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VOLUME 27, NUMBER 8

©2011 Law Bulletin Publishing Co.

August 2011

Twin City multi-family vacancy rates to fall under 3 percent? New report from Marcus & Millichap says it’s true By Dan Rafter, Staff Writer

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rian Manion doesn't need studies to tell him what he already knows: The multi-family market remains the most stable of all the commercial real estate segments. A new report from Marcus & Millichap Real Estate Investment Services backs up Manion, vice president in the Chicago office of Wells Fargo Multifamily Capital. The report also tells brokers in Minneapolis/St. Paul what they're already seeing: Multi-family vacancy rates are dropping significantly in the Twin Cities region. According to the Marcus & Millichap report, the apartment vacancy rate in the Twin Cities region should fall below 3 percent by the time 2011 comes to a close. The multi-family market is strong across the country. But it appears to be especially strong in the Twin Cities. Credit this to the nation's off-kilter Vacancy to page 22

Hungry Minnesotans rejoice! New Chick-fil-A locations on the way By Dan Rafter, Staff Writer

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ans of Chick-fil-A in the Twin Cities might soon have something to celebrate: The chain may soon be opening new locations in Minneapolis. A company spokesperson said that Chick-fil-A has targeted Minneapolis as one of the cities in which the restaurant chain would like to grow. The spokesperson also said that Chick-fil-A probably won’t open in the Twin Cities area before 2013. Chick-fil-A, of course, has grown into one of the most popular fast-food chains in the country. The Zagat Fast Food Survey for 2010 ranked the restaurant chain as fifth in the category of Best Value. The chain was one of five that Zagat rec-

ognized for Best Milkshakes. Today, Chick-fil-A operates more than 1,500 locations in 39 states and Washington, D.C. In 2010, the chain registered sales of more than $3.5 billion. It now ranks as the second-largest quick-service chicken restaurant chain in the United States. According to a report from the Minneapolis St. Paul Business Journal, Chick-fil-A has hired Mid-America Real Estate Minnesota to scout possible Minneapolis locations for its restaurants. Minnesota wouldn’t be a completely new location for Chick-fil-A. The student unions at the University of Minnesota and Minnesota State UniversityMankato currently offer Chick-fil-A Express locations.


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August 2011

Contents

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Minnesota Real Estate Journal

AUGUST 2011 • VOLUME 27, NUMBER 8

TWIN CITY MULTI-FAMILY VACANCY RATES TO FALL UNDER 3 PERCENT?

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DESPITE VETO OF STATEWIDE GENERAL PROPERTY TAX REPEAL, OPTIMISM PREVAILS

HUNGRY MINNESOTANS REJOICE!

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DEVELOPMENT COSTS CONTINUE TO CONFOUND

SURVEY: TWIN CITY COMMERCIAL PROS MORE OPTIMISTIC

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RENOVATING AN HISTORIC BUILDING

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ENERGY SUMMIT REVEALS COST SAVING STRATEGIES

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INVESTORS! STOP LOOKING DOWN AT MIDWEST MARKETS

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GROWING YOUR BUSINESS WITH SOCIAL MEDIA

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PROPOSED HOUSING A HOME RUN FOR TWINSVILLE

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Departments PEOPLE

4

NEWS

6

FOR THE RECORD

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RESOURCES GUIDE

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The Minnesota Real Estate Journal (ISSN 08932255) is published monthly for $85 per year by Law Bulletin Publishing Company, 1907 Wayzata Blvd. #110, Wayzata MN 55391. Phone: 952-885-0815. Periodicals postage paid at Minneapolis, MN. POSTMASTER: Send address changes to Minnesota Real Estate Journal, 1907 Wayzata Blvd. #110, Wayzata MN 55391. Lanning Macfarland, Jr. chairman; Sandy Macfarland, CEO; and Brewster Macfarland, president. Back issues $10.00. Subscriptions are non-refundable. For more information call 952-885-0815. ©2011 Law Bulletin Publishing Co. No part of this publication may be reproduced without the written permission of the publisher.


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Minnesota Real Estate Journal

August 2011

People a division of Law Bulletin Publishing Co.

1907 Wayzata Blvd. #110 Wayzata MN 55391 For information call 952-885-0815

Publisher | Managing Editor Jeff Johnson jjohnson@rejournals.com Associate Publisher Jay Kodytek jkodytek@rejournals.com Consulting Editor Dr. Tom Musil tamusil@stthomas.edu Conference Manager Alan Davis adavis@recg.com

EDITORIAL ADVISORY BOARD JOHN ALLEN Industrial Equities ROBERT ANGLESON Navigator Real Estate RICK COLLINS Ryan Cos. US Inc. ARNE COOK CSM Corporation JOHN DAVIS Grandbridge Real Estate Capital JEFF EATON NorthMarq MARK EVENSON ULG Equis PATRICIA GNETZ US Bank TOM GUMP Neighborhood Development Partners JON HEMPEL Hempel Properties DAVID JELLISON Liberty Property Trust

Boe, Mergens and O’Neill Moreland Named Minnesota Rising Stars

The Excelsior Group announces the hiring of Jennifer Gordon

Ryan J. Boe, Michael J. Mergens and Tamara O’Neill Moreland have been named to the Minnesota Rising Stars list as top attorneys in Minnesota in 2011. The entire list of “Rising Stars” will be included in the August issues of Super Lawyers, Twin Cities Business, and Boe

It is with pleasure that The Excelsior Group announces the hiring of Jennifer Gordon, CPM as its Vice President of Asset Management. Jennifer is a 14-year veteran of the multifamily management industry. Most recently, Jennifer was an Investment Manager for Pinnacle’s Upper Midwest Region. While there, she was responsible for the performance and management of more than 2,000 multifamily units. Jennifer’s former clients include Invesco, Capri, Blackrock, Alecta and other Twin Cities-based owners. Jennifer will now be responsible for an existing and growing multifamily and commercial management portfolio. Additionally, Jennifer will also work with The Excelsior Group’s development and acquisition teams that are focused on two current multifamily developments. Jennifer became a Certified Property Manager through the Institute of Real Estate Management in 2007 and has earned several industry awards from IREM and the Minnesota Multi-Housing Association. She currently serves on the IREM Executive Council and the MHA Legislative Committee.

Mpls.St.Paul Magazine. Each year, ballots are sent to all Minnesota “Super Lawyers” asking them to nominate the best up-andcoming lawyers Mergens they’ve observed in action. “Rising Stars” are considered outstanding emerging attorneys who are 40 years of age or under, or who have been practicing 10 years or less. Fewer O’Neill Moreland than 2.5 percent of Minnesota lawyers receive this honor. Super Lawyers is a Thomson Reuters business.

CHAD JOHNSON Hellmuth & Johnson JEAN KANE Welsh Companies GEORGE KLUEMPKE Braun Intertec JEFFREY LAFAVRE Integrust WADE LAU Founders Properties MIKE LE JEUNE Fabcon JIM LOCKHART WIPFLI DUANE LUND The Geneva Organization PATRICK MASCIA Duke Realty Corp. CLINT MILLER Cushman & Wakefield DR. THOMAS MUSIL University of St. Thomas WILLIAM M. OSTLUND Griffin Companies WHITNEY PEYTON CB Richard Ellis MIKE SALMEN Equity Transwestern STEWART STENDER Stewart Lawrence Group TIM STOLTMAN Larkin Hoffman STEVE SCHWANKE RLK a division of Law Bulletin Publishing Co. 1907 Wayzata Blvd. #100 Wayzata MN 55391 For information call 952-885-0815

EnergyPrint Hires Peter Flippen as Channel Manager EnergyPrint (www.EnergyPrint.com), a leading innovator of online energy

management and reporting tools, has named Peter Flippen as channel manager. Flippen will oversee the development of sales partnerships with facility contractors and energy services companies who work with owners to identify energy savings opportunities and offer solutions. EnergyPrint specializes in the development and use of web-based software technologies that help property owners and managers get their arms around their largest and fastest-growing operating expense – energy. “Peter’s experience in commercial building energy efficiency and knowledge of the energy management software industry will be instrumental to our growth nationally,” said Priscilla Koeckeritz, EnergyPrint’s president and CEO. Prior to joining EnergyPrint, Flippen was a senior consultant in the energy practice division of Fairfax, Va.-based ICF International, a global energy consulting firm, where he was instrumental in developing the integration of the EnergyPrint tool with EPA’s ENERGY STAR. At ICF, he served as the project manager for the Automated Benchmarking System (ABS) program, which helped energy service companies and utilities leverage ENERGY STAR tools and resources -- including Portfolio Manager -- to improve energy efficiency services and programs. Flippen received his BS in Business Marketing and Management from the University of Virginia.

News Regency Centers Pays $20.5M for Rockridge Center Hempel Properties Sells 125,280-SF Plymouth Shopping Center Anchored by Cub Foods Regency Centers, a national owner, operator, and developer of community shopping centers, has purchased the Rockridge Center in Plymouth, MN from Hempel Properties. It was purchased in an off-market transaction for $20.5 million, or about $164 per square foot. Rockridge Center is a 125,213square-foot shopping center located at 4345-4445 Nathan Lane N. at the corner of Rockford Rd. It was built in

1983 on 13.5 acres and remodeled in 2006. It is anchored by an 89,219square-foot Cub Foods location and is 99 percent occupied by tenants including Caribou Coffee, Qdoba Mexican Grill and Subway. "Rockridge Center is anchored by one of the top performing Cub Foods in the market with strong co-tenancy, occupancy and retail sales," explained Stuart Brackenridge, vice president of transactions for Regency Centers. "The center has all the key attributes - market-dominant anchor, infill location and superior demographics - that are consistent with Regency’s portfolio of quality centers." This sale follows Regency Centers’

recent acquisition of Calhoun Commons, a 66,150-square-foot shopping center in Minneapolis. For more information on this transaction see Regency Centers Acquires Calhoun Commons for $21M. Regency is a self-administered, self-managed real estate investment trust and fully integrated real estate company that now owns more than 360 retail properties totaling more than 50 million square feet, including five centers in the Minneapolis region comprising more than 674,000 square feet. Joe Girardi with Mid-America Real Estate Corporation represented the buyer in its acquisition of Rockridge Center.


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Medical office building deals and new development might be on the rise New edition of the Healthcare Real Estate Insights newsletter details dozens of recent sales transactions and new projects in multiple markets nationwide The level of healthcare real estate sales transaction and development activity seems to be increasing, if the most recent edition of Healthcare Real Estate Insights is any indication. Eleven medical office building (MOB) sales transactions, a dozen new outpatient developments and 10 inpatient projects are detailed in the current edition of HREI, a national healthcare real estate publication based in Minneapolis. Some of the major deals include: • American Realty Capital Healthcare Trust Inc., a non-traded real estate investment trust (REIT), plans to acquire medical properties totaling 765,038 square feet at multiple locations for a price of $257.5 million.

Minnesota Real Estate Journal

• Healthcare Trust of America Inc., another non-traded REIT, announced that it has entered a purchase agreement to acquire the Desert Ridge Medical Campus in Phoenix for $32.75 million. • Grubb & Ellis Healthcare REIT II has closed on the $7.2 million acquisition of a 41,000 square foot MOB on the campus of Doctors Hospital in Sarasota, Fla. Some new MOB and other outpatient developments described in the current edition of HREI include: • A group of physicians in the western Philadelphia suburb of Bryn Mawr, Pa., recently broke ground for the $32 million, 141,000 square foot Bryn Mawr Medical Arts Pavilion. • White Plains, N.Y.-based private equity firm Seavest Inc. and developer Trammell Crow Co. broke ground in recent weeks on a $13.6 million, twostory, 62,454 square foot MOB in Warwick, R.I., on the campus of Kent Hospital, about 15 miles from Providence. • Indianapolis-based Duke Realty recently started construction of an 87,000 outpatient facility on the

Raleigh, N.C., campus of WakeMed Health & Hospitals. • Denver-based NexCore Group recently started development on an $18 million, 60,000 square foot medical office building (MOB) on the campus of Saint Agnes Hospital in Baltimore. A sampling of the inpatient projects detailed in the current edition of HREI involve RegionalCare Hospital Partners in Alabama, Sisters of Mercy Health Care in Missouri, Kapi’olani Medical Center for Women & Children in Honolulu, and Lowell (Mass.) General Hospital, to name just a few. “A few dozen projects are not definitive proof of a sustained market recovery, but the recent flurry of activity certainly suggests that healthcare real estate development and investment might be gaining strength,” says John B. Mugford, Editor of HREI. “We certainly observed a slowdown in healthcare real estate activity from mid-2008 through most of 2010, and recent MOB sales volume has been inconsistent,” Mr. Mugford acknowledges. “But the healthcare real estate niche outperformed most other com-

August 2011

mercial real estate sectors during the recession, and the recent volume of activity seems to be accelerating. “In addition to the transactions and projects mentioned in our current edition, we are already working on numerous articles about other new deals and developments that will be published in upcoming editions of Healthcare Real Estate Insights.”

NorthMarq Secures Third Location in Twin Cities for Freeziac NorthMarq announced today that it secured a lease for Freeziac frozen yogurt at 4105 Vinewood Lane, at the intersection of 494 and Rockford Road in Plymouth. The space, previously occupied by Blockbuster Video, has been renovated into five separate units for leasing by small shop tenants. Filling one of the five units and occupying 1,062 sq.ft., Freeziac’s new location is its third in the Twin Cities area, with stores currently located in Eden Prairie and at the Mall of America. NorthMarq vice president Tom Martin represented Freeziac in this trans-


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100 Years Strong The Minnesota Real Estate Journal is proud to partner with Knutson Construction in celebrating 100 years of service to the Upper Midwest.

Rochester, MN October 6, 2011 Mayowood Stone Barn

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In honor of this landmark occasion, the Minnesota Real Estate Journal will be publishing a special supplement featuring articles and information about Knutson Construction. This supplement will highlight the history and future of this trusted and experienced company. The supplement will be handed out to all the attendees of the 100 year celebration of Knutson Construction in St. Paul, Rochester and Iowa City and then inserted in the October edition of the Minnesota Real Estate Journal. If you would like to congratulate or thank Knutson Construction on this momentous achievement while reaching out to 15,000 real estate professionals, call today and reserve your space.

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action. He noted the increasing trend of frozen yogurt companies looking for retail space around the country, even in cold weather climates like Minnesota. “On the national level, there are two dozen frozen yogurt companies looking for space and at least three are looking in the Twin Cities area,” says Martin. The property is owned by private investors John Trautz and Vince Driessen. Kate McCall, Mid America Real Estate Group, represented Trautz and Driessen in the transaction.

Kraus-Anderson to build Stillwater School District’s new LEED Early Childhood Family Center Kraus-Anderson Construction Company, one of the Midwest’s oldest and largest commercial general contractors and construction managers, has been selected to build the Early Childhood Family Center (ECFC) for the Stillwater Area Public School District. Groundbreaking ceremonies are set for 3:00 p.m., Thursday, August 11 at the

Minnesota Real Estate Journal

new ECFC site located on the north side of the Stillwater Junior High campus. The project is registered with the U.S. Green Building Council (USGBC) and is pursuing LEED (Leadership in Energy and Environmental Design) Silver Certification. Construction is expected to be completed in fall of 2012. Designed by St. Paul-based design solutions firm BWBR, the ECFC would be the school district’s first LEED project. The new 48,000square-foot facility will replace the existing leased space which currently serves about 400 families each year. The center will provide additional amenities and functionality for a variety of classes to support families and to help young children (birth to age 5) develop a solid foundation for learning. Classes at the ECFC will be offered for parents and their newborn babies, infants and toddlers. Preschool classes will also be held in the new facility to provide preparation for kindergarten. A large portion of the center will

focus on providing services to young children with special needs. “The number of young children with special needs continues to increase,” said Corey Lunn, superintendent of Stillwater Area Public Schools. “It is important for us to connect with these children early so we can help them develop the skills they will need to be successful in life. The ECFC will offer preschool classes for children with a wide-range of disabilities who will have access to a variety of physical, speech and language therapies.” The new facility will also be home to two partners, Courage Center St. Croix and Northeast Metro Intermediate District 916, which will lease space from the district and provide integrated programming. Courage Center will house all of its pediatric therapy programs out of the new center, and District 916 will serve deaf and hard-ofhearing students from across the eastern metro area. All three programs housed within the new ECFC building will provide services for many of the same children, making the new center

August 2011

a “one-stop shop” for families. The ECFC project, six years in the making, is funded in part by a $1 million posthumous donation from Lee and Dorothy Whitson, which will be used toward construction of the district-owned facility. The remaining funding will come by expanding the local lease levy, which has been used to pay the lease for the current ECFC site.

NorthMarq Capital Arranges $37.23 Million in Mortgages NorthMarq Capital’s Minneapolis Regional office recently arranged mortgage financing for three individual properties totaling $37.23 million, including a 52-multifamily unit property in Minnetonka, Minn., a 432-unit multifamily community in Irving, Texas and a 188-unit apartment complex in Garland, Texas. Details on the transactions are: · James Hoopes, Senior Vice President and Senior Director, of NorthMarq Capital’s Minneapolis Regional


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Minnesota Real Estate Journal

office arranged first mortgage financing of $8 million for Oaks Glen Lake Apartments located at 14414 Stewart Lane in Minnetonka, Minn. The property consists of 52-multifamily units and seven commercial tenant units. Financing was based on a seven-year term and a 30year amortization and was arranged for the borrower by NorthMarq through its seller-servicer relationship with Freddie Mac. · Hoopes, along with Stephen Whitehead, senior vice president of NorthMarq Capital’s Dallas Regional office, cooperated to arrange first mortgage financing of $10 million for 5th Street Crossing located at 351 North 5th Street in Garland, Texas. The property consists of 188 apartment units and 12,130 sq. ft. of commercial space. Financing was arranged for the borrower by NorthMarq through its correspondent relationship with Aviva Investors of North America, Inc. · Hoopes and Whitehead also worked together to arrange first mortgage financing of $19.23 million for Oaks Hackberry Creek Apartments, a 432-

unit multifamily community located at 6901 N. State Highway 161 in Irving, Texas. Financing was based on a 10year term and a 30-year amortization and was arranged for the borrower by NorthMarq through its seller-servicer relationship with Freddie Mac.

Hennes Art Company announces two major expansions into the Hospitality and Health care art markets: Hennes Art Company and Turner Hospitality Resource, both based in Minnesota, have forged an agreement for Turner to represent Hennes as a supplier of artwork to the Hospitality Market. The territory initially includes Minnesota, Wisconsin, Illinois and the Dakotas. "We are very excited to have the Turners represent us throughout the Midwest. They have an excellent reputation and take a hands-on consultative approach to every project" stated Greg Hennes, principal of Hennes Art Company. Lisa Turner added "We have been selling artwork for several years but

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wanted a local source with a broader array of capabilities for artwork, framing and mirrors". The new relationship has resulted in the installation of their first major project in August at the Legendary Waters Casino near Bayfield Wisconsin. In addition, Hennes will be taking on the client base of MJL Impressions. Marlene and Jerry Luloff of MJL Impressions have decided to retire and will be transitioning their customer base to Hennes over the next several months. The Luloffs have been a fixture in the design, health care and hospitality art markets for the past 35 years. "I have a great respect for Marlene and Jerry and the reputation for service and quality they have attained on a national basis" said Hennes. "Greg was the first person we thought of when we made the decision to retire. We trust in his ability to take care of our clients." added the Luloffs. The combination of these two expansions happening simultaneously position Hennes Art Company to be a leader in supplying unique and competitively

August 2011

priced artwork to the Health care and Hospitality markets in addition to the Corporate markets that Hennes already serves.

CB RICHARD ELLIS ANNOUNCES THE SUCCESSFUL CLOSING OF 23.50 ACRES IN ARDEN HILLS, MN. CB Richard Ellis’ Minneapolis Land Services group arranged the sale of 23.50 Acres of residential land at 4500 Snelling Avenue in Arden Hills, MN. With immediate access to Snelling Avenue, Highway 96 and convenient proximity to I-694 and I-35W, this is prime residential land for further development. Arden Hills is a strong community that values its unique environmental setting, strong residential neighborhoods, vital business community, well-maintained infrastructure, fiscal soundness, and a long-standing tradition as a desirable city in which to live, work, and play.


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Minnesota Real Estate Journal

August 2011

Survey: Twin City commercial pros more optimistic Results hold true even after credit downgrade, debt ceiling debacle By Dan Rafter, Staff Writer Earlier this year, developers, investors and finance professionals in the Minneapolis/St. Paul commercial real estate industry were largely optimistic about the future of their industry. That mostly hasn't changed, said one of the lead researchers of the Minnesota Commercial Real Estate Survey, a study of commercial real estate professionals' attitudes released in mid-June by the Shenehon Center for Real Estate at the University of St. Thomas Opus College of Business. "Even now, with all that's gone on in the last couple of weeks, people in general feel the same way about the commercial real estate industry," said Herb Tousley, director of real estate programs at the St. Paul-based university. "In the long-term, they think that things are going to be improving. We have hit a bump in the road recently. But for the long-term, people are still optimistic." The poll of industry leaders found that

commercial real estate professionals were largely optimistic that commercial vacancy rates would fall and rents rise in the Twin Cities and its surrounding suburbs. But do these results still hold true considering the economic upheaval that the country has experienced since the start of August? First, members of Congress displayed stunning ineptitude, and an unwillingness to compromise, while battling over raising the country's debt ceiling. Then in early August, the United States lost its top AAA credit rating from Standard & Poor's. The rating agency left the country with a less prestigious AA-plus rating because of concerns about the government's budget deficit and the country's rising debt. This news was followed by an intensely rocky time for the U.S. stock market. On Aug. 8, for instance, the Dow Jones Industrial average lost more than 630 points. With so much chaos in the U.S. economy -- and with housing prices still falling, foreclosures rising and the national unemployment rate stubbornly refusing to fall below 9 percent -- do commercial real estate industry leaders still feel positive about the direction of

their industry? Again, Tousley says "yes." "So much has happened in the last month or so. No one can deny that. But people are digesting that now. They are getting over it," Tousley said. "We are now seeing the stock market come back. It turns out that the downgrade by Standard & Poor's hasn't stopped people from buying government securities. People are seeing that the world is still functioning somewhat the same as it was before. Barring anything else big and unforeseen happening, I don't see people in this industry wavering from their opinions that a gradual improvement will keep occurring." The Shenehon Center study polls commercial industry pros and then ranks their responses to several key factors on a scale of 0 to 100. A rating of 50 is neutral, with everything under 50 negative and anything over it positive. In the most recent survey, four of the seven indicators that the study includes ranked as favorable. Industry pros reported that they saw good things ahead for rents, occupancy rates and equity/LTV. They also held a generally positive view of the industry in general. This general composite score came in at

55.6, above the neutral mark of 50. Survey respondents, though, weren't completely positive. They were pessimistic when it came to land prices and building materials, two costs that they expect to climb, making it more expensive to build new projects. This, of course, cuts into the rate of return for investors and developers. The survey results indicate that the price of land has bottomed out and is starting to rise again, Tousley said. "It is definitely becoming more expensive to buy land," he said. "This is especially true of land in good locations. If land is more expensive, the cost of development increases. That makes it harder to achieve a higher return." Tousley said that none of the survey responses surprised him. He expected the survey to reflect a more optimistic industry largely because commercial industry pros have more work in their pipelines today than they did in past commercial surveys. "Almost everybody in this industry will tell you that there is more activity out there right now," Tousley said. "There are more things going on. The business hasn't turned up dramatically. But there is more in the pipeline."


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Minnesota Real Estate Journal

August 2011

Energy Summit Reveals Cost Saving Strategies By Caryn Brooks

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veryone is increasingly feeling the pressure of rising energy costs, especially those who own and manage property. The second annual Minnesota Real Estate Journal Commercial Building Energy Summit offered insights into how property owners and managers can take easy steps to decrease energy expenses, regaining control of their buildings and their bottom line. Many buildings can achieve a 15% reduction in consumption without any capital investment. According to Priscilla Koeckeritz of Energy Print, Inc., a St. Paul based company that provides energy management software and services, energy expenses are rising faster than any other building operating expense, at a rate of 6-8% annually. The 5 million existing commercial buildings in the US spend $200 billion annually to power their facilities. Participation in energyreduction programs like EPA’s Energy Star can easily result in energy savings of 30%, reducing total energy costs from an average of $2.33 per square foot to $1.63 per square foot. Conference attendees indicated that they have spent more time tracking energy data in the past year than ever before. Koeckeritz explains that “energy cannot be managed, if energy information is not measured.” Energy Print provides a tool for owners and asset managers that automatically collects consumption data from utilities and normalizes it based on weather conditions. Energy usage can then be compared historically for a property or amongst an entire portfolio, so that investors can target capital expenditures towards their worst performing assets. The “3 C’s of cost, consumption, and carbon” for an entire portfolio can be tracked and reduced from a user-friendly website. Koeckeritz cites that in addition to reducing expenses, building owners who market their

efforts properly can see additional return in the form of increased occupancy rates, typically around 4.1% higher for LEED certified buildings and 3.6% for Energy Star rated buildings. In order to implement an energy management program, there are a few basic steps to take. The first task involves benchmarking the property’s current usage. This can be accomplished via the EPA’s Energy Star Portfolio Manager tool or via an energy management vendor. Energy Star allows owners to rank each of their properties in comparison to other buildings in the region of a similar type and size, resulting in a score between 1 and 100, where 50 is an average score and a score of 75 or above earns the coveted Energy Star label. There are other systems of benchmarking including the Energy Utilization Index, which normalizes consumption into annual kBtu per square foot. Stephen Todd of Egan Companies equates this index for buildings to the miles-per-gallon (MPG) rating in the auto industry. Once a building is benchmarked, an energy audit should be conducted, and is typically performed by the building’s utility provider such as Xcel Energy. The auditor will provide a detailed written report that lists recommended building adjustments, retrofits, and upgrades, including an estimated payback schedule. Minor adjustments to mechanical systems can be made immediately to provide instant savings; larger projects that require capital investment can be prioritized and conducted in conjunction with utility rebate programs. Dustin Gellman of GreenPoint Partners, LLC, a Chicago based sustainability consulting firm, has analyzed where the opportunities are for energy retrofits with the greatest return. His research indicates that older, larger commercial buildings and hotels will yield the highest return on investment from upgrades. Gellman cites that there are currently

110 LEED-certified commercial buildings in the Twin Cities out of a total of 47,511 properties, so there is still opportunity for building owners to differentiate themselves from the competition by achieving LEED status. Of the same 47,511 properties, 223 have earned the Energy Star label. Gellman notes that standards are changing with the implementation of green leases; costs of capital improvements that are made to reduce tenant utilities can now be passed along to tenants. A panel moderated by Herb Tousley of the University of St. Thomas discussed state incentives and mandates that affect commercial property owners. While some US cities on the East and West coasts have already mandated that building owners track and manage energy usage, Minnesota’s focus has been to require utility providers to procure energy from clean sources, such as solar photovoltaics (PV). Current incentives allow building owners to install solar thermal and solar PV systems on their rooftops at a tremendous discount. Minnesota is offering a $10,000 rebate through September 15th on solar thermal systems, and Xcel Energy offers $2.25-5.00 per watt on PV systems, reimbursing up to 50% of the total cost of the system. The average payback period for a PV electric system is 10-11 years; however, with federal tax credits available for 30% of the system cost, the actual payback period can be reduced to under 5 years. Jennifer Stokes of Center Point Energy encourages building owners to contact Center Point to inquire about any energy efficiency upgrades they are considering, including routine work such as building system recommissioning and boiler tune-ups. Tax credits are available retroactively for work performed to the building envelope, lighting, and HVAC systems. Paul Bertucci of Franklin Energy notes that through the Minnesota Energy Resources Incentive

program, rebates are available for $1.50 per therm saved for up to half a project’s cost, saving some property owners up to $300,000. Owners who are looking to finance renewable energy systems should contact Great River Energy or the St. Paul Port Authority, both of which offer low and no-cost financing for renewable systems such as geothermal. With incentives expiring soon, Commercial Building Energy Summit panelists agree that now is the optimal time to plan and execute energy efficiency upgrades. With the savings that can be achieved, resulting in higher NOI and property value, efficiency projects area a win-win for all stakeholders. Whether choosing to pursue Energy Star, LEED, or simply invest in minor green retrofits, building owners who invest in their triple bottom line will reap the benefits for investors, tenants, and the environment. Caryn Brooks is a Real Estate Journalist for the University of St. Thomas and a student in the UST Master of Science in Real Estate program. A graduate of the University of North Carolina at Chapel Hill, Caryn has over eight years experience in the multifamily industry, managing a portfolio of 1,200 units in the Twin Cities and coordinating the launch of new developments. As a LEED-accredited professional, she seeks to maximize the return of multifamily properties for investors by ensuring that new developments are a sustainable long-term asset to the community.

Investors! Stop looking down at Midwest markets By Dan Rafter

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ow much of a Rust Belt state is Ohio? Not that much of one, if you ask Chuck Meyer, senior managing director with RED Capital Group in Columbus. Problem is, too many outside investors look at Ohio and all they see are towns struggling to cope with manufacturing losses. They don't see the diverse industries powering the economies of Cincinnati and Columbus. They don't consider the new Medical Mart project or new casino coming to downtown Cleveland. And

they don't consider the power of Wright-Patterson Air Force Base in Dayton, the largest single-site employer in the state of Ohio and an Air Force Base that is actually expanding, not contracting. Investors probably don't even care about the Great American Tower at Queen City Square, the new 1.089million-square-foot mixed-use development in downtown Cincinnati. Unfortunately, this short-sightedness can make life difficult for those developers trying to find financing for their Ohio-based projects. "When a lot of out-of-state

investors look at the Midwest or Ohio, they paint with broad brushes," Meyer said. "But to truly understand a state, you have to look at the individual submarkets. You have to dig down into that detail. It matters." Out-of-town investors, for instance, may look at Columbus and think of farms. Meyer, who works in the market, knows that Columbus has much more than that to offer. Fortune-500 companies, after all, are headquartered in the city. Ohio, of couse, isn't alone in this fate. Outside investors give little thought to much of the Midwest.

"Large parts of the Midwest -- Indiana, Ohio, Michigan – are looked down upon by investors who haven’t taken the time to really study the submarkets," Meyer said. "When investors talk about the Midwest, they talk about Chicago and Minneapolis as if they are the only two cities worth focusing on. That’s just not true." Will this change any time soon? Probably not. But that doesn't change the fact that investors are missing prime opportunities when they are so quick to dismiss the Midwest and its varied markets.


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Page 16

Minnesota Real Estate Journal

August 2011

Despite veto of statewide general property tax repeal, optimism prevails commercial real estate industry. This month we will explore what gains and losses were made regarding NAIOP’s No. 1 issue: property taxes. Question: Could you give us some background on the history of the property tax issue and why this legislative session was so important to the CRE community?

By Tom Gump

T

oday I am pleased to visit with Kaye Eleanor Rakow, Director of Public Policy for the Minnesota chapter of the National Association of Industrial & Office Properties (NAIOP). NAIOP, a professional association for commercial real estate developers, represents the interests of

Kaye Eleanor Rakow

the developers, owners and managers of commercial real estate, along with the thousands of businesses who are the tenants in the commercial and industrial buildings their members own and manage. This is the first of a twopart series focusing on what action the 2011 Minnesota Legislature took (or didn’t take) on issues affecting the

Answer: Property taxes are NAIOP’s No. 1 concern, and this particular battle over them dates back to 2001, when then-Gov. Jesse Ventura signed the Omnibus Tax Bill, House File (HF) 1, also known as the 2001 Tax Law. While this bill was successful in providing one kind of relief in the area of local property taxes, it created a brand new burden in the form of a new state-level property tax levy – the majority of which was borne by the commercial/industrial real estate community. The upshot is that all businesses in Minnesota, including job creators, large and small – regardless of income, whether they’re profitable or not, whether they lease or own buildings – pay this property tax. To make matters

worse, this new state-level tax, although established as a specific dollar amount of $592 million that was to be shared by C/I properties and seasonal/recreational properties, the lion’s share – 95 percent – is paid by C/I interests. In addition, because of the automatic annual increase, this property tax has grown by 34 percent since its first payable year in 2002. So the net effect of the 2001 Tax Law, combined with the Statewide General Property Tax, has been a double whammy of prohibitive and disproportionate property taxes at a local and state level for our members. We at NAIOP have fought this tax ever since its inception, and will continue to do so. Question: How successful has NAIOP been in this fight? Answer: It has definitely kept our membership on the defensive. We have been trying to get the Statewide General Property Tax either eliminated or adjusted ever since its enactment. Our vigorous grassroots efforts to educate and enlighten others as to the inequities of this situation have not always been

Great Location, Great Amenities and On-Site Management

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August 2011

well-received, and until just recently have seemed to fall on deaf ears, particularly where the State Legislature was concerned. It has been very frustrating, particularly when you consider research that shows that even though commercial properties in Minnesota have experienced significant competitive improvement since 1995, our property taxes payable range from anywhere from12 percent to 54 percent above the national average. To us, this is just plain unacceptable. Question: What effect did the 2010 elections have on this issue? Answer: Prior to those elections, the State Legislature was not very receptive or empathetic to our cause. However the 2010 elections brought in a new crop of legislators, including a lot of pro-business, pro-economic development people, especially in the Senate. There has been a major change – a “sea change” if you will – in how the business community is viewed and a big shift in the mood and opinion. Question: What progress was made during the 2011 Legislative Session? Answer: We made incredible strides in so many ways. For one, we were

emendous on-site et available with

Minnesota Real Estate Journal

invited to actually participate in the process, which was a first. We grabbed this opportunity to make our case and testified before the Senate committee. Not only did they listen to us, but to our amazement, a whole new tax bill, the Omnibus Tax Bill (Chapter 38, HF 42) was actually passed. If enacted, it would have completely phased out the Statewide General Property Tax by 2025. For our organization, that was absolutely huge. We never expected that the Legislature would give us a seat at the table, let alone even consider totally phasing out the Statewide General Property Tax. Question: In the end, what happened to the proposed Omnibus Tax Bill? Answer: It made it all the way to final budget negotiations, but ultimately the bill was vetoed by Gov. Mark Dayton. Question: So, what’s next; back to the drawing board? Answer: Well, yes, to be sure, but with a new enthusiasm and bright outlook for the future. Even though the unpopular Statewide General Property Tax is still with us, we had so many

Page 17

positive developments that we feel bode well for CRE developers and investors as a result of this process. For one, our opinions and issues finally seem to matter. We were welcomed and wanted. We almost got what we were after. We have something to build on and are more optimistic that the changes we seek are not only realistic, but attainable as well. Question: Any thoughts on your strategy for the 2012 Legislative Session? Answer: We will continue to make our case and stay focused on the progress we’ve made thus far. We look forward to the next opportunity in 2012 to present our position and build our case. We feel very encouraged by the momentum we’ve achieved in this last session. We have hope that the inequities of the tax can at the very least be mitigated, if not all the way eliminated. That makes a major difference to NAIOP’s membership, and should be considered as one more positive sign for the CRE community and the thousands of Minnesotans who have long been saddled by this property tax. In next month’s column, we will focus on legislative action involving

For more information, contact

Traci Tomas Executive Vice President Continental Property Group 1907 Wayzata Boulevard, Suite 250 Wayzata, MN 55391 952-473-1700 ttomas@leasespace.com

property tax disputes, tax increment financing, environmental permitting variances and other issues. Kaye Eleanor Rakow is Director of Public Policy at the Minnesota Chapter of the National Association of Industrial & Office Properties (NAIOP). She can be reached at (952) 928-7461. Visit them on the web at http://naiopmn.org Tom Gump invites comments and questions about this column. He can be reached at (952) 224-9140; or via email: tagump@gmail.com.


Page 18

Minnesota Real Estate Journal

August 2011

Development Costs Continue to Confound

T By Peter Coyle

he market for new development, both commercial and residential, continues to slowly regain its footing, with a few bright spots, notably multifamily rental and senior housing. Since the real estate downturn began in the ’06-’07 timeframe, much has changed: buyers and tenants are fussier, demanding more and willing to pay less for it; lenders are reluctant to

finance projects without significant equity investment or confirmed prelease/pre-sale activity; and for those fortunate few to actually have a viable project, margins are squeaky-tight. Unfortunately, while developers and builders are being squeezed on the revenue side of their business, they also are getting no help on the expense side, particularly with regard to public land dedication, environmental protection

Coyle

and municipal fees. It is fair to say that while the private side of the marketplace has been dramatically changed, the public side has not. The Cost of Going Green No developer or contractor will get through a public approvals process today without having to answer the question about how “green” will be their project. Much of the public review process is focused on making buildings of all types more energy efficient and sustainable, but there is an equal, if not greater, level of public concern about land preservation and environmental protection which manifests itself in various forms, including: (1) wetland protection and buffers; (2) tree preservation; (3) open space/viewshed protection; and (4) watershed regulation. The pressure to protect natural resource features of a given site has been building for some time, dating back well before the current down market cycle. The level of interest in such matters is higher than ever before and the cost of compliance has increased along with it. There is statutory authority for protecting watersheds, steep slopes and wetlands from the effects of development, but there is little or no statutory authority for the extent of land protection/dedication required of today’s developer or contractor. For example, wetlands, with some limited exceptions, must be protected under state law; if an impact on a wetland is unavoidable, mitigation likely is required to offset the impact. It is not so clear, however, how much inherent discretion exists to require additional protection in the context of subdivision review or through review of a wetland alteration application or surface water management plan. State law has recently been amended to allow greater protection of wetlands using wetland buffers. Not to be outdone, some watershed districts and cities are implementing “low impact” design stan3R’s to page 23


Page 20

Minnesota Real Estate Journal

August 2011

Renovating an historic building Can a company focused on new development find happiness renovating an historic property? by John Saunders and Bill Katter United Properties

I

n the case of United Properties, the answer is yes. Take the renovation of Ford Center as an example. Ford Center and United Properties have both stood the test of time. Ford Motor Company built its first Minneapolis production plant in 1912 in the warehouse district of this then-young Katter city. Just four short years later, United Properties was founded as the invest- office building is 11 stories and is in a ment and development arm of the fantastic location – it’s adjacent to TarHamm family of Hamm Brewing Com- get Field and the new interchange project connecting Hiawatha light rail with pany. Despite a long track record spanning the central corridor Light Rail Transit nearly a century, the Ford Center marks (LRT) and Northstar commuter rail. Since this was our first experience United Properties’ first historic building with an historic renovation, we knew we renovation. More typically, United Propneeded expert help, and so we turned to erties has been involved in development Charlene Roise of Hess Roise Historiprojects starting with a blank slate of cal Consultants. Her expertise was property – from the ground up. But, like invaluable as we navigated the twists any homeowner knows, renovating an and turns of renovating an historic propold structure – especially one with hiserty. We also had future Ford Center tentoric significance – is a huge undertakant HGA Architects on our renovation ing. In fact, we have had a crash course in historic renovation with the Ford Cen- team. United Properties was committed to a ter. large scale redevelopment consistent The Ford Center was originally conwith the historic nature of the building structed as a vertical assembly plant and and the transformation of this area of car showroom built for Ford Motor Minneapolis. Throughout the renovation Company. We purchased the property in process, our priority was to retain the 2007, began renovations 2010 and historic character, historic materials and expect to complete all phases of renovadefining characteristics of the building. tion by early 2012. The 269,000-sq.-ft.

Sanders

For example, the 11-story Ford Center has four facades full of large, impressive windows that really define the building. To retain this unique character, we used the existing metal frames to rebuild more than three quarters of those windows rather than use historic replicas, even though some of the frames had greatly deteriorated. We were challenged throughout this process to maintain that historic character while updating the building in a way that would make it appealing to potential tenants who are looking for an historic building – yet one with modern amenities. A new grand stairway/atrium will bring visitors into the main level of the building, which features a hallway with 18-foot ceiling heights, and exposed columns that display the original building architecture. All new mechanical systems, restrooms and elevators are included in the renovation, but are set on

the north side of the building to provide large, open floorplates, as existed historically. All of the office floors will be built out with open ceiling heights of nearly 12 feet, and incorporate a raised floor system with underfloor delivery of conditioned air to preserve a ceiling not cluttered by ductwork. The Fifth Street entrance will be recreated and will connect pedestrians and users to the Twins ballpark and LRT, making the building the premier transitoriented office redevelopment in the city of Minneapolis. The lower level of the building will include executive parking and a building-common fitness center, which will be located in the former train shed area of the building. Finally, we are hoping to attract a restaurant on the ground floor that will invite the public into the building. When everything is finished, Ford Center will be one of United Properties’ most unique properties and the largest renovation project in our company’s history. We are breathing life into this former Ford vertical assembly plant and showroom. And, in the process, we will transform what was previously an old, rundown building into a beautiful and functional historic building that will add character and value to the neighborhood and city. We’re confident the end result will be a building of which we will be very proud, and of which historic preservationists and the city can be proud, too.

Special Event Celebrating 100 Years of Serving the Upper Midwest 100 Years Strong The Minnesota Real Estate Journal is proud to partner with Knutson Construction in celebrating 100 years of service to the Upper Midwest. In honor of this landmark occasion, the Minnesota Real Estate Journal will be publishing a special supplement featuring articles and information about Knutson Construction. The supplement will be handed out to all the attendees at the celebration of Knutson Construction in St. Paul, Rochester and Iowa City and then inserted in the October edition of the Minnesota Real Estate Journal. If you would like to congratulate or thank Knutson Construction on this momentous achievement while reaching out to 15,000 real estate professionals, call today and reserve your space.

Space Deadline: September 19th Materials Deadline: September 21st

Contact Us Today Jeff Johnson 952.405.7780 jjohnson@rejournals.com Jay Kodytek 952.405.7781 jkodytek@rejournals.com


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9:15 AM Search Engine Optimization (SEO) and Search Engine Marketing (SEM) Lisa Hirst Carnes, Arcstone Wendy Nimitz, Ingenuity Marketing Group Carie Otto, University of St. Thomas • What is the difference between SEO & SEM • How to engage a vendor that will deliver results • What you need to know about Pay Per Click • Affilated Programs & Networks • Link Building

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Go to www.rejournals.com/interactive


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Minnesota Real Estate Journal

August 2011

Growing your business with social media by Allan Evans

I

t’s not just about print ads and collateral these days. We don't control the conversation or channels anymore. This thing called social media has re-written the rules. And for the record, this is a good thing. This would be an excellent time to back up and define social media. Wikipedia says the term social media refers to the use of web-based and mobile technologies to turn communication into interactive dialogue. Social media technologies include: blogs, Twitter, picture-sharing, vlogs, wall-postings, email, instant messaging, musicsharing, crowd sourcing, and voice over IP (Skype), to name a few. Think of regular media as a one-way street where you can read a newspaper or listen to a report on television, but you have very limited ability to give your thoughts on the matter. Social media, on the other hand, is a two-way street that gives you the ability to communicate too. One of the key components in successful social media marketing is building social authority. Social authority is developed when an individual or organization establishes themselves as an

expert in their given field, thereby becoming an influencer in that field. It is through this process of building social authority that social media becomes effective. So, how do you go about achieving social authority? The first point is a don’t: don’t use social media for your marketing messages. Remember, you are looking to build trust, not sell. You must honestly convince people of your genuine intentions, knowledge, and expertise in a specific area by providing valuable and accurate information on an ongoing basis—without a marketing angle overtly associated. If this can be done, trust begins to develop naturally. This person or organization becomes a thought leader and value provider, setting themselves up as trusted advisors instead of marketers. Top of mind awareness develops and the consumer naturally begins to gravitate to the products and offerings of the authority. Having an intuitive, easy-to-use website is a great beginning. Make it clear who you are, what you sell, who you sell to, why you are the best choice as well as how do potential customers buy from you. Differentiating your organization from competitors makes your website an effective sales tool by concisely

answering those key questions for your prospective customers. Having a website gives you a platform to share your ideas (blog), offer communication channels (surveys, feedback forms and newsletter signups) and ways to integrate your social media offerings (Facebook, Twitter, Youtube videos, LinkedIn, Google Places and Yelp, for instance).

Facebook is the great connector. Use that to your advantage. Facebook opens the line of communication between your business and your customers. An essential step is to set up a Facebook business page, separate from your personal profile and register a unique address for that page. You can also use Facebook ads to search for new customers. These ads let you control your target demographic (age, sex, location, education) and pay only per click. I love the return on investment tracking this allows. Facebook also allows you to add a “Like” button to your websites content, letting a user share your content with their friends on Facebook. When the user clicks the Like button on your site, a story appears in the user's friends' News Feed with a link back to your website. Twitter is the newer tool in the social media toolkit. I will admit right here, that when it first was making headlines, I was not a believer. The funny thing about change is it keeps happening to us, whether we want it or not. I now keep a Twitter feed window up on my desktop allowing me to stay current with breaking news, key industry figures, and the people I follow in soccer and writing Media to page 25


Page 24

Minnesota Real Estate Journal

August 2011

Proposed Housing a Home Run for Twinsville

I

n Minneapolis, rentals are hot – so hot that an estimated 850 units are planned to come online within the next year or so, and that’s just in the North Loop. Residents of the North Loop are enthused that the vision for the Twinsville neighborhood is finally taking shape, and it’s only the beginning. Some North Loopers hope that the surge in housing and retail growth will help spark interest in building a new Vikings stadium in the lower North Loop on the current farmer’s market site. “People who live in the North Loop are self-selected Pioneers,” states David Frank, President of the North Loop Neighborhood Association. “If you’re someone who has selected to live in an urban environment with loading docks and industrial buildings, you want things to happen and are comfortable with change. It’s a lot less clear what will happen with development in the neighborhood than if you live in a single family home in South Minneapolis. My family and I are proud that we have chosen to live in the North Loop and to invest in making our neighborhood better.” Frank explains that overall, the

North Loop neighborhood has been supportive of new housing developments, especially proposed plans that contribute to establishing the North Loop as a pedestrian-friendly urban environment. However, more affordable housing options continue to be an important objective and developers so far have not been stepping up to the plate. Frank fears that if not enough affordable housing is built initially, the North Loop will become “a gated community” privy only to middle to high income earners. Currently proposed developments include Ryan Companies’ 7-story, mixed use, 280-unit apartment building at the former Jaguar dealership site at 222 Hennepin Avenue. Rumor has it that Whole Foods will anchor the project. On Washington Avenue adjacent to Union Plaza, Hines Interests is pitching a three-phase development on the six acre site that will eventually incorporate several types of housing, retail, and offices. The project will be launched with a 185-unit high-end apartment building called Dock Street Apartments. Also on Washington Avenue are two potential developments by Greco, a

mixed use project with 130-unit market rate apartments at 730 Washington Avenue North, which is a historic property, and 120 units at 607 Washington Avenue North, the Holden Building. TE Miller Development is also stepping into the action with a proposal of 100 market rate units at a site that currently houses a vacant office building at 710 North Second Street. The new 6-story building will offer mostly one

bedroom units with overall rents in the $1,100-2,000 range. Schafer Richardson, a developer that is no stranger to the North Loop, is planning to redevelop the historic Cameron building at 746 4th Street North. The Cameron will be 42-46 market rate apartments and, according to the project team at Schafer Richardson, “will offer smaller unit sizes for Twinsville to next page


August 2011 Media from page 22

(my interests). Facebook even allows you to repost your status updates automatically to your Twitter account, saving time. Youtube surpassed Yahoo last year for the first time in total search queries, putting it in second place behind Google. Posting content on Youtube is both free and easy. For example take a video of yourself walking and talking us through a property, and post it to Youtube. Then link to that content from your website and your social authority is obvious to your audience. LinkedIn allows you to increase your visibility, improve your connect ability and improve your Google PageRank. By adding connections, you increase the likelihood that people will see your profile first when they’re searching for someone to hire or do business with. On the whole, people would much rather work with people their friends know and trust. You’ll want to make sure your business’s profile is complete. Google Places and Yelp allow you to post a description of your business as well as images to show potential customers what you do best. Google Places and Yelp also allow customers to post reviews of your business—good or bad. Peer reviews carry a huge

Minnesota Real Estate Journal

impact, so monitor this conversation closely. Apple offers many great timesaving tools to assist your social media efforts—all standard with each new Mac purchased. iMovie allows you to import, edit, add titles, transitions and music, and export your video directly to Youtube. iPhoto allows you to easily bring in your photos, touch them up if needed, and post them to your business’s Facebook page with one click. Designing a website may seem difficult, but with iWeb, it’s easily within your reach. Create your site using themes. Customize it with photos, movies, text, and widgets (maps, RSS feeds, etc.). iWeb even notifies Facebook when your site changes and adds a link to your profile so your customers stay up to date. Today, everyone can achieve social authority, thanks to free tools like blogs, podcasts, and video sharing. Plus, we now have new ways for real people to play a role in providing feedback, organization and promotion. Whether you’re a large well-established company, an individual with loyal fans, or simply someone with ideas and opinions, social media provides new ways to create and communicate with people.

Twinsville from previous page

value conscious young professionals who desire to be close to the activities and amenities that a downtown location offers. Prospective renters will find studio, convertible, and one and two bedroom apartments with beautifully incorporated historic features and top of the line finishes. The Cameron will be an environmentally conscious development and incorporate sustainable features, including the renovation and re-use of a historic building. The Cameron will offer additional amenities including; enclosed bicycle storage, a fitness center, an outdoor lounge, and building Wi-Fi. The Cameron’s target groundbreaking date is December 2011 and the project will utilize historic tax credits.” Bruce Lambrecht, the real estate developer behind the concept of Twinsville, comments that the North Loop is ready to move on to planning the next stage, or “Twinsville 2.0.” “To really get a feel for what Twinsville 2.0 is, or should be, we need the Vikings in the farmer’s market site,” says Lambrecht. With the North Loop continuing to grow as Minneapolis’ light rail commuter hub, it makes sense to some business

Page 25

leaders to take advantage of the already well-positioned site instead of investing additional dollars in infrastructure upgrades to support a new Vikings stadium elsewhere. (View Lambrecht’s entire plan on Minnesota Public Radio News). The North Loop Neighborhood Association Planning and Zoning Committee has outlined the criteria a Vikings stadium proposal would need to meet in order to be endorsed by the neighborhood. While a new stadium would facilitate the North Loop’s goals of increasing retail commerce and residential density, the association seeks to ensure that the site would not interfere with connectivity for walking, biking, and transit. Additionally, the project would receive greater support if the stadium has a roof enclosure, allowing it to be utilized as a year-round entertainment venue, not just a Vikings destination. While sports stadiums add value to the North Loop, the ultimate goal is to create a vital interconnected web of housing, business, and entertainment, supported by many transit options.


Page 26

Vacancy From page 1

residential housing market. Mortgage financing, or, more specifically, the lack of it, has played a key role in the stability of the multi-family sector’s stability, Manion from Wells Fargo said. “There are a lot of people who used to be able to get mortgage loans who can’t do that anymore, thanks to stricter lending rules by many mortgage lenders,” Manion said. “And don’t forget that home values are falling. A lot of young people in the past if they were buying a home or condo they were doing it to create economic value. Now, with the values going down, they’re not doing that. Until that stops, multi-family will be the darling of the world.” A continuing trend The financial pros serving the multifamily market in Minneapolis/St. Paul says that they expect vacancy rates to continue to fall and asking rents to steadily rise in the near future. Kevin Filter, president of St. Paulbased financing company Oak Grove Capital, said that several factors have given a boost to the Twin Cities' multi-

Minnesota Real Estate Journal

family market. First, there's been a lack of construction in many Midwest markets, including the Twin Cities, of new apartment complexes. This has led to an increase in demand, and a reduction in vacancy rates. Filter also pointed to the struggles of the single-family residential market. People are moving out of homes -either by their own choice or because of foreclosure -- and then moving into apartment rentals. Finally, multi-family properties remain a favored choice among investors, Filter said. "The demand for apartments from an ownership standpoint or from a debt standpoint has remained very stable," Filter said. "The capital sources coming into the multi-family rental-housing market have remained stable. From a debt standpoint, the cost of capital has remained quite cheap from a historic standpoint. Our interest rates are low. A lot of capital right now is chasing multifamily." Developers have done their part, too, to boost the strength of the multi-family market, Manion said. They’ve developed multi-family buildings that come with high-end amenities and services. Others have created apartment complex-

es that look more like luxury condo towers, he said. “There is such a wide range of multifamily product on the market now,” Manion said. “This trend has been happening for the last 10 years. So many apartment projects now are condo-quality. These projects were built at a much higher standard. People looking for multi-family living have more options today than they did in the past.” The numbers According to the latest research from Marcus & Millichap, the multi-family vacancy rate in Minneapolis/St. Paul should drop to 2.7 percent by the end of 2011. That's a drop of 110 basis points from 2010. The company also predicted that asking rents will grow by 2.7 percent to an average of $963 a month, while effective rents will jump 3.4 percent to an average of $914 a month. This is an improvement over 2010, when asking rents rose 1 percent while effective rents jumped 1.5 percent. The Twin Cities region should even expect to see an increase in multi-family construction. Marcus & Millichap predict that builders will complete 600 new apartment units in 2011, pushing up inventory levels by 0.4 percent. In 2010,

August 2011

builders brought 417 new apartment units to the Twin Cities region. Mike Jehle, Midwest regional director for Arbor Commercial Mortgage, said that higher rents are a welcome sight to building owners. Until last year, Jehle said, multi-family rent growth was stagnant. But starting last year, this began to change. And Jehle is optimistic that the trend of rising multi-family rents is strong enough to continue. "Over the last six months, the rental increases have been dramatic," Jehle said. "This is largely because occupancies have really filled up to the point where owners can pass on higher rents and get them. Residents aren't moving across the street when their owners increase rents."


August 2011 3R’s from page 18

dards, thereby imposing even more restrictive land development and construction requirements. The effect is that more productive land must be dedicated to land/environmental protection purposes, reducing the amount available for actual development. Wetland protection is but one example of how the costs of development are escalating, even in a recessionary marketplace. Cities are increasingly seeking to protect more open space or scenic views, woodlands and other natural areas; these are laudable but take land out of production and constrain revenues; they also lack any statutory authority for seeking such concessions from developers or contractors. Ironically, at the same time that cities are demanding stricter controls on the use of land, they continue to resist reduced street widths, smaller single-family lots and smaller parking lots. Public Development Costs Remain High The down market has placed significant financial pressure on vendors seeking work from private developers and contractors. Scarce project opportunities have forced vendors to give up margin, and maybe even any profit, in order to have a shot at being hired. Not so on the public side—if a developer or contractor has a viable project in Community A, that project cannot simply be picked up and moved to Community B if the public development fees and costs are too high. Consequently, Community A has no incentive to reduce its development costs or permit fees for a project. In truth, some cities have tried to be more flexible in assigning public development fees and costs in response to the market downturn; but most have not, and several actually have turned up the financial pressure a notch or two. Moreover, cities that overbuilt their public infrastructure in anticipation of planned growth that may never materialize are seeking to recapture their investment from a smaller pool of new development, to avoid putting the cost entirely

Minnesota Real Estate Journal

on their residents. Minnesota statutes directly limit the imposition of public development fees and costs in several ways. First, cities are allowed to charge for the actual cost of constructing necessary infrastructure within the platted footprint of a project, such as public sewer and water lines and public streets. Second, cities are allowed to charge for development costs that are directly related to and proportional to the impacts of the proposed project even if outside the actual development footprint. In other words, if a project imposes transportation impacts beyond the private development area, the developer or contractor can be compelled to pay the incremental costs associated with their documented project impacts, such as new turn lanes or a traffic signal. Third, cities are allowed to recoup the cost of providing services, such as plan reviews, inspections, building permits, etc. Finally, cities are authorized to impose so-called trunk or area charges to recoup investment in regional sewer and water facilities, whether built or planned. In each instance noted above, there is a statutory requirement that such fees and costs correspond directly to the cost of delivering such services or be related to and proportional to the size and impact of the proposed project. With these protections in place one might think that public fees and costs are tightly restricted. Not so. One example occurs when public requirements to dedicate or otherwise protect land from physical development within a plat conflict with the land area used to calculate fees. If a city assesses trunk or area fees on a gross-acre basis, it reaps the highest level of fees from a site, though it may at the same time be limiting the amount of land that can be used to generate revenue. While many (maybe most) cities exclude some land area, such as dedicated roadways, from the acreage calculation used to determine a trunk or area charge, they are not compelled to do so. The municipal park dedication/fee statute places the most

direct restriction on municipal land dedication and/or park fee requirements. But nothing in statute or case law places an actual cap on the amount of land to be dedicated for park purposes or fees to be charged in connection with new development or construction. Another example is transportation impact fees. Notwithstanding the absence of any statutory authority and in the face of a Minnesota Supreme Court decision striking down a “road unit charge” as an unauthorized tax, some cities in Minnesota continue to pursue collection of transportation impact fees that go beyond the cost of installing infrastructure to support the project being proposed. While it is understandable that some cities lack the financial wherewithal to selffinance certain public road improvements beyond the reach of special assessments, neither the legislature nor the courts have authorized them to arbitrarily impose these costs on new development or construction. Use of “voluntary” devices, such as development contracts, as the basis to compel payment of these illegal taxes does not legitimize them. Yet a developer or contractor under pressure to get its project approved may, and historically did, yield to the demand to pay such fees. In this market, that is not likely to occur; instead it is more likely the project will not proceed.

Page 27

Conclusion Whatever forward progress is possible in the real estate development and construction markets over the next year could be stymied by arbitrary barriers imposed by public agencies, including by cities, that reflect over-zealous efforts to restrict land development or to prevent environmental harm associated with such development. Likewise, in order for a healthy level of new development or construction activity to resume amidst a soft economy, the response of cities to a changed marketplace needs to look more like that of the private sector. The combined financial pressures of excessive regulation and high fees and costs makes it harder for good projects to get the support they need from their corporate sponsors and the capital markets. Peter Coyle is the president of Larkin Hoffman Daly & Lindgren, Ltd. He practices in the firm’s land use and regulatory practice groups and advises landowners, developers and contractors on land development, environmental and other regulatory compliance issues.


Page 28

First American Exchange Co. Sara Koivu 801 Midwest Plaza, Suite 1900 Minneapolis, MN 55402 (612) 305-2023 www.firstexchange.com

Minnesota Real Estate Journal

August 2011


August 2011

Minnesota Real Estate Journal

Page 29

ART SERVICES Hennes Art Company 1607 Hennepin Avenue Minneapolis, MN 55403 (612) 436-2077 www.hennesart.com

Street Address Full PID

Property City Sale Price

Buyer Name Seller Name

Sales information is gathered from certificates of real estate value filed with metropolitan-area counties.

Anoka Blaine $500,000 Lino Lakes $50,000 Ramsey $100,000

Property City Sale Price

Buyer Name Seller Name

1265 Brookdale Ctr

For the Record

12530 Ulysses St NE 053123340008  6931 Lake Dr 193122420011  14245 Saint Francis Blvd # 103 253225430069 

Street Address Full PID

MASON PROPERTIES LLC CROIX OIL COMPANY KIMJO PROPERTIES LLC WESTERN BANK PINTO PROPERTIES LLC VILLAGE BANK

0211821320009  1265 Brookdale Ctr 0211821320010  1200 Brookdale Ctr 0211821320014  1150 Brookdale Ctr 0211821230023  1400 Brookdale Ctr

Carver 406 W 78th St 251730010  1057 Stoughton Ave 306410020 

Chanhassen $650,000 Chaska $415,000

COLONIAL SQUARE LLC CHANHASSEN REALTY CO TOPAZ INVESTMENTS LLC BAYVIEW LOAN SERVICING LLC

Dakota 1301 Southview Blvd 368390010030 

South St. Paul R K GREEN LLP $231,000 TRUSTEE OF ESTATE OF TWIN CITIES ST

Hennepin 2501 County Road 10 0211821310055  2501 County Road 10 0211821310056 

Brooklyn Center $7,500,000

SHINGLE CREEK LLC BROOKDALE MALL HH LLC

The Minnesota Real Estate Exchangors (MREE) is a real estate and business networking organization for real estate investors & owners, licensed real estate professionals and anyone with an interest in real estate transactions. You do not need to be a licensed real estate agent to attend or join. You are invited to One Free Marketing Meeting and that includes morning benefits of continental breakfast and beverages. No advanced registrations required. Cut out this couplon and complete requested information on the coupon below and bring it along. See you there. . . .

www.mree1031.com


Page 30 Street Address Full PID 0311821410024  1108 Brookdale Ctr 0211821320017  1108 Brookdale Ctr 0211821320017  429 W Lake St 0302824220047  1206 Brookdale Ctr 0311821140032  3300 County Road 10 0311821140033  6000 Bass Lake Rd 0411821320104  3040 Excelsior Blvd 0502824210244  2813 W 43rd St 0802824420101  3110 Emerson Ave N 5581 Shoreline Dr 1311724330015  9740 Grand Ave S 1502724230075  9700 Lyndale Ave S 1602724140007  5912 W 35th St 1611721310045  233 1st Ave NE # 1 1811921230198  229 1st Ave NE # 2 1811921230199  225 1st Ave NE # 3 1811921230200  221 1st Ave NE # 4 1811921230201  124 County Road 81 Svc Rd E 1811921320076  7900 Medicine Lake Rd 1911821440001  6021 Lyndale Ave S 2202824330004  12724 Main St 2312023420045  816 1/2 Park Ave 2602924230059  929 Portland Ave # U 2602924230357  929 Portland Ave # V 2602924230358  929 Portland Ave # X 2602924230360  640 E Grant St 2602924320153  1020 E Franklin Ave 2602924340183  1121 Hennepin Ave 2702924210015  1127 Hennepin Ave 2702924210090  1911 Nicollet Ave 2702924430056  1905 3rd Ave S 2702924440095  7076 E Fish Lake Rd 2711922430087  1930 Hennepin Ave 2802924440266  5017 Vernon Ave S 2811721310065  12918 63rd Ave N 3411922410072  2540 Park Ave 3502924230012  2501 Portland Ave S 3502924230045  2505 Portland Ave S

Minnesota Real Estate Journal Property City Sale Price

Buyer Name Seller Name

Street Address Full PID 3502924230101  2853 Columbus Ave 3502924330185 

Brooklyn Center WAL-MART REAL ESTATE BUSINESS $6,290,064 SHINGLE CREEK LLC Minneapolis CHAI VANG $240,258 JACK F CHRISTY Brooklyn Center SHINGLE CREEK LLC $825,000 PETER R HOUSER Brooklyn Center FTK Properties $180,000 Anthony Clarence Williamson Crystal FTK PROPERTIES INC $15,450 COUNTY OF HENNEPIN Minneapolis CAR CALHOUN COMMONS LLC $21,020,000 CALHOUN COMMONS SHOPPING CENTER Minneapolis MES & MRS LLC $1,500,000 YIANNIAS-LUGER LLP Minneapolis AL BOSAAD INC $30,000 2029 2031 W BROADWAY LLC MoundLAKE MINNETONKA REGIONAL ARTS COUNCIL $250,000 ROBERT A LAUER DR BloomingtonTHE WORKS A MINNESOTA NON PROFIT $1,500,000 SOUTH EXCHANGE PROP INC Bloomington FREEWAY LLLP $6,987,500 GROSSMAN INVESTMENTS LLC St. Louis Park TWELVE PARK LLC $425,000 MATTHEW J DONAHUE Osseo FIRST AVENUE COMMONS LLC $375,000 TCF MANAGEMENT CORP

Osseo $95,000 New Hope $560,000 Minneapolis $775,000 Rogers $154,000 Minneapolis $30,000 Minneapolis $75,000

ALL AMERICAN HOLDINGS LLC WINGS FINANCIAL CREDIT UNION ENGELSMA LIMITED PARTNERSHIP CLAREL CORPORATION FORT FARLEY LLC MLJ LIMITED LLC CITY OF ROGERS JAMES A TOWNER MOHAMAD ALKHAILI ESTATE OF JOHN D MALONEY PORTLAND AVE PARTNERS LLC SKYSCAPE OPPORTUNITY LLC

Minneapolis MIM MANAGEMENT GROUP CO $455,000 ECONOMIC GROWTH CENTERS INC Minneapolis FRANKLIN BAKERY LLC $359,491 GREAT NEIGHBORHOODS DEVELOPMENT Minneapolis HENNEPIN AVENUE REALTY LLC $1,450,000 BARLOW ASSOCIATES LLLP

Minneapolis LOWRY INVESTMENT CO $195,000 IB PROPERTY HOLDINGS LLC Minneapolis 1905 3RD AVENUE LLC $375,000 FRANKLIN NATL BANK OF MINNEPOLIS Maple Grove MATTSON COMMODITIES LLC $90,000 PREMIER BANK Minneapolis ALEO LLC $700,000 JADE PARTNERS LLC Edina VERNON PROPERTIES LLC $6,160,000 JERRYʼS ENTERPRISES INC Maple Grove PRAIRIECARE LLC $300,000 PLATA DEVELOPMENT LIMITED PARTNERSHIP Minneapolis SAINT MARY S UNIVERSITY $2,750,000 ZUHRAH TEMPLE TRUSTEES

August 2011 Property City Sale Price

Minneapolis $310,000

Buyer Name Seller Name

DUQUEIRO CANO PHILLIPS VENTURES LLC

Ramsey 5926 Highway 61 013022220013  0 Leibel St 013022220014  1096 Grand Ave 022823320102  345 Jackson St 062822110013  332 Robert St N 062822110016  3167 Spruce St 062922210007  062922210008  3168 Ryan Ln 062922210019  190 Ryan Ln 062922210022  2485 Maplewood Dr Ste 213 092922130024  2485 Maplewood Dr Ste 214 092922130025  2495 Maplewood Dr # 315 092922130032  2172 Lexington Ave N 112923330065  2567 7th Ave E 122922420014  2295 Rice St 122923410043  1911 Rice St 132923410034  1906 Wagener Pl 132923410029  2151 Hamline Ave N 152923210128  1638 Rice St 192922220013  1646 Rice St 192922220012  0 California Ave W 192922220010  935 County Road E E 283022330040  0 Wacouta St 312922440014  11 Silver Lake Rd SW 313023120377  1415 Marshall Ave 342923340007  970 University Ave W 352923310009 

White Bear Twp $660,000

POR MKR REAL ESTATE LLC REHBEIN TRANSIT INC

St. Paul $1,550,000 St. Paul $1,500,000 St. Paul $1,100,000 Little Canada $273,000

GRAND & LEXINGTON LLC DEEPHAVEN CORPORATION JACKSON PARTNERS LLC ST PAUL PIONEER HOLDINGS INC PIONEER ENDICOTT LLC ST PAUL PIONEER HOLDINGS INC 3165 3167 SPRUCE STREET LLC MICHELE M SEBESTA

Little Canada $360,000

PAUL S BEHR ROYAL EXCAVATING INC

Maplewood MAPLEWOOD MAPLE LEAF LLC $150,000 HEIMARK INVESTMENTS LLC Maplewood MAPLEWOOD MAPLE LEAF LLC $100,000 US BANK NA MaplewoodNORTHLAND ASSOCIATES PROPERTIES LLC $203,030 THE NATIONAL BANK Roseville REALTY INCOME PROPERTIES 3 LLC $2,799,325 SPEEDWAY SUPERAMERICA LLC North St. Paul FRED J CROPSEY $50,000 LOIS ROSENTRETER Roseville REALTY INCOME PROPERTIES 3 LLC $2,799,325 SPEEDWAY SUPERAMERICA LLC Roseville ROGER B HESS JR $403,500 FRANK R HESS

Roseville ANKRUM COMMERCIAL REAL ESTATE LLC $525,000 CAVE AND ASSOCIATES LTD St. Paul RICHARD A DEFOE $425,000 WAYNE T BELISLE

Vadnais HeightsMJS PROPERTIES OF VADNAIS HEIGHTS $1,400,000 COMMUNITY NATIONAL BANK St. Paul BENEFICIAL PROPERTIES LLC $231,000 CARL S PEDRO New Brighton CROIX OIL COMPANY $330,000 JOHN A HEDBACK TRUSTEE St. Paul CONCORDIA UNIVERSITY OF ST PAUL $620,000 MARK SULLIVAN St. Paul REALTY INCOME PROPERTIES 3 LLC $750,000 SPEEDWAY SUPERAMERICA LLC

Scott 12557 Rhode Island Ave 260130100  8714 Egan Dr 263950050  8710 Egan Dr 263950100  8646 Eagle Creek Cir 264140370 

Savage $150,000 Savage $187,000

THOMAS E TOON RONALD R OLSON J&LPROPERTY LLC M&IMARSHALLLLSLEY BANK

SavageAMERICAN MOTOR CARRIER CONSORTIUM INC $118,000 PREMIER BANK MINNESOTA

264140380 

Washington 14587 60th St N 0402920120011  20920 Forest Rd N 2003221120010  1650 Washington Ave S 3203020310013 

Oak Park Heights $800,000 Forest Lake $1,900,000 Stillwater $830,000

TAN RUYUE 60TH STREET PROPERTY LLC INTERSTATE INVESTMENTS LLC PREMIER BANK PROBUILD COMAPNY LLC LN REAL ESTATE LLC



MREJ_08Aug11