MREJ October 2018

VOLUME 34, NUMBER 10

©2018 Real Estate Publishing Corporation

October 2018

Twin Cities Hotel Market Continues to Experience Strong Demand

MV Eagan Ventures submitted plans for a four-star hotel and conference center just east of the new Vikings headquarters in the Viking Lakes development in Eagan.

Although a development slowdown is anticipated, the hotel boom isn’t over.

By Liz Wolf

D

espite a surge of new rooms opening in the Twin Cities, the hotel market continues to per-

form well. Approximately 4,450 rooms were delivered this cycle, and another 7,200 rooms are in various stages of planning or development, according to Cushman & Wakefield’s latest Compass Report.

While the report acknowledges that it may take time for the market to fully absorb this new product, solid demand continues.

The average occupancy in August was still 80.3 percent metro-wide, a 0.3% increase over last August, reports hotel data firm STR. Revenue per

available room (RevPAR) -- a key indicator of the health of the hotel business -- increased 3.8% for the metro, showing that the market is absorbing the new supply. RevPAR in the Twin Cities in August was $101.01. Also, ADR (average daily rate) increased 3.5 percent.

Buoyed by a healthy economy, demand is up by both leisure and business travelers.

“The market is strong,” says Ronn Thomas, senior Hotels to page 8

Oppidan Hires Blake Hastings as President He will step down from CBRE after leading the Minneapolis office for the past six years

By Liz Wolf

B

lake Hastings, 39, has joined Excelsior-based Oppidan Investment Co. as president, effective Nov. 1. He’s leaving CBRE where he served

Hastings

as managing director of the Minneapolis office for the past six years.

Hastings says he’s grateful for the opportunity at CBRE, however, he’s looking to transition from management back to deal-making where he began his career.

“I had an incredible time at CB. The company is incredible.

The people are incredible,” Hastings says. “I just got to a point where, frankly, I missed the real estate deal side of it. The complexity of deals, the strategy of deals. I learned a great amount of leadership skills at CB. With 225 employees, there was a lot of that to do. But I missed the deal side of the business, which is where I started in the business.”

Hastings says he will get that deal-making opportunity at Oppidan, a national development company that has experienced significant growth Hastings to page 18

October 2018

Minnesota Real Estate Journal

Featured Stories

OCTOBER 2018 • VOLUME 34, NUMBER 10

Page 3

Departments PEOPLE ON THE MOVE 4 CLOSINGS

6

BREAKING GROUND 20

1

TWIN CITIES HOTEL MARKET CONTINUES TO EXPERIENCE STRONG DEMAND OPPIDAN HIRES BLAKE HASTINGS AS PRESIDENT

16

PRODUCTION SHORTFALL COMPOUNDS AFFORDABLE HOUSING PROBLEM IN THE TWIN CITIES

Minnesota Real Estate Journal (ISSN 08932255) Copyright © 2018 by the Minnesota Real Estate Journal is published monthly except combined in March & April for $85 a year by Jeff Johnson, 7767 Elm Creek Boulevard, Suite 210, Maple Grove, MN 55369.

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Minnesota Real Estate Journal

7767 Elm Creek Boulevard, Suite 210 Maple Grove, MN 55369 For information call 952-885-0815

President | Publisher Jeff Johnson jeff.johnson@resummits.com Vice President | Publisher Jay Kodytek jay.kodytek@resummits.com Chief Financial Officer Todd Phillips todd.phillips@resummits.com Consulting Editor Dr. Tom Musil tamusil@stthomas.edu Conference Manager | Art Director | Graphic Designer | CE Specialist Alan Davis alan.davis@resummits.com

EDITORIAL ADVISORY BOARD

Russell Fleming rejoins Baker Tilly’s construction and real estate practice Nationally recognized accounting and advisory firm Baker Tilly Virchow Krause, LLP (Baker Tilly) is pleased to announce Russell Fleming has rejoined the firm as a director in the firm’s Minneapolis construction and real estate practice. Fleming brings more than 25 years of public accounting and business advisory services experience.

“I am excited to return to Baker Tilly and to be part of this growing team,” Fleming commented. “I’ve been in the construction and real estate industry for almost my entire career and it’s exciting to be with a team that is as passionate about the industry as I am.”

Fleming provides accounting and advisory services for a wide variety of real estate and construction operations.

Part of Baker Tilly’s firmwide construction and real estate practice, Fleming joins more than 40 partners who specialize in this industry. The practice includes more than 300 professionals, more than 25 of whom are located in Minneapolis.

JOHN ALLEN JEFF EATON MARK EVENSON PATRICIA GNETZ TOM GUMP CHAD JOHNSON BILL WARDWELL JEFFREY LAFAVRE WADE LAU JIM LOCKHART DUANE LUND CLINT MILLER DR. THOMAS MUSIL WHITNEY PEYTON MIKE SALMEN

7767 Elm Creek Boulevard, Suite 210 Maple Grove, MN 55369 For information call 952-885-0815

Dominium Hires Lindsay Johnson as a Communications Specialist Dominium, a Minneapolis-based leading apartment owner, developer and manager, announced that it has hired Lindsay Johnson as a Communications Specialist in its home office in Plymouth, Minn. She joined Dominium in August of 2018.

In this new role, Johnson will be working with the Marketing team on numerous projects. She will mainly be responsible for managing our external and internal communications. The position will promote a positive public image and control the dissemination of information on Dominium’s behalf.

Previous positions Johnson has held include Marketing Intern for Cambria and a Public Relations Intern for Simon Says Give.

Dominium Hires Casey Harris as a Development Analyst Dominium, a Minneapolis-based leading apartment owner, developer and

manager, announced that it has hired Casey Harris as a Development Analyst in its home office in Plymouth, Minn.

She joined Dominium in August of 2018.

In this new role, Harris will be working with the Development and Acquisition team. She will mainly be responsible for assisting Partners & Developers with new project development, acquisition and financing.

Previous positions Harris has held include Project Manager for various Los Angeles based affordable housing developers, such as Thomas Safran & Associates and EAH Housing.

Doran Companies Adds Veteran Attorney to its Legal Team Erica Delain moves from Stinson Leonard Street to serve as corporate counsel Erica Delain, a veteran attorney with 15 years of experience negotiating and documenting real estate acquisitions, sales, and commercial development

October 2018

leases for high profile regional and national clients, has joined Doran Companies in the role of Corporate Counsel.

Doran’s in-house legal team, led by General Counsel Dan West, is vital to all Doran’s business transactions, including: property acquisition, development approvals, construction contracts and other legal matters that arise out of employment and contract negotiations.

Delain, who previously was a partner at Stinson Leonard Street LLP, will provide Doran Companies’ with expert counsel for its commercial development and retail property management units at a time when both are experiencing accelerated growth.

A graduate of the University of Minnesota and the University of WisconsinMadison Law School, Delain has attained a high-degree of peer recognition and professional achievement with numerous articles in industry publications, as co-chair of the Minnesota State Bar Association and her active participation in the Minnesota and International Shopping Center Associations.

Page 6

CBRE Multifamily Completes North Loop Apartment Portfolio Sale CBRE Multifamily arranged the sale of a three-property apartment portfolio in the North Loop neighborhood of Minneapolis to an Institutional Real Estate Investment Manager.

The apartment portfolio includes three properties totaling 308 units recently constructed in the popular North Loop neighborhood: Nolo Flats, Solhavn and Soltvå The Minneapolis-based team of Keith Collins, Abe Appert, Ted Abramson and Ike Hoffman represented the sellers, TE Miller and Solhem Companies. The sale closed October 9, 2018.

In addition to offering boutique luxury living, the apartments in the portfolio were designed to promote sustainability and energy efficiency.

Minnesota Real Estate Journal

“This portfolio acquisition speaks to the confidence and strong demand we are seeing in the North Loop neighborhood, Minneapolis’ hottest apartment submarket,” said Mr. Collins.

Constructed in 2012, Soltvå offers six floors of apartments over underground parking at 701 N. Second Street. The 100-unit building includes a mix of units averaging 762 square feet. The neighboring Solhavn apartments at 815 N. Second Street were constructed in 2013.

The building is comprised of 137 units with an average unit size of 773 square feet. Nolo Flats at 602 N. First Street were built in 2016. The 7-story building includes 71 apartments with an average unit size of 505 square feet.

PR Mortgage & Investments and RICHMAC Funding Rebrand as Merchants Capital Rebrand strengthens investment in remaining the most innovative, trusted and complete financial solutions company in the industry PR Mortgage & Investments, together with wholly owned subsidiary RICHMAC Funding, LLC (“RICHMAC”), a leading national full-service mortgage banking company, announces its rebrand to Merchants Capital. The comprehensive rebrand renews and elevates the company’s commitment to providing and servicing multifamily, senior and student housing.

Merchants Capital will continue to offer all existing financial services, while investing further in brand unity and expert support for its clients. Merchants Capital and its affiliates – includ-

October 2018

ing Merchants Bank – will remain leaders in multifamily affordable housing finance, offering a full suite of products to affordable multifamily owners, including balance sheet, FHA, Fannie Mae and Freddie Mac. Since its inception in 1990, Merchants Capital has originated and closed more than $11 billion in loans and now services in excess of $8.2 billion. In 2017, the company closed more than $1.7 billion in new loans. As of September 30, 2018, Merchants Capital has generated $1.8 billion in new loan production. In 2017, PR Mortgage & Investments acquired RICHMAC, a national Freddie Mac Targeted Affordable Housing Seller/Servicer, Fannie Mae Multifamily Affordable Housing Lender, approved FHA multifamily lender and Ginnie Mae issuer. The seller was an affiliate of The Richman Group.

Page 8

Minnesota Real Estate Journal

October 2018

Hotels From page 1

director of hospitality for Cushman & Wakefield. “Year to date, just about every sector in Minnesota is up in occupancy, ADR and RevPAR. Just about everybody is showing some growth.

There are some exceptions. Bloomington is about even on occupancy, but there’s a big jump in rates.”

Development boom isn’t over, but market anticipates a slowdown Because it’s difficult to find land for hotel development, and financing and construction costs continue to rise, a slowdown in new construction is projected. It’s tough for some developers to obtain lending, since lenders worry that by the time a new hotel is completed, demand for rooms might drop.

Some developers are pulling plans due to the amount of new product and the fact that they don’t want to develop at the top of the cycle.

“A lot of people that have shied away are looking at the amount of new supply in the last two years, which was a 3.8 and 3.5 percent increase year over year,” says Tim Storey, senior associate Capital Markets – Hospitality at Cushman & Wakefield. “But demand has gone up,”

Graves Hospitality is building a Marriott Moxy hotel as part of the Ironclad development in downtown Minneapolis.

he adds. “It has never deviated. Our economy is strong locally and accelerating beyond our market as well.”

The Compass Report points out that

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Minnesota Real Estate Journal

October 2018

Hotels from page 8

lis in August was 84 percent, representing a 4.9 percent increase over last year, STR reports. RevPAR increased 9.6 percent to $138.82, and ADR was up 4.5 percent.

Approximately 1,900 new rooms are proposed or under construction, Compass reports. Large national events like the NCAA Men’s Final Four in 2019 are helping drive demand for rooms. (The Super Bowl also was a big win for hotels).

Noteworthy projects include: The Elliott Park Hotel, which is part of Minneapolis-based Kraus-Anderson’s headquarters redevelopment at Fifth Avenue and Ninth Street, recently opened. The 168-room luxury hotel is part of the Marriott Autograph Collection.

In other activity, Minneapolis-based Sherman Associates is renovating the Thresher Square building, at 724 Washington Ave. S., into a 183-unit Canopy

by Hilton hotel. It will open in early 2019 in time for March Madness.

Also, Minneapolis-based Graves Hospitality Corp. is partnering with the Kharbanda family to redevelop a parking lot at the southeast corner of Chicago and Washington avenues, near U.S.

JR Hospitality and Hawkeye Hotels are building a Fairfield Inn & Suites in Shakopee.

Bank Stadium. The project is called Ironclad. As part of the redevelopment, a Marriott Moxy hotel is under construc-

tion. The hotel is slated to open next spring.

“Moxy is a new lifestyle brand under

the Marriott portfolio of hotels,” says Ben Graves, president and COO of Hotels to page 12

Page 12

Minnesota Real Estate Journal

October 2018

Hotels from page 10

Graves Hospitality, adding that Graves has four Moxy’s in the works, including two in the Twin Cities.

Graves also opened the Moxy Minneapolis Uptown in February. It’s six stories and 125 rooms at the corner of Lake Street and Emerson Avenue. It’s the first hotel built in the Uptown neighborhood in decades.

“It was challenging to find a place to be able to do a hotel there,” Graves says.

“The barrier to entry from a developer’s perspective was very high, because you’re competing with all of the housing projects in the neighborhood. That has been really fun.”

In other activity, Eagan-based JR Hospitality -- one of most active hotel developers in the Twin Cities —has teamed up with Coralville, Iowa-based Hawkeye Hotels and they have a dozen local projects in the works.

“The total number of brands we’re developing right now is 22 hotels including the Twin Cities, Milwaukee and we also have a site in downtown Denver,” says Jay Bhakta, who runs JR Hospitality with his cousin Roshan Bhakta.

“They’re young and aggressive and have a great partner in Hawkeye,” Thomas says of JR Hospitality.

Graves Hospitality opened the Moxy Minneapolis Uptown in February.

“They’re hard-working, smart and doing a great job. They’re digging up some outstanding opportunities.”

Currently, two of JR Hospitality and Hawkeye’s developments are in down-

town Minneapolis. One project is a 115room Cambria Hotel and 100-room Fairfield Inn at Hawthorne Avenue between 10th and 11th streets, near Target Center. The developers obtained city

approvals and plan to start construction by year-end, depending on the weather.

The site was once a Ramada hotel.

Hotels to page 14

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Minnesota Real Estate Journal

October 2018

Hotels from page 12

JR Hospitality and Hawkeye also have plans to renovate the historic William McGee building at 317 Second Ave. S. into a 201-room, dual-branded Tru by Hilton and Home2 Suites hotel.

Plans are to start construction before the end of the year, and it’s about a 12month construction.

Even though there’s been a surge in downtown hotel development that has temporarily flooded the market, Bhakta believes demand will continue to grow.

“While we’ve seen 15 percent supply growth, there’s still 10 percent demand growth, which is pretty amazing,” he says, adding that city of Minneapolis is doing a good job of bringing new events to the area, which fuels the need for rooms. Also, he points out that downtown overall is seeing significant housing, office and retail development.

Bloomington market continues to thrive Occupancy in the Bloomington/Mall of America/airport submarket was 82.9 percent in August, which was a 3.4 percent decrease over last year, STR reports. However, RevPAR increased 0.6 percent and ADR was up 4.1 percent.

The submarket has about 1,800 rooms planned or underway, according to Compass.

JR Hospitality and Hawkeye Hotels received approval to build a Spring Hill Suites in Arden Hills.

Noteworthy projects include: The new InterContinental Minneapolis – St. Paul Airport Hotel, which is skyway-connected to Terminal 1, fully opened in September and was developed by Graves Hospitality. It’s the first hotel to be developed on Minneapolis-

St. Paul International Airport property.

“It was a tricky project, obviously, working with all of the governmental agencies,” Graves says. “There was an RFP process to begin with. It was a hard-fought project. A lot of people wanted it. So after winning the RFP, the

real work began.”

The price tag was $91 million for the 12-story, 291-room luxury hotel and adjoining skyway. It includes 30,000 square feet of event space, a private Hotels to next page

October 2018

lounge, spa, fitness center, and three restaurants. Also, there’s a separate TSA checkpoint in the third level of the hotel.

Meanwhile, JR Hospitality and Hawkeye acquired about 4.5 acres in two separate transactions in the South Loop district, near Mall of America, paying a total of just over $2.3 million for the land. They bought one site from the Metropolitan Airports Commission and the other from SkyWater Technology Foundry. They’re planning to develop a 150-room Hyatt House, which is a new concept to Minnesota.

“The concept is an upscale, extendedstay hotel,” Bhakta says. He expects it to open in 2020.

They also have a Holiday Inn Express under construction at American Boulevard and 12th Avenue. Previously, the Bhakta family operated a motel on the site. As teenagers, Jay and Roshan worked the night shift at the motel.

“It’s kind of cool seeing it torn down and becoming a brand-new, five-story, 171-room hotel,” Bhakta says. The hotel will open next March.

JR Hospitality and Hawkeye are also converting Bloomington’s eight-story GuestHouse Inn into a Courtyard by Marriott. The hotel, which prior to the GuestHouse Inn flag was the Park Plaza hotel, is at Interstate 494 and France Avenue. The renovated hotel will have 209 rooms and 13 suites.

Minnesota Real Estate Journal

Page 15

Graves Hospitality’s Moxy Minneapolis Uptown is the first hotel built in the Uptown neighborhood in decades.

“We’re in the middle of a complete renovation,” Bhakta says. “We want you to feel like you’re coming into a new hotel even though it was built in 1986.”

A spring opening is planned.

In other activity in Bloomington, Cape Girardeau, Mo.-based Drury

Hotels Co. acquired a site on Minnesota Drive – just north of I-494 and France Avenue -- to build an upscale, ninestory, 214-room Drury Plaza Hotel. It will be the first Drury Hotel in Minnesota.

Downtown St. Paul sees robust activity Occupancy in downtown St. Paul in August was 76.8 percent, which is a 0.3 percent increase over last year, STR reports. RevPAR increased 0.7 percent and ADR was up 0.5 percent. DownHotels to page 19

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Minnesota Real Estate Journal

October 2018

Production Shortfall Compounds Affordable Housing Problem in the Twin Cities Dougherty Mortgage report documents increasing rental production, but still far less than what is needed

A Decade’s Worth of Production: 2010 – 2019 (U/C) New Affordable Rental Units Delivered Twin Cities Metro Area (7 Counties) 1,800

M

ost agree that affordable housing is vital to help create stable families, well-performing students, strong communities and a thriving economy. Without enough affordable housing, many families and individuals struggle financially and a large percentage of low- and moderate-income renters must settle for housing that is poor in quality, too expensive, or both.

In September 2018, Dougherty Mortgage (doughertymortgage.com) published a report on the current market for affordable rental housing in the Twin Cities. It examines housing affordable to households earning at or below 60% of Area Median Income (AMI), which equals about $56,600 today for a four-person family or $39,700 for a single person in the Twin Cities. The report found that while the recovery of the broader housing market after the 2007-2011 collapse was wel-

come news for many, the delivery of new units has been uneven across renter groups. Much needed new construction has largely served middleand upper-income renters, understandable given years’ worth of pent-up demand from the recession and the decades-long growth of Baby Boomer and Millennial renter groups. However, construction targeted to low- and moderate-income renters has grown much more slowly this decade, with production totals falling far short of need. Unfortunately, the Twin Cities affordable housing problem is worsening.

Strong Production in the Urban Core; Great Shortage in the Outer Suburbs Clearly, progress has been made over the current decade. Annual production of affordable rental units in the Twin Cities rose from just 363 units in 2010 to roughly 1,700 units expected to be delivered this year. In total, more than 8,900 new affordable rental units have been constructed thus far in the

Targeted Populations* 1,600 Age Restricted (Senior) 1,400

Number of New Units

By Thomas G. O’Neil, Dougherty Mortgage LLC

General Occupancy/Family 1,200 1,000 800 600 400 200 – 2010

2011

2012

2013

2014

2015

2016

2017

2018

2019 (U/C)

Source: Dougherty Mortgage Multifamily Database * Includes veterans, long-term homeless, youth, persons with mental health or chemical dependency challenges, persons with physical or cognitive impairments and other populations with specific supportive needs.

Twin Cities this decade (through 2018).

More than six in ten new units have been built in the dense urban core in Minneapolis, St. Paul and the first-ring suburbs. Only about 39% of new affordable rental units have been built in the second- and third-ring suburbs and exurban communities. These latter areas hold upwards of 63% of the Twin Cities population and 54% of the jobs.

Clearly, much more affordable housing should be built in the outer suburbs to

meet strong demand there.

Uneven Patterns of Product Delivery for Different Renter Groups The affordable rental market centers on three broader renter groups: general-occupancy tenants, seniors, and targeted populations that often require supportive services. This latter category includes at-risk/homeless youth, veterans, persons with cognitive or physical impairments and other specific groups.

October 2018

Across the Twin Cities, new units for general-occupancy renters – including families with children – have been built mostly in Minneapolis and St. Paul, while 38% have been built in a suburban or exurban location. Again, the suburbs need much higher levels of production to serve the expanding base of singles, couples and families in need of affordably-priced rental units.

Conversely, the suburbs have done much better in serving seniors. Approximately 84% of new affordable rental units for seniors delivered this decade have been located in the Twin Cities suburbs, nearly 2,700 units in all. The first-ring suburbs and the southeast suburbs have led the way with the majority of new units developed by Twin Citiesbased Dominium and Dakota County CDA. Units for targeted populations have accounted for only 11% of all new affordable rental housing this decade, about 975 units total. Sites for targeted populations are more difficult to secure for a variety of reasons, but proximity to transit and supportive services are key factors. Central-city and first-ring suburban locations provide the best access to both. Roughly 84% of the new units this decade for targeted populations were built in Minneapolis or in the firstring suburbs. There have been virtually no units for targeted populations built in the outer suburbs since 2010.

Minnesota Real Estate Journal

Big Challenges Remain In October 2017, the Metropolitan Council published estimates of the need for affordable housing across the Twin Cities. Using these figures, Dougherty Mortgage calculated that roughly 42,000 new affordable rental units were needed between 2010 and 2019. With only 8,900 units delivered thus far through 2018, the Twin Cities will fall far short of demand this decade – nearly 32,000 units short. Since low- and moderate-income renters new to the market must necessarily have a place to live, the production shortfall of affordable units this decade will be manifested in the next decade by many more renters living in private market units that are far too expensive for them (“cost-burdened”).

Further compounding the current problem are the waves of Millennials (b.

1981-1996) and Baby Boomers (b.

1946-1964), the two largest demographic groups in the nation’s history. Both have converged on the rental market at the same time. A persistent homeless population of 6,000+, rising construction, labor and mortgage costs, rising rents in the face of stagnant wages, and ongoing opposition to new affordable housing development also exacerbate the affordable housing problems in the Twin Cities.

Emerging Tools to Help Development Federal programs to fund affordable housing construction and preservation

have not expanded enough to keep pace with the growing need, or they have had their budgets reduced. In response, state and local governments are trying to provide more help. For example, the Minnesota Legislature passed a law in 2017 to encourage communities to establish local housing trust funds (LHTFs) that could help fund new affordable developments. Legislation has also been proposed to create the Tax Credit Contribution Fund, which would allow Minnesota taxpayers to contribute funds to affordable housing development in return for equal credit against their state income tax liability.

Local governments in the Twin Cities are pursuing important measures as well, including TIF pooling, inclusionary zoning laws, tenant protection ordinances, and gap funding for new projects. TIF pooling uses the excess tax revenues from established tax increment financing (TIF) districts to help fund new affordable developments in a given city. Inclusionary zoning ensures that a certain percentage of units (often 10% to 20%) in new, larger developments will be priced at affordable rents. Tenant protection ordinances have been enacted in some cities to help mitigate the great disruption to families as buildings are gentrified and rents are dramatically raised.

Great Value in Meeting the Challenge It is well-documented that providing

Page 17

new affordable housing has strong and lasting benefits for communities of all types. Affordable housing is a vital component in the overall mix of housing for any community, just like starter homes, move-up homes, senior housing and market-rate apartments are. As well, employers are very interested in having their workers live in close proximity to their jobs.

Overall, affordable housing stabilizes families and local institutions (particularly schools), adds high-quality dwellings for working families and individuals, creates local jobs, leverages public infrastructure and increases the tax base. And we can’t grow economically if we don’t offer appropriatelypriced housing for those who provide the bulk of the products and services we all use.

Dougherty Mortgage’s report on affordable rental housing in the Twin Cities can be found on the company’s home page at doughertymortgage.com.

Thomas G. O’Neil is Vice President of Market Development for Dougherty Mortgage LLC.

Page 18

Hastings From page 1

in the past several years. So far in 2018, Oppidan has been involved in 98 development projects in 28 states across the country. Those projects have a total value of $461 million.

Oppidan founder and owner Joe Ryan says Hastings will further position Oppidan to continue its national growth. Ryan will remain as Oppidan’s CEO. “Blake will bring a new perspective to an already very successful and talented team and help us grow into the future,” Ryan says. “He’ll bring a little youth to a firm that I started 28 years ago. The guy obviously is high on the integrity side, has a strong work ethic and he’s a good man.”

Hastings is looking forward to the new opportunity.

“Over the last 10 years, Oppidan has had such great growth that more infrastructure was needed to help drive continued growth and strategy within the company,” he says. “I’ve been talking to Joe about this and it made sense to add some more leadership and help out with the contin-

Minnesota Real Estate Journal

ued growth of the company.”

Hastings will oversee Oppidan’s strategic direction, expansion and operation in the senior housing, mixed-use, office, industrial, retail and multifamily sectors.

“In this role, I still will be providing leadership to the general company, spending time on business development, but they’ve already got a development team of eight individuals,” Hastings says.

“They’ve got a great amount of expertise there. With my vast view of the real estate market coming from CB, it just adds a layer of strategic thinking to help continue to grow that team. “ Hastings also wants to stay in the Twin Cities market. There was a chance that he would have to relocate if he wanted to continue to grow his career at CBRE. “I love Minneapolis,” the Tulsa, Okla., native says. His wife, Carey, is a Twin Cities native, and they have four children ranging in age from two to 11. “We’ve got a large family here, so we decided Minneapolis is where we want to call home.”

Hastings also recently needed the support of his family. He faced a serious health crisis last year, hav-

ing been diagnosed with a type of malignant tumor called Ewing’s Sarcoma in his left foot. Part of his foot was amputated and he underwent chemotherapy. He has been cancer-free since last November.

“I had a very hard nine months in 2017,” he says. “But physically and emotionally, I feel like I never went through it, which is great. The only thing I can’t do -- that I don’t like to do-- is run, which is a good excuse not to. Every other physical thing I ever did before, I have no problem.”

Hastings says Ryan, who is his wife’s uncle, offered support throughout his treatment.

“Joe and I have become close friends,” he says. “He was a great supporter of mine during my cancer treatment, which allowed us to grow a great friendship. And I’m excited to work with him. He’s a great real estate mind, and it will be fun to continue my evolution in learning from one of the great deal people in the country.”

Prior to joining CBRE, Hastings was a top broker at Cassidy Turley’s Phoenix office. Although Hastings was trained as a broker, he’s also been involved in development.

“I was a broker in the Phoenix area, but there was so much devel-

October 2018

opment that as a broker, you’re part of it,” he says. “I was part of about 20 developments in my career down there, so I got to see it from the advisory/representation side, and now I get to see it from the nuts and bolts. I love process so this will be fun to be part of that process.”

Following Hastings’ announcement to step down from CBRE, the company released a statement saying John Latessa, CBRE’s Midwest Division president, and sales director Jeff Jiovanazzo will “lead all operations on an interim basis while it initiates a process to identify the best candidate for this tremendous opportunity to serve as CBRE’s Minneapolis market leader.”

“Oppidan is a great company and a long-time CBRE client,” the statement said. “We look forward to opportunities to work with Blake as a client.”

October 2018

Minnesota Real Estate Journal

Page 19

Hotels from page 15

town has about 500 new rooms proposed or underway, reports Compass.

Noteworthy projects include: Bloomington-based Kaeding Management Group is planning a new hotel across from Xcel Center as part of the Cleveland Circle/Seven Corners Gateway site. With a proposal from the Opus Group and Greco Management at a “standstill,” St. Paul’s HRA designated Kaeding as the main project partner for the site, reported the Pioneer Press.

Opus will remain part of the development as a housing developer while Kaeding will oversee the whole development and design and build the hotel.

Developer James Crockarell of St. Paul-based Madison Equities is converting the Park Square Court Building in Lowertown into a 129-room Marriott Tribute hotel.

Also, the Raymond Group out of Wisconsin is developing a 185-room SpringHill Suites at 472 Jackson St., a few blocks from Regions Hospital.

Additional noteworthy suburban hotel activity MV Eagan Ventures -- a real estate arm of Minnesota Vikings owners Zygi, Mark and Leonard Wilf -- submitted plans for a four-star hotel and conference center just east of the new Vikings

headquarters in the Viking Lakes development in Eagan. The project would include 320 guest rooms and suites and 18,000 square feet of meeting space.

Also, JR Hospitality and Hawkeye broke ground on a Hampton Inn in Lakeville, received approval to build a

Spring Hill Suites in Arden Hills, and are under construction on a Fairfield Inn & Suites in Shakopee.

Meanwhile, TPI Hospitality opened a 126-room AC by Marriott in St. Louis Park in March, is developing a 190room, co-branded Residence

Inn/Springhill Suites in Maple Grove that will open in fall 2019, and is developing a 105-unit Hampton Inn in Eden Prairie that will open in late 2019.

Page 20

Minneapolis Developer’s Secret Weapon in the Amenities Arms Race Clare Kennedy, Minneapolis / St. Paul Market Reporter CoStar Group In a market where competition for renters is fierce and golf simulators and rooftop pools have become almost hohum, Minneapolis developer Schafer Richardson is taking a creative approach to its latest luxury apartment development. One of its projects in the city’s North Loop neighborhood will have what company Co-Founder and Principal Brad Richardson called a “winter garden” that will be lush and green year round.

It will be a signature amenity at the 139-unit, six-story apartment building the company expects to build at 721 N. Third St., Richardson told the audience during a panel discussion on downtown development earlier this month.

The winter garden could give the

Minnesota Real Estate Journal

building a competitive edge as hundreds of new apartments come online after a prolonged burst of investment and activity, one that the developers present at the summit felt may be coming swiftly to a close.

“We should all be concerned. There is supply coming on that is going to have to get absorbed, and it is very hard to make the figures work right now because construction figures are going up, rents are basically flattening and there are concessions coming into the market,” said Bob Lux, founder or Minneapolis developer Alatus. “It is a challenging time. There is a good chance that the boom we have seen in apartments will taper very quickly.”

The feature will be more like a solarium than a garden in the traditional sense, said Schafer Richardson’s Director of Development Maureen Michalski. She described it as a firstfloor room on the south side of the building, which will be flooded with natural light and outfitted with a living

wall of plant life about 12 feet to 14 feet high and long. In warm months, Schafer Richardson will be able to open it up onto green space outside.

The final product will be serene and spa-like, she said, with fluid transitions between indoors and outdoors, the natural and the artificial.

The wall is also a concession to the climate of Minneapolis – a city notoriously hard-bitten by winter, buffeted by 54 inches of snow in an average year and minimum temperatures that typically begin falling beneath 32 degrees in early October and stay there until late April, according to the Minnesota Department of Natural Resources.

“It will allow light in during winter for those of us who get a little seasonal affective disorder,” Schafer said.

The living wall is rare, but not unheard of, in Minneapolis multifamily buildings. Mill District City Club Apartments, a complex built on the east side of downtown in 2011, has a

October 2018

hallway lined with a living wall comparable in size to Schafer Richardson’s.

Nevertheless, large-scale, permanent incorporation of living verdure into interior spaces is still a bit of a novelty here and in hypercompetitive apartment markets like New York. Residents are invited to cultivate their own food and flora at the 1,100-square-foot glass greenhouse at ARC, Lightstone Group’s lavish new apartment building in Long Island City, which was distinctive enough to merit mention in the New York Times and Forbes.

ARC leased up in less than 10 months, according to Lightstone, whose executives described the greenhouse as “an enormous selling point” in a recent Times article, which also highlighted a two-year-old apartment building in Brooklyn, The Margo, which has a living wall inside and a rooftop garden for residents to plant in as well.

Schafer Richardson’s winter garden

October 2018

will be just one of a list of thoughtful amenities, Michalski said. The building will also offer a coworking space and a library, in addition to bicycle storage, a rooftop deck and others that are now de rigeur. Plans for the North Loop building include connecting it with a public space to the north owned

by Minneapolis’ Park Board.

Schafer Richardson hopes to break ground on the first phase of the project in January, and will likely wrap up construction in late spring of 2020.

Depending on how it performs and how the market evolves, Schafer Richardson could build an even more elaborate development on the two acres it owns immediately west of the site.

Minneapolis Suburb May Scrap Affordable Housing Project on ‘Prime’ Land

Minnesota Real Estate Journal

Clare Kennedy, Minneapolis / St. Paul Market Reporter CoStar Group A $120 million, mixed-used project proposed for public land in the Minneapolis suburb of St. Louis Park is foundering after a nonprofit developer failed to secure financing.

If PLACE, a Minneapolis-based developer of sustainable communities, cannot locate funds in the next 30 to 60 days for its proposed project, the city of St. Louis Park will likely put the 5.2acre site back on the open market.

PLACE intended to fund the project through the sale of tax-exempt bonds and low-income housing tax credits but says that these sources were impacted by the Republican tax bill passed in December 2017.

The Low-Income Housing Tax Credit program is less attractive now that tax rates have been reduced, which has led to less demand for the credits.

Low demand has led to lower pricing,

which is a major financing hurdle for developers of affordable housing across the United States.

Last week in St. Louis Park, the City Council’s patience and generosity appeared to be wearing thin.

“At this point I have no confidence in this,” said Council Member Steve Hallfin during a public discussion of the PLACE project, known in planning stages as Via Sol and Via Luna.

Hallfin’s fellow council members voiced similar reservations, lamenting the time and opportunity already lost to build on the land, which was frequently described as “prime” real estate. Council Member Rachel Harris said that if a request for proposal were to be issued, it would likely attract interest from developers in Minneapolis and perhaps national players.

Nevertheless, the council decided to grant PLACE a brief reprieve and put the matter to a final test at a Nov. 5

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meeting of St. Louis Park’s Economic Development Authority.

It has been a long and winding journey already. The city granted PLACE a purchase and redevelopment contract in May 2017, though the project has been in the works in some form for five years. The developer’s original plans call for a sweeping, multipart complex on the property.

The L-shaped collection of parcels is situated just southwest of the junction between Highways 7 and 100. The development would be on either side of the Wooddale light rail station, a stop on the Southwest Light Rail, which will connect downtown Minneapolis to Eden Prairie once operational in 2023.

PLACE’s vision for the north part of the development is called Via Sol, and includes a five-story building with 217 apartments and 5,200 square feet of retail, and a one-acre urban forest with a playground and public art. The pièce

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de résistance is a 10,200-square-foot greenhouse with a custom-made anaerobic digester that converts organic waste into renewable energy in the form of biogas.

Via Sol would be complemented by Via Luna on the south side of the complex, consisting of a six-story apart-

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ment building with 81 units, a 4,000square-foot coworking space and a sixstory, 100-key Marriott Fairfield hotel.

According to the plans approved in May 2017, about two-thirds of the apartments were to be classified as affordable, a high number for new multifamily projects in Minneapolis-St.

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Paul. As one council member noted, most apartment developers pitch projects where only a small portion of the units are affordable, say 10 percent, and the other 90 are market rate.

Cost estimates for Via Sol came in at $64.6 million, while Via Luna would need about $55 million to construct.

PLACE was supposed to close on the site by the end of April 2018, paying a purchase price of almost $6.43 million for the land, offset by a $1.5 million loan from the city to aid the acquisition. Construction was set to begin in May. That deadline came and went, but the council agreed to split the deal in two and push the new closing dates back, to June 15 for the northern portion of the site and Nov. 21 for its counterpart to the south.

PLACE chief executive Chris Velasco clarified that earlier versions of the tax bill would have eliminated the

October 2018

Low-Income Affordable Housing Tax Credit program and the private activity bonds that PLACE was depending on.

Ultimately, those provisions were taken out and the financing vehicles were preserved. Nevertheless, the whole episode had a chilling effect that was hard to shake, Velasco said.

“Purchasers of bond and tax credits simply walked away from projects by the hundreds,” Velasco wrote in an email.

PLACE tried and failed to secure conventional financing, and now is asking the council to amend the contract for a fourth time, which would delay closing for the north half to November or December. The southern half would then be purchased at a later time, possibly June 2019.

The nonprofit also asked the city to consider approving $50 million in conduit bonds for parts of Via Sol, and reissue the $27.2 million in housing

October 2018

bonds for the Via Luna apartment building.

While the bond request would not put the city on the hook nor reduce its own bonding capacity, the council did not appear inclined to do so unless PLACE could provide proof that it could pull the development off, preferably in full.

PLACE has gotten ample public assistance in its bid to build at the site.

All told, the project was to benefit from about $14.7 million in grants, loans and other kinds of financial assistance from various entities including the city of St. Louis Park, Hennepin County, the Metropolitan Council, and the Minnesota Department of Employment and Economic Development.

Velasco said that PLACE can make the project work by tweaking the number and nature of the affordable units.

Some will be slightly more affordable than initially planned, with rents cali-

Minnesota Real Estate Journal

brated to those earning not 60 percent, but 50 percent of the area’s median income – which stood at $90,400 in 2018. Other units will be more expensive though still affordable, aimed at tenants making 80 percent of the area’s median income. With these changes, the development will have enough income to sustain a tax-exempt bond, he said.

If PLACE is able to secure financing, the nonprofit says it would begin construction in December, with completion of Via Sol in January 2020 and Via Luna later that year, said St. Louis Park Community Development Director Karen Barton.

Velasco assured the council that a Hail Mary was possible.

He noted PLACE’s flagship development in Ventura, California, was plagued with almost insurmountable challenges. WAV, called the “country’s first sustainable arts community” on

PLACE’s website, features market-rate penthouses that support live/work suites for low-income artists. Green building technology is used throughout, including recycled building materials and solar panels to harness the sun’s energy.

PLACE’s lender went bankrupt during construction, Velasco told the council. The project’s first and second

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title companies also went bankrupt, as did a number of subcontractors, leaving WAV without doors and windows.

Nevertheless, the community was completed in 2009.

“We’ve done it before under impossible circumstances, and we can do it again,” Velasco said.