MREJ Nov 2016

VOLUME 32, NUMBER 11

©2016 Law Bulletin Publishing Co.

November 2016

The downtown Minneapolis landscape is transforming

by Brent Erickson Cushman & Wakefield|NorthMarq

D

Singles’ Day record more evidence: Consumers love shopping online

by Dan Rafter

S

mart retailers know that they can’t fight it: Consumers love shopping online. Savvy retailers, then, are focusing on a combination of brick-and-mortar and online strategies to remain relevant these days. Just look at Walmart, which, of course, focuses on its stores, but also boasts a robust online platform that allows consumers to order just about anything over the Web. Chinese e-commerce site Alibaba recently proved just

how powerful online sales have become. Since 2009, the company has celebrated a fake holiday called Singles’ Day, a sort of anti-Valentine’s Day created by young, single Chinese consumers. Alibaba each year encourages single consumers — not that the site will turn away romantically engaged buyers, too — to buy from the ecommerce site as a way to celebrate Singles’ Day. This Singles’ Day, Nov. 11, Alibaba retailers sold $17.8 billion worth of gross merchandise volume, according to the company. That is an increase of more than 32 percent

owntown Minneapolis is developing a multiple personality disorder, and that’s an overwhelmingly good thing.

At every corner of the city’s CBD, Erickson there’s more going on than a typical person can remember.

Continued interest in new development and redevelopment projects has spurred new growth, with entire districts with distinct personalities popping up where there had previously been underutilized properties or vacant land.

The result is that Minneapolis’ CBD is growing in size and attracting more people than ever before. Both in the commercial real estate world, and life in general, this isn’t the downtown previous generations were used to.

East Town: A neighborhood rises Look at an aerial photo of Minneapolis, and it’s easy to spot the biggest change in the city of the past several

Alibaba to page 22

Downtown to page 20

Trump won: What does that mean for commercial real estate?

by Dan Rafter

N

ow that the shock of the presidential election is over, it’s time to ask the big question: How will a Donald Trump presidency impact the commercial real estate industry?

No one knows the answer yet, of course, but experts are weighing in. And

President-elect Trump

the consensus so far? A Trump presidency, and a Republican-controlled federal government, shouldn’t slow the positive momentum that commercial real estate is enjoying today.

The change in the White House could even provide another boost to that momentum, depending on which forecasts you read.

Marcus & Millichap recently pub-

lished its own special report looking at the election and what it means to the men and women in the commercial real estate industry. The news was largely positive.

On the plus side, Marcus & Millichap said that the U.S. economy should continue to grow as the new president takes office. As the company says, the U.S. Trump to page 22

November 2016

Contents

Minnesota Real Estate Journal

NOVEMBER 2016 • VOLUME 32, NUMBER 11

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Departments PEOPLE

4

NEWS

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THE SECRETS TO REVIVING STRUGGLING DOWNTOWNS?

Minnesota Real Estate Journal (ISSN 08932255) Copyright © 2016 by the Minnesota Real Estate Journal is published for $85 a year at 12 times per year by Jeff Johnson, 13700 83rd Way North, Suite 206, Maple Grove, MN 55369. Monthly Business and Editorial Offices: 13700 83rd Way North, Maple Grove, MN 55369 Accounting and Circulation Offices: Jeff Johnson, 13700 83rd Way North, Maple Grove, MN 55369 Call 952-885-0815 to subscribe. For more information call: 952-885-0815.

POSTMASTER: Send address changes to Minnesota Real Estate Journal, 13700 83rd Way North, Suite 206, Maple Grove, MN 55369

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MINNESOTA REAL ESTATE HALL OF FAME INDUCTS THREE NEW MEMBERS

©2016 Law Bulletin Publishing Co. No part of this publication may be reproduced without the written permission of the publisher.

16

WANT YOUR STRIP CENTER TO THRIVE? FIND A GROCERY ANCHOR

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COMMUNITY SPOTLIGHT: ARCTIC CAT TO EXPAND ST. CLOUD FACILITY AND ADD PROVING GROUNDS

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SINGLES’ DAY RECORD MORE EVIDENCE: CONSUMERS LOVE SHOPPING ONLINE THE DOWNTOWN MINNEAPOLIS LANDSCAPE IS TRANSFORMING TRUMP WON: WHAT DOES THAT MEAN FOR COMMERCIAL REAL ESTATE?

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Minnesota Real Estate Journal

November 2016

News a division of Law Bulletin Publishing Co.

United Properties names McGrath chief risk officer 13700 83rd Way N, STE 206 Maple Grove, MN 55369 For information call 952-885-0815

Publisher | Managing Editor Jeff Johnson jjohnson@recg.com Associate Publisher Jay Kodytek jkodytek@recg.com Consulting Editor Dr. Tom Musil tamusil@stthomas.edu Conference Manager | Art Director | Graphic Designer | CE Specialist Alan Davis adavis@recg.com

EditoRial advisoRy BoaRd JOHN ALLEN Industrial Equities ROBERT ANGLESON Navigator Real Estate JEFF EATON Cushman & Wakefield/NorthMarq MARK EVENSON Evenson and Young PATRICIA GNETZ US Bank TOM GUMP TAG Consulting DAVID JELLISON Liberty Property Trust CHAD JOHNSON Hellmuth & Johnson BILL WARDWELL Colliers International JEFFREY LAFAVRE IAG Commercial WADE LAU Founders Properties MIKE LE JEUNE Fabcon JIM LOCKHART WIPFLI DUANE LUND Exchange Realty

Former Marquette Financial Companies executive joins United Properties executive team United Properties announced today that Bruce McGrath has joined United Properties as the company's chief risk officer, effective Nov. 1, 2016.

In his new role, McGrath, 55, will be a member of the United Properties executive team and will be responsible for leadership of enterprise risk management across the organization's development, investment and senior housing businesses. He will report to Eva Stevens, president and chief operating officer, who co-manages the company with Bill Katter, president and chief investment officer. ath brings more than 20 years of experience in the area of risk management, including tenure with the Pohladowned Marquette Financial Companies prior to its sale to UMB Financial in 2015. Since that time, McGrath has served as UMB's executive vice president and chief regional credit officer, responsible for the credit function and portfolio risk at both the holding company and subsidiary level, including specialized lending units and commercial real estate, as well as commercial and retail banking.

“United Properties today manages a significant balance sheet, including a new capital infusion from our owners to help expand our Cherrywood Pointe senior housing,” Stevens said.

“We are very pleased to welcome Bruce back to the Pohlad organization, and to United Properties, and know that he will be an important partner as we address the increasing complexity of our business model and our plans to grow,” she said.

CLINT MILLER Cushman & Wakefield/NorthMarq DR. THOMAS MUSIL WILLIAM M. OSTLUND CBC Griffin Companies WHITNEY PEYTON MIKE SALMEN Transwestern

a division of Law Bulletin Publishing Co. 13700 83rd Way N, STE 206 Maple Grove, MN 55369 For information call 952-885-0815

CBRE to Market Repositioned 801 Marquette Avenue Building in Downtown Minneapolis CBRE, as exclusive leasing agent for Franklin Street Properties’ (“FSP”) 801 Marquette Avenue project, announced plans today on behalf of FSP to renovate and reposition the four-story, 130,000square-foot brick building dating back to the 1920s located on the corner of Marquette Avenue and 8th Street in the

heart of downtown Minneapolis.

The renovation, which is currently underway, will enhance the building’s turn-of-the–century brick façade while opening the interiors to create dramatic tenant spaces featuring high concrete ceilings and floors. Featuring all new building systems, 801 Marquette promises to be the first high quality “creative office building” of its type in the heart of the Central Business District.

“801 will combine the look and feel of a converted North Loop office building, with all the added services, amenities, parking and skyway convenience that comes with being in the core of downtown Minneapolis,” said Mark McCary, senior vice president at CBRE, who leads the team responsible for marketing the property for lease.

Available for occupancy in April 2017, the 801 Marquette building will help support both the brand and culture of tenant organizations looking for new ways to drive and enhance employee engagement and productivity.

“This will not be anything like your father’s traditional office building,” McCary added.

At the heart of the renovation at 801 Marquette is the renovated five-story Atrium, which will become a multipurpose hub for the two-building project.

The transformed Atrium will be a place where tenants and guests are encouraged to work, socialize, meet and wind down in a warm, welcoming environment offering comfortable seating with food and drinks available throughout the day and into the evening.

801 Marquette and the Atrium are part of a larger project which includes the adjacent 121 South 8th Street office tower. Together, these spaces provide tenants with a broad range of updated and expanded amenities including three skyway connections, a 215-stall parking ramp, a new outdoor rooftop terrace, a staffed, private fitness center, a state-ofthe-art training and conference center, secure bike storage, common area wifi, a wide variety of restaurants and 24hour security.

FSP is the owner of the two office buildings, parking ramp and shared Atrium. Mark McCary and Larissa Champeau of CBRE’s Minneapolis office are exclusively marketing the property for lease.

Vikings and Minnesota Sports Facilities Authority Point Person on U.S. Bank Stadium Construction Moves to Doran Companies Doran Companies announced today that Scott Stenman has joined their management team to lead Doran Construction and Architecture as Chief Executive Officer (CEO). Stenman is coming to Doran from Hammes Company, where he most recently managed the design and construction of U.S. Bank Stadium for the Minnesota Sports Facilities Authority in partnership with the Minnesota Vikings.

“Scott has a wealth of large-scale construction, design and project management experience that will prove invaluable to us in this time of rapid growth,” said Kelly Doran, founder and principal of Doran Companies. “Over the last five years we have grown from 30 employees to 140, added over 3 million square feet of properties that we manage, developed a strong designbuild offering and are currently developing another thousand units of multifamily housing over the next three years. Scott’s industry knowledge, experience managing teams and attention to detail will support our current business plans and allow me to concentrate on property development and business growth.”

Stenman brings 25 years of development and construction experience to Doran Companies, having managed over $2.2 billion of large-scale projects for Hammes, the Related Companies, Vail Resorts Development Company and Turner Construction.

According to Doran Companies Chief Operating Officer, Anne Behrendt, Stenman’s newly created position as CEO of construction and architecture will allow their Senior Vice Presidents, Scott Casanova and Paul Kolias, to focus on pre-construction and operations, respectively – an arrangement Behrendt says will enhance Doran’s client services. Behrendt said that Stenman will begin his role immediately and will help lead a planned expansion into the Denver market.

Michele Kelm-Helgen, Chair of the Minnesota Sports Facilities Authority, said “Scott was instrumental in keeping U.S. Bank Stadium on schedule and

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News within budget. His leadership skills and attention to detail helped guide the ownership group through the design and construction process while working closely with the design and construction teams.”

Dean Thomson, shareholder in the firm of Fabyanske, Westra, Hart & Thomson, P.A. said “In my many years of practice, I’ve rarely met someone who combines the talent, industry, and integrity that Scott possesses, not only in construction, but in design and development as well. I think Doran Construction is very fortunate to have been able to hire Scott as its new CEO.”

MARCUS & MILLICHAP ARRANGES THE SALE OF A 2,558-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 Caribou Coffee & Einstein Bros Bagels, a 2,558-square

Minnesota Real Estate Journal

foot net-leased property located in Grand Forks, North Dakota, according to Craig Patterson, regional manager of the firm’s Minneapolis office. The asset sold for $1,762,000.

Sean Doyle, Matthew Hazelton, Adam "AJ" Prins and Cory Villaume, investment specialists in Marcus & Millichap’s Minneapolis office, had the exclusive listing to market the property on behalf of the seller, a developer. The buyer, a partnership, was secured and represented by Mark Ruble and Jamie Medress, investment specialists in Marcus & Millichap’s Phoenix office.

Regional Manager, Craig Patterson assisted in closing this transaction.

“This transaction is another great example of investor demand for welllocated properties leased to strong tenants. Our marketing campaign generated multiple offers. The property ultimately sold to an out-of-state investor from the West coast,” says Hazelton.

Caribou Coffee & Einstein Bros Bagels is located at 1225 South Columbia Street in Grand Forks, North Dakota.

Dougherty Mortgage LLC closes $21.7 million Fannie Mae loan for Berkshire of Burnsville Dougherty Mortgage LLC, a full service national mortgage banking firm, recently closed a $21.7 million Fannie Mae loan for the refinance of Berkshire of Burnsville, a 205-unit market rate multifamily apartment property located in Burnsville, Minnesota. The property offers 1-, 2- and 3-bedroom townhomes that include washers and dryers, dishwashers, granite counters, walk-in closets and free private garage parking.

Community amenities include an outdoor swimming pool, whirlpool, fitness center, sauna, party room and a barbecue area. The Fannie Mae 10-year term, 30year amortization loan was arranged through Dougherty’s Minneapolis office for borrower Echo Park Limited Partnership.

DOUGHERTY MORTGAGE LLC CLOSES $4.3 MILLION FANNIE MAE LOAN FOR GATES OF NEW HOPE

November 2016

Dougherty Mortgage LLC, a full service national mortgage banking firm, recently closed a $4.3 million Fannie Mae loan for the refinance of Gates of New Hope, a 32-unit market rate multifamily apartment property located in New Hope, Minnesota. Located near Medicine Lake and minutes from downtown Minneapolis, the property features an outdoor recreation play area with barbecue and picnic tables, an exercise room and heated indoor parking. Individual units include full-size washers and dryers, large walk-in closets, stainless steel appliances, kitchen pantries and granite countertops. The 12-year term, 30-year amortization Fannie Mae loan was arranged through Dougherty’s Minneapolis office for borrower Gates of New Hope L.L.C.

Utah-Based Wasatch Storage Partners makes big play for self-storage space in Twin Cities Plans to renovate 105,830 square feet of warehouse space will fill community need Wasatch Storage Partners (WSP), a

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Utah-based real estate investment firm specializing in self-storage acquisitions and development is pleased to announce their entry into the Twin Cities market with the purchase of two existing warehouse buildings in White Bear Lake and Lake Elmo, Minnesota. The recently closed transactions represent a total of 105,830 square feet of existing space with planned conversion to self-storage facilities with additional self-storage and RV parking expansion planned at the sites.

The acquisitions include the purchase of a vacant 59,462 square foot property at 1828 Buerkle Road in White Bear Lake. Formerly serving as a FedEx Ship Center, the facility will be renovated and expanded with a second floor totaling 120,000 square feet of climate controlled storage space. The facility will also have approximately 100 secure RV parking spaces to lease.

The company also purchased 46,368 square feet of warehouse space at 9200 Hudson Boulevard in Lake Elmo with plans to convert the existing space to climate control self-storage, and add an

Minnesota Real Estate Journal

additional 35,000 square feet of selfstorage (climate and non-climate controlled) and add 150 secure RV spaces.

“We recognized a real need in both White Bear Lake and Lake Elmo for both climate control self-storage and secure RV space,” states Bret Durfee, CEO of WSP. “The redevelopment of these facilities will bring much needed self-storage product to the community and we are excited to introduce our unique platform to the Twin Cities.”

“The Twin Cities has few areas that are underserved for self-storage and properly zoned sites are rare,” explains Max Holmes, Associate with Colliers International | Minneapolis-St. Paul.

“These properties were unique in that the sub-markets were underserved and both were properly zoned for storage.

Wasatch recognized and seized the opportunity.”

Based in American Fork, Utah, WSP was formed in August of 2015. Bret Durfee, CEO, and Scott Wyckoff, Chief Development Officer, were heavily involved in both acquisitions and development efforts at Extra Space Storage

prior to launching Wasatch Storage Partners. They were involved in more than $1 billion in storage acquisitions and development projects across the country during their time with Extra Space. With the addition of the two properties in the Twin Cities, WSP now has five (5) properties at some stage of development with one (1) operating self-storage property.

WSP’s other projects are in Colorado, Arizona, Tennessee and New York. The company also offers self-storage consulting services for development feasibility.

Max Holmes from Colliers International | Minneapolis-St. Paul represented Wasatch Storage Partners in the purchases.

Dougherty Mortgage LLC closes $9.3 million Fannie Mae loan for Ridge at Southcross Dougherty Mortgage LLC, a full service national mortgage banking firm, recently closed a $9.3 million Fannie Mae loan for the acquisition financing

November 2016

of Ridge at Southcross, a 212-unit market rate multifamily apartment property located in San Antonio, Texas. The 12year term, 30-year amortization, 3-year interest only Fannie Mae loan was arranged through a partnership with Old Capital Lending and Dougherty’s Vienna, Virginia office for borrower 4700 Stringfellow, LLC.

Dougherty Mortgage LLC closes $8.5 million Fannie Mae loan for Wausau Portfolio Dougherty Mortgage LLC, a full service national mortgage banking firm, recently closed an $8.5 million Fannie Mae loan for the refinancing of the Wausau Portfolio, consisting of five market rate multifamily apartment properties located in Wausau, Wisconsin: Apple Apartments, Black Berry Circle Duplexes, Cedar Creek Apartments, Eva Estates Luxury Apartments, and Eva III Luxury Apartments. The 10-year term, 30-year amortization Fannie Mae loan was arranged through Dougherty’s Oak

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Minnesota Real Estate Journal

Brook, Illinois office for borrower OWS, LLC.

Dougherty Mortgage LLC closes $8.9 million Fannie Mae loan for The Monterey Apartment Homes Dougherty Mortgage LLC, a full service national mortgage banking firm, recently closed an $8.9 million Fannie Mae loan for the acquisition financing of The Monterey Apartment Homes, a 159-unit market rate multifamily apartment property located in Irving, Texas. The 7-year term, 30year amortization, 1-year interest only Fannie Mae loan was arranged through a partnership with Old Capital Lending and Dougherty’s Vienna, Virginia office for borrower Elmstone Group OP2, LLC.

Marcus & Millichap ARRANGES THE SALE OF a 10,186-SQUARE FOOT RETAIL PROPERTY Marcus & Millichap (NYSE: MMI), a leading commercial real estate invest-

ment services firm with offices throughout the United States and Canada, today announced the sale of Great Plains Center, a 10,186-square foot retail property located in Chanhassen, MN, according to Craig Patterson, regional manager of the firm’s Minneapolis office. The asset sold for $4,820,000.

Sean Doyle, Matthew Hazelton, Adam "AJ" Prins and Cory Villaume, investment specialists in Marcus & Millichap’s Minneapolis office, had the exclusive listing to market the property on behalf of the seller, a developer.

The buyer, a limited liability company, was secured and represented by Sean Doyle, Adam "AJ" Prins, Cory Villaume and Matthew Hazelton, investment specialists in Marcus & Millichap’s Minneapolis office.

“The center, built in 2015, was fully leased to a mix of national and regional tenants. The transaction was a great example of continued demand for welllocated retail centers with a solid tenant base. Our marketing efforts generated multiple offers from across the country.

The property ultimately, sold to a local

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investor” says Hazelton.

Great Plains Center is located at 7905 Great Plains Boulevard in Chanhassen, MN.

Cushman & Wakefield NorthMarq Represents Fair State Brewing in Lease for New St. Paul Location The Midway Distribution Center is located at 2075 Ellis Avenue in St. Paul.

The Cushman & Wakefield NorthMarq team of Todd Hanson, Jason Sell and Chris Weirens has finalized a new 42,000 sq. ft. lease for Minnesotabased Fair State Brewing Cooperative in the Midway area of St. Paul.

The team negotiated the lease for space at the Midway Distribution Center, located at 2075 Ellis Avenue. The property is just north of University Avenue and approximately a fiveminute drive from the University of Minnesota.

Weirens represented Fair State in lease negotiations, while Hanson and Sell represented landlord Colony Capi-

November 2016

tal’s Colony Industrial Fund.

The lease marks an expansion for Fair State, which operates a tap room in Northeast Minneapolis. The new space will be used for production and storage, but will occasionally be the site of tours and other events. The company expects the location to be operational by early 2017.

“This is a great location for Fair State Brewing to grow their business,” said Weirens. “The Midway area is undergoing revitalization and several nearby industrial properties have been occupied by brewing companies, making this part of the metro something of a beer hotspot.”

Fair State Brewing Cooperative follows a membership model, meaning members share ownership, voting rights and can stop into the taproom in Northeast Minneapolis for exclusive discounts and other rewards. The company’s goal is to put the natural connection between the brewer and the community to create something rewarding for all. You can learn more about their mission at www.fairstate.coop.

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Minnesota Real Estate Journal

November 2016

The secrets to reviving struggling downtowns? Taller buildings, narrower streets and on-street parking can help

by Dan Rafter

I

t was plain to see: The downtown business strip that had so long thrived in Birmingham, Michigan, was struggling.

Bob Gibbs, an urban planner and chief executive officer of Birminghambased Gibbs Planning, pointed to the luxury mall that had opened two miles away and had grabbed the major tenants that had lined downtown Birmingham for years. At the same time, the city had lost 25 percent of its population during the prior decade.

Another challenge? The city of Birmingham had built a large ring road that circled downtown. This led cars away from the center of the city, and its businesses, hurting the shop owners who relied on downtown traffic to bring in retail sales.

Retail sales had dropped by about 30 percent in downtown Birmingham, Gibbs said. Vacancies dotted the business strip.

Downtown Birmingham – which served a city of more than 20,000 located about halfway between Detroit

and Pontiac – needed a change.

That was in the late 1990s. Today, though, downtown Birmingham is thriving. The city’s central business strip has been lauded as one of the most walkable and pedestrian-friendly downtowns in the country. And for Gibbs, the successful revitalization of downtown Birmingham should serve

as a blueprint to other urban areas struggling to provide a boost to their struggling downtowns.

“The downtown was really hurting.

But city officials were willing to make changes,” said Gibbs, one of the leaders of downtown Birmingham’s revitalization program. “Today, the downtown continues to do well. It was all

about making it a walkable destination point.”

The changes that Birmingham city officials approved might have been controversial at the time. But they worked. And they could provide a strategy for other cities hoping to boost Revival to page 17

November 2016

Minnesota Real Estate Journal

Page 13

Minnesota Real Estate Hall of Fame Inducts Three New Members

T

he Minnesota Real Estate Hall of Fame today inducted three new members: the late Walter C. Nelson, a mortgage pioneer; developer Fred Wall, who owned and renovated the historic Foshay Tower; and attorney Mark Westra, an acclaimed expert in commercial real estate.

The Minnesota Real Estate Hall of Fame was established in 2010 by the Shenehon Center for Real Estate at the University of St. Thomas Opus College of Business. Members of the Hall of Fame are chosen for their outstanding business performance, high standards of ethics and community activities.

One hundred and fifty real estate professionals attended the awards breakfast, which was held at the Golden Valley Golf and Country Club. The event was emceed by Robert Strachota, president of the real estate valuation firm Shenehon Company. Patrick Ryan, president and CEO of builder/developer Ryan Companies U.S., gave the keynote address. Dr. Stefanie Lenway, dean of the Opus College of Business, also spoke at the event.

The morning wrapped up with Herb Tousley, director of the Shenehon Center for Real Estate, presenting scholarships to Andy Bollig, Jacquel Nissen, Mackenzie Damerow, David Lund, Matt Michalski, and Mackenzie Damerow, the winners of this year’s Boyd Stofer & Ken Stensby Real Estate Student Competition. The competition challenges undergraduate and graduate students to develop a business concept that has potential to become a viable, high-growth business or make a meaningful contribution to existing real estate companies.

About the inductees Walter Nelson achieved the status of legend during his decades as one of the most successful mortgage bankers in the region and the nation. He helped found Eberhardt Mortgage Co. (now CB Richard Ellis) and the National Mortgage Bankers Association. Nelson also chaired, directed or presided over virtually all of the principal real estate organizations in the Twin Cities, and he volunteered his time in leadership capacities, including as director of the Minneapolis YMCA and president of the Minneapolis Downtown Council.

Fred Wall began his career in real estate with the Spring Co., at the time most prominent residential real estate company in the Twin Cities. After several years, Wall and another top Spring Co. manager, Carl Martin, formed the Wall-Martin Co. and Norseman Realty.

Following Martin’s death in 1968, Wall formed the WallCo and brought on investors and a board of high-profile professionals. In partnership with Trammel Crow Co., Wall developed the Normandale Office Park in Bloom-

ington. Wall is a generous donor to the University of Minnesota Landscape Arboretum, and the Alice & Fred Wall Family Foundation supports projects relating to religion, human services and health.

Mark Westra has been called a super lawyer, lawyer of the year, number-one lawyer, top-rated lawyer, and one of the best lawyers in America by a

wide range of organizations and publications. He has represented some of the largest lenders, developers, owners and investors in the Twin Cities area, who rely on his expertise in real estate finance, zoning, land use and leasing.

Westra has also been an instructor at Hamline Law School and he has mentored many younger real estate attorneys.

About the Minnesota Real Estate Hall of Fame The Minnesota Real Estate Hall of Fame honors, preserves and perpetuates the names and outstanding accomplishments of real estate leaders who have made significant contributions in real estate and demonstrated care and concern for improving their communities as business leaders.

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Minnesota Real Estate Journal

November 2016

ReScape Award Ceremony Celebrates Transformation of Sites Using Innovative Solutions to Significant Environmental Issues Minnesota Brownfields ReScape Award was given to three projects demonstrating innovation, collaboration, and exemplary results in revitalizing formerly contaminated land.

Awards were given in the categories of Economic Impact, Community Impact, and Environmental Impact at a ceremony that took place at Aria in Minneapolis on November 17, 2016, from 4:30 – 7:30 p.m. A finalist in Small City Impact was celebrated along a People’s Choice Award that celebrated the first five years of ReScape by selecting a top project from past nominees. “The Mac Hyde Award”, an individual award named after industry visionary, Maclay “Mac” Hyde, was awarded to an individual that demonstrated high ethical standards; commitment to serving the community and the environment; excellence in brownfields redevelopment; and a genuine interest in helping and mentoring others in the field.

The call for project nominations closed on September 22. From the project nominations, 10 finalists were

selected and showcased at the ReScape Awards ceremony. Winning projects featured transformation of abandoned or underutilized sites using innovative solutions to significant environmental issues.

AWARD WINNERS ReScape Community Impact Award winner: New Brighton Exchange The New Brighton Exchange redevelopment transformed a 100-acre site with a complicated industrial history.

For over 100 years, a range of industrial and commercial uses had occurred involving 15 historic properties, including a former petroleum refinery, two rendering plants, a solvent-recycling facility, railroad spurs, two former dumps that received municipal and demolition wastes, an asphalt mix plant, stockyards, and gasoline stations. The complex land use history resulted in extraordinary environmental challenges to redevelopment, including numerous petroleum leak sites, two state superfund sites, and concerns with landfill gas. Long-range

planning and commitment by City leaders, both current and past, was the key to success for the eventual New Brighton Exchange redevelopment, and required weathering economic cycles and changing market preferences. The City championed a plan for residential, commercial, and park spaces that would position New Brighton for the future with new jobs and housing choices.

tons of hazardous waste requiring outof-state disposal. The overall result is a project which is wholly integrated into the fabric of east Downtown and includes the first urban park added to the City in modern times, the 4.2 acre The Commons. The economic benefits are primarily measured in jobs consolidated and created by the project.

Approximately 6000 jobs are anticipated for the Downtown East area.

ReScape Economic Impact Award winner: Downtown East The Downtown East project is like no other mixed use development in the modern history of the City of Minneapolis. Developed on the site of two large legacy printing facilities, the Bureau of Engraving and Star Tribune, the project required unique and extensive public- private partnerships. The project required the abatement and disposal of over 2,000 cubic yards of asbestos and hazardous building materials and excavation and in-state landfill disposal of over 184,121 tons of contaminated soils and debris and 92

ReScape Environmental Impact Award winner: Pier B Waterfront Resort The Pier B Resort is Duluth’s largest private development on the Lake Superior waterfront since the 1960s. The project remediated and restored a twoacre slip impacted with legacy industrial contaminants. The end result is a unique, 140-room 84,500 square foot resort hotel with a restaurant, pool and conference space, boat docking area, board walks and patios with fire pits, and a one-of-a-kind pedestrian bridge connecting Pier B to Bayfront Festival ReScape to next page

November 2016 ReScape from previous page

Park across Slip 2. To realize success, the project had to overcome a number of challenges, including tight space constraints, an aggressive development timetable, and multi-agency environmental coordination between the U.S. Army Corps of Engineers, MN Department of Natural Resources and Minnesota Pollution Control Agency, as well as a State Historical Preservation review. Pier B Resort incorporated innovative solutions to the extreme site challenges, including the beneficial reuse of dredge material to cap contaminated sediment in a water-filled boat slip, while at the same time contributing to the stabilization of failing dock walls.

ReScape Small City Impact Award finalist: Columbia Heights Library The City of Columbia Heights created a new vibrant public place on a former dump site with past buildings that had become blighted. The storm water management system’s granular and aggregate filter materials were used to provide clean cover within much of the landscape area of the site. The new Columbia Heights Public Library supports revitalization of the heart of the community’s central business district and sustainable economic activity. The project strengthens a walkable community and is a well positioned hub that will spark revitalization of the community’s “Main Street”.

People’s Choice Award Winner: The winner of the first People’s Choice Award is Clyde Park, a 10-acre redevelopment just west of downtown Duluth. The project transformed a site with a long history of heavy industrial use as an iron foundry and machining.

Redevelopment of the site has restored the area an economic hub, focal point and source of pride for the City. Clyde Park now hosts the Duluth Heritage Sports Center, the Iron Clyde restaurant and event venue, and the Duluth Children’s Museum, the nation’s fifth oldest children’s museum, has its new home on the property.

The Mac Hyde Award of Brownfields Leadership winner: The Mac Hyde Award is given annually in the name of the late Maclay Hyde, a pioneering environmental attorney who died in 2013. The Mac Hyde Award honors an individual who demonstrates some of Hyde’s unique traits: high ethical standards, commitment to serving the community and the environment, excellence in brownfields redevelopment, and a genuine interest in helping and mentoring others in the field. This year’s winner, John Herman, was one of the central figures in Minnesota real estate development and environmental policy. He has worked on countless environmental preservation projects, as well as countless development projects. Perhaps most significantly, he “wrote the book” on brownfields development in

Minnesota Real Estate Journal

Minnesota by conceptualizing and successfully lobbying for the passage of the Land Recycling Act. John is active in his community, having done significant pro bono work for decades, and having served on the Metropolitan Council’s Transportation Advisory Board, the Trust for Public Land’s Minnesota Advisory Board, the Legislative Citizen's Commission on Minnesota Resources as Commission-

er, and the Permanent School Trust Fund Advisory Committee .

About Minnesota Brownfields Minnesota Brownfields is a 501 (c) (3) non-profit organization whose mission is to promote, through education, research, and partnerships, the efficient cleanup and reuse of contaminated land as a means of generating eco-

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nomic growth, strengthening communities and enabling sustainable land use and development. For more information about Minnesota Brownfields, visit www.mnbrownfields.org.

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Minnesota Real Estate Journal

November 2016

Want your strip center to thrive? Find a grocery anchor

by Dan Rafter

W

hat’s the most important factor in whether a retail strip center succeeds or fails? For John Johannson, senior vice president in the Minneapolis-St. Paul office of Colliers International, it comes down to one key: a center’s anchor tenant.

Johannson said that strip centers with strong anchor tenants tend to perform well. Those without them?

They’ll struggle.

“By far, the number-one thing we look at is the anchor tenant,” Johannson said. “We don’t get involved with retail strip centers much if they don’t have a very nice anchor. Without that, it’s pretty tough to get the adjoining tenants to go to a center.”

Are there exceptions? Rarely.

Johannson said that those strip centers located at busy intersections in strong markets might be able to succeed without a strong anchor. But even then, the odds are lower, he said.

“Sometimes you can be in a very dominant trade area with an unanchored center that does well because the surrounding retail serves as an anchor,” Johannson said. “But that is a

daunting proposition. If I have a lesser market or a less desirable site, you’ll have a hard time getting that lead anchor to build off of. And without that lead anchor, it’s awfully difficult to attract the stronger retail tenants.”

There are several strong anchor ten-

ants out there. But Johannson said that investors look first for groceryanchored strip centers.

Such centers are the most reliably successful, Johannson said, because the grocery stores attract such a steady stream of shoppers.

“Whether a pension fund, investment fund or REIT, most of the investors focus on grocery-anchored centers,” Johannson said. “That grocery use is so important. It encourages Grocery to page 18

November 2016 Revival from page 12

their downtown business strips.

The city agreed on a 20-year plan, beginning in 1996, that would gradually introduce improvements – both those designed to slow traffic and increase parking in downtown Birmingham and boost the charm of the strip’s streetscape – throughout the two decades.

That plan was scheduled to come to its official conclusion in 2016. And the result? It’s been a positive, with the downtown booming today.

Big and small steps The city took several steps that eventually paid off for downtown Birmingham. First, it added on-street parking on the main road traveling through downtown Birmingham. It also benefited from five parking garages spread around the edges of downtown. This might not seem like such a big deal.

But it did allow the city to raise the price of on-street parking in downtown Birmingham.

Gibbs said that the city boosted its parking-meter rate to $1.50 an hour in downtown Birmingham. This encouraged more shoppers to park in one of the parking garages, which were less expensive and charged nothing at all for the first two hours that cars parked inside them. It became less likely that business owners would now park their cars in front of their own shops all day, leaving street spaces open for those shoppers who didn’t mind paying the higher meter fee but who also wouldn’t take up a parking space all day long.

Traffic calming was important, too.

The ring road surrounding downtown was a four-lane highway with wide radiuses, allowing cars to zip along at 35 miles-an-hour. The city removed the road’s outer two lanes and put in parallel parking. This made it easier for pedestrians to cross the street and reach downtown.

A key zoning change made a difference, too, Gibbs said. Previously, builders could only erect one- to twostory buildings in downtown Birmingham. That proved unwieldly, with the price of real estate making it too expensive for developers to build such small structures.

The city changed the zoning to allow buildings of up to five stories if the first story of these buildings was devoted to retail, Gibbs said.

This made a big difference. Gibbs said that downtown Birmingham saw a building boom after this change, with about 30 projects built in the area in just two to three years.

“There was a giant uptick in demand for new retail and housing,” Gibbs said. “It had been hampered before that because of the zoning issues. Many cities are afraid of five-story zoning.

They want to keep it to two or three.

That is a mistake. Some cities refuse to go with five-story zoning. Many won’t do traffic calming. They don’t like narrow streets and on-street parking. But changing those can make a positive dif-

Minnesota Real Estate Journal

ference.”

The city invested, too, in a streetscape program, to make downtown more charming to pedestrians, and a downtown park complete with its own fountain.

“This made the area an attractive hub for people to gather in,” Gibbs said. “It was all very positive.”

Gibbs said that the numbers speak for themselves. Birmingham’s office vacancy rate downtown is in the 3 percent range, he said. Throughout the area’s suburbs, that rate is a far higher

25 percent.

The retail market here is thriving, too, Gibbs said, with specialty shops and restaurants powering the strip’s rejuvenation.

“The downtown has been filled in with restaurants, smaller shops and a nice night scene,” he said.

There are two cinemas downtown and a 25o-room luxury hotel that help, too.

“Southeast Michigan doesn’t have a major downtown shopping destination like Boston and San Francisco have,”

Page 17

Gibbs said. “Without a major downtown shopping district, Birmingham and other small towns around here are the alternative to a core shopping district downtown. So a lot of second-tier specialty national chains do well in downtowns like this.”

Gibbs pointed to retailers such as furniture store West Elm and women’s athletic wear company Lululemon as examples of second-tier national chains that do well in downtowns such as the one serving Birmingham.

Page 18

Minnesota Real Estate Journal

Community Spotlight

Grocery from page 16

Arctic Cat to Expand St. Cloud Facility and Add Proving Grounds GREATER Expansions The expanded, innovative facility is being designed in a way that promotes real-time exchanges between colleagues through cutting-edge technology and open collaboration spaces. Arctic Cat foresees being able to bring their product to market faster by developing prototypes that can be tested right outside at what will be a nearly 40-acre proving ground. The acreage features natural elevation and wetlands, which will be kept intact.

“The beautiful land was an extra,” says, Tracy Crocker, Vice President & General Manager of Global ATV Business. “And it brings an efficiency in that we’ll be able to have product photoshoots for our catalog right here in Minnesota, saving the company time and money.”

Crocker estimates that the 50 or so positions this facility has promised to open will be quickly filled by the abundant talent pool that exists in St. Cloud.

“This area is affordable and accessible, and gives employees the lifestyle

they’re looking for,” he said.

Cathy Mehelich, St. Cloud Economic Development Director, noted that “Arctic Cat is essentially doubling-down on its footprint and operations in St. Cloud with an estimated $7 million investment in expansions.”

As for the process Arctic Cat went through to secure their development land with the City of St. Cloud, Crocker was quick to share his gratitude. “Cathy and everyone at the City were a pleasure to work with,” added Crocker. “They facilitated our process in a very business-friendly way, which I appreciated.”

Arctic Cat’s project is expected to begin as early as this fall.

The recent property sale to Arctic Cat marks the eighth sale in the I-94 Business Park, located off I-94 and Opportunity Dr./County Rd. 75 exit. Other notable corporate tenants in the business park include, ATS, New Flyer of America, Aubright, and FedEx. Click here to view other details regarding the I-94 Business Park.

the community to visit that shopping center multiple times a week. A dominant grocer, preferably on a new lease of 15 to 20 years and one of the industry leaders, is what you want for your anchor.”

Johannson points to his own shopping behavior as an example. He says that he stops by his local grocery store three to four times a week.

“It is unavoidable,” he said. “There is a reason that these investment firms that purchase properties say they like playing in the grocery sphere. Historically, one of the most stable investment vehicles is the grocery-anchored shopping center.”

Like other retail pros, Johannson says that he continues to see the impact of Amazon on the strip centers dotting his market. And that impact?

It’s not been a positive one.

It’s not easy for strip centers to find unique tenants to fill their spaces.

That’s because retailers selling such items as clothing, shoes and books simply can’t compete with Amazon.

So those retailers aren’t opening new spaces, leaving the owners of strip centers to scramble to find the right tenant mix.

“That is one of the challenges when

November 2016

it comes to filling the non-anchor space or smaller spaces in a strip center,” Johannson said. “The number of unique retailers who are selling something that you can walk out of the store with is continuing to shrink.

They are few and far between now.

The small ready-to-wear women’s fashion apparel retailer? Places like Dress Barn? They are just about gone.

How about a small shoe store? Today, it’s mostly DSW and Shoe Carnival, the big guys.”

Today, strip centers are devoting more of their space to medical offices and service providers. Johannson said that there are very few true retailers left who will rent out smaller spaces in a strip center today.

“Think of dental and eye-wear shops, chiropractors, nail and hair services,” Johannson said. “Those are now the kind of users that are increasingly filling space in strip centers.”

Page 20

Downtown From page 1

years: U.S. Bank Stadium.

The $1.1 billion project, which has been paired with the City of Minneapolis’ $20 million-plus Commons park project to the west just beyond a highly used light rail station, has created a district on its own that has drawn nearly $2 billion in other private and public investment.

The result is a brand-new neighborhood dubbed East Town, complete with just about everything you could ask for.

Workers in the area are mainly coming from the $300 million Wells Fargo regional headquarters development, which contains about 1,000 employees in 1.2 million square feet of space. Soon, more workers will come from the $225 million Hennepin County Medical Center expansion on the southeast end of the neighborhood.

All the development has fueled demand for new entertainment, hospitality and dining options, and those options are sprouting quickly all over the area.

Hundreds of housing units are popping up in East Town, with apartment projects such as Edition and East End offering highly amenitized rentals, while Portland Tower and other developments provide for-sale condominium units.

Minnesota Real Estate Journal

The hospitality sector has already seen a Radisson Red added to the East Town fold, and more is on its way with a Marriott Moxy, Canopy by Hilton and others soon to start construction.

The neighborhood will only get more livable with a Trader Joe’s grocery store and great neighborhood eateries and bars like McKenzie Roe, Erik the Red and others popping up elsewhere.

With all the amenities in East Town creating popular places to eat, live, go to games and concerts, we expect that office demand will only follow. There aren’t many options today, but with one building already on the way and others under renovation or on the drawing board, that sector could be one to watch for growth in East Town.

The North Loop gaining refinement as office destination The North Loop neighborhood in Minneapolis has already established itself as a top place to live, work and shop in the Midwest, if not beyond.

Apartment units alone have increased nearly five-fold since 2010.

But until recently, it was hard to find a place in the area to move an entire company. With new properties opening up for office uses and others starting or nearing construction, that’s about to change.

As much as 800,000 square feet of

new office construction is expected to break ground or open to its first tenants within a four- or five-block radius in the North Loop. That includes T3, the brickand-timber office building that has already attracted a potential tenant, Amazon.com.

With ongoing intense leasing demand for this type of space in the North Loop, there’s little doubt that there will be plenty of continued interest from companies to move into the area. United Properties, Schafer Richardson and developer Ned Abdul are each planning warehouse-style offices in the North Loop as well, each totaling around 200,000 square feet.

As those properties near opening, other companies are already establishing themselves as new tenants nearby.

Arctic Cat moved about 200 jobs into 55,000 square feet in the Western Container building, which had sat for years underutilized. In similar developments, marketing firm GdB will lease the entire former Gardner Hardware building in Washington Avenue, and it’s been reported that Amazon will commit to a large chunk of space in the T3 building.

It’s not just office gaining steam in the neighborhood, either. In The Washington, a Washington Avenue property known best as a former adult novelty store, Bonobos plans to open a showroom for men, adding yet another ground-floor retail use to the neighborhood’s arterial street.

In the hotel sector, the boutique Hewing Hotel will open in the next few months, and it’s been reported that West Elm is looking for a site to open a hotel of its own.

Traditional CBD reinvents itself So what about the downtown Minneapolis you know and love, along Nicollet Mall? There’s plenty going on there, too.

Crews are hard at work on the $50 million overhaul of the mall, Minnesota’s main street. When the project wraps in 2017, the expected result is a focal point for the city and the area.

Some retailers and property owners are preparing for the transition already: Nordstrom Rack plans to open a malladjacent store in the IDS Center, the YMCA Minneapolis will open a completely revamped center in the former Gaviidae Common and companies such as Xcel Energy and CenterPoint Energy have relocated their regional headquarters to the mall in recent months.

The traditional core of Minneapolis remains the strongest area for lunch options, thanks to the skyway system and the majority of the area’s food trucks parking on main thoroughfares.

Some trucks have even parlayed their success into bricks-and-mortar spaces in the skyway, such as Velee Deli and Green and the Grain.

For traditional CBD office buildings, it’s a tale of two ends of the spectrum.

Class-A and premier properties continue to lease as well as they have in recent

November 2016

memory. For Class-B and lower buildings, the name of the game is repositioning.

Properties such as 510 Marquette have undergone extensive renovations and reopened with new amenities, and more work is underway or to come at buildings including the TCF Bank building, the 15 Building, Baker Center, Northstar Center and others.

The result is a wider mix of property types in the CBD, meaning a traditional Class A location can be home to office space that feels like it belongs in the North Loop.

Northeast Minneapolis emerging as “next”?

It wasn’t long ago that Northeast Minneapolis’s main offerings were established bars and restaurants and a thriving arts scene.

But the area is growing into more of a housing hotspot, with many flocking to live just across the Mississippi River from the traditional core of downtown, and just west of the University of Minnesota campus. It wouldn’t be surprising if office users started to follow.

Residential buildings such as Mill & Main and the A Mill Artist Lofts filled quickly (within hours, in the Artist Lofts’ case), and more residential units are on the way with projects such as NordHaus under construction and others at the former Washburn-McReavy and Nye’s Polonaise sites about to start.

Meanwhile, the extended parts of the neighborhood are emerging as a creative office hotspot, much in the same way the North Loop did in the beginning of this century. Large companies such as Blue Cross and Blue Shield of Minnesota and UCare have moved in or increased their footholds in Northeast, while plenty of small companies gobble up boutique spaces in creative and unique developments making new uses of out outdated properties.

Will more office development follow? The demand seems to be there, but only time will tell. Northeast, much like East Town and the still-hot North Loop, is still carving out their own identities and extending the borders of what we consider “downtown.”

Brent Erickson is executive director of Cushman & Wakefield/NorthMar in Minneapolis.

Page 22

Trump From page 1

economy is now in its seventh year of a durable but moderate expansion. Marcus & Millichap says that 2 million to 2.5 million new jobs should be added during the next year. The country currently has an unemployment rate of 5 percent and 5.5 million unfilled job openings.

Marcus & Millichap predicts that unless an unexpected surprise hits the country, the economy will continue to grow, something that will result in an increase in commercial real estate construction, leases and sales.

Marcus also predicted that the reduction of cridlock on Capitol Hill — now that the Republican party is basically in charge — should pave the way for even more economic momentum, which will be good for the commercial real estate industry.

Marcus & Millichap says that Congress should be able to pass a new budget under Pres. Trump and increase the debt ceiling when needed, all events that should spur the confidence of real estate devel-

Minnesota Real Estate Journal

opers and investors. The company points, too, to the potential for reduced taxes, an increase in infrastructure spending and business deregulation, all of which could provide another spark to the nation’s economy.

There are some worries, of course. Marcus & Millichap says that faster economic growth could result in inflationary pressure, pushing interest rates higher. Mortgage interest rates have already jumped following Trump’s election, with many economists predicting that the average interest rate on a 30year, fixed-rate mortgage loan might soon hit 4 percent. Marcus & Millichap also predicted that a volatile stock market — which dropped sharply immediately following Trump’s win and then rebounded quickly — is definitely a possibility.

But overall? Marcus & Millichap’s report predicts a strong commercial real estate market under a Trump presidency. Will that actually happen? Let’s hope so.

Alibaba From page 1

from 2015. And in 2013? Alibaba recorded just $5.14 billion in gross merchandise volume.

So, yes, singles have proven very profitable for Alibaba.

And this is just one example of the growth of online retailing. Research company Forrester predicts that online sales in the United States alone will hit $523 billion a year in 2020. That’s up from $335 billion in 2015, according to Forrester Research.

Forrester, in a new report, says that online sales will increase by an average

November 2016

annual rate of 9.32 percent during the next five years. At the same time, the number of online shoppers will rise, too. Forrester says that an additional 26 million shoppers will browse and buy from online retail sites by 2020. That will bring the total number of online shoppers to an impressive 270 million.

Forrester credits larger smartphones and faster wireless networks for this increase.

And what about for the holiday season?

Research firm eMarketer predicts that online holiday sales will rise to $94.71 billion during the holiday season. This is significant. If it happens, e-commerce would claim more than 10 percent of all holiday sales for the first time.