VOLUME 31, NUMBER 07
©2015 Law Bulletin Publishing Co.
July 2015
One Southdale Place: A taste of urban living in the suburbs By Dan Rafter, Editor
Y
ou don't have to live in the center of a big city to get a taste of urban living. The One Southdale Place luxury apartment complex in the Twin Cities suburb of Edina, Minnesota, is a good example. The property -- developed jointly by Simon Property Group and StuartCo -has made a bit of history by becoming the first apartment complex located in the parking lot of a regional mall in the Twin Cities market. And because the apartment complex has sprouted in the parking lot of the Southdale Center shopping mall, it offers an urban feel in a suburban location. Lisa Moe, president and chief executive officer of StuartCo, said that residents
at One Southdale Place can walk to the Southdale Center or the nearby Galleria shopping center in Edina. "We've heard from a lot of people who like the idea of urban living but also like the convenience of living in the suburbs," Moe said. "This gives them both worlds. It's half urban and half suburban." Moe said that one resident of One Southdale Place told her that he might as well move here because his wife already spends most of her time at the Galleria. "Another told me that the project has all of the amenities that she wants and gives her the ability to walk to so many stores," Moe said. "She calls it her resort." Southdale to page 18
The Real Estate Side of Oil and Gas Royalties Alfred C. Teran, Patriot Energy
W
henever we hear the word “real estate” what comes to mind is the traditional categories of property we see and live in on a daily basis. There is Farmland, Ranchland, raw land, brick and mortar, commercial properties, multi-family structures and our homestead, all of which affect our daily lives in a positive manner. These types of real property provide a
Teran
variety of financial gain by generating cash flow or a revenue stream to the owner of these assets. Outside of our homestead, most real estate properties have an investment appeal that attracts all of us to one or more categories of real property assets. There is an additional benefit to owning one or more categories of property assets, and that
is the appreciation of value most real estate provides, meaning that the initial purchase price of the property will grow in value once it is sold in future years. There is another category of real estate and real property not very well known by many of us and not readily available to everyone. However, this category of real estate provides the same benefits as the traditional real estate we all understand. The greatest appeal Royalties to page 20
July 2015
Minnesota Real Estate Journal
Contents
1
JULY 2015 • VOLUME 31, NUMBER 06
ONE SOUTHDALE PLACE: A TASTE OF URBAN LIVING IN THE SUBURBS THE REAL ESTATE SIDE OF OIL AND GAS ROYALTIES
10
TWIN CITIES’ OFFICE, INDUSTRIAL MARKETS KEEP GAINING MOMENTUM
12
FACES OF NAIOP - CHARLES PFEFFER, JR
14
HOW GREEN IS YOUR CITY’S COMMERCIAL REAL ESTATE? CBRE KNOWS
16
WHAT DO INVESTORS LOVE? STRIP CENTERS ANCHORED BY GROCERY STORES … STILL
21
GREAT RIVER ENERGY OFFERS ‘COOPERATIVE DIFFERENCE’ TO ITS MEMBERS, BUSINESS PARTNERS
Page 3
Departments PEOPLE
4
NEWS
6
The Minnesota Real Estate Journal (ISSN 08932255) is published monthly for $85 per year by Minnesota Real Estate Journal, 13400 15th Ave North STE C, Plymouth 55441. Phone: 952-885-0815. Periodicals postage paid at Minneapolis, MN. POSTMASTER: Send address changes to Law Bulletin Publishing Co, 415 State Street, Chicago IL 60654. Lanning Macfarland, Jr. chairman; Sandy Macfarland, CEO; and Brewster Macfarland, president. Back issues $10.00. Subscriptions are non-refundable. For more information call 952-885-0815. ©2015 Law Bulletin Publishing Co. No part of this publication may be reproduced without the written permission of the publisher.
Page 4
Minnesota Real Estate Journal
July 2015
People a division of Law Bulletin Publishing Co.
13400 15th Ave North, Suite C Plymouth MN 55441 For information call 952-885-0815
Publisher | Managing Editor Jeff Johnson jjohnson@rejournals.com Associate Publisher Jay Kodytek jkodytek@rejournals.com Consulting Editor Dr. Tom Musil tamusil@stthomas.edu Conference Manager Alan Davis adavis@recg.com
EDITORIAL ADVISORY BOARD JOHN ALLEN Industrial Equities ROBERT ANGLESON Navigator Real Estate RICK COLLINS Ryan Cos. US Inc. JEFF EATON Cushman & Wakefield/NorthMarq MARK EVENSON ULG Equis PATRICIA GNETZ US Bank TOM GUMP TAG Consulting JON HEMPEL Hempel Properties DAVID JELLISON Liberty Property Trust CHAD JOHNSON Hellmuth & Johnson BILL WARDWELL Colliers International GEORGE KLUEMPKE Braun Intertec JEFFREY LAFAVRE CBC Griffin Companies WADE LAU Founders Properties MIKE LE JEUNE Fabcon JIM LOCKHART WIPFLI DUANE LUND Exchange Realty PATRICK MASCIA Duke Realty Corp. CLINT MILLER Cushman & Wakefield/NorthMarq DR. THOMAS MUSIL University of St. Thomas WILLIAM M. OSTLUND CBC Griffin Companies WHITNEY PEYTON CB Richard Ellis MIKE SALMEN Transwestern STEWART STENDER Stewart Capital Partners
a division of Law Bulletin Publishing Co. 13400 15th Ave North Suite C Plymouth MN 55441 For information call 952-885-0815
Larkin Hoffman Expands Real Estate Litigation, Construction and Surety Practice – Welcomes David Hammargren, Paul Meyer, Jason Tarasek and James Sander Larkin Hoffman, long known for its dedicated real estate litigation practice, is proud to announce that four of the region’s top construction, surety and mechanics’ lien practitioners will be joining the firm on August 1, 2015. Dave Hammargren, Paul Meyer, Jason Tarasek and Jim Sander will be moving just a few miles from their current offices on American Boulevard in Bloomington to Larkin Hoffman’s new offices in the 8300 Tower at Normandale Lake Office Park. Dave Hammargren and Paul Meyer have been representing contractors, subcontractors, sureties, design professionals, owners and lenders in all types of construction and surety litigation and arbitration for nearly 30 years. Together, they founded Hammargren and Meyer, P.A. in 1996. “We have had an excellent professional relationship with Larkin Hoffman throughout the years,” said Dave Hammargren. “We are looking forward to joining a leading real estate litigation practice that also has the full support of a general practice firm in important areas for our clients, including real estate transactional work, government relations, land use, taxation and general corporate and litigation work.” Jason Tarasek and Jim Sander, who will also be joining Larkin Hoffman from the same firm, echoed the sentiment. “Larkin Hoffman presents an excellent platform to build my practice far into the future,” said Jason Tarasek. Jason and Jim focus their practices on construction, especially in defects litigation, and creditors’ remedies, including mechanics’ liens and the collection of payments for contractors, engineers and architects. Bill Griffith, president of Larkin Hoffman, welcomed the new attorneys as part of the firm’s long-term goal to provide a strong regional practice for business clients. “For nearly 60 years, Larkin Hoffman has been an innovative firm in the delivery of service and value to clients. We are thrilled
to welcome these top-rated construction litigators to our well-known and successful real estate practice. They bring a wealth of knowledge and experience that will help those we serve.”
Great River Energy announces new economic development services hire Great River Energy announced today that Jeff Borling has joined its staff as an economic development lead. Borling will join Tom Lambrecht, manager, economic development services, and Erin Sparks, economic development specialist, in Great River Energy’s ongoing effort to attract businesses to its service territory to ensure the stability of Minnesota’s rural communities. Borling will focus on economic development in northern Minnesota and will be based in Duluth. “Jeff is a key addition to our economic development team as we continue striving to strengthen communities across our service territory by helping to grow and retain businesses,” said Tom Lambrecht, manager, economic development services. “He has a longstanding commitment to the northern region of the state and I’m certain he will make a positive impact there through his work for Great River Energy.” Borling brings with him a wealth of knowledge and experience in the economic development field, serving most recently as director of industrial/economic development for Duluth Seaway Port Authority. Prior to that, he spent seven years with Area Partnership for Economic Expansion where he helped to drive regional investment activity and job growth in northeast Minnesota and northwest Wisconsin. Borling earned a Bachelor of Arts in English literature and linguistics from the University of Wisconsin-Stevens Point and a master’s degree from the University of Minnesota-Duluth in 2007. He has chaired the public relations committee of the Iron Range Economic Alliance since 2008 and currently serves as a board member with St. Luke’s and the Arrowhead Manufacturers and Fabricators Association. He and his family reside in Duluth.
Veteran Real Estate Executive Stephen Eggert joins Solomon Real Estate Group Solomon Real Estate Group is pleased to announce that Stephen Eggert, formerly a senior real estate executive at Target Corporation, has joined Solomon as a Development Partner. Eggert will be responsible for sourcing and managing the acquisition and development of new retail projects on behalf of the company. Prior to joining Solomon, Eggert was a real estate executive with Target Corporation where he was responsible for the development of new Target stores around the country. Eggert has an extension and diverse 31year career in retail real estate development. He has held executive positions on both the retailer and developer sides of the business, including positions with Braun Fashions as well as General Growth Properties and Jones Lang LaSalle. According to Jay Scott, Principal of Solomon Real Estate Group, “Steve is a very accomplished, results-driven real estate professional with a proven track record of success. He has operated on both the retailer and developer side of the business which provides him with a unique set of experiences and skills. We are excited to have Steve join our development team at Solomon as we continue to aggressively expand our acquisition and development of retail properties across the state and region.” Eggert acquired his MBA from the University of St. Thomas. He has been a member of the International Council of Shopping Centers since 1992 and of the Minnesota Shopping Center Association since 1995 where is a past President, Vice President and Board Director. Eggert is also a current member of the Urban Land Institute and since 2010 has served as a Commissioner on the Housing and Redevelopment Authority of his local community.
Page 6
Minnesota Real Estate Journal
News NAI’s Cory Miller Completes Plymouth Office Building Sale NAI Everest, a full service brokerage firm, announced that Cory Miller, Associate Vice President, represented Platinum Investments, LLC in the purchase of a 13,000 square foot, two-story office building located at 4425 Highway 169 West in Plymouth, Minnesota. The new ownership group will convert the property into a multi-tenant office building, invest in updating the building and already has a tenant secured to occupy the second floor office space. The first floor office space will feature suites ranging from 972 square feet to 6,053 square feet. “We are happy to have acquired this property and see the added value in how the changes to the building will improve its value said, Todd Furan, partner of Platinum Investments. “This asset fits well into our long term strategy.”
Great River Energy announces four data centerready sites Great River Energy, Minnesota’s second largest wholesale power provider, has identified four new preferred data center sites within its service territory. Great River Energy enlisted Deloitte Consulting’s Real Estate & Location Strategy (RE&LS) practice to assist in the creation of a data center site assessment and tiered designation program. Deloitte helped with the establishment of the site evaluation criteria and program parameters based on its extensive industry knowledge and experience working with data center clients. The evaluation process examined each site’s electric power capacity, high bandwidth fiber availability, proximity and capacity of general utility infrastructure, risk of natural and man-made hazards, as well as zoning and surrounding uses. Following the evaluation process, sites were either deemed “primary” for meeting or exceeding all program requirements, “secondary” for showing
EXTEND THE LIFE OF YOUR ROOF Learn to identify roof deficiencies and apply that knowledge to your roof. Properly maintaining your roof will prolong its life!
strong potential but requiring additional or updated information or “tertiary” for exhibiting potential challenges. Great River Energy’s primary, shovel-ready site at Northport Industrial Park in North Mankato offers 38 acres with room for expansion directly adjacent to high-capacity, redundant electric utility and fiber infrastructure. The site has great transportation access and the surrounding uses are all compatible with a data center development. “BENCO Electric’s Northport Substation has excellent capacity,” said Tom Lambrecht, manager of economic development services for Great River Energy. “All of the infrastructure investments at this site have been designed with end-user scalability in mind.” The secondary sites available for data center development are: - Eighth Avenue – I-94 Business Park in St. Cloud, a 23-acre site with multiple fiber optics providers within a mile.
July 2015
- White Bear Township North Site in White Bear Township, a 40-acre site comprised of three parcels located off Interstate 35E in the Twin Cities metro area. All four sites are able to take advantage of the many reasons Minnesota is viewed as a prime location for data center development including state sales tax exemptions; highly-reliable, low-cost energy; and a currently underserved data center market. The state’s colder climate also cuts down on annual cooling costs, one of the largest expenses for data centers. “Since launching this data center site assessment program in 2014, we have gained a deeper understanding of the needs of the industry,” Lambrecht said. “We look forward to showcasing our designated sites to future partners and allowing them to see why Minnesota is an ideal state for data center development.”
- County Road 75 – I-94 Business Park in St. Cloud, an 80-acre site located a half-mile southeast of the Interstate 94 and Opportunity Drive interchange.
KNOW YOUR OPTIONS Understand the roof types and installations available to you and how they will perform on your building.
Contact us today for more information on all the options available to you 763-535-5831 Qtcommercial.com
Page 8
Dominium Selected to Rehabilitate Historic Fort Snelling Upper Post and Create Affordable Workforce Housing $100 million project will create 190 affordable housing units in 26 historic buildings Dominium, a leading apartment owner, development and management company, has secured provisional approval to rehabilitate the historic Fort Snelling Upper post in the heart of the Twin Cities. At a press conference on Wednesday, Minnesota’s Lt. Governor Tina Smith joined executives from Dominium and state officials to announce the selection and champion the project which will result in approximately 190 affordable housing units. “Despite their prominent place in Minnesota history, these historic buildings have fallen into disrepair,” said Lt. Governor Smith. “I am proud to support this renovation. It will restore an important part of Minnesota’s history, and transform these buildings to serve a new
Minnesota Real Estate Journal
purpose: to improve the lives of hundreds of Minnesota families.” Dominium recently completed rehabilitations of St. Paul’s Schmidt Brewery on West Seventh Street. It also is in the process of completing the $175 million renovation of the Minneapolis Pillsbury A-Mill, a national historic landmark, into artist’s lofts and a $118 million renovation of the Arcade Building in St. Louis. The company’s trackrecord of success with complex projects makes them ideally suited for the Upper Post project. “Dominium is very excited to have the chance to preserve the historic Fort Snelling Upper Post while providing affordable housing to Minnesota’s working families,” said Mark Moorhouse, senior vice president and partner at Dominium. “We have successfully transformed other historic landmarks in the past, and we look forward to doing the same at the Upper Post.” The approximately $100 million project will be financed through a combination of Low-Income Housing Tax Credits, Federal and State Historic Tax Cred-
its, among other sources. The final product will add a projected 190 affordable housing units. This will meet a strong demand in the market; research from Dominium shows that in Hennepin and Ramsey counties, there are only 34 apartments that are affordable and available for every 100 residents making less than $20,000 a year. Located near the Minneapolis-St. Paul International Airport, the Upper Post of Fort Snelling was a major hub for military activity throughout the late 19th and much of the early 20th century. It served as an induction and training center during both World Wars. The site, which was designated a National Historic Landmark in 1960, was turned over to the Minnesota Department of Natural Resources in 1971. Many of the buildings subsequently have suffered from weather, deterioration, and vandalism. In 2013, a joint powers board was formed to solicit and oversee options to re-use the property; it includes the Department of Natural Resources (DNR), the National Park Service, Hen-
July 2015
nepin County, the Minneapolis Park and Recreation Board and the Minnesota Historical Society. “Hennepin County has been proud to lead efforts over the last decade to stop the deterioration of the historic buildings at the Upper Post,” said Hennepin County Commissioner Peter McLaughlin. “Those efforts will now allow for the redevelopment of these buildings into much-needed workforce housing." Dominium will now negotiate a lease with the Minnesota DNR, the terms of which will then be voted on by Minnesota’s State Executive Council, which consists of Minnesota’s Governor, Lt. Governor, Attorney General, Auditor and Secretary of State.
Dougherty Mortgage LLC Closes $3.5 Million HUD 221(d)(4) Loan for Cameron Dougherty Mortgage LLC, a full service national mortgage banking firm, recently closed a $3.5 million HUD 221(d)(4) loan for the rehabilitation of The Cameron, a 44-unit multifamily News to page 22
Page 10
Minnesota Real Estate Journal
July 2015
Twin Cities’ office, industrial markets keep gaining momentum By Dan Rafter, Editor
H
ow strong is the industrial market in the Twin Cities? The strongest it's been in a decade. And the area’s office market is no slouch, either. That’s the takeaway from commercial real estate companies serving the Minneapolis/St. Paul market. Consider DTZ's first-half industrial market report for the Minneapolis/St. Paul market. According to DTZ, the overall vacancy rate of the market's industrial sector has now fallen to its lowest level in a decade. DTZ said that the Twin Cities' industrial market absorbed 500,000 square feet in the second quarter of 2015. Year-to-date, the industrial sector here has absorbed more space than in all of 2014. Don't think developers haven't noticed. DTZ reports that the Twin Cities market has roughly 2.5 million square feet of industrial space currently under construction with construction ready to begin on about 2 million more square feet.
“Most of the industrial market’s absorbed space has been in traditional office warehouse and traditional office showroom buildings,” said Tyler Allen, research analyst in DTZ’s Minneapolis office, in a statement. “But construction remains hot as some bulk warehouse users have been leaving the multi-tenant universe to own their own build-to-suit facility.” The overall industrial vacancy rate in the Minneapolis/St. Paul market fell to 9.3 percent by the end of the first half of the year. Of course, it's unrealistic to expect vacancies in this sector to drop again in the second half of the year and into 2016. That's because so much industrial space is now under construction in the Minneapolis/St. Paul market it is bound to cause vacancy rates in industrial to rise at least slightly. The Twin Cities has also been home to several big industrial deals this year. Amazon announced that it will begin construction on an 850,000-squarefoot distribution center in the Southwest submarket next year, for instance. This distribution center will employ
nearly 1,000 people. Polaris is consolidating some of its local functions into an 850,000-squarefoot facility of its own, this one in Shakopee, Minnesota. Nilfisk and Blu Dot have both signed new lease deals in the Northwest submarket for 180,000 square feet each. The news is good, too, for the Twin Cities' office market, according to the latest research from Marcus & Millichap. In its second-quarter office report, Marcus reports that during 2015 net absorption in the Minneapolis/St. Paul office market should top 2.8 million square feet, resulting in a drop in office vacancy of 60 basis points to 13.3 percent. If that prediction comes true, the Twin Cities' office vacancy rate will be 220 basis points below the market's cyclical high in 2010. Not surprisingly, Marcus & Millichap expects office rents to rise, too, in 2015. According to the company's report, the average asking rent for office space in the Minneapolis market should rise 3.9 percent to $18.65 a square foot. That is a slight improve-
ment over the 3.8 percent rise in asking rents that the Twin Cities' office market saw in 2014. The office market has been a busy one for Minneapolis/St. Paul. United Healthcare, Wells Fargo and Cardiovascular Systems are among the big names moving into new buildings in the Twin Cities market this year. Investors are now hitting the market, looking to sink their dollars into office properties. According to Marcus & Millichap, buyers exceed the number of office properties listed and, as competition for available assets increases many office buildings might receive multiple offers. Buyers are targeting office properties on medical campuses and those near light-rail stations or transit hubs. It's not overly surprising that the office market in the Twin Cities is performing so well. The Minneapolis/St. Paul market remains one of the strongest commercial real estate markets in the country. And office markets are showing signs of life in areas that are nowhere near as healthy as is the Markets to page 18
Page 12
Minnesota Real Estate Journal
FACES of NAIOP
Charles Pfeffer, Jr., likes to refer to himself as “a seller of dirt.” But to the many clients “Charlie” has served over the years, and to his colleagues and friends in NAIOP and in the development community, that description is far too modest.
CHARLES PFEFFER, JR President Pfeffer Company, Inc.
Q. You were one of the early local members of NAIOP. How in your view has the Minnesota Chapter evolved over the years, in terms of dealing with issues of concern to the development community? Business property taxes have long been the main focus of NAIOP Public Affairs. Over the years many issues have been and are being dealt with. For example; Smart Growth, Green Acres, TIF and Tax Abatement, Transportation
July 2015
progress and funding, The Complete Street, storm water and ground water issues, Fiscal disparities funding of development property, sustainable development, cap and trade, competiveness of the state of Minnesota, true transparency (object code reporting) of local government spending and rising property taxes. Sub committees such as; land use and the Nexus Project Task Force were formed to deal with some of NAIOP to page 19
It’s true that as president of the Pfeffer Company, Inc., based in Maple Grove, he is recognized as one of the most knowledgeable experts on land and land-related issues in the Twin Cities. His unique combination of skills in acquiring and entitling land have made him a force in the industry, and a major factor in the development of thousands of residential lots and hundreds of acres of Twin Cities commercial and industrial land, spurring the growth of several communities, especially Plymouth, Maple Grove, Rogers and others along the I-94 corridor. But for NAIOP, of which he has been a member since 1984--and active in its public policy agenda for nearly 18 years---Charlie is the spirit and conscience of the organization’s focus on positively influencing legislation and public policy for the betterment of the entire community through responsible and sustainable development. His broad perspective, honed over many years of involvement in every aspect of development and close cooperation with dozens of local jurisdictions, has made him an invaluable resource. Over the years he has headed several of the chapter’s committees and served on its board of directors, earning him the distinction of “Minnesota Volunteer of the Year” in 2008, an honor bestowed on him by his fellow chapter members. Nationally, his commitment has been equally large, serving for three years on NAIOP’s Growth Issues Committee, five years on the State and Local Issues Committee, and as a charter member, ten years on the Business Park Development Forum. That involvement has enabled him to bring national insights and ideas from across the country to the Minnesota chapter. Charlie grew up in Bemidji, Minnesota, and played football for Bemidji High School before moving on to St. John’s University, Collegeville, where he earned a degree in economics. His first job—with a general contractors association in North Dakota— lasted a year before two friends convinced him he needed a vacation, which turned out to be a six-month world tour. When he returned, he joined Mobil Oil, met and married his wife, Rita, and later moved on to Atlantic Richfield Company. His combined tenure with the two firms spanned 18 years, living in five states, before he and Rita decided to come home to Minnesota to raise their family. Once back, he launched his career in the land business, first with a residential developer and later with Gonyea Company. He founded Pfeffer Company, Inc. in 1991, and has since grown it to occupy a unique position in the Twin Cities real estate market as a leader in researching, identifying, marketing and preparing raw land for retail, office, industrial and residential uses. Charlie and his staff of land specialists work with landowners, builders, developers and investors, offering a wide range of development services. Although his involvement in NAIOP is large, he finds time to be active in other industry groups as well, including the Sensible Land Use Coalition, Urban Land Institute, Transportation Alliance and the Wright County Economic Development Association. When he is not “selling dirt” or volunteering, Charlie enjoys pheasant hunting, spending time with Rita and their six children and eight grandchildren, or traveling around the U.S.—“anywhere that involves a road trip,” he says.
Page 14
Minnesota Real Estate Journal
July 2015
How green is your city’s commercial real estate? CBRE knows By Dan Rafter, Editor
N
o major U.S. city has a greener commercial real estate stock than Minneapolis. That’s the takeaway from the latest National Green Building Adoption Index released by CBRE. The index – in its second year of publication – charts how much of the commercial square footage for lease in the country’s 30 largest markets could be considered green. CBRE considered commercial real estate green when buildings attained LEED certification or ranked in the top 25 percentile of ENERGY STAR scores in a market. Based on this, Minneapolis topped CBRE’s list. It is the second consecutive year in which CBRE ranked Minneapolis as having the greenest stock of commercial real estate for lease. David Pogue, global director of corporate responsibility in the San Jose, California, office of CBRE, said that having so many green commercial buildings is a positive for Minneapolis.
“More and more, LEED certification is becoming a proxy for quality,” Pogue said. “If you have a high percentage of buildings that are LEED certified, that gives the overall impression that more of your commercial buildings are high-quality ones. For cities to be vibrant, they need good places for their businesses to work. I’d argue that green buildings are better places for people to work. More of the companies seeking commercial space understand this, too. To maintain a strong business community, it helps to have real estate with LEED certification or green characteristics.” According to CBRE’s data, 70.41 percent of the commercial real estate square footage up for lease in Minneapolis is considered green, ranking it at the top of the company’s list. San Francisco ranks second, with 70.02 percent of its available commercial square footage considered green. Chicago came in third, with 63.41 percent. Other Midwest cities didn’t rank as highly. St. Louis ranked 23rd, with 21.51 percent of its available commer-
cial square footage considered green. Detroit ranked 25th, with 16.07 percent, and Kansas City ranked last – 30th – on the list with 10.91 percent. Pogue said that he doesn’t expect Minneapolis’ green score to rise much in the coming years. That’s because cities reach a point in which their commercial real estate stock can’t get much greener. “There is almost a natural cap to these rankings,” Pogue said. “Buildings have to either get a LEED certification, which is expensive and complicated. Not all buildings can be LEED certified. And ENERGY STAR recognizes the top 25 percentile of peer-set buildings. We are beginning to see in some markets, and Minneapolis might be one of them, where you hit a natural cap. The goal for these cities is to stay there.” What Pogue does expect to see are the green scores of the country’s bottom markets to improve during the next several years. It's important that commercial -- and residential -- buildings be green. According to CBRE's study, in 2014
the commercial and residential real estate sectors accounted for 45 perent of the total energy consumption in the United States. The Energy Information Agency predicts that from the years 2012 through 2040, residential electricity consumption will increase by an additional 21 percent while commercial electricity consumption will jump by 27 percent. The CBRE report said that at the end of the fourth quarter of 2014, 13.1 percent of the commercial building stock in the country's 30 largest markets had an ENERGY STAR label, LEED certification or both. That, though, is down from 13.8 percent at the end of 2013. When measured by size, the amount of green commercial space available also dropped slightly, from 39.3 percent of the commercial space available for lease in these markets at the end of 2013 to 38.7 percent at the end of 2014.
PRIME WAREHOUSE/OFFICE LOCATION! SPACE AVAILABLE: 94,123 15 DOCK DOORS 1 DRIVE-IN DOOR For more information, please contact Traci Tomas at 952-473-1700 or ttomas@leasespace.com
16'-24' CLEAR HEIGHT AMPLE PARKING
Jennifer Development 10701 Hampshire Avenue, Bloomington MN 55438
Page 16
Minnesota Real Estate Journal
July 2015
What do investors love? Strip centers anchored by grocery stores … still By Dan Rafter, Editor
S
tability. That’s the word Joe Girardi uses when talking about the retail strips across the Midwest that are anchored by a Trader Joe’s, Whole Foods Market, Meijer or other grocery store. These are the retail centers that investors most eagerly target, Girardi says. And he should know. Girardi, principal with Mid-America Real Estate Corporation, recently led the investment sales team that brokered the sale of Heritage Commons in Lakeville, Minnesota. Austin, Texas-based Epic Real Estate Partners purchased the 138,690square-foot grocery-anchored neighborhood center in the Minneapolis market earlier this year. Though the center includes tenants such as Subway, Papa Murphy’s and Great Clips, the real star of the deal was the Cub Foods grocery store that anchors the center. Why? Investors know that grocery
stores are one of the safest businesses in the United States. In bad economic times, consumers might pass on the take-out pizza or the expensive haircut. But they’ll always need to eat. They’ll always, then, need to shop at their local grocery store. “Grocery-anchored shopping centers have always had much more stability than your typical multi-tenanted shopping centers,” Girardi said. “The grocery stores tend to do better in economic recessions, and that is something that appeals to risk-averse investors.” The numbers back up Girardi. Real Capital Analytics says that about $12.8 billion worth of grocery-anchored retail centers were sold in 2014. That is a jump of 34.6 percent from 2013. Mid-America Real Estate Corporation is far from the only Midwest developer or broker that recognizes the drawing power of grocery-anchored retail. Oppidan Investment Company, for instance, is still developing its Excelsior Marketplace mixed-use development in downtown Excelsior, Minnesota.
A key tenant of the development will be a Kowalski's Market grocery store, due to open later this summer in the 20,000-square-foot center. Earlier this year, JLL Income Property Trust purchased Skokie Commons in the Chicago suburb of Skokie, Illinois. The 93,000-square-foot center is anchored by a Mariano's grocery store, a specialty supermarket that has proven especially attractive to consumers. "This investment builds upon our other recent grocery-anchored acquisitions in California and Texas," said Allan Swaringen, president and chief executive officer of JLL Income Property Trust, at the time of the sale. "Skokie Commons is anchored by a strong new-age grocer in a demographic area ranking in the top 5 percent in population density." That's a formula -- a popular grocer in a densely populated area -- that investors are frequently turning toward today, Girardi said. “When times are good and everyone is doing great, every tenant can pay the rent,” Girardi said. “But when you go
through a downturn or a recession, a lot of tenants who sell clothes or soft goods are more exposed to the economy. They might struggle to pay the rent, while the tenants who are selling everyday household items are viewed by investors as safer investments.” Grocery stores tend to feature longer-term leases, too, which also make them more popular among investors. “You don’t need to worry about your income stream. It is secure,” Girardi said. “There is often only a small portion of the retail center – the space occupied by other tenants – that you have to worry about. There is only a small portion of the center where you’ll have to worry about replacing smaller tenants with shorter leases.”
Page 18
Minnesota Real Estate Journal
Southdale
Markets from page 10
From page 1
So far, demand for One Southdale Place has been strong since the apartment development opened late in 2014. Moe said that as of early July, 80 percent of the multifamily development's units had been leased. She said that she expects the rest of the units to be leased in the next two months. One Southdale Place features three buildings connected by a lobby and skyways. Amenities include a swimming pool, putting green, 24-hour concierge service, 1,500-square-foot fitness center, 1,600-square-foot clubhouse, private theater and cyber lounge. One Southdale Place's three buildings feature a total of 232 units. It might seem unusual to live in the parking lot of a mall. But One Southdale Place is actually on the beginning end of what looks at least like a mini-trend. According to a story from the Wall Street Journal late last year, developers across the country are converting shopping malls into mixed-use developments that also feature multifamily apartment buildings. The story pointed to malls in both Alexandria, Virginia, and Rockville, Maryland, that will soon be redeveloped
July 2015
and will soon be home to their own apartment projects rising in their parking lots. In the Phoenix area, developer Crescent Communities is developing luxury apartments near the Scottsdale Quarter shopping center after having success with similar projects in Raleigh, North Carolina, and Atlanta, according to the Wall Street Journal story. Simon Properties paved the way for One Southdale Place when it decided to invest a significant amount of money to reinvigorate its Southdale Center mall.
The hope was that the investment in the mall would spur additional development in Edina. Edina Mayor James Hovland, during the official grand-opening of One Southdale Place, said that this has happened, and the new apartment project is just one example of the impact of Simon's work at Southdale Center. "This is the kind of project we were hoping for," Hovland said. "It's great to see what has happened here to help make Edina a place you want to live."
Twin Cities market. Cushman & Wakefield recently released its national second-quarter office report, showing that 11 million square feet of office construction has already been completed in 2015, with another 23 million square feet in the pipeline. Despite this new construction, Cushman & Wakefield officials said that they expect office vacancy rates to fall across the United States. "We expect to see vacancy rates continue to decrease for the remainder of the year, and average asking rents to continue to improve as a result of the strong demand for high-quality space," said Maria Sicola, Cushman & Wakefield head of research for the Americas, in a statement.
July 2015 NAIOP from page 12
these issues. Q. Why should an individual entering the commercial real estate field today get involved in NAIOP? Committee membership and participation is the key to NAIOP membership benefits. Being informed of current industry issues, networking with industry peers and sharing your knowledge to benefit the industry. I’m a firm believer in giving back to the industry in which you depend on for your livelihood. Q. Your firm is focused on development land in the Twin Cities metro, with a primary focus on the Northwest suburban area--Plymouth, Rogers and beyond. How has the recent recession affected land values and development opportunities in that area? Just as the entire metro area was and to some extent still is affected by the recession the Northwest market area felt the pain. The recession put a quick stop to development of all types and created an inventory of dirt ready properties. As a generalization the northwest market land values have bounced back from the doom and gloom of 2008 2011. The completion of Highway 610 will provide opportunity for developers in areas that were not ready for development prior to its completion. Residential and Industrial properties have seen the most improvement with commercial land lingering along at values far less than 2008 and prior years. To a large extent pricing has been corrected to today’s current market values but there are still a few land owners that have pre 2008 expectations. Q. Looking across the metro, where do you see significant land opportunities today? It really depends upon the use. I think the residential component is going to follow jobs, community amenities, schools, school districts and pricing. The industrial component is going to follow available land, logistics, community incentives, work force availability and available housing for the work force. The commercial component seems to come together after the residential market picks up and becomes a proven constant. Whether green-field or redevelopment, the near future development opportunities are going to be strong for residential and industrial users. Q. Where are the hot spots? I would argue that the Northwest area is probably one of the most active development areas across all property types but the Twin-Cities metro area has several hot spots for green-field and redevelopment; Woodbury, Lakeville Shakopee, Down Town Minneapolis, the North Loop and St. Louis Park. If you look through the last 2 to 3 months of articles in the Real Estate
Minnesota Real Estate Journal
Journal it provides a real good study as to the who, what and where for real estate development. A Simple answer to where the hot spots are: For residential development; of all types, it takes people. Where are the people? For Industrial development it takes land and incentives. Find those ingredients and you found the development opportunity. Q. What are developers looking for? Opportunity that translates to good economics. The pioneering days of development are long gone. Development opportunities have to be in today’s dollars and not a hold, wait and see what happens with the market mentality. Between the costs and time involved in obtaining entitlements, the costs of acquiring the property and the window of opportunity the market provides for the proposed project, the opportunity has to be in the “here and now” time frame.
Q. Are land values recovering? Where do they stand today in comparison to 2007-2008? Generally, across all land types, values are or have recovered to reflect today’s market values. Although; as I mentioned before, there are still some property owners that have expectations that are pre 2008 and those expectations may never be met. When you think back to the pre 2008 real estate market there was a lot of development, in particular residential development, which seemed to be misplaced with the market opportunities. Fully developing 200 pad ready lots in a market that had building permit absorption of 20 units a year never made a lot of sense. Because of the lessons we all learned, using the pre 2008 market as our study guide, I don’t think we will see the same land price craziness that we saw pre 2008.
Page 19
Q. Any prediction as to where they will be five years from now? Will they return to pre-recession levels in the foreseeable future? I have no idea of where land prices will be in 5 years from now. That will depend on the use and where the property is located. It will also depend on the price of entitlements, city fees, etc., but I don’t think the next 5 years will reflect an across the board pricing of the pre 2008 market. Q. What issues related to federal and state regulations regarding land use and development concern you and other NAIOP members most? The availability of properties in desired locations, fee schedules and approval times reflecting new and revised regulations.
Page 20
Royalties From page 1
to the purchase of real estate and real property is the fact that there is the pride of ownership that attracts all of us when we own an asset as part of our investment portfolio. The category of asset and real property I will introduce you to in this article will offer you the same benefit of “ownership” and a property class with the ability of appreciating in value with capital gains, all the while providing an income stream you are looking for. You will also find it interesting to know that there is a secondary market for selling and liquidation of royalties that follows the same pattern as selling traditional real estate property. The real estate class I am speaking of is located sub-surface to the traditional real estate raw land or farmland or ranch land we know and understand. In particular, this property asset is classified as Oil and Gas Royalties, and is the real property that provides the revenue stream or income to the owner of the land and paid to the landowner free of any expenses. The landowner not only owns the surface of the earth but often times owns the valuable sub-surface minerals. This landowner is rewarded by the drilling operator a percentage of
Minnesota Real Estate Journal
the oil and gas production in the form of cash revenue better known as “royalties”, without any expenses or cash calls connected to the drilling operation. The drilling operator must incur all of the expense and liability and will continue the development of drilling operation on the property for years to come. This relationship between landowner and drilling operator exists because the landowner is “rich” in land and oil and gas minerals, and the drilling operator is “rich” in experience, technology and capital. On a broader scale, this relationship between landowner and drilling operator has taken place for decades and for over a century, billions of dollars of valuable “real property” known as royalties has been developed and continues to be developed on a daily basis. If you are familiar with the Big Major Oil Operators located on Wall Street such as Exxon-Mobile, Texaco-Shell, Chevron, Chesapeake, Anadarko and the many thousands of operators, every time they drill on a landowners property, valuable royalties are created. The landowner and the royalties he receives represents the win, win side of the equation since he assumes not one ounce of risk, only the publicly traded oil operator assumes all risk and capitalization for the drilling. It is important to understand this particular relationship between the landowner and the drilling operator so
as not to confuse this, with a drilling investment many of us have been involved with. There is a big difference to a drilling program in which an “independent drilling operator” uses your money to look for the oil. A drilling program is different, in that it is a highly speculative venture and often time’s leads to less than expected results. This article is to direct you to the opportunity where the oil and gas has already been discovered, developed and generating “cash flow”. This type of venture is associated with the publicly traded wallstreet operators who are highly capitalized to develop a property for many generations, and do not use your money for the drilling operation. This valuable asset, although not visible to the naked eye, has been the focus of major institutions, foundations, hedge funds, pension plans, university endowment funds as well as equity funds for over a century. It is this asset class that provides pure cash with no maintenance and no liability all the while appreciating in value and with no cash calls. If you are an individual investor wanting to know what the proper application would be to owning a royalty property in your portfolio, understand that if traditional real estate is your interest, then royalties will fit this traditional role. A royalty property will provide you the monthly revenue stream with double
July 2015
digit returns you look for in rental property, such as multi-family housing, office buildings, and triple net lease properties. Royalties can be replacement properties for Like-Kind Exchanges and IRC-1031 transactions, suitable for Qualified Plans like IRA’s, Roth IRA’s Profit Sharing Plans, inside of a Family Trust, Fund a College Program for children, and finally by donating a royalty property to a Charitable Fund you will continue your legacy for generations to come. Become an active buyer of valuable royalty assets and find how simple it is to own. Alfred C. Teran is President of Divestitures of a major Nationally Renowned Energy Company with over 20 years’ experience, he is a demand public speaker throughout the U.S. on this topic of Royalties and sub-surface minerals. For detailed information contact Alfred at 469.453.7015 and ateran@patriotenergy.com
July 2015
Minnesota Real Estate Journal
Page 21
Community Spotlight
Great River Energy offers ‘cooperative difference’ to its members, business partners Great River Energy and our 28 member distribution cooperatives are steeped in rural American history. Electric cooperatives brought power to the countryside when no one else would. In the 80 years since, this network of cooperatives has demonstrated a commitment to providing affordable, reliable energy to its service areas – much of which consists of the same rural residences that witnessed the lights come on in those first years. Today, more than 900 electric cooperatives serve 42 million people in 47 states. For our part, Great River Energy provides wholesale electric service to 28 distribution co-ops who deliver it to their 1.7 million member-consumers across suburban and greater Minnesota and northwest Wisconsin. Our cooperative structure has proven to be a critical factor in delivering on our mission. Cooperatives are distinct from our investor-owned and municipal counterparts in that we are motivated by providing service to our customers, all of whom have a financial stake in their cooperative. “Successful cooperatives are the
product of thriving communities,” said Great River Energy President and CEO David Saggau. “In addition to providing electricity, we work with our membership to find ways to promote sustainable economic development.” Since we are locally- and-regionally-focused, much of our sales dollars and profits stay close to home. This helps to keep Minnesota’s communities thriving with jobs, dollars and growth. We place high importance on the economic vitality of our communities by working to attract and retain local businesses and jobs. Since most of our cooperatives don’t have staff to dedicate to economic development, our team at Great River Energy provides them with a resource and voice for their interests. We represent our members in economic development activities from the municipal to federal level, and advocate for them on issues that resonate in – and have an impact on – their communities. As a business partner, Great River Energy is committed to helping customers start and grow their businesses
by helping them plan and manage their energy needs. Our economic development staff works with local and state organizations to help businesses get the funding they need to make energy efficiency improvements. Site location is also included among the services our economic development staff offers. “We work with site selectors and companies to locate sites or facilities in our service area that meet their needs,” said Tom Lambrecht, manager, economic development services. “Since we work closely with the communities we serve, we can provide current information on the local and business climate, labor availability, transportation networks, key contacts and more.” When you become a member of one of our electric cooperatives, our success becomes yours in the form of capital credits, which can help offset operating costs. Unlike investor-owned utilities that return a portion of any profits back to their investors, electric cooperatives return any excess revenues to the members as capital cred-
its based on how much electricity they purchased throughout the year and at what cost. The return of capital credits benefits our members by reducing the potential costs of electric service as much as 1- to-2 percent annually. This is another advantage of cooperative membership. If you’re interested in partnership opportunities with Great River Energy’s economic development staff, contact Tom Lambrecht at 763-445-6105 or visit econdev.greatriverenergy.com for more information about us and the cooperative difference.
Page 22
Minnesota Real Estate Journal News from page 8
affordable housing property located in the North Loop of Minneapolis. The 40year permanent financing loan was arranged for Cameron Building Limited Partnership by Dougherty’s Minneapolis, Minnesota office. This transaction involves the renovation of the 40,000 square foot building on the National Register of Historic Places. The project will consist of 44 studio, one- and twobedroom apartments ranging in price from $596-$1100 per month (determined at 50-60% of Area Median Income levels). The Cameron will offer much needed workforce housing in a high demand neighborhood. Located just minutes from Downtown Minneapolis and Target Field, the site provides great access to transportation and neighborhood amenities. Building amenities will include a fitness room, a wi-fi lounge, bicycle storage, and storage lockers. Additional sources of funding include Low Income Housing Tax
Credits, Federal and State Historic Tax Credits, Hennepin County AHIF, Minneapolis CPED, Minneapolis AHTF, Met Council LHIA, MHFA Challenge, Met Council TBRA, and Hennepin County ERF.
MARCUS & MILLICHAP ARRANGES THE SALE OF A 48-ROOM HOSPITALITY PROPERTY Marcus & Millichap (NYSE: MMI), a leading commercial real estate investment services firm with offices throughout the United States and Canada, today announced the sale of Norwood Inn & Suites, a 48-room hospitality property located in Albany, Minnesota, according to Craig Patterson, regional manager of the firm’s Minneapolis office. The asset sold for $945,000. Jon Ruzicka, an investment specialist in Marcus & Millichap’s Minneapolis office, had the exclusive listing to market the property on behalf of the seller,
an individual/personal trust. The buyer, a limited liability company, was also secured and represented by Mr. Ruzicka. Speaking with Mr. Ruzicka, “Through an all-encompassing marketing effort, Marcus & Millichap was able to secure numerous offers on the property and, ultimately, sourced the purchasing entity from outside of the state of Minnesota. Given the “value add” component to the acquisition the purchaser is afforded the opportunity to enhance their guest’s experiences by implementing property improvements; renovations are set to begin immediately.” Norwood Inn & Suites is a two-story building built in 1998 and is located at 820 Shamrock Lane in Albany, Minnesota. It features 48 guestrooms and an indoor swimming pool and hot tub.
Dougherty Mortgage LLC Closes Fannie Mae Loan for
July 2015
The Villas of West Memphis Phase II Dougherty Mortgage LLC, a full service national mortgage banking firm, recently closed a $719,380 Fannie Mae loan for the refinance of The Villas of West Memphis Phase II, a 51-unit multifamily affordable housing property located in West Memphis, Arkansas. The 18-year term, 30-year amortization loan was arranged for The Villas of West Memphis Phase II, Limited Partnership by Dougherty’s Minneapolis, Minnesota office. The Villas of West Memphis Phase II is a new apartment building for individuals aged 55 and over and includes an exercise facility.
Dougherty Mortgage LLC Closes $4 Million Fannie Mae Loan for Early Bird Townhomes Dougherty Mortgage LLC, a full service national mortgage banking firm, recently closed a $4 million Fannie Mae
July 2015
loan for the refinance of Early Bird Townhomes, a 104-unit multifamily affordable housing property located in Seguin, Texas. The 10-year term, 30year amortization loan was arranged for Seguin Housing Partners Limited by Dougherty’s Austin, Texas office. Early Bird Townhomes offers spacious 2, 3, and 4 bedroom units with full size washer and dryer connections as a standard feature along with energy efficient design throughout the units. The property includes a clubroom and playground.
U.S. BANK STADIUM IS ONE YEAR AWAY FROM COMPLETION The Minnesota Sports Facilities Authority (MSFA), the Minnesota Vikings and Mortenson/Thor Construction announced today that the new U.S. Bank Stadium is one year out from being completed at a briefing held for media. "This iconic stadium has already attracted nearly $1 billion in private investment, which was one of the state's
Minnesota Real Estate Journal
major goals for the stadium," said Michele Kelm-Helgen, chair of the MSFA. "The new U.S. Bank Stadium is owned by the state of Minnesota, is home to the Minnesota Vikings and will also host a wide range of events. From high school football and soccer, to college and amateur baseball, monster trucks and concerts, U.S. Bank Stadium, will be used 365 days a year. "To be a mere 12 months from opening what will be one of the world's most architecturally-unique stadiums is incredibly exciting," said Vikings Owner/President Mark Wilf. "With the significant surrounding economic development, the involvement of thousands of Minnesota workers and hundreds of Minnesota companies, and the securing of major events, U.S. Bank Stadium is setting the bar for public-private partnerships."Some of the stadium updates included: U.S. Bank Stadium is 65 percent complete. There are more than 1,200 men and women working on the stadium daily. Five hundred fifty million dollars of work has been performed to date.
314 Minnesota companies have or are working on the stadium construction site and related projects. Crews from Minnesota based Danny's construction have removed the roof ridge truss supports, and the roof ridge is supporting its own weight on the foundation structure. The largest crane on the construction site, one of the largest in the world, has finished its work and is being dismantled. The crane will be shipped off site at the end of July. It has been on site for just over a year. The ETFE, or transparent roof is being installed on the north side of the building, and the first section will be completed by the end of August. Steel for the 5 operable doors will arrive in late July and will be preassembled on site in August for installation in September. Work on realigning the exit from Interstate 94 to 11th Avenue has begun, as has work on 6th street to allow a westbound contraflow lane. "The progress made on the project to date is due to the tremendous skill and hard work of over 1200 men and women
Page 23
who have worked on the stadium," said John Wood, senior vice president, Mortenson Construction. "Together with them and the design team, we are creating an iconic building for Minnesota and one of the best sports facilities in the world." U.S. Bank Stadium is located in the heart of downtown Minneapolis and will be home to the Minnesota Vikings, Super Bowl 2018, and the NCAA Men's Final Four in 2019. The stadium will serve as center stage for prominent national and international programming including sporting events, concerts, family shows, conventions, trade and consumer shows. U.S. Bank Stadium can also accommodate large and small receptions, meetings and weddings.