VOLUME 31, NUMBER 03
©2015 Law Bulletin Publishing Co.
March 2015
Duluth finds the right formula: Natural beauty, strong workforce brings in the business
By Dan Rafter, Editor
D
on Ness has been serving as the mayor of Duluth since 2007, when he won election among a field of 12 candidates. Four years later, Ness was popular enough to become the first mayor of this Minnesota city to run unopposed. This year, Ness is serving his last as Duluth's mayor, as his second term in office comes to an end. He's seen Duluth grow, from a town that people visited and left to one that is attracting a steady stream of new residents and companies.
Ness considers this to be the biggest change to hit Duluth during his time as mayor. The city -- with a population over 86,000, according to the U.S. Census Bureau -- is no longer just an industrial town. Today, it is a full-fledged business hub, attracting tech companies, medical providers, law firms and companies of all kind. At the same time, downtown Duluth, like many Midwest downtowns, is attracting new residents in growing numbers, people who want to experience urban living. They want to walk to restaurants, shops and entertainment venues. In downtown Duluth, they can do this. So as Ness prepares to leave office, he's happy, with both the present in Duluth to page 18
Expect a good year for downtown Minneapolis’ signature office tower By Dan Rafter, Editor
J
on Dahl doesn’t hesitate when asked what makes the IDS Center officer tower in downtown Minneapolis so special: “It’s the most iconic centerpiece of downtown,” he said. “It’s always been the skylinedefining building of Minneapolis.” That’s why Dahl, senior vice president of JLL Minneapolis, so enjoys his work leasing office space in this key building.
“The IDS center is the center of the universe,” Dahl said. “Everything starts at the IDS Center and goes out from there.” The IDS Center is busy today, too. Accesso Partners, LLC of Hallandale Beach, Fla., purchased the building in April of 2013. Since that time, JLL has worked steadily to fill the 57-story, 1.4-million-squarefoot building’s office space. These efforts have been successful. Since Accesso’s acquisition, 55 tenants have leased more than 424,000 square feet. In the fourth quarter of 2014 alone, tenants renewed leases covering 76,800 square feet.
Newcomers to the office portion of the building include Lazard Middle Market, which moved its headquarters into 23,300 square feet, a move that fills the entire 27th floor of the tower. Also last year, USB signed a 30,000-square-foot lease and moved more than 100 employees from Minneapolis’ Bancorp Center to the 29th and 30th floors of the IDS Center. The Crystal Court Dahl says that the building’s location is a big draw, as is its recognizable name. IDS to page 19
March 2015
Minnesota Real Estate Journal
Contents
MARCH 2015 • VOLUME 31, NUMBER 03
Page 3
Departments PEOPLE
4
NEWS
6
RESOURCE GUIDE
1
DULUTH FINDS THE RIGHT FORMULA: NATURAL BEAUTY, STRONG WORKFORCE BRINGS IN THE BUSINESS EXPECT A GOOD YEAR FOR DOWNTOWN MINNEAPOLIS’ SIGNATURE OFFICE TOWER
10
CUSHMAN & WAKEFIELD’S WEST: PLENTY OF HOT YEARS REMAIN FOR INDUSTRIAL MARKET
12
IT’S BACK! THE CUBICLE IS MAKING A BIG COMEBACK
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FACES OF NAIOP
16
TOP 10 THINGS YOU NEED TO KNOW ABOUT PHASE I ENVIRONMENTAL SITE ASSESSMENTS
22
The Minnesota Real Estate Journal (ISSN 08932255) is published monthly for $85 per year by Minnesota Real Estate Journal, 13400 15th Ave North STE C, Plymouth 55441. Phone: 952-885-0815. Periodicals postage paid at Minneapolis, MN. POSTMASTER: Send address changes to Law Bulletin Publishing Co, 415 State Street, Chicago IL 60654. Lanning Macfarland, Jr. chairman; Sandy Macfarland, CEO; and Brewster Macfarland, president. Back issues $10.00. Subscriptions are non-refundable. For more information call 952-885-0815. ©2015 Law Bulletin Publishing Co. No part of this publication may be reproduced without the written permission of the publisher.
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Minnesota Real Estate Journal
March 2015
People a division of Law Bulletin Publishing Co.
13400 15th Ave North, Suite C Plymouth MN 55441 For information call 952-885-0815
Publisher | Managing Editor Jeff Johnson jjohnson@rejournals.com Associate Publisher Jay Kodytek jkodytek@rejournals.com Consulting Editor Dr. Tom Musil tamusil@stthomas.edu Conference Manager Alan Davis adavis@recg.com
EDITORIAL ADVISORY BOARD JOHN ALLEN Industrial Equities ROBERT ANGLESON Navigator Real Estate RICK COLLINS Ryan Cos. US Inc. JEFF EATON Cushman & Wakefield/NorthMarq MARK EVENSON ULG Equis PATRICIA GNETZ US Bank TOM GUMP TAG Consulting JON HEMPEL Hempel Properties DAVID JELLISON Liberty Property Trust CHAD JOHNSON Hellmuth & Johnson BILL WARDWELL Colliers International GEORGE KLUEMPKE Braun Intertec JEFFREY LAFAVRE CBC Griffin Companies WADE LAU Founders Properties MIKE LE JEUNE Fabcon JIM LOCKHART WIPFLI DUANE LUND Exchange Realty PATRICK MASCIA Duke Realty Corp. CLINT MILLER Cushman & Wakefield/NorthMarq DR. THOMAS MUSIL University of St. Thomas WILLIAM M. OSTLUND CBC Griffin Companies WHITNEY PEYTON CB Richard Ellis MIKE SALMEN Transwestern STEWART STENDER Stewart Capital Partners
a division of Law Bulletin Publishing Co. 13400 15th Ave North Suite C Plymouth MN 55441 For information call 952-885-0815
Nancy Murdakes Brown Upland Real Estate Group is proud to announce the addition of Nancy Murdakes Brown to its brokerage division. Nancy brings 20+ years of industry experience to the table. Nancy will add to Upland’s ever-growing landlord retail service portfolio. She is recognized as one of the top retail landlord brokers in the Twin Cities market.
Mid-America – Minnesota Hires Tricia Pitchford as Senior Vice President of Leasing Minnesota, LLC is excited to announce the addition of Tricia Pitchford to the brokerage Project Leasing team. In her new position as Senior Vice President of Leasing, Pitchford will be focusing on landlord leasing with an emphasis on institutional client services. Prior to joining Mid-America, Pitchford was Senior Director of Brokerage Services for Cushman & Wakefield where she was responsible for over 475 retail transactions totaling over four million square feet of retail space. Pitchford began her career in commercial real estate in 1996 with Griffin Companies, a commercial real estate brokerage firm in Minneapolis. “Tricia is one of, if not, the best retail leasing brokers in our market. She has a national reputation as a performer with outstanding work ethic, reliability and closing stats,” said Mid-America Managing Principal Doug Sailor. “Our entire team and client base is thrilled to have Tricia as a teammate and mentor for our continued growth in superior customer service.”
NAIOP Minnesota announces CBRE’s Sonja Dusil as president Board of Directors and leadership installed for 2015 term NAIOP Minnesota, the Commercial Real Estate Development Association, announced that it has named its 2015 President, Sonja Dusil of CBRE, and most recently Cushman & Wakefield | Northmarq, to lead its newly appointed board of directors. Dusil has been a member of NAIOP since 2004, serving in a variety of committee and leadership
positions. “I’m excited to continue building on the success of our chapter, the fourth largest chapter in nation, by highlighting the value NAIOP brings as a public advocate to Minnesota’s commercial real estate industry and growing our membership,” says Dusil. “Heading into 2015, we have a healthy marketplace with many great things to be thankful for - a strong economy, low unemployment at 3.6 percent, and billions of dollars being invested into making the Twins Cities into a strong live-workplay environment.”
Steve Dombrovski Appointed ICSC's State Government Relations Committee Chair for MN/ND/SD Chapter The International Council of Shopping Centers (ICSC) was recently appointed Suntide's Steve Dombrovski as the State Government Relations Committee Chair for the ICSC Minnesota/North Dakota/South Dakota Chapter. Steve is a Principal at Suntide Commercial Realty, and his commercial real estate career has spanned nearly 43 years. In addition to sales and leasing, he specializes in retail centers and development at Suntide.
McGough Hires Real Estate Industry Veteran Hans Rasmussen named Vice President, Development McGough is pleased to announce the recent hire of Hans Rasmussen as a Vice President in the company’s Development organization. Mr. Rasmussen, a commercial real estate industry veteran, joins McGough from Robert Muir Company, where as President, he managed a two million square foot real estate portfolio and oversaw a twenty person development staff. Earlier in his career, he served as Senior Director of Real Estate Development for Opus Northwest and as a corporate real estate executive for several national and international retailers. “Hans brings a unique blend of experience, incorporating development expertise with asset management skills which enable him to immediately bring value to McGough’s customers and to our own real estate
portfolio,” said Greg Munson, Executive Vice President of Development at McGough. Hans holds a Master’s degree in Real Estate and a Bachelor’s degree in Finance from the University of Wisconsin – Madison.
Cushman & Wakefield | NorthMarq Adds Fitzgerald and Prokopanko to Office Brokerage Team Fitzgerald previously worked for Cushman & Wakefield | NorthMarq from 2002-2007 Cushman & Wakefield | NorthMarq (CWN) www.cushwakenm.com announces two new additions to its office brokerage team. They include Peter Fitzgerald, who is rejoining CWN as a senior director, and Matt Prokopanko who is joining CWN as an associate. Fitzgerald previously worked for CWN from 2002-2007 and has extensive experience in the sale and leasing of commercial property. During his career, he has represented nearly six million square feet and negotiated over 800 transactions totaling more than $600 million dollars. Fitzgerald spent the past five years at Concord Commercial Real Estate, a real estate consulting firm he had founded. Prokopanko is also joining CWN from Concord Commercial Real Estate where he worked alongside Fitzgerald for the past five years. In his role, he will be responsible for managing commercial real estate transactions as well as aiding in property marketing, financial analysis and market research. “We are pleased to welcome Peter and Matt to our company and look forward to leveraging their strong track record of office leasing and sales within our already market-leading office brokerage team,” said Mike Ohmes, executive vice president, Transaction and Advisory Services, Cushman & Wakefield | NorthMarq. Cushman & Wakefield | NorthMarq has more than 80 brokerage professionals representing investors and occupier clients in office, industrial, healthcare, retail, land and multifamily property types.
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News Dougherty Mortgage LLC Closes $17.3 Million Fannie Mae Loan for Green Oaks Apartments Dougherty Mortgage LLC, a full service national mortgage banking firm, has closed a $17.3 million Fannie Mae loan for the refinance of Green Oaks Apartments, a 384-unit multifamily affordable housing property located in Palos Hills, Illinois. The 10-year term, 30-year amortization loan was originated by Dougherty’s Austin, Texas office, for borrower Green Oaks at Palos Hills LP. Community amenities include laundry facilities, community room, playground and heated outdoor pool.
PINE TREE COMMERCIAL REALTY ACQUIRES VILLAGE OF BLAINE SHOPPING CENTER THAT’S ANCHORED BY CUB FOODS Transwestern Brokers Disposition of 221,239-Square-Foot Center on Behalf of the Seller
Minnesota Real Estate Journal
Transwestern’s Chicago office today announces it brokered the sale of The Village of Blaine Shopping Center at 4345 – 4349 Pheasant Ridge Road in Blaine, Minnesota. Pine Tree Commercial Realty LLC paid an undisclosed amount for the 221,239-square-foot center that is anchored by a Cub Foods grocery store. Transwestern Capital Markets Directors Janice Sellis and Paul Barile represented the seller, MEPT, and its real estate advisor, Bentall Kennedy. In addition to Cub Foods, the largest grocer in the Minneapolis region in terms of both square footage and sales, tenants in the 13-year-old center include Michaels, Applebee’s, Pier 1 Imports, DressBarn, Sprint, Maurices, Caribou Coffee, Bath & Body Works, GNC and Great Clips. Pine Tree Commercial Realty was represented internally in the transaction.
CBRE ARRANGES $28 MILLION FINANCING FOR COURTYARD BY MARRIOTT IN PORTLAND, OR CBRE Capital Markets’ Debt & Structured Finance team has arranged
$28 million in financing for the recapitalization of the Courtyard by Marriott, a 202-room, limited-service hotel located at 435 NE Wasco Street in Portland, Oregon. CBRE worked on behalf of the property owner, CSM CY Lloyd Center, LLC, an affiliate of CSM Corporation. The new 10-year loan was used to retire the existing CMBS financing. The borrower will benefit from a fixed interest rate below 4 percent. Financing was originated through CBRE’s correspondent relationship with Guggenheim Commercial Real Estate Finance, LLC, with funding from Midland National Life Insurance Company. The loan was facilitated by Murray Kornberg, Doug Seylar, Ben Bastian and Scott Larson of CBRE’s Minneapolis, Minnesota, office. “While there were many competitive quotes for this financing assignment, Guggenheim provided the best combination of rate and terms, allowing CSM to take advantage of a drop in interest rates to lock in a very attractive rate for ten years,” said Mr. Kornberg, Senior Vice President, CBRE Capital Markets.
March 2015
Developed in 1999 by CSM Corporation, the property is situated in the Lloyd Center section of Portland’s central business district. The property is in proximity to the historic Lloyd Center Shopping Mall, Oregon Convention Center, Veterans Memorial Coliseum and the Moda Center—home to Portland Trail Blazers. The Property has consistently been a market leader since its completion. In 2014, the hotel underwent significant upgrades to the lobby, business center, restaurant, and banquet and meeting room spaces.
MARCUS & MILLICHAP ARRANGES THE SALE OF A 124-ROOM HOSPITALITY PROPERTY Marcus & Millichap (NYSE: MMI), a leading commercial real estate investment services firm with offices throughout the United States and Canada, today announced the sale of Value Place Sioux Falls, a 124-room hospitality property located in Sioux Falls, South Dakota, according to Craig Patterson, Regional Manager of the firm’s Minneapolis office. The asset sold for $3,500,000.
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Minnesota Real Estate Journal
Jon Ruzicka, an investment specialist 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 Neville Rustomjee, an investment specialist in Marcus & Millichap’s Denver office. Gil Raben, Broker, assisted in closing this transaction. Speaking with Mr. Ruzicka, “Value Place Sioux Falls is located at 1109 South Lyons Avenue in Sioux Falls, South Dakota. It is a four-story building built in 2008 and features 124 guestrooms. This investment provided the purchaser the opportunity to acquire a recently built hotel in South Dakota’s most highly sought after hospitality market at well below replacement cost. The going in cap rate on this purchase was nearly 12 percent providing the purchaser with immediate returns while also maintaining upside potential as this hotel continues to show improving operating metrics.”
CBRE ARRANGES $5.5 MILLION ACQUISITION FINANCING FOR SOUTH POINT BUSINESS CENTER IN CHARLOTTE, NC CBRE Capital Markets’ Debt & Structured Finance (DSF) team is pleased to announce it has arranged $5.5 million in acquisition financing for South Point Business Center, a singletenant headquarters facility located in Charlotte, North Carolina. The property is an attractively designed, mission critical, 123,200 SF industrial warehouse and light manufacturing complex with a new 10 year triple-net lease. South Point Business Center is 100% leased to Specialty Manufacturing, Inc., a leading manufacturer of safety equipment and related products to the transportation industry. CBRE Capital Markets successfully secured the loan through its relationship with Woodmen of the World Life Insurance. “The borrower required a very short time period to conduct their due
March 2015
diligence and close on the sale of the property. The borrower is a repeat customer of Woodmen and they were able to close the loan on a timely basis at attractive terms,” said Doug Seylar, Senior Vice President, CBRE Capital Markets and Managing Director of the Minneapolis DSF team. The Sponsor, Founders Properties, was represented by Doug Seylar, Murray Kornberg, Scott Larson, and Ben Bastian in the CBRE DSF Minneapolis office side-by-side with Steve Heffner and Nate Sittema of the CBRE DSF Charlotte office. Founders Properties provides a full range of acquisition, financing, asset management and investment services for high-net-worth investors, continuing the legacy of sponsoring private real estate investments first started in 1997. The company’s current portfolio of approximately 80 institutional grade properties includes office, industrial, retail and mixed-use projects located throughout the United States.
CBRE ARRANGES $28 MILLION FINANCING FOR COURTYARD BY MARRIOTT IN PORTLAND, OR CBRE Capital Markets’ Debt & Structured Finance team has arranged $28 million in financing for the recapitalization of the Courtyard by Marriott, a 202-room, limited-service hotel located at 435 NE Wasco Street in Portland, Oregon. CBRE worked on behalf of the property owner, CSM CY Lloyd Center, LLC, an affiliate of CSM Corporation. The new 10-year loan was used to retire the existing CMBS financing. The borrower will benefit from a fixed interest rate below 4 percent. Financing was originated through CBRE’s correspondent relationship with Guggenheim Commercial Real Estate Finance, LLC, with funding from Midland National Life Insurance Company. The loan was facilitated by Murray Kornberg, Doug Seylar, Ben Bastian and Scott Larson of CBRE’s MinneapoNews to page 23
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Minnesota Real Estate Journal
March 2015
Cushman & Wakefield’s West: Plenty of hot years remain for industrial market By Dan Rafter, Editor
C
licking on all cylinders. That’s how Cushman & Wakefield’s Jason West describes the industrial market across the Midwest. It’s hard to argue. As West, senior director of industrial brokerage services in Cushman’s Chicago office, says, the major markets across the Midwest are all seeing significant absorption today. Vacancy rates have tumbled during the last several years. Demand for new industrial space is strong. “The industrial market is performing really well these days,” West said. A booming market West is backed up the recently released 2015-2017 industrial real estate forecast released by Cushman & Wakefield. That forecast said that the North American industrial market should continue its current hot streak through 2017.
Jason West That's good news for any brokers who work in this sector. When it comes to hot sectors, industrial today is usually second only to multi-family in the Midwest's major cities. This holds true in markets as diverse as Minneapolis, Cincinnati, Milwaukee and Chicago.
There are plenty of reasons for industrial's strong performance. The Cushman & Wakefield report pointed to the fact that businesses are hiring again, with job growth in the country predicted to top 3 million this year. That, of course, is key to the industrial market. Consumers are more likely to increase their consumption when they have jobs. When consumption is on the rise, so is the demand for more industrial space. The Cushman & Wakefield report also pointed to the rise of e-commerce as a factor in the strength of the industrial market. Retailers are now relying on distribution centers across the country to fulfill online orders. The warehouse sector, then, has now posted 19 consecutive quarters of declining vacancies, with the sector's vacancy rate standing today at 6.7 percent across the country. Cushman & Wakefield predicts that the vacancy rate in the warehouse
sector will fall to 6.3 percent nationally by the end of 2015. Cheap money West, too, points to plenty of reasons for the strength of the industrial market. On a macro level, he cites still low interest rates. “The Fed has been able to maintain rock-bottom interest-rate levels,” West said. “When the cost of money is cheap, it fuels the movement of money into a lot of different investments. Real estate has been one of the recipients of this cheap money. Industrial real estate has been attractive to investors. It has performed well during the last 10 years, even during the down turn. It’s not surprising that much of this money would flow into this sector.” The low vacancy rates in the industrial sector across the Midwest is now fueling more spec and buildto-suit construction, West said. Many companies simply can’t find Industrial to page XX
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Minnesota Real Estate Journal
March 2015
It’s back! The cubicle is making a big comeback By Dan Rafter, Editor
Workplace introverts, it's time to celebrate: The cubicle is back.
P
lenty of companies still embrace the open-workspace concept, creating entire floors with not a single cubicle wall to be found. But many others are finding that their workers want more privacy than open-air floor plans provide. Because of this, many companies are moving back to the traditional cubicle formula. Mason Awtry knows this. And he should; He's president of Chicago's Rightsize Facility Performance, a national office interiors and facility services firm that provides furniture to clients moving to new offices. This means that he stays on top of new trends in office layouts. And during the last three to four months, he's seen a steady stream of companies moving back to individualized workspaces. As he sums it up, the cubicle is "back in fashion."
This means that many companies are moving away from what Awtry calls the open-air system of office layout. In this layout, most cubicle walls are removed, and employees work in open areas, in full view of everyone else. This layout is supposed to inspire
creativity and collaboration. It works for many companies and employees. But it's not the right layout for every office or office worker. "About 30 percent of the workforce is still made up of introverts," Awtry said. "These workers need
their own territory. Management might want a collaborative environment. But there are a lot of jobs that don't require collaboration. Everything from accounting and technical jobs to customer service people who serve external clients, these jobs often don't require collaboration." Those companies that are moving back to cubicles, though, aren't always returning to the cubicle of old, the one surrounded by 8-by-8 10-foot panels. Today's modern cubicle walls usually stand up to 54 inches tall. And modern cubicles usually feature some sort of glass element. These cubicles provide privacy, then, but also prevent employees from walling themselves completely off from their co-workers. Consider the modern cubicle a happy medium between the world of wallless workspaces and the cubicle mazes so often derided by workplace critics. How strong is the demand today for the semi-traditional cubicle? Awtry says that Rightsize sold 800 Cubicle to page 21
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Minnesota Real Estate Journal
FACES of NAIOP PAUL REINKE President Silver Oak Development
Q. What is your background, and what led you to become involved in commercial real estate, and more specifically, development? A. My first taste of the real estate business was digging ditches in high school and even college, for my dad, who was a plumbing contractor. I earned a degree in construction management from Mankato State in 1981, and then went to work for the design/build general contractor Ryan
Construction as a project engineer. In the mid 80’s I relocated to Rochester and worked for Weis Builders, Inc. doing marketing and sales. When I came back to the twin cities I moved into corporate real estate, working on the design, construction and furnishing of new offices for American Express/ IDS across the country, which I did for nine years. I later joined the Haugland Company as director of development, leaving after
March 2015
Paul Reinke, president of Silver Oak Development, based in Oakdale, is typical of NAIOP Minnesota’s top leadership group---deeply involved and fully committed. A long-time Chapter member, Reinke is also a third-term member of the Oakdale City Council, where he has been a key player in that community’s successful redevelopment of its highly visible properties. He and Carol, his wife, have a college age son. For NAIOP Minnesota, he has meshed his hands-on knowledge of how local governments interface with their citizens with his role as Chair of the Public Policy Committee’s Transparency Initiative, a four year- long effort to identify and address the real drivers behind rising property taxes. The Chapter is reintroducing proposed legislation in the current session calling for uniform, readily understandable reporting statewide by local governments to taxpayers on their spending and budgeting decisions, as the key to identifying and understanding the real causes of the constant calls for greater revenues and increased property taxes. He is also Oakdale’s representative on the Gateway Corridor Commission, responsible for planning of a transit route stretching from Union Depot in St Paul to the St. Croix River.
16 years to form my own firm, Silver Oak Development, in 2013. Q. How do you differentiate Silver Oak from other development companies? A. Our mission is simply to create and manage profitable real estate developments for our clients and for our own account. We’ve targeted four areas where we believe we can make a difference—healthcare and multifami-
ly development; providing development management and owner representation services to investor clients; developing for our own portfolio; and to a limited degree, providing property management services. Development management is really our special niche within the market. NAIOP to page 20
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Minnesota Real Estate Journal
Marcus & Millichap predicts big year for hotel industry in 2015 Plan to spend time in a hotel this summer? You’re far from alone. Marcus & Millichap reports that the hotel industry is poised for a big 2015 as consumers find themselves with more money to spend on discretionary items, including overnight trips. Marcus & Millichap says that hotel occupancy rates will hit 65.2 percent in 2015. That’s a strong number. It’s up from 64.4 percent in 2014 and ranks as one of the highest levels since Marcus & Millichap began tracking hotel occupancy rates. Another key indicator that is on the rise? RevPAR. If you don’t work in the hotel industry, you might not be familar with this term. But it stands for revenue per available room, and it’s one of the most important indi-
cators of the industry’s health. According to Marcus & Millichap, RevPAR will rise to $79.32 for 2015. That’s up 6.8 percent from 2014, when this figure stood at $74.28. At the same time, overall revenue wil grow 8.1 percent for 2015 in the hospitality industry, according to Marcus & Millichap. The reasons for this improvement? There are several. Marcus & Millichap, though, says that gas prices are a key factor. The cost of gas has fallen. Marcus & Millichap says that by one estimate lower gas prices will save the average household $750, money that they can spend on other items.
March 2015
RJM Construction to manage development of Portland Tower condo project in downtown Minneapolis
RJM Construction, a Minneapolisbased general contractor, has been selected as the construction manager for Portland Tower, a mixed-use condominium project at South Eighth Street and Portland Avenue South in downtown Minneapolis.
A 17-story, 338,000-square-foot building, Portland Tower will include underground and above-ground parking, retail space and 112 individually owned units. Site preparations are underway, with the entire building anticipated to be complete in the summer of 2016. RJM Construction will manage the core and shell construction. The individually owned condominium units will be completed by Portland Tower, LLC. Portland Tower is the next project by Jim Stanton. He has completed eight other condominium projects in Minneapolis, including the most recent, Stonebridge Lofts. In addition to RJM Construction, project partners include Oertel Architects, civil and structural engineer BKBM Engineers, Northland Mechanical and Parsons Electric.
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Minnesota Real Estate Journal
March 2015
Duluth From page 1
Duluth and what he predicts will be its future. "I am so excited about the interest we've seen companies take in Duluth," Ness said. "And it's exciting to see the number of people who want to live here today. Young people are interested in living in a community like Duluth that has a strong sense of place, a strong sense of vision, a unique place with unique opportunities. Duluth provides that." Duluth has a historic downtown. Sitting on Lake Superior, it boasts rare natural beauty. Outdoor recreation is a priority here, with the planned Duluth Traverse Trail System expected to bring a 100-mile single-track mountain bike trail to the city by 2017. "Young professionals love these kinds of amenities," Ness said. "They attract them." A growing city How popular is Duluth becoming among young professionals? According to the most recent information from the Census Bureau, the 25- to 34-yearold demographic here has grown by nearly 25 percent in the last five years. And, as Ness says, these are not college students who arrive in Duluth for class and then leave the city once they graduate. These are young people who are coming to Duluth in steady numbers to live and work. "They like the energy of what is happening here," Ness said. "Employers are seeing that. The employers want to be in a place like Duluth that attracts the talent they are seeking." Chris Eng, director of business and economic development, says that Duluth's hot streak is no simple fad. The city has positioned itself to succeed on a long-term basis, Eng said. "Over the last couple of decades, Duluth has been known as an industrial town, one that has been stagnant or even in decline in some areas," Eng said. "But that's not the case. That narrative overlooks all the new development activities that are taking place here. The mayor has been successful in promoting Duluth as a good place to raise a family or start a business in or invest in." Once Ness started selling Duluth, officials here realized a truth: It wasn't a hard sell. Eng says that Duluth can offer benefits that few other cities can. As Eng says, on a Tuesday afternoon at 4:30 p.m., you can be sailing on the lake. If you'd rather ski or snowboard, you can be on the slopes. If you like to ride mountain bikes, you can be riding along one of Duluth's trails. "If you want to get out and enjoy nature, it is all right here," Eng said. "There is no long commute to get to the lake or the slopes. You come home from work, change and head out. Not many places in the United States can
say that. That is an opportunity, right here in Duluth." A growing business community The recreational amenities are top attractions here. But what makes Duluth's growth truly sustainable is the commitment that both new and existing companies are making to the city. Clothing retailer Maurices is making what might be the most important current investment in Duluth. The company is building a new headquarters building here, one that will stand 11 stories, take up an entire city block and comprise 200,000 square feet when complete. The new office building, at 425 W. Superior St. in downtown, could hold up to 600 employees. Demolition work on the former KDLH and Palladio buildings has already been completed, making way for construction of the new Maurices headquarters building, which planners hope to complete in December of this year. "We are so proud to be building our new headquarters in downtown Duluth, where we have been for 80 years," said George Goldfarb, president of Maurices, in a written statement. Currently, Maurices occupies about 150,000 square feet in three downtown Duluth buildings. There's also BlueStone Commons development. In 2013, this development across the street from the campus of the University of Minnesota Duluth opened with a 99-unit apartment complex, BlueStone Lofts. In 2014, the development added a retail portion, the Shops at BlueStone. In 2015, developers plan to add six new shops here and begin construction on 120 new apartment units.
Harbor Bay Real Estate Developers is also making an investment here, announcing plans last year for a $36 million mixed-use luxury multi-family and retail project on London Road and 21st Ave. E near downtown. Construction is expected to start soon on the project's 148-unit apartment building, a project that Ness says will bring some relief to people searching for new rentals in the city. Aviation manufacturer AAR Corp. has also made a commitment to Duluth. The company in 2014 reached an agreement with Air Canada to keep that carriers' Airbus narrowbody heavy maintenance work at AAR's Duluth overhaul base through late 2017. AAR opened a fourth line to boost its capacity at the facility. Ness says that he's not surprised that
businesses such as Maurices are making such a big commitment to Duluth. "Having their headquarters in Duluth allows Maurices to find high-quality, dedicated employees," Ness said. "The same reason has kept AAR here. AAR selected Duluth because of our ability to deliver on their workforce needs. We made a strong case that AAR's mechanics -- who are highly skilled and could punch their tickets anywhere -- would want to live in Duluth and have access to the outdoor recreation and natural beauty here."
March 2015
IDS From page 1
Then there’s the Crystal Court, the retail component of the tower. Dahl says that the retail center is almost like a public park for downtown Minneapolis, albeit an interior one. “It’s a congregating point for businesses and people,” Dahl said. “It’s also a must-see destination when you come to Minneapolis.” In fact, Dahl says that there really are no unusual challenges involved in leasing space at the IDS Center, expect for the large volume of tenants that do business from the building. Dahl says that the IDS Center holds 130 office tenants. This means that there are always spaces rolling. “It’s management’s job to keep all the new and existing tenants happy,” Dahl said. Dahl also had plenty of praise for Accesso Partners, saying that the company has pumped a significant amount of money into the building since purchasing it in 2013. Much of the money has gone to improvements that the public doesn’t see – new rooftop HVAC units, new roofs, improved windows. But Accesso has spent on two highly visible projects at the building: The IDS Center will debut a new fitness center and conference center this month. Dahl said that the conference center will be an especially important space for smaller tenants who don’t necessarily want to build out a larger meeting space on their own. Maybe these tenants need a conference room once or
Minnesota Real Estate Journal
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twice a month. With the IDS Center’s new conference room, they can reserve that space for these rarer meetings. The fitness center will be a draw, too. Tenants will be able to offer the fitness room to their employees. This makes the IDS Center more appealing to office users, as it provides companies with one more amenity.
Page 20 NAIOP from page 14
Q. What is ‘development management’—and how is it different from traditional construction management? A. Development management is upstream from construction management, and can be pretty much allencompassing in terms of its involvement in the successful delivery of a project. We have much greater responsibility for a project’s success than a CM. Depending on the client’s needs we engage and manage all of the required disciplines—architecture, engineering, construction, legal—as well as negotiate all of the entitlements, coordinate lender relations and financing, as well as monitor and manage every aspect of construction through to completion. Q. What sets Silver Oak apart in terms of your skills and capabilities? A. We’re unique in the varied experience we bring to our clients’ projects and needs—everything from our ability to work hand-in-hand with top corporate management and our extensive general contracting competencies, to our expertise in working with all kinds of consultants including interior designers, phone and broadband providers, furniture and artwork consultants, and managing company moves. We also know how to get things done in working with local governments. As a sitting council member for the City of Oakdale, I have a unique perspective from both sides of the table on the negotiations surrounding approval of new developments, including all the aspects of funding, tax abatements and TIF, and how they work inside City Hall. Q. Which markets are your primary focus? A. Primarily Minnesota—the Twin Cities—and select areas of North Dakota.
Minnesota Real Estate Journal
Q. What are some of your current projects and clients? A. Our current major projects are the $25 million expansion of Southdale Medical Center in Edina, and development of a new hospital for PrairieCare Health Systems in Brooklyn Park, both for our client, IRET Properties, a wholly-owned subsidiary of Investors Real Estate Trust of Minot, North Dakota. The Southdale Medical Center expansion includes a four-story, 57,000 square foot medical office building scheduled for completion in June and a 1,300 vehicle parking ramp. PrairieCare, an affiliate of the University of Minnesota’s School of Medicine, is a 50-bed adolescent psychiatric hospital, to be completed in August. We recently also completed major luxury apartment projects in Rochester and Bismarck, North Dakota. Q. Why are you targeting primarily healthcare and medical office buildings? A. With healthcare facilities we find ourselves marrying two different disciplines: one is enhancing patient services by working closely with the designers and architects to improve the patient experience; the other is to design and build in a way that enables the healthcare provider to deliver those services effectively and at a consistent high competency level. Developing these facilities, and making them work through a team effort, carries a much-heightened sense of responsibility, and the satisfaction level is extremely high as well. Q. What trends are you observing in the healthcare industry? A. A significant trend, in my view, is the increased number of specialties with which the interior designers assist the provider in delivering a great outcome while minimizing the downside risks. It goes beyond operational efficiencies to
providing a framework for a more intuitive, mistake-free delivery of healthcare services. The aging of the population has also changed the physical premises. The architecture and design of these facilities has become so good in capturing the ease of the patient in coming to the clinic. Q. What about multifamily? What do you see there? A. I don’t think we’re at the saturation point, although there seems to be some saturation in terms of higher rents, and in certain locales or building types—student housing, for example. But I do see a somewhat vicious cycle favoring even more apartment construction. As an example: for many people just coming out of college, their high student loan burdens are affecting their ability to be underwritten for favorable financing, in terms of ever being able to buy a house. I’m concerned that in the near-term they can’t foresee ever affording to save enough money to make a down payment. And that will keep feeding the demand for more rental housing.
March 2015
opment, Q. What kind of year do you think 2015 will be for commercial real estate? What could the Minnesota legislature do to make it better? A. I believe it will be a huge year in terms of development dollars. The real challenge for the development community, though, will be how to gain access to the limited labor pool. And that’s a challenge for every industry. Today’s young adults may not understand the current high tech nature of manufacturing, or the value of being a skilled craftsman in the construction industry. It’s a serious problem for our state and our economy. As for legislative action, policymakers could do three things: first, relax the tax rate on businesses, second, for transportation, put the emphasis on dedicating the existing fuel tax to the care and maintenance of our existing highway and bridge system, and third, make it easier for taxpayers to understand how government spends our money by requiring easier to understand reporting.
Q. Any other sectors where you see potential? A. I think well-designed and well located mixed use development will always have potential – especially in areas guided for transit oriented devel-
INVITATION TO BID Sale of 2642 University Avenue, St Paul .68 acre and 42,035 Gross Sq Ft Office/Warehouse Bldg On LRT Green Line at Westgate Station Bid Deadline: Friday, April 3, 2015 University of Minnesota - Real Estate Office www.realestate.umn.edu reo@umn.edu
March 2015
Minnesota Real Estate Journal
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Cubicle from page 12
cubicles in Chicago last month alone. And these cubicles are going to a wide range of companies. Awtry said that he sold about 100 to a law firm, 40 to a technology/data-storage firm in the suburbs and 76 to an insurance firm. "The cubicle is making its way back in. It's on its way back," Awtry said. Those companies that are adding cubicles to open-air floor plans are doing so for one main reason, Awtry said: They want their employees to be more productive. Awtry points to an entertainment company in downtown Chicago. Such a company -- filled with creative types -- would seem to be ideal for the open office concept. But the company instead has requested a shipment of cubicles from Rightsize. Why? "Their specific comment was that they needed more privacy," Awtry said. "Their employees needed to be less distracted." It's true that the cubicle has long been derided by office workers. But here's the truth: Many of these same office workers missed their cubicles once they were taken away. Many found, too, that they work more efficiently when they have at least a small space to call their own. "Although the concept of the open office, Google-like space is one that people find aesthetically attractive, it does not necessarily hit the functionality requirements for every company," Awtry said. So if you do miss your former cubicle? Don't despair. It might be coming back.
Industrial from page 10
the industrial space they need in the major cities of the Midwest. Because of this they have to build spaces that suit their needs. And developers are watching the low industrial vacancy rates in Midwest cities. They are inspiring them to take on their own spec industrial projects. Several Midwest markets – places such as Louisville and Indianapolis – have seen a big influx of spec industrial construction today. The good news is that that these spaces have been filling quickly after construction crews finish building them. “Spec and build-to-suit activity has been fairly robust in the last 12 to 24 months,” West said. “When you compare today to that time period from 2008 through 2012, you can see a big difference. Spec and build-to-suit activity was tempered back then. Starting in 2013 and 2014, it really began accelerating. Part of that is supply
and demand. The other part is the over-supply of capital looking for industrial investment opportunities.” In the metropolitan Chicago area alone, West says, there are is now more than 12 million square feet of new industrial projects that are under construction. And West says that he only expects this figure to rise. What tenants are looking for What amenities are coming with this new industrial construction? What features are tenants looking for from newly built industrial space? West says that 36-foot ceiling heights are now a must-have for most potential clients. This has increasingly been the case in most major markets. The big cities in the Midwest, including Chicago, are now catching up to this trend, West said. Tenants are also looking for more efficient lighting, with LED lighting, now that the cost of
it has dropped, becoming the new standard, West said. A growing number of tenants also expect that new industrial space will be LEED-certified, while others are looking for an increase in parking. The parking issue is becoming a greater focus thanks in part to the rise of e-commerce, West said. “The way products are being distributed, packaged and handled means that companies need more labor at a lot of their distribution buildings,” West said. “Because of this, the parking counts that tenants need are getting higher.”
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lis, Minnesota, office.
NorthMarq Capital’s Denver office finalizes $79 million permanent financing for 222 Hennepin Avenue in Minneapolis, Minnesota NorthMarq Capital’s Denver office arranged permanent financing of $78.99 million for 222 Hennepin Avenue in Minneapolis, Minnesota. Constructed in 2013, the property consists of 286 apartment units in a six-and seven-story, midrise building with a 20,000 sq.ft. Whole Foods Market on a portion of the ground level, wrapping a four-level parking structure. Residential parking is provided on a three level, climate-controlled parking garage while Whole Foods has dedicated underground parking. Apartment amenities feature a large, distinctively-appointed rooftop area comprised of outdoor pool, skyline terrace, gourmet grills, fireplace, entertaining spaces, bocce ball court, as well as Zen courtyard, club and yoga studio, skyline lounge, Jag Club (a 2,000 sq.ft. clubroom with full kitchen, billiards and TVs), wine room, coffee lounge, board room, secure bike storage, private storage space, guest suite and a private, offleash dog park. Greg Benjamin, senior vice president; and Jeff DeHarty, associate producer, arranged the financing for the borrower, a division of Weidner Investment Services, Inc., a Seattle-based, privately-held owner of multiple multifamily properties. Ben Katon is vice president of finance and acquisitions and Kevin Colard is director of acquisitions. This is the 60th loan NorthMarq’s Benjamin has arranged for Weidner since 1995.
MARCUS & MILLICHAP ARRANGES THE SALE OF A 2,960-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 a Starbucks, a 2,960-square foot net-leased property located in Destin, Florida, according to Craig Patterson, Regional Manager of the firm’s Minneapolis office. The asset sold for $3,261,057. Mike Marzinske, Adam "AJ" Prins and Matt Hazelton, investment specialists in Marcus & Millichap’s Minneapo-
Minnesota Real Estate Journal
lis office, had the exclusive listing to market the property on behalf of the seller, a private investor. Kirk Felici, Broker and Regional Manager of the firm’s Miami office, assisted in closing this transaction. Speaking with Mr. Marzinske, “Despite having just seven years remaining on the lease, we were able to achieve a 5.2 percent cap rate for our seller.” Starbucks is located at 10410 US Highway 98 West in Destin, Florida.
Dougherty Funding LLC Closes $12.7 Million Loan for Aeon MP3 (“Minneapolis Preservation Portfolio Project”) Dougherty Funding LLC has closed a $12.7 million tax credit equity bridge loan as part of Aeon’s Minneapolis Portfolio Preservation Project. The Borrower will utilize 4% Low Income Housing Tax Credits (“LIHTC”) as well as Federal and State Historic Tax Credits (“HTC”) as a portion of the equity required for the acquisition and renovation of the property portfolio. The purpose of the subject Loan is to provide bridge financing until receipt of the capital contributions from the sale of the LIHTCs and the Federal HTCs, as well as the receipt of State HTC proceeds. The project includes substantial renovation of ten affordable projects located in the Elliot Park and Loring Park neighborhoods of Downtown Minneapolis. As part of the project, 566 existing units will be renovated and 16 new units will be constructed. Dougherty Funding LLC serves as lead lender and servicer for the loan, arranged for Aeon. The renovations focus on increasing energy efficiency, enhancing security, and repairing or replacing mechanical systems. This includes replacing windows, heating systems, and plumbing fixtures; repairing roofs; and updating kitchens, bathrooms, and flooring. The renovations will incorporate Aeon’s standards for sustainability and historically sensitive design.
Ryan Companies US, Inc. Announces Sale of 222 Hennepin to Weidner Apartment Homes Ryan Companies is proud to announce the sale of 222 Hennepin to Weidner Apartment Homes of Seattle
for $109,000,000. Three years ago, Ryan and co-developer The Excelsior Group began the process of acquiring and redeveloping the blighted corner of Hennepin and Washington Avenues into a Whole Foods Market, and 286 luxury apartments. On completion, the project was awarded Best Overall Real Estate Development by the Minneapolis/St. Paul Business Journal, and today it acts as the most prominent gateway project for the vibrant and growing North Loop neighborhood. As an example of Ryan’s long-standing commitment to urban renewal and redevelopment, 222 Hennepin is also the first in a series of similar projects now under construction that include Vintage in St. Paul (Whole Foods Market and 210 apartments), and Downtown East (a $400M office and residential and retail project adjacent to the new Vikings stadium). We are proud to have been involved in the project with the City, the Excelsior Group, Invesco Real Estate and CBRE, we are excited for what the sale says about the profile of Minneapolis on the national stage, and we look forward to additional opportunities to participate in the renewal and redevelopment of our neighborhoods and communities.
CBRE AWARDED LEASING FOR THE SHOPS AT WEST END IN ST. LOUIS PARK, MN CBRE Retail Services announced today it has been awarded leasing for the retail at The Shops at West End in St. Louis Park, Minnesota. The Shops at West End is a 2.2 million SF mixed-use development with 346,000 SF of retail located at the intersection of I-394 and Highway 100 in St. Louis Park. Current retailers at this development include; Cub Foods, ICON Theaters, Yardhouse, Crave, Rojo Mexican Grill, Bonefish Grill, Anthropologie, lululemon and White House|Black Market. The CBRE Retail Services Team of David Daly, Eric Sheaffer and Amy Maclaren of CBRE|UCR will lease the project for American Realty CapitalRetail Centers of America, Inc. “We are thrilled to be selected for this high-profile project. Its proximity to downtown Minneapolis, as well as being centrally located between the twin cities and easily accessed by two major highways, provide many opportunities for us to further enhance the shopping, dining and entertainment experience at this center,” said David Daly.
March 2015
CBRE TO MARKET NORTH OAKS FINANCIAL CENTER CBRE’s leasing team of Jerry Driessen and Joe Hughes is pleased to announce they have been awarded the exclusive leasing contract for the North Oaks Financial Center at 100 Village Center Drive. The property is located next to the high household income demographic housing area of North Oaks, with numerous surrounding amenities as well as great visibility and accessibility from Highway 96 via I35E, I-35W and I-694. Built in 1991, the building has two floors with a total square footage of 28,300. The building can accommodate a new tenant of up to 6,200 SF on the first floor and as small as 897 SF on the second floor. In addition to the existing large conference room facility, new common area renovations are in process for the building. “We are excited to work with CBRE on this assignment,” says Mary McNellis, President of St. Croix Real Estate. Mary McNellis is one of the original developers of the North Oaks Financial Center back in 1991, along with Steve Wellington of Wellington Management, and continues to play a major role in managing the property. “This is the largest office vacancy with a North Oaks’ address and with the improving health of the market, the space should lease fast,” says Jerry Driessen of CBRE.
Cushman & Wakefield | NorthMarq Represents Oaks Properties, LLC in Sale of 108-Unit Apartment Building in St. Paul Cushman & Wakefield | NorthMarq (CWN)’s www.cushwakenm.com multifamily capital markets team of Lance Steiger and Robert Dulin represented Minneapolis-based Oaks Properties, LLC in the $7.5 million sale of California Drive Apartments, a 108-unit complex at 1203 California Ave West, St. Paul, Minn. to Hornig Companies, Inc., a family-owned real estate investment and management company located in Minneapolis, Minn. This transaction closed on February 27, 2015. According to CWN’s Associate Director Steiger, the complex was highly sought after and garnered interest from both in-state and out-of-state investors. “During our three-week marketing period, we toured the property
March 2015
Minnesota Real Estate Journal
with 30 investors and received 15 offers,” said Steiger. California Drive Apartments is comprised of nine separate buildings with 108 apartment homes and is located in St. Paul between Como Park and Rosedale Shopping Center. The property won four Minnesota Multi-Housing awards, including the most prestigious MADACS Award for overall property excellence in 2000 and again in 2003.
CBRE ARRANGES $18,100,000 FINANCING FOR THE BURR RIDGE VILLAGE CENTER IN BURR
RIDGE, IL CBRE Capital Markets is pleased to announce it has arranged $18.1 Million in financing for the Burr Ridge Village Center, a life-style retail center located in Burr Ridge, IL. The property is located adjacent to Interstate-55, approximately 20 miles west of downtown Chicago. The Burr Ridge Village Center opened in November 2007 and features a mix of local brands and high-end national retailers, including Bath & Body Works, Chico’s, Francesca’s Collections, Jos. A. Bank, Kohler Waters Spa, Starbucks, Sunglass Hut, Verizon Wireless, Victoria’s Secret, and White
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House/Black Market. Restaurants within the Property include Cooper’s Hawk Winery & Restaurant, Wok N Fire, and Topaz Café, which was named one of Chicago’s top 25 restaurants. CBRE Capital Markets successfully secured the three year loan at a competitive interest rate for an entity managed by Founders Properties, LLC (“Founders Properties”). The loan was originated through the CBRE Capital Markets correspondent relationship with Voya Investment Management, formerly known as ING. “This loan is the perfect vehicle to allow the borrower to execute their business plan,” said Murray Kornberg with CBRE.
The Sponsor, Founders Properties, was represented by CBRE’s Debt & Structured Finance group led by Murray Kornberg, Doug Seylar, Scott Larson, and Ben Bastian. Founders Properties provides a full range of acquisition, financing, asset management and investment services for high-net-worth investors, continuing the legacy of sponsoring private real estate investments first started in 1997. The company’s current portfolio of approximately 80 institutional grade properties includes office, industrial, retail and mixed-use projects located throughout the United States.
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