MREJ September 2015 by REjournals

VOLUME 31, NUMBER 09

September 2015

Former Macy’s in Saint Paul to become training home to NHL’s Minnesota Wild? By Dan Rafter, Editor

he former Macy's building in downtown Saint Paul, Minnesota, has been one of the more conspicuous empty spaces in the booming Twin Cities market. Those days, though, are coming to an end. The former department store will soon become a key mixed-use development for downtown Saint Paul. And Excelsior, Minnesota-based Oppidan Investment Company will play a key role in making this happen as the project's developer.

Oppidan is teaming with the Saint Paul Port Authority to take on the $60 million 515,000-square-foot building project. Construction on the new mixeduse project -- which will be located in a block bounded by Wabasha, Cedar, Sixth and Seventh streets -- is expected to begin in the spring of 2016. Oppidan will own 90 percent of the redeveloped building. Construction crews will not demolish the former department store, but will instead “re-skin” it, transforming it into a building with a modern look. "This is such a unique project," said Paul Tucci, vice president of development with Oppidan. "We have been asked what qualifies us over others to do Macy’s to page 14

Industrial market strong in Twin Cities: Minneapolis, St. Paul sees record amount of new construction By Dan Rafter, Editor

evelopers in the Twin Cities are building new industrial facilities – many of them speculative – at a record-setting pace. Just ask John Ryden, a senior vice president and

industrial specialist with the Minneapolis office of CBRE. He’ll tell you that the Minneapolis/St. Paul industrial market is busier than it’s ever been. The Twin Cities industrial market is on track to see 5.1 million square feet of new construction this year, Ryden said. About half of this is spec construction, he said. “We have very strong activity in this market today,”

Ryden said. “In terms of net absorption and new construction, we are seeing record-setting activity. It’s nice to see, and it’s nice to be a part of it.” Ryden said that the Twin Cities market had a net absorption of 2.3 million square feet of industrial space in the first half of the year. In 2013 and 2014, the same Industrial to page 14

September 2015

Contents

Minnesota Real Estate Journal

SEPTEMBER 2015 • VOLUME 31, NUMBER 09

FORMER MACY’S IN SAINT PAUL TO BECOME TRAINING HOME TO NHL’S MINNESOTA WILD? INDUSTRIAL MARKET STRONG IN TWIN CITIES: MINNEAPOLIS, ST. PAUL SEES RECORD AMOUNT OF NEW CONSTRUCTION

CUSHMAN & WAKEFIELD|NORTHMARQ’S OHMES: CREDIT DIVERSE ECONOMY FOR TWIN CITIES’ CRE STRENGTH

GRANDBRIDGE REAL ESTATE CAPITAL’S PERRY: OVERBUILDING IN MULTIFAMILY? NOT YET

THERE JUST AREN’T ENOUGH LOW- TO MODERATELY PRICED HOMES FOR SALE

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Departments PEOPLE

NEWS

The Minnesota Real Estate Journal (ISSN 08932255) is published monthly for $85 per year by Minnesota Real Estate Journal, 13700 83rd Way STE 206, Maple Grove, MN 55369. Phone: 952-885-0815. Periodicals postage paid at Minneapolis, MN. POSTMASTER: Send address changes to Law Bulletin Publishing Co, 415 State Street, Chicago IL 60654. Lanning Macfarland, Jr. chairman; Sandy Macfarland, CEO; and Brewster Macfarland, president. Back issues $10.00. Subscriptions are non-refundable. For more information call 952-885-0815. ©2015 Law Bulletin Publishing Co. No part of this publication may be reproduced without the written permission of the publisher.

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Minnesota Real Estate Journal

September 2015

People a division of Law Bulletin Publishing Co.

Knutson Welcomes Lance Hornaday 13700 83rd Way STE 206 Maple Grove, MN 55369 For information call 952-885-0815

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

EDITORIAL ADVISORY BOARD JOHN ALLEN Industrial Equities ROBERT ANGLESON Navigator Real Estate RICK COLLINS Ryan Cos. US Inc. JEFF EATON Cushman & Wakefield/NorthMarq

Knutson Construction is pleased to announce that Lance Hornaday has joined the firm as the general manager for the Minneapolis division. As the general manager for the Minneapolis division of Knutson Construction, Lance will be responsible for the overall success of all aspects of our Minneapolis office, including operations, client relationships, and delivering the Knutson Experience on all of our projects. "Lance is well-known and respected within the industry," said Dave Bastyr, Executive Vice President of Minnesota Operations "His technical background, knowledge of the industry and strong strategic skills will play a key role in delivering The Knutson Experience to our clients." Lance holds a Bachelor of Science degree in construction management from Michigan State University and a MBA from the University of Illinois. Lance has 25 years of experience working in the construction industry with a broad base of project types and joins

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

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13700 83rd Way STE 206 Maple Grove, MN 55369

Knutson from Chicago's W.E. O'Neil Construction Company, where he was most recently in the role of project executive.

SEVERSON JOINS CBRE DATA CENTER PRACTICE CBRE announces the hiring of Brett Severson to join the Data Center Solutions team. The new role expands CBRE’s presence in the data center market – a fast-growing sector nationwide. Severson will focus on data center requirements in the Minneapolis and upper Midwest markets. He joins more than 100 other professionals on CBRE’s international data center team. Prior to joining CBRE, Severson started the Minneapolis/St. Paul data center practice group for Jones Lang LaSalle. Since then, Brett has executed more than 400,000 square feet and 9MW’s of data center transactions on behalf of clients and led the creation of JLL’s Minneapolis/St. Paul data center research initiative. “We are excited that Brett is joining our CBRE team in Minneapolis. His expertise in the data center space will be a great additive service line in the booming data center field,” said Blake Hastings, managing director of CBRE’s Minneapolis office. Technology, financial services, health care and social media companies are driving the demand for data centers nationwide, according to the latest research from CBRE. Minneapolis is an emerging market where cost for space is still moderate compared to peers.

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

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WHITNEY PEYTON CB Richard Ellis MIKE SALMEN Transwestern STEWART STENDER Stewart Capital Partners

a division of Law Bulletin Publishing Co. 113700 83rd Way STE 206 Maple Grove, MN 55369 For information call 952-885-0815

“CBRE’s Data Center Practice views the Minneapolis/ St. Paul region as a high growth market for our data center services,” said Pat Lynch, managing director of CBRE Data Center Solutions. “The addition of Brett Severson solidifies our opportunities to service existing clients and significantly grow new client opportunities in this emerging and key US data center market.”

Harry Melander has Joined Dougherty Funding LLC as Executive Vice President Dougherty Funding LLC is pleased to announce Harry Melander Jr. has joined the firm as Executive Vice President. Harry’s career spans over 35 years and includes positions at the Minnesota State Building & Construction Trades Council, St. Paul Building & Construction Trades Council, Southern District Council of Carpenters and the Minnesota Statewide District Council of Carpenters. Harry has also served on multiple boards and committees and currently sits on the Metropolitan Council (District 12); Ever Green Energy; Union Bank & Trust Board; Saint Paul Port Authority Board (Chair); Washington County Board of Adjustment (Chair); and Twin City Housing & Redevelopment Corp. Mr. Melander holds a B.S. degree in technology/ education from the University of Wisconsin - Stout, with additional studies at the University of Minnesota and the University of Oregon.

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News MARCUS & MILLICHAP ARRANGES THE SALE OF A 71-ROOM HOSPITALITY PROPERTY Marcus & Millichap (NYSE: MMI), a leading commercial real estate investment services firm with offices throughout the United States and Canada, today announced the sale of Ramada Wisconsin Dells, a 71-room hospitality property located in Wisconsin Dells, Wisconsin, according to Craig Patterson, regional manager of the firm’s Minneapolis office. The asset sold for $3,500,000. Jon Ruzicka, Senior Broker and hospitality investment specialist in Marcus & Millichap’s Minneapolis office had the exclusive listing to market the property on behalf of the seller, a limited liability company. The buyer, a limited liability company, was secured by Jon Ruzicka along with Matthew Fitzgerald, Broker and Regional Manager of Marcus & Millichap’s Milwaukee office,

Minnesota Real Estate Journal

who assisted in closing this transaction. Speaking with Mr. Ruzicka, “The hotel generated considerable interest. It has been extensively renovated and continually ranked amongst the top tier of Ramada properties within the Wyndham system. It featured many of today’s desired amenities including: elevator, indoor pool, and porte cochere. It was in turn key condition with a minimal franchise mandated property improvement plan. The entire Interstate 94 corridor between Minneapolis and Milwaukee is a highly sought after hotel market and the Wisconsin Dells area itself is evolving into more than just a summer market. Numerous investment groups toured through the property and multiple offers were procured prior to selecting the ultimate buyer. The Ramada Wisconsin Dells marks the second hotel that Jon Ruzicka out of Minneapolis’ office of Marcus & Millichap has sold in Wisconsin Dells over the past year.” Ramada Wisconsin Dells is located at 1073 Frontage Road East in Wisconsin Dells, Wisconsin.

MARCUS & MILLICHAP ARRANGES THE SALE OF A 34,400-SQUARE FOOT RETAIL PROPERTY Marcus & Millichap (NYSE: MMI), a leading commercial real estate investment services firm with offices throughout the United States and Canada, today announced the sale of Park Commons, a 34,400-square foot retail property located in Brooklyn Park, Minnesota, according to Craig Patterson, regional manager of the firm’s Minneapolis office. The asset sold for $7,130,000. Sean Doyle, Matthew Hazelton, Cory Villaume, and Adam "AJ" Prins, investment specialists in Marcus & Millichap’s Minneapolis office, had the exclusive listing to market the property on behalf of the seller, a limited liability company. Additionally, they secured and represented the buyer, a limited liability company. Speaking with Mr. Hazelton, “Interest in Park Commons was driven largely by its balanced rent roll, which consisted entirely of national tenants. The

September 2015

marketing of the center generated multiple offers from investors across the country, indicating the trend of coastal capital migration continues. Ultimately, the property sold to an investment group participating in a tax deferred exchange.” Park Commons is located at 7625 Jolly Lane in Brooklyn Park, Minnesota.

Dougherty Funding LLC Closes $3.8 Million Loan for Liberty Crossing Land Dougherty Funding LLC has closed on a $3.8 million loan for the acquisition of four parcels of land for the future development of a market rate apartment and townhouse complex, Liberty Crossing. The four parcels (10.84 acres) of land are located near the SE corner of Winnetka Avenue and Medicine Lake Road in Golden Valley, MN. The acquisition financing was arranged for Liberty Crossing Investment Partners, LLC. Dougherty Funding LLC serves as lead lender, construction disbursing agent and servicer for the loan.

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Minnesota Real Estate Journal

Dougherty Funding LLC Closes $7.2 Million Loan for The Manor Dougherty Funding LLC has closed on a $7.2 million refinance loan for The Manor, an assisted living community located in Little Rock, Arkansas. The newly constructed 75-unit Level II assisted living facility began accepting tenants in June 2013 and contains 25 studios and 50 one-bedroom units. Thirty-eight of the units are affordable. Loan proceeds will be used by the Borrower to refinance their construction loan and bridge finance to a long-term fixed rate Loan. Dougherty Funding LLC serves as lead lender and servicer for the loan.

Dougherty Mortgage LLC Closes $3.7 Million Fannie Mae Loan for Bent Tree Apartments

Tree Apartments, a 112-unit multifamily affordable housing property located in San Angelo, Texas. The 7-year term, 30-year amortization loan was arranged for SA Bent Tree Apartments, L.P. by Dougherty’s Minneapolis, Minnesota office. Dougherty Mortgage LLC is a full service mortgage banking firm, an approved FHA MAP and LEAN lender, as well as a Fannie Mae Delegated Underwriting and Servicing (DUS®) lender, offering a variety of loan products for the acquisition, refinance, construction or rehabilitation of various property types. In addition, Dougherty Mortgage LLC provides loan servicing on their mortgages and is an approved Ginnie Mae seller/servicer, currently servicing in excess of $3.5 billion of loans. Based in Minneapolis, Dougherty Mortgage also has offices in California, Colorado, Tennessee, Texas and Virginia.

Dougherty Mortgage LLC, a full service national mortgage banking firm, recently closed a $3.7 million Fannie Mae loan for the acquisition of Bent

Dougherty Mortgage LLC Closes $16.4 Million Fannie Mae Loan for The Pointe at Brodie Creek Phase III Dougherty Mortgage LLC, a full service national mortgage banking firm, recently closed a $16.4 million Fannie Mae loan for the refinance of The Pointe at Brodie Creek Phase III, a 144-unit market rate multifamily housing property located in Little Rock, Arkansas. The 9.25-year term, 30-year amortization loan was arranged for The Pointe at Brodie Creek, LLC by Dougherty’s Minneapolis, Minnesota office. Dougherty Mortgage LLC is a full service mortgage banking firm, an approved FHA MAP and LEAN lender, as well as a Fannie Mae Delegated Underwriting and Servicing (DUS®) lender, offering a variety of loan products for the acquisition, refinance, construction or rehabilitation of various property types. In addition, Dougherty Mortgage LLC provides loan servicing on their mortgages and is an approved Ginnie Mae seller/servicer, currently servicing in excess of $3.5 billion of

September 2015

loans. Based in Minneapolis, Dougherty Mortgage also has additional offices in California, Colorado, Illinois, Massachusetts, Tennessee, Texas and Washington D.C.

MARCUS & MILLICHAP ARRANGES THE SALE OF A 16-UNIT APARTMENT BUILDING Marcus & Millichap (NYSE: MMI), a leading commercial real estate investment services firm with offices throughout the United States and Canada, today announced the sale of North Oaks Apartments, a 16-unit apartment property located in North Branch, Minnesota, according to Craig Patterson, regional manager of the firm’s Minneapolis office. The asset sold for $769,000. Cole Harstad, Mox Gunderson and Dan Linnell, investment specialists in Marcus & Millichap’s Minneapolis office, had the exclusive listing to market the property on behalf of the seller, a private investor. The buyer, a private investor, was also secured and repreNews to page 22

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Minnesota Real Estate Journal

September 2015

Cushman & Wakefield|NorthMarq’s Ohmes: Credit diverse economy for Twin Cities’ CRE strength By Dan Rafter, Editor

he Twin Cities’ commercial real estate market remains a hot one, with the latest Compass report from Cushman & Wakefield|NorthMarq saying that developers added 1.75 million square feet of new commercial construction during the first half of the year. It’s true that the overall vacancy rate in the Minneapolis-St. Paul market did rise in the first half. But that rise was a slight one considering the mini-construction boom taking place here during the first six months of 2015. According to the Compass report, the overall multi-tenant vacancy rate for the Twin Cities market stood at 11.1 percent at the midpoint of 2015. That is a slight rise from an overall vacancy rate of 10.9 percent at the end of 2014, but this is mostly the result of the addition of all that new construction hitting the market during the first six months of they year. And don’t expect new-construction activity to slow in Minneapolis-St.

Paul any time soon. Cushman & Wakefield|NorthMarq reported that another 1 million square feet of multi-tenant space is under construction. The overall market posted more than 2 million square feet of absorption in the first half of 2015, with positive absorption across nearly all property types. Mike Ohmes, executive vice president with Cushman & Wakefield|NorthMarq, said that the first half of the year saw developers rushing to complete new projects, especially in and around the urban center of the Twin Cities. Ohmes said that the construction activity isn’t surprising: The Twin Cities has long been one of the strongest commercial real estate markets in the Midwest for a variety of reasons, he said. “We have a very educated workforce here, and companies like to tap that workforce,” Ohmes said. “We also benefit from the work ethic typical of the Midwest. It’s not just in the Twin Cities, but in the Midwest people are hard workers. They take pride in their work. They show up and do a good job.

That helps companies that are already here, and it helps attract companies to the area.” At the same time, the Twin Cities attracts those with an entrepreneurial spirit. Ohmes said that the Twin Cities boasts a strong venture capital environment. “It’s a great place to be for new companies and start-ups,” he said. “It’s a great place to find that working capital to get your business off the ground.” Ohmes points, too, to the diverse economy of the Minneapolis/St. Paul area. Unlike many Midwest cities, the Twin Cities does not rely heavily on any one major industry. That offers the region protection from the economic ups and downs that other cities often face. “We are not reliant on one major industry or sector that has to drive the engine,” Ohmes said. “We have a multi-faceted, diverse economy. Our economy is strong in many different areas. When other markets might be in a boom time, we’ll see growth, too. But we won’t see these huge spikes in growth. But we also won’t see the bust

period when that industry goes out of favor.” The Compass report highlights several attractive trends for the Twin Cities market. Consider the area’s office segment. As of the middle of 2015, 16.4 percent of the office space in the Twin Cities stood vacant. The first half of 2015 saw more office-space absorption than was recorded in all of 2014. In good news for office-space owners, leases in this segment are getting longer, and landlords are now able to charge higher rents while passing out fewer concessions. Medical office space is especially strong in the Twin Cities, with the Compass report showing about 677,000 square feet of medical officespace construction now underway in the area. A big entry in this market is the Mayo Clinic, which this year opened its sports medicine center at Mayo Clinic Square in downtown Minneapolis. The area’s industrial market remains strong, too. Cushman & Ohmes to page18

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Minnesota Real Estate Journal

September 2015

Grandbridge Real Estate Capital’s Perry: Overbuilding in multifamily? Not yet By Dan Rafter, Editor

hris Perry, senior vice president of the Minneapolis office of Grandbridge Real Estate Capital, says that the supply of new multifamily units has not yet outpaced the demand for them, at least not in the Minneapolis/St. Paul markets. Midwest Real Estate News recently spoke to Perry about the boom times that we continue to see in multifamily. Here’s what he had to say about this hottest of asset classes. Strong for a long time: The multifamily market in the Twin Cities is still very strong. It’s been that way for the past few years. Historically, this has long been a very, very strong apartment market. Even in down periods, when the economy as a whole has suffered, the twin cities apartment market has still been very stable compared to other markets. No overbuilding: A lot of product has been built over the last few years. But that product is still being absorbed very well. We’ve seen a lot of new

apartment development in certain areas, especially the ware house district of downtown Minneapolis and the Uptown area. There is a lot of new product with terrific amenities that have come online. These units have absorbed at higher rents than we have historically seen in the Twin Cities. They are leasing up very quickly, and at some of those elevated rents. We are seeing some rents in the new products in the $2.25-a-foot to the $2.40-a-foot range. That product is being absorbed very well at this point. For the foreseeable future, it looks like that will continue. Keeping watch: Of course, there is always a possibility with real estate cycles for there to be overbuilding. That is something we need to watch out for. The developers need to watch for this, and we, as people who arrange financing for new apartment developments, need to watch for and be careful of this, too. But you do have to look at this over time. Historically, there was a period of time when there wasn’t a lot of building going on in the Twin Cities. We have been somewhat in a

catch-up phase for the last three or four years. That’s why a lot of the new product has been so quickly absorbed. At some point in time, there might be a concern of overbuilding. That isn’t happening now, but it is something you have to watch for and not stub your toe on. High-end amenities: The amenities at these new developments are pretty impressive. They are coming with state-of-the-art fitness centers, big rooftop decks, fireside lounges out on the roof decks, everything you can think of. We are also seeking a lot of accommodation for bikes in parking areas. We have seen where some developers have entered into a relationship with companies that provide community cars that all the tenants in the building can share. It is getting to the point where you can get everything you need right at your fingertips. What developers, investors need to get that financing: When we are making lending decisions, first and foremost we look at the experience of the developers or investors who are approaching us. A lot of what our

lenders are looking for is sponsorship experience. Secondly is market demand, which we prove out through rental comparables. We also look for sales comparables for what we believe is going to be an appropriate value for the property. That is what we size our loans off of. Lenders are now looking at the portfolios of developers who are putting new product online to make sure that these portfolios are operating well. They want to make sure that the developers have the financial backing and capacity to survive if they did run into a period where operations do not go so well. They want to make sure that the developers have the wherewithal to continue to support the loan.

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Macy’s From page 1

this deal. My honest answer? I don't know that any of the groups that the Port Authority was talking to has done anything like this, either. It is so unique. The building, the location and the size of it all combine to make this a project like no other in the Twin Cities." The groundwork for the mixed-use project took place in January of 2014. That's when Macy's Retail Holdings sold the former department store and its adjacent parking lot to the Port Authority for $3 million. The Port quickly began marketing the property. The site has attracted the interest of the NHL's Minnesota Wild, which plans to build a training facility in the building. This will include an enclosed ice rink on the top level of the building, something that would set the site apart from other downtown Saint Paul buildings. Tucci said that having the Wild involved will help attract other tenants. It’s not yet been officially announced, but it’s widely assumed that a Walgreens store will occupy about 25,000 square feet in the new development. The Port Authority is now negotiating with other potential tenants, and the list is a diverse one. Possible tenants here include a craft brew pub, restau-

Minnesota Real Estate Journal

rants, healthcare organizations, software companies and financial services firms. Louie Jambois, president of the Port Authority, said that the authority has one goal for the project: to make the new building a destination point in Saint Paul. "It will leverage the city of Saint Paul's investment in the Palace Theater, the Amsterdam and other downtown redevelopment projects, increase the city's tax base in the long term and be an attractive and vibrant addition to downtown Saint Paul," Jambois said in a statement. Tucci said that it should take anywhere from nine to 12 months to complete the construction work on the project. He said that the mixed-use development – if all goes well – could be open by early 2017. Tucci predicted that the site will attract plenty of attention – and tenants – once the new development starts taking shape. “Having the hockey rink and the Minnesota Wild interested makes this the right deal and the right partner to attract a lot of interest and energy from other tenants,” Tucci said. “The biggest factor that makes this such a top project is the location. We have light rail on one side and foot traffic all the way around. There are a lot of positives for this site.”

Industrial From page 1

market saw a net absorption of 2.6 million industrial square feet for the entire year. “So it looks like we are on our way to a record year for net absorption in the industrial market,” Ryden said. Why are companies building their industrial facilities in the Twin Cities? Why are others finding unoccupied industrial space here and gobbling it up? Ryden said that the Minneapolis/St. Paul market offers plenty of benefits for industrial users. The area’s workforce is a well-educated one, and the population here continues to grow. At the same time, the Twin Cities area enjoys a deserved reputation as being friendly to businesses, Ryden said. That plays a significant role in attracting new industrial users. Even with the rising amount of spec construction in the Twin Cities, the Minneapolis/St. Paul industrial market has not seen a significant rise in vacancy levels, Ryden said. That’s a good sign that the demand for modern industrial space is still

September 2015

higher than the supply. “To this point, the spec projects have filled up,” Ryden said. Ryden expressed concern about just one submarket, the northwest bulk market. This market does have several large industrial vacancies. It also has several new projects coming online. “That submarket is likely to get competitive,” Ryden said. “But otherwise, the new industrial projects have been filling pretty consistently.” This industrial activity is happening even though many don’t view the Twin Cities market as being a major distribution hub. That’s because historically the Minneapolis/St. Paul market has distributed its products mostly to the five-state area of North Dakota, South Dakota, Minnesota, Iowa and the western half of Wisconsin. That is steadily changing, though. More industrial users are opening distribution centers in the Minneapolis/St. Paul market, centers that Ryden would traditionally have been located in the Chicago area. As in many thriving industrial markets, e-commerce is playing a significant role in the Twin Cities industrial sector. Amazon is a good Industrial to page 22

Page 16 Ohmes from page 10

Wakefield|NorthMarq reported that 1.38 million square feet of industrial space was absorbed in the Twin Cities during the first half of the year. Construction in this sector is strong, too. According to the Compass report, build-to-suit and speculative projects are expected to bring another 1.38 million square feet in this sector in the next 12 months. The Twin Cities area hasn’t seen this much absorption since before 2005, and experts with Cushman & Wakefield|NorthMarq are predicting that absorption levels in this segment could soon surpass pre-recession levels. Ohmes said that he doesn’t expect vacancy rates to climb in the Twin Cities area – at least by any significant amount – any time soon. The Minneapolis/St. Paul market simply has too much going for it right now to allow that to happen, he said. “There are some soft things from a quality-of-life perspective that help us,” Ohmes said. “The amenities here, both culturally and physically are outstanding. We have a pretty city. It is a very outdoors-oriented area. People are drawn to that.” At the same time, the Twin Cities has access to talented workers who graduate from the University of Minnesota and the several other highly ranked col-

Minnesota Real Estate Journal

leges in the area. Ohmes said that many of the students who come to these universities end up staying in the Minneapolis/St. Paul area after they graduate. “They come here with no plans to stay, but after four or five years here, they like it so much that they stay,” Ohmes said. The southeast submarket of the Twin Cities has been especially strong when it comes to industrial, with the vacancy rate for functional industrial buildings here that are 50 years or younger falling below 5 percent. The retail market is also on the rebound here, according to the report. Cushman & wakefield|NorthMarq reports that the segment’s vacancy rate stood at 6.6 percent at the middle of 2015. That is the lowest for retail since 2006. At the same time, retail rents are nearing a new benchmark figure, almost in the $40-per-square-foot range for new small-shop space at top-performing properties. Retailers are getting creative, too, with many owners re-purposing old, tired space today. Multi-family, of course, remains sizzling in the Minneapolis-St. Paul area. The Compass report says that 5,000 new apartment units opened in the market in 2014. But despite this, absorption continues to outpace new supply. Vacancy

rates in this sector have been below 3 percent since 2011, with the current rate at the midpoint of 2015 at 2.7 percent. Cushman & Wakefield|NorthMarq predicts that developers will deliver 3,000 new multifamily units to the market in 2015. Much of this multifamly development has been in and around downtown Minneapolis. Not surprisingly, both domestic and foreign investors are targeting the Twin Cities, sending greater amounts of capital into the commercial real estate market here. Investors are most interested in apartments, student housing and grocery-anchored shopping centers. They are also sending money after Class-A office properties, value-added flex industrial buildings and new medicaloffice buildings. According to the Compass report, the apartment investment market is especially strong, and was nearing $550 million in transaction volume in the first half of 2015. The office market is on pace to reach $1.25 billion in investment activity for all of 2015, while about $242 million in retail center transactions closed in the first half of this year. Ohmes said that he’s not worried about overbuilding in this commercial sector. In the last three years, nearly 10,000 apartment units came online in the Twin Cities market. That sounds like a high number, but Ohmes said that it

September 2015

only represents an increase of 3 percent in the overall Twin Cities apartment market. The overall apartment vacancy rate in the Twin Cities is still so low that it suggests that developers are simply meeting the increasing demand for multifamily living here. “Even though some might say that this market has been too hot for too long, if you look at the statistics behind it, you can see that this isn’t a situation that could qualify as a bubble,” Ohmes said. Ohmes is excited, too, about the growth and expansion of the industrial market in the Twin Cities. That market continues to be a strong one, which often surprises outsiders who don’t view the Minneapolis/St. Paul area as a major distribution market. “It is really fun to watch these new modern industrial buildings being built here,” Ohmes said. “The companies that are growing here can’t find the existing industrial inventory to occupy, so we are seeing new construction now in this market. We haven’t been known as a distribution market. But that is changing. It’s very exciting to watch.”

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Minnesota Real Estate Journal

September 2015

There just aren’t enough low- to moderately priced homes for sale scarcity of lower-priced homes for sale in the Twin Cities is putting upward pressure on asking prices; that’s good news for sellers, bad news for buyers looking for a deal. For the third year in a row, the median sale price for a Twin Cities home took a seasonal dip in July after peaking in June. That … and a pronounced lack of homes available in the sub$200,000 range … were among the findings in the monthly housing-market analysis of the 13-county Twin Cities region conducted by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business. Each month the center tracks the median price for three types of sales: nondistressed or traditional; foreclosures; and short sales (when a home is sold for less than the outstanding mortgage balance). Here’s what the center found:

That is down 1.91 percent from $235,500 in June 2015 but up 2.67 percent from $225,000 in July 2014. “So far in 2015, the traditional median sale price has been running a relatively stable 2.5 percent to 3.5 percent increase over 2014 levels,” said Herb Tousley, director of real estate programs at the university. “We continue to expect a 4 percent to 6 percent overall median sale price increase for 2015. However, our outlook could change to the extent that interest rates increase this fall.” In the two distressed categories: the median price for short sales dropped 10.2 percent, from $171,500 in June 2015 to $154,000 in July 2015; the median price for foreclosure sales increased 1.75 percent, from $137,591 in June 2015 to $140,00 in July 2015. The distressed-type sales are comprising a progressively smaller portion of all sales as the housing market returns to pre-crash health. The short sales in July represented just 2 percent of all home sales in the Twin Cities and foreclosures were 5.4 percent.

down slightly from June 2015 but up 19.2 percent from July 2014. In addition, there were 5,736 pending sales at the end of July 2015; that’s up 12.5 percent over July 2014. The 16,998 homes on the market at the end of July 2015 remains historically low. “Before the market crash of 2005 to 2007, there were many more new listings coming into the market than there were closed sales leaving the market,” Tousley said. “In 2015 the number of closed sales is rebounding to pre-crash levels, yet the number of new listings has not recovered.” He said that for inventory levels to return to more normal levels, the number of new listings will need to increase to at least 10,000 per month in the peak selling months. “Until that happens the low levels of homes available for sale will persist. In the meantime, the low number of homes for sale and the high volume of closed sales are being reflected in the higher number of multiple offers and sale prices at more than the original asking price.

Key numbers for July The median sale price of a traditional home in July 2015 was $231,000.

Low inventory. The Twin Cities housing market saw 6,301 closed sales in July 2015. That’s

“Good news for sellers; bad news for buyers looking for a deal,” he said.

By Herb Tousley, University of St. Thomas

Supply and demand of modest homes. The Shenehon Center examined the median sale price of the homes that actually sold in July (the demand) and compared that with the prices of homes that were for sale in July (the supply). “We found that in July 40 percent of the homes that were sold were less than $200,000. Yet only 27 percent of the homes available for sale fell into that range,” Tousley said. “That means that in comparison, as a percentage, there were more buyers wanting to purchase a home under $200,000 than there were homes available for sale in that price range.” For more expensive homes, those selling for $400,000 or more, there were many more homes available for prospective buyers to choose from. “The conclusion is that there are more buyers chasing a relatively smaller percentage of low- to moderately priced homes available for sale and that is another reason why we are seeing a very active market for moderately priced homes in the Twin Cities market.” Homes to page 22

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Minnesota Real Estate Journal News from page 8

sented by Cole Harstad, Mox Gunderson and Dan Linnell Speaking with Mr. Harstad, “North Oaks Apartments is one block off of Interstate 35 and has a very strong historical occupancy. North Branch is a great market to invest in due to the continual demand for rental housing and the large expansion that Andersen Corporation will be making. Andersen Corporation announced in early April they will be hiring hundreds of workers at its facilities in North Branch and Cottage Grove due to the $45 million expansion that it will be making. According to the Minneapolis/St. Paul Business Journal, at least $7 million will be invested into North Branch.” North Oaks Apartments is located at 38725 Oakview Avenue in North Branch, Minnesota.

Cushman & Wakefield | NorthMarq Represents Wurth Adams in New Brooklyn Park Development Cushman & Wakefield | NorthMarq www.cushwakenm.com represented

Wurth Adams Nut & Bolt Co. during the development of its new 146,000 sq. ft. facility in Brooklyn Park, set to open this month. After more than a year of work, Wurth Adams plans to move into the new building, on the southeast quadrant of Highway 169 and Highway 610 in Brooklyn Park, in early September. The company’s first day of business in the building will be Sept. 14. Wurth Adams, an industrial distributor of class C components, plans to employ about 160 at the new facility. Cushman & Wakefield | NorthMarq worked with the owner for over a year of development on the project, providing a range of services including needs analysis, construction management and owner representation. United Properties developed the building as part of Northcross Business Park, a 36-acre site at the intersection of Minnesota State Highway 610 and U.S. Highway 169 that includes the headquarters for Wurth Adams Nut & Bolt Co., Perbix Machine Co. Inc., and Nilfisk. Bill Freeland, Director of Occupier

September 2015

Services, said that Cushman & Wakefield | NorthMarq is thrilled to see the project approach opening day. “We have greatly appreciated the opportunity to help Wurth Adams bring this project to completion,” said Freeland. “They saw the value of what we are able to offer owners and tenants in new build-to-suit projects, and we were happy to help the process go smoothly.” Mike Myhre was the lead project manager for Cushman & Wakefield | NorthMarq. The team of Brent Masica and Jon Yanta represented United Properties in the transaction. Jonathan Juris of Cushman & Wakefield | NorthMarq and Robin Dodson and John Minervini, both of Cushman & Wakefield of California, represented Wurth Adams. The Minnesota Department of Employment and Economic Development (DEED) awarded funds from the Minnesota Job Creation Fund to Wurth Adams for its expansion.

CBRE ANNOUNCES SALE OF 4001 LEXINGTON AVE. N. IN ARDEN HILLS TO LAND O’LAKES CBRE announces the sale of 4001 Lexington Ave. N. in Arden Hills, Minn. to Land O’Lakes, Inc. for $18 million. The property is comprised of a 220,000square-foot headquarters-quality office building connected to a 68,854-squarefoot research and development building. Both buildings are 100 percent occupied by Land O’Lakes, Inc. CBRE Institutional Properties in Minneapolis led by Steven Buss and Ryan Watts represented the seller, Arden Hills Associates Limited Partnership. The Minneapolisbased team of Steven Buss, Ryan Watts, Judd Welliver, Tom Holtz and Sonja Dusil focuses on the disposition of singletenant and multi-tenant industrial and office properties. The team also advises real estate operating companies on the sourcing and structuring of joint venture equity. Steven, Ryan and Tom are part of the 85-member CBRE Institutional Properties group. In 2014, the Capital Markets

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September 2015

enterprise of CBRE including the Institutional Properties group completed more than $104.2 billion in combined total U.S. capital activity.

CBRE ARRANGES $23.2 MILLION REFINANCE FOR RED 20 APARTMENTS IN MINNEAPOLIS, MN CBRE Capital Markets is pleased to announce it has arranged $23.2 million of permanent financing for the Red 20 Apartments. Located in Northeast Minneapolis, Red 20 is a 130-unit apartment development that was completed in the late-fall of 2014. The property boasts a Walk Score of 91 (Walker’s Paradise) and is in a neighborhood that offers amenities for all types of people with galleries, coffee shops, natural scenery, bars and restaurants. The CBRE Capital Markets team assisted the borrower in paying off their current floating-rate construction loan by obtaining permanent financing with an aggressive fixed interest rate well below 4.00 percent. CBRE Capital Markets successfully arranged the ten-

Minnesota Real Estate Journal

year loan, with one year of interest only payments, for Red 20 through its relationship with The Northwestern Mutual Life Insurance Company. “The loan met the borrower requirements by paying off their floating rate construction loan with long-term fixed rate debt. The life company loan allowed the borrower to lock the interest rate in this low interest rate environment early in the closing process, prior to the occupancy reaching stabilization,” said Joel Torborg with CBRE. CBRE’s Debt & Structured Finance group led by Joel Torborg, Doug Seylar, Murray Kornberg, Scott Larson, Ben Bastian and Jessica Lytle represented the borrower, IRET-RED 20, LLC. The borrower is a joint venture between IRET Properties, a North Dakota Limited Partnership, and Schafer Richardson. IRET is a selfadvised equity Real Estate Investment Trust organized under the laws of North Dakota. Founded in 1995 by Brad Schafer and Kit Richardson, Schafer Richardson is focused on providing development, syndication, consulting,

and management services to its clients. Since 1995, Schafer Richardson’s commercial portfolio has grown into 21 properties containing approximately 1.21 million square feet of office, retail, industrial and medical property plus a multifamily portfolio soon to exceed 900 units. CBRE’s Minneapolis Debt & Structured Finance group of Murray Kornberg, Doug Seylar, Joel Torborg,

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Scott Larson, Ben Bastian, and Jessica Lytle helps provide investment and advisory services to meet the financing needs of real estate owners ranging from private investors to large public entities.

We Have Moved! The Minnesota Real Estate Journal has a new address. Please update your records. 13700 83rd Way STE 206 Maple Grove, MN 55369

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Minnesota Real Estate Journal

September 2015

Expanding into the Twin Cities: Dakota REIT acquires three buildings in Minneapolis/St. Paul market By Dan Rafter, Editor For Jim Knutson, it only made sense: The REIT he serves as executive vice president, Fargo, North Dakota-based Dakota REIT, was ready to expand. Few markets were as promising as the Minneapolis/St. Paul region. So Knutson and his fellow Dakota REIT officials have worked with Cushman & Wakefield|NorthMarq to acquire three commercial buildings totaling 115,000 square feet in this market during the past nine months. And Knutson says that Dakota REIT is far from through with its investment in the Twin Cities. “I can’t say that we are looking for X number of properties in the Twin Cities market. But if the right property comes along, we will be interested,” Knutson said. “We want to be invested in this market. We are the type of REIT that acquires properties and manages them for the long term. We are not the type that comes in, buys a property and then sells it after two or three years. That is not our intent. Our intent is to hold properties for the long term.”

Dating back to December of 2014, Dakota REIT has acquired Eagle Point Office Center III, a two-story, 40,000square-foot office building in Lake Elmo, Minnesota; Eagle Point Office Center II, a single-story, 30,000square-foot office building also in Lake Elmo; and Plymouth 6-61, a 45,000square-foot industrial building in Plymouth, Minnesota. Knutson said that Dakota REIT considers several factors when determining what commercial buildings to acquire. The three buildings that the REIT has acquired in the Twin Cities market all have positive features that Dakota demands in its acquisitions, Knutson said. For example, the buildings feature long-term tenants and property-management teams that have worked hard to maintain the buildings and serve these tenants. The areas surrounding the buildings boast commercial properties that attract high rents, and the markets in which they sit are strong and active ones today. “We were comfortable with all those factors in these three acquisitions,”

Knutson said. Those factors are more important than building type, Knutson said. So far, Dakota REIT’s portfolio is made up of about 60 percent multifamily buildings and about 40 percent retail and office space. But that mix is not set in stone, Knutson said, with Dakota REIT officials willing to look at properties of all types, as long as they boast strong fundamentals. Scott Pollock, executive director for capital markets with the Minneapolis office of Cushman & Wakefield|NorthMarq, helped Dakota REIT identify and acquire the three buildings. Pollock said that the three buildings are strong one, and should be successful purchases for Dakota REIT. “The buildings that Dakota REIT acquired are top-quality buildings in that market,” Pollock said. “The buildings have attracted a lot of name-brand tenants. They have great rent rolls, if you will. They are located conveniently off of Interstate-94. And the assets simply belong together. They make a good package.” Avery Ticer, director of capital mar-

kets in the Minneapolis office of Cushman & Wakefield|NorthMarq also worked with Dakota REIT to help it locate the building in Plymouth. He said that the REIT’s decision to invest in this particular market was a sound one. “That’s a good, strong market for office and industrial properties,” Ticer said. “It has great fundamentals. The building should bring the stable returns that Jim and his team are looking for. The building has a great location. It’s a strong performer, and it’s going to continue to perform strongly given the fundamentals in Plymouth and the overall market.”

September 2015

Minnesota Real Estate Journal

Homes from page 18

The St. Thomas indexes. As part of its monthly analysis, the Shenehon Center creates a monthly composite index score by tracking nine data elements for those three types of sales (traditional, short sales and foreclosures). The data categories include things like the number of closed sales, how many days that homes are on the market, and what percent of the asking price sellers receive. The center started the index at January 2005 and for that month gave each of the three indexes a value of 1,000. July’s composite score for traditional sales was 1,128, which is the highest since the index began in 2005. “We expect increases in the index to moderate as summer moves into fall,” Tousley said. “However, the continued increase of the traditional-sale index is an indicator of expected ongoing improvement in the health and resurgence of the Twin Cities housing market.” The short-sale index was up a few points, from 971 in June to 974 in July. The foreclosure index was up a couple, from 817 in June to 819 in July. More information online The Shenehon Center’s charts and report for July can be found at www.stthomas.edu/business/centers/shenehon/research/default.

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Industrial from page 14

example. The e-commerce giant has plans to open an 820,000-square-foot distribution center in Shakopee, Minnesota, and plans to hire more than 1,000 workers here. Amazon has also taken about 200,000 square feet of existing industrial space throughout the Twin Cities market, Ryden said. “Right now, Amazon is the most noteworthy example of how important ecommerce is becoming to our market,” Ryden said. “But Amazon is not the only e-commerce company playing a big role here. We are seeing a significant rise in e-commerce companies targeting our area.”