Monthly Archives

May 2010

Industry News

Should we in Minneapolis be in ‘A New York State of Mind’?

NY OFFICE VACANCIESBelow is a recent commentary in Finance & Commerce written by Burl Gilyard.  It is looking at events in commercial real estate that are happening elsewhere and wondering if  they are the signs of potential good things to come in the the Twin Cities market.  These events are encouraging and it is certainly good to see that some transactions are starting to happen.  It  helps us to answer a question that is on many peoples minds these days – “Are we there yet?”   Has the commercial real estate market in the Twin cities reached the bottom ?  Are we starting to see the beginning of a rebound?  I think that in the next several months we will start to see some of these encouraging signs happening in our market as well. 

by Burl Gilyard Staff Commentary

A press release landed in my e-mail inbox on Friday afternoon. No, that’s not news —when you work at a newspaper, people who have press releases to send have a way of finding you.

But this one caught my eye: Houston-based Hines announced the sale of a New York office building for a large pile of money. Specifically, Hines sold the 600 Lexington property for $193 million.  The 36-story building includes 303,515 square feet and is currently 93 percent leased. The deal works out to roughly $636 per square foot, a price that would be unheard of in Minneapolis. But this is Midtown Manhattan.  The seller, a subsidiary of the Hines U.S. Core Office Fund LP, had paid about $91 million for the property in 2003.  What do Houston and New York have to do with Minneapolis? In today’s global economy, everything is connected.

Over the last couple of years, things have been pretty slow on the investment sales landscape. Potential buyers have had trouble finding financing, and potential sellers have often balked at the idea of taking less money than they’d planned on for their properties  Maybe I’m just in a “New York State of Mind,” to quote the old Billy Joel song. But this Manhattan office deal seems like a signal that things are starting to loosen up, that more deals will follow.  And that could be good for the Minneapolis market.

The privately owned Hines has a notable footprint in downtown Minneapolis. Before the capital markets cooled, Hines was a player in downtown’s last big deal: Hines and a joint venture partner acquired the three-building, 989,000-square-foot campus now known as Washington Square in January 2008 for approximately $118 million. (The deal included a parking ramp.)

And then as I was scanning The Wall Street Journal today, I noticed a tidbit dated May 19 that looks like another hopeful note for commercial real estate dealmakers.  The Washington, D.C.-based Mortgage Bankers Association reported last week that the amount of commercial mortgages originated in the first quarter was up 12 percent compared with last year.  That’s another encouraging signal for a market that’s heard a lot of radio silence during the last two years.

There’s an ineffable but undeniable psychological factor to how markets move. If no one is doing deals, people are wary of doing their own deals. But if deal traffic heats up, everyone wants in on the game.  Minnesota native Bob Dylan famously sang that “you don’t need a weatherman to know which way the wind blows.” Who can argue? All you have to do is keep an eye on the New York office climate and have faith that Minneapolis will follow Manhattan.

Upcoming Industry Events

Upcoming Real Estate Events

Real Estate Events for the Week of 5/24/10Logos

May 26, 2010
12th Annual Real Estate Trends Seminar
Northstar Chapter – Appraisal Institute
Continuing Education and Conference Center, St. Paul
More Information and Registration:

May 27, 2010
Exchange Training-Economic Development Professional
6800 France Ave S, Ste 760, Edina, MN 55435
More Information and Registration:

Real Estate Events for the Week of 5/31/10

June 2, 2010
How are Stimulus Projects Stimulating Your Business?
Monthly MSCA Program
Doubletree Hotel, St. Louis Park
More Information and Registration:

June 2, 2010
Chapter Meeting: Change your Corporate Branding with Barry Wolfish
Minneapolis St. Paul IFMA
Land O’ Lakes, Arden Hills
More Information and Registration:

June 3, 2010
Medical Buildings Special Interest Group: Maple Grove Hospital
Minneapolis BOMA
Maple Grove Hospital
More Information and Registration:

Do you know of other upcoming events that we should feature in the weekly “Upcoming Real Estate Events” post?  Send your suggestions to

Industry News

Deboxing The Big Boxes

big box

The shake out in the commercial retail market place is creating both problems and opportunities for commercial property owners.  This story, by Jennifer Bjorhus, recently ran in the Star Tribune.  The article explains the creative solutions that local real estate professionals are using to turn problems into new opportunities. 

Some of those empty big-box stores scattering the area retail landscape are getting sliced and diced.


Last update: May 17, 2010 – 9:19 AM

When Staples Inc. came calling and the vacant Office Depot space John Johannson had in Bloomington was just too big, he did what a landlord has to: He chopped the big box down to size. It’s the type of move the Twin Cities can expect to see more of as landlords struggle with a glut of empty big-box stores — cavernous reminders of the hammering retailers have taken during the recession. With the closures of Circuit City, Linens ‘N Things, Cost Plus World Market, Home Valu Interiors and Steve and Barry’s, there are now about 80 empty boxes, 10,000 square feet or larger, scattered across the metro area. And they won’t fill up fast, pros say. While some have been filled, it’s mostly a game of musical boxes, with retailers already in the market hopping spaces to upgrade and take advantage of deals, said Chris Simmons, a senior vice president at Minnetonka-based Welsh Cos.

No one’s calling it the death of the big box, but many of the supersized stores will likely sit empty for some time and some could take on completely new lives, as they are in other parts of the country where they’ve been turned into community pools and even churches.  At a time when most retailers are making their stores smaller, not larger, there’s just not that many seeking the huge spaces. Even giants Target and Wal-Mart are testing smaller floor plans as consumers scale back and the retailers move into more urban areas. According to a recent Associated Press survey, many economists suspect the Great Recession has bred a new frugality.

Retailers call it right sizing.

“Landlords are having to accommodate them,” said Johannson, also a Welsh senior vice president.  “It’s expensive but in reality for the landlords, it’s a necessity. You need to keep your property poignant and accessible.” Johannson and other principals at Welsh are partners with a group of pension funds that built Circuit City Plaza in 1993. The plaza, off Interstate 494 and France Avenue in Bloomington, never had a day of vacancy until 2008, he said. But lately they’ve been wrestling with three big holes: a former Circuit City, the old Cost Plus World Market, and most recently, the shuttered Office Depot, which was 35,000 square feet. Staples Inc., which announced last week that it’s moving into the Office Depot spot, is taking just 20,090 square feet. Johannson’s group is building new fronts for the spaces and will market the remainder.   Continue Reading

Upcoming Industry Events

Minneapolis BOMA taps Carl Awalt as its new President

From Finance & Commerce

by Burl Gilyard Staff WriterBOMA MPLS

The Greater Minneapolis Building Owners and Managers Association (BOMA Greater Minneapolis) has elected Carl Awalt as its new president.  Awalt is vice president of asset management and customer service for the Indianapolis-based Duke Realty Corp., a REIT with a large presence in the Twin Cities.

BOMA Greater Minneapolis also elected Brian Burg as its vice president and David Dabson as secretary/treasurer. Burg is a vice president with Bloomington-based NorthMarq; Dabson is a senior property manager for Georgia-based Piedmont Office Realty Trust, Inc.

The organization also elected Sandra Schadegg, Harvard Maintenance Inc., to a two-year term on the board of directors. The group also elected David Marquis of Target Corp. and J. Michael Thornton of Frauenshuh to three-year terms.

Upcoming Industry Events, Upcoming UST Events

Upcoming Real Estate Events

Real Estate Events for the Week of 5/17/10Logos

May 17, 2010
Successful Site Management
Institute of Real Estate Management
Golden Valley, MN
More Information and Registration:

May 18, 2010
Minnesota Multi-Housing Association
Program: Certified Renovator Lead Safety 
MN Multi Housing Association, Bloomington, MN 55431
More Information and Registration:

May 18-19, 2010
U.S. Green Building Council
Program: USGBC 2010 Federal Summit
Ronald Reagan Building & International Trade Center
1300 Pennsylvania Avenue, NW, Washington, DC
More Information and Registration:

May 19, 2010
Monthly Program: Twins Stadium
Radisson Plaza Hotel
More Information and Registration:

May 26, 2010
12th Real Estate Trends Seminar
Continuing Education and Conference Center
1890 Buford Ave. St. Paul, Minnesota
More Information and Registration:

Real Estate Events for the Week of 5/10/10

May 26, 2010
12th Annual Real Estate Trends Seminar
Northstar Chapter – Appraisal Institute
Continuing Education and Conference Center, St. Paul
More Information and Registration:

May 27th, 2010
Exchange Training-Economic Development Professional
6800 France Ave S, Ste 760, Edina, MN 55435
More Information and Registration:

Do you know of other upcoming events that we should feature in the weekly “Upcoming Real Estate Events” post?  Send your suggestions to

Real Estate Programs, Upcoming UST Events

Lloyd Kepple Was Featured Speaker At UST Real Estate Executive Insight Series

DSC00922Lloyd Kepple was the featured speaker at the last of the Real Estate Executive Insight Series presentations for the spring semester.  Lloyd is a partner at Oppenhiemer Law and heads the real estate practice at the Oppenhiemer’s Minneapolis office.   His presentation was titled “Where’s the Money – Real Estate Lending in Challenging Times”.  Lloyd discussed how the changes in the real estate market and the resulting declining values have increased the need for additional equity to refinance properties at loan maturities and for acquisitions of new properties.  He talked about how joint ventures will play a more important role in helping provide the funds to fill the need for additional equity in today’s market.  A joint venture is a partnership between a sponsor or developer, who has the expertise to complete the project and an investor who will provide the equity for the project.  Lloyd went through the three key questions that need to be answered when putting together a successful joint venture;

First, Who puts the money in, and when?

Secondly, Who gets the money out, and when?

and finally, Who runs the show?

The answers to these questions can be quite complicated and they need to be negotiated and clearly defined to avoid problems later in the partnership.  Lloyd explained that this form of partnership is going to play a large role in many transactions as the commercial real estate markets recover and values return to more normal levels.

Watch for the Real Eatate Executive Insight series to continue next fall with a new line up of speakers who are making a difference in the Twin Cities real estate market.  If you would like to be notified by e-mail of our upcoming speakers please sent me an e-mail at

Industry News

Residential Home Buyers Motivated By End Of Tax Credit

The recent weekly figures released by the Minneapolis Area Association of Realtors (MAAR) shows a definite spike in pending sales and contracts written before the federal tax credit program ended on April 30th.  What happens in the late spring and through the summer will tell us a lot about the strength of the recovery in general and the housing market in particular.  Will the recent increases in jobs created translate into enough consumer confidence to continue to fuel the gains we have seen in the residential housing market here in the Twin Cities?  As noted below there are some encouraging signs that could bode well for the summer selling season.  Watch the employment numbers in the coming months because they will be a leading indicator of where the housing market is going.

MAAR Weekly Market Activity Reporthouse

The expiration of the tax credit clearly motivated buyers to take action by April 30. Last week, there was a significant 31.2 percent jump in Pending Sales versus last year, bringing the total number of contracts written to 1,469. But for the first time this year the number of New Listings was down. A total of 1,803 of them entered the market, 11.5 percent lower than a year ago.
Some encouraging figures include a Days on Market count of 127, down 15.3 percent compared to last year, and Percent of Original List Price Received at Sale of 93.6 percent, up 4.0 percent over last year.
We expect buyer activity to continue over the coming weeks, although not with the same level of urgency due to the expired tax credits and a slight seasonal lull before we get into the heart of summer.

Industry News

‘Zombie Buildings’ May Limit Options for Tenants

Here is a report from Grubb & Ellis Company that talks about a relatively new development that has come out of the financial crises and the rapid decline in commercial real estate values.  Although I don’t think we have too many “zombies” here in the Twin Cities it is becoming a bigger factor in other major markets around the country.

Office BldgEdited: Jennifer Brenner
Source: Grubb & Ellis Company

Grubb & Ellis Company believes that the amount of available space in the office market nationally may actually be overstated and that tenants have fewer realistic alternatives than record-high vacancy rates would indicate.

The phenomenon, dubbed “Zombie Buildings” by Grubb & Ellis researchers, refers to properties that have significant capital constraints and are therefore unable to fund market-level tenant improvement allowances and commissions, which adversely impacts their ability to compete for tenants.

“Now that the values of many properties purchased during the peak of the market have fallen below the balance due on the loan, some landlords are too capital-constrained to offer the tenant improvement allowances and other concessions necessary to attract tenants in today’s marketplace,” said Robert Bach, senior vice president and chief economist.

“One caveat to the trend, however, is that the wave of foreclosures was much less severe than anticipated. We expected banks to be proactive in taking distressed assets back, but instead, they’re avoiding taking those write-downs by helping landlords retain their assets,” he added. “That being said, the fact remains that many landlords are unable to offer the kinds of tenant improvement allowances and other concessions that require capital on hand. That’s good news for landlords who are in a good capital position – they have much less competition than the reported market statistics would indicate.”

Industry News

Local Apartment Vacancy Drops

by Burl Gilyard Staff Writer
Finance and Commerce
GVA Marquette: Job growth driving new rentalsApartment
A new survey of the local apartment market has welcome news for landlords and apartment investors. Minneapolis-based GVA Marquette Advisors reports a sharp drop in local apartment vacancy, from 7.3 percent at the end of 2009 to a current rate of 6.1 percent.
The GVA study estimates that 1,800 apartments units were newly rented in the first quarter, driven by some notable local job growth. GVA cites statistics from the state’s Department of Employment and Economic Development (DEED) which showed that the Twin Cities metro area added 5,100 jobs in the January-March period.
“As we start 2010, the Twin Cities metro apartment market is starting to show some positive signs,” wrote Brent Wittenberg, vice president with GVA Marquette Advisors, in the quarterly report.  
But vacancy is still higher than a year ago; GVA reported a rate of 4.9 percent for the first quarter of 2009. A vacancy rate of 5 percent is generally considered the equilibrium point for the market. The current rate means that it remains a tenant’s market.  Vacancy can vary widely from submarket to submarket across the metro area.For example, GVA Marquette reports an overall vacancy rate in Minneapolis of 6.5 percent. But in downtown Minneapolis, the rate is notably higher at 8.4 percent. St. Paul shows an overall vacancy rate of 5.4 percent, while downtown St. Paul has a vacancy rate of 7.3 percent.