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Do you need some leisure time?

Last week the Minnesota Business Journal reported, Lutsen Resort, a staple of Minnesota tourism for over 125 years, went on the market for just under 10 million dollars. However, it is not the first resort in the Great North to go on the market recently. The Star Tribune reports Gunflint Lodge sold for over 6 million dollars and Superior Shores and Resort, just south of Lutsen, in Two Harbors is also currently on the market.

Is this a trend? Why are resorts going on the market? Should consumers be worried about their options for North Shore leisure?

Herb Tousley, of the University of St. Thomas’ Shenehon Center for Real Estate, commented that these resorts often times require a “hands-on”  approach to management of the site. He also noted, “due to this approach, many owners see the opportunity to sell, in what they perceive to be, a high value market in order to exit the business.”

Statistics from the U.S. Travel Association show that domestic leisure travel is up from 2 billion trips in 2007 to 2.28 billion trips reported in 2016. More specifically, the Minnesota average household income has returned to pre-recession levels at $79,893. The private sector employment numbers (FRED) also seem to indicate the economy is in relatively good health. These indicators are great for resorts and the hospitality industry in general. Even with the ominous question of, “are we due for an economic adjustment?” It is not a predictable event. From general market signs, a resort may be an investment for some leisure.

 

Shenehon Center for Real Estate has been enabled Graduate level Business and an Undergraduate Major program in real estate for more than 15 years. The University of St. Thomas is dedicated to creating leaders who are morally responsible, think critically, act wisely, and work skillfully to advance the common good. 

 

 

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Real Estate Executive Insight Speaker Series Bob Lux – Inside the Mind of A Developer

 

Real Estate Executive Insight Series

Bob Lux – Inside the Mind of A Developer 

Event Details Tuesday, March 28th 2017 5:30 p.m. University of St. Thomas, Minneapolis Campus Schulze Hall, Room 127

A candid conversation with industry leader Bob Lux, Founder Alatus LLC

Quality real estate development requires innovative thinking. Bob Lux, founder of Alatus LLC, has been in the real estate development and investment business for over 30 years. His company’s mission is to provide innovative solutions and high quality projects by wisely using his team’s talents and strengths to achieve the client’s vision and form a better community.   Lux will discuss the challenges, opportunities and trends in developing residential and commercial real estate in the Twin Cities. Lux will also share his views on the condo market and as the largest private owner of parking facilities in Minnesota Bob will outline his expectations for future parking and infrastructure needs in the downtown area.

Agenda 5:30-6 p.m. Networking 6-7 p.m. Presentation by Bob Lux

Register Today
 
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Semiannual Survey of the Twin Cities Commercial Real Estate Experts Predicts Continued Favorable Market Conditions

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Leaders in the field of Minnesota commercial real estate expect to see a continuation of the favorable market conditions for commercial real estate that we have been experiencing for the past two to three years.

May 2016 Results

The semi-annual Minnesota Commercial Real Estate Survey conducted in May 2016 has produced some interesting results. Overall, the survey continues to indicate a slightly less than neutral expectation looking ahead two years to spring 2018 for commercial real estate. The composite index was recorded at 46. This is the sixth consecutive survey where the composite index has been in the 46 – 48 range. Index values greater than 50 represent a more optimistic view of the market over the next two years, with values of less than 50 indicating a more pessimistic view. Although the composite index level is similar to previous surveys the pattern of the individual indexes in the current survey is very different.

As was done with all ten of the previous surveys, the same group of 50 commercial real estate industry leaders involved in development, finance, and investment were polled regarding their expectations of near-term, future commercial real estate activity. One thing we have observed in the current survey is there is less variation in the responses and that has caused a more uniform response rate reflecting the panel’s increased certainty in their views. The individual indexes are detailed below:

Rent Expectations

Less optimistic outlook that rents will continue to increase at current rates. Market conditions expected in spring 2018 are best described by the price for space (rental rates) and the supply of space (occupancy levels). The index for rental rates has declined from a highly optimistic 66 to a somewhat less optimistic 60. This is an indication of an expectation of a moderation of rent growth over the next two years. Higher rents help to offset the increased costs of new construction. A slowdown in rent growth puts pressure on expected returns that will be achieved by developers and owners.

Occupancy Expectations

A continued neutral outlook on expected occupancy levels. The index for occupancy levels increased slightly from 50 to 52. Despite the increase, the panelists continue in their expectation that occupancy levels will remain steady at current levels. As new buildings have been completed it takes some time for the market to absorb the new space. Over the last 2 years the occupancy index has been drifting downward towards a neutral expectation concerning the demand for space.

Land Price Expectations

Increases in land prices are expected to moderate. The panel’s outlook for land prices reveals an expectation that land prices will increase at a slower rate between now and spring 2018. The land price index has increased (become less pessimistic) for the third consecutive survey moving from 37 last fall to 40 this fall this spring. The low point for the index was recorded at 31 in the fall 2013 survey. This sentiment while still in pessimistic territory indicates an expectation that land prices will moderate their rate of increase during the next two years. Increasing land prices increase total project costs and are a hindrance to new development, making it more difficult to obtain financing and adequate returns for investors.

Building Material Price Expectations

Increases in the price of building materials are also expected moderate.  The spring 2016 survey reveals that for the fourth consecutive survey our panel continues to become less pessimistic about the rate of increase in price of building materials. The building material index moved from a strongly negative 32 to a somewhat less negative 37, reflecting the panel’s opinion that building material price increases are expected to moderate. Since building materials are a major cost component of any development project any improvement in prices will be favorable for future development.

Return on Investment Expectations

Investors return expectations remain unchanged over the next two years. The index for investor’s return expectations has increased slightly for the third consecutive survey at 48. Although this index value is slightly pessimistic, it is essentially neutral.  The consensus among survey respondents continues to indicate that investors expected returns will not change significantly in the next two years. Investors will continue to seek out quality investments but they are being much more diligent about how they price risk and evaluate return when considering their investment options.

Lending Expectations

More equity is expected to be required.  The index for the amount of equity required by lenders decreased significantly, falling from 51 in to 42. This indicates the panel’s strong belief that credit will be available for good projects but lenders will increase their equity requirements in the coming two years. The good news is that more equity should result in better rates and terms; however, the bad news is that in many cases equity is harder to find and more expensive than debt.

 Summary

To summarize the panel is expecting to see a continuation of the favorable market conditions for commercial real estate that we have been experiencing for the last 2 to 3 years, however there will be some differences as to why this will happen. The panel has moved from a positive to a neutral position on occupancy. With all of the new product coming on line it is expected that given a little time the market will be able to absorb all of the new space but while this happens occupancy rates will be depressed in the short run. Additionally, the panel expects to see continued rent growth, however, that growth will be at a slower rate as new product comes on line and is absorbed. Development efforts will be helped by an expected moderation in the rate of increase in land prices and building materials. The panel is also expecting to see lenders tighten their lending standards somewhat. That results in lower loan amounts and higher equity requirements on development projects. Higher equity requirements makes development more difficult since equity dollars are more expensive and using less debt financing tends to reduce the rate of return on a project. Overall, our panelists see continuing activity at or near present levels in most categories of commercial real estate during the next two years.

May 2016 Commercial Survey

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September’s Housing Market Key Benchmarks Running Well Ahead of Last Year

A new emerging build-to-rent trend coming soon to the Minneapolis/ St. Paul Market Market Report

Strong housing-market benchmarks – including home prices and the number of sales – have continued well into the fall season across the 13-county Twin Cities region, according to a monthly analysis 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). In addition, it looks for trends in the market and creates a monthly composite index score by tracking nine data elements for those three types of sales.

In September 2015 the $230,000 overall median sale price of a single-family home was unchanged from August but is 6 percent higher than in September 2014. Likewise, compared to last year the number of closed sales was up 12.5 percent and the number of pending sales (homes that are sold but have not yet closed) was up 11.9 percent. Herb Tousley, director of real estate programs at the university, cites two factors that are keeping the sale prices up: above-average wage growth and a historically low number of homes on the market (down 15.5 percent in September compared to a year ago). “We are continuing in a sellers’ market,” he said. “Look for these trends to persist through October before the market settles down a bit during the holiday season.”

Sept 2105 Median Sale Price

Build To Rent – A New Trend Heading in our Direction?

 A lack of existing housing inventory, a relatively low number of new housing starts combined with a tight rental market is causing some builders to change their strategy; they are starting to build homes specifically for rental. This is a new trend that is beginning to appear in a number of markets across the country. According to the Wall Street Journal, 5.85 percent of the 535,000 single-family homes started in 2013 were built to rent. That number is expected to continue to increase over the next several years. This trend is being driven by the lack of a once-plentiful supply of existing distressed homes that could be purchased a deep discount, renovated and then converted into rental properties. “For the last several months the percentage of distressed sales in in the Twin cities has been less than 9 percent,” Tousley said. “And that means there have been few distressed homes available.”

Builders are building three- and four-bedroom homes specifically to rent to families. They can select durable materials and interior finishes that can withstand increased wear and tear. And since these homes are new, expenses like repairs and maintenance will be much lower than comparable older, existing housing. “Some builders are selling these homes to institutional buyers as a way to sell homes in a hurry that allows them to keep their crews busy and cash coming in the door,” Tousley said. “In some cases, these homes are being sold in bulk to institutional buyers at an 8 percent to 10 percent discount. In tight rental markets like ours, investors believe that continued rent growth and rising home values will allow them to reach their investment objectives.”

He said the build-to-rent trend is beginning to appear in several forms. Some investors are buying newly built homes from builders on lots in new subdivisions and in long-standing, established neighborhoods that are located in the same general geographical area. These large investors already own and rent homes that are scattered in different locations and they have the infrastructure in place to manage and care for the properties. In some cases developers are building entire rental communities that have three- and four-bedroom homes built with higher quality materials that will offer amenities similar to high-end apartments such as a club house, fitness center and resort-style pool area. Landscaping and exterior maintenance will be reduced where crews can mow all of the yards, plow snow and maintain the common areas on a large-scale basis.

“These communities would be attractive to a number of potential tenants,” Tousley said. “These homes would appeal to families who are new to the area and would like to get to know the market before they buy. This gives renters a chance to live in a nice neighborhood while they look for a home to purchase. Other renters would like to live in a high-quality neighborhood but don’t have the down payment required to purchase a home at this time. Some developers are offering these homes as an opportunity for renters to save for a down payment and build their credit until they can qualify for a mortgage. A rent-to-own concept could help potential buyers purchase a home in today’s tougher lending standards.” “While we haven’t seen build-to-rent activity yet in the Twin Cities, I wouldn’t be surprised to see this trend emerge here in the near future,” Tousley said.

The St. Thomas indexes.

Here are the Shenehon Center’s monthly composite index scores for September 2015. The index, which tracks nine data elements for the three types of sales (traditional, short sales and foreclosures), started in January 2005. For that month, the center gave each of the three indexes a value of 1,000.

The September 2015 index score for traditional sales was 1,114, down from the record-high 1,126 in August. The downturn is blamed, in part, on declines in the number of new listings and closed sales.

The September 2015 index score for short sales was 955, down from 975 in August. There were only 97 short sales in the 13-county Twin Cities region in September, representing 1.9 percent of total sales.

The September 2015 index score for foreclosures was 822, up from 818 in August. There were 333 foreclosure sales in September, representing 6.4 percent of total sales.

Sept 2015 UST Indices

More information online: The Shenehon Center’s charts and report for September can be found at http://www.stthomas.edu/business/centers/shenehon/research/default.html.

The index is available free via email from Tousley at hwtousley1@stthomas.edu.

 

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New Members of Minnesota Real Estate Hall of Fame Announced

The Minnesota Real Estate Hall of Fame, established in 2010 by the Shenehon Center for Real Estate at the University of St. Thomas Opus College of Business, will add three new members in a morning ceremony Thursday, Nov. 5th, at the Golden Valley Golf and Country Club.

Members of the Minnesota Real Estate Hall of Fame are chosen for their outstanding business performance, high standards of ethics and community activities. The three new members

Dan DolanWells Fargo

For more than 50 years, Dan Dolan has pursued a career in real estate. He was a leader in improving the professional and ethical standards in real estate and was an early promoter and employer of women in real estate sales. His real estate developments include the Evergreen Community, an upscale residential development in Woodbury; and the Oakdale Crossing Business Park.

Throughout his career, Dolan has been actively involved in boards and fundraising, including the merger of Cretin and Durham high schools, fund raising for the University of St. Thomas, and serving as King Boreas XLII in the 1978 St. Paul Winter Carnival. He may be eligible for retirement, but Dolan is just as passionate as ever about real estate development and continues to receive offers of employment in the industry.

Larry Laukka  

Since 1962, Larry Laukka has actively served in all  aspects of the real estate industry, but primarily in the building and development business. Laukka’s experience has included the design, development, financing, construction and marketing of more than 6,000 dwelling units and home sites throughout the greater Twin Cities community, and the management of approximately 3,000 owner-occupied townhomes and condominiums. His leadership roles include president and director of the Minneapolis Builders Association (MBA), senior life director of the National Association of Home Builders (NAHB) and founder of the Minnesota Housing Institute (MHI), which served the real estate industry’s state-wide needs to commercially promote home ownership and legislative action.

In the 1960s, Laukka worked with The Near Northside Re-Development Agency, a community based organization established to guide the redevelopment of the near north side of Minneapolis. The agency focused on the growing need for market rate housing and led to the development of single-family housing, hailed as “The Suburb in the City.”  After being approached by Governer Wendell Anderson, Laukka helped develop the State Housing Finance Agency and chaired the Minnesota State Housing Code Advisory Board until a state-wide building code was in place. Most recently, he served on the Fairview Southdale Hospital board of trustees and chaired the development of its new Carl N. Platou Emergency Center opened August 2015.

James Solem

For more than 40 years, James Solem provided outstanding leadership and tireless work in real estate finance and public policy, supporting the development of rental and ownership housing for low and moderate income households. He was the executive director of the Minnesota State Planning Agency from 1970 to 1978, and served as commissioner of the Minnesota Housing Finance Agency from 1978 to 1994 – a position he was appointed to five times by three Minnesota governors. From 1994 to 2000, Solem was the regional administrator for the Metropolitan Council, leading the long-range planning for transit, wastewater, parks and community development in the seven-county metropolitan area.  From 2000 – 2006, at the University of Minnesota’s Center for Urban and Regional Affairs (CURA), he led a project to bring new ideas to the issues of affordable housing and regional growth.

Now retired from the Metropolitan Council, Solem is active with consulting and volunteer service. He is chairman of the board of the Community Reinvestment Fund and of the boards of Common Bond Housing Corporation and the Greater Minnesota Housing Fund. Throughout his career, Solem demonstrated an exceptional knowledge of operations and governmental polices, brought a high level of ethical standards to the real estate industry and championed those most in need.

The program is open to the public and the cost is $60. More information is available at http://www.stthomas.edu/centers/shenehon/minnesota-real-estate-hall-of-fame/

To register use the following link:    https://webapp.stthomas.edu/eventregistration/ust/register.jsp?eventcrn=B1973

The Minnesota Real Estate Hall of Fame now has 30 members. Previously named were:

  • 2010: Tony Bernardi, Lloyd Engelsma, Gerald Rauenhorst, William Reiling, Jim Ryan and Sam Thorpe Sr.
  • 2011: Robert Hoffman, Darrel Holt, Bernard Rice, Emma Rovick and five members of the Dayton family: Bruce and the late Douglas, Donald, Kenneth and Wallace.
  • 2012: David Bell, Robert Boblett Sr., Philip Smaby and Boyd Stofer.
  • 2013: Leonard Bisanz, Helen Brooks, Thomas Crowley, M.A. Mortenson Sr. and Kenneth Stensby.
  • 2014: George Karvel Ph.D., Cyril “Cy” Kuefler Sr., Jim Stanton

 

Commercial Real Estate, Industry News, Investment Real Estate, Real Estate Law, Real Estate Trends

Rezoning, new tax credits, economic shifts hit real estate law

Wells FargoThe folowing was reposted from an article written by the staff of the Minneapolis / St. Paul Business Journal

We asked leaders of the biggest real-estate law practice groups to tell us about mistakes clients make, cases they’re interested in and how the practice is changing. Responses have been edited for length and clarity.

Thomas Bray, shareholder at No. 1 Briggs and Morgan

What are the most common mistakes clients make in real estate law?“The two most common mistakes I see are first, clients assuming their property is free of title concerns, and failing to identify and resolve potential title issues before undertaking to sell or mortgage the property. The second common mistake is clients failing to appreciate the costs and disputes that can arise from an unfavorable or poorly drafted lease, and devoting inadequate time and attention to lease review and negotiation.”

What real estate cases issues in Minnesota are you following right now?“The 2006 amendments to the eminent domain statute made it significantly more difficult for municipalities to work with developers on certain types of redevelopment projects. If the economy continues to strengthen, we will be curious to see if municipalities will attempt to persuade the Legislature to expand that authority of municipalities to use eminent domain for redevelopment. We are also closely following St. Paul’s development of the zoning ordinances that will govern redevelopment of the Ford plant.”

Christopher Dolan, real estate group chairman at No. 2 (tie) Fredrikson & Byron

What areas of real estate law are growing and which are contracting? “We have a significant number of health care clients who have been active for the past few years in developing, leasing and purchasing real estate projects. We also have a strong corporate department that has been very active in the merger/acquisition markets. These deals often include a substantial amount of real estate that have kept many of our real estate attorneys busy over the past few years. As for markets that have declined, foreclosures and work-out matters declined as the real estate market improved. While the level of development work is getting much stronger than in the past, we have not yet reached the levels we experienced before the Great Recession.”

Todd Urness, shareholder at No. 2 (tie) Winthrop & Weinstine

What areas of real estate law are growing and which are contracting? “ The recently enacted state historic tax credit provides additional assistance for the rehabilitation of historically significant buildings. We have noticed keen interest in clients using this subsidy to preserve historic structures, particularly in the North Loop and Minneapolis riverfront. Also, the demand for luxury rental housing construction has created a lot of demand for legal services in that area. Some areas of real estate finance and development, such as loan securitizations and condominium development, have not participated in the recovery, and demand for these types of legal services continues to be depressed.”

Mark Hamel, real estate and land use department head at No. 9 Dorsey & Whitney

What real estate cases in Minnesota are you following right now? “I rarely follow real estate cases. Real estate cases are the domain of trial lawyers. I try to steer my clients as far from litigation as possible. I read real estate decisions after they are handed down by the courts.”

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Building Owners Brace for Tall Order: One Way to Measure Space

 Reposted fron a Wall Street Journal article that apperred on May 27th

 By
Ilona Billington

The MetLife building used to be listed at 2.4 million square feet. Now it is listed at 3 million square feet. Getty Images

Coalition Plans to Announce Measurement System in June

One of the biggest complaints of office tenants is that building owners throughout the world use different systems for measuring how many square feet or square meters tenants are leasing, deviating as much as 24% from one another.

Now an international coalition of real-estate organizations formed last year is hoping to change that. The International Property Measurement Standards Coalition in June plans to announce a single measurement system for the global office market.

“The current situation on measuring standards is totally unacceptable,” said Ken Creighton, chair of the coalition’s board of trustees.

But whether or not building owners adopt or ignore the standards remains to be seen. The coalition doesn’t have the clout to require owners to follow its standards and many landlords don’t want to change their current systems, which can mean millions of dollars in extra rent.

For some building owners, adopting a new measurement standard would mean that their building would shrink in size and lose value. “There is a risk that some firms may be sitting on balance sheets that are actually worth significantly less when measured by a common standard,” said Scott McMillan, chief of real estate at the International Monetary Fund.

For many, the debate might seem surprising. After all, landlords throughout the world are governed by the same laws of physics.

But they use widely different systems for measuring space and this affects rents, which typically are charged on a price-per-square-foot or price-per-square-meter basis.

For example, for a space that measures 10,000 square meters (108,000 square feet), some landlords will simply charge rent based on that amount. But most will increase the size by some factor depending on what formula they use for apportioning public space in the building—lobbies, bathrooms, hallways—to tenants.

Landlords also vary in whether they begin their measurement from inside or outside an exterior wall. Some begin measurements at their building’s farthest extremity, like the nose of a gargoyle.

In some cities, including New York, landlords generally have increased loss factors over the years. For example, in 1979, architectural guides listed the Pan Am Building at 2.4 million square feet. Today the tower, which has been renamed the MetLife Building, is listed at 3 million square feet.

Tenants say consistent standards are greatly needed. “I would have preferred this to have happened five years ago, but better now than in five or 10 years’ time,” said Billy Davidson, group property director of Vodafone. VOD.LN 0.00% Vodafone Group PLC U.K.: London GBp209.50 0.00 0.00% May 30, 2014 4:38 pm Volume : 63.70M P/E Ratio 0.01 Market Cap GBp55.39 Billion Dividend Yield 7.13% Rev. per Employee GBp420,129 05/29/14 Vodafone to Meet With Indian O… 05/27/14 FCC Could Use Merger Concessio… 05/22/14 Why is Vodafone Flogging a Net… More quote details and news » VOD.LN in Your Value Your Change Short position “This is the right thing to do.”

The Standards Coalition was formed in 2013 by a group of international property organizations including the Royal Institution of Chartered Surveyors in the U.K., the Building Owners and Managers Association in the U.S. and the International Monetary Fund. The move was partly in response to increasing pressure from large global tenants that are frustrated by the numerous measurement systems.

A group of 18 experts representing 11 countries have been working on the standards. Proposed standards have been circulating for comment among real-estate professionals for months.

Coalition members expect the standards to be controversial. “In any initiative in standardization there will inevitably be winners and losers,” said Marc Mogull, an executive with the investment firm Benson Elliot who also is a member of the Royal Institution of Chartered Surveyors.

There is also the question of implementation. Building owners will have to voluntarily accept the new standards and it isn’t clear how many will do so, especially if it could mean a financial loss.

Many real-estate executives in New York are skeptical that new standards will change the minds of the city’s landlords. “It’s an important enough market that they can make their own rules,” said Mark Weiss, vice chairman of Newmark Grubb Knight Frank.

But tenants could put pressure on building owners to accept standards by avoiding properties that don’t. “I need the confidence from my suppliers to know when they give me comparable details that it’s really comparable,” said Vodafone’s Mr. Davidson. “With [the new standards] I can say that I won’t consider your building unless you show me the measurements based on these standards.”

Some government agencies say they will help pressure owners to accept the standards. One such agency is Dubai’s Land Department, according to Mohamad Al-Dah, a senior director. “From our own point of view we don’t have very fair standards in Dubai, but once the Land department begins using it, we will encourage businesses in Dubai to adopt it,” he said.

Write to Ilona Billington at ilona.billington@wsj.com

 
Commercial Real Estate, Investment Real Estate, Upcoming UST Events

Real Estate Executive Insights Series: Commercial Real Estate Investment and Ownership

Real estate investment involves a substantial amount of risk. Will Hoeg of Falcon Ridge Partners will discuss the challenges and opportunities of investing in and owning commercial real estate. Hoeg will also discuss how to create partnerships for the purpose of making successful real estate investments.

Will Hoeg, Falcon Ridge Partners

Will Hoeg, Falcon Ridge Partners

Falcon Ridge Partners LLC is a commercial real estate acquisition, investment and asset management company. Projects include data centers, complete campus renovations, confidential startup growth incubators, notable towers, building repositioning and overall corporate campus redevelopment. Total investment value has exceeded $1.2 billion with primary concentration in Minnesota and Silicon Valley.

The Real Estate Executive Insights Series is presented by the Opus College of Business MSRE program. This series invites speakers from the real estate industry to provide valuable information and discussion about hot topics and current trends. This is a free program and is open to the public.  Please register here to attend this event.

This program has been submitted for one hour of real estate agent/broker continuing education credit through the Minnesota Department of Commerce.

Wednesday, March 5, 5:30 p.m.
5:30  – 6 p.m.: Registration and networking reception
6 – 7 p.m.: Presentation by Will Hoeg
7 – 9 p.m.: Optional MS in Real Estate class visit

Commercial Real Estate, Development, Executive Insight Series, Investment Real Estate, Office Real Estate, Real Estate Brokerage, Upcoming UST Events

Spring 2014 Real Estate Executive Insights Speakers Announced

The Real Estate Executive Insight Series invites speakers from the real estate industry to provide valuable information and discussion about hot topics and current trends. This is a free program and is open to the public. Attendees who are interested in the MS Degree in Real Estate program are encouraged to participate in an optional class visit following the speaking presentation. Registration is required.

Schedule of Events
5:30  – 6:00 p.m.: Registration and networking reception
6 – 7:00 p.m.: Speaker presentation
7 – 9:00 p.m.: Optional class visit

Cost: Free

 

Wednesday, March 5
Commercial Real Estate Investment and Ownership
Speaker: Will Hoeg, Falcon Ridge Partners

Will Hoeg, Falcon Ridge Partners

Will Hoeg, Falcon Ridge Partners

Real estate investment involves a substantial amount of risk. Will Hoeg of Falcon Ridge Partners will discuss the challenges and opportunities of investing in and owning commercial real estate. Hoeg will also discuss how to create partnerships for the purpose of making successful real estate investments.

Falcon Ridge Partners, LLC is a commercial real estate acquisition, investment and asset management company. Projects include data centers, complete campus renovations, confidential startup growth incubators, notable towers, building repositioning, and overall corporate campus redevelopment. Total investment value has exceeded $1.2 billion with primary concentration in Minnesota and Silicon Valley.

This program has been submitted for one hour of real estate agent/broker continuing education credit through the Minnesota Department of Commerce.

 

Wednesday, April 23
Retail & Office Development/Asset Management
Speaker: Tim Murnane, Opus Holdings, LLC.

Tim Murnane, Opus Holdings, LLC.

Tim Murnane, Opus Holdings, LLC.

Tim Murnane has been a leader in the commercial real estate market in the Twin Cities for many years. He will discuss where he thinks the opportunities are for Opus Holdings and for the market in general as the commercial real estate climate continues to improve.

The Real Estate Executive Insights Series is presented by the Opus College of Business MSRE program. This series invites speakers from the real estate industry to provide valuable information and discussion about hot topics and current trends. This is a free program and is open to the public.

This program has been submitted for one hour of real estate agent/broker continuing education credit through the Minnesota Department of Commerce.

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2014 Real Estate Outlook

Last week, Twin Cities real estate professionals gathered at the University of St. Thomas for the third annual Real Estate Outlook event. The program included a series of panels featuring leading experts in local real estate market segments, each offering their views on the current state of the market and their expectations for the coming year. The event was co-sponsored by Shenehon Center for Real Estate at the University of St. Thomas Opus College of Business and Integra Realty Resources. Here is a recap of some of the major themes presented:

Economic Forecast

The keynote presentation was made by State Economist Laura Kalambokidis, who discussed the current state of the economy locally and nationally. Minnesota has generally fared better than the nation in recovering from the economic downturn. Employment in the state has now climbed back to pre-recession levels. Unemployment in Minnesota is at 4.6%, well below the national rate of 7%. Employment growth has been strongest in the health services, business services, retail, and hospitality industries, all of which have grown between 2.5 and 4% year over year. Government and manufacturing were the worst performing job sectors over the previous year, each declining by about 2%. Despite a slight drag on the economy from policy uncertainty related to the federal budgetary process, continued modest growth is expected locally and nationally over the next two years.

Laura Kalambokidis, State Economist

Office Market Update

Mike Salmen of Transwetern started off the office panel with a report on 2013, which was a decent year for Twin Cities office real estate. Absorption was modest at approximately 200,000 sf. Vacancy has slowly been decreasing thanks to the job growth and low unemployment noted by Ms. Kalambokidis. While Class A Space is performing well, Class B and C space and certain sub-markets are still seeing high vacancy.

Steve Chirhart of TaTonka Real Estate Advisors agreed, noting that the St. Paul and East suburban sub-markets were the weakest office markets in the region, although vacancy has declined from a peak of over 25%. Mark Kolsrud of Colliers stated that the St. Paul CBD had the least amount of investor interest of the regional submarkets, and that this was due to a lack of interest from lenders.

On the other side of the metro, the 394, Southwestern, and Minneapolis CBD submarkets are all performing very well. Mr. Salmen believes the I-394 corridor is currently the hottest office market in the Twin Citeis, with rates pushing into the mid-teens and low vacancy. Vacancies are also low in the Southwest submarket, despite the addition of 3 million sf of space since 2007. An anomaly in the West Metro is the Northwest submarket, which has among the highest vacancies at 24%. Mr. Kolsrud pointed out a 150 basis point swing in cap rates from the 394 area to Northwest submarkets. Like St. Paul and Eastern suburban, Northwest is unlikely to attract interest from institutional investors, although the panelists believed a local developer could find a way to make a deal work.

Lastly, the Minneapolis CBD remains the largest submarket and currently has vacancy at 15%. A big concern for office real estate downtown is the impact of the Wells Fargo build-to-suit deal with Ryan Cos. for new office space in Downtown East; the panelists speculated that this move could pull 1 million space of occupancy out of the downtown core as Wells Fargo consolidates employess in the new buildings. Another concern is the increasing obsolescence of older buildings, where mechanical systems and floorplans don’t support the employee density and layouts now desired by office tenants. But despite these concerns, downtown continues to see strong investor interest, as institutional investors from the coasts seek out the comparatively higher cap rates available in Class A properties in Minneapolis. Additionally, institutional investors are increasingly interested in “non-traditional” investemnets, such as office conversions in historic warehouse buildings in the North Loop area.

Office Panel

The office market panelists ended with a discussion of a macro trend that will have a large impact the office market going forward, which is coporate users taking less space per employee. The average space used per employee is expected to decline from over 220 sf to 150 sf by 2015. Among ten large renewals over the last 18 months, almost all took less space than they had before. Thus despite employment growth, the outlook for office absorpbtion is flat.

Retail Market Update

The retail market panel featured a lively discussion with Jim McComb, John Johannson of Colliers, and Skip Melin of Cushman Wakefield. In the Twin Cities, 2013 saw declines in vacancy and somewhat flat absorption of roughly 900,000 sf. However, Mr. Johannson noted that good space is mostly full, and gave the example of 16 formerly vacant spaces over 12,000 sf in the Southdale area, of which 13 have leased in the last 16 months. Mr. McComb noted that there isn’t much vacancy in smaller neighborhood spaces either. He pointed out that changes in the economy and demographcis are creating opportunities in retail markets.

One of the most significant retail developments currently underway is an outlet center in Eagan. Mr. Melin noted that the center will have 400,000 sf of space for 19 tenants, anchored by Saks Off 5th. Mr. Johannson then described another large 450,000 sf outlet development currently in the planning stages, this one also in Eagan. These two projects are all the more interesting because they are just about the only large multi-tenant retail developments currently in the works in the Twin Cities. Each are banking partly on capturing tourist trade from the nearby Mall of America but also taking advantage of a submarket in Eagan that is currently under-retailed.

The panelists noted that grocery-anchored retail centers continue to Continue Reading