Downtown Minneapolis Office Market

[uptownbro]

It will open up options for the property but it points to taxes going up significantly which will filter to every resident of the city

[BigIdeasGuy]

I think 6 cents on the dollar means it lost 94% of its value, not 99.94%. But in any case, I still maintain that the value was lost awhile ago, it's just only being realized now. It is indeed terrible that we're losing such property values, but it's a done thing at this point - optimizing among bad outcomes is the name of the game.

You are correct it's 94%, I did the math wrong.

[twincitizen]

This building was always going to sell for a fraction of it's previous value, just as Wells Fargo Center and other buildings have recently. But there are two other major factors driving this building's sale price down even further, well below its actual valuation:

1) It was built for a single tenant. On top of routine renovations to common spaces and amenities that any office building does to attract tenants, this building will also need serious investments just to reposition it as a multi-tenant office building.

2) It's 100% vacant. If remaining as office or primarily office, the new owner will have a lease-up period extending over several years. The bargain price will allow them to take their time making improvements & signing leases.

The other Class A office properties selling for 25-50% of their pre-pandemic valuation or previous sale price don't have those issues to deal with. So that's all to say this one is an extreme outlier in selling for just 6% of its previous value.

[MNdible]

Just for posterity, it sold for three cents on the dollar. Or a 97% discount.

https://www.startribune.com/ameriprise- ... /601214428

[Didier]

Can someone provide the metric conversion?

[Nick]

You know, actually—how are downtowns doing in other countries? Hard to compare downtown Minneapolis to a nice Western European city center for 1,000,000 reasons but what about Calgary or whatever? Are Perth and Riyadh back to their regular Monday lunch rush? Can you get a skyscraper for 97% off in a lot of places?

[BikesOnFilm]

There are examples of sales like this in other US metros - just try a search for "tower sells for 90% below" and you'll find examples in NYC, SF, Chicago, etc.

I tried adding cities like 'Toronto' and 'London' to the search and it doesn't seem like it's happening in other places.

I guess it comes down to whether you believe that large US cities are suffering from a particular brand of malaise, or if you can believe the ridiculous notion that sometimes rich idiots overpay for things at the top of the market, especially at a time when interest rates were near zero and the economy was being overheated on purpose.

There's a lot of excitement and spectacle in a headline number like "Building sells for 97% off" but I'd love if someone would dare to ask "was the building ever worth the original 100% price to anyone other than the sucker who bought it?"

[thespeedmccool]

You know, actually—how are downtowns doing in other countries? Hard to compare downtown Minneapolis to a nice Western European city center for 1,000,000 reasons but what about Calgary or whatever? Are Perth and Riyadh back to their regular Monday lunch rush? Can you get a skyscraper for 97% off in a lot of places?

I don't know about other downtown real estate markets, but I do know that MSP is one of the top markets for remote workers. Why that is, I do not know.

But it would explain why our transit ridership and office values haven't bounced back while other metros' vitals have (or, at least more than ours.)

[SurlyLHT]

You know, actually—how are downtowns doing in other countries? Hard to compare downtown Minneapolis to a nice Western European city center for 1,000,000 reasons but what about Calgary or whatever? Are Perth and Riyadh back to their regular Monday lunch rush? Can you get a skyscraper for 97% off in a lot of places?

I don't know about other downtown real estate markets, but I do know that MSP is one of the top markets for remote workers. Why that is, I do not know.

But it would explain why our transit ridership and office values haven't bounced back while other metros' vitals have (or, at least more than ours.)

The Strib had an article about Downtown and remote workers recently. They said Target not having their workers back creates uncertainty and leads to related businesses to not having their workers. Additionally, Hennepin County seems to also be part of the problem.

The city needs to work with Target and Hennepin County to get the workers back in the office.

[tedlanda2571]

This morning I read Bloomberg article speaking to the bifurcation in quality of space. Apparently in NYC buildings either built or renovated since 2010 are seeing rental absorption above pre-pandemic rates while lower quality buildings sit empty. There is a plausible viewpoint that rental rates for top tier space could actually sky rocket in coming years, and given the difficulty in penciling out new projects this could lead to demand spreading to under-utilized quality space around the country.

...And despite the nigh on impossible construction conditions (high financing rates, construction cost inflation, spotty demand) someone is actually moving forward with plans to build a 46 story office tower there.

[BikesOnFilm]

So Hennepin County offers a benefit to their employees that costs them virtually nothing, improves morale, and is a carrot they can use to attract qualified private sector workers to their employ, and they're supposed to give that up? For the benefit of REIT companies? To save skyway restaurants that have refused to adapt (after five years!) to serve customers that are visiting downtown on the evenings and weekends?

Not to mention I don't think Target will be getting rid of that same benefit after they made a big unforced hit to their PR last month.

I get the idea that these property values hit the tax rolls, but every single investment comes with a "Past results do not guarantee future performance" disclaimer. It's not Target or Hennepin County's job to make sure that an REIT doesn't sell a commercial property at a loss.

To put it another way, a lot of businesses probably wrote off their warehouses or sold them at a loss in the North Loop at some point. It wouldn't have been possible for them to be renovated into boho offices, coffee shops, or loft apartments if Minneapolis went and strong armed every employer into using that warehouse space as it was originally intended.

[minntransplant]

This morning I read Bloomberg article speaking to the bifurcation in quality of space. Apparently in NYC buildings either built or renovated since 2010 are seeing rental absorption above pre-pandemic rates while lower quality buildings sit empty. There is a plausible viewpoint that rental rates for top tier space could actually sky rocket in coming years, and given the difficulty in penciling out new projects this could lead to demand spreading to under-utilized quality space around the country.

...And despite the nigh on impossible construction conditions (high financing rates, construction cost inflation, spotty demand) someone is actually moving forward with plans to build a 46 story office tower there.

This is happening in the aforementioned Calgary as well! "Trophy" spaces are doing well - there's absorption and rent growth. Class B and C buildings are fairing the worse. We'll see this all over the US and Canada in particular.

[MNdible]

There's a lot of excitement and spectacle in a headline number like "Building sells for 97% off" but I'd love if someone would dare to ask "was the building ever worth the original 100% price to anyone other than the sucker who bought it?"

The valuation of office buildings (or apartments, or anything else that you rent) is classically determined by a pretty simple calculation based primarily on how much rent that property generates (along with some other things like inflation, interest rates, perceived risk, etc.). The last time the building sold, it was fully leased to a single tenant, inflation and interest rates were low, and there was no perceived risk that things would change substantially. When you buy a building for $200m, you're basically buying a stream of rental income that you expect to continue.

Right now, the building generates no rental income, needs a lot of updates, and is in a very uncertain environment.

[MNdible]

...And despite the nigh on impossible construction conditions (high financing rates, construction cost inflation, spotty demand) someone is actually moving forward with plans to build a 46 story office tower there.

It's a good thing nobody is considering a bunch of tariffs on building materials or deporting a lot of construction laborers.

[minntransplant]

You know, actually—how are downtowns doing in other countries? Hard to compare downtown Minneapolis to a nice Western European city center for 1,000,000 reasons but what about Calgary or whatever? Are Perth and Riyadh back to their regular Monday lunch rush? Can you get a skyscraper for 97% off in a lot of places?

I don't know about other downtown real estate markets, but I do know that MSP is one of the top markets for remote workers. Why that is, I do not know.

Remote workers have higher rates of college degrees (or more) than the general population. Since MSP has a highly educated population, it makes sense that we'd have a lot of remote workers.

[twincitizen]

Nick Halter with Axios wrote about the Ameriprise building today: https://www.axios.com/local/twin-cities ... r-discount
UrbanMSP member Rhett Carlson found some concept renderings of a residential conversion: https://x.com/rhett_carlson/status/1885388441275269617

[AccordGuy]

As far as the Ameriprise Tower goes, would there be any value in dismantling it and starting a housing project from scratch? Could they build on top of the existing parking garage? Thinking that there may be some value in recycling what they able to.

[BikesOnFilm]

Even if the buyers were looking to build a housing project from scratch in Downtown Minneapolis, I sincerely doubt they would start by looking for an existing tower to tear down when there are surface parking lots, 1-3 story buildings, and even entirely empty lots still available.

As it stands, I hope the buyers are inspired by those concept images of the office converted into housing and take at least some of the office space off the market.