VOLUME 32, NUMBER 10
©2016 Law Bulletin Publishing Co.
October 2016
The Retail Real Estate Market in the Twin Cities
By David W. Scheller, Minnesota Real Estate Journal Freelance Reporter
W
e call Minnesota the land of 10,000 lakes, though we might also have rightly dubbed it the land of 10,000 shopping malls. Shopping centers have been part of our real estate market for quite some time, after all. The Lake View Store in Duluth, built in 1915, was the first modern indoor mall in America. Southdale Center in Edina is one of the oldest fully enclosed malls in the country and the very first climate-controlled one. And of course we
have the Mall of America, that behemoth beacon of mercantilism. It generates $2 billion in economic activity annually for the state. With such a deep-seated tradition of shopping centers in our state it’s natural that the retail real estate market here should be vibrant as well. Although this market suffered the recent recession and subsequent inertia like everywhere else, it has bounced back remarkably well. For a better understanding of our retail real estate market we spoke with local expert Chris Moe, a partner at H.J. Development, Inc along with Jeff Carriveau and Gary Janisch. Founded in 1983, his
Wayzata-based company has grown into one of the largest locally owned and managed real estate firms in Minnesota. Their Twin Cities portfolio currently exceeds 1.3 million square feet and contains retail, office, medical office, and industrial properties. Chris joined their ranks 10 years ago and currently acts as the firm’s vice president of leasing and development. He oversees their portfolio’s leasing activity and sources and executes their development projects as well. “When I started out in 2006 retail was in the expansion phase of the development cycle and the Retail to page 20
It’s not about Millennial vs. Boomer. It’s not about walls vs. benches By Dan Peterson, Welsh & Colliers International
It’s time to remove focus from the age of employees and redirect it to the tools we give them.
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ost current discussions about the trends shaping modern office space define themselves in terms of age first, purpose second. Does the space bring in younger workers?
Does the floor plan promote collaboration (a word that may have been overused to the point of losing its meaning)? The pendulum keeps swinging from one trend to another based on the perceived preferences of the largest group of recruits or furniture styles at trendy, hip offices. Peterson
We are missing the big picture In order to succeed, employees are dependent on interacting in both physical and digital spaces, regardless of age. We can learn to work in these environments so long as we acknowledge that to each-his-own and to his-own-each space. The workplace has expanded from one location to four. Because we Employees to page 22
October 2016
Minnesota Real Estate Journal
Contents
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OCTOBER 2016 • VOLUME 32, NUMBER 10
THE RETAIL REAL ESTATE MARKET IN THE TWIN CITIES IT’S NOT ABOUT MILLENNIAL VS. BOOMER. IT’S NOT ABOUT WALLS VS. BENCHES
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HIGH-END AMENITIES NO LONGER JUST FOR OFFICE BUILDINGS AND APARTMENT TOWERS — INDUSTRIAL SPACES OFFERING THE PERKS, TOO
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AMAZON KEEPS TINKERING WITH ITS WAREHOUSES. YOU SHOULD DO THE SAME
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OWATONNA, FOSTERING THE ENTREPRENEURIAL SPIRIT
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COOPERATIVES PROVIDE ENERGY AND OPPORTUNITY
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E-COMMERCE MEANS BIG GAINS FOR INDUSTRIAL MARKET
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Departments PEOPLE
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NEWS
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Minnesota Real Estate Journal (ISSN 08932255) Copyright © 2016 by the Minnesota Real Estate Journal is published for $85 a year at 12 times per year by Jeff Johnson, 13700 83rd Way North, Suite 206, Maple Grove, MN 55369. Monthly Business and Editorial Offices: 13700 83rd Way North, Maple Grove, MN 55369 Accounting and Circulation Offices: Jeff Johnson, 13700 83rd Way North, Maple Grove, MN 55369 Call 952-885-0815 to subscribe. For more information call: 952-885-0815. POSTMASTER: Send address changes to Minnesota Real Estate Journal, 13700 83rd Way North, Suite 206, Maple Grove, MN 55369 ©2016 Law Bulletin Publishing Co. No part of this publication may be reproduced without the written permission of the publisher.
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Minnesota Real Estate Journal
October 2016
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EditORial advisORy BOaRd JOHN ALLEN Industrial Equities ROBERT ANGLESON Navigator Real Estate RICK COLLINS Ryan Cos. US Inc. JEFF EATON Cushman & Wakefield/NorthMarq MARK EVENSON ULG Equis PATRICIA GNETZ US Bank TOM GUMP TAG Consulting JON HEMPEL Hempel Properties DAVID JELLISON Liberty Property Trust CHAD JOHNSON Hellmuth & Johnson BILL WARDWELL Colliers International GEORGE KLUEMPKE Braun Intertec JEFFREY LAFAVRE CBC Griffin Companies WADE LAU Founders Properties MIKE LE JEUNE Fabcon JIM LOCKHART WIPFLI DUANE LUND Exchange Realty PATRICK MASCIA Duke Realty Corp. CLINT MILLER Cushman & Wakefield/NorthMarq DR. THOMAS MUSIL University of St. Thomas WILLIAM M. OSTLUND CBC Griffin Companies WHITNEY PEYTON CB Richard Ellis MIKE SALMEN Transwestern STEWART STENDER Stewart Capital Partners
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Dominium adds Marena Janke as development staff associate Dominium announced that it has hired Marena Janke as a development staff associate at its Plymouth, Minnesota headquarters. In her new role, Janke will assist project partners with new project development, acquisition and financing of multifamily properties. She will be responsible for executing market and acquisition analysis, financial modeling, underwriting, and preparing financing and equity packages. Janke holds a Bachelor of Business Administration from the University of Wisconsin with a dual major in real estate and finance. Prior to being hired at Dominium, Janke was development intern at Dominium.
RJM Construction adds Jake Fisher as BIM specialist RJM Construction has hired Jake Fisher as its building information modeling (BIM) specialist. As part of RJM Construction’s pre-construction services team, Fisher will lead BIM execution, clash detection, visualization and construction sequencing for projects utilizing Autodesk software. In this new role, Fisher will provide technical expertise to the pre-construction team, providing value in systems analysis and constructability reviews, enabling the team to make more informed decisions regarding the design, systems, efficiency and quality of a project. Fisher has 10 years of experience in the construction industry. He has held positions in the field and estimating before transitioning into the BIM/VDC specialty. Fisher received a bachelor’s degree in construction management from North Dakota State University. He has also completed OSHA Ten Hour construction training.
Onward Investors promotes two Minneapolis team members Minneapolis-based Onward Investors has promoted Kevin Lied to portfolio manager and Chris Courneya to acquisition manager. Lied will oversee the asset manage-
ment of Onward Investor’s properties and provide capital market analysis. He previously served as Onward’s portfolio analyst. Prior to joining the company, Lied was a senior credit analyst for Bridgewater Bank in Minneapolis, where he managed the bank’s loan process and underwriting of real estate assets for multi-family and industrial properties. He was also an associate at Cassidy Turley in Minneapolis, where he helped to market industrial real estate properties. Lied received his B.A. in Economics from the University of Wisconsin, Madison. He is a member of the National Association of Industrial and Office Properties (NAIOP). Courneya will locate and analyze the firm’s acquisition opportunities, including identifying new target markets and investment types. He previously was Onward’s acquisition analyst. Courneya came to Onward Investors from Unire Real Estate Group in California where he served as the portfolio manager of industrial properties, overseeing a 3.5 million-square-foot portfolio. He received his B.S. in Real Estate Studies from the University of St. Thomas, St. Paul.
Dougherty Mortgage LLC announces new SVP in Minneapolis Dougherty Mortgage LLC announced that Brian Haapala has joined as senior vice president and chief USDA underwriter within the Healthcare Division of the company. For more than 22 years, he has focused on developing sustainable healthcare systems as an entrepreneur and a consultant, most recently as a principal with Stroudwater Associates. Over his career, Haapala has led hundreds of strategic planning projects, turnarounds, and affiliations for clients in every region of the country. Notably, while at Stroudwater, he planned more than $900M in facility projects including hospital and ambulatory care center replacements, renovations and expansions for systems and community hospitals up to 600 beds.
Cushman & Wakefield NorthMarq names Andy Sundgaard SVP Andy Sundgaard has been named senior vice president/regional director of Property Management for Cushman & Wakefield NorthMarq. Sundgaard, who left the company in 2012, will share the oversight of Cushman & Wakefield NorthMarq’s Minnesota property management portfolio along with Wendy Aaserud. Sundgaard’s portfolio will include a wide variety of office and industrial properties located throughout the Twin Cities metro area. Sundgaard has more than 30 years of experience in the commercial real estate industry, first joining the Shelard Group as a property manager and leasing agent in 1983. He joined Cushman & Wakefield NorthMarq in 1998 and spent 14 years with the company, ascending to a senior vice president position. He is a Certified Property Manager (CPM), past president for the Institute for Real Estate Management (IREM), former board member of the Building Owners and Managers Association (BOMA) and is a founding member of the St. Cloud State University Real Estate Alumni Association. He was also the 2009 recipient of Cushman & Wakefield NorthMarq’s President’s Award, the company’s highest individual honor
Brian Haapala Joins Dougherty Mortgage LLC as Senior Vice President and Chief USDA Underwriter Dougherty Mortgage LLC is pleased to welcome Brian R. Haapala as Senior Vice President and Chief USDA Underwriter within the Healthcare Division of the company. Brian has been a trusted advisor to health executives and Boards of Directors nationally. For over 22 years, he has focused on developing sustainable healthcare systems as an entrepreneur and a consultant, most recently as a principal with Stroudwater Associates.
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News The Commons Receives Greening & Public Realm 2025 Plan Award The Minneapolis Downtown Council Awarded The Commons a 2025 Plan Leadership Award at the MDC Gala on October 20, 2016. The Minneapolis Downtown Council awarded The Commons the 2016 Greening and Public Realm 2025 Plan Leadership Award in recognition of the project’s impact on advancing the Plan’s mission over the last year. Nominations in six award categories were accepted from council members, 2025 plan committee leadership, volunteers and the public, and the awards were announced at the MDC Gala on October 20th. “The Commons is without question a game changer for this urban neighborhood and for Downtown Minneapolis overall. In short, the mixed-use development Ryan assembled around The Commons would not have been successful without The Commons Park,” said Collin Barr, North Region President of Ryan Companies US, Inc. (Ryan),
Minnesota Real Estate Journal
accepting the award. Ryan was a key partner, supporter and facilitator of the successful development and implementation of The Commons. Ryan’s CEO, Pat Ryan, co-chaired fundraising efforts with Minneapolis Mayor Betsy Hodges The Commons, located between 4th and 5th Street Souths and Park Avenue, is a public green space offering something for everyone, with a variety of lawns, a play zone and summer splash pad, walking paths, and a designated dog relief area. Fundraising is ongoing for additional planned features, including a park operations building, permanent restrooms, restaurant and water plaza.
Dougherty Mortgage LLC closes $24.4 million Fannie Mae loan for Oak Ridge Portfolio Dougherty Mortgage LLC, a full service national mortgage banking firm, recently closed a $24.4 million Fannie Mae loan for the acquisition financing of the Oak Ridge Portfolio, consisting of three market rate multifamily apartment properties: Redwood Apartments,
Rolling Hills Apartments and The Manhattan, all located in Oak Ridge Tennessee. The 10-year term, 2-year interest only, 30-year amortization Fannie Mae loan was arranged through Dougherty’s Brentwood, Tennessee office for borrower Oak Ridge Properties LLC.
Dougherty Mortgage LLC closes $18 million Fannie Mae loan for Buffalo Creek Apartments Dougherty Mortgage LLC, a full service national mortgage banking firm, recently closed an $18 million Fannie Mae loan for the refinance of Buffalo Creek Apartments, a 308-unit market rate multifamily apartment property located in Indianapolis, Indiana. The 7year term, 30-year amortization, 1-year interest only Fannie Mae loan went from application to commitment in three weeks and was arranged through Dougherty’s Oak Brook, Illinois office for borrower Buffalo Creek Apartments, LLC
October 2016
Dominium Announces New Construction Development in Champlin Developer adds Legends of Champlin senior housing development to its Minnesota portfolio Dominium, a Minneapolis-based leading apartment development and management company, announced today it will officially break ground on a new affordable senior housing construction project in Champlin, Minn on Monday, October 24. When completed in early 2018, the Legends of Champlin will consist of 184 units. Dominium closed on the property in September. “The Legends of Champlin will provide a much-needed affordable housing option to the seniors of Champlin,” said Nick Andersen, developer for Dominium. “This development will serve the community well and help fill needs for senior housing in the city for years to come.” Plans for the units include 9-foot ceilings, a full range of appliances, patios, balconies, and open floor plans. Select units will also have walk-in closets. The
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Minnesota Real Estate Journal
common amenities will include underground parking, a community room and kitchen, craft and card rooms, beauty salon, fitness room, theater area, large outdoor patio, walking paths around the property and a dog park.
Dougherty Mortgage LLC closes $8 million Fannie Mae loan for Seastone Luxury Apartments Dougherty Mortgage LLC, a full service national mortgage banking firm, recently closed an $8 million Fannie Mae loan for the acquisition financing of Seastone Luxury Apartments, a 96unit market rate multifamily apartment property located in Temple Terrace, Florida. The 10-year term, 30-year amortization, 4-year interest only Fannie Mae loan was arranged through Dougherty’s Oak Brook, Illinois office for borrower Seastone Investors, LLC.
Dougherty Mortgage LLC closes $10.8 million Fannie Mae loan for The Arbors of Arlington
Dougherty Mortgage LLC, a full service national mortgage banking firm, recently closed a $10.8 million Fannie Mae loan for the refinance of The Arbors of Arlington, a 200-unit market rate multifamily apartment property located in Arlington, Texas. The 12year term, 2-year interest only, 30-year amortization Fannie Mae loan was arranged through a partnership with Old Capital Lending and Dougherty’s Vienna, Virginia office for borrower TOPG Point One, LLC.
Erik the Red opening in downtown Minneapolis Cushman & Wakefield NorthMarq represents restaurant team in move to former Hubert’s location downtown Erik the Red, a new concept from restaurateur Erik Forsberg of Devil’s Advocate and Dan Kelly’s, will open at the corner of Sixth Street and Chicago Avenue South, the former site of Hubert’s in Downtown Minneapolis’s East Town neighborhood. Erik the Red will feature a menu built from a cross section of Carolina Bar-
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October 2016
beque and Minnesotan and Nordic comfort food. The result: smoked meats by the Viking boatload and more than enough beer to wash it down. “When we created Erik the Red, we really wanted to explore the idea of what Minnesota Barbeque would look like,” said Forsberg. “Minnesotans aren’t really downing great barbeque regularly, and we want to change that.” The Cushman & Wakefield NorthMarq team of Senior Director Andrea Christenson and Senior Associate Blaine Beety worked with Forsberg to secure the Hubert’s building last year. The property features a rustic-yet-modern environment complete with wood accents, a large bar with center islands and plenty of TVs for gameday viewing. Forsberg’s company is developing two new beers to be sold at Erik the Red once it opens, and all Devil’s Advocate brews will also be available for sale. The patio will be a regular site of gatherings and large events, and Devil’s Advocate is in talks to can beer that can be sold outdoors. The restaurant will appeal heavily to fans attending Minnesota Vikings
games and other events at the neighboring U.S. Bank Stadium, with gameday events featuring a plethora of smoked meats available outdoors. But the new concept will also resonate with residents of the East Town, Elliott Park and greater downtown neighborhoods, whether they’re just moving in or have been there for years. Among other major employers, Wells Fargo, Hennepin County Medical Center and Thrivent Financial are all within blocks of the site. Several new development projects, including the Portland Tower condominiums, Kraus Anderson’s new corporate headquarters and apartments, the Edition apartments and HCMC’s $225 million, 360,000 sq. ft. expansion, are also a short walk from Erik the Red. “Everyone in the East Town area is looking at the stadium, but it’s still important to be neighborhood friendly,” said Christenson. “When you walk in the door of Erik the Red, you’re practically going to hear ‘Norm!’ It will be a neighborhood venue that can also handle big events.” Erik the Red’s name is a tribute to a
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Norwegian Viking of the same name. Erik the Red is known, among other things, for having founded the first Norse settlement in Greenland.
Dougherty Mortgage LLC closes $6.9 million Fannie Mae loan for Emerald Village Apartment Homes Dougherty Mortgage LLC, a full service national mortgage banking firm, recently closed a $6.9 million Fannie Mae loan for the refinance of Emerald Village Apartment Homes, a 144-unit multifamily affordable housing property located in San Antonio, Texas. Emerald Village offers 1-, 2-, 3and 4-bedroom options, with contemporary interior finishes, ceiling fans, walk-in closets and covered patios or balconies. The pet-friendly property includes a 24-hour fitness center, community room, outdoor playground, controlled access and a pool with sundeck. The 15-year term, 30-year amortization Fannie Mae loan was arranged through Dougherty’s Minneapolis office for Emerald Village Ltd.
Minnesota Real Estate Journal
Timberland Partners Expands Portfolio with Acquisition of White Bear Woods, White Bear Lake, MN, 304 units Minneapolis based Timberland Partners is pleased to announce the acquisition of White Bear Woods, a wellestablished apartment community located in White Bear Lake, Minnesota. White Bear Woods represents the firm’s tenth multifamily community in the Twin Cities market. Timberland Partners acquired the 304-unit complex from Chicago-based LivCor MultiFamily Asset Management. Today, Timberland Partners owns and manages more than 11,500 apartment units spanning 12 states. Timberland Partners Vice President of Investments, Matt Fransen, said “Timberland Partners is excited about the acquisition of White Bear Woods. The property is the beneficiary of a strong location that continues to improve over time. White Bear Lake residents are proud of their community.
White Bear Woods' strong physical attributes, well-kept grounds, Class-A clubhouse and amenity package give the property a unique presence within the market. Located at 4776 Centerville Road, White Bear Woods was built in 1988 and consists of 304 studio, one-, twobedroom apartments in four gardenstyle buildings. In 2008, a state-of-theart luxury clubhouse facility was added to the property which included a resortstyle swimming pool, outdoor gas fireplaces & seating areas, fitness center, community gathering room and leasing offices. In 2010, the property's roofs were completely replaced as was the majority of siding. A portion of the unit interiors have been renovated over the past six years with new appliances, cabinets, countertops, flooring and lighting.
SARA Investment Real Estate Acquires River Park Plaza Firm Enters St. Paul Market with Purchase of Landmark Property
October 2016
SARA Investment Real Estate, a full-service commercial real estate investment firm, has closed on the purchase of River Park Plaza, an eightstory office building in St. Paul, Minnesota. The property has 328,947 SF and is located at 10 River Park Plaza along the Mississippi River. The purchase is SARA’s first acquisition in the St. Paul market. “From its high-quality tenants to its highly-desirable location, 10 River Park Plaza will serve as a great addition to our growing portfolio in the Twin Cities region,” said Traci Dalsin, President of SARA Investment Real Estate. “Its iconic views and recognizable façade are a testament to the level of care provided by its previous owner; this is a strong asset for our investment partners and an accurate representation of the caliber of properties we pursue.”
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Minnesota Real Estate Journal
October 2016
High-end amenities no longer just for office buildings and apartment towers — industrial spaces offering the perks, too by Dan Rafter
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icture amenities such as abundant natural light, shower facilities for employees who ride bikes to work and meticulously landscaped outdoor areas designed to make employees’ lunch breaks as soothing as possible. You’d think these were all features you’d find in a modern office building in the middle of downtown Chicago, right? Sure, you’ll find these bonuses in such buildings. But increasingly, you’ll also find them in new warehouse facilities. Frederick Regnery, principal in the Chicago office of Colliers International, said that a growing number of developers are focusing on the importance of providing spacious lunchrooms, designing work areas that are bathed in natural light and reaching for LEED certification. There’s a reason for this: Industrial clients are increasingly considering amenities when they are making their logistics and transportation decisions.
Yes, warehouses and distribution facilities still have to be located off of major railroad and highway hubs. They still have to sit near dense population centers. But once end users find these ideal locations, they are more often today choosing warehouses that boast the higher-end amenities that entice today’s workers. Amenities, after all, make it far easier for warehouse users to attract the best of the area labor pool to their industrial facilities. “The smart companies have done a nice job of branding even warehouse locations as a good place to work,” Regnery said. “Less than 10 years ago, heck, even less than six years ago, the workplace environment and amenities in a warehouse building were not usually part of the conversation. Now you have a lot of thoughtful discussion around the work environment.” Today, Regnery said, developers are factoring in how natural light can make warehouse employees happier and more productive. They are increasingly striving to attain LEED certification because they know that workers con-
sider green buildings healthier places at which to work. Warehouse locker rooms and break areas are designed more for comfort today. In the past, these spaces tended to be utilitarian. Today, the lunch rooms in many warehouse buildings would not be out of place in that down-
town Chicago office building. “All of these amenities are entering the conversation,” Regnery said. “It is all driven by the need to be competitive on the labor side. It’s about branding your facility as a good place to work.”
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Minnesota Real Estate Journal
October 2016
Amazon keeps tinkering with its warehouses. You should do the same
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innesota Real Estate Journal asked Brian Quigley, executive vice president of Rosemont, Illinoisbased Conor Commercial Real Estate, the big question: How is the growth of Amazon – which seems to open a new distribution center in the Midwest on a weekly basis these days — changing the transportation and logistics decisions that industrial users are making today? Quigley had plenty to say about this.
Brian Quigley: Amazon and other e-commerce fulfillment companies continue to evolve and change the logistics environment requiring industrial developers such as Conor Commercial to also evolve and rethink how best to design industrial buildings to maximize functionality. Amazon’s traditional warehouse facilities were sprawling 40-foot clearheight buildings located in far-flung locations, and those facilities would be filled with multiple work platforms and conveyor systems to house an enormous number of products. The type of building that Amazon is targeting today is called the “Prime
Brian Quigley Hub,” and these facilities are located in the high-density residential areas of the city, in buildings with a lower clear height and much smaller footprint. These are the type of facilities that will allow for same-day delivery of product and facilitate small route vans that are loaded with packages inside the facility rather than in large trucks loaded on docks outside the facility. These facilities stock only the high-turnover and high-value products that are best sellers specific to that particular neighbor-
hood. These facilities cater to sameday delivery. Amazon is in the process of defining specifications and a scope for its thirdversion warehouse called the “Sortation Center,” which focuses in on efficient small-package delivery, and is designed to reduce Amazon’s reliance on UPS and Fed Ex for deliveries. The Sortation Centers will channel small parcels through the U.S. Postal system in presorted bundles by zip code. The USPS charges only a fraction of what UPS or Fed Ex charges for the same item. The purpose of this new facility is solely to reduce Amazon’s shipping costs. It currently spends 11 percent of its gross sales on delivery costs, which in total dollars is expected to be $11.5 billion in 2016. The goal of the sortation center is to reduce shipping costs by 12 percent to save $1.3 billion a year. MREJ also asked Quigley about any other big trends he is seeing when it comes to the transportation and logistics decisions that companies are making. Quigley: Companies involved in logistics are becoming more open to
relocating to a new facility to save on transportation costs even if that means a disruption in their business and paying significantly more in rent. Transportation companies are becoming more sophisticated in determining where to locate using evolving logistics software that predicts traffic patterns and bottlenecks. The current trend with users is to engage consultants to perform transportation studies that determine the most efficient transportation routes based on multiple potential locations to identify the lowest-cost location from which to conduct business. The rule of thumb is that transportation costs account for 50 percent of logistics costs, while real estate accounts for 5 percent, so there is a 10to-1 ratio of transportation relative to real estate costs. This means saving 10 percent on transportation while spending 10 percent more on real estate is not a break-even proposition. The math is 10 percent times 50 percent equals 5 percent total savings for transportation and 10 percent times 5 percent equals 0.5 percent more for real estate, a net savings of 4.5 percent in total.
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Minnesota Real Estate Journal
October 2016
Community Spotlight
Owatonna, fostering the entrepreneurial spirit Owatonna is located in Steele County on the Straight River right in the heart of Southern Minnesota. Owatonna’s characteristic beauty, healthy economy, quality lifestyle and proximity to the Twin Cities Metropolitan Area are factors that have contributed to the City’s substantial growth over the last ten years. The population has expanded from more than 22,000 to nearly 26,000 in the last ten years. Owatonna is strategically placed at the crossroads of I-35 and two major US highways, giving it one of the most accessible locations in the Midwest. US Highway 14 connects half the employment centers in Southern Minnesota and three-quarters of the top employers. Owatonna has developed from its agricultural heritage as a community with a diverse economy, including a strong industrial, financial and service base. Owatonna is the home of many nationally renowned firms such as Federated Insurance Company, Bosch, Jostens, Wenger and others. This thriving regional center serves as a shopping, tourism and healthcare magnet
for southern Minnesota. It consistently ranks among the most livable small towns in the country and was just named the second most affordable city in Minnesota by Livability.com. Today, more than 25,000 people call Owatonna home. It is a community that boasts above average income levels, high education levels and adds new homes every year. With a commitment to growth and access to services, Owatonna is equally committed to a quality of life – to care enough to leave a legacy for generations to come. Owatonna is also fortunate to have strong telecommunication resources to foster business and residential growth. Technology-dependent businesses thrive in Owatonna, thanks to its extensive fiber optic infrastructure and provider network. Several major carriers offer high bandwidth, high- speed Internet services at prices comparable to major metro areas. Current construction efforts include fiber to every home within Owatonna. Few cities of any size can match Owatonna’s telecommunication speed, access and reliability.
Owatonna has a rich entrepreneurial history. From Charles Buxton (Federated Mutual Insurance Company) to Harry Wenger (Wenger) to Otto Josten & Daniel Gainey (Jostens), numerous successful companies and many successful products have been invented and innovated in Owatonna. We continue to foster the entrepreneurial spirit and look forward to the next big thing to start in Owatonna. Many national and international manufacturers have either started or chose to locate in Owatonna. In fact, Steele County/Owatonna has one of the highest concentrations of manufacturing jobs in Minnesota — more than double the state average. Steele County also outpaces the nation in the percentage of finance/insurance jobs — a mark of its skilled, diverse workforce. Owatonna boasts more than 50 industrial firms, several with international distribution. Major employers include: • Viracon (architectural glass) • Federated Insurance Company (business insurance) • AmesburyTruth (window and door
hardware) • Bosch (automotive tools) • Wenger (musical equipment) • Josten’s (school rings/recognition) • Cybex (exercise equipment) • Daikin (HVAC manufacturing) Another advantage Owatonna enjoys which facilitates development, is having a nationally ranked RP3 municipal utility. Owatonna Public Utilities (OPU) provides natural gas, electric and water to all businesses within the city limits of Owatonna. OPU boasts highly competitive prices as well as unmatched reliability, including many manufacturers outage free for over ten years. OPU is indeed a reliable and affordable energy source today and certainly built for the future. The City of Owatonna provides sewer services with room for continued growth. The City of Owatonna has been able to maintain affordable rates in addition to having a connection fee of only $2,000 for all uses. Owatonna’s multimodal transportation system is also favorable for development. The city is strategically locatOwatonna to page 18
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Minnesota Real Estate Journal
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Cooperatives provide energy and opportunity By David Saggau, president and CEO of Great River Energy
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hen a new member joins a cooperative, they become an owner of an institution that has served their community for more than 75 years. Electric cooperatives are perhaps the purest example of local business. When a member pays a bill, they are investing in their local electric system, which is operated and maintained by their friends and neighbors. And, as not-for-profit businesses, cooperatives share their margins with their membership through the return of capital credits. By keeping dollars circulating in the local economy, cooperatives contribute to the sustainability of the communities they serve and make Greater Minnesota a welcoming destination for businesses looking to grow. Economic development is an increasingly important discipline for electric cooperatives. Commercial and industrial growth strengthens community vitality through the resulting jobs and tax revenue. Cooperatives are also able to help new and growing businesses through their energy expertise and knowledge of the areas they serve. Cooperatives work with partners to find sites that meet the needs of developers and business owners. Since we live where we serve, we can provide current information on the local business climate, labor availability, transportation networks and more. We also offer incentives to ease the financial burden that comes with growing a business. Our Energy Efficient Equipment (E3) program helps entrepreneurs finance equipment investments with low-interest loans of up to $350,000. We also help business secure financing through state and federal programs, such as the USDA Rural Economic Development Loan and Grant Program. We make it simple for new or expanding businesses to access up to $1,000,000 in interest-free loans through the program. Great River Energy and our member cooperatives are committed to economic development and provide reliable, affordable and safe electricity in ways that are more efficient and cleaner than ever before – and we are improving all the time. Strong cooperatives are the product of strong communities. Included in the seven principles that guide all cooperatives is a promise to work for the sustainable development of the communities we serve. Come join us. Great River Energy is a not-for-
profit cooperative that provides wholesale electric service to 28 distribution cooperatives in Minnesota and parts of Wisconsin. Those member cooperatives distribute electricity to approximately
665,000 member consumers. Great River Energy generates electricity from a variety of resources, including coal, natural gas and renewables. With $4 billion in assets, Great River Energy is the second
largest electric power supplier in Minnesota and one of the largest generation and transmission cooperatives in the United States. Learn more at greatriverenergy.com.
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Minnesota Real Estate Journal
E-commerce means big gains for industrial market
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-commerce has had a major effect on the industrial market, and it’s largely been a positive one, according to the latest research from Marcus & Millichap. In its latest national industrial research report, Marcus & Millichap said that the U.S. industrial vacancy rate feel to its lowest point in 16 years at the end of the second quarter of this year. The big driver? Marcus & Millichap pointed to gains in retail sales, a boost in residential construction and a steady performance from U.S. manufacturers. But Marcus & Millichap said that retail sales are the biggest factor in an industrial upswing that is now in its seventh straight year. And when you talk about retail, you have to mention, of course, Amazon. Marcus & Millichap said that Amazon will be operating more than 70 fulfillment and sorting centers by the end of 2016, nearly two times the number the online giant ran in 2011. Amazon, then, continues to influence the warehouse and distribution decisions made by industrial users. Other retailers — big names such as Walmart — are following suite. As they attract more online customers, these retailers are opening new warehouses closer to population centers so that they can deliver products as quickly as possible to as many customers as possible. Marcus & Millichap says that in part to meet this demand from e-commerce, developers will complete industrial projects totaling 190 million square feet in the United States in 2016. Deliveries in major regional distribution hubs — such as Chicago — will account for more than half of the space delivered across the country this year, Marcus & Millichap said. The U.S. industrial vacancy rate will fall 40 basis points this year, according to Marcus & Millichap, hitting 5.9 percent. The industry will see the net absorption of more than 200 million square feet during the year. Marcus & Millichap says that nearly 1.1 billion square feet of industrial space has been occupied since the vacancy rate peaked more than six years ago.
Owatonna from page 16
ed on Interstate Highway 35 providing a freeway connection to not only the Twin Cities but also to Kansas City and down through Dallas-Ft. Worth. Owatonna is also less than 30 minutes from Interstate 90 which connects the east and west coasts. Owatonna is served with four interstate interchanges of which two directly serve our industrial areas. Owatonna is also situated on U.S. Highway 14. The State of Minnesota recently upgraded this important highway to four lanes dramatically improving our highway connections in southern Minnesota and beyond. A new interchange onto the upgraded Hwy. 14 has been constructed along with a connecting beltline road that provides additional access into the growing Owatonna industrial park. The Owatonna Degner Regional Airport is located on Interstate 35 less than a one-hour drive south of the Minneapolis/St. Paul metropolitan area. The airport is classified as a “key system airport” in the state of Minnesota with modern and upgraded facilities ideal for corporate aviation use as well as aviation businesses servicing the diverse needs of the general aviation industry. The primary runway is 5,500' concrete paved, lighted, and equipped with a precision Instrument Landing System (ILS) and large enough to land a 737. Owatonna also has a strong highly trained workforce. The population
October 2016
expansion bodes well for companies that need an available workforce to fuel their growth. Employers hire the majority of their skilled workforce from Steele County. They also tap rich talent pools in the neighboring five counties as well as in the Twin Cities, Rochester and Mankato — all within a one hour commuting distance. According to GoodCall.com’s annual rankings, Owatonna is one of the best cities to be a teacher. This speaks to the educational attainment of not only the teachers but the students also. Over 80% of the elementary students in Owatonna are on track for college in reading and math. Over 50% of the teachers have master’s degrees and 100% of the teachers in Owatonna meet federal “Highly Qualified” standards. More than 70% of Owatonna’s students take the ACT annually with an average score of 22.9. Owatonna seniors also earn over $100,000 is scholarships annually. Owatonna also is home to Riverland Community College. Owatonna continues to be a thriving regional center and manufacturing hub in southeast Minnesota. While the development opportunities are endless, Owatonna also offers many amenities that rival those in cities many times its size including but not limited to: shopping, tourism, a robust healthcare campus, a vibrant historic downtown, more than 800 acres of parks and trails, twochampionship golf courses and a junior hockey team.
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Retail From page 1
market was healthy across the board. New projects were being built and existing properties were well occupied. All of that abruptly changed when the market was hit with the impact of the Great Recession. “Fortunately, a mix of our own best practices along with Minnesota’s relatively strong and recession resistant economy made weathering the recession a not altogether difficult thing. We shied away from expansion during that time and focused our efforts on keeping the occupancy levels in our existing properties as high as possible. We also looked for opportunities that we thought would be viable for development and acquisition once the market recovered and tenants would get back into expansion mode. “The market has recovered nicely since the Great Recession and faster than most had anticipated. Grocery anchored development is leading the way in terms of new ground up development in the retail sector. No matter how bad the economy is, of course, people do still have to eat, which makes grocery anchored shopping centers one of the most recession-proof and sought after property types within the broader retail market. People are drawn there on a reg-
Minnesota Real Estate Journal
ular basis to buy groceries, and that frequent traffic benefits the other tenants nearby. “Outside of the grocery anchored projects there has been a good amount of activity in Jr. Box arena, one that many thought would take much longer to recover due to impact this segment has taken from the sudden rise in popularity of online retailers. Tenants between 10,000 and 60,000 sf such as TJ Maxx, PetSmart, Petco, Dick’s Sporting Goods, Hobby Lobby, and ULTA have been active and signing leases in our market for both existing projects and new ground up developments. Fitness studios both small and large have also been actively expanding, as well as fast casual restaurants.” Are things different now in the wake of the recession? “Absolutely. The current cycle is shaped by pre-leasing more than any prior one. It’s speculation that contributed to the glut that precipitated the crash in the first place, with people building more spaces than actual demand merited. Whereas lenders at the peak of the last cycle would have funded a deal with very little space pre-leased, now they’re not going to fund your project unless you have somewhere in the neighborhood of 50-75% of the building spoken for before you break ground. You no longer see the ‘Field of Dreams approach’ -- ‘If you build it, they will
come.’ In the current environment a new development will be mostly tenanted the day you cut the ribbon, which translates to a healthier and more stable market since speculation is less common. “The internet changed the retail landscape dramatically as well. Although brick and mortar stores still have the lion’s share of the market as a whole, online shopping’s only going to get bigger and bigger. This has affected the way retailers view their brick and mortar presence, and without a doubt contributed to consolidation and bankruptcies in the retail sector. We’ve seen Circuit City go away, leaving Best Buy to carry the electronics torch. Sports Authority recently closed all of its stores leaving Dick’s as the clear leader in the sporting goods sector. OfficeMax and Office Depot merged, Golfsmith closed all of its stores recently, and you continue to hear talk of other retail consolidation and other potential store closings. This means fewer potential tenants to fill your vacant spaces and site plans in your new developments, but the tenants that are left in each category should in theory be stronger with less competition. Some things like electronics are easily purchased online, so retailers that sell those items are more prone to troubles triggered by online retailing. But many items such as clothing will always be predominantly sold in a brick and mortar environment. People are always going to want to try on clothes before
October 2016
they buy them. Likewise, pet owners are always going to enjoy bringing their dog to PetSmart to let them ‘pick out’ a new squeaky toy. And how are you going to get your lab groomed online?” So, what do you feel is in store for retail in 2017? “I think in 2007 we’ll continue to see expansion in the retail sector, and we’ll continue looking for both acquisition and development opportunities. As long as we continue to see growth plans from occupiers of retail space such as grocery stores, restaurants, and fitness centers, new development will take place. The economy’s been in growth mode for quite a few years now since the last slowdown…at some point that will change and we’ll see the effects of that in our business like everyone else.” It’s heartening to hear a more reasoned take on the future of retail than “the internet’s going to replace everything.” The first person to sign up for an online tooth cleaning is a brave soul indeed. And wouldn’t you rather let your son pick out his first fishing pole from something heartier than an image file? David W. Scheller is a Freelance Writer for the Minnesota Real Estate Journal, he can be reached at: davidwscheller@gmail.com (612) 388-3773
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Employees From page 1
now work in the office, in the home, on the go, and everywhere in the cloud, we better define ourselves by connections and access, not by age group and furniture design. The connection economy we are now in depends on a transfer of labor and intellectual property among all generations. Many older workers provide business experience while the younger generation instinctively brings an adaptive acumen. People skills meet technology
Minnesota Real Estate Journal
skills, patience meets urgency, and foundation meets fluidity. Supporting access to the knowledge transfer is where a company should be focused Organic collaboration is what many office designs attempt to create, but unfortunately the execution is oftentimes less than ideal. Efforts focus on the extreme, and many companies either overshoot the concept or are too slow to adapt. Current office densification models should not be seen as the entire answer. A collaborative workplace is just one element, and its significance shouldn’t be overstated. In fact, there is now evi-
dence that a shared physical workplace environment can have a negative effect on human interactions. Headphones have replaced closed doors. Serendipitous productivity can be promoted at the modern water cooler and not by intruding the personal workspace. Boundaries erased are boundaries still desired. Collaboration can be more natural when options, not mandates (both physical space and technology tools), are given to the user. Still, companies need to create a culture that promotes freedom and vibrant energy yet puts structure and accountability within the enterprise. The battle over which generation deserves the most attention in the workplace design should be a truce. The people we want working at our company will want the same
October 2016
things regardless of their age: aspiration, acknowledgment and autonomy. The right mix of real estate and technology will support the culture that ensures knowledge transfer, and inspiration will prevail. What’s the solution? Listen to what motivates and empowers your people. Anticipate and test methods that will make them successful. Design your environments to be adaptive and sustainable. Dan Peterson is Midwest director of the technology solutions group in the Minnetonka, Minnesota, office of Welsh and Colliers International.