easier to park. It is easier to navigate once they get into the facility.”

Johnson said that this doesn’t mean that hospitals will disappear. Instead, major hospitals will treat the most serious of injuries and illnesses, he said, while a greater number of other procedures will be handled at outpatient facilities and physicians’ offices.

What does this mean for commercial real estate professionals? They’ll be spending more of their time in 2024 and beyond helping major hospital systems expand their reach into their surrounding communities with their own affiliated offices, clinics and emergency care centers.

In our April issue, Jon Lewin, chief financial officer with MedCraft Healthcare Real Estate in Minneapolis, said that 2023 saw healthcare providers continue to recover, albeit gradually, from the damages they suffered during the COVID pandemic.

“I do think that healthcare systems are starting to get a little healthier again,” Lewin told us in April.

“Some have announced mergers to help improve their financial health.”

Jill Rasmussen, principal in the Minneapolis office of Davis, told us in the same story that healthcare providers this year continued to expand into growing markets, opening clinics and care facilities in places like Blaine, Lakeville or Woodbury.

“People want convenience and care closer to home,” Rasmussen told us. “That was a trend that certainly started before COVID. People are not excited to go to a hospital or a big medical campus just for well-care. Hospitals have become a place for acute care. Everything else is being pushed off campus.”

MINNESOTA REAL ESTATE JOURNAL

January 2024

Mork from page 1 took off and debt got scarce. The capital markets just shut off. When you have 11 interest rate hikes in just more than a year, that’s going to happen. Sellers said that if they didn’t have to sell a property, they weren’t going to.

From a leasing perspective, the industrial world remained strong in 2023. Industrial tenants aren’t like office tenants. When COVID hit, office workers could run home and hide in their houses. Industrial tenants can’t do that. They have to stay in the shop and make their widgets and keep production going.

There has been strong demand for industrial space throughout 2023.

Differing impacts: This year has been fascinating for a lot of different reasons. Usually, when you see a downturn in the market, everyone suffers. In this downturn, industrial real estate did just fine. COVID actually helped industrial real estate. The office market suffered. The capital markets suffered. The apartment market held in there but is now getting hurt by debt.

When it comes to sales, debt has become the biggest factor in restraining sales velocity in the industrial market. It is so hard to find debt. New construction has turned off, too. Banks are putting down their pencils into 2024.

New loan requirements: In the old days, if you were buying a building, you could borrow up to 70% with five years of interest-only. Today, that doesn’t work. You need 40% equity down. Interest-only money is off the table. Lenders are going to float the interest rate. If you do get a fixed rate, it is close to 9%. This all means that so many deals don’t pencil out.

We had two portfolios under contract. The sellers took the deals to their publicly traded boards. The boards said, ‘No. Let’s not sell.’ The boards know that everyone is saying that interest rates are coming down or moderating in 2024 and 2025. If their

Peter Mork

loans aren’t maturing, why should these owners sell?

When will sales activity pick up? I talk to investment salespeople in the Twin Cities. They all say that in the second quarter of next year or at the end of the first quarter they will get a lot of new listings.

The owners that held off in 2023 will launch their portfolios in 2024. Some institutional groups told Wall Street that they were going to trim their commercial real estate assets. They still need to do that and will probably do this in 2024.

I think 2024 will see more sales activity. Interest rates will come down. It is politically aligned. We are going to see interest rates cut before the presidential election. Once that occurs, we should see CAP rates decrease and we should see more demand for sales.

What’s interesting is that all this money will now be chasing just a couple of asset classes. Before, industrial competed with office and everything else.

27

Now, all that money will focus on industrial and multifamily. We are going to see pent-up demand that will push CAP rates down. Sellers will have a reason to put their buildings on the market.

Tough times coming for industrial tenants? With new construction down, it is going to be very challenging for tenants to find industrial space in 2024.

It’s not great news if you are an industrial tenant and your lease is coming up in the next 12 to 24 months.

Do you want to do a short-term or long-term lease?

Does a landlord want to do a long-term lease for 4% annual bumps? If a landlord does that, will that landlord be behind the market in 10 years? These are all big questions. And with the lack of new industrial space that has been built, tenants looking for space will have limited options.

Another 2024 problem for industrial tenants is that property insurance rates are going through the roof. Building owners will have to pass these costs to tenants in the form of higher rents. That being said, the cost of real estate compared to the overall costs of running a company is still a relatively low percentage. Rent typically accounts for something like 15% of the costs of running a company.

Finding debt still a big story in 2024: The big story will continue to be the difficulty of finding debt.

And once you find it, you’ll have to put up more equity. Interest-only money will be off the table. Banks are still not participating in commercial real estate loans right now. You have to go with institutional debt. We are starting to see owner-financing come into play.

I do think new construction in the industrial sector will pick up in the second half of 2024. It’s going to be difficult for developers to sit on the sidelines when they see vacancy rates so low in the industrial sector. You just have to make the numbers work.

MINNESOTA REAL ESTATE JOURNAL

28

BRIEFS

more than 1.5 million square feet of healthcare properties across the United States.

The latest news from Minnesota’s commercial real estate industry

size from 72,268 square feet to 207,558 square

Colliers Mortgage closes $26.6 million refinance

tional Partners represented the seller, PCCP, a Los

loan for Minnesota apartment development The Colliers Mortgage Minneapolis team of Tony Carlson and Ben Fazendin have closed a $26.6 million Fannie Mae loan for the refinancing of Montreal Courts Apartments in Little Canada, Minnesota.

Features at the 444-unit market rate property include a pool, fitness center, community room, playground and laundry facilities.

The 10-year loan was arranged for an undisclosed repeat client.

JLL Capital Markets provides $57.27 million in financing for eight-building industrial portfolio in Minnesota JLL Capital Markets arranged the $57.27 million acquisition financing for an eight-building industrial portfolio totaling 941,564 square feet spread across Eagan, Brooklyn Center and Fridley, Minnesota.

JLL worked on behalf of the sponsors, a joint venture partnership between Capital Partners and Eagle Realty Group, to secure the five-year, 65% LTV, fixed-rate loan through a JLL correspondent life insurance company.

The portfolio boasts an overall occupancy of 98.5%, with only 14,250 square feet of vacant space.

The diverse property mix offers 16- to 30-foot clear heights and a 23-tenant multi-tenant roster. The Minneapolis/St. Paul industrial market is comprised of 351 million square feet of rentable space and boasts an overall vacancy rate of 2.6%.

The JLL Capital Markets Debt Advisory team was led by Senior Director Bill Mork.

CBRE closes $88.5 million sale of Minnesota industrial portfolio CBRE has arranged the $88.5 million sale of a 941,564-square-foot industrial portfolio to Edina, Minnesota-based industrial real estate firm Capital Partners in a joint venture with Eagle Realty Group, a Cincinnati-based real estate investment firm.

The portfolio included eight buildings in Fridley, Eagan and Brooklyn Center, Minnesota, ranging in

January 2024

feet.

Judd Welliver, Bentley Smith, Mike Caprile, Zach Graham, Ryan Bain and Joe Horrigan with CBRE NaAngeles-based real estate private equity manager, in the transaction.

The portfolio was 98% occupied at the time of the sale and comprises the following properties: • Northpoint Industrial Center I, II & III – 5730 Main St. NE in Fridley – 207,588 sq. ft.

• Corporate Square A – 990 Apollo Road in Eagan – 90,143 sq. ft.

• Corporate Square E – 990 Apollo Road E in Eagan – 102,000 sq. ft.

• Corporate Square B – 1000 Apollo Road in Eagan – 72,268 sq. ft.

• Corporate Square C – 3110 Neil Armstrong Blvd. in Eagan – 74,088 sq. ft.

• Corporate Square F – 3160 Neil Armstrong Blvd. in Eagan – 96,000 sq. ft.

• Eagan Industrial Warehouse – 1170 Eagan Industrial Road in Eagan – 96,371 sq. ft.

• France Avenue Business Park I – 4837 Azelia Ave. N. in Brooklyn Center – 203,105 sq. ft.

Forte Real Estate Partners represents EPPA on lease extension, sale of Eagan emergency room Forte Real Estate Partners’ principal Steve Brown advised EP Development LLC on a lease extension with EPPA and the related sale of the property at 3010 Denmark Ave. in Eagan, Minnesota, to MSP Commercial.

The property is a 12,592-square-foot stand-alone building and has been the home of an Urgency Room clinic staffed by EPPA physicians since 2012..

After a market analysis and evaluation of possible alternatives, it was determined that selling the property made the most sense strategically for both the shareholders of EP Development and EPPA as a physician organization.

To execute on this strategy, Brown partnered with Chris Bodnar, CBRE’s vice chairman and head of national healthcare capital markets, to assess the value and market the property to potential buyers locally, regionally and nationally.

Ultimately, Minneapolis-based MSP Commercial acquired the property for $4.6 million. MSP Owns

Minneapolis’ Aeon adds VP of resource development Minneapolis-based Aeon has added Mary Clem Routhieaux to its leadership team as its new vice president of resource development.

Routhieaux will offer leadership in engaging Aeon supporters during this critical time when the affordable housing crisis is leaving tens of thousands of Minnesotans without a home. Aeon, a nonprofit developer, owner and manager of almost 6,000 affordable homes in the Twin Cities area, is responding by growing its team and impact.

Routhieaux comes to Aeon with an extensive background in affordable housing operations and fundraising leadership. She has devoted her career to applied problem-solving in pursuit of community well-being, with vast experience in building fundraising programs to connect people to a mission.

Most recently, Routhieaux served as the Executive Director for the Community Housing Fund of Washington County, Oregon, a nonprofit CDFI and revolving loan fund that finances the production of affordable housing. Previously, she was Executive Director and Chief Advancement Officer at Episcopal Homes of Minnesota.

Senior Living Investment Brokerage sells 65-unit memory care facility in St. Paul Senior Living Investment Brokerage facilitated the sale of a memory care facility in St. Paul, Minnesota.

The facility consists of 65 units and was built in 2008. The property is 52,516 square feet and sits on about 0.88 acres of land.

The buyer is an experienced home health operator in the Minnesota market ready to grow its presence in traditional senior living real estate investments.

Jason Punzel, Jake Anderson, Brad Goodsell and Vince Viverito of Senior Living Investment Brokerage handled the transaction.

Forte helps Revo Health find new home in Bloomington’s Northland Center Forte’s senior vice president Katie Trevena and principal Steve Brown advised Revo Health in the healthcare firm’s selection of Northland Center in the Minneapolis market as its new corporate headquarters.

MINNESOTA REAL ESTATE JOURNAL

January 2024

29

The company, which plans to move into the space

State College Foundation board of trustees. He

foot addition and a 20,000-square-foot renovation

after the completion of a renovation in the first quar-

is vice chair of the Bismarck-Mandan Chamber of

that will house programs to help students gain ca-

ter of 2024, is consolidating two locations.

Commerce Local Issues Committee and served on

reer-ready skills in the manufacturing industry.

The 33,000-square-foot space includes 25,000 square feet of a former sublease combined with an adjacent 7,000 square feet on the third floor of the American Blvd. W building.

Revo Health is a managed-services organization.

its board and as chair of its Economic Development Committee.

LSC’s Integrated Manufacturing program features classes in welding, machining and computer-aided

Magstadt also served as board chair of the Bis-

design. The $10 million addition and renovation

marck-Mandan Development Association, past

project is expected to be completed in October of

president of the board of the North Dakota Solid

2024.

Waste and Recycling Association, and the Economic

Twin Cities-based CRE cycling group helps kids in need get wheels of their own Commercial

Real

Estate

Cyclists

(C.R.E.C.)

wrapped up its third season in the Twin Cities helping kids in need get wheels of their own.

C.R.E.C. members recently volunteered at Free Bikes 4 Kidz Minnesota, cleaning and refurbishing bikes donated by the public that will eventually make their way to kids in need. C.R.E.C. ended the day with a $2,500 donation to the non-profit organization, whose mission is to help all kids ride into a happier, healthier childhood.

Created in 2021 by CBRE’s Ben Bastian and

Development Association of North Dakota. He also was a member of the Bismarck Renaissance Zone Authority board, Bismarck Mayor’s CORE Committee and Burleigh County Planning and Zoning Commission. Magstadt earned his bachelor’s degree from the University of Nevada-Reno and masters’ degree from the University of Mary, Bismarck.

KA also has hired Walter Duff as a project superintendent. He previously was a construction sub-contractor,

managing

on-site

construction

projects and interior finishing. Duff received his B.S in Construction Management at Minnesota State University-Moorhead.

Upland Real Estate Group‘s net lease team of Keith Sturm, Deborah Vannelli and Amanda Leathers represented the seller in the sale of the 1901 Highway 36 net-lease investment property in Roseville, Minnesota, for $2.45 million.

The new occupant will be announced at a later date.

This property was previously occupied by the Good Earth restaurant for more than 40 years. The property is highly visible from Highway 36 and sits

networking and community volunteer organization

Colliers boosts industrial team in Minneapolis office

of Twin Cities-area professionals involved in all

Colliers | U.S. has hired Andy Lubinski as vice

aspects of the commercial real estate industry. The

chair, Aaron Whitmore as associate vice president,

organization hosts local monthly events including

Ethan Haglund as senior associate and transaction

rides, skills clinics, overnight destination trips to

manager Justin Felix.

The Appraisal Group’s Kelsey Hornig, C.R.E.C. is a

Upland Real Estate Group closes sale of former Good Earth property in Roseville

adjacent to the Rosedale Mall area.

Doran Companies to demolish office complex and build multifamily property in Minnetonka

locales like northern Minnesota and Leadville, Col-

Lubinski will oversee multistate site selection,

Doran Companies has closed on the purchase

orado, and community involvement opportunities.

tenant representation and disposition projects. He

of The Offices at Marsh Run at 11816 Wayzata Blvd.

With over 100 members from 77 different compa-

and the team specialize in major industrial proper-

in Minnetonka, Minnesota, and the construction

nies, the group is sponsored by a variety of local

ties in secondary markets along with projects in the

financing to redevelop the decades-old more than

and national real estate companies.

food production and climate-controlled warehous-

31,000-square-foot office property.

“We started this group as an alternative to net-

ing sectors. Lubinski will also lead an initiative to en-

The Doran-designed 197 apartments will replace

working on the golf course for those of us that love

hance Colliers’ industrial presence in North Dakota

the existing three-building, two-story office com-

to ride,” said Bastian. “Members have met and done

and Iowa.

plex. Doran has already begun site prep work, including abatement and demolition, with large-scale

business with other riders of the group that they

Lubinski brings more than 12 years of experience

wouldn’t have met otherwise. Having a common

in commercial real estate, most recently at CBRE. He

interest outside of work is key in our business.”

has successfully concluded transactions exceeding

The 4.3-acre project site is down the street from

30 million square feet since 2015 and is a highly ac-

the Birke Apartments, also developed, designed,

credited professional, boasting an impressive track

and constructed by Doran, which includes 175 units

record of awards and tenants represented.

of multifamily living.

Kraus-Anderson Construction director elected to chair of North Dakota health foundation Kevin Magstadt, director of business development for Minneapolis’ Kraus-Anderson Construction, has been elected to chair of the board of the Sanford Health Foundation Bismarck.

Magstadt is a highly regarded business leader in the greater North Dakota region with more than 43 years of client, community and government relations experience.

Magstadt is on the Greater North Dakota Chamber of Commerce board of directors and Bismarck

construction beginning in January 2024.

The new apartments range in size from alcoves

Kraus-Anderson taking on addition, renovation work at Lake Superior College in Duluth

to three-bedroom units. Amenities include a fitness

Kraus-Anderson has begun an addition and reno-

beautiful wetland and pond. The development has

vation project that relocates Lake Superior College’s manufacturing program from downtown Duluth, Minnesota, to the college’s main campus. Located at 2101 Trinity Road, LSC’s 97-acre main campus overlooks Lake Superior and St. Louis River bay.

Designed

by

Architecture

Advantage,

the

29,000-square-foot project includes a 9,000-square-

room, co-working space, amenity deck, entertainment suite, and more. Unique to the area, the project will also feature a walking trail surrounding a received tax increment financing (TIF) from the City of Minnetonka to offer affordable units.

The project will be managed by Doran’s property management team, Whitecap Management.

MINNESOTA REAL ESTATE JOURNAL

30

January 2024

Modist Brewing Co. wraps $2 million renovation of Minneapolis headquarters and taproom

concrete epoxy flooring. The mirrored ceilings cre-

erties and Harbert US Real Estate has acquired a

ates energy and excitement by adding depth and

121,684-square-foot, multi-tenant light industrial

creating unique views of the second level event

complex at 9201 E. Bloomington Freeway in Bloom-

space from the street. Full glass walls separate the

ington, Minnesota, known as the “Bloom Tech”

event space from the taproom and brewery, allowing

complex.

Modist Brewing Co. has completed the $2 million

sky-high visibility into the taproom and brewery so

renovation of its 7,000-square-foot North Loop

everyone can feel connected to the Modist culture.

headquarters and taproom in Minneapolis. The ren-

Also included in the renovation is Modist’s quality

“Bloom Tech features a diverse tenant roster with

ovation includes new event space, quality control

control lab, a dedicated space for the team to test

historical long-term retention,” said Jacob Swartz,

lab and employee workplace.

and refine its recipes, and a modern workplace

Associate Director of Acquisitions, Clear Height

full of natural light that supports future employee

Properties. “The property is strategically located

growth.

two turns off of the intersection of I-35 and 94th

The Minneapolis studio of Perkins&Will designed a two-story event space, mezzanine and catwalk that can accommodate 120 people for corporate and private events. Perkins&Will designed the

Minneapolis-based Kraus-Anderson led the construction, which began in March 2023.

space to be as inclusive and welcoming as possible, with the intention of celebrating the creativity of the

brewery, the design reflects “punk rock chic” and includes bold colors, neon sculpture lights, dichroic

A joint venture partnership between Oak Brook-Il-

glass that changes color as you pass by, and glitter

linois-based real estate investor Clear Height Prop-

Shying away from the masculine feel of a typical

dock-high doors and five drive-in doors.

Street, providing the tenants easy ingress and egress throughout the Twin Cities.”

Bentley Smith and Judd Welliver of CBRE Nation-

Clear Height acquires 121,000-square-foot industrial complex in Minneapolis market

community.

The property is comprised of 14 tenants with 20

Rates from page 4

Still, some projects are getting done. The leverage is lower. The old saying “cash is king” has never been truer. If you can put down 40% equity, you can still get a deal. If you need 70% or 80% leverage, that’s not in the cards.

The Fed has signaled that it is done raising rates and might cut them next year. Is this stability what the industry needs for sales volume and new construction pick up?

Golberstein: I am a lender by trade, so I am more pessimistic than most people. But I don’t think we’ll see a lot more rate hikes. But I don’t anticipate a significant drop in rates, either, maybe 50 or 75 BPS. Hopefully, we can normalize a bit over the next 12 to 18 months.

But I do think stability is what people are looking for. If that comes, I think next year we will see more sales and development activity.

Is the feeling in the industry during this challenging period different from what we saw during the Great Recession in 2008?

Golberstein: In 2008 and 2009, things were contentious. Properties were going back to lenders. There were all these workouts. It was intense. In this cycle, we have not seen that at all. Even when projects are going into forbearance and foreclosure, it hasn’t gotten nasty. I don’t know what accounts for that other than the acknowledgement across the board that we all got too loose on interest rates. Too many thought that these interest rates would last forever. It wasn’t bad real estate at the heart of these challenges, it’s just real estate that can’t be refinanced out of its current debt.

Not all commercial assets, though, are seeing the same difficulties today, either.

Golberstein: Yes. Office is the troubled child of all the asset classes. That is pretty close to the bottom right now. Office is largely unfinanceable. The one we are keeping our eye on is multifamily. Think about the record numbers of permits pulled for multifamily projects in 2022 and 2021. Think about all those construction loans that are three-year terms. Those are coming due right now or 12 months from now. A lot of multifamily product will be going back to the lender. They simply can’t refinance out of their debts. We haven’t seen that yet, but it is coming.

What kind of deals are getting financing right now?

Golberstein: We are PACE lenders. We lend on properties that have energy efficiency improvements. About 60% of our portfolio is ground-up construction

al Partners were the sole brokers in the purchase transaction.

and 40% is existing buildings. One of the interesting things we are seeing now are deals that allow retroactive PACE financing.

Most states allow retroactive PACE funding. Say you have a building that you built two years ago and you have added energy efficient features to that property. We can enter the picture and say, ‘You have $5 million of retroactive eligibility.’ We can infuse $5 million of liquidity into the deal. Building owners can use that to get extensions on their construction loans. We are doing a ton of retroactive PACE deals. We infuse liquidity to properties and help their owners get extensions so that they are not facing these maturity defaults.

What do you have to show with these older buildings to qualify for retroactive PACE financing?

Golberstein: On an existing building, say a warehouse or office building, you have to show that you are replacing older, inefficient systems with new, efficient ones. Maybe you are converting an old warehouse space into hipster residential. You can show that you have made energy efficient improvements with the windows, HVAC, plumbing or electrical systems. Anything that increases the efficiency of a building is dollar-for-dollar PACE eligible.

In 2024, most of our business will be retroactive PACE financing deals. We are coming in to infuse liquidity to properties that the owners can use to right-size their debt and create a path to a viable refinancing.

For which asset classes are you providing the most financing today?

Golberstein: Our top asset classes are hospitality, senior living and market-rate multifamily. We are doing some office. We have a position in the LaSalle Plaza office property in downtown Minneapolis. That entire acquisition is complicated, but PACE financing is a critical part of it. What we liked about the deal is that it was a fresh acquisition with a ton of cash coming into the deal. What we shy away from are folks who already own an asset who are looking to refinance their current debt without bringing any fresh money into the deal. That is scary for us. We liked the story a lot with LaSalle Plaza. Office isn’t dead. But it must have the right story.

I know it’s difficult to predict the future, but what do you see in terms of commercial financing next year?

Golberstein: I do see an uptick in volume in 2024. Folks on the sell side are realizing that prices are not what they want them to be, but that they will have to work around that if they want to be active this coming year. I think we will see a more productive year than we saw in 2023. But 2023 was our company’s best year ever. We believe that 2024 will eclipse 2023 for our lending book.

January 2024

MINNESOTA REAL ESTATE JOURNAL

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