Macy's future in St. Paul hazy

As the chain cuts jobs nationwide, including hundreds in Minneapolis, analysts say more store closings may be needed
By Gita Sitaramiah
gsitaramiah@pioneerpress.com
Article Last Updated: 03/01/2008 03:16:04 AM CST

Macy's is slashing jobs and closing stores to cope with a shaky strategy and weak consumer spending. Could the downtown St. Paul store be a victim?

That's the question many who watch the twists and turns of struggling downtown retail in both of the Twin Cities are asking. The downtown St. Paul Macy's, formerly Marshall Field's, and Dayton's before that, has long been an underperforming store, and city officials in 2001 agreed to give its parent $6.3 million to keep it open.

"It's never done great numbers," said Jim McComb, a Minneapolis retail analyst. "Even when I was with Dayton Hudson, St. Paul was a frustration, and I left in '74."

It's not hard to see how sales would be slow. Walk through the store in midafternoon or during the weekend and few shoppers walk the aisles or comb through racks of clothing, which don't include designer brands like St. John or Armani or the more youthful Juicy Couture and BCBG lines available at the much larger downtown Minneapolis store.

On top of that, Macy's has faced disappointing sales and resistance from shoppers in some markets where the Macy's name replaced local favorites it absorbed as part of its acquisition of St. Louis-based May Department Stores in 2005. Marshall Field's was among the chains made over into the homogeneous national Macy's brand. Macy's, with a dozen Twin Cities locations, has faced criticism here for a decline in customer service and availability of higher-end brands.

Lori Brunner, a Thrivent Financial analyst in Minneapolis, said a natural next step for struggling Macy's is to close underperforming stores. "I do think Macy's should close more stores," she said.

A Macy's spokesman said there currently are no plans to close additional stores. In December, the retailer announced nine store closings, though none in Minnesota.

Cecile Bedor, St. Paul's planning and economic development director, declined interview requests through a spokeswoman, who said the city hasn't received notice of a downtown Macy's closing.

But the Cincinnati-based chain announced last month that it is consolidating staff around the country, including cutting 910 of the 950 jobs at the Minneapolis headquarters, with those functions moving to New York. Macy's also has had two smaller rounds of layoffs in the Twin Cities during the past couple of years. The recent consolidation came after a terrible January, when sales dropped a steeper-than-expected 7.1 percent.

If the downtown St. Paul store closes before the end of 2012, Macy's must pay back the city subsidy with interest, totaling almost $6.9 million, which amounts to around a miniscule one-half of 1 percent of Macy's capital expenditure budget, totaling $1.3 billion in 2006, Brunner said.

The penalty for an early pullout could be insignificant for Macy's, which owns its downtown real estate. "We feel it here because we live here, but relative to how big this company is and how much they spend on their stores, it is not meaningful," Brunner said.

Retail has struggled for years in St. Paul, and city officials doled out the subsidy to then-owner Minneapolis-based Target Corp. to keep the last department store in downtown alive.

The 45-year-old St. Paul store underwent a $22 million makeover at that time. It downsized from 225,000 square feet of shopping space to about 170,000 square feet. The shopping space previously had been equivalent to the Southdale store in Edina but was scaled down to the size of the Maplewood Mall store, because its revenue didn't justify as much space, store officials said at the time.

Part of the angst over losing a downtown department store is, what would become of the Macy's space?

Twin Cities real estate observers say this would be a difficult time for Macy's to sell the downtown building, which has an assessed value of $11.5 million, for another use. Downtown St. Paul has a glut of vacant office space, and the residential market is in a serious slump, though the market for office space and other uses could change in years to come. Experts say empty downtown department stores around the country typically are converted into mixed-used developments.

Many industry observers don't believe another retailer would want to take over an underperforming space. One notable exception might be Target Corp., which previously has explored opening a downtown Target store. A spokeswoman for Target Corp said in a statement, "Regarding Target's plans for St. Paul, we remain interested in downtown St. Paul and will continue to explore opportunities as they become available."

Andrea Christenson, a vice president at Colliers Turley Martin Tucker, believes a discounter such as Target could do a decent sales volume serving the everyday needs of workers and residents in downtown.

It might be a stretch. About 68,000 people work in downtown St. Paul, according to 2007 data from the Capital City Partnership, but that's less than half the downtown work force in Minneapolis, where Target has a store.

Downtown St. Paul's residential population more than doubled to 5,700 from 1970 to 2000, according to U.S. Census data, and jumped by another 600 to 1,700 since then, by varying estimates. But that's still far short of the more than 30,000 who live in downtown Minneapolis.

While Target might benefit from these numbers, Christenson doesn't believe the same would be true for other retailers who'd need to attract more shopper traffic downtown for sufficient sales.

"Why would you go downtown to Macy's and shop and deal with parking and everything else when you can go to a mall, like you can go to Rosedale and park for free, and you have all these other stores to go to?" she said.

In the end, Macy's decision to close more stores will be strictly a numbers game, said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail consulting and investment banking firm in New York.

The steps already taken, such as reducing shopping space and staff, might even help prevent an imminent closing in downtown, since Macy's owns the site. The next step could be even fewer departments and reduced store hours. "You'd do less business, but maybe it would come out better that way," Davidowitz said. "It might be in some cases cheaper and better and more financially advantageous to keep something open rather than close it."

As housing market cools, remodeling heats up

It's an interesting predicament.

The Wall Street Journal says a national reduction in housing starts means contractors are making themselves available for remodeling projects.

The Journal says that same reduction in housing starts means the demand for lumber isn't as high, which suggests remodeling materials costs should ameliorate.

Locally, remodelers say the biggest difference they're seeing is a greater availability of subcontractors and trades people.

"Because new home construction is down, a lot of the subcontractors that we work with, the mechanical, the trade subcontractors don't have as much on their plates so they're more readily available for us, and they're also willing to come in at a little less price than they normally would," said certified remodeler Mark Bonzel of Heritage Builders in Saint Louis Park.

His counterpart at Awad and Koontz agrees. But Ali Awad says the abundance of contractors may get the job done faster, but it hasn't had a big impact on remodel job bids yet, nor have moderating prices for dimension lumber and sheet goods like plywood.

"It's too early to tell whether prices are going down, but they have flattened out, and that's nice because prices have been increasing from year to year pretty significantly," said Awad.

The Minneapolis architect says the biggest influence on remodel jobs right now is the same as that which drives new home starts and existing home sales... interest rates. Higher rates mean less business... but, "When they go down a quarter of a point or so, as they have the last time interest rates changed, more people are willing to jump on board," said Awad.

For the time being though, remodeling companies are tickled at the possibility of more business coming their way.

By Ken Speake, KARE 11 News

Development boom in Minnesota's lake country worries some

ROBERT FRANKLIN
Star Tribune of Minneapolis

LONGVILLE, Minn. - The boat chugged slowly past floating bogs, a beaver house and waters that will be filled with weeds and wild rice in another month - no place for a proposed 24-unit housing development, boaters Dick Kruger and Doug Payne said.

This is Lantern Bay, a 125-acre "nursery" for fish, eagles and loons on the popular Woman Lake chain in Cass County. Intense development, the men said, would bring chopped-up shoreline vegetation, erosion, boats churning through plants and a stirred-up lake bottom.

"We will destroy the resource that attracts us unless we do something," Kruger warned.

As development booms in northern Minnesota's lake country, "the market's going to dictate what future land use is," said Don Hickman, environmental specialist for the Initiative Foundation of Little Falls. "If we make poor choices locally, we ... get what we deserve."

A lot of people say they are doing something to protect lake environments.

A "Save Lantern Bay" group, which includes Kruger and Payne, filed lawsuits that reversed county approval, required an environmental study and voided the plat map that had been approved by the county, even after lots were sold and a house was built.

A five-county North Central Lakes Pilot Project, spearheaded by the Minnesota Department of Natural Resources, has developed alternatives to lakeshore development standards that date back 30 years. Goals include protecting water quality, conserving shore land and giving resorts more flexibility in their fight to survive.

The Initiative Foundation and its sister group, Northwest Minnesota Foundation of Bemidji, have made grants to 160 lake-related groups for planning, training and technical assistance.

With most of the best shoreline taken, standards are critical because so much development is on "very sensitive lakes (that) need a lot more protection," said Paula West, public policy director of the Brainerd-based citizens' group Minnesota Waters.

Many agree that poor choices have been made. One that's frequently cited is the Interlachen development, sandwiched between Highway 371 and Gull Lake in Nisswa.

The 23-unit, 8-acre property was developed in the 1990s under relaxed standards as a resort. But 14 of the units were lined up along 725 feet of shoreline, most trees were cut, garages were added and, through a misunderstanding, the city and property manager say it was marketed as a housing development.

Plans for nine additional units were canceled and the property has returned primarily to rental status.

These days, a lot of development proposals end up in court. "This is what I like to call a sue-the-referee business," said John Sumption, Cass County's environmental services director. "We are routinely challenged on almost every major development proposal by someone."

But Lantern Bay, mostly less than 5 feet deep and billed as the largest wetland in the 5,500-acre Woman Lake chain, needs that kind of watchdog protection, according to DNR officials and the Child, Girl and Woman Lake Property Owners Association.

To minimize disruption, Thousand Acres Development of Elk River proposed two common docks for residents of its Ridges of Lantern Bay project and a bay-wide voluntary "no wake" zone.

Nevertheless, "given its sensitive and unique location," the development may have to be modified "to limit the environmental consequences," Cass County District Judge Wayne Farnburg ruled in December.

Opponents say they have the best idea: They are raising money through the Leech Lake Area Watershed Association in Hackensack to match DNR funds and hope to buy out the developer and several other properties to preserve a mile of shoreline.

The bay currently includes fewer than a half-dozen houses and the Miracle Bible Camp, where Payne is director.

Woman Lake is a general development lake, and that allows for intensive shoreline development - on all of its bays. Local governments could tailor standards differently on different parts of such lakes under alternatives developed by the North Central pilot project.

Part of Gov. Tim Pawlenty's "clean water initiative," the project has so far resulted in public hearings, consulted with public, private and nonprofit groups, and drawn up an alternative set of development standards for local governments to consider.

That's all without any new state money or mandates, said Russ Schultz, a DNR official who directs the project.

Other ideas coming from the project or local governments include controlling rainwater runoff, tightening standards for planned unit developments, restricting lake access from off-lake lots, increasing lot sizes, building sewers in more lake areas and promoting property owner education.

Schultz points to successes such as the View at Rush Lake in Baxter, a "lake friendly" 24-unit development set more than 150 feet back from the water, leaving a common area for woods and trails.

"It's a nice wildlife setting," said Max Smith, who with his wife, Helen, has lived there a year.

Schultz said that resorts need more flexibility to remain in business, so some standards need to be eased - until a property is sold off for housing. But resorts have to give back, too.

The 108-year-old Ruttger's Bay Lake Lodge near Deerwood plans to add about 50 units under a $10 million expansion program over the next decade. But, under a new Crow Wing County ordinance, the resort must build those units farther from the lake, install rainwater ponds, demolish five small lakeside cabins and increase a buffer zone along the lakeshore.

"I think it's a pretty realistic and fair plan," said lodge president Chris Ruttger.

And it's gotten no objections.

But some property owners complain about diminished development potential in a time of high taxes, or about development in a tourism area.

"Local units of government need a reasonable standard to apply to lakeshore development with clearly articulated goals and standards," said Mark Ronnei, a Brainerd-area developer and resort operator who has been active in standards discussions.

Shore land owners can't act like they own the lake, Ronnei said, adding: "I am completely fatigued of pseudo-environmentalists (who) wave the environmental flag against some responsible lakeshore development."

Construction costs pinch affordable housing developers

By Mark Anderson, F&C Finance Writer
March 30, 2006

St. Paul-based Common Bond, one of the state’s largest developers of affordable housing, caught the full brunt of one of Hurricane Katrina’s northernmost gales as it was finalizing plans for its most recent project.

The nonprofit was preparing to close on financing for a 25-unit supportive housing project to serve people with multiple sclerosis. The $2.4 million north Minneapolis development was being planned with the MS Society Minnesota.

And then the construction bids came in — between $1 million and $1.4 million above projections.

“We went out for those bids at probably the worst time possible, just a few weeks after Katrina hit,” said Ellen Higgins, vice president for business development at Common Bond.

Higgins and her team quickly recovered from that shock and went back to the drawing board, shaving away enough production costs to bring the low bid down to $2.9 million.

Then they started knocking on doors, eventually persuading the city of Minneapolis, the MS Society and Common Bond’s own administration to increase the combined contributions by $500,000, filling the remaining gap.

Higgins said she now expects construction to begin by the end of April.

The nightmare that Higgins and Common Bond experienced was one of the most glaring examples of a trend in construction costs that’s squeezed profits for all developers, but it poses a genuine threat to the development of affordable housing.

Construction costs are generally estimated to have climbed 15 percent in 2005 — driven by increased global demand for construction materials as well as new Gulf Coast demand — and they will continue rising at close to that pace for several years, many analysts say.

For affordable developers, the rules created by their funding sources prohibit those costs from being transferred to the low-income renters that make up their market. And that creates a dilemma in the complex and changing world of affordable housing finance.

Housing developments aimed at the low-income market are funded primarily with equity that’s raised by selling low-income housing tax credits — to banks and other large institutions — and with the bank debt that the equity contributions leverage.

But a substantial gap always remains between those sources and actual development costs, a gap that’s been filled over the years by federal and state housing program sources and an array of local and charitable contributions.

That gap has been growing, though, following the upward trend of construction costs. In fact, the shortfall has more than doubled in the last 10 years to more than $40,000 per unit today, according to Bob Odman, assistant commissioner for affordable housing at the Minnesota Housing Finance Agency.

“What it boils down to is that additional subsidies are needed from some source,” Odman said. “The alternatives are either increased federal and state funding or decreased production of affordable housing.”

As costs have continued their steep rise, however, public funding sources are moving in the opposite direction.

Funding gaps grow

The federal government has traditionally been the largest contributor to affordable housing, through rent support programs, such as Section 8 and public housing, and indirectly through the Community Development Block Grants it provides to cities.

Section 8 allocations have actually increased recently, but only enough to keep pace with rising costs, not to add new apartments, said Chip Halbach, director at HousingMinnesota, an advocate for the creation of affordable housing.

The block grants have long been the primary source for new housing development, but over the last two years those grants declined by 20 percent in Minnesota, Halbach said. Next year’s Bush administration budget proposal would speed up block grant reductions by cutting another $400 million from the program nationwide.

The picture at the state level is a little brighter. Total allocations to housing efforts have remained steady, although a larger portion of those funds are now directed to Gov. Tim Pawlenty’s initiative to end homelessness. The governor and Legislature agreed to supplement that effort with new expenditures for supportive services and bonding authority to develop housing for homeless families.

While developers and housing advocates welcomed that initiative, they also noted that its net effect will reduce state subsidies for housing that targets Minnesota’s working poor households.

And that community is growing. Last year, 10 percent of Minnesota households — almost 160,000 in all — paid 50 percent or more of their income for housing, and that number is increasing by 3,000 each year, Halbach said.

Local affordable developers are worried about by those diverging trend lines, but they are also busy looking for strategies to maintain production.

And they’re uniformly stoic. “All developers tend to whine about conditions,” said Alan Arthur, executive director at Central Community Housing Trust, a Minneapolis-based developer of affordable homes in the Twin Cities. “But this is the marketplace we work in. We just have to find ways to finance these projects.”

One strategy that all developers will follow is to simply expand the roster of finance partners on each project. Affordable housing developments have always relied on multiple benefactors. In the Twin Cities, the lists of metropolitan, county, city, state and private donors generally run from three to 15 or more, developers say.

Those numbers will now climb. “One of the things we’re trying to do is be more creative at putting these packages [together],” persuading more sources that a particular project meets their program goals, said Chris Wilson, the development manager at Minneapolis-based PPL Inc, a nonprofit developer.

That strategy will add cash, but it also brings a downside. The addition of each new partner prolongs a development process that already reaches three years for many affordable developments, according to CCHT’s Arthur. That expanded donor list also adds another round of attorney fees, as well as increasing holding costs on the development property.

Market plus affordable

Another route many nonprofits are taking is to add market-rate housing to their affordable housing projects.

Common Bond is completing a mixed-income development in Milwaukee, an adaptive reuse of an industrial building with a view of Lake Michigan. The prime location made a market-rate component a valuable part of that project, Higgins said.

PPL is in the midst of its first mixed-income project, a side-by-side development of condominiums and affordable rental apartments in New Hope, and it’s planning a second larger mixed-income project at the Bunge grain elevator site in southeast Minneapolis.

Both projects are proceeding well, Wilson said. The market-rate portions have provided income that subsidizes the affordable side, and the combined projects are also generating savings through shared costs and infrastructure. But he cautions that developers are still learning about the mixed-market products. “It’s an experiment in progress for us.”

There’s also a campaign under way that aims directly at boosting state funding again for affordable housing. HousingMinnesota is leading an effort to increase the residential deed sales tax from 0.33 percent to 0.5 percent, dedicating the additional $69 million in revenue to affordable housing.

Halbach said that although his group kicked off the campaign this year, it has its sights set on the 2007 session.

“Our chances depend in part on the state of Minnesota’s economy next year, and then on how well we’re able to tell this story — whether we’re able to help people, especially legislators, see the impact that the pieces in this complex picture are having on low-income Minnesotans,” he said.

Condos, park compete for site near Guthrie

The Minneapolis/St. Paul Business Journal - March 8, 2006
by Sam Black
Staff Writer

Three competing proposals, including a park and a 30-story condo tower, are vying for a coveted site by the Guthrie Theater in Minneapolis, along the banks of the Mississippi.

The City of Minneapolis received the plans in response to a request for proposals it issued in December regarding a 5.6-acre site adjacent to the newly built Guthrie.

The city was looking for development ideas that could include housing, entertainment or small retail. The site has some significant technical challenges, including a large power-line tower and related easements for Xcel Energy.

The deadline for proposals was March 2. Some or all of the respondents will be invited to present their plans on March 22 to a review committee established by the city's economic development department.

The proposals are:

• Brighton Development Corp. of Minneapolis and a Minneapolis-based nonprofit called Norway House have proposed developing two $20 million condominium buildings that would total about 144 units. The plan also includes a 35,000 square foot American Norwegian business and cultural center plus a park and open space.

Norway House, which was founded 2 years ago by former Consul General of Norway Thor Johansen, is led by president James Erickson and facilities committee chairman Harold Ulvestad. The group is trying to build a $15 million facility with a restaurant, auditorium, art gallery and gift shop and Royal Norwegian Consulate General. The Norway House construction would begin in 2008, according to the proposal, but the housing component wouldn't start until the summer of 2010.

Other members of the Brighton group's development team are Meyer Scherer & Rockcastle as lead architect on the housing component and Thorbeck Architects as lead architect for the Norway House development. The Cunningham Group will be the lead designer for the open space of the development.

• Hunt Associates of Minneapolis and North American Partners Development Co. of Dallas have proposed a 30-story contemporary condo tower with 47,200 square feet of restaurant and commercial space for one corner of the site, with the balance being used as park land. Minneapolis-based Hammel, Green and Abrahamson is the lead architect on the project. The cost of the development would be about $100 million.

The McGuire Family Foundation, a Wayzata nonprofit organized by UnitedHealth Group CEO William McGuire, proposed donating between $2.5 million to $3.5 million for a public park highlighted by a 25-foot tall observation mound.

Under the proposal, the city would retain ownership of the land, but allow development of the park and its ongoing maintenance by the developer for the next 10 years. The city would get $500,000, paid in lease payments of $50,000 over 10 years.

Windsdor Cos. Inc., of Maplewood and Osland and Assoc. of Minneapolis are listed as partners in the McGuire proposal. The Guthrie Theater endorsed McGuire's proposal.

Sellers juggle mortgages in tough market

As upscale homes become harder to sell, some owners are taking big financial hits
BY GITA SITARAMIAH
Pioneer Press

Attorneys Katie and Paul Bergstrom never expected to be shoveling snow this winter at their previous home in St. Paul's Cathedral Hill neighborhood.

Last September, they moved into their dream home on St. Paul's historic Summit Avenue. But the Cathedral Hill home still hasn't sold, even after the couple gradually lowered the price to $649,500 from $795,000.

"You wake up at 3 in the morning and think, 'I have to sell that house,' " she said.

A cooling housing market is forcing the Bergstroms and others to juggle two mortgages. Though no statistics are available to show just how many homeowners are in that predicament, what is known is that the overall inventory of for-sale homes in the Twin Cities area was 30 percent higher at times during 2005 than in 2004 and it's taking an average of 70 days to sell a home in the entire market. That average is unchanged from a year ago.

But homes priced between $500,000 and $1 million had a supply rate of 8.2 months, meaning it would take that long for those homes to become pending or sold, according to a December report by the Minneapolis Area Association of Realtors.

Some homeowners, like the Bergstroms, have resorted to taking out bridge loans and dipping into savings or retirement investments to move on to their new homes. To avoid such a squeeze, real estate agents and bankers warn prospective buyers to put their own houses on the market before buying one and to make purchase offers contingent on the sale of their homes.

Though the Bergstroms knew homes in their price range were taking longer to sell than lower-priced properties, they had witnessed quick sales in their 13 years in Cathedral Hill. They listed their home in June, once they found the Summit Avenue house.

Real estate agents say the slowdown is causing headaches for home sellers in most price ranges.

"No deal in this market today is easy," said Julie Papeleux, a Coldwell Banker Burnet agent in Roseville. "It's a tough market. There's a lot (for buyers) to choose from."

Mark Harritt, a U.S. Bank loan officer in Bloomington, said bridge loans or swing loans are an option, but he doesn't recommend them because of potential additional costs like an appraisal on the current home.

A bridge loan is a short-term solution that is similar to a home-equity loan. Homeowners can take out up to 90 percent of the value of their home and apply it to the house being purchased.

"If you've got a really salable house, it's fine," Harritt said, adding that most homes aren't quick sales at present.

Bonnie Cordy, who sold her Apple Valley town home last summer after it was on the market for nearly eight months, agrees. "The Realtors keep saying what a good market it is, but it is changing," she said.

Cordy and her husband moved to Tennessee last year for his job. They rented an apartment until their new $325,000 house was ready in June. All the while they were making a mortgage payment in Minnesota.

The Apple Valley town home they'd originally listed at $329,900 in December 2004 wasn't selling, even after they dropped the price more than $20,000.

"I felt nervous as we were finishing up the house down here," she said. "There was no way to swing it all."

They dipped into retirement savings for the month or two they had double mortgage payments and taxes.

Then they switched to another agent, who slashed the price another $30,000. It finally sold at the end of August for $291,900, which was about $35,000 less than what they paid in 2003. She figures they lost another $5,000 in retirement savings.

"It's money we'll never get back again," said Cordy, 48.

For nearly 15 years, Charalyn Warman has been buying houses and town homes, fixing them up and selling them quickly without a problem — until last year.

She and her husband sold their South Minneapolis house last March after they agreed to buy a condo that was under construction at Franklin and Nicollet. Since their condo wasn't ready, they found a duplex at 54th Street and Pillsbury Avenue and figured they'd fix it up and sell it until the condo was ready for move-in.

It wasn't that easy. First, the closing of the duplex was delayed because of a glitch — they had to buy the units separately. They didn't move in until May, so they weren't able to fix it up in time to sell during the busy spring selling season. Then their condo was ready for move-in and they had to take over that mortgage Sept. 1.

Now, they're living in one-half of the duplex, renting out the other half and they're planning to rent out the condo. "I didn't plan on having three mortgages at once," she said.

Meanwhile, the one-bedroom condo is for sale at $324,000 and the duplex is on the market for $650,000. They've used the profit on the house they sold as well as some borrowed money to cover the mortgages.

"I'm sitting here hoping, hoping, hoping something will sell," she said.

In St. Paul, the Bergstroms say they have the income to cover their bridge loan and the mortgages on both homes. But they can't take on any other expenses since their financing is tied up.

They can't help but wonder if they should have done something differently. "I feel like if I had listed in early spring instead of June, we might not have had this problem," she said.

Housing boom bound to run out of steam

Posted on Sun, Dec. 18, 2005

EDWARD LOTTERMAN

News that the Twin Cities area housing market cooled in October is no surprise. Sale prices for existing homes had increased sharply for two years. New construction had boomed. Neither trend was sustainable over the long run.

The most important economic law is that if things cannot go on forever, they won't. The housing boom has to end, and apparently is starting to do so. The only question is whether it will end with a bang or a whimper.

A bang would see house prices falling 20 percent or more, many households defaulting on mortgages and construction coming to a virtual standstill. It would take five years or more to sort out and might be the foremost economic problem on most people's minds during that period. Personal bankruptcies would rise, mortgage companies would write off large losses and many builders would go belly up.

A whimper would see stagnation in prices. Some houses would appreciate a few percent a year while prices of others fell by similar proportions. Overall, prices would remain essentially flat for three to five years as incomes and the general price level caught up to housing. Turnover and refinancing would drop dramatically as people hunkered down in their homes. Mortgage defaults might increase, but would not reach epidemic proportions.

Builders would experience a few slow seasons, but few would go broke. Development of new subdivisions would slow but not stop. Somewhere down the line — say by 2010 — home prices and construction would slowly return to historic trend levels.

Which is more likely? Real estate experts seem to think that a slow, hissing deflation of a balloon is much more likely than a dramatic pop. They are probably right.

While some localized dramatic busts occurred in the 1990s – Southern California being the most dramatic – neither the Twin Cities nor the nation as a whole has experienced a real estate crash in decades.

But markets can bust. The value of the Nasdaq stock index fell 75 percent from February 2000 to September 2002. Many Minnesota farms lost two-thirds of their market value between 1980 and 1984. After increasing by a factor of 22 from 1970 to 1980, the price of gold fell 67 percent in the next 20 years. (In recent months gold has risen to the highest levels in 25 years.)

There are key differences between gold or high-tech stocks and houses. People cannot live in a share of stock or a gold ingot. While houses may be the most important assets most households own, they are even more important as shelter. People are happy when their house increases in value but they don't sell it just because it drops.

So it is unclear whether October's slump is the beginning of a precipitous drop or of a gentle slide. One of the nice things about economics is that time resolves most uncertainty. In a few years we will know for sure what happened to the housing market in 2006. Meanwhile, watching it will be interesting.

Market beginning to shift for Minneapolis Uptown condo developers

By Burl Gilyard
Staff Writer

Downtown Minneapolis has won the bulk of the attention as a hotbed of residential condo development. Now the Uptown neighborhood is a fast-emerging market for condo developers, but as competition intensifies and the market shifts, many are wondering about the depth of the market.

Stuart Ackerberg, president of the Minneapolis-based Ackerberg Group, has two developments in the works that will bring more than 200 units of new housing to Uptown - an unnamed, mixed-use development with 165 condo units and Lumen on Lagoon, a 44-unit project at Lagoon and Emerson avenues.

"We see Uptown as really different than downtown, just given the inherent amenities that are already existing in and around Uptown. It's truly an urban community. For someone that truly wants urban living, Uptown is the best option," Ackerberg said. "In Uptown, there's been very few new housing options available for a long, long time."

Sales for the Lumen began about a month ago. Since then, 18 of 44 units have been sold. Sales for the larger, mixed-use project don't begin until January, but 98 reservations already have been taken. Ackerberg has partnered with Minneapolis-based Financial Freedom Realty on both projects. Both firms call Uptown home.

Projects planned or under construction in the broader Uptown area could add about 700 new condo units to the neighborhood, with more projects looming in the wings.

Business is brisk for St. Louis Park-based Mathwig Development Co., which is developing the 122-unit Loop Calhoun project, slated for completion in early 2007.

"We're about 70 percent sold," said Troy Mathwig of Mathwig Development. "We're very happy. There's still a lot of activity and still a lot of interest on the remaining units."

But not every developer trying to do an Uptown area project is doing cartwheels.

Last week Michael Lander, president of Minneapolis-based Lander Group, pulled his application for 2626 W. Lake St., a proposed 70-unit project on the north side of Lake Calhoun, as the Minneapolis City Council was poised to vote against the project.

Lander has been working on the project for a year, and his option to buy the site is slated to expire at the end of the year. Lander has faced neighborhood objections to the height and scale of the project, which rises to 110 feet - the height of the nearby Calhoun Beach Club - at its highest point.

"I'm very frustrated at this point," Lander said.

Sales were solid for Lander's 72-unit Midtown Lofts, developed by Lander Sherman Urban Development, a joint venture with Minneapolis-based Sherman Associates.

The project was completed earlier this year and has a single unit remaining for sale. But Lander is keenly aware that the market is shifting.

"Right now, the number of projects that are being talked about or proposed are in excess of the current demand. We see that the market has dropped off somewhat. There's definitely more caution," Lander said. "The underlying demand, I would argue, is still growing, but the supply has grown faster."

Out of the Uptown core, the Edina-based Cornerstone Group has shelved its planned Machinery Lofts project at 2848 Pleasant Ave. S. after two different proposals (a 57-unit adaptive reuse and a 123-unit new construction proposal) failed to win neighborhood approval. Cornerstone has owned the site for 10 months.

"We are doing some internal brainstorming about what the possibilities are," said Colleen Carey, president of the Cornerstone Group. "We might look for a temporary solution. I like the neighborhood, I like the building, I like the possibilities. But given what's going on in the market, it isn't clear to me what we should be pursuing there."

Minneapolis-based Hornig Cos. has proposed a 34-unit project at Lagoon and Irving avenues. The company, primarily an apartment owner, wants to test the waters for development.

"We don't have to build anything. We're going to see what the market says," said Jon Hornig, a third-generation member in the family business. "We're exploring the idea of building a LEED (Leadership in Energy and Environmental Design) certified building, which would be like a green building. That would be a way to further differentiate ourselves."

The long-planned expansion of Calhoun Square also calls for new housing. But last week, CARAG (Calhoun Area Residents Action Group) voted against the project for the second time, citing concerns about the height and design of the project.

"There are a number of issues that the neighborhood is concerned about," said Aaron Rubenstein, who chairs CARAG's zoning committee. "We'd like to see the design improved and see it take on a more urban character. Some of the buildings look like they would be more appropriate in a suburban setting."

Solomon Real Estate Group principal Jay Scott did not return phone calls seeking comment about the Calhoun Square project.

The project is slated to come before the Minneapolis City Planning Commission next Monday.

The new, scaled-down proposal calls for 108 units of housing, down from 124 a few months ago.

As the Legal Ledger went to press, it was not clear what the city planning staff would recommend.

Other projects in the pipeline include Track 29 Uptown, a 126-unit condo and townhome project being developed by Ross Fefercorn's RMF Entities. Ackerberg is also partnering with Village Green Cos. on a rental project, an approximately 160-unit apartment building near Lake Calhoun.

Meanwhile, the pace of condo conversions in the Uptown and southwest Minneapolis areas is cooling off. Clark Gassen, founder and president of Financial Freedom Realty, said his firm has converted about 300 apartment units into condos, but that his company is shifting gears.

"We truly are getting out of the conversion business," Gassen said. "We're going to wind down the conversions and focus on urban infill sites. There's no question the demand I'm seeing right now is in new construction."

In addition to his partnerships with Ackerberg, Gassen's group is developing the Edgewater, a luxury 23-unit building.

Gassen estimated that his company has about 100 converted units still available for sale.

"It's slower than we'd like," Gassen said of the pace of sales for converted condo units.

There's a general acknowledgment that the condo market is not as robust as it was a year ago.

"I think if you get outside of the high demand locations, it could be a little tougher going forward," Mathwig said. "It will just take longer to sell out projects."

But overall, real estate observers say the health of the Uptown market is strong.

"The area's always been hugely popular as a residential area," said Mary Bujold, president of Maxfield Research, a real estate research and consulting firm. "That area has always been a very active and desirable area for people to live in, and so I think that the new properties that are going on, I think it's really just a matter of making sites available so that we can get some new housing units into an area that hasn't had a lot of housing development over the past 10 years."

For his part, Ackerberg remains bullish on Uptown, where his company owns a host of commercial buildings.

"We've been investing there since the '70s, and we will continue to invest there," Ackerberg said. "We're not merchant builders. We're not doing one-off deals. We're still the largest landlord in Uptown."

$1.33 million boost helps housing project toward goal

By David Unze

Two agencies have approved $1.33 million for a St. Cloud project that would add 31 affordable housing units to the market.

The funding brings the H.O.P.E on Ninth project a step closer to reality.

The Minnesota Housing Finance Agency this week approved more than $1 million for H.O.P.E. onNinth.

It would establish a combination of housing for long-term homeless people and for families and individuals.

The $1 million is in addition to $300,000 approved by the Greater Minnesota Housing Fund.

The money covers less than half the expected$2.9 million cost to build the new housing units on the north side of the Place of Hope's Christian Living Hope Residential Center at 511 Ninth Ave. N.

Place of Hope andSand Companies Inc. have proposed building 31 affordable apartments at theNinth Avenue North location.

Ten of those units would accommodate chronically homeless people.

The remaining 21 units would serve individuals and families by offering rents of slightly more than 30 percent of the adjusted median income.

The funding was among $46 million allocated by MHFA to finance development, rehabilitation and preservation of affordable rental housing, operating subsidies and rental assistance, said Libby Mehaffy of the MHFA.

Place of Hope's project was one of 50 projects funded statewide, providing 2,265 housing units, of which 2,070 were deemed affordable housing.

Eighty-nine proposals were received, requesting more than $92 million.

The Rev. Carol Jean Smith, who operatesPlace of Hope Ministries with her husband, theRev. Geary Smith, wanted to review the MHFAstatement before commenting.

Funding

Minnesota Housing Finance Agency, $1,031,000:

¦ $600,000 in deferred loans.

¦ $187,000 in operating subsidies.

¦ $244,000 in housing tax credits.

Greater Minnesota Housing Fund, $300,000.

Hurricane job losses surpass 500,000; home sales rebound

October 28, 2005

WASHINGTON - Job losses from hurricanes Katrina and Rita have passed the half-million mark, with further increases to come from Wilma.

Meanwhile, new home prices declined in September, a possible indication that rising interest rates are starting to cool off the red-hot housing market.

The Labor Department reported Thursday that an additional 24,000 workers who lost jobs because of Katrina, which hit Aug. 29, and Rita, which struck Sept. 24, applied for unemployment benefits last week. That pushed the total for the past eight weeks to 502,000 hurricane-related claims.

The 24,000 hurricane-related jobless claims last week were included in total jobless claims of 328,000. The figure was down from 356,000 applications for the week ended Oct. 15.

In other economic news, sales of new homes rebounded in September after a huge decline in August. But the median price of new homes sold last month fell by 5.7 percent.

Freddie Mac said Thursday that its nationwide survey showed all types of mortgages were up this week, with the 30-year fixed-rate mortgage rising to 6.15 percent, compared with 6.10 percent last week and the highest level in 15 months.

The Commerce report showed that new home sales climbed by 2.1 percent last month to a seasonally adjusted annual rate of 1.22 million units, but the median price fell 5.7 percent from the August level to $215,700.

Housing market appears to be shifting

Is the Twin Cities now in a "buyers' market" for homes?

The facts are that homes, on the average, are sitting on the local market longer now than in recent years. Minneapolis Association of Realtors CEO Mark Allen puts it this way, "For home sellers when you were seeing houses sell in two weeks to four weeks time and now it's taking a couple months, it's a little bit of a change in expectations."

The director of the University of St Thomas Shenehon Center for Real Estate is cautious about calling the current market a "buyers market", "I think there's certainly an argument for that, just simply because the inventory of homes has increased," said Dr. Thomas Musil.

But, as in all things economic, it is not that simple.

Edina Realty's CEO, Ronald Peltier, says such talk may be premature, "might be nudging towards a "buyers' market" but it's premature to anoint this fall as the season of big real estate change."

The experts do agree on one thing, "It had been a seller's market for most of the past five or six years," noted Realtor Allen, "and it has gradually evolved over the past 18 months into more of a balanced market."

Dr. Musil added, "Compared to these feeding frenzy markets that we've been used to or that we've seen over the last five years," this market is balanced.

That "frenzy" has been propelled by low mortgage rates, which worries Fed Chair Alan Greenspan. On Tuesday he warned investors that, "History cautions that extended periods of low concern about credit risk have invariably been followed by reversal, with an attendant fall in the prices of risky assets."

But even if rates rise, Mark Allen doubts home sales will fall off much.

"There's every reason to believe that rates could increase 1 to 1 1/2 percent with little impact in the marketplace."

The real determination of a buyers market is the buyer's ability to demand lower prices from sellers. So far, rather than dropping, prices continue to rise, albeit at a slower 4 to 6 percent. That's down three to four percent from the recent record years in Twin Cities real estate. Moreover, there is a still only a 3 to 4 month inventory of homes under $300,000 on the market and that still benefits sellers.

Location’ is everything, and Camden has it

By John Helgeland

Plan ahead! Not only is it good advice but it sums up the summer efforts of neighborhood leaders across North Minneapolis. Over the past few months, two separate groups have been meeting on the topic of planning; one concentrating on Camden-area neighborhoods and the other covering the broader North Minneapolis region.
The first group is comprised of neighborhoods that lie within the City of Minneapolis’ Fourth Ward. Representatives from Cleveland, Folwell, Jordan, Lind Bohanan, Shingle Creek, Webber-Camden and Victory Neighborhoods were called together in March by Councilmember Barbara Johnson to “address capital projects, design issues and transportation concerns.”
Ann Forsythe and Katherine Thering are from the Metropolitan Design Center, an endowed center within the University of Minnesota’s College of Architecture and Landscape Architecture, with assistance from the City’s Community Planning and Economic Development (CPED). Forsythe and Thering are creating two maps for the Camden area from the northern most city-limit to West Broadway Avenue.
One map will depict the area’s assets, such as recreational, commercial, educational and other positive amenities that exist within the study area, while the other will show the locations of planned or current development projects. These snapshots will provide the group with a starting point to assist in determining next steps in the planning process.
Ann Forsythe, Director of the Metropolitan Design Center, commented that the level of cooperation she has seen in North Minneapolis, higher than she has seen in South Minneapolis, can slow the planning process down. Erik Hansen, a CPED Senior Developer echoed Ann’s observation on the level of cooperation in North Minneapolis and added that even though the process can take longer, it comes with a “greater pay-off.”
One of the planned developments in Camden is the southeast corner of Penn and Lowry Avenues. Hansen is optimistic that the response to the City’s Request for Proposals will result in multiple proposals to be considered for recommendation by the Jordan, Folwell and Cleveland communities. Hansen feels that, while it is an aggressive goal, a 2006 groundbreaking is possible following completion of the approval process and the developer financing is finalized.
From the developer’s standpoint, he indicated there are many reasons why this corner has attracted so much attention. Foremost, it is a prominent commercial node on two community corridors. Second, the gap in value between Northside and Southside property, for a similarly cleared and clean parcel of land, makes this site attractive. Third, developers have gained experience in completing this type of in-fill development, making a project like redeveloping Penn/Lowry less risky than it was a few years ago.
Another benefit is the strong community base present in North Minneapolis. Not only do we possess some of the best housing stock in the City, but we are home to a broad generational base. North Minneapolis is host to a large number of people who are long term residents, many of whom were born in the neighborhood and have stayed or have returned to the area. These individuals have strong connections to the neighborhood, and neighbors create a strong voice and demonstrate stability that is conducive to development.
Hansen illustrated this point by pointing to the second group that is discussing development in across all neighborhoods of North Minneapolis. The meetings, hosted by the NorthWay Community Trust, are bringing neighborhood and business leaders from the area to create a road map that can define development priorities and direction.
Hansen said he didn’t recall this level of discussion occurring in the recent past and felt that just having the opportunity to share with the other groups their current plans, upcoming projects and priorities assists in strengthening the collective voice for appropriate development in North Minneapolis. He sees the opportunity that neighborhood groups, in three separate City Wards, working together on their collective interests can consolidate the number of projects to prioritize from 13 (one for each neighborhood) to three (one for each ward).
The ability of the neighborhoods to act together is extremely important for the development process, and Hansen used the North Minneapolis Bike Task Force as an example of what can be accomplished when neighborhoods work toward collective goals. Through this task force, not only was the location of the four bike paths decided, but it opened the opportunity for an acceleration of the placement of the bike lanes to this fall, approximately three years ahead of schedule.
In reference to public safety issues and development, Hansen didn’t want to minimize concerns related to crime. Hansen agrees, “Perception drives development…” but so does the adage “Location, location, location.” When developers and architects tour the area, they see that the negative image they had of North Minneapolis doesn’t hold up. Continued efforts of neighborhood and business leaders help peel away misperceptions and are a great step at making North Minneapolis a “Location” for development.

Hot Property: Condos on Nicollet Avenue

Published July 25, 2005

38

3800 Nicollet Av. S.

Minneapolis

Type: Condominiums/retail

Units: 41

Square footage: 49,000 (housing), 6,000 (retail)

Cost: Not disclosed

Developer: Lander Sherman Urban Development

Details: Lander Sherman, perhaps best known for its newly opened, 192-unit Midtown Lofts along the Midtown Greenway bike trail in the Lowry Hill East neighborhood, is venturing into another part of south Minneapolis, one that until recently hasn't been on the short list of development hot spots.

The company has announced a fall construction start for its "38," a mixed-used residential-retail project at 38th Street and Nicollet Av. S., an area long known for its dilapidated housing and abandoned commercial buildings.

Plans call for retaining part of a historic brick commercial building at the corner, demolishing a 1970s-era structure on the site and then constructing a new L-shaped building with four stories of condominiums and space for underground parking. The first floor will house retail and live-work units. Prices will start from the low $100,000s.

The eight-block stretch of Nicollet south of Lake Street has been targeted for neighborhood revitalization efforts, and it was the activism of area residents that drew Lander Sherman to the site, said Michael Lander, one of the firm's partners.

"It's an interesting one," he said of 38. "We got introduced to it by the Kingfield Neighborhood Association. One of the things they wanted to do was revitalize this intersection. This building was being used a warehouse, and was not contributing much to the neighborhood."

Lander said the project will include eco-friendly and other state-of-the-art design elements.

"It's a model and a key project to demonstrate high-quality development for that neighborhood," he said. "The development community has a tendency to respond to what's been there already, so looking toward the future of the neighborhood, we think it's important to set the bar high."

Elness Swenson Graham Architects Inc. is designing the project

Hot Property: Condos on Nicollet Avenue

Published July 25, 2005

38

3800 Nicollet Av. S.

Minneapolis

Type: Condominiums/retail

Units: 41

Square footage: 49,000 (housing), 6,000 (retail)

Cost: Not disclosed

Developer: Lander Sherman Urban Development

Details: Lander Sherman, perhaps best known for its newly opened, 192-unit Midtown Lofts along the Midtown Greenway bike trail in the Lowry Hill East neighborhood, is venturing into another part of south Minneapolis, one that until recently hasn't been on the short list of development hot spots.

The company has announced a fall construction start for its "38," a mixed-used residential-retail project at 38th Street and Nicollet Av. S., an area long known for its dilapidated housing and abandoned commercial buildings.

Plans call for retaining part of a historic brick commercial building at the corner, demolishing a 1970s-era structure on the site and then constructing a new L-shaped building with four stories of condominiums and space for underground parking. The first floor will house retail and live-work units. Prices will start from the low $100,000s.

The eight-block stretch of Nicollet south of Lake Street has been targeted for neighborhood revitalization efforts, and it was the activism of area residents that drew Lander Sherman to the site, said Michael Lander, one of the firm's partners.

"It's an interesting one," he said of 38. "We got introduced to it by the Kingfield Neighborhood Association. One of the things they wanted to do was revitalize this intersection. This building was being used a warehouse, and was not contributing much to the neighborhood."

Lander said the project will include eco-friendly and other state-of-the-art design elements.

"It's a model and a key project to demonstrate high-quality development for that neighborhood," he said. "The development community has a tendency to respond to what's been there already, so looking toward the future of the neighborhood, we think it's important to set the bar high."

Elness Swenson Graham Architects Inc. is designing the project

Area housing still stands tall

Market slower but still steady, industry sources indicate
By JENNIFER STOCKINGER
Staff Writer

The Brainerd lakes area's housing bubble has not burst.

The market has slowed down, but is still going at a steady pace, housing industry sources indicated in interviews Monday.

"We haven't seen a decline in home ownership," said Janie Weston, chief executive officer of the Greater Lakes Association of Realtors. "There are more people moving here and they are not just buying a second home. The market is still strong and the Realtors are real busy."

Weston said the prices of homes have either stayed the same or have increased.

"The prices on homes are not declining," said Weston.

David Ellingson, outgoing president on the Multiple Listing Service and the associate broker at RE/MAX Lakes Realty in Nisswa and Crosslake, said the real estate business was on fire for so long that the housing market may seem like it is declining, but it's not.

Ellingson said instead of seeing a 5 to 10 percent increase a year on the number of homes sold, they are seeing a 3 to 5 percent increase. He said the number of lakeshore properties that have sold has dropped about 5 percent.

Ellingson said the market value of homes is increasing and the homes are selling for a higher price. Ellingson said last week there were two homes for sale and one sold in three days. He said the second house, which was overpriced, will most likely be on the market for a year before it sells.

"If sellers really want to sell their house they need to price it right," said Ellingson.

Homes are not selling as fast as they used to, said Ellingson. He said the Minneapolis market went from selling a home in two days to selling in two months. The Brainerd lakes area went from selling a home in 30 days to 60 to 90 days.

"The buyers are more educated than they were five years ago," said Ellingson. "We are slowing down, but we are not decreasing."

Loran Knack of Century 21 Brainerd Realty said the market is not dropping, but it has softened. He said buyers are more cautious with their money today than they were before when buying a home.

Knack said the prices on homes have been increasing, but not at as fast of a pace as it has in previous years. He said people selling their home have an expectation that they can get more money for their home than the home's market value. Knack said homes that are sold at a higher price sit on the market longer than if the home is set at its market value.

However, Knack said property that is in demand, such as prime lakeshore property and commercial property along Highway 371, can be sold for a premium price.

Knack said the housing market also is strong because of the commercial businesses and the tourists coming to the Brainerd lakes area.

Becky Eckelman, branch manager of Wells Fargo Home Mortgage for the northern lakes market, said the market before was unbelievable and now the market is normal, stable and still strong.

Eckelman said the interest rates for financing a home on a 30-year fixed loan is still good. Monday's rate was 5.375 percent.

Jim Johnson of Positive GMAC Real Estate said the housing market has gone from a seller's market to a buyer's market in the past 10 months. He said the number of homes is abundant compared to the number of buyers and the homes are not selling as fast.

Johnson said the number of homes that have sold has dropped this year. He said they are selling 10 percent of the homes that are on the market a month.

Dale Johnson, also of Positive, said he is seeing more price reductions on homes for sale today than in the past.

Jim Eisler of Edina Realty in Baxter and Crosslake said his sales are up 100 percent. He agreed with Johnson that today it is a buyer's market. He said buyers are more knowledgeable today and if a home is in a good location and is reasonably priced it will sell quickly.

"Before there were two buyers for every house and today it is three to four houses for every buyer," said Eisler.

Eisler said there is a lot of construction in the Brainerd lakes area and many developers are building homes to put on the market.

"The number of homes built (by developers) is not out of whack (In today's market)," said Eisler.

Bill Rickmeyer, current president of the MLS, said the market is steady and that there is an inventory on homes in the $150,000 to $170,000 price range.

Test of MT 3.17

Pretty crazy, but I have finally installed the latest version of Movable Type! We'll see how it goes!

Brent

Seller beware

Twin Cities home buyers begin to gain more leverage as the housing market shows signs of cooling.

BY GITA SITARAMIAH
Pioneer Press

Back in December, Jason Thorman put his family's spacious, 5-year-old Lakeville home on sale for $325,000. The multilevel home drew few prospective buyers as the winter months passed.

Growing impatient, he dropped the listing price to $300,000, below its appraised value.

But Thorman still hasn't gotten a bite. He advises other sellers not to count on a quick sale. "It's a pretty hot market — for buyers," he said.

Sellers no longer dominate the Twin Cities housing game. As the peak buying-and-selling period begins, buyers will find more houses on the market — about 7,000 more than a year ago. And it's taking about 2½ months on average to sell a house, nearly 20 days longer than last spring.

"From a buyer's perspective it's as good as it could have been in the last five years," said Gregg Roeglin, president of the Minneapolis Area Association of Realtors.

The days of widespread bidding wars are over. Instead, "price reduced" is becoming an increasingly common pitch. Sellers are more willing to slash prices and cover closing costs. Some are covering association fees for a year. One agent selling a Woodbury home last weekend offered to throw in a week's stay at her Florida vacation home near DisneyWorld.

In some cases, sellers are devising a Plan B.

Joel and Alissa Lobland, who are selling their Woodbury home to move to Belgium, have held open houses for a couple of weeks. If the house, listed at $309,900, doesn't sell soon, they plan to rent it out. "We thought we'd give it a month or so and see how it goes," he said.

Another factor swinging the market away from sellers is a shrinking pool of people hunting for homes.

"Over the last four or five years at our fevered pitch of selling lots of properties, we've used up a lot of the inventory of buyers," said John Lockner, past board president of the St. Paul Area Association of Realtors.

The Twin Cities housing market has galloped at a torrid pace the past five years. Home sales in the 13-county metropolitan area have set records during each of the past five years, topping 58,000 in 2004. The median selling price has jumped more than 40 percent since 2000, hitting $219,000 in March.

Signs of a slowing housing market have been streaming in recently.

Fewer sales were closed in the Twin Cities housing market in March than in the same month last year, though the median selling price continued to increase. For the first quarter, sales increased slightly along with the median price. But pending sales — which can signal future trends — were off nearly 4 percent.

Building permits, a key indicator of housing demand, were off 9 percent in March from the same month last year. Year-to-date figures are behind the previous three years, according to the Builders Association of the Twin Cities. Nationally, housing starts fell 17.6 percent in March, the biggest monthly drop in 14 years, according to the U.S. Commerce Department.

Experts aren't ready to call this a buyer's market. "What we have is something closer to a normal market in which the advantage lies neither with the buyer nor the seller," said George Karvel, professor of real estate at the University of St. Thomas.

Though longer than it was a year ago, the average time on the market remains under 90 days, the point at which oversupply becomes a concern. Other key factors: The job market, though lackluster, isn't in decline. And mortgage interest rates, while higher, remain relatively low.

"To get a buyer's market, you almost have to create an economic recession in which people cannot sell their homes, typically because of high interest rates or high unemployment, and we're not there," Karvel said. "That doesn't mean we won't be there in six months."

To determine the nature of a housing market, real estate experts look at the "housing supply rate" or the number of months it will take for the current supply of properties to sell.

Five months is a key point for the market. Around that mark, the market is considered balanced between buyers and sellers. Go lower, and then sellers have the upper hand. Go higher, buyers rule.

For the overall Twin Cities market, the supply appears balanced at 5.5 months, according to an analysis by the Minneapolis Realtors group. But that's up from 4.1 months six months ago.

Looking at segments, sellers appear to have the upper hand for houses priced between $150,000 and $200,000, where the supply rate is 3.9 months. For housing between $200,000 and $300,000, it's 5.4 months. Between $300,000 and $500,000, it jumps to 7.8 months — a tilt to buyers.

The increased supply means that setting a proper list price is more important than ever. "If it's priced correctly, it's going to sell," said David Christensen, a Keller Williams Realtor in Lakeville.

Not every part of the market has taken a noticeable hit.

Homes from $150,000 to $200,000 are still going quickly, something Alan Bills learned as he shopped for a house in that price range in St. Paul.

"There were three or four houses we looked at that we liked that got sold out from under us," Bills said. When Bills and his partner spotted the bungalow of their dreams off West Seventh Street, they didn't waste time. "The one we finally bought went on sale on a Friday and we made an offer on Sunday," said Bills, 44.

In a sign of the times, they did get a perk as part of the deal. When Bills and his partner closed on the house last week, the seller paid their closing costs.

Making the most of 'lifestyle housing'

Terry Fiedler
Star Tribune
Published April 18, 2005

Jayme Arezzo doesn't seem to have much in common with Paul Lerdal.

Arezzo, 24, is at the beginning of his career, single and about to make his first real estate buy. Lerdal, 54, and his wife, Joan, are empty nesters making what they expect will be one of their last home purchases.

Together, they represent what the National Association of Realtors calls "the bookends" of the resurgent demand for condominium living. Arezzo and the Lerdals both recently bought condos in downtown Minneapolis.

"This works for me now. I'm young, single, working downtown and I travel a lot," said Arezzo, who scouts store sites for Target Corp. He's looking forward to big changes in his life when his unit in the 720 Lofts development on N. 4th Street is ready by the end of the year. No more 45-minute commutes from Plymouth to his office. Vikings and Timberwolves games will be an easy walk away, and winter parking will be in a heated underground garage.

It's a different life for the Lerdals, too, after decades in traditional homes.

"Some of our friends think we are crazy, but Joan runs into people all the time who are jealous of our lifestyle," Paul Lerdal said.

Between 1970 and 2000, the percentage of traditional families -- married couples with children -- among U.S. households dropped from 43 to 24 percent. According to the research firm Dahlgren Shardlow, these childless households are signaling the rise of urban, low-maintenance "lifestyle housing," such as condos.

In Minneapolis, the trend is responsible for the first significant migration of residents back to the city core since suburban flight started a steep decline from the 1960 downtown area population of 34,338.

The city's downtown population, which stood at 19,035 in 1980 and 21,158 in 1990, is now believed to be approaching 29,000. The six core neighborhoods are Downtown East, Downtown West, Elliot Park, Loring Park, Stevens Square and the North Loop.

Minneapolis Mayor R.T. Rybak said that if trends continue, the city could be one of a few in the country to regain all the population lost in the post-war suburban sprawl.

In the meantime, he said, "As people move back, it makes it more of place to live and work. Other downtowns are just overgrown shopping centers and office parks."

It's important to keep the growth in perspective: Even at 29,000, the downtown population is still smaller than the suburb of Richfield (about 35,000 residents), and 29,000 people equals about 1 percent of the metro-area population of 2.7 million. Still, the reversal of years of suburban flight and downtown's growing population compares favorably with many other urban areas -- it's smaller than Chicago's, for example, but bigger than Dallas' and Denver's downtown populations combined.

Many market observers see the condo phenomenon as early in its life cycle, with some optimistic estimates putting the number of Twin Cities residents switching to an urban lifestyle growing by perhaps another 5,000 or 6,000 in the next five years.

"The more the downtown gets built up, the more desirable it becomes. You've got Lunds putting up two grocery stores. Three to four years from now, this will be a hot place," said Fritz Kroll, an Edina Realty agent who specializes in downtown Minneapolis.

New digs, new life

While the condo boom is foremost a real estate story, it carries wide-ranging ramifications for the way some Minnesotans will live and interact, for the future of some city neighborhoods and for the health of the city's finances.

For buyers, condominium living can mean freedom from frustrating commutes, proximity to downtown entertainment and ownership without all the chores of a single-family home. But it also can mean a substantial, even difficult, transition for people who have never lived in an urban area, never lived in multifamily housing or in spaces quite this small.

"It will be interesting to see how Minnesotans adapt to living in an association environment," said Tom Reid, executive director of Elliot Park Neighborhood Inc. The neighborhood is home to the Grant Park development and several other condo towers. "Historically, there have not been a lot of big condo associations. [Condo owners] will have to adapt to a situation in which some decisions are made apart from them by a board."

Still, many people seem ready to embrace the change. Mary Hickey, senior designer for Gabberts Furniture and Design Studio, said most of her condo clients are consciously closing a chapter of their lives and opening a new one. Many are so eager to chuck everything from their former homes that Hickey frequently has to talk them into keeping at least a few pieces.

"It's a huge transition, and to make a successful transition and a move without remorse, they have to bring some of the history with them," she said.

Lois Bollman figures that she and her husband, Lynn, probably got rid of 80 percent of what they owned when they moved about a year and a half ago from a home near Lake Harriet in south Minneapolis to the Humboldt Lofts, a condo next door to the new Guthrie Theater in the flour-milling district.

The Bollmans -- she's an administrator, he's a teacher at Minneapolis Community College -- had been contemplating the move for years, but they waited until their two children were out of college.

"We were just ready to try something very different," she said. "We moved from a lot of house care to freedom."

Their new home has less space than the house they moved from, about 2,000 square feet, but Lynn Bollman said he likes the other trade-offs.

"I don't miss the shoveling, mowing, raking and trying to make grass grow under huge oak trees," he said. He also enjoys the contrasts of the city. "The really nice times are when it's quiet on Sunday morning, and the opposite, when there is a football game and tailgaters or it's the Fourth of July."

As for the Lerdals, they live in about 1,500 square feet now, down from the 2,500 they once had.

"That's been an adjustment," Paul Lerdal admitted. "Material possessions have gotten to be a lot less important."

Paul, a clinic manager, now commutes once a week to St. Cloud and telecommutes the rest of the time. Joan works in the Minnetonka Public Schools as a speech pathology teacher.

"We were surprised by how much we liked it," Paul Lerdal said of their new life. "We walk to just about everything, to Williams Arena for a Gophers game, to Target Center and to the Metrodome, to Theatre de la Jeune Lune. I'm shedding pounds."

Jody Kern, a Wells Fargo mortgage broker, said that many clients she has worked with have a condo in the city and a cabin elsewhere, so they can keep their gardening habit. She's considering the same thing now that she's bought a condo.

Kern, who lives in a 4,500-square-foot home in Bloomington with her son, has bought a 21st-story unit in the Carlyle project near the Mississippi River. It will be ready in late 2006.

"I have a great house for a family, with a pool and a hot tub," she said in talking about why she's moving. "The dog has his own floor, and my son, when he is home from college, has his own floor."

Kern was impressed with the Carlyle and bought in early to secure her unit. She likes the idea of little maintenance and a "walking lifestyle," with downtown, the river and the Near North Side close by.

She's excited about making the move, and as someone in the real estate business, she plans to keep an eye both on how the downtown condo market performs and how Minnesotans adapt to the condo lifestyle.

"This is really new to this marketplace," she said. "It's not like it is in Chicago."

Benefits for the city

Some city neighborhoods, such as Elliot Park, are taking on a new feel as condo buildings are finished.

"A lot of good things come with more density," Reid said. Elliot Park "was a neighborhood that was trending toward the poverty line. Now it has a chance to really be a mixed-income neighborhood. [Along with the condos] we have some high-quality, low-income housing that is locked into the neighborhood with tax credits."

One small indication that the neighborhood is on the upswing: "Grant Park allowed dogs from the start, and that made a difference for street traffic," Reid said. "You see a lot of people walking their dogs."

For Minneapolis as a whole, an influx of downtown residents is welcome because it means a bigger residential tax base (most of the condo projects received no city subsidies). It also brings a bigger commercial tax base generated by new businesses serving the residents, and a generally higher activity level, which increases safety and attracts more entertainment options.

"It makes [downtown] a more interesting place to go to," Rybak said. "There are now two or three new grocery stores. There are more interesting shops and restaurants. It's also important in a period of increasing gridlock. Every person who moves into a downtown condo and walks to work is one less person in front of you in traffic."

However, not everyone moving to the downtown represents a new taxpayer. Reid noted that many of the people he's met from Grant Park moved to the tower from elsewhere in Minneapolis. Mortgage banker Kern said many of her condo buyers are moving from older downtown condos to newer ones.

Arezzo is pragmatic about his upcoming move. While he's eager to make the change, he knows he'll miss some aspects of life in Plymouth, such as the Luce Line bike trail and nearby parks. He doesn't necessarily see condo living as a forever proposition.

"If I get married, I don't think I want to try to raise kids in a one-bedroom condo downtown."

Edina's Southdale area seeks 21st-century look

David Peterson, Star Tribune
February 10, 2005

Tonight, nearly a half-century after Southdale became the first shopping mall of its kind, the city of Edina will introduce a series of plans aimed at transforming the nearby complex of disconnected strip malls and big-box stores into a true town center, with ponds, walking paths and a circulating transit system.

And with a new owner expected to be arriving in town, Southdale itself could well get similar renewal.

These plans could push the city into the national forefront of efforts to sculpt a new suburbia for the 21st century, according to a Washington, D.C.-based development expert.

"A lot of upscale communities are talking in these terms and a few are starting construction, but not that many have been completed yet," said Michael Beyard, senior resident fellow with the Urban Land Institute, which is based in Washington. "Edina could find itself out in front of the charge."

The area is between the Crosstown Hwy. 62 and Interstate Hwy. 494, and includes the neighborhoods bordering France and York Avenues S.

City officials are reacting cautiously to the plans, devised by a consulting firm hired by Edina and Hennepin County. And some elements, such as higher-density housing, are bound to attract opposition. But some residents say they welcome any attempt at re-engineering.

"A few people who live around here will walk to Cub or Southdale," said Jack Pastor, a retiree, but most "are like me: They live one block away from Southdale but take the car because of [the imposingly wide and congested] 66th Street. Even with traffic lights, some of these crossings are treacherous because people gun for the lights. It's not unusual on France for people to drive 50, even 60 miles per hour. Many times I push the limit a bit myself, and people fly by me."

Shoppers coming from farther afield would be encouraged to park in ramps being proposed for the edges of the area and walk or take some form of transit to stores. Gradually the whole area would evolve from stores sitting behind vast parking lots to storefronts bordering sidewalks, trails and green space.

While the dream is appealing, an executive of a major commercial real estate firm cautioned that there also is business reality to face.

"That Southdale stretch, if it were developed today, would look a lot different, no question," said John J. Johannson, senior vice president of Welsh Companies, which owns big parcels nearby. "But if we are talking about changing uses dramatically, it sounds like nice master planning but prohibitively expensive. It would take a tremendous contribution from the city, or something. That area is so strong -- such strong sales, such high demand. I don't mind higher design and architecture, but it sounds a bit challenging."

Leaders of the consulting firm, Hoisington Koegler Group Inc., of Minneapolis, told civic leaders Jan. 29 that the idea wasn't for the city to order the changes but to offer a "guide for private investment" that fulfills public objectives. Meeting participants said there was praise for many of the ideas but also concern about whether such major surgery might work or backfire.

Planners discussed major changes, including converting the Centennial Lakes theater complex into a hotel, converting Yorktown Mall into housing and open space, transforming a Target store so it faces the opposite direction, and potentially running a greenway through the toney Galleria mall that would connect with the Southdale site north across 69th Street.

Asked whether the time scale is likely figured in decades, not years, Mark Koegler, of Hoisington Koegler, said: "Absolutely. But incrementally, the goal is to begin next year, if we can."

Southdale itself, which opened in 1956, made suburban history as the nation's first fully enclosed, climate-controlled shopping center. In an era in which fewer and fewer enclosed malls are being built, however, the new concept moves in the opposite direction.

Cherry Creek North, the Denver project to which Southdale-area planners point as a model, boasts that it's more or less the anti-mall. "Instead of escalators and food courts," potential customers are told, "you'll be surrounded by fresh air and nature, not to mention some of Denver's finest and most unique establishments."

That presumably would be a sales pitch of a reinvented Southdale aiming to compete with the Mall of America and other shopping destinations. New features being proposed for the mall include a gigantic water park and a light-rail connection. Planning documents suggest that Edina is concerned about its competitive position.

The future of Southdale itself has often been questioned in recent years, not least when reports surfaced last month of its likely sale to a Virginia real estate investment trust known for redeveloping prominent malls.

The Mills Corp. would be the perfect partner for a city wishing to transform the whole area, Beyard said.

"They are probably among [the] most sophisticated shopping center developers in the world at this point," he said.

Beyard said he understands the concern in Edina over forcing shoppers outdoors in a northern climate, but he said creative planning could convert a negative into a plus.

"A lot of people love winter," he said. "Design beautiful lighting, skating, snow sculpture, and you could make it a more compelling environment than indoors and much oriented to local lifestyles. Mills can help there: They understand all that."

Farm values grow fastest in Minnesota

MINNEAPOLIS – Farm real estate values are growing faster in Minnesota than in any other state, according to the U.S. Department of Agriculture.

The value of farm real estate in Minnesota soared 12.5 percent last year to $1,800 per acre. Nationwide, the value of farm real estate climbed 7.1 percent from a year earlier to $1,360 an acre, the Agriculture Department said.

The record highs in Minnesota are driven by many factors, including urban sprawl, low interest rates, high commodity prices and reinvestments to avoid taxes on capital gains.

Some farmers said the pressure to sell can be tremendous. And in recent years, many have sold all or sections of their land because they could earn more from selling than working the farm. A crop farmer in fast-growing Dakota County, for example, might in a top year net $75 an acre. But in an off year, he or she could lose $50 an acre.

For cropland alone, Minnesota saw an 11.2 percent increase in value to $1,690, according to the summary on land values and cash rents released Aug. 6.

In the past year, there were 15 percent to 20 percent increases in farmland values in prime areas, brokers say.

In southern Minnesota, for example, the price of some of the highest-quality farmland has jumped 15 percent in the past year to $3,700 and $3,800, said Roger Heller, president of North Central Ag Service in Olivia.

Much of the southern Minnesota farmland runs about $2,900 to$3,000 an acre, said Heller, a land broker.

“As the soils or climatic conditions change from area to area, the market reflects those changes, but the values are up uniformly all over,” Heller said. “Even in the eastern Dakotas, rangeland is selling for $600 to $700 an acre.”

About 18 months ago, those prices were about $500 an acre.

One factor in the increase is that many farmers, uncertain over the stock market, held on to their land as an investment, he said.

“We had lots of demand and not enough supply,” Heller said. “When those two things come together, the price goes up.”

Other factors include urban dwellers who want hunting land, farmers who have seen rebounds in their income and want to invest, low interest rates and investors who sell land and want to avoid capital gains taxes by reinvesting.

Some investors are buying up land because of like-property exchanges that offer business owners or investors a way to trade their property for something of similar value. That enables them to defer paying taxes on the gain.

Farmer Jim Call of Madison believes that practice, referred to as a 1031 exchange for its section of the tax code, is helping to jack up land prices. The investors must reinvest their money within a certain period of time before they get hit with higher taxes, Call said.

Call, who raises corn and soybeans near the Minnesota-South Dakota border, has watched farmland prices jump as he tried to help two sons get started farming.

“To bring them in, I have to look for more land to rent or buy,” Call said.

Five years ago, good farmland in Lac Qui Parle County, where Call lives in west-central Minnesota, was running about $1,000 to $1,200 an acre.

“Now it’s probably running $1,500 to $2,000 an acre, depending on how big to how good of a piece it is,” he said.

Housing Market Set for a Leak, Not Bust

Tuesday July 27, 9:12 pm ET
By Ilaina Jonas

NEW YORK (Reuters) - For over a year, headlines warned of a U.S. housing bubble and the inevitable bust.
But home builders have kept setting records constructing new homes. And prices of new homes in some areas continued rising -- 20 percent higher in some areas than they were last year.

So where's the bust?

It's missing in much of the government's official housing data. On Tuesday, the U.S. Commerce Department said sales of new homes dipped to a seasonally adjusted annual rate of 1.326 million units in June -- down 0.8 percent from a record pace of 1.337 million units in May.

Once again, the housing sector defied economists' expectations for a drop-off. The new home sales figures came a day after the National Association of Realtors (News - Websites) reported that existing home sales jumped to a record high in June.

But the data hasn't changed housing analysts' minds.

Unlike the stock market, where the tech-loaded Nasdaq Composite Index (NasdaqSC:^IXIC - News) lost 37 percent in just three months in 2000, the housing market won't suddenly pop, experts said.

Instead, it will deflate as if it sprung a slow leak.

"The stock market focuses on bubbles because that's what happens in the stock market. It just collapses," said Natexis Bleichroeder analyst Barbara Allen. "That isn't what happens in the housing market. You get some markets where you will get price declines. That's happened in the past in California and in the Northeast, and I think we'll have it again, over a period of a couple of years, though."

Allen said there already are pinhole leaks.

FIRST-TIME BUYERS HURT

"The first signs that we've seen of it has been the Midwest and companies focused on first-time home buyers," she said, referring to Dominion Homes, Inc.(NasdaqNM:DHOM - News), whose sales volume dropped 44 percent in the second quarter.

"You're starting to see the impact of higher rates on the first-time home buyers," Allen said. "If you get rates that go up, it will be more difficult for them to qualify."

While still near the lowest levels in a generation, mortgage rates are a little more than half a point higher than their March nadir.

In