East Lake launches new brand: Midtown

Nicole Garrison-Sprenger
Staff writer
During its 84 years in business, Julie Ingebretsen's family has watched sweeping changes along East Lake Street, where Ingebretsen's Scandinavian Gifts & Foods operates.

The Minneapolis retail strip, where immigrants have long planted roots with family businesses, still boasts entrepreneurial pride. But it's been through tough economic times and struggled with crime. That's left many Twin Citians with a bad perception of the area.

East Lake has boasted good news lately, but businesses there have a new challenge to face: the $25 million reconstruction of Lake Street slated to begin this month. "We're all expecting lean times during the reconstruction," Ingebretsen said.

That's where advertising firm Uno comes in. It's created a marketing campaign to generate business during construction and in years to come. The campaign, sponsored in part by some major Twin Cities corporations, will attempt to rebrand East Lake as "Midtown." It also gives business owners the chance to change people's perceptions of the area as the corridor continues its revival.

Perhaps the biggest change is the redevelopment of the former Sears complex into the Midtown Exchange. Minneapolis developer Ryan Cos. US Inc. is leading the project, which transforms the long-abandoned structure into the new headquarters for Allina Hospitals & Clinics. Nearly 1,500 employees will begin working there sometime in 2006. The site also will be home to the Global Marketplace, a retail market and business incubator, 300 housing units and a hotel.

"This is the rebirth of Lake Street," said Luis Fitch, principal and co-founder of Uno. "We want people to think, 'If I want ethnic food, the place to go is Midtown,' or 'If I need a break from the malls, I can go to Midtown.' ... We want to make this a tourist destination one day."

Communicating diversity
Lake Street is not the first area in the Twin Cities or the country to recognize the power of branding.

"There are a lot of neighborhoods that have branded themselves with success," said Chris Heimbold, managing account director for Little & Co., which is working on a branding project for the North Loop neighborhood in downtown Minneapolis. "There is power in branding because places become recognizable, desirable destinations."

The first step in communicating the new Midtown identity was to create a logo that retailers and organizations along the corridor could display in their stores and on marketing materials. The logo consists of vibrant colors and bold shapes to represent the individuality of mom-and-pop businesses and the cultural diversity of the area.

Uno also came up with a couple of tag lines -- "Color. Flavor. Rhythm." and "Midtown without borders" -- as well as accompanying artwork.

The logo, tag lines and other tools will be available on a Web site for local businesses and neighborhood groups to place on packaging, clothing, gift certificates, signs and shopping bags. Storefront businesses also could dress up the appearance of their buildings with the material, Fitch said.

"We want people to be able to grab the identity and own it and use it in any way that they want," Fitch said. "Hopefully, too, outsiders who were so afraid of going to Lake Street will see this and see that things have changed."

Uno also is developing a loyalty card that would reward people for shopping in Midtown, which extends from Interstate 35W to Hiawatha Avenue.

Midtown Community Works, a public-private partnership formed to guide the redevelopment of the corridor, organized the branding initiative. It is seeking corporate sponsorship for vibrant outdoor banners, similar to those on Eat Street on South Nicollet Avenue, to brighten up the streetscape.

A partnership
Just as the physical reconstruction of Midtown was made possible by a public-private partnership, the rebranding initiative required a number of civic, community and business partners.

Wells Fargo Foundation contributed $25,000 to the project.

"The whole community benefits from the continued success of these businesses," said Carolyn Roby, vice president of the Wells Fargo Foundation.

Lake Street business owners and community leaders have long wanted to give the area a brand that would stick and draw outsiders seeking a unique shopping experience, but funds have been scarce.

Besides Wells Fargo and Midtown Community Works, key sponsors of the campaign include Target Corp., Ryan Cos., Payne-Lake Community Partners, Hennepin County and the city of Minneapolis. Target also donated its marketing team.

The coalition now needs additional funding to communicate the brand that Uno created, said Joyce Wisdom, interim director of the Lake Street Council, another organizer of the branding effort.

Midtown marketing leaders estimate the branding project will require $500,000 in cash and in-kind support.

"It's a huge variety of sources that we need to put together the budget for this vision," Wisdom said. "We still have quite a bit of money to raise."

Condos find a home out in suburbs

Long an icon of city life, condominiums are also coming to the suburbs, the stronghold of the oversize lot and the cul-de-sac.

More than 4,100 condo units were planned in the Twin Cities area outside of the downtown cores as of late 2004, according to Tom O'Neil, director of market research at DSU Research Inc., equal to about 40 percent of the total. More suburban projects have been announced since then.

The buildings aren't of the same scale as the towers that have commanded the attention of the Minneapolis market, but most market watchers see that as a plus because the smaller scale of the suburban development makes it less likely that any area will become glutted.

Condo buyers have been turning out in force for what's available in the 'burbs so far.

In Hopkins, only about 15 minutes from downtown Minneapolis, the Cornerstone Group quickly sold all 48 units in its Marketplace Lofts project. Phase II, which has yet to be built, has a waiting list. Cornerstone also is building the Mist, a 120-unit luxury condo project on Lake Minnetonka, where the units are priced from $400,000 to more than $1 million. Sales have been brisk.

"We sold all of our highest-priced units," said Colleen Carey, Cornerstone's president and founder. "I wish I had more expensive ones."

Laurence Harmon, who has worked for Twin Cities developers since 1990 in both marketing and research, describes the building activity in the suburbs as frenetic.

"Downtown had the initial success and developers said, 'Hey! Why can't we do this in the suburbs?' " said Tom Melchior, a real estate analyst for Larson, Allen, Weishair & Co. in Minneapolis.

The southwest suburbs have been the most active suburban condo market, in large part because of city revitalization efforts and the projects' proximity to workplaces and downtown amenities. More than 500 condo units were planned for that area in 2004. Cities such as Minnetonka, Edina and Bloomington have become condo magnets because the communities are trying to retain residents by providing a range of housing options.

Richfield projects

"What a family was when our houses were built in the 1950s and 1960s isn't what a family is today, and we're trying to respond to the marketplace today," said John Stark, assistant director of community development for the city of Richfield, which has seen five or six new condo and townhouse projects in the past few years.

Stark said that more than a third of all new residents in these projects came from Richfield, mostly empty nesters moving out of single-family houses.

"We retain them and they have an empty single-family house that a family with kids in the district could purchase," he said. "We want to make sure that we have housing for people in all aspects of their life."

Stark said that adding high-density housing in these fully developed suburbs is an opportunity to make them more socially and economically diverse. And the timing couldn't be better.

"Every survey that comes out about what [Twin Cities-area residents] don't like, traffic is like No. 1," Stark said.

A cost differential

Who are the suburban buyers?

They are much the same as the people buying downtown condos. Both groups want to watch the leaves turn and the snow fall without feeling compelled to grab a rake or a shovel. And they fall at both ends of the age scale, with busy young professionals on one side and empty nesters ready to cash in equity in their homes and simplify their lives on the other.

But there are differences.

The suburban buyer, by choice or necessity, is more likely to be price-conscious.

Between 2002 and the third quarter of 2004, the average sale price of a downtown Minneapolis condominium was $271 a square foot, but in the southwest suburbs the average was $168 a square foot, according to researcher O'Neil. The Twin Cities average was $222 a square foot. For some, even the cost of owning a parking space in downtown condo projects can be an issue, sales agent Faith McGown said. Parking spaces downtown can cost as much as $20,000, she said, nearly double what you'd pay in some suburban projects.

"I think there are a lot of people who are looking for the lifestyle of a condominium who don't necessarily want to live downtown," Carey said.

Deborah Randolph is one of them.

Most mornings, Randolph takes a walk to her favorite coffee shop, where she chats with the workers and mixes with other morning people. After just a few weeks in her new condo, she's already met the guy next door and a few other neighbors.

It's the kind of life she had when she lived in a big house in southwest Minneapolis, but she's living in St. Louis Park now.

"I am a downtown person," said Randolph, a 60-something attorney whose one-bedroom condominium is in the Excelsior & Grand condo and retail complex.

"It's so close to what I know. I'm five minutes from Uptown. I can walk to Lake Calhoun. My gas consumption has gone down because I can walk to the grocery and to everything that you really need."

Justin Stach is also looking forward to an urban lifestyle without the downtown ZIP code.

His 12th-floor condo in the Reflections complex along Interstate Hwy. 494 in Bloomington will give him skyline views and floor-to-ceiling windows. McGough Companies plans to build 1,100 condos there in several phases.

Stach, 21, plans to live there a year or two and then cash in his equity and move to something bigger. So far, so good, because his unit has appreciated $30,000 since he signed for it.

"I feel pretty confident in the investment or I wouldn't have made it," he said.

Stach isn't the only one who's been impressed by the project. Since the groundbreaking, 220 people have signed up to buy the first 267 units.

One of Stach's neighbors will be Chris Conway, a computer specialist with a three-bedroom house in Edina who is eager to downsize.

"All I have to do is walk out the door to get on the [light] rail and go to the airport or downtown and I don't have to worry about parking," Conway said.

Like many suburban condo buyers, Randolph shopped the downtown market and several Minneapolis and St. Paul neighborhoods before settling on Excelsior & Grand, but she didn't find what she wanted in her sub-$300,000 range. Having lived in a traditional, Colonial-style house, she also wasn't fond of the raw open spaces in some of the "hard loft" projects.

Not follow-the-leader

Market watchers are hard-pressed so say how long the condo boom will last, but many believe the suburbs are less susceptible to overbuilding than the downtowns because the projects are smaller and more evenly spread out.

"I think the downtown market is more volatile, partly because there's so much product being proposed," Carey said. "In Hopkins, we're not proposing thousands of units and these are not such large projects."

Harmon, who is working with McGough on the Reflections project, said he also is more confident about the suburban market than Minneapolis, which he sees as beset by a "certain follow-the-leader phenomenon."

"With such an overabundance in the downtown market, the suburban markets will be able to float above that for a very long time ... there won't be the same level of overbuilding," he said.

Carey said that because many of the suburban projects don't have the same level of amenities as the new downtown structures, location could play a bigger role in their prospects than supply.

"I think that in the foreseeable future it will be more important for developers to have great locations. In a hot market people are not as discriminating about location, but as buyers have more choices and as there are fewer buyers around, the emphasis will be on the really great sites," Carey said.

Office Market in Recovery Mode?

Grubb & Ellis/Northco Real Estate Services has declared that the market for office space in the Twin Cities is in "full recovery mode."

But with a vacancy rate of 18.3 percent, the recovery may prove to be slow and painful.

Grubb & Ellis defines recovery in real estate markets in much the same way that the federal government defines recovery from a recession: two consecutive quarters of growth. But as is often the case in the rest of the economy, it could take some time before the effects of a turnaround are felt in the office marketplace.

"Things are getting better, but I think we're some time away yet from a full recovery," said Mike Gelfman, an office-space broker for Welsh Companies.

According to Grubb & Ellis' first-quarter survey of metro-area market trends, 483,000 square feet of office space were absorbed in the first quarter, chipping 1.3 percentage points off the vacancy rate. In the fourth quarter of last year, vacancy had fallen from 22 percent to 19.6 percent, marking the first drop in more than two years.

The suburbs saw the most improvement, according to Grubb & Ellis research analyst Matt Boehlke. Downtown Minneapolis is "still lagging a bit," he said.

Minneapolis as a whole has a vacancy rate of 20.2 percent. St. Paul's is 19.8 percent, and the suburban rate is 16.5 percent. The southwest suburbs showed the best rate at 15.2 percent.

Rents remained essentially flat, ranging from an average $23.67 per square foot for Class A office space in the central cities to $24.80 in the suburbs.

The survey's best news might be contained in trends that often are considered precursors to office-market growth.

"Investors are buying a lot of properties downtown," Boehlke said, referring to the 2004 sales of the IDS Center, Fifth Street Towers and the International Centre/Kinnard Financial Center, among others. Sales of downtown office buildings were three times higher last year than in 2003, and sale prices at year end were at a 10-year high, averaging $108 per square foot, according to United Properties Vice President Scott Pollock.

Another precursor: A slight rise in industrial development. While the industrial market by no means is in a full rebound, there are signs of improvement, which Boehlke said "typically happens before the office market recovers" because companies often hire industrial workers before they hire additional office staff.

A more solid sign of a recovery will come when speculative building starts again. So far, there is little commercial building of any kind in the Twin Cities; even pre-leased commercial construction is almost nonexistent. But Gelfman said he's seeing "more developers banking land, and that's always a precursor to development."

Most of the quarter's leasing activity involved either renewals or moves that didn't absorb much vacant space. "Reshuffling the deck," Gelfman called it.

Among the larger new deals: Mosaic Co., a maker of farm chemicals, leased 51,000 square feet at the Atria Corporate Center in Plymouth for its new headquarters, and the National Arbitration Forum leased 28,000 square feet at Park Place West in St. Louis Park.

Other cities are feeling the pinch. Dallas/Fort Worth has a vacancy rate of 24.2 percent; Atlanta's is 21.5 percent, and Denver's is 21 percent. At the other end of the scale, Miami's vacancy rate is 12.8 percent, Portland's is 13.9 percent, and Los Angeles' is 14.8 percent. Chicago is an anomaly: Its vacancy rate has risen steadily and sharply in the past few years, from 15.4 percent in the second quarter of 2003 to 18.7 percent.

The Grubb & Ellis survey showed continued strength in the Twin Cities retail market, which enjoys a 4 percent vacancy rate and lots of new development. More than 2 million square feet of retail space is under construction or planned for the next few years.

The industrial market remained flat, with a vacancy rate of 6.9 percent, though the survey reported that "construction and development projects have been picking up steam."

Hot Property: Grand Central Lofts

Published May 2, 2005

Grand Central Lofts

4747 Central Av. NE.

Columbia Heights

Square feet: 523,000 (all phases)

Units: 88 (Phase I)

Type: Loft Condominiums (67 units), townhouses (21)

Cost: $62 million

Details: When the Kmart store in Columbia Heights closed in 2002 as part of that retailer's bankruptcy procedure, city officials decided that rather than try to find another "big box" to occupy the 12-acre parcel, they would join the trend of loft-condominium building in inner-ring Twin Cities suburbs.

The redevelopment of the Central Avenue NE. site into a mix of housing and retail reached a milestone last week when the Grand Central Lofts opened a model home in the project's still-uncompleted Phase One building.

Developer New Heights, an entity controlled by Columbia Heights-based builder Bruce Nedegaard, has set a Sept. 1 completion date for the 67-unit first building, one of three planned condominium structures at the Grand Central Lofts site at 4747 Central Av. NE., about a half-mile south of the intersection of Central and Interstate Hwy. 694.

Also under construction are the first of 21 townhouses. All told, the redevelopment will have 230 housing units and a minimum of 10,000 square feet of retail space. General contractor for the Grand Central Lofts is Frana & Sons; ESG Architects did the design work.

Like other such projects in St. Louis Park, Brooklyn Park and elsewhere, the target audience is a combination of aging locals who want to trade in their single-family homes for something that requires less upkeep and younger first-time home buyers who are looking for a loft lifestyle but can't afford property in the downtown areas.

Prices start at $189,000. Adding to the pitch is an effort to build a sense of community: The project will include a public swimming pool and community center aimed at helping to revitalize Central Avenue's role as "Main Street" for the suburb. Another project along those lines is a redevelopment effort at 39th and Central, where the city is attempting to renew the east side of the street.