NYT | Downtown St. Paul Makes Room for New Settlers

Downtown St. Paul Makes Room for New Settlers - The New York Times

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COMMERCIAL REAL ESTATE

Downtown St. Paul Makes Room for New Settlers Square Feet

By JOE GOSE

AUG. 9, 2016

ST. PAUL — On a bluff overlooking the Mississippi River, where pioneers disembarked from steamships in the 1800s to settle the Northwest Territory, developers are transforming another piece of history.

A 17-story landmark federal building there is becoming a mixed-use project at a time of surging housing and entertainment development downtown. Renters began moving this spring into units at the 82-year-old Art Deco edifice, which housed only a small postal crew when the Exeter Group, a St. Paul developer, bought it in 2013 for $5.25 million.

“A lot of people had looked at this building but couldn’t figure out what to do with it because it was such a huge, looming structure,” said James A. Stolpestad, chairman of the Exeter Group. “But we bought it right, for $7 a square foot. It’s pretty hard to go wrong with something that cheap.”

The restoration is one of the most ambitious historic preservation https://www.nytimes.com/2016/08/10/realestate/commercial/downtown-st-paul-makes-room-for-new-settlers.html

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Downtown St. Paul Makes Room for New Settlers - The New York Times

3/6/17, 5:06 PM

undertakings in downtown St. Paul, where a few years ago investors began adding apartments, hotel rooms and restaurants. In particular, developers are turning brick-and-stone warehouses that once outfitted arriving settlers with clothes, shoes, bedding and other necessities into mixed-use properties in the roughly 16block Lowertown Historic District.

The federal building, known as Custom House, has 202 high-end units on floors six through 17, and a 149-room Hyatt Place hotel on floors two through five is scheduled to open in September. The $125 million, 748,000-square-foot project includes self-storage space in an annex that was added in 1961. The first-floor lobby will also feature a restaurant.

The Exeter Group sold the lower floors in the main building to the hotel’s developer, Nelson Construction & Development, based in Des Moines. To revive the structure, more than 10,000 tons of debris were removed, most of the 1,480 original windows were replaced and parts of several floors were cut out to create a light well for interior hotel rooms.

Some 1,430 downtown apartments are under construction in the Lowertown Historic District or in the planning stage, and the number of residential units in the district will climb to 8,100 over the next few years, compared with 5,500 units in 2010, according to the St. Paul Planning and Economic Development Department.

The average monthly apartment rental rate has risen nearly 13 percent over the last 18 months to $1.76 a square foot, said Mary C. Bujold, president of Maxfield Research, a real estate consulting firm in suburban Minneapolis. The average vacancy rate is about 4 percent, she added.

“St. Paul gets a bad rap because it’s smaller in size to Minneapolis, but it’s not any less of an interesting place to be,” Ms. Bujold said. “People want to spend more time down there and live in an urban district.”

Not everyone is thrilled with the apartment boom and rising rents. Artists began living and working in Lowertown about 40 years ago and eventually established a funky enclave known for its biannual St. Paul Art Crawl. Now some https://www.nytimes.com/2016/08/10/realestate/commercial/downtown-st-paul-makes-room-for-new-settlers.html

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Downtown St. Paul Makes Room for New Settlers - The New York Times

3/6/17, 5:06 PM

developers are displacing artists as they convert studio and live-work space into apartments.

In the last several months, two of five original arts buildings in Lowertown have evicted artists or put them on month-to-month leases, said Tom Reynen, president of the 39-year-old St. Paul Art Collective, a nonprofit organization that promotes the arts community.

“People are moving downtown because they like the vibe of the art space and Art Crawl, the brew pubs and quirky restaurants,” Mr. Reynen said. “But if the artists aren’t here, it will become just another neighborhood.”

Mr. Reynen’s group is working with St. Paul to identify potential studio space, he said. For its part, the city wants to ensure that Lowertown maintains its arts identity, said Jonathan Sage-Martinson, director of the St. Paul planning department.

“When there was a lot of inexpensive and vacant space, artists were the only ones who wanted to be in Lowertown,” he said. “But we’re seeing a continuing evolution as Lowertown develops and attracts more people.”

In 2014, the Minneapolis developer George Sherman completed a $25 million historic renovation of the Rayette building, an early 20th-century industrial and office building that was hollowed out and turned into a parking ramp in the 1990s.

That development, which converted the building to 88 loft apartments, followed other projects that he led in Lowertown, including affordable and senior citizen apartments.

“There are a number of investments that have come together at the right time in downtown St. Paul,” said Mr. Sherman, principal of Sherman Associates, which owns about 1,500 units in downtown St. Paul.

Arguably, the best return on investment has been the two-year-old light rail line that connects the St. Paul and Minneapolis downtowns, Mr. Sherman and others say. It has generated renewed interest in downtown and has fostered https://www.nytimes.com/2016/08/10/realestate/commercial/downtown-st-paul-makes-room-for-new-settlers.html

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Downtown St. Paul Makes Room for New Settlers - The New York Times

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investment along the route. What’s more, the Exeter Group would not have redeveloped Custom House without the train, which stops at the restored 102-yearold Union Depot building next door, Mr. Stolpestad said.

Many people point to the $62 million Penfield apartment project on the north end of downtown as a pivotal investment. A private developer proposed condos at the site in 2005. But when the recession foiled a scaled-down plan, St. Paul took control and built 254 market-rate apartments and a grocery store.

When the project opened in 2014, demand for the units emboldened more multifamily developers to pursue market-rate projects downtown. Until then, many were skeptical that the area would support market-rate rentals.

“Everybody wondered if it would work,” Mr. Stolpestad said, “and when it did work, it gave us confidence.”

St. Paul officials and downtown backers want to see more jobs and retailers move to the area. The average downtown office vacancy rate in St. Paul is about 14 percent, and it is hard to attract large corporate users to buildings with small floors, said Eric Rapp, a senior vice president with the real estate company Colliers International in Minneapolis.

Similarly, while restaurants and entertainment arenas are opening downtown, more traditional retailers are harder to find, noted Paul Bengtson, director of the CapitolRiver Council, a nonprofit group focused on improving downtown St. Paul.

One initiative that could help reverse those trends is the proposed River Balcony, an effort to provide a better link between the downtown area and the Mississippi River. The plan calls for a 1.5-mile elevated walkway along the river bluff, anchored on either end by the Union Depot and the Science Museum of Minnesota, and interspersed with restaurants, offices and stores.

The project’s initial phase is expected to incorporate Custom House, possibly by extending a bridge from the building to the promenade, and Mr. Stolpestad said he had identified space to accommodate it. How to finance the River Balcony https://www.nytimes.com/2016/08/10/realestate/commercial/downtown-st-paul-makes-room-for-new-settlers.html

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Downtown St. Paul Makes Room for New Settlers - The New York Times

3/6/17, 5:06 PM

remains a question, although it is expected to be a mix of public and private money.

“The River Balcony is down the road, and whether it happens, I don’t know,” he said. “But anything that knits together the various uses along the bluff would be advantageous and promote the city’s objective to bring St. Paul back to the river.”

Correction: August 11, 2016 An article on the Square Feet page on Wednesday about development in a historic district of St. Paul misstated the century in which the Rayette building was built. It was the early 20th century, not the early 19th century.

A version of this article appears in print on August 10, 2016, on Page B4 of the New York edition with the headline: Downtown St. Paul Makes Room for New Settlers.

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