Heartland Real Estate Business

FEB 2018

Heartland Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Midwest.

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www.REBusinessOnline.com Heartland Real Estate Business • February 2018 • 27 Sharpsburg Library, Sharpsburg, PA Architect: Front Studio Architects General Contractor: Franjo Construction Distributor: Brock Associates LLC Profiles: PAC-CLAD 7/8" Corrugated in .032 aluminum Colors: Silver, Copper Penny, Cardinal Red, Award Blue, Patina Green Photography: ©2015 Ed Massery "As soon as we knew we wanted it to be colorful, metal became the obvious choice for the exterior. PAC-CLAD corrugated metal would be the most economical, long-lasting material." Dynamic Color -Art Lubetz, principal, Front Studio Architects 45 Colors - 31 ENERGYSTAR® PAC-CLAD Corrugated PAC-CLAD.COM | INFO�PAC�CLAD.COM IL: 1 800 PAC CLAD MD: 1 800 344 1400 AZ: 1 833 750 1935 MN: 1 877 571 2025 GA: 1 800 272 4482 TX: 1 800 441 8661 C ase study at PAC � C L A D.C O M � S H A R P S B U RG SUBURBAN OFFICE OWNERS REVAMP BUILDINGS TO ATTRACT, RETAIN TENANTS OFFICE from page 1 how the players in the Minneapolis, Chicago, Detroit and St. Louis subur- ban office markets have stepped up to the challenge. Minneapolis: value-add play A lot of office buildings in Minne- apolis have traded hands recently, ac- cording to Jim Freytag, a senior vice president with CBRE in Minneapolis. Opportunistic investors have come to the suburbs looking to put additional capital into buildings and enhance amenity packages. "Owners are improving existing amenities with the idea that is going to increase leasing volume velocity and increase rental rates within build- ings," he explains. Minneapolis-based Onward Inves- tors LLC recently sold Wedgewood Commerce Center, an 85,404-square- foot Class A office building in Maple Grove, a northwestern suburb of Minneapolis. The firm purchased the property in February 2015 when it was 66 percent occupied. After investing $800,000 to renovate vacant office space, make significant upgrades to the lobby and add a bike room, Onward increased the proper- ty's occupancy to 76 percent. According to John Solberg, presi- dent and CEO of the firm, it was sim- ply "time to sell." Onward's main strategy is to acquire empty buildings in need of repurposing, lease them up and sell them. In Solberg's view, renovation proj- ects are driven as much by tenants as they are investors. "It's getting harder to find qualified employees, so tenants want to offer more [amenities] in order to increase the chance of hiring the best people. Investors are expecting that as well," he explains. The big difference between the Minneapolis and Chicago office mar- ket is the shorter amount of time it takes for office workers to commute to the suburbs from downtown Min- neapolis, according to Freytag. Some suburban Chicago cities can be an hour-plus drive from downtown, whereas Minneapolis suburbs are no more than a 30- or 40-minute drive, he says. An area of suburban Minneapolis that has benefitted from the so-called "urbanization of the suburbs" is the West End, which is located at the intersection of I-394 and Minnesota State Highway 100 where Golden Valley and Saint Louis Park come to- gether. At least 1,000 new apartments have been built or are under construction in this area, along with new hotels and retail space, according to Freytag. Res- idents or business travelers can live, work and play in the same area. Although sales activity hasn't been quite strong enough to support new development in the suburbs, rental rates are starting to approach the nec- essary figures to do so, says Freytag. The average asking rate for metro Minneapolis was $14.72 per square foot in the fourth quarter, with the 394 Corridor experiencing an uptick to $17.67 per square foot. Asking rates in the CBD averaged $15.83 per square foot for all classes of space. One new development is the 100- acre CityPlace in Woodbury, which is located east of St. Paul. Owner and developer Elion Partners, based in Miami, celebrated the grand opening of the mixed-use development's first phase in the summer of 2017. In December, Elion Partners un- veiled plans for a 54,000-square-foot office building — the third office building at the property. Whole Foods Market anchors the retail portion of the property, followed by a mix of other carefully selected retailers and restaurants. "The retail we brought in was very focused on amenities that would be attractive to office users," says Juan Roberto DeAngulo, managing princi- pal with Elion Partners. "We passed on some retailers that wanted to be here because we didn't feel that they would be a good fit for what we were trying to create." Among the retailers that made the cut are Caribou Coffee, Potbelly Sand- wich Shop, Bank of America, Verizon Wireless and CycleBar. Bringing urban-type concepts to a suburban area for tenants who don't want to drive into the central business district (CBD) was exactly what Elion Partners hoped to accomplish with CityPlace, according to DeAngulo. "Employees, once they have kids, will like the idea of living somewhere close to their job as long as the ameni- ties that they're getting in their office building are also attractive," he says. "The trend of urbanizing suburban office is something that's obviously been going on." In DeAngulo's eyes, it will take a combination of factors to breathe new life into vacant suburban office build- ings. Municipalities will need to fi- nancially support private developers trying to gentrify locations, bringing in a mix of uses and executing rede- velopment projects that make eco- nomic sense. "The experiential piece is most im- portant," says DeAngulo. "Can I go have a cup of coffee or have a meal without getting in my car? People want to live close to work." Chicago landlords reinvest A trend likely to continue in 2018 for the suburban Chicago office market is tenant demand for newer, efficient and urbanized spaces. Owners are also expected to scale back on asking rental rates to compete with buildings located in burgeoning areas, accord- ing to Cushman & Wakefield. Onward Investors LLC recently sold Wedgewood Commerce Center in Maple Grove, Minnesota. The firm invested $800,000 to renovate vacant office space, make signifi- cant upgrades to the lobby and add a bike room.

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