MREJ June 2021

Multifamily Steady in the Twin Cities

page 4 ©2021 Real Estate Publishing Corporation June 2021 • VOL. 37 NO. 3

Ready for a post-COVID rebound?

Local CRE pros see a brighter future for Twin Cities retailers

By Dan Rafter, Editor

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etailers across the country have struggled mightily during the COVID-19 pandemic. States ordered many retailers and restaurants to shut their doors during the earliest days of the crisis.

And even today, retailers must convince a largely hesitant public that it is safe again to shop, dine, exercise, watch movies or play indoors.

There is hope today, though. COVID-19 cases continue to fall across the country. Mask mandates have been dropped, and a growing percentage of the U.S. population has received vaccinations.

How, then, are retailers faring today throughout the Twin Cities area? We spoke to three CRE pros with the Min-

neapolis office of CBRE – Peter Dugan, vice president; David Daly, senior vice president of retail; and Sam Newberg, senior field research analyst – to find out.

Here’s what they had to say.

RETAIL (continued on page 14)

CRG betting big on Minnesota with Cubes at French Lake industrial project

By Dan Rafter, Editor

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RG, the real estate development and investment arm of Clayco, is set to make history in Minnesota this year when it starts construction on its new industrial project, The Cubes at French Lake.

When complete in 2022, this project will bring up to 1 million square feet of distribution space to a 65-acre site in Dayton, Minnesota, about 20 miles northwest of downtown Minneapolis. Notably, the Cubes at French Lake will

rank as the largest speculative industrial facility developed in Minnesota once construction wraps.

Jeff Lanaghan, senior vice president and partner for the Midwest region of CRG, said that the time was right for his company to tackle its first super bulk inventory distribution facility in Minnesota. He said that CRG had been looking closely at opportunities in Minnesota for more than a year before the COVID-19 pandemic put its plans on hold.

But today? The pandemic only reinforced how important it is for companies to have plenty of distribution space in the United States. And that has made the already strong Minnesota industrial market even hotter.

“The industrial market is so strong today,” Lanaghan said.

“People saw what happened at the beginning of COVID. It was difficult for companies to get their products to their INDUSTRIAL (continued on page 15

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READY FOR A RETAIL REBOUND? Like in most cities in the United States, the retail market has taken a hit in Minneapolis and St. Paul during the COVID-19 pandemic. But what about the future? Is retail ready to rebound? Three CRE pros with CBRE say it is.

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MAKING INDUSTRIAL HISTORY: CRG is set to make history in Minnesota this year when it starts construction on its new industrial project, The Cubes at French Lake. When built, it will rank as the largest speculative industry facility developed in Minnesota.

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MULTIFAMILY STILL STEADY IN THE TWIN CITIES: Multifamily has remained one of the most resilient commercial real estate sectors throughout the COVID-19 pandemic. And that’s been the case in the Minneapolis-St. Paul market, too. But what’s behind this resilience? And what makes the Twin Cities such a strong market for multifamily?

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WHY NOT TURN THOSE VACANT BIG-BOX STORES INTO MEDICAL CLINICS? Adaptive reuse has become a trend in commercial real estate. So why not turn those old big-box electronics and department stores into outpatient clinics and ambulatory surgery centers?

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A TALE OF TWO SECTORS: The COVID-19 pandemic has hit every city in the Midwest. But it hasn’t hit every commercial sector with the same impact. That can be seen in the Minneapolis-St. Paul market, where the pandemic has had far different impacts on the office and industrial sectors.

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WHY SURVEYS MATTER IN COMMERCIAL TRANSACTIONS: Standard in commercial, industrial, multi-housing and office purchase agreements is the right for the buyer to perform a due diligence review of the property. A commercial survey is a key tool for property buyers.

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RYAN COMPANIES, KROGER AND THE FUTURE OF GROCERY STORES: A growing number of consumers have turned to the Internet to buy their groceries, going online to purchase everything from milk and eggs to toothpaste, deodorant and shampoo. And one grocer in particular, Kroger, has made an even bigger move toward automation.

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PLENTY OF HOPE IN LATEST APARTMENT REPORT FROM WALKER & DUNLOP: Hope.

It’s sweeping across the country as vaccines send the number of COVID-19 cases across the United States crashing. And that hope promises brighter days ahead for the multifamily market.

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WHAT TOPS RENTERS’ WISH LISTS DURING A PANDEMIC? What have apartment renters looked for during the pandemic? A new survey suggests that an affordable place tops the list of must-haves for renters struggling through the COVID-19 pandemic.

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Steady in the Twin Cities: The multifamily sector hasn’t wavered even during pandemic times

By Dan Rafter, Editor

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The Maverick apartment building in the North Loop area of Minneapolis.

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ultifamily has remained one of the most resilient commercial real estate sectors throughout the COVID-19 pandemic. And that’s been the case in the Minneapolis-St. Paul market, too.

But what’s behind this resilience? And what makes the Twin Cities such a strong market for multifamily?

We spoke with Dan Trebil, senior vice president and managing director in the Minneapolis office of NorthMarq, to find out. Here is some of what Trebil had to say about apartment living in the Twin Cities, the strength of the local multifamily market and his expectations for the future of this sector.

Let’s start out with a big question: How strong is the multifamily sector today in the Minneapolis/St. Paul area? Now that COVID-19 cases are falling, is the apartment market seeing even more sales and leasing activity?

Dan Trebil: Our apartment market overall has been very resilient. There were some pockets of some concessions here and there, but overall we’ve been fortunate. Our suburban markets have done really well. But so have some of the more urban markets. The North Loop submarket, for instance, has been very strong. The apartment markets in Uptown and downtown have been a little soft. But some of the deals that I know are in lease-up right now are taking place even in downtown Minneapolis. There might be some concessions with some of these deals, but the concessions are trending downward.

The indicators are all heading in a positive direction.

We are seeing some sales and acquisition opportunities out there in this sector, too.

I expect that to continue with the low cost of debt and the health of our market. The Twin Cities market is always going to be a desirable place for people to buy units and continue to own units.

On the refinancing side, interest rates are great and there is a ton of money in the debt markets. All of that leads to continued refinance opportunities.

Why has the Twin Cities apartment market been so resilient during this last 16 months or so?

Trebil: I think it goes to the diverse economy we have here. We have a lot of different large companies in the Twin Cities and we don’t rely on just one company or industry.

We also tend not to have the big swings like other markets do in terms of occupancy.

I think we are relatively constant in our market. And for a long time, there was nothing built here. There had not been a lot of building for a long time. Some locations had been starved for newer product. So we weren’t overbuilt when COVID hit.

What about downtown? Do you think renters will be returning in greater numbers to downtown Minneapolis/St. Paul soon?

Trebil: I am a big believer in Minneapolis and St. Paul. I think Minneapolis in particular does have some serious challenges. We need people back in the city. Some of that will happen organically as people come back to their offices in person.

One of the beauties of living downtown, is that all these new apartment projects have great amenities. But the chief amenity is downtown itself. There are so many restaurants and entertainment options that are a few steps away. When those haven’t been open and aren’t open, then downtown is less of a draw. Leasing in downtown Minneapolis has been a little slow. But once some of the bigger companies bring their workers back, that will start to change. Hopefully, starting Sept. 1 is when the bulk of the companies in downtown will have their people back. That is what it is going to take to bring downtown back. We need people in the city to get some of those downtown venues open again. And

we need that critical mass of people so that other people will be more comfortable and feel safe.

It has been strange to see so many downtowns across the Midwest so quiet these last several months.

Trebil: I was downtown in the middle of April, before the restrictions were lifted. The North Loop was packed with people. But a few blocks away in downtown, it was very, very quiet. There were people out and about, but there wasn’t really a reason for them to be downtown. There was more for them to do in the North Loop and Northeast.

When people do come back to city apartment buildings do you think these tenants will expect any of the changes that came about because of COVID to remain in place?

Trebil: From a personal perspective, I think we have gotten used to and become comfortable with doing things virtually. People are comfortable in leasing a building or taking a tour of a building without a leasing agent there. They are comfortable doing this electronically and not having to do it all in person. Some of that will carry over. I’m not sure if this will carry over so much because people are worried about COVID. It might be that people have realized that doing some activities virtually makes sense.

How is the apartment market doing in the suburbs of the Twin Cities today?

Trebil: The suburban multifamily market has been great across the board. Newer projects have leased up. There hasn’t been much in the way of concessions. Has there been a mass exodus of renters out of downtown? I don’t know about that. Again, there is not much draw to come downtown today. As you have natural turnover, there are fewer MULTIFAMILY (continued on page 17)

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JUNE 2021

Those vacant big-box stores? Why not turn them into medical clinics?

By Dan Rafter, Editor

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hat old big-box store that’s sat empty for five years? Why not turn it into student housing? Or maybe that former church can be converted into an apartment building and that former warehouse can become a mixed-use space filled with apartments, offices and retail.

ings in healthcare facilities. Construction crews needed to reinforce the steel structures of the former retail spaces to make sure they could handle this equipment.

Then there are the challenges that spring up whenever construction crews begin working on buildings that might have sat empty for years. There might have been an undetected water leak leading to mold that must now be remediated. Asbestos might need to be removed.

Developers across the country are bringing new life to vacant spaces. That includes those in Minneapolis, St. Paul and the suburbs surrounding these communities. And while it might be more common to turn vacant electronics stores and clothing retailers into apartments and office space, some developers are turning these empty spaces into ambulatory care centers, freestanding medical clinics and outpatient care centers.

“You might be opening Pandora’s box when you get into these buildings,” Stark said.

“There may be more challenges as you peel the onion back. Some of these buildings have been vacant for many years. That leads to an increased chance for warts.”

Adaptive reuse, the trend of turning vacant commercial and residential spaces into new property types, is hitting the healthcare industry. And Mike Stark, senior manager for project planning and development with Minneapolis’ Kraus-Anderson, said that this trend will only continue to grow.

Why? Patients prefer receiving medical care in outpatient settings when they can.

It’s an easier task then fighting their way to crowded and sprawling hospital campuses.

At the same time, many retailers are shuttering their brick-and-mortar locations, leaving plenty of space to be converted to healthcare uses.

“Adaptive reuse is a new way of looking at a vacant property,” Stark said. “Often, this means vacant big-box stores. There are plenty of empty big-box spaces throughout the country. As consumers’ behavior has changed on the retail side, more people are making purchases online versus going into brick-and-mortar locations. Some of the bigger brands are abandoning their retail facilities and focusing more on online.”

The goal of adaptive reuse is to use as much of an existing structure as possible. But this can prove challenging when it comes to transforming abandoned retail spaces into healthcare facilities. This type of adaptive reuse requires significant structural modifications to existing spaces to accommodate the often heavy and bulky equipment that comes with healthcare uses.

In other cases, developers face clear-height issues. Healthcare facilities don’t need the high ceilings that often come with vacant big-box and other retail spaces. Developers must also consider the airflow in reused space to make sure that patients will be seeking treatment in a space that is healthy and safe.

“It’s not as simple as moving in and turning on the lights,” Stark said.

There’s a clear benefit for adaptive reuse, though: location.

Stark says that he expects Kraus-Anderson, and developers in general, to take on more adaptive reuse projects in the coming years, not just in healthcare, of course, but in many commercial sectors. There is a push today for sustainability. Using as much of existing structures as possible is one way to reduce the waste of a typical construction job.

In Winona, Minnesota, Kraus-Anderson transformed a vacant Kmart into a primary care clinic for Gundersen Health System.

Vacant big-box stores are often located in the prime locations in a community’s business strip. They often sit near major roads.

This makes it easy for patients to reach them and can help medical clinics and care centers compete more effectively.

“They might not save a ton of money by going in and renovating one of these spaces,” Stark said. “But what is appealing to some of our healthcare clients are the locations of these buildings. They get the bones of a good space in a location that is itself a benefit.”

What types of medical facilities are benefitting from the adaptive reuse trend? Stark said that most healthcare adaptive reuse projects involve outpatient clinics and ambulatory surgery centers. But acute care and hospital uses are mostly remaining on campus with their current hospital systems, Stark said.

Kraus-Anderson has recently worked on two healthcare adaptive reuse projects in Minnesota and one over the state border in Bismarck, North Dakota.

In Winona, Minnesota, Kraus-Anderson transformed a vacant Kmart into a primary care clinic for Gundersen Health System.

The building had been vacant since 2014.

The new space offers family and internal medicine, pediatrics, women’s health and imaging services. The facility will also house physical and occupational therapy and an eye clinic.

In Duluth, Minnesota, Kraus-Anderson turned a former Younkers department store into an adult and pediatric therapy facility for Essentia Health.

The locations in both Duluth and Winona were attractive ones, which made the adaptive reuse process a smart move for the healthcare providers behind them, Stark said.

“Both of these locations are in the hearts of their communities,” Stark said. “They allow for easy access for that patient base.

If I was a patient, if I am not feeling well or I need to get a procedure, I don’t want to struggle with finding a care center. I don’t want to have parking or access issues. That only adds to the anxiety. That is something healthcare providers consider when looking for locations for their care centers. It’s not top of the list, but it is something they consider. If they can reduce that anxiety for patients, they will take that opportunity.”

Kraus-Anderson did face challenges when converting the former retail spaces in Winona and Duluth into healthcare facilities.

Retail structures are built to a different set of standards than are healthcare facilities.

For instance, retail stores rarely have the same kind of large and heavy equipment that healthcare facilities do. Because of that, the foundations of the buildings had to be reinforced.

The same is true of heavy medical equipment that often comes down from the ceil-

Adaptive reuse won’t become the dominant trend in new healthcare projects, Stark said.

But it will become an important part of the sector.

For now, though, much of the focus in the healthcare sector, as it is throughout the U.S. economy, is on recovery. The healthcare sector faced serious challenges during the COVID-19 pandemic as patients canceled, or were forced to cancel, elective procedures. That resulted in lost revenue for healthcare providers, with many closing their outpatient facilities as a cost-saving measure.

The future looks brighter for the healthcare sector today, Stark said. But the impact of the pandemic is still being felt.

“Healthcare providers lost three, four months of elective procedures,” Stark said.

“They will never get that income back. You can’t just double the procedures you can do in a short amount of time. Those procedures got pushed down the road. In some cases, patients elected not to have them at all. The last year was a tough one.”

Fortunately, patients are returning for elective procedures now, something that bodes well for the future of healthcare and healthcare real estate.

“People are coming back. They have less anxiety and fear at being inside those facilities as we better manage COVID,” Stark said. “The industry is ready to push forward and put COVID in the rearview mirror.”

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JUNE 2021

A tale of two different sectors: Pandemic’s impact vastly different on office and industrial sectors in Twin Cities

By Dan Rafter, Editor

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he COVID-19 pandemic has hit every city in the Midwest. But it hasn’t hit every commercial sector with the same impact.

olis-St. Paul market, according to the latest research from Colliers.

The numbers from Colliers’ first quarter 2021 industrial report tell the story: According to Colliers, the Minneapolis-St. Paul industrial market finished the first quarter of 2021 with a low vacancy rate of 4.13 percent and 857,000 square feet of net absorption.

That can be seen in the Minneapolis-St. Paul market. Certain sectors – retail and hospitality, for instance – were hit hard.

Others, such as multifamily, proved more resilient.

Recent reports from Colliers highlight this trend. This CRE firm recently took a look at the office and industrial markets in the Twin Cities region. Not surprisingly, these reports found that the industrial sector in the Twin Cities has fared much better during the pandemic than has its cubicle-based counterpart.

The warehouse and distribution end of the market was especially strong, boasting 500,000 square feet of positive net absorption during the first quarter of the year.

Challenging times for office The COVID-19 pandemic took a big bite out of the Minneapolis-St. Paul office market during the first quarter of 2021, as the sector lost nearly a million square feet of tenancy. But the future? Will these empty office spaces start filling back up as pandemic restrictions are eased and COVID cases continue to fall?

That’s the big question addressed in the first quarter Minneapolis-St. Paul office report recently released from Colliers.

As the Colliers report says, many Twin Cities employers are now grappling with the questions of when, how and whether to bring all or some of their workers back to the physical office. The challenge for office brokers is that there aren’t many answers to these questions yet. As Colliers reports, many companies are not putting back-tothe-office plans in effect until after Labor Day. Because of this delay in decision-making, office leasing activity remains low across the country, and the Twin Cities is no exception. For tenants with office leases that are expiring, the “blend and extend” strategy is common: These companies are extending lease terms and blending them with the old rate as a way to buy time until they are ready to make longer-term office space decisions.

And what about the commonly expressed theory that the pandemic is chasing companies from downtown locations to the suburbs? Colliers says that relatively few companies have actually made this move so far. This doesn’t mean that some might not move to the suburbs eventually: Colliers says that tenants that have never before considered the suburbs are at least thinking about the possibilities now.

“As for the numbers, they tell the story of an office market that is still working through the disruption caused by the pandemic.”

Some office tenants are also considering leasing smaller amounts of space as more of their employees work at least part-time from home. Others are exploring the huband-spoke model, keeping a small downtown office location and renting satellite offices in the suburbs.

Target is a good example of the upheaval in the downown office space that the pandemic might eventually cause. The retailer announced in the first quarter that it will leave nearly 1 million square feet at City Center as it begins a more robust workfrom-home strategy. Target plans on hoteling workers in its other corporate office spaces downtown and in Brooklyn Park, Minnesota.

This doesn’t mean that Target won’t remain a major presence in the Twin Cities’ downtown, though: The company will remain headquartered in nearly 1.5 million square feet of owned space and another 500,000 square feet of rented space downtown.

Target has also not listed the City Center space for sublease yet. Colliers says this might mean that the retailer wants to test is flex working model after the pandemic before making any long-term decisions.

Colliers did say that though the Minneapolis CBD faces challenges, there are bright spots. Last fall, Deluxe Corporation signed a 95,000-square-foot lease at 801 Marquette. In the first quarter, EY signed a 30,000-square-foot deal as the first tenant at the newly built Dayton’s Project. RBC Gateway is filling up quickly, too. Tenants looking to lease in this downtown office tower scheduled for completion next year will now have to settle for office spaces under 100,000 square feet.

As for the numbers, they tell the story of an office market that is still working through the disruption caused by the pandemic.

Colliers said that the vacancy rate for the entire Twin Cities office market stood at 9.3 percent at the end of the first quarter. The market also saw negative 824,542 square feet of absorption during the quarter.

In the Minneapolis CBD itself, the vacancy rate hit 11.7 percent at the end of the quarter. This sector, though, did see 218,311 square feet of absorption.

Better news for industrial Demand has soared for industrial real estate across the country. And this sector has been especially strong in the Minneap-

Developers have taken notice of the strength of this market. Colliers reports that 2.3 million square feet of industrial space was under construction in the Twin Cities region as of the end of the first quarter.

The first quarter of the year also saw several large industrial deals in the Minneapolis-St. Paul area. That includes a 156,000-squarefoot lease at Northpark V in the Northwest submarket, a lease of 142,000 square feet in the Highway 55 Distribution Center in the region’s South Central submarket and a 110,000-square-foot lease at 610 Junction in the Northwest submarket.

Expect demand for industrial space to continue to rise, too. As Colliers reports, industrial spaces of 20,000 to 50,000 square feet are in short supply.

Because of rising demand and a relatively limited supply, Colliers expects the industrial market in the Twin Cities to remain strong throughout 2021 in both investment and leasing. Colliers says that both speculative and build-to-suit construction will remain steady, though new construction might be constrained by a lack of available land in the inner submarkets.

In little surprise, Amazon has had a significant impact in the Twin Cities industrial market. Colliers says that the online retail giant, which already has several large distribution centers in the Minneapolis-St. Paul area, is expanding its market footprint with a 750,000-square-foot distribution center in Lakeville, Minnesota.

Other retailers are striving to keep pace with Amazon. That’s partly why both Target and Walmart are building new distribution centers of their own throughout the region.

As Colliers says in its report, the impact that Amazon has on markets is impressive.

The company’s presence in a market brings with it new competition while raising the bar for existing competitors, Colliers says.

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JUNE 2021

In close focus: Benefits and uses of surveys in commercial transactions

By Daniel Jensen and Linda Cross, Monroe Moxness Berg

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tandard in commercial, industrial, multi-housing and office purchase agreements is the right for the buyer to perform a due diligence review of the property. Such review typically includes: • Surveying • Title abstracting; • Engineering; • Architectural and environment inspections; • Zoning and local ordinance review; • Soil and geotechnical inspections; • Availability of access to public

roads and utilities; • Consistency with local, state and

regional growth management plans; • Availability or issuance of

permits, government approvals

and licenses; • Scrutiny of leases and financial

documents; and • Other inspections that buyer

deems appropriate to determine

whether to purchase the property.

A survey can incorporate many of these due diligence items into one document.

As buyers and lenders evaluate and review the condition of the property, they should early on consider whether to invest in a new survey of the property, rely upon a prior survey or go without.

Every buyer needs to weigh the value of the information and protection provided by a survey against the cost of obtaining the survey. Cost is largely determined by the size of the property to be surveyed, the hours required at the property to complete site work due to the condition of the property, office preparation time and any additional services requested by the buyer or lender. Obtain one or more bids to compare services and timelines.

If a recent survey is available and the seller has shown that the site has not changed from what is documented on the survey, the cost associated with an update is generally less than a new survey, provided the prior surveyor is still in business. Title companies will generally accept a prior survey that is no more than 10 years old with an affidavit of no change from the seller. This can be a cost- and time-effective way to obtain desired title insurance protection. If a prior survey is available, consider adding a requirement to the purchase agreement requiring seller to provide such an affidavit.

For transactions involving a very large parcel of land or a parcel with few improve-

buyer’s or lender’s request (and at additional cost). Among the commonly requested Table A Items is Item 6(b), zoning information, typically including setback requirements, height and floor space restrictions and parking requirements, with setbacks being graphically depicted on the survey.

Due to the 2021 ALTA/NSPS updates, the surveyor may require buyers to provide a zoning compliance letter or zoning report to include such on the survey.

Daniel Jensen

Linda Cross

“Every buyer needs to weigh the value of the information and protection provided by a survey against the cost of obtaining the survey. Cost is largely determined by the size of the property to be surveyed, the hours required at the property to complete site work due to the condition of the property, office preparation time and any additional services requested by the buyer or lender.”

ments, completing and aerial survey rather than a traditional one may be more attractive in terms of cost and time involved.

Aerial surveys are also desirable on highly confidential transactions or transactions in which the parties do not want to disclose the transaction to a tenant until the expiration of due diligence, as the presence of a surveyor on the property is minimal.

SURVEY STANDARDS AND TABLE A ITEMS Surveys come in a variety of forms with different standards of care, such as the aerial survey discussed above. But the gold standard for a survey is an ALTA/NSPS Land Title Survey prepared pursuant to the Minimum Standard Detail Requirements (effective February 23, 2021). An ALTA/ NSPS Land Title Survey is prepared in accordance with various surveying standards

of care developed by the American Land Title Association and the National Society of Professional Surveys to meet the needs of buyers, lenders, and title insurance companies.

It assures the relying parties that the survey is of a professional quality and appropriately uniform, complete and accurate. A standard survey certification in which the surveyor affirms that the survey was created with the necessary standard of care and lists the parties that can legally rely on the survey is also established and set forth in the Minimum Standard Detail Requirements.

Along with the details and standards required of every ALTA/NSPS Land Title Survey, additional optional survey responsibilities and specifications (Table A Items) are also identified and can be added at a

For a construction transaction, consider ordering Table A Items 5 and 11. Table A Item 5 adds vertical relief data to the survey, showing any flat areas, sunken areas, or slopes on the property. This is vital information for civil engineers to develop a grading plan and determine the cost of site work. Table A Item 11 adds evidence of underground utilities existing on or serving the property, an important factor in determining the availability of various utilities lines sufficient for the contemplated use. To provide Item 11 on a survey, the surveyor may require plans and reports evidencing the location of the lines and utility location of the lines.

TITLE COVERAGES AND ENDORSEMENTS REQUIRING A SURVEY All title commitments include standard items that are excepted from title coverage, including any matters that would be disclosed by an accurate survey. In order to obtain title coverage and delete this standard exception from a title policy, an ALTA/NSPS Land Title Survey is required.

If a prior survey, a survey that is not certified as an ALTA/NSPS Land Title Survey or aerial survey is to be used, it must be approved prior to closing by the title company that issued it.

An ALTA/NSPS Land Title Survey is also required to obtain several common title insurance endorsements. These endorsements include a Zoning Endorsement, Access and Entry Endorsement, Utility Access Endorsement, Contiguity Endorsement, Location Endorsement, Same as Survey Endorsement and Encroachment Endorsement.

It is advisable, early in the due diligence period, to start a conversation involving the buyer, seller, lender, title company and surveyor to determine the scope and costs of a survey and timing required.

Linda Cross and Daniel Jensen are attorneys at the Minneapolis law firm of Monroe Moxness Berg. You can contact them at lcross@mmblawfirm.com and djensen@ mmblawfirm.com.

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M I N N E S O TA R E A L E S TAT E J O U R NA L

JUNE 2021

Bots, algorithms and tech-mapped delivery routes: Ryan Companies, Kroger and the future of grocery shopping

By Dan Rafter, Editor

T

he COVID-19 pandemic has brought big changes to the way people shop. And one of the biggest? A growing number of consumers have turned to the Internet to buy their groceries, going online to purchase everything from milk and eggs to toothpaste, deodorant and shampoo.

Grocers have embraced this change, boosting their online ordering capabilities. But one grocer in particular, Kroger, has made an even bigger move toward automation. The grocery giant in April opened its first automated online customer fulfillment center in the Midwest.

Powered by technology from British online grocery delivery company Ocado, the facility in Monroe, Ohio, relies on artificial intelligence and robotic pickers. Ocado’s automation systems Robotic pickers do much of the work at Kroger’s automated facilities. first analyze customer orders, with the bots then picking the items in the most efficient way possible. Kroger delivery people than use mapping technology to de- to the warehouse/fulfillment center. Half bots pick the products ordered by consumliver these orders using the fastest routes. of the building is refrigerated to keep food ers and drop them in the totes they hold, and perishables fresh. And nearly 400 em- scouring the warehouse until they have Minneapolis-based Ryan Companies ployees will work at the center. completed their orders. played a key role in bringing this fulfillment center online. The Midwest company Ryan is currently design-building a sec- The bots eventually bring the products to both designed and built the customer ful- ond Ocado-powered fulfillment center pick stations, where they are sorted for fillment center in Monroe. And that’s not for Kroger in Romulus, Michigan. This delivery. According to Kroger, the picking the end of Ryan’s involvement: Kroger has 130,000-square-foot center is scheduled to stations rely on algorithms so that fragile hired Ryan Companies to build five of the be complete in September of 2021. items are packed on top of heavier ones 10 Ocado-powered customer fulfillment and the weight of customers’ orders are centers that it is bringing online across the Designing and building the facility in spread evenly among bags.

United States.

Monroe was far from a simple task. The biggest challenge? The Ocado system had The algorithms even ensure that bots use Kyle Schott, Ryan’s director of real estate never been used in this country. Adam as few bags as possible when putting orders development, said that that the company’s Zarek, senior project manager for Ryan on together. history played a role in winning this busi- the Monroe customer fulfilment project, ness from Kroger. said that this required both flexibility and The orders are then loaded into a temcreativity from the construction team. perature-controlled delivery van, with As Schott said, Ryan has worked with Kroeach van able to deliver up to 20 orders ger on other distribution center projects. “The system being used in this building, at a time. Technology plays a role here, Ryan’s success with these projects gave the robotics, is brand new to the United too. Machine-learning considers whether Kroger the confidence that the company States. That meant we had to design a roads are closed or traffic is heavy to map would perform well on the Ocado fulfil- building around something that we had out the most efficient delivery routes. Each ment center work, too. never seen here before,” Zarek said. “We customer fulfillment center can cover a worked closely with Ocado to make sure delivery area of up to 90 miles.

“We are strong in design, construction and that our model fit with their model. We development,” Schott said. “We take an in- started construction when the building Kroger officials said that the Monroe custegrated approach. We’re a one-stop shop, was just 50 percent designed. We were tomer fulfillment center is just the latest and we’re very expeditious and efficient building it and designing it simultaneously step that the grocery chain is taking to with our time. Kroger saw that as being to meet the fast deadlines on this project.” boost its ecommerce sales. According to advantageous to them. We had established Kroger, the chain racked up more than $10 trust with Kroger already in what we can Ryan began construction of the Monroe billion in digital business in 2020. bring to the table.” facility in June of 2019. The company wrapped construction on Dec. 30 of 2020, Kroger has announced plans for 10 cusThe future of grocery shopping? and Kroger went live with the facility in tomer fulfillment centers. In addition to the April.

Monroe facility, this includes automated The customer fulfillment center in Monbuildings in Romulus, Michigan; Pleasant roe is a good example of what the rest of Inside the fulfillment center, more than Prairie, Wisconsin; Frederick, Maryland; Kroger’s high-tech facilities will look like. 1,000 robots zip across 3D grids in an area Groveland, Florida; Forest Park, Georgia; About 90 percent of the center is dedicated of the facility known as The Hive. The ro- Dallas; and Phoenix. Kroger also has plans

for two customer fulfillment centers in unspecified cities in the Pacific Northwest and West.

Changing habits Schott said that the pandemic has changed the way people shop. And it’s especially changed the way they shop for groceries.

“We are seeing a big change right now in how people order groceries,” Schott said. “We are seeing more of a desire for direct-to-consumer ecommerce.

Facilities like this are allowing Kroger to position itself well for that shift that has occurred because of the pandemic.”

Both Zarek and Schott agreed that Ryan’s design-build model played a key role in the successful completion of the Monroe fulfillment center.

“We have this in-house collaboration,” Schott said. “We can work at a quicker speed. Our developers understand what is important to the design team and the construction team. They understand what is important to our property management team. Some clients at first don’t want to put all their eggs in one basket. They see it as a potential risk. But once they’ve gone through it for the first time, they see that we can trim the schedule and the costs with our delivery method. Then they are sold.”

“I don’t see how we could have done this project differently,” Zarek said. “The amount of coordination that had to happen with Kroger, you can’t do that with a third-party architect of record that you have to pass decisions through. It would just be a bottleneck. Our construction team, myself and our other project managers, were in regular meetings with Kroger and Ocado to make sure we were moving in the right direction at all times.”

Zarek said that those who worked on the Monroe project have a sense of pride of the jobs they turned in. This was a first for Ryan Companies, after all.

“It is a landmark project for our team,” Zarek said. “We have done similar projects with automation, but not necessarily in the grocery sector. To see it proceed from start to finish was satisfying. Our design team visited Ocado’s UK facility. We visited another Ocado facility as we were going through the design process. It’s gratifying to see this go from a napkin sketch to an operational facility.”

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14

M I N N E S O TA R E A L E S TAT E J O U R NA L

The experiential retail side is still an important part of the retail world, even as ecommerce continues to grow. Will physical stores continue to close? Absolutely. But there’s still a human side of this that involves being together and touching the product.

That can’t be overlooked.

RETAIL (continued from page 1)

This has undoubtedly been a tough time for retailers in the Twin Cities area. Looking back at the pandemic so far, which retailers have been resilient, and which have struggled?

David Daly: It’s tough to take ourselves back 16 months. We all have our own version of what happened with our different clients and the people we interact with. For a lot of retailers, though, the pandemic was an absolute pause and shock. It was a ‘We don’t know what to do’ moment. Retailers had to strategically plan for something even though they didn’t know how long shutdowns or the pandemic would last. No one really had a clue what was going to happen.

But as we settled down and figured out that we could still get toilet paper and that we could still grocery shop, we began to see a lot of strength in fast-casual restaurant concepts that were set up with apps. We saw strength from the retailers that had their food delivery programs figured out and those that had drive-throughs. The drive-throughs and delivery services were unbelievably valuable for those tenants.

Grocery stores had their own operational challenges. They made out fairly well toward the latter days of COVID when they figured out their operational challenges. But it was an absolute scramble for grocery stores during the earlier portion of the pandemic.

As they struggled with their operations, they put an absolute pause on their real estate strategies. They focused almost entirely on operations.

Then we’ve seen some retailers where the pause at the beginning of the pandemic has absolutely carried on. A lot of this was a result of mandates from cities and governments. Fitness centers had to shut down.

Movie theaters had to shut down. Hotels have been severely impacted. A lot of those retailers are still facing challenges. They are just creeping out from some of that.

Is it looking better for retailers today now that cases are falling and mask mandates are being lifted?

Sam Newberg: I think back to the restaurants and how they have had to manage through this. I look at some of my local neighborhood hangouts. They had to shut down for the first few weeks. I look at how they have recovered from that. Some of them had to survive to a huge extent on the PPP loans. They had to figure out their own takeout, pickup and delivery systems. Many did that.

One of the local establishments in my neighborhood is going to have better revenue in 2021 than it did in 2019. The government assistance did the job and the owner of the business did a good job of keeping the revenue going. The owner got the paperwork filled out in time for a PPP loan. Now the mask mandate has been lifted and the business is back to normal. Going forward, it

JUNE 2021

How creative did retailers get during this pandemic?

Restaurants have been creative during the pandemic. The big question now? Are customers ready to return in growing numbers to in-person dining?

looks like this will be a much more normal year for retailers.

We’ve seen consumers who might not have ever ordered food, groceries or other items online embrace delivery apps during this pandemic. Do you think this will stick after the pandemic ends? And what other habits that consumers have picked up during the last year or so do you think will remain once the pandemic is behind us?

Peter Dugan: That is a pivotal question. Is there a new normal? There have been some unique cultural shifts. We had folks who had never used apps or ordered online do that during this pandemic by necessity.

I don’t think that is going to change. The convenience of curbside pickup, food delivery or ordering through an app is simply too powerful. Regardless of whether we are dealing with COVID or not, those habits, I think, are here to stay, so retailers will have to keep offering those services.

But I also think that customers will be very grateful to be back in a restaurant or store after the chaos we’ve been through. I think we’ll settle into a new stability. But there will still be a marked change from how we lived before. I just look at my own little neighborhood. There are so many delivery trucks in my neighborhood every day, so many more than there were before. I don’t see that changing.

Daly: I’m not overly concerned about people wanting to go back to gyms and restaurants.

It’s our habit as people to want to be with other people. Everyone is busy. But going out with other people is still an important part of our lives. We crave experiences that are entertaining and thought-provoking.

People need that. Some of the other habits, such as I how I order my burrito for lunch?

Those have changed. But people still want to go out and experience things. That hasn’t changed.

Dugan: We are social beings. But at the same time, things have changed. I went inside a coffee shop the other day. I was the only person standing in line. Everyone else came in, picked up an order that was ready for them at the counter and left.

Newberg: A lot of the pickup and delivery technology was hatched in 2019 or earlier.

The pandemic just accelerated these existing trends. A lot of this was happening already, it just hadn’t been fully fleshed out by a lot of retailers. These changes will stick, whether it’s a reliance on drive-throughs by fast-casual restaurants or enhanced delivery and pickup options. Those are not going away.

If you go back to 2019 or 2018, there were forecasts saying that ecommerce was going to grow and grow. What 2020 saw was that this growth spiked a little. Companies that have existing stores are already pivoting toward online sales. One of the big-box retailers reported that 95 percent of its online sales were orders that customers ordered online and then picked up from their store shelves. They are not storing those items in a warehouse. They already have a warehouse in their store. When online orders did pick up last year, this retailer was able to serve them using their own store spaces. It’s not to say that warehousing isn’t an increasing part of the retail world, but that some stores were ahead of the game and have this builtin capacity to serve as warehouses, too.

Before the pandemic hit, we were writing a lot about the rise in experiential real estate. Is this sector of retail ready to bounce back after getting hit hard during COVID-19?

Daly: I think gyms, family entertainment centers, bowling alleys, they will come back.

I think they will come back equal to 2019.

I’m a member of a gym and it feels like it’s already back. We represent SoulCycle and Orangetheory. Their numbers are coming back, too.

Newberg: The mask mandates and occupancy restrictions were lifted at roughly the same time. There is pent-up demand for experiential real estate and entertainment.

People are getting out to malls and restaurants. How much more are they spending?

How much will the pent-up demand result in a spike in sales? We don’t know that yet.

It will be interesting to watch. How much of this is real pent-up demand versus an antsyness to get out of the house?

Newberg: When capacity was restricted, retailers did notice that you could have things like live music socially distanced. Some of that came about because there was no other way in the peak of the pandemic to get people together and make revenue. Restaurants benefitted from street closures and parking lane closures that allowed for outdoor dining. Especially in denser cities, retailers took advantage of these opportunities. The common thread has been the human experience.

People want to be with others. It’s important to the management of retail centers, then, to offer that sort of live entertainment experience. That is something that isn’t going to go away after the pandemic.

Dugan: I have noticed at our neighborhood parks that there are many more people gathering outside with their kids than I’ve ever seen before. I’m not sure if that is a trend or if that will change when COVID is over.

But I do think the outside gathering might be more of a trend that retailers will have to focus on.

What about in downtown Minneapolis and St. Paul? Retailers in downtown areas, because workers aren’t in their offices, have been hit hard. Are they starting to bounce back?

Daly: It does feel like people are coming back downtown. But it is happening slowly, as we all expected. There is more energy downtown today, though. It is heading in the right direction. How long will it take until downtown is back to where it was before the pandemic? I’m not an expert on that. But I am seeing sales numbers growing out of our Skyway retailers. Their hours are getting extended. Downtown is very important to our community and our market.

Hopefully, it comes back as soon as possible.

Newberg: Minneapolis is not unique.

Downtowns across the country are facing issues related to how many people will return to the office and how quickly. Will the hybrid working model stick? If workers in downtown Minneapolis only come back to the office two or three times a week, lunch spots will suffer. But that said, sales are coming back in downtown. The Farmers Market reopened on Nicollet Mall. There are signs of life. As people come back to the office, that will only improve.

Dugan: The hybrid working model, how that works out, will have a big impact on CBDs across the country. So that needs to be watched to see what happens to our downtown retailers. I think the Farmers Market will actually be an important bellwether. If people are comfortable out there and the Farmers Market is well-populated, that will be a good sign. We’ll have to see what happens over the summer.

JUNE 2021

M I N N E S O TA R E A L E S TAT E J O U R NA L

INDUSTRIAL (continued from page 1)

The Cubes at French Lake.

customers. They know now how important it is to get their products onshore. They know that if they are going to service their clients, they need to have their products in house and close to their clients’ locations.”

“For certain things, such as clothing, online shopping might slow down,” Lanaghan said. “But for other types of shopping, such as grocery? People will continue shopping online. It is so easy, there is no reason for people to not do it.”

CRG is betting that the demand for online shopping means that the Cubes at French Lake will fill with tenants quickly. CRG is working with the city of Dayton now and expects all entitlements to be set by early to mid-summer. The plan is to begin construction in the early fall and deliver the completed project late in 2022.

The Cubes at French Lake, which will be located at 11500 Lawndale Lane in Dayton, will feature 40-foot clear heights, wide staging bays with grade-level doors, a concrete truck court with 185-foot depth, ESFR fire sprinkler systems and LED lighting.

Lee & Associates will handle leasing for the project, which, in addition to offering spec space, will also be marketed as a build-tosuit opportunity.

15

That’s difficult to predict. But Lanaghan said that he expects online sales to only continue to increase, and that this ecom-

merce growth will inspire companies to continue opening new distribution centers across the country.

“We’re thrilled to be marketing The Cubes at French Lake, and we consider this project to be the premier industrial development in the state,” said Chris Garcia, principal at Lee & Associates, in a statement. “The surge in e-commerce has rapidly increased demand in the Twin Cities, and today’s users are looking for next-generation facilities that give them the flexibility and scalability needed to keep pace with the market.”

Lanaghan said that two factors made this the right location for CRG’s project. First, there’s the strong highway access. A new interchange is set to open later this year off Interstate-94 in Dayton. This means that the highway will, as Lanaghan said, nearly come to the front door of the Cubes at French Lake.

Then there’s the labor market in this part of Minnesota. The labor market here is especially strong, Lanaghan said, and people are ready to work.

“During COVID, it was easy to forget that there was very low unemployment in this part of Minnesota,” Lanaghan said. “That is going to come back as people get ready to reenter the workforce.”

CRG’s commitment to the area is yet more evidence of how strong Minnesota’s industrial market has been before and during the pandemic. The future looks bright for this commercial sector, too, as the online shopping habits that even more people developed during the pandemic have fueled even more growth in industrial.

“A lot of people haven’t felt comfortable going to stores during COVID,” Lanaghan said. “We saw a whole new generation of people who never would have thought about ordering online before the pandemic suddenly start buying groceries, food and other items online. They found out that ordering online is pretty easy. I think that opened a lot of people’s eyes to how easy online shopping can be.”

That leaves one big question: Will all these people who embraced online shopping during the pandemic continue to order online as COVID-19 cases taper off and physical stores drop their mask requirements?

MINNEAPOLIS • DENVER • FARGO

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M I N N E S O TA R E A L E S TAT E J O U R NA L

JUNE 2021

Plenty of hope in latest apartment research from Walker & Dunlop

By Dan Rafter, Editor

H

ope. It’s sweeping across the country as vaccines send the number of COVID-19 cases across the United States crashing. At the same time, governors across the country are lifting mask mandates for fully vaccinated people, meaning that those who’ve received their shots can shop inside Target, Walmart, Trader Joe’s and other retailers without first strapping on their masks.

home is one way for them to do this without needing the down payment that is required for actual ownership.

Stevens: Throughout the Midwest, we are also seeing a lot of interest in the two-bedroom rental. There had been a pivot away from that prior to COVID. People were more interested in one-bedroom and studio apartments. They were willing to spend more to live alone. Now we are seeing the two-bedroom units renting faster. People want that interaction with a friend or roommate. Or they want more space while they continue to work from home.

It seems that at long last the United States is moving toward the end of the COVID19 pandemic.

This hope is evident, too, in the latest multifamily report released by Walker & Dunlop. The commercial finance company recently released its Spring 2021 Multifamily Outlook Report. And the report is filled with more good news, this time for the commercial real estate industry.

Of course, the multifamily sector was one of the most resilient throughout the pandemic, so it’s not overly surprising that Walker & Dunlop experts expect this market to remain strong throughout the rest of this year and into 2022.

That doesn’t mean, though, that the strength of the apartment market isn’t still one more reason for optimism. Midwest Real Estate News recently spoke with Todd Stofflet and Jason Stevens, both managing directors based in Walker & Dunlop’s Chicago office, about the multifamily market and its enduring strength.

Here is some of what they had to say: The multifamily sector has remained strong throughout the pandemic. Are you surprised at how resilient the sector has been?

Todd Stofflet: We are pleasantly surprised at the resiliency we’ve seen in the apartment market throughout the Midwest. The Midwest is typically a more conservative area when it comes to apartment rents and new construction. To be able to see market occupancies maintained and collections stay as high as they’ve been, that’s good to see. The Midwest markets have shown stability throughout the pandemic.

Jason Stevens: The strength of the Midwest lies in its fiscal conservatism. It has lower income-to-rent ratios compared to other parts of the country. In a market like Miami, you might see renters spend north of 40 percent of their income on rent. In the Midwest, people err on the side of caution when it comes to spending too much on their rent. That is part of why the multifamily market in the Midwest has seen strong collections and is already showing signs of becoming even stronger in the coming months.

Why do you think apartment rent collections have remained so high throughout the pandemic in the Midwest?

Chicago market before the pandemic hit. I think we will get there in a shorter period of time than some might think.

Stofflet: A lot of the people in the Midwest have remained working throughout the pandemic. Most likely they are working from home, but they are still employed. We also have that conservative mindset in the Midwest, so renters here are paying their rent before they pay anything else. We have a strong, diverse employment base in the secondary markets of the Midwest.

Stofflet: There is a lack of deliveries of units in the Chicago market right now. The units that are being delivered are seeing a quick lease-up. Just look at the River North area in Chicago. During the height of the pandemic, owners here were offering significant concessions to get people to rent.

Now, the apartment buildings in River North are 95 percent occupied. Owners are down to offering minimal concessions.

Stevens: Our workforce is also highly educated. Our workers have largely been able to avoid being furloughed.

Have you seen many renters leave city apartment buildings and move to the suburbs during the pandemic?

Stofflet: We absolutely have seen it in Chicago. But renters haven’t necessarily moved to the suburbs. They’ve moved from downtown areas to city neighborhoods that are a little farther out. When people realized that they were going to be home for a longer period of time, they wanted to get a little more space. The Loop was pretty well shut down for a long time, with restaurants and entertainment, the shopping, all shut down. That takes away much of the allure of living downtown. We did see people move to the neighborhoods where rents might not be as high and they might get a bit more space. That trend, though, is starting to reverse in the last couple of months.

We’ve seen an uptick in leases downtown, especially in the Loop.

How is the Chicago multifamily market faring today?

Stevens: One of the advantages that Chicago has right now is that there is not an extensive development pipeline. There are some large projects on the horizon. But there is not a deluge of units coming on the market like in the southeast. We are poised for good absorption and real rent growth, as we were before 2020. We were predicting a 3 percent rent increase in the

One of the hotter multifamily markets in Walker & Dunlop’s outlook report, is the single-family home rental market. Is that market strong in the Midwest?

Stofflet: From the onset of the pandemic, large institutional groups began to focus on a different investment trend, single-family home rentals. There has been a big move from an institutional perspective to get into that space. We also have a demographic that likes the idea of renting and also having that larger space with separate entrances and yards. That desire is driving that part of the market.

That’s one change that came about during the pandemic. Do you think we’ll see other changes that rose during the pandemic continue on even after COVID-19 cases fall?

Stevens: We have seen a desire from renters for fewer touchpoints to get into and out of their homes. We’ve also seen a huge growth in pet ownership throughout COVID. Both of those seem like they will stick around. And, of course, it looks like people will continue renting single-family homes, too. They don’t want the financial responsibility of owning a home but do want the benefits of private yards and private spaces.

Stofflet: The younger demographic that is looking into this end of the market doesn’t have the savings built up to go out and acquire a house. Renting a single-family

What about the possibility that more people will work from home even after the pandemic subsides? Is that changing the way new apartments are being designed?

Stofflet: We are seeing some retrofitting of existing amenity space to accommodate that trend. Some owners are taking large club lounge areas and dividing them into personal workspaces. For new buildings, we are seeing more flex space being included in the apartments themselves. There might be a built-in piece of furniture that can act as a desk.

We’ve talked a lot about Chicago. But what about the rest of the Midwest? Is multifamily performing well throughout the region?

Stofflet: All the major markets in the Midwest are doing well when it comes to multifamily. The sector is extremely strong.

It’s not just Chicago that is strong. We are seeing very strong multifamily activity in markets like Indianapolis and Columbus. We expect that as markets in the Southeast remain white-hot, that we’ll see more investors looking to the Midwest, to Indianapolis, Columbus, Minneapolis and Chicago. They are looking for yield. They might not be getting 6 percent or 7 percent rent growth, but they will be getting solid, stable investments.

Stevens: I am thrilled with how well Milwaukee is doing. Rents are increasing in Milwaukee. There is a drive for luxury rentals in the Milwaukee market. I’m impressed with how well that market is doing from a growth standpoint.

It seems like the future of the multifamily market, then, remains bright, right?

Stofflet: It was great to see the strength of the Midwest versus other markets. It’s exciting to see how in Chicago how quickly the rebound is occurring. That is not happening in New York or California. Chicago is the first alpha city in the country that is bouncing back from concessions and any occupancy loss. We are excited about how the Midwest is shining strong right now.

JUNE 2021

M I N N E S O TA R E A L E S TAT E J O U R NA L

17

What tops renters’ wish lists during a pandemic? A new survey points to lower rent

By Dan Rafter, Editor

W

hat have apartment renters looked for during the pandemic? A new survey suggests that an affordable place tops the list of must-haves for renters struggling through the COVID-19 pandemic.

received rent relief due to the pandemic and the fact that many have already altered their living arrangements,” Lumsden said.

Assurant found, too, that 78 percent of respondents said that they would remain in their current rental if they had the opportunity to renew their lease for a shorter period of time without seeing their monthly rent payment increase.

Assurant, a New York City-based global provider of lifestyle and housing solutions, on April 14 released the findings from its Multifamily Housing Renter Perspective Study. The study showed that renters put a priority on affordability during COVID19, with 40 percent of respondents who relocated during the pandemic saying that they moved to find a more affordable place to live.

The Assurant study found that multifamily property managers have continued to focus on health, safety and communications in recent months. The challenge?

The survey also found that there are decreased financial support options for renters.

Outside of financial concerns, survey respondents were also interested in gaining more living space. A total of 73 percent of respondents said that their most important apartment feature in 2021 is a larger living space. This is a jump of 5 percent from the 2020 survey.

And 34 percent of respondents said they moved into new units as a roommate to find a more affordable living situation.

Ryan Lumsden, president of Assurant, told Minnesota Real Estate Journal that these survey results aren’t surprising. As he says, the pandemic has hit the finances of many renters especially hard.

MULTIFAMILY (continued from page 4)

people looking for apartments downtown. That has led to some vacancies in downtown and the necessity for downtown owners to increase concessions.

At the same time, the projects being built in the suburbs now have amenities that weren’t available in those markets before. It’s pretty compelling with these new amenity packages to be out in the suburbs. And the suburbs themselves are seeing new restaurants and entertainment options. There is more life in the suburbs now than there had been historically. This has combined to make the suburbs more attractive to renters.

With the pandemic hopefully waning, what type of commercial lending business do you think NorthMarq will be seeing in the near future?

Trebil: With the interest rates where they are and the amount of capital that is out there, we expect to see a lot of refinance activity. There are still enough newer projects that are in lease-up or about to come online, too. If they finance those with standard constructions loans with a bank, as those deals fill up the natural tendency is to flip them to a more permanent loan.

That is our bread-and-butter business.

We expect that to continue. I also think we’ll be seeing more construction deals, whether with HUD or just with banks.

Lumsden pointed to another survey result as proof of this: According to Assurant, 46 percent of survey participants needed rent relief in 2020. An additional 24 percent told Assurant that they anticipate needing more financial assistance to help meet their housing needs within the next 90 days.

“While this number has substantially decreased for 2021, this can be attributed to the high number who have already

It also looks like you are seeing more investors coming from out of town to invest in commercial properties in the Twin Cities area.

Trebil: Historically, our market has been characterized by a high degree of local, long-term ownership. A handful of years ago, our market started seeing more national and foreign investors coming in on the multifamily and commercial side. That has increased. A lot of the deals that have traded lately have ended up being purchased by out-of-town buyers.

The more outside investors come in, the more acceptable a market this becomes to everyone else. It feeds off itself. The local long-term investors are still here. We still have a good core of local owners. But over the last few years, we are seeing more outof-town investors coming in.

What do you think is behind this trend?

Trebil: This is a good market. We have a large number of Fortune 500 companies.

We have an educated workforce. We don’t see the big ups and downs of other markets. The fundamentals are good. Big international and national firms that are choosing markets want enough liquidity in those markets. If they want to get out for whatever reason, they want to know that there are buyers there.

This financial struggle is represented in the survey results. The survey found that 71 percent of respondents believe that it is important that landlords offer a surety bond option as an alternative to a security deposit during the rental process.

“The one trend that we did not foresee beforehand was the need for a larger living space,” Lumsden said. “Since all indications are that many more people will continue to work virtually, at least part time, post-pandemic we think this will remain an important feature.”

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Developer of the Year

City of Fridley City of Watkins

Most Significant Investment Sale Transaction in 2020 CSM Portfolio Sale Davis Medical Office Buildings Fund Holly Center Live Active Apartments West End Office Park

Most Significant Lease Transaction in 2020 10 West End RBC Plaza Vivacity Tech

Ackerberg Reuter Walton Development Schafer Richardson

General Contractor of the Year Amcon Construction Crawford Merz Doran Companies Ironmark Building Company Knutson Construction M. A. Mortenson Company

Property Management Firm of the Year

Colliers Real Estate Management Services Cushman & Wakefield Davis Property Management Ebenezer Management Services Transwestern Zeller

Best COVID Plan Ackerberg Crawford Merz

PEOPLE AWARDS Broker Pivot of the Year

Michael Gelfman, Colliers International

2020 Superstar

Lauren Dahlke, Zeller Jackie Knight, Ackerberg Tim Jackson, Colliers International

Architect of the Year

Dean Dovolis, DJR Architecture Patrick Giordana, Synergy Architecture

Emerging Leader of the Year

Connor McCarthy, United Properties Genevieve Galligan, Cushman & Wakefield

Real Estate Lawyer of the Year Jason Thomas, Frauenshuh Phil Colton, Winthrop & Weinstine

Executive of the Year

Josh Talberg, JLL Keith Sturm, Upland Mark Kolsrud, Colliers International

Jackie Knight, Ackerberg Jean Kane, Colliers International Jon Lundberg, Ebenezer Kelly Lindquist, Artspace Mark L Evenson, Avison Young Peter Mork, Capital Partners Steve Herron, Zeller

Broker of the Year - Leasing

Property Manager of the Year

Broker of the Year - Investment Sales

Lisa Christianson, Christianson & Company Brent Erickson, Newmark Tom DeSautel, Cushman & Wakefield

Woman of the Year - Industry Executive Beth Duyvejonck, The Opus Group Jackie Knight, Ackerberg Lynnette Muhich, JLL Meghan Huber, Welsh Construction

Woman of the Year - Brokerage Jill K Rasumssen, Davis Ra’eesa Motala, Lee & Associates Sonja Dusil, CBRE

Amy Wimmer, Hines Angela Richter, Ackerberg Heather Shultz, Cushman & Wakefield Jen Nergard, Shafer Richardson Kevin Connolly, Zeller Lynnette Muhuch, JLL Mel Schultz, Clarity Commercial Stephanie Balynas, Colliers International Jim Durda, Ryan Companies

Jay Kodytek Jay.Kodytek@rejournals.com 952-405-7781

Affordable Housing

Lake Street Dwelling Landings of Lexington Millberry Apartments & The Legends at Berry Mino-bimaadiziwin Apartments The Redwell

Redevelopment - Multifamily Housing

Omni Viking Lakes Hotel

Board of Trade Lofts Carlton Lofts Cove Apartments Emerson Union Suburban Senior Housing Founders Ridge Friendship Village of Bloomington Zvago Lake Superior

Industrial / Manufacturing / Science

Greater Minnesota

Hotel Hospitality

Arbor Lakes Corporate Center Digi-Key Electronics RDO Equipment Second Harvest Heartland

Infrastructure

Panoway on Wayzata Bay

Interior Design – Retail / Restaurant / Hospitality Birke The Lynhall No. 3945 Medical - East Regions Hospital Birthing Center Rosemount Professional Building CityPlace III

Medical - West

Gillette Children's Specialty Healthcare Maple Grove Hennepin County Behavioral Health and Wellness Clinic Shakopee VA Clinic

Retail / Restaurant – COVID/Retro Fit HOM Furniture, Gabberts, & Dock86 People's Organic at MSP Airport The Cocktail Room at 18th and Central (MSP Airport)

Urban Senior Housing

Lexington Landing The Pillars of Prospect Park The Winslow West St Paul

Redevelopment / Reuse / Historic Overall

Lloyd's Construction Services Headquarters

Redevelopment - Mixed Use / Office - St. Paul 550 Vandalia Schmidt's Rathskeller

Suburban Multifamily Beacon Ridge Elmwood Apartments Birke

Army National Guard Readiness Center Bridge Plaza Child and Adolescent Behavioral Health Services Hospital Gustavus Adolphus College - Nobel Hall Expansion & Renovation Zvago Lake Superior

Interior Design – Urban Office / HQ Butler Square Ceridian Colliers Minneapolis Taft Law

Interior Design – Suburban Office / HQ

Heraeus Medical Components Office Relocation Nerdery PA Manufacturing Renovation of the Litho Building Urban Multifamily - Minneapolis Core Marquee Apartments Second + Second Sora Apartments Vesi North Loop Apartments

Urban Multifamily - Minneapolis Neighborhood Everlake (FKA "Midtown Corner") Kolo MN46 Odie Apartments The Asher Apartments

Urban Multifamily - St. Paul Five90 The Donegan Apartments

Greater Minnesota Multifamily Board of Trade Lofts Carlton Lofts The Berkman the HUE

Redevelopment - Mixed Use / Office - Minneapolis 117 Washington Butler Square Foundry 19 The Bakken Museum Remodel The Dayton's Project Two22

MONROE MOXNESS BERG NATIONALLY RECOGNIZED ATTORNEYS handling the many facets of sophisticated real estate transactions

OUR SERVICES INCLUDE: •

Purchase and sale of commercial properties

•

Financing of commercial facilities

•

Acquisition and divestitures of multi-unit transactions

•

Triple Net leasing

•

§1031 and other Tax Free Exchanges

•

REITS organization, counsel and financing

•

Title, survey and environmental due diligence

•

Zoning, land use, planning and condemnation

Visit us at MMBLawFirm.com 7760 France Avenue South, Suite 700, Minneapolis, MN 55435 T: 952.885.5999 F: 952.885.5969

A STATE FULL OF RESOURCES. A FULL-SERVICE RESOURCE TEAM READY TO HELP.

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