MREJ July 2016 by REjournals

VOLUME 32, NUMBER 7

July 2016

Savvy retailers letting Pokemon Go bring more foot traffic to their shops By Dan Rafter

mart retailers take advantage of hot trends. Just look at the way some are having fun, and boosting foot traffic, with the Pokemon Go mobile game. If you don’t know what Pokemon Go is, here’s a crash course: It’s an app that you can download to your phone based on the popular trading-card game and cartoon. In the game and cartoon, your goal is to collect creatures called Pokemon. The app lets you walk through your town and find Pokemon hiding in the wild. The game qualifies as a legitimate craze. Just look around the parks and sidewalks of your community. The odds are high that you’ll find kids, and adults, staring down at their phones on the hunt for Pokemon. The game also allows users to tag certain locations in their hometowns as Pokemon gyms. What happens next can actually be a benefit to business owners. Consider what the Blue Goose supermarket in the Chicago suburb of St. Charles, Illinois, has done. The store, which has been tagged as a Pokemon gym, has declared itself a “Pokemon Go Friendly Zone.” The supermarket has placed signs around the shop advertising this fact. At noon each day, the store gives away two free doughnuts to every Pokemon Go player who visits the shop’s bakery. Why do this? Pokemon Go players aren’t all kids. Many are in their late teens and mid-20s. Others are Pokemon to page 16

Office vacancy rates fall to lowest level since 2008 By Dan Rafter

he office sector isn’t as hot as multifamily or industrial. But this sector is seeing steady improvement across the nation, according to the latest numbers from CBRE.

According to CBRE, the vacancy rate of the U.S. office market fell 10 basis points during the second quarter of 2016, dropping to 13 percent. This means that the national office vacancy rate remains at its lowest level since 2008. “We continue to see slow, steady improvement in Office to page 16

Turning condos into apartments can make good money for developers, investors … if they avoid the pitfalls Here’s the advice Bloomberg shared during a recent interview with Minnesota Real Estate Journal.

by Dan Rafter David Bloomberg has seen the trend: Developers and investors are eagerly seeking to acquire condo buildings and turn them into apartments. This de-conversion trend is taking hold across the Midwest, and developers and investors stand to earn plenty of dollars from it. But Bloomberg, principal at Chicago law firm Chuhak & Tecson, says that converting condos to apartments isn’t always an easy task. There are plenty of potential pitfalls.

Bloomberg

The big challenge: We are seeing a lot of developers and investors interested in converting condominium buildings into rental apartments. We are getting calls about this on a regular basis, from

both developers and the owners of existing condo buildings. These people are asking us a lot of procedural questions, logistics questions. They want to know how the process works. This isn’t surprising. This is a unique deal structure. In a conversion, we are talking about unit owners and developers. You are not just buying a building. You have to first get title to all of the units in a condominium building to do these deals. That is the challenging part. Condos to page 14

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Contents

JULY 2016 • VOLUME 32, NUMBER 7

OFFICE VACANCY RATES FALL TO LOWEST LEVEL SINCE 2008 SAVVY RETAILERS LETTING POKEMON GO BRING MORE FOOT TRAFFIC TO THEIR SHOPS TURNING CONDOS INTO APARTMENTS CAN MAKE GOOD MONEY FOR DEVELOPERS, INVESTORS … IF THEY AVOID THE PITFALLS

SUPPORT LINE LEADERS HELPING CEOS UNDERSTAND THE COST OF CARE

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Departments PEOPLE

NEWS

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

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July 2016

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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

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Dorsey Expands Real Estate & Land Use Practice Hires Prominent Real Estate Attorneys Marcus Mollison, Laura Graf and Anne Olson International law firm Dorsey & Whitney LLP announced today that three prominent attorneys have joined the Firm’s Real Estate & Land Use practice group in Minneapolis as Partners. Dorsey continues to expand its Real Estate & Land Use practice with the additions of Marcus Mollison, Laura Graf and Anne Olson as partners. Each bring a deep background in commercial real estate and construction transactions; including development, leasing, acquisition, and disposition work, as well as debt and equity financing. “Our three new hires bring extensive experience to Dorsey and their backgrounds are a strong complement to our Real Estate & Land Use practice group,” said Mark Hamel, Partner and Real Estate & Land Use Practice Group Chair. “We are extremely pleased to welcome Marcus, Laura and Anne to the Firm.” Marcus Mollison Mr. Mollison assists clients across the country with real estate and construction transactions. He has deep expertise and experience with all aspects of real estate development, acquisitions and dispositions, investment funds, leasing, financing, governmental assistance and entitlements, and construction contracts. He also serves as outside general counsel, advising clients on regulatory compliance and land use issues. Mr. Mollison joins Dorsey from Lindquist & Vennum LLP, where he was a partner practicing primarily in that firm’s Real Estate practice group. Before joining Lindquist & Vennum in 2009, he was General Counsel at Opus North Corporation, and Senior Counsel at Target Corporation. “I’m excited I made the move to Dorsey and very pleased that my colleagues Laura and Anne also have joined the Real Estate & Land Use Practice Group,” said Marcus Mollison, Partner. “Dorsey’s global platform will provide us tremendous opportunities to grow our client relationships and expand our practices.” Laura Graf With more than 15 years

of experience in commercial real estate law, Ms. Graf handles a wide variety of real estate matters and has significant experience in representing landlords and tenants in commercial leasing transactions. She has also acted as primary development and acquisitions counsel for developer clients, acquiring real property for commercial office and industrial developments, multi-family residential developments and retail and mixed-use developments. Ms. Graf joins Dorsey from Lindquist & Vennum LLP, where she was a partner practicing in that firm’s Real Estate practice group. Before joining Lindquist & Vennum in 2012, she was a partner with Barnes & Thornburg LLP. Anne Olson Ms. Olson’s practice focuses on owners, developers and users of real estate. Her clients include not only large corporate real estate users, but also national, regional and local developers and landlords. Her experience as both a former in-house counsel and on the investment side of real estate transactions provides her with business acumen that her clients find invaluable. Ms. Olson joins Dorsey from Lindquist & Vennum LLP, where she was a partner practicing in that firm’s Real Estate practice group. Before joining Lindquist & Vennum in 2011, she served as Director of Investment Operations and Senior Real Estate Counsel for Welsh Companies, LLC and as Vice President and Chief Compliance Officer for Welsh Securities, LLC. “We are very pleased that Marcus, Laura and Anne have joined Dorsey,” noted Ken Cutler, Managing Partner of Dorsey & Whitney. “Their deep experience and expertise in Real Estate & Land Use will fit perfectly with our strong Real Estate practice and our strategic focus on serving the publicprivate project development industry across our global platform.”

Cushman & Wakefield/NorthMarq Announces Promotions Promoted to Executive Director: Luke Appert and Peter Fitzgerald Appert joined Cushman & Wakefield/NorthMarq's brokerage team in 2009, partnering with Jon Rausch to specialize primarily in land and industrial brokerage. He is involved in all

aspects in the team's activities, including land acquisition and disposition, mixed-use development and redevelopment. Prior to entering the commercial real estate industry, Appert was an accomplished baseball player for the University of Minnesota, and was drafted by the Oakland Athletics. He spent six years in the minor leagues, including time in the Philadelphia Phillies system as a second baseman. Fitzgerald previously worked for Cushman & Wakefield/NorthMarq from 2002 to 2007 and has extensive experience in the sales and leasing of commercial property. During his career, he has represented nearly seven million square feet and negotiated over 900 transactions totaling more than $600 million. Prior to his return to the company in 2015, Fitzgerald founded Concord Advisory Group and worked with some of the fastest growing tech firms in the Twin Cities. Promoted to Director: Misty Bowe Bowe first joined Cushman & Wakefield/NorthMarq's Healthcare Advisory Group in 2010 as a brokerage assistant to Steve Brown. She has since worked her way into brokerage, showing an intuitive understanding of the business and her clients' needs. Today, Bowe works with Brown to represent tenants in the medical office sector, seeing clients through planning, market evaluation, patient demographic studies, site selection and lease negotiations, among other things. Promoted to Senior Associate: Tate Krosschell Krosschell joined Cushman & Wakefield/NorthMarq in 2014 after working for CBRE, and spending time in the marketing industry before that. Today she works primarily with Bob Revoir in office leasing and sales in the west metro. Her focuses include tenant and landlord representation, building sales and business development. Krosschell is an active volunteer in the industry, serving on both the Developing Leaders Committee of the Minnesota NAIOP chapter and the Emerging Brokers Committee for MNCAR.

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News Dougherty Mortgage LLC closes $4.3 million Fannie Mae loan for Stonewood Terrace Dougherty Mortgage LLC, a full service national mortgage banking firm, recently closed a $4.3 million Fannie Mae loan for Stonewood Terrace, a 160unit market rate multifamily apartment property located in Dallas, Texas. The controlled access property is near public transit and has an on-site playground, laundry and high speed internet availability. The Fannie Mae 10-year term, 30-year amortization loan was arranged through Dougherty’s Minneapolis office for borrower, Stonewood Terrace Apartments, Ltd.

GENT Cuts and Grooming Signs Lease at The Finn ACKERBERG announced that they have executed a lease with GENT Cuts and Grooming at The Finn, a mixed-use project currently under construction at 735 Cleveland Avenue South in the Highland Park neighborhood of St. Paul,

Minnesota Real Estate Journal

Minnesota. GENT is a classic men’s barbershop currently with shops in Saint Paul, Edina, and Minneapolis. MidAmerica Real Estate represented GENT in the transaction and ACKERBERG was represented by Tim and Josh Bloom of Bloom Commercial Real Estate. Says GENT Owner, Michael Boyle, “GENT is for the man who wants luxury without pretense and quality without stuffiness. GENT provides a comfortable, gimmick-free atmosphere where classic barbershop services and a cool vintage vibe are paired with modern touches for a unique and pleasant grooming experience. The success of our Grand Avenue location and the support of the St. Paul community have been wonderful but our expansion opportunities there were limited. The new Highland Park GENT location is the perfect answer to the service demands of our loyal, GENT customers.” “We are very excited to add such a talented, creative, and local group of stylists to the shops at The Finn. GENT is a great fit for Highland Park and will most certainly contribute to the area’s

already vibrant and sustainable community,” said ACKERBERG’s Justin Fincher, Project Manager of The Finn. ACKERBERG and Cleveland Holdings are developing the project. Additional project partners include BKV Group as Architect of Record and BigD Construction as Contractor. The construction team has made considerable progress since breaking ground in March and has successfully completed the installation of stage one’s precast concrete, all five levels of the elevator shafts, and installing the wood framing at levels three and four. ACKERBERG anticipates an April 1, 2017 delivery of the space and GENT will open shortly thereafter. GENT will join anchor tenant Edina Realty who executed an 8,300 square foot lease with development partner, Cleveland Holdings, in the fall of 2015.

The Opus Group® Announces Start of Construction for Speculative Industrial Development at Valley Park Business Center

July 2016

The Opus Group (Opus) announced today the start of construction on a 122,400-square-foot speculative industrial development in the Valley Park Business Center in Shakopee. The project is the final phase of Opus’ development at the 50-acre site, following the recent completion of a 200,000-squarefoot speculative development and a 216,000-square-foot build-to-suit industrial warehouse and office space for AmerisourceBergen. “We are thrilled to advance our work on this site with this great offering for small to mid-size users,” said Joe Mahoney, senior manager, real estate development, Opus Development Company, L.L.C. “The high-level of interest we’ve already received for this project confirm the depth of the market and the need for space like this.” Located southwest of Minneapolis near major state highways, the development will suit tenants who desire to be in the Shakopee submarket but do not have bulk distribution needs. The industrial building will be able to accommodate users ranging from 20,000 – 122,000 square feet. The property will

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Minnesota Real Estate Journal

feature 28-foot clear height, along with 193 parking stalls, 24 dock doors and six drive-in doors. Completion of the project is slated for late 2016. Opus’ recent portfolio of work includes 8.2 million square feet of industrial developments currently in its pipeline or completed in the past 24 months across the United States. Opus Development Company, L.L.C. is the developer, Opus Design Build, L.L.C. is the design-builder and Opus AE Group, L.L.C. is the architect and structural engineer of record. Bill Ritter, Ryan Kryzmarzick and Eric Rossbach with Colliers International will market the property for lease.

Wagner SprayTech Plans Expansion in Plymouth $8.44 million project is expected to create 66 jobs Wagner SprayTech Corp. announced plans today for a renovation and construction addition at the company’s headquarters in Plymouth. The company specializes in manufacturing and marketing paint sprayers, applicators and decorating products

nationally and internationally for the consumer and contractor markets. The project – which is expected to cost $8.44 million – is for a renovation and construction addition to the company’s corporate headquarters at 1770 Fernbrook Lane N., Plymouth. Construction is slated to begin in spring 2017 and be completed in fall 2018. The company expects to create 66 new full-time jobs within the first three years of the project. The Minnesota Department of Employment and Economic Development (DEED) is supporting the project with a grant of up to $684,500 from the Job Creation Fund. The company will receive the funding after meeting its investment and hiring commitments. “This is another good example of how the Job Creation Fund helps Minnesota companies grow and add valuable new jobs to our communities,” said DEED Commissioner Shawntera Hardy. “We’re excited about this expansion and look forward to their long-term success.” Wagner SprayTech Corp., a subsidiary of Wagner Holding Inc.,

employs more than 230 people in Minnesota. The business sells its products across the country and in over 65 foreign markets. It has been in Plymouth since 1978 and in Minnesota since 1971. The company announced in March that it is using a separate $180,000 Job Creation Fund grant to help build a $15 million distribution facility in Otsego. The Job Creation Fund, which was first proposed by Gov. Mark Dayton in 2013, is a pay-for-performance program that provides funding to businesses after they meet certain criteria, including minimum requirements for job creation and private investments. Under the program, businesses must create at least 10 full-time jobs and invest at least $500,000 to be eligible for financial assistance. Since the Job Creation Fund was launched in January 2014, DEED has awarded $31.1 million for 64 business expansion projects in Minnesota. Companies have committed to creating 3,739 full-time jobs and investing $683.8 million to expand

July 2016

Dougherty Mortgage LLC closes $8.1 million Fannie Mae loan for Hawaiian Gardens Apartments Dougherty Mortgage LLC, a full service national mortgage banking firm, recently closed an $8.1 million Fannie Mae supplemental loan for Hawaiian Gardens Apartments, a 264-unit multifamily affordable housing property located in Hawaiian Gardens, California. The Fannie Mae 5.9-year term, 30year amortization loan was arranged for borrower Hawaiian Gardens Housing Partners, L.P. through Dougherty’s Nashville, Tennessee office.

Dougherty Mortgage LLC closes $6.1 million Fannie Mae loan for Seaview Village Apartments Dougherty Mortgage LLC, a full service national mortgage banking firm, recently closed a $6.1 million Fannie Mae supplemental loan for Seaview Village Apartments, a 133-unit multifamily affordable housing property located in Seaside, California. The Fannie Mae

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4.92-year term, 30-year amortization loan was arranged for borrower Hannon Seaview Housing Partners, L.P. through Dougherty’s Nashville, Tennessee office.

MARCUS & MILLICHAP ARRANGES THE SALE OF A 4,500-SQUARE FOOT NETLEASED PROPERTY Marcus & Millichap (NYSE: MMI), a leading commercial real estate investment services firm with offices throughout the United States and Canada, today announced the sale of Tucson Broadway Culver's, a 4,500-square foot net-leased property located in Tucson, Arizona, according to Craig Patterson, Regional Manager of the firm’s Minneapolis office. The asset sold for $2,865,000. Brian Klancke, Matthew Hazelton, Sean Doyle, Cory Villaume and Adam "AJ" Prins, investment specialists in Marcus & Millichap’s Minneapolis office, had the exclusive listing to market the property on behalf of the seller, a limited liability company. The buyer,

a private investor, was secured and represented by Jamie Medress and Mark Ruble, investment specialists in Marcus & Millichap’s Phoenix office. Donald Morrow, Broker and Regional Manager of Marcus & Millichap’s Phoenix office, assisted in closing this transaction. Speaking with Mr. Klancke, “The subject property built in 2011 has benefited greatly from being centrally located in one of the most robust retail corridors in the city.” Tucson Broadway Culver's is located at 40 South Broadway Place in Tucson, Arizona.

Dougherty Mortgage LLC closes $4.5 million Fannie Mae loan for Sibley Cove Apartments Dougherty Mortgage LLC, a full service national mortgage banking firm, recently closed a $4.5 million Fannie Mae loan for the refinance of Sibley Cove Apartments, an 81-unit affordable multifamily apartment property located in Maplewood, Minneso-

ta. The property is located off 694 and White Bear Avenue and one block from the Maplewood Mall, conveniently situated near many restaurants, shops and parks. Each unit has a full size washer/dryer, spacious kitchen, built-in microwave, oven, dishwasher, sink disposer, pantry, central air/heat and walk-in closets. A car wash area is included in the heated underground parking garage. The Fannie Mae adjustable rate 7-year term, 30-year amortization loan was arranged for borrower Sibley Cove, Limited Partnership through Dougherty’s Minneapolis office.

Ryan Companies US, Inc. Awarded Plaza Seven Real Estate Management Business Ryan currently manages over 3.5 million square feet in Minneapolis and growing Ryan Companies US, Inc. has announced it has been awarded the Plaza Seven Office Tower Real Estate

July 2016

Management business. The 36-story, 315,000-square-foot Class A office tower is situated on top of the recently renovated Radisson Blu Hotel located at 45 South 7th Street in Minneapolis. The Plaza Seven Office Tower was recently acquired by Massachusettsbased Franklin Street Properties. “We are excited to partner with Franklin Street Properties to retain and maximize Plaza Seven’s asset value,” said Jeff Steinke, Ryan’s Regional Director of Management. “Our customers like the Ryan advantage, which aligns with our strengths of marketingleading lease production, operating expense control, and high tenant satisfaction.” According to Minneapolis BOMA (Building Owners and Managers Association), Ryan is currently the largest real estate management service provider in downtown Minneapolis with 3,513,060 square feet and growing. Additional Ryan-managed properties in Minneapolis include the AT&T Tower, TCF Tower, Mill Place, 50 South Tenth Street, Third and Third, Essex, River Parkway and the award-

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July 2016

Support Line Leaders Helping CEOs Understand the Cost of Care by Todd Wilkening, FMAdvantage, LLC

f your organization is driven by top down results, consider to be driven from the bottom up with greater results. You may just find hidden opportunities to better understand the total cost of care and the means to improve the patient care experience. Not to mention, they may come from the front line experts. While additional opportunities at the revenue side of things are abound, it is my belief that the billions of dollars needed to quantify and repair fractures in understanding the true cost of care will also come from within one’s own organization. Effectively and efficiently and the delivery side of support service departments. These are historically known as expenses, but consider them of value. Traditionally support departments such as Real Estate, Construction, Facilities Management, Environmental Services, Biomed, and Security measured against building size, sentinel events, and demand. While these are very important, they do not reflect their cost against business volumes. Nor can

the measurements be adjusted based upon business volumes as they are essentially static from a previous reporting period or a point in time. Because of this fact, a continual conflict will exist in quantifying the needs of support departments in relation to actual financial business performance. Beyond the traditional measures of a support departments, more beneficial measures are likely focused maximizing the patient care experience, population health, risk mitigation, and maximizing the financial profitability of the organization. When you look at the matrix’s used by purchasing and nutrition service departments, it appears these support departments have been focused measurements which are far more in line with real time business performance such as cost per patient, customer satisfaction with emphasis on resource and waste reduction to support population health. In my 15 years of travel throughout the US, Canada, and Europe as the Vice President of Research for the International Facility Management Association’s Health Care Institute (IFMA�HCI). Learn more at http://www.hcinstitute.info/ few sup-

port departments have dared to go down the road less traveled such as those of patient service lines, purchasing, or nutrition services. However, some have. An in depth review of health care organizations that are, it revealed an immediate need for far more robust metrics for support departments which are in line with business performance with focus on patient outcomes. What has been observed have been organizations that have developed very personalized dashboards to their unique situation. With this in mind, we reached out to Key Green Solutions http://keygreensolutions.com/. Key Green Solutions has been known for converting data to information through their web�based dashboard for support departments in support of sustainability. Sustainability is also founded on the business methodology of the “triple aim” in harmony of the goals of the Accountable Care Act. 10 years ago Key Green Solutions was intrigued by healthcare overlooking the cost of care for support departments at large in relation of true business outcomes. As I, Key Green Solutions was in conflict with the true meaning of “cost of care” as truly

meaning “value of care” at that time. To the industries enlightenment, senior executives Mark Huizenga and Jeff Burks at Key Green Solutions developed the solution. Here’s how. We all know by now that big data is “King”. Management without measurement is simply tossing laboring tasks and expenses at imminent healthcare needs. While numerous support departments need to be delivering services based upon compliance, events, and risk mitigation, but how about the “value of care” behind the scenes in which few healthcare organizations or their customers truly understand. Consider which support department services are truly based upon business volumes and by type. For example; 1. Rooms directly affected from patient care 2. Average length of stay 3. Level of service required by space type 4. Occupancy rates of support space 5. Hours of service and use 6. Number of sentinel events 7. Time based maintenance of assets Care to page 16

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Condos From page 1

Approvals needed: According to the Illinois Condominium Property Act’s Section 15, when there is a building with four or more units, you need the approval of 75 percent of the unit owners to convert their building to rental apartments. If 75 percent of the unit owners do agree to the conversion, then all the unit owners in the building, even those who didn’t vote to approve the move, have a duty to take all the actions necessary to make the sale happen. Once you get that 75 percent, everyone has to go along with it. That is always the question, though. It sounds like a simple concept. But then you get into a host of issues when you talk to the condo board that administers the building. Who is going to negotiate the deal? How is it going to be presented to the unit owners? Who gets what? One of the big issues is always about the price that individual unit owners get. How are the dollars from the sale going to be allocated among the unit owners? The way it is supposed to work is that every unit owner gets a percentage interest in the common elements of a building. The bigger the unit, the greater a percent-

Minnesota Real Estate Journal

age of interest they get. That is the easy way to do it. But say a condo building was developed in 1980. Say the owner of one unit hasn’t made any renovations at all. The market value of that unit as it sits now is much less than the market value of other units that have been renovated. Some unit owners might say that they don’t want to take a lesser price than the owners of a larger unit who have made no renovations since buying their unit. They might argue that they have invested more money in their unit, and that they deserve more money after the sale. If you are the developer or investor, you have to deal with those issues. Sometimes you divide the price by the actual market value of the condo units. Right to fight: Unit owners who vote “no” to a sale that is then approved anyway do have the right to ask for an appraisal of their unit if they are unhappy with the price they are getting. If you are unhappy with the sale and with the value assigned to the unit, you can get it appraised. You will then get the amount determined by your new appraisal. That is your option if you are unhappy with what is proposed. A difficult task? There are certain buildings in which it is easier to get that

75 percent approval. The best candidates are those buildings in which a majority of the units are already owned by investors who are renting out the units. These owners will be more likely to approve a de-conversion to rental units. Or maybe there is a building that has the need for expensive capital improvements that the unit owners might have to pay for. The unit owners can now avoid that expense by approving a sale. Or a developer might want a building so much that it is offering a premium above what the owners would be able to get on the market. It usually makes the most sense in the city when you have 10 to 35 units in a building, maybe 40. There are few de-conversions in the pipeline of properties that have more units than that. It gets very complicated when you have too many unit owners involved. The underwater problem: Deals also get complicated when you have a lot of unit owners who are underwater on their mortgage. Let’s say that you have a developer who wants to give a lump-sum purchase price for the building and everyone gets a share. What do you do with a unit in which the owners owe more on their mortgage than what the unit is worth? What if the lump-sum payment isn’t enough to satisfy the outstanding mortgage lien on

July 2016

the property? That is a major hurdle. If you bought your unit in the middle part of the last decade, you are likely still underwater. That is the case with a large number of condo units in the city.

Office From page 1

office market fundamentals, with most markets remaining in balance with stable demand, limited new supply and modest rent growth,” said Jeffrey Havsy, Americas’ chief economist with CBRE. According to CBRE, office vacancy rates fell in 38 of 63 office markets and remained unchanged in five during the second quarter. In the Midwest, St. Louis and Minneapolis saw their office vacancy rates fall by more than 70 basis points in the quarter. Nashville has an especially strong office sector today. The office vacancy rate fell to 6.1 percent in Nashville during the second quarter.

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Minnesota Real Estate Journal

Pokemon From page 1

The Blue Goose Supermarket in St. Charles, Illinois, calls itself a Pokemon Go Friendly zone. in the 30s and 40s. When they gather Rouses and Stew Leonard’s are around the Blue Goose, the odds are advertising when their locations good that they’ll stop in to make a become Pokestops, locations players can visit to find the virtual objects purchase or two. National video game retailer and gear that increase their odds of GameSpot is taking advantage, too, finding Pokemon. It will soon be easier for businessof the press that comes with being named Pokemon Go gyms. The es to capitalize on Pokemon Go. The retailer is now releasing what are developer of the game, Niantic, has known as lures in their stores, items plans to partner with businesses to that are designed to attract wild Poke- offer sponsored locations in the mon. GameStop is inviting users to game. These locations will pay a fee come into their stores to play the to Niantic to become Pokestops. This game. If these players should happen has already happened with a similar to buy a video game or phone acces- game that Niantic has created, sory while there? That’s a nice bonus. Ingress. Companies such as Zipcar According to a story in Supermar- paid to become important locations in ket News, national supermarket that game as a way to increase their chains Martin’s Super Markets, foot traffic.

Care from page 12

for buildings and equipment 8. Other The Patient Protection and Affordable Care Act (PPACA) of 2010 created several new Medicare programs intended to improve health care quality, using “pay�for�performance” payment strategies to put financial pressure on medical providers. Can support departments assist with the goal? One surely cannot discount this. According to The Dartmouth Atlas of Health Care, “There is a 2.5�fold variation in Medicare spending nationally, even after adjusting for differences in local prices, age, race and underlying health of the population. This geographic variation in spending is unwarranted; patients who live in areas where Medicare spends more per capita are neither sicker than those who live in regions where Medicare spends less, nor do they prefer more care. Perhaps most surprising, they show no evidence of better health outcomes”. The Dartmouth Alas of Healthcare speaks of is to move to a reimbursement system that is value�based. They speak of it as "the value equation": Quality over Cost over Time. While the statement above is focused primarily on direct patient care. Think of all the indirect support services contributing to the “pay�for�performance” model. After all, every department of the healthcare organization

July 2016

shares “the value equation” or “value of care”, which also means a shared single bottom line. Valid Business Metrics From what we have learned, here is a taste of the Key Priority Indicators (KPIs) support departments are now using and others may wish to consider to support the “pay�for�performance” model. 1. Cost and usage per adjusted day, patient day, procedure, etc. 2. Occupancy use by time, occupant and space type 3. Room turnover rate 4. Length of stay 5. Average length of time to resolve demand maintenance tasks 6. Delays of service 7. Asset up time 8. Predicted and unpredicted failure ratio 9. Sentinel events 10. Environmental risks 11. Internal dashboard and benchmarks to also include industry norms (competition) 12. Budget variations of past, current, and anticipated to leverage predictability and measurable improvement For financial models consider adding pay back, return on Investment (ROI), time value of money (TVM), cumulative cash flow (CCF). Care to page 18

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Care from page 16

Case Study. Energy use: Historical support departments would use the expense reduction approach; “This project will save this the organization $2.20 per sq.ft. & we will reduce utility cost by 30% to $0.023/kwh. “The result of my project will save $40,000 annually. Now try the value based approach; “This project will add $3.25 to each adjusted patient day (APD), and with a APD of 13,538, this means $44,000 annual in added profitability and yields a return on investment (ROI) of 12%”. This delivers far more attention in support of value based purchasing, as value renders itself useful. Expenses do not. This is also very important as when volumes fall, the emphasis on value and expense reduction increase dramatically. Providing your CEO/CFO a successful financial Performa is very helpful. Especially when tied to measurably improved patient care outcomes. The stars of health care are aligned like never before for support departments to grasp and further assist in the advancement of the healthcare organization’s success. These stars

Minnesota Real Estate Journal

are bright if paid attention to. But can fade quickly. In today’s economic times and while the health care reform act remains in its infancy, do all you can to focus on the value of patient care in a “pay for performance model”. Support departments should have candid discussions with senior executives as to which metrics are important in demonstrating your organizations performance. A healthcare organization cannot deliver its mission of excellent patient care without financial strength through valuable deliverables. About the Author Todd Wilkening; CHFM, CHST, CHC Principal, FMAdvantage, LLC Todd Wilkening has 35 years of experience in working directly for health care organizations in property, facilities, and construction, management. Todd has many local and national awards in facilities management and sustainability. Todd welcomes questions and comments on trends and challenges in the industry and can be contacted at toddwilkening@fmadvantage.com he can assist FMs with. Todd also serves on the Facility Care Editorial Advisory Board.

winning Capella Tower, which won the 2016 National TOBY Award. Operating expense control is among Ryan’s most important metrics. Ryan is an Xcel Energy Recommissioning Auditor and received the prestigious 2016 Kilowatt Cup Award, which recognizes property managers for extraordinary efforts and innovation in energy reduction. Additional strengths include lease acceleration, repositioning expertise, and tenant satisfaction.

MARCUS & MILLICHAP ARRANGES THE SALE OF A 10,291-SQUARE FOOT OFFICE BUILDING 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 80th Street Commons, a 10,291-square foot office property located in Cottage Grove, Minnesota, according to Craig Patterson, Regional Manager of the firm’s Minneapolis office. The asset sold for $3,280,000.

July 2016

Sean Doyle, Adam "AJ" Prins, Matthew Hazelton and Cory Villaume, investment specialists in Marcus & Millichap’s Minneapolis office, had the exclusive listing to market the property on behalf of the seller, a developer. The buyer, an individual/personal trust, was secured and represented by another brokerage firm. Speaking with Mr. Villaume, “This product type is very sought after in today’s market. The entire sale took one month from list to close. We had a lot of activity right away and found a buyer that was willing to do the transaction quickly at the asking price.” 80th Street Commons is located at 7500 80th Street South in Cottage Grove, Minnesota.

Timberland Partners Announces Purchase of Woodland Park at Soldier Creek, Topeka, KS, 236 units Minneapolis based Timberland Partners is pleased to announce the acquisition of Woodland Park at Soldier Creek,

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a well-established apartment community located in Topeka, Kansas. Founded in 1992, the company now owns and manages 57 apartment communities totaling over 11,000 apartment units in its portfolio spanning 12 states. The 236-unit acquisition was funded from Timberland Partners Investment Fund V, LLC. This was the ninth property purchased through its fifth fund, which now holds a grand total of 2,043 units. Timberland Partners anticipates offering additional investment opportunities as it continues to pursue a strategy of aggressive growth in the multifamily real estate market. Timberland Partners Vice President of Investments, Matt Fransen, said ““Timberland Partners is excited about the acquisition of Woodland Park. It’s a great opportunity for us to add a high quality, newer vintage property in a stable, tertiary market like Topeka. We feel that this asset will provide our investment partners with solid, consistent cash flows over a long term horizon.” A number of exciting improvements are planned for Woodland Park, which was built in 2008. Most notably, the

Minnesota Real Estate Journal

installation of an all new, resort-style swimming pool which was included in the site's original development plans as part of their central courtyard. Exterior signage, parking lot improvements and new exterior paint will also be part of the site improvement plans. Upon completion, Woodland Park will be one of the top, best-in-class communities in the market. The ARA Newmark Kansas City team of Reid Teaney and Mac Crowther represented the seller.

HeadFlyer Brewing Opening at 861 East Hennepin ACKERBERG announced that they have executed a long term lease with HeadFlyer Brewing, a newly founded taproom and brewery, to occupy 9,435 square feet in the Miller Textile building located at 861 East Hennepin Avenue in Northeast Minneapolis. This brings the speculative project to 61% leased. Renovation began in December 2015 and the property is being transformed from the historic Miller Bag Building into creative, dynamic office and retail

space. The newly branded Miller Textile Building now includes approximately 10,000 square feet of retail space and 38,000 square feet of office space, with 84 free off-street parking stalls in a renovated, 4-story building. ACKERBERG has transformed the building to develop office and retail space with a new infrastructure to serve today’s and tomorrow’s businesses. 20’ ceilings are creating a loft-like environment with a bright, airy feel. Over 60 new glass windows feature unobstructed views of Downtown Minneapolis. “We are very excited to bring classic, , high-quality craft beers to the Beltrami neighborhood of Northeast Minneapolis. The newly refurbished Miller Textile building will allow us to create a unique brewery/taproom experience for our customers,” said Head Brewer and Co-Founder Neil Miller. "We are excited to have HeadFlyer select the Miller Textile Building as the home for their new endeavor. Our goal in repositioning this property was to turn it into a signature destination in Northeast Minneapolis. The addition of HeadFlyer will definitely help us achieve that

July 2016

goal,” said ACKERBERG CEO, Stuart Ackerberg. Located in the Beltrami neighborhood of Minneapolis, the building has close proximity to major Northeast commercial districts along Hennepin Avenue and Central Avenue as well as the University of Minnesota, highlighting the building’s superb accessibility and visibility. The property is served by public transit on Hennepin Avenue and is highly accessible by bicycle. The property will have bicycle parking on site.

Dougherty Funding LLC Closes $16.1 million loan for Bluffs at Cherry Hills Dougherty Funding LLC has closed on a $16.1 million refinance/construction loan for Bluffs at Cherry Hills Apartments, an existing 196-unit affordable multifamily property in Omaha, Nebraska. Loan proceeds will be used by the Borrower to refinance the loan used to acquire the property for $13.6 million, renovate the apartment units and existing clubhouse, and construct a new leasing and management office.

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The financing was arranged for Omaha Leased Housing Associates II, LLLP and Dougherty Funding serves as lead lender and servicer for the loan.

Dougherty Funding LLC Closes $23.8 million loan for Commons on Mayowood Dougherty Funding LLC has closed on a $23.8 million construction loan for Commons on Mayowood, which will consist of a five-story, 159-unit apartment property situated on a 2.95 acre

Minnesota Real Estate Journal

site on the edge of the Zumbro River in Rochester, Minnesota. Construction on the project began in 2nd quarter 2016 and is expected to be completed in 3rd quarter 2017. The property is anticipated to host a wide range of amenities, including access to a walking/biking trail that goes to the Mayo Clinic and shuttle service access for Mayo Clinic employees. The financing was arranged for Mayowood Commons LLC and Dougherty Funding serves as lead lender and servicer for the loan.

MARCUS & MILLICHAP ARRANGES THE SALE OF A 12,182-SQUARE FOOT RETAIL PROPERTY Marcus & Millichap (NYSE: MMI), a leading commercial real estate investment services firm with offices throughout the United States and Canada, today announced the sale of Dollar General Center, a 12,182-square foot retail property located in River Falls, Wisconsin, according to Craig Patterson, Regional Manager of the firm’s Minneapolis office. The asset sold for $625,000. Sean Doyle, Adam "AJ" Prins, Matthew Hazelton and Cory Villaume, investment specialists in Marcus & Millichap’s Minneapolis office, had the exclusive listing to market the property on behalf of the seller, a partnership. The buyer, a private investor, was secured and represented by listing team along with Evan Miller, an investment specialist also in Marcus & Millichap’s Minneapolis office. Todd Lindblom, Broker and Regional Manager of Marcus & Millichap’s Milwaukee office, assisted in closing this transaction. Speaking with Mr. Hazelton, “After

July 2016

generating multiple offers, this property sold to a Twin Cities investor. The interest was driven largely by having Dollar General as the anchor tenant.” Dollar General Center is located at 320 Main Street in River Falls, Wisconsin.

Ryan Companies US, Inc. and Park Nicollet Break Ground on New Medical Office Building in Maple Grove Ryan Companies US, Inc. and Park Nicollet broke ground on a new 26,000square-foot Medical Office Building (MOB) at The Grove Village Shopping Center in Maple Grove, MN. Located at the corner of Maple Grove Parkway and Grove Circle North, the one-story building will be home to Park Nicollet Physical Therapy and HealthPartners Physicians Neck & Back Center. Park Nicollet will lease the entire building; Physicians Neck & Back Center will sublease space from Park Nicollet. The project is on target to open to patients in December 2016.