VOLUME 32, NUMBER 9
©2016 Law Bulletin Publishing Co.
September 2016
Marcus & Millichap: Ten Years of Growth in Minnesota by David W. Scheller, Minnesota Real Estate Journal Freelance Reporter
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n 1971 George Marcus and William Millichap started their brokerage with a vision: to provide a complete and holistic approach to investment for their clients, one which along with the sale of commercial real estate would include financing, research, and informed advisory services to whomever crossed their firm’s threshold with earnest money in hand. This new approach marked a revolutionary divergence from the simpler, traditional brokerage model toward one which would make investment more approachable and manageable for investors with more pressing matters to attend than the constant study of real estate. Their complete approach has proven itself effective in practice. In only 45 years Marcus & Millichap’s operation has grown from a single office in California into one with over 1,600 professionals spanning 80 offices in 35 states and three Canadian provinces. Last year alone they closed more than 8,700 investment transactions, more than any other brokerage in the country, and they do the most 1031 exchanges nationally as well. 10 Years to page 20
Bellwether’s Effler: A golden age in the multifamily market by Dan Rafter
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he apartment market remains redhot across the Midwest. DJ Effler, senior vice president in the Columbus office of Bellwether Enterprise Real Estate Capital, sees this up close. His thoughts? He cites this as a golden age in the multifamily market, one that we won’t likely see again.
Minnesota Real Estate Journal: I’m sure you’re getting plenty of requests for apartment financing today. How strong does the multifamily market remain today, and are you worried at all that some markets are going to see too many new apartment buildings? DJ Effler: The apartment market is still the most active part of the commercial real estate finance market today. Are there any concerns about overbuilding? New supply is obviously the first thing that lenders and capital sources point to
as far as questioning the longevity of this cycle, as far as determining the sustainability of rent increases and lower vacancy rates. There are going to be some pockets Effler that get overbuilt. It is naturally what people do. If the capital is there to continue to build and the market continues
to look tight, there is always going to be product that will be delivered that will cause the growth cycle to slow down a little bit and the vacancy rate to pop up. MREJ: Should we be worried about the possibility of overbuilding in the multifamily market? Effler: I’m not one who thinks that this is the biggest concern out there, that we are coming into a big slowdown of the multifamily market. I have a macro Effler to page 22
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Contents
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Minnesota Real Estate Journal
SEPTEMBER 2016 • VOLUME 32, NUMBER 9
MARCUS & MILLICHAP: TEN YEARS OF GROWTH IN MINNESOTA BELLWETHER’S EFFLER: A GOLDEN AGE IN THE MULTIFAMILY MARKET
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BERKADIA’S BLECHSCHMIDT: FEW CONCERNS ABOUT OVERBUILDING IN MIDWEST APARTMENT MARKET
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IS A SLOWDOWN COMING FOR THE HOTEL INDUSTRY?
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OPUS REVEALS PLANS FOR NEW 30-STORY MULTIFAMILY DEVELOPMENT IN HEART OF DOWNTOWN MINNEAPOLIS
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APARTMENT CONSTRUCTION TO HIT 10-YEAR HIGH IN 2016
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Departments PEOPLE
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NEWS
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Minnesota Real Estate Journal (ISSN 08932255) Copyright © 2016 by the Minnesota Real Estate Journal is published for $85 a year at 12 times per year by Jeff Johnson, 13700 83rd Way North, Suite 206, Maple Grove, MN 55369. Monthly Business and Editorial Offices: 13700 83rd Way North, Maple Grove, MN 55369 Accounting and Circulation Offices: Jeff Johnson, 13700 83rd Way North, Maple Grove, MN 55369 Call 952-885-0815 to subscribe. For more information call: 952-885-0815. POSTMASTER: Send address changes to Minnesota Real Estate Journal, 13700 83rd Way North, Suite 206, Maple Grove, MN 55369 ©2016 Law Bulletin Publishing Co. No part of this publication may be reproduced without the written permission of the publisher.
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September 2016
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Anderson CC hires John Healy 13700 83rd Way N, STE 206 Maple Grove, MN 55369 For information call 952-885-0815
Publisher | Managing Editor Jeff Johnson jjohnson@recg.com Associate Publisher Jay Kodytek jkodytek@recg.com Consulting Editor Dr. Tom Musil tamusil@stthomas.edu Conference Manager | Art Director | Graphic Designer | CE Specialist Alan Davis adavis@recg.com
EDITORIAL ADVISORY BOARD JOHN ALLEN Industrial Equities ROBERT ANGLESON Navigator Real Estate RICK COLLINS Ryan Cos. US Inc. JEFF EATON Cushman & Wakefield/NorthMarq MARK EVENSON ULG Equis PATRICIA GNETZ US Bank TOM GUMP TAG Consulting JON HEMPEL Hempel Properties DAVID JELLISON Liberty Property Trust CHAD JOHNSON Hellmuth & Johnson BILL WARDWELL Colliers International GEORGE KLUEMPKE Braun Intertec JEFFREY LAFAVRE CBC Griffin Companies WADE LAU Founders Properties MIKE LE JEUNE Fabcon JIM LOCKHART WIPFLI DUANE LUND Exchange Realty PATRICK MASCIA Duke Realty Corp. CLINT MILLER Cushman & Wakefield/NorthMarq DR. THOMAS MUSIL University of St. Thomas WILLIAM M. OSTLUND CBC Griffin Companies WHITNEY PEYTON CB Richard Ellis MIKE SALMEN Transwestern STEWART STENDER Stewart Capital Partners
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Anderson CC, a Twin Cities based commercial general contractor announces the hiring of John Healy as Senior Project Manager and Joe Kraus as Project Manager. John joins Anderson CC with over 25 years of experience in construction and project management throughout the Twin Cities market. Joe joins Anderson CC with over 15 years of project management experience. Anderson CC specializes in tenant interior, medical and retail build-outs throughout the suburban and downtown markets of the Twin Cities.
Veteran investment sales expert Steve Buss to lead Minneapolis Capital Markets We are pleased to announce the expansion of our Capital Markets expertise in the Midwest with the addition of Steve Buss, who is a veteran investment sales expert in the industry. Steve is stepping in as Managing Director and will lead JLL’s Capital Markets in Minneapolis. He will work closely with our existing market-leading Office Investment Sales Team of Bruce Miller, Nooshin Felsenthal, Jim Postweiler and Peter Harwood, on a unified approach to the Midwest Market. Steve brings more than 23 years of commercial real estate experience and comes to us from CBRE, where he was a founding member of the Corporate Capital Markets Group. Steve led a team specializing in large investment sales transactions for single- and multitenant office and industrial properties. He has completed $8.4 billion worth of real estate transactions both in Minneapolis and around the country, making him one of the top investment sales producers in the Twin Cities.
McGough Construction Hires Brian Durand as Senior Project and Operations Manager Regional Builder Continues its Focus and Investment in the Northern Minnesota Area McGough Construction is pleased to announce that Brian Durand has joined the company as Senior Project and Operations Manager. In this role,
Durand will be responsible for overseeing and assisting with all construction projects managed by the company’s Duluth office which opened in spring of 2016. Durand joins McGough with more than 28 years of experience working in the construction industry in northern Minnesota. “Brian comes to us with demonstrated expertise in project management, budget and cost management and a focus on safety,” said Jim Frisell, Executive Vice President and Principal of McGough’s Duluth office. The addition of Durand is a reflection of McGough’s continued investment in the greater Duluth area, according to Frisell, as well as the company’s overall commitment to excellence. McGough continues to expand not only in the Duluth area, but across the region with the recent opening of its Des Moines, Iowa office and the expansion of its Fargo, North Dakota office. Brian holds a bachelor’s degree in communications from the University of Minnesota-Duluth and is a lifelong area resident.
Cresa Minneapolis promotes Corey Ruff, CHC and CHFM to Senior Advisor Cresa Minneapolis, Inc. is pleased to announce Corey Ruff has been promoted to Senior Advisor. Corey joined Cresa in 2011 and has continuously reinforced the mission, vision, and values of the organization. “Corey has a knack for connecting deeply with our clients, who recognize his genuine desire to serve them. He is not afraid to dive into any project, particularly those that are complex,” said Steve Dorgan, Managing Principal. He dedicates his time and passion to working on a wide variety of client requirements for Cresa, however Corey has a particular expertise with healthcare facility projects. Corey focuses on developing Cresa’s healthcare market practice, and will continue to do so in his new role as a Senior Advisor. Corey has additionally completed the certification programs and rigorous assessments to become both a Certified Healthcare Constructor (CHC) and a Certified Healthcare Facility Manager (CHFM), achievements critical to his work with healthcare projects.
CSM Corporation’s Steve Schlundt Becomes President of Lodging and Residential A 20-year veteran at CSM Corporation, Steve Schlundt takes on the role of President for the company’s lodging and residential divisions. Schlundt, who joined CSM in 1996 helped launch the lodging division and has continued to be vital in the company’s steady growth. “Steve has a long, successful history with CSM. His commitment to excellence and dedication to growth has guided the success of our hotel properties for the last 20 years,” said Gary Holmes, CSM President and CEO. “He is a loyal and trustworthy member of our CSM family, who inspires through example. His strong leadership will continue to grow our hotel portfolio.” Schlundt began his career with CSM in 1996 as General Manager and was promoted shortly after to Regional Vice President of Operations. In 2011, he was promoted to Vice President of Operations for the lodging division, and promoted again in 2014 to Senior Vice President of Operations. In his most recent role as Chief Operating Officer of lodging and residential, he oversaw the portfolio of 32 hotels and 15 apartment communities across the country. He has worked with the CSM team to develop, renovate and open new CSM properties. His leadership in the company has gained the respect of his CSM coworkers as well as those among the industry. As President, Schlundt will continue to drive growth and bring innovative designs to CSM’s new-build and renovation projects. “Steve has played an active role in the development of our hotels, having a hand in almost every hotel opening in CSM’s history for the last two decades,” Holmes said. “His dedication to the growth and success of our hotel properties, and his strong leadership, have gained the respect of many.”
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News SARA Investment Real Estate Acquires River Park Plaza Firm Enters St. Paul Market with Purchase of Landmark Property SARA Investment Real Estate, a fullservice commercial real estate investment firm, has closed on the purchase of River Park Plaza, an eight-story office building in St. Paul, Minnesota. The property has 328,947 SF and is located at 10 River Park Plaza along the Mississippi River. The purchase is SARA’s first acquisition in the St. Paul market. “From its high-quality tenants to its highly-desirable location, 10 River Park Plaza will serve as a great addition to our growing portfolio in the Twin Cities region,” said Traci Dalsin, President of SARA Investment Real Estate. “Its iconic views and recognizable façade are a testament to the level of care provided by its previous owner; this is a strong asset for our investment partners and an accurate representation of the caliber of properties we pursue.”
Minnesota Real Estate Journal
The building currently is 88% occupied with high-quality office tenants including the St. Paul Pioneer Press, Comcast and Gillette Children’s Specialty Healthcare. Recent enhancements include an upgraded lobby and common area, as well as improvements to the location’s shared conference rooms and fitness center.
River Park Plaza Sold by Cohen Equities for $42.6 Million -- Landmark St. Paul Building Sold to SARA Investment Real Estate -Colliers International | MinneapolisSt. Paul is pleased to announce the sale of 10 River Park Plaza in Saint Paul. The building, located on the Mississippi riverfront, was owned by Cohen Equities, and sold to SARA Investment Real Estate for $42.6 million. “River Park Plaza has become a case study for our investment platform,” said Meir Cohen, Cohen Equities’ Chairman and CEO. “It has all of the features that we look for in an investment – strong leasing demand and tenant base, competitive physical advantages (in this
case, parking) and fundamental relative value. It’s a case study from an investment perspective, but also in what an enormous difference first-class brokerage and property management can make. The Colliers team has been with us through every step of the investment and we couldn’t have asked for a more professional and impactful partner.” “Colliers and Welsh are proud to have represented Cohen Equities as they took ownership of 10 River Park Plaza,” adds Bob Pounds, Senior Vice President with Colliers International | Minneapolis-St. Paul. “Together, the partnership between an aggressive, well-capitalized owner, and thoughtful management and leasing, has transformed 10 River into an iconic gem overlooking the St. Paul skyline.” “From its high-quality tenants to its highly-desirable location, 10 River Park Plaza will serve as a great addition to our growing portfolio in the Twin Cities region,” said Traci Dalsin, President of SARA Investment Real Estate. “Its iconic views and recognizable façade are a testament to the level of care provided by its previous owner; providing a strong asset for our investment part-
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ners and an accurate representation of the caliber of properties we pursue.” Cohen Equities purchased River Park Plaza through an auction site on July 24, 2015. Since then, they have made significant interior and exterior improvements, including an upgraded lobby and common area, improved conferencing and fitness center. The firm also executed on a rapid leasing program for the asset, executing on a number of new large leases and expanding its anchor tenant, Comcast. The building is currently at 88% occupancy, with tenants including the Twin Cities Pioneer Press, Comcast, and Gillette Children’s Specialty Healthcare.
Riverplace Plans Significant Capital Improvements --Landmark Northeast Minneapolis Office Complex to be Leased by Colliers International-Sentinel Real Estate Corporation has announced major capital improvements and new tenant amenities coming to Riverplace, an office complex located on the Mississippi riverfront in Northeast Minneapolis. Sentinel has also hired
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outside leasing services for the complex, and has engaged Nils Snyder, Jim Kenney, Mike Doyle, and Teresa Lingg of Colliers International | Minneapolis-St. Paul to represent them. “We have an amazing complex in a prime location,” explains Marty Cawley, Managing Director with Sentinel Real Estate Corporation. “The combination of our planned renovations and the Colliers listing team will position this as an ideal location for a number of different types of companies.” “Sentinel has created a well-thoughtout plan for their renovations, capitalizing on the available common space and filling the building with amenities tenants are looking for,” adds Nils Snyder, Senior Vice President with Colliers International | Minneapolis-St. Paul. “There are fantastic options for creative and tech companies looking to find a home in a thriving neighborhood.” “Riverplace is the gateway to the Northeast market, which has seen a huge resurgence in the last several years,” states Jim Kenney with Colliers International | Minneapolis-St. Paul. Planned improvements for the com-
Minnesota Real Estate Journal
plex include a rooftop lounge slated to be finished this fall, an updated common area with lounge and conference rooms, and a new state-of-the-art fitness center. Other renovations include exterior upgrades, hallway reconfigurations, and wayfinding improvements.
Ryan Companies US, Inc. Exceeds Minority and Female Labor Goals for MSFA Block 1 Ramp and Skyway Project Ryan Companies US, Inc. is pleased to announce the minority and female labor participation goals for the Minnesota Sports Facilities Authority (MSFA) Block 1 Ramp and Skyway project have been exceeded. The minority participation goal for the project was 32% with Ryan achieving 35.1%. The female labor goal was 6% with Ryan achieving 9.7%. Owned by the MSFA, the 1,610-stall, six-level ramp, on Fourth Street South, opened to the public in January 2016. “Working to foster an inclusive workforce environment for women and minorities is a very high priority of the
City of Minneapolis,” said Minneapolis City Council President, Barbara Johnson. “This achievement is a testament to Ryan’s continued commitment to making a positive difference that will be shared across our city.” Ryan reached this important milestone in partnership with the MSFA, Ryan’s subcontractors, and by applying the HIRE Minnesota projection tool. Several methods to track progress were used including the requirement of all subcontractors to, not only commit to reaching the project inclusion goals, but to outline the methods planned to achieve the desired outcome. Ryan along with its partner, Shaw Lundquist, tracked participation on a daily, weekly and monthly basis to ensure the project was on track. “An accomplishment like this is always accomplished in collaboration with others. We are grateful to all who contributed to this success, including the MSFA’s Equity Director, Alex Tittle, our general contracting partner Shaw Lundquist, our subcontractors and HIRE Minnesota. Ryan will continue to collaborate with others to pursue the impor-
September 2016
tant work of including minorities and women in the construction labor force,” said Elizabeth Campbell, Ryan’s Director of Inclusion. Campbell added, “Ryan’s Emerging Business and Workforce Inclusion Program include a number of innovative features that allow us to meet the changing demands of the construction workforce marketplace. Ryan sees its inclusion program as an extension of its mission of building lasting relationships with business partners, subcontractors, and the diverse communities in which we work.”
Alchemy365 Signs Lease at The Finn ACKERBERG announced that they have executed a 4,700 square foot lease with Alchemy365 at The Finn, a mixeduse project currently under construction at 735 Cleveland Avenue South in the Highland Park neighborhood of St. Paul, Minnesota. Offering four class types in a boutique environment, Alchemy365 is a fitness studio that blends yoga, intense conditioning, and strength. In addition to its class offerings, Alchemy365 offers
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Minnesota Real Estate Journal
full-service retail including Lululemon Athletica apparel, locally sourced seasonal apparel items, and post-workout smoothies and refuel drinks. Brent Jacobson of HEMPEL represented Alchemy365 in the transaction and ACKERBERG was represented by Bloom Commercial Real Estate. Alchemy365 currently has studios in the North Loop and Northeast neighborhoods of Minneapolis. “We couldn’t be more excited to open in Highland Park’s premier mixed-use development with top-notch development pros like ACKERBERG. I’ve lived in St Paul for 10 years, I opened my first fitness studio there 7 years ago and I can’t wait to bring Alchemy365 home to St Paul,” said Alchemy365 CEO, Mike Jones. “We have been continuously searching for best-in-class concepts that add to the Highland Village lifestyle. Alchemy365 is the perfect fit, and we are very excited to have such a respected, local business join the project,” said ACKERBERG’s Justin Fincher, Project Manager of The Finn. The Finn broke ground on its first
stage in March 2016. Alchemy365 will occupy the south endcap at the corner of Cleveland Ave S and Pinehurst Ave, which will be completed in the project’s second stage. Full building completion and Alchemy365’s first classes are targeted for late Spring 2017. Alchemy365 will join GENT Cuts and Grooming, as well as anchor tenant Edina Realty, who executed an 8,300 square foot lease with development partner, Cleveland Holdings, in the fall of 2015. ACKERBERG and Cleveland Holdings are developing the project. Additional project partners include BKV Group as Architect of Record and BigD Construction as Contractor.
MARCUS & MILLICHAP ARRANGES THE SALE OF A 12,793-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 Went-
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worth Plaza, a 12,793-square foot retail property located in West Saint Paul, Minnesota, according to Craig Patterson, Regional Manager of the firm’s Minneapolis office. The asset sold for $3,925,000. Matthew Hazelton, Sean Doyle, 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 regional developer/owner. The buyer, a limited liability company, was also sourced and secured by the listing team. Speaking with Mr. Hazelton, “This transaction was a great example of continued interest in well-located real estate occupied by solid tenants. 75 percent of this center is occupied by national tenants. This, coupled with the location on Robert Street near Walmart, Target, and many other traffic draws, made this an attractive investment.” Wentworth Plaza is located at 1590 South Robert Street in West Saint Paul, Minnesota.
September 2016
Dougherty Mortgage LLC closes $21.2 million Fannie Mae loan for The District at Hamilton Dougherty Mortgage LLC, a full service national mortgage banking firm, recently closed a $21.2 million Fannie Mae loan for the acquisition of The District at Hamilton, a 300-unit market rate multifamily apartment property located in Chattanooga, Tennessee. The gated, pet-friendly property includes a swimming pool, sundeck, grilling area, business center, athletic center and two lighted tennis courts. The newly redesigned apartments feature Whirlpool appliances, window coverings, decks or sunrooms, built-in microwaves and 1- and 2-bedroom options. The Fannie Mae 15year term, 30-year amortization loan was arranged through Dougherty’s Nashville, Tennessee office for borrowers, Calhoun Shores, LLC, Fremount House, LLP, and Hamilton Place CAG, LLC. News to page 22
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September 2016
Berkadia’s Blechschmidt: Few concerns about overbuilding in Midwest apartment market by Dan Rafter Minnesota Real Estate Journal recently spoke with Chris Blechschmidt, general manager in the Chicago office of Berkadia, about the strength of the Midwest apartment market and the strengths that borrowers have to display when seeking financing for multifamily deals. Here’s some of what he had to say. Minnesota Real Estate Journal: When officials with Berkadia are considering apartment-financing requests, what do they look for from borrowers? Chris Blechschmidt: We look at several things. First and foremost, we look at the experience of the sponsor, the specific market and the location within that submarket. Our main focal point, though, is the experience of the borrower. We really want to look at the sponsor’s track record in executing a similar plan at a similar scope and size. Hopefully, we will have seen them successfully execute on this type of plan before.
MREJ: It sounds like you really take a long look at the personal side of the request. Blechschmidt: We do. We look at the sponsor’s experience and familiarity with the project type and the sponsor’s knowledge within that specific market. Has the sponsor owned other properties in that market? Has the sponsor executed a project like this before? We do so much long-term debt that we tend to have a longer-term perspective. We like to see it demonstrate time and time again that they have a commitment to manage and maintain their assets for the long haul. MREJ: How do you see Berkadia’s role in the commercial-finance transaction? Blechschmidt: We are the checks and balances in a way. We have to really see and believe in the opportunity and the story behind it. If we do that, we’ll have the best chance of marrying the right opportunity to the right capital source. The real success comes
from understanding and customizing every deal for the needs of the sponsor to reach the best chances of success.
ily market today? Blechschmidt: It is very busy. We are a mortgage-banking firm and a multifamily sales investment platform.
MREJ: How strong is the multifam-
Apartment to page 22
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September 2016
Is a slowdown coming for the hotel industry? by Dan Rafter
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he hotel market across the United States is still strong. But according to Marcus & Millichap, growth in the hospitality sector is starting to slow. In its mid-yeaer hospitality report, Marcus & Millichap says that occupancy rates are starting to fall in some markets as the supply of new hotel rooms outpaces the demand for them. This doesn’t mean that the hotel market is struggling. Far from it. It’s just that the explosive growth in new rooms is now slowing. Don’t expect to see developers add as many new hotels to most markets in the Midwest and across the country. And when hotels are added? The odds are good that they will come in the form of what Marcus & Millichap calls upper midscale inns. This type of hotel is best represented by Holiday Inn and Hampton Inn, both chains that attract large and small investors alike. Marcus & Millichap says that these hotels attract the most attention from investors today. Marcus & Millichap reported that the occupancy rate for U.S. hotels will rise 30 basis points this year to 65.8
percent. Despite rates actually dropping in some markets, that 65.8 percent figure will rank as the highest annual occupancy rate on record. Revenue per available room — better known as RevPAR — will jump 4.5 percent this year to $82.24, Marcus & Millichap reports. But Marcus reports that this growth will come almost
entirely from an increase in average daily rates charged by hotels, an increase from $120.05 in 2015 to $124.97 this year. Hotel expansion is slowing, but new rooms are still being added. Marcus & Millichap reports that about 100,000 new hotel rooms are slated for completion this year, most of these rooms
being in the select-service end of the industry. There are an additional 210,000 rooms that are planned and in the conceptual stages. Marcus & Millichap says that as the hotel cycle matures, though, construction lenders might hesitate to fund additional projects in the hospitalilty sector.
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Opus reveals plans for new 30-story multifamily development in heart of downtown Minneapolis
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pus has unveiled plans for a 30story multifamily and retail development in the heart of downtown Minneapolis at 365 Nicollet Ave. The project supports the city’s goal to double the downtown population by 2025, driving business vitality and cultural renewal in the area, particularly the north end of Nicollet Mall. Construction on the new high-rise is slated to begin in early October. Located between South Third Street and South Fourth Street, the high-rise will feature 9,500 square feet of retail space on the ground level with 369 apartment units. Floor plans will range from alcove units to three-bedroom options, including 36 penthouse suites. All residences will include condo-level finishes with granite countertops, stainless steel appliances and floor to ceiling windows. The distinctive architecture for the building exterior will feature a dynamic balcony pattern and large glass elevations. The structure will also include residential parking facilities. The building will include indoor and
outdoor spaces featuring a bike lounge with repair station and seating areas, sauna and steam room, and a sixth floor amenity deck including a yoga room, hot tub, pool and outdoor cabanas, among other offerings. Additionally, the building will be designed to meet LEED certification. The space will be the model of contemporary urban living. Situated directly across the street from the Minneapolis Central Library, the building will share a sidewalk with Nicollet Mall, central to pedestrian activity and public transit. The development will also be connected to downtown Minneapolis’ public skyway system for added convenience to local retail, office spaces and entertainment venues. Opus Development Company, L.L.C. and Opus Design Build, L.L.C. will be the project’s developer and design-builder, respectively. Opus AE Group, L.L.C. is the architect and structural engineer of record. The project is slated for completion in summer 2018.
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Apartment construction to hit 10-year high in 2016 by Dan Rafter
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evelopers are expected to add more apartment units across the United States this year than they have in the last decade, according to new research from RENTCafe. According to the company, more than 320,000 new apartments are expected to be completed in 2016. That is a jump of 50 percent from 2015. Texas leads the way, with more than 69,000 units projected to be completed in 2016 in the metropolitan areas of Dallas-Fort Worth, Austin, Houston and San Antonio. Chicago ranks 14th on RENTCafe’s list of hot apartment markets, with developers expected to deliver 8,377 new apartment units to the metropolitan area by the time this year ends The only other Midwest market to make this list was Nashville, which is expected to add 6,536 new apartment units this year. One-bedroom units will make up the biggest slice of new apartment
units this year. RENTCafe reports that 51 percent of the new apartment units coming in 2016 are of the onebedroom variety. Studio apartments are the rarest type of new unit coming online in 2016, accounting for just 4.7 percent of the new rental inventory. As demand for new apartments continues to rise, so do rents. RENTCafe reports that the national average monthly apartment rent stood at $1,213 in June, an all-time high. Occupancy for completed properties across the country stood at 96.1 percent as of the end of the first quarter of 2016, according to the company.
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10 Years From page 1
The properties Marcus & Millichap offers run the gamut of profitable buildings, from auto parts and dollar stores in the six figure range to apartment buildings, retail centers, and hotels worth tens of millions of dollars. Eighty three percent of all investment sales in the U.S., in fact, is concerned with transactions of $20 million or less, and they are thus focused to the needs and requirements of the private investor. Minnesota is no exception from Marcus & Millichap’s domain. Their base of operations in Minneapolis has dealt in properties throughout the Twin Cities and Upper Midwest for ten years. To acknowledge this milestone we spoke with Craig Patterson, 29year-veteran of the real estate business and regional manager for Marcus & Millichap in Minnesota, about how his team has succeeded in starting a new branch in our market and how they intend to grow over the course of the coming ten years. “It wasn’t easy at first,” Craig explained. “2008, as you may recall was not a red letter year for real estate, which would have made running an established brokerage difficult enough.
Minnesota Real Estate Journal
Having had only a year and a half to put down roots before the crash made things even more interesting. But in those few months we found a few great people who are still with us today, trained them according to the company’s better practices, and weathered the storm.” This of course begs the question: what kind of practices could have allowed such a new brokerage to endure and thrive after the dark days for real estate that was 2008? “At Marcus & Millichap our greatest strength is collaboration. It’s too common for the people who make up an investment brokerage company to compete against one another and as the result diminish value they might otherwise have created for their clients. It’s clients who ultimately pay for brokerage fees. Whereas most other investment brokerages don’t offer co-broker fees, we do. By sharing we incentivise the members of our team to take advantage of individuals’ strengths and create higher value for our clients. When every goal is common, every one works harder toward the same end. Insular brokers limit their spheres of influence to what only one person can accomplish. “Another thing we emphasize is intellectual capital. You can’t skate on dull blades -- do you think Gretzky stopped practicing when he was in his
prime? We offer our clients research reports, but we’re constantly generating those for our own edification and just to stay good at it in the meantime. We are always training. Every week, many in my office including myself undergoes role playing exercises. That’s where we give out a hypothetical situation, maybe something that happened recently, and go over it with one another in order to sort out how we might better approach it next time. It’s like what his butler told Batman in that movie, ‘Why do we fall? So we can learn to pick ourselves up.’” With ten good years passed, we asked Craig what’s to come for Marcus & Millichap here in Minnesota in the next ten. “We do well into nine figures in sales per year here right now. In ten years I want to be doing multiples of that much. Presently we have 26 agents in our office, but in three years I want to increase that count by 50%. With more of the right, motivated, aggressive but measured approach I’m confident we will accomplish this growth. “We have a huge advantage over smaller brokerages. Because we have offices in most states we have access to out-of-state investors that most other companies just wouldn’t be able to meet. Investors in coastal markets love the Twin Cities. Even though it’s the 14th largest market in the country it
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was considered a secondary one until the past few years. That means it had been relatively overlooked in favor of places like New York and Chicago by the large REITs, private investors, and institutionalized capital, so higher yields are more available here and we continue seeing more come. “We have Californian clients who are lucky if they can get a four or five Cap on a property in their backyard. We can bring them to deals in stable, accretive markets like the Twin Cities. We collaborate on all our listings and continue to grow market share, thereby bringing more value to our clients - this is going to be our secret sauce in our second decade of operation. Forty percent of our deals are going to outof-state investors right now. We will grow by making better opportunities more accessible all around the country.” We congratulate Craig and his team on a successful ten years of business here in our town and wish them the best for what’s to come. It’s certainly bound to be quite the show! David W. Scheller is a Freelance Writer for the Minnesota Real Estate Journal, he can be reached at: davidwscheller@gmail.com (612) 388-3773
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Minnesota Real Estate Journal
Effler From page 1
view. The first thing I ask is, ‘Where is the capital flowing and why?’ The stock market has fatigued many different investors. Commercial real estate investments in general, though, are in a sweet spot from a returns perspective. Commercial real estate is a tangible asset that generates real cash flow that people can understand. There is more capital today flowing toward these tangible assets. The real estate world and multifamily is the big beneficiary of that. It is really about the scarcity of other income-producing assets being available. So do we get overbuilt a little bit in specific submarkets? Sure. Do I think that this will cause a huge correction in the multifamily market? Absolutely not. The fundamentals of capital flow and people’s search for yield outweigh the threat of overbuilding in specific submarkets. We are in the middle of the strongest golden age multifamily cycle that we will ever experience as investors. I don’t see it ending anytime soon. MREJ: You work out of the Columbus market. That seems to be a particularly strong market for multifamily right now. Effler: Columbus is adding 25,000plus jobs a year right now. We have a quarter of our population between the ages of 20 and 34. We are popping up on lists like Forbes’ top 10 cities for
News from page 12
MARCUS & MILLICHAP ARRANGES THE SALE OF A 30-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 Wannigan Apartments, a 30-unit apartment property located in Grand Rapids, Minnesota, according to Craig Patterson, Regional
young professionals. National Geographic is writing articles about why all the cool kids love Columbus. After New York and Los Angeles, Columbus is home to the third-most fashion designers in the country. We are under 4 percent unemployment here. So it’s no surprise to me that the multifamily market is so strong here. MREJ: How much of Bellwether’s business these days is made up of multifamily financing deals? Effler: In 2015, 50 percent of our $4.5 billion in financing was multifamily. I think it will be an even higher percentage this year. MREJ: What do you look for from borrowers when they do approach you for financing? Effler: I like to tell our clients that we are painful to deal with on the front end from a due-diligence-gathering perspective because I want the process to move as smoothly as possible once we take the applications and move toward closing. We do a little more front-end work that provides a tremendous amount of benefits at the back end. We are requesting all the things that a typical lender will request upfront: rent roll, operating statements, cost of the project. We do due diligence on the borrower. But what we really work hard to understand is the borrower’s investment thesis and the story behind the deal. That way, we can properly articulate the opportunity to all of the different capital sources and eliminate the surprises at the back end. Manager of the firm’s Minneapolis office. The asset sold for $1,700,000. Chris Collins, Adam Haydon, Evan Miller, Dan Linnell, Josh Talberg and Mox Gunderson, 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 represented by the listing team. Speaking with Mr. Haydon, “The property was attractive because it provided higher yields than what investors
Apartment from page 12
Multifamily as a sector remains the property type of choice today. It really is seen as a favorable inflation hedge. It generates steady, consistent cash flow. Our mortgage bankers are really busy in that space. The velocity is up. From that perspective, we expect to have another record year in multifamily finance. It has been quite good. MREJ: Are you worried at all that some markets are receiving too many new apartment units? Blechschmidt: There is a fair amount of supply in the pipelines in Midwest cities like Chicago, Milwaukee and Minneapolis. But at least for today, we are not too concerned about it. We think that way because of the combination of two things: job growth and what we think is going to be a decline in future supply. The banks are pulling back because of new regulations. So we think the supply of new apartments will slow in the future. We are not concerned about oversupply right now in any market in the Midwest. We do expect absorption to slow down a little bit. Owners might want to decrease their rent expectations a little bit. But right now it is not a huge concern. Things can change, of course. But we are keeping a watch on this market, and we are not overly concerned.
are getting throughout the Twin Cities metro. We are continuing to see investors from the Twin Cities look in smaller markets throughout Minnesota for deals.” Wannigan Apartments is located at 1607 E Highway 169 in Grand Rapids, Minnesota. The property consists of a 6unit market rate apartment building and a 24-unit student housing complex that serves the nearby Itasca Community College
Dominium Portfolio Reaches 25,000 Units Developer hits major milestone in its growth strategy Dominium, a Minneapolis-based apartment development and management company, announced today that the company has reached a major milestone surpassing 25,000 owned or managed units for its portfolio across the United States. Dominium’s team of professionals continually look for opportunities to lead and develop projects that meet the needs of growing needs of communities, contribute to the company’s growth
September 2016
MREJ: Are there any Midwest markets that are performing particularly well when it comes to multifamily? Blechschmidt: Most of the markets in the Midwest are quite strong when it comes to the apartment market. They have stable occupancies and they have demonstrated yearover-year rent growth. There are very few Midwest markets where there is any reason for pause. The Midwest as a whole has obviously not only benefitted from low interest rates but also from the yields that investors can get. The yields that investors can obtain here are a little higher than they are on the coasts. There is a lot of investor appetite for assets in the Midwest. MREJ: What do you see in the apartment market in the coming months? Do you think it will remain as strong? Blechschmidt: There might be a short-term decline in absorption, but outside of that, we think that in the long-run, the multifamily market will continue to be quite strong. It will be strong in investor appetites as well as strong in terms of capital looking to place debt.
year-over-year and ensure best-in-class management to serve its residents and the cities and states where it does business. “This is an important time for our company,” said Paul Sween, managing partner at Dominium. “Dominium has an ambitious growth strategy and reaching the 25,000-unit mark is a great start to helping us achieve this goal. We believe there will be continued strong demand for high-quality affordable housing and we are committed to developing innovative projects that meet the needs of growing communities across the country.” Moving forward, the company plans to stay close to its core business and look for development and acquisition opportunities across the country in key growth markets and expanding areas. The company is now the nation’s second largest provider of affordable housing in the nation. The company’s growth goal is to reach more than 40,000 units by the year 2025.