Downtown condo projects in foreclosure

Minneapolis / St. Paul Business Journal - by Carissa Wyant Staff Writer

Banks have begun the foreclosure process on two downtown Minneapolis condo projects, according to officials and media reports.

San Francisco-based Bank of the West has begun foreclosure proceedings on the Sexton, a 123-unit development at 521 S. 7th St., according to John Stafford, vice president for corporate communications at Bank of the West.

In a phone interview Wednesday, Stafford said that a receiver was appointed to oversee the bank's interest in the property, which includes a $26 million construction loan. He confirmed that a little over half of that loan has yet to be repaid.

Bank of the West, which said its portfolio consists of a fair amount of construction and commercial real estate lending throughout its 19-state footprint, said it has seen these types of issues in other areas. "Given the general state of housing nationwide and housing markets, these kinds of foreclosure problems and loan payment issues are certainly not unique to Minneapolis," Stafford said. While Bank of the West is more heavily present in the Western U.S., it has been in Minnesota as bank and commercial lender since 2004.

Also, Minnetonka-based Minnwest Bank is in the process of foreclosing on the site of a proposed development on property according to media reports. The site is located at 10th Street and Park Avenue S., which was acquired by Heritage Development in 2004.

Hungry for options

Even as trendy restaurants start to expand outside the city, suburbanites say they don't have enough choices.

David Peterson, Star Tribune
Kris Pierskalla has spent most of her 36 years in west Bloomington, and it has always been an issue: Why are there so few places to eat?

"We have to drive to Eden Prairie to get any decent family dining," she said, which means a total of 30 minutes in the car. "My mom's 3 miles away, and we always talk about that."

Laurie Erickson drives a lot farther than that: nearly an hour each way from her home in Lino Lakes to the Cheesecake Factory in Edina.

The suburbs may have 80 percent of the metro's population and $92 billion in collective income. But even amid signs of change -- investors behind downtown landmark Bellanotte have opened a location in Blaine -- suburban residents continue to puzzle over the dearth of dining options when it comes to upscale or adventuresome places to eat out.

Lack of restaurant choices regularly tops lists of community surveys. In Lino Lakes, 75 percent called it the biggest single hole in their quality of life -- far ahead of anything else. This summer, a survey of Hudson, Wis., residents documented the same lament.

In Andover, the City Council recently blocked a crematorium from opening up in one part of the Anoka County city, in part because it was close to where officials hope to lure an upscale restaurant.

"I hear it everywhere I go," said Julie Trude of the Andover City Council.

"We have 30,000 people in this community. Why don't we have more places to eat out? There's one nice sit-down restaurant, a lot of pizza places, two McDonald's, and we don't have a lot else."

Slowing down, enjoying food

Studies show that there's truth to suburbanites' dining-out perceptions.

Although the suburbs have almost as many restaurants per person as there are in the city, the dominance of chains in the suburbs means that there are twice as many unique restaurants to choose from in Minneapolis as there are in the swath of Dakota County cities that stretches from Mendota Heights to Burnsville.

"Steaks and chops, chops and steaks!" said David Anderson, a lawyer from Eden Prairie. "Redstone and Wildfire have made it tolerable, but where are the trendy Asian or Indian restaurants? Do we have to travel to Lake Street [in Minneapolis] or St. Paul?"

The good news is that trendy restaurants Anderson and others crave are starting to expand out from the city. Just last week, the people behind downtown's Bellanotte announced plans for Crave, a sister restaurant in Edina, on the heels of another suburban venture in Blaine.

And Thursday night, Bob Kowalski, of the upscale grocery family, stood before a crowd at his new wine bar, Sage, in Mendota Heights, beside a fireplace and a wall of water streaming down granite facing, to announce something different for Dakota County.

"By design," he said with a smile, "there will be no TVs here, no football games, no Internet. This is about slowing down and enjoying good food, good wine and friendship. These are our great gifts. This is what people have been doing for centuries. We're losing touch with that."

But there are a good many obstacles to more restaurants in the suburbs.

In the same surveys in which they beg for dining choices, suburbanites also deplore the arrival of high-density townhomes, condos and apartments. But that's just the sort of development intensity restaurants need.

Another obstacle: the presence of families. The Fifth Congressional District, mainly Minneapolis, has the second-lowest rate of married-couple families as a percentage of all households, of any in the nation. The kids are in the suburbs.

"When you have kids it's hard to bring them into finer dining," said Mark Nazagian, who runs downtown Excelsior's Biella. "Those folks are looking for Friday's or Ruby Tuesday, where places like mine really need empty nesters, yuppies with no kids, young people with girlfriends or partners. Woodbury, Plymouth, Eagan -- it's hard to do stuff there. You get some people, especially weekends, but not on a consistent basis."

Another barrier is the lack of a weekday lunchtime crowd because there's a transfer of people out of most suburbs during the day. Andover, Cottage Grove, Apple Valley, Lakeville, Maple Grove, Brooklyn Park, Coon Rapids suffer a net loss of at least 10,000 workers each at morning rush hour.

"Everyone wants something like this," said Ann Peterson, co-owner of Canyon Grille, in Coon Rapids and Eden Prairie. "We've been approached by lots of suburbs. But they don't understand the financial demands, especially as an independent."

Sometimes suburbs that want more dining options have policies that deter new restaurants. Patti Soskin, owner of St. Louis Park's highly praised new Yum! Kitchen and Bakery, found she had to buy land across the street for more parking when she wanted to expand. A few minutes away in Minneapolis' Uptown, she sees places functioning just fine with fewer spaces than she has.

Luring restaurants

Suburban frustrations over dining choices are starting to ease with the push to create town centers or refurbish traditional downtowns with sidewalks, trees and village greens.

Those upgrades help lure restaurateurs. It helped Apple Valley nab Enjoy!, and St. Louis Park to attract the new Italian restaurant, Brix, praised by critics. And without a town center with the ambiance that now exists in Mendota Heights, says Ross Fefercorn, the project's developer, "no how, no way" would it now have Kowalski's Sage.

Restaurant owners, though, say suburbanites need to patronize the places they claim to want. "I can't wait for people to be burnt out on chains," said Jim Kyndberg, owner and chef at Bayport Cookery, an upscale restaurant near Stillwater. "It drives me crazy when Red Lobster has a two-hour wait and I have empty tables."

Still, he sees a gradual awakening.

"We are really training a lot of local culinary students," he said. "We play host to students from Cordon Bleu [in Mendota Heights] and for the strong majority of those kids, what's their goal? They want to open their own restaurant. My message to the suburbs is: 'Keep your voice alive, and restaurateurs will hear you. You will attract someone. That's what we like to hear.' "

Delays stall condo move-in

September 7, 2006
residential

Some of the U Flats residents were housed in a St. Louis Park hotel before they could move into the building.
By Vadim Lavrusik

most University students across campus were able to move into their new home before school started - but some were less fortunate.

Because of delays in construction and inspections, students who bought condos in the new U Flats were not able to move into their units last weekend.

U Flats officials housed some of the students in a hotel in St. Louis Park to alleviate the inconvenience, and said students will be able to move in today.

Individualized studies sophomore Sasha Karosas, one of the students housed in the hotel, was told she would not be able to move into her U Flats unit until Sept. 12.

There are 36 rooms in the hotel - 30 of which were reserved for U Flats buyers who were not able to move in, Karosas said

"I was kind of annoyed, but it's more of an inconvenience that I am in St. Louis Park and not near campus," she said. "I'm not sure whether a shuttle will be provided from (the hotel) to campus."

About 15 residents can't move in to U Flats until Tuesday, and the rest can move in today. The building has 75 one-, two- and three-bedroom units.

U Flats sales representative Jenny Kadlec said all but one of the 75 units will be occupied and about 225 people will be living there this fall.

Karosas temporarily moved in with a friend in Minneapolis to be closer to campus for classes and will stay until her scheduled move-in date.

Tony Zosel, managing director of Multiply, an agency hired to market U Flats, said the developer and the agency have been clear with tenants that they would be able to move somewhere between Aug. 15 and Sept. 15.

"From what I can tell, it's not that big of a deal," Zosel said.

He said owners temporarily are being housed in the hotel because the developer of U Flats owns the hotel.

Zosel said he was surprised the construction was finished by deadline.

"Last February I thought, No way is this going to be done by fall," he said. "It's amazing it got done."

Bill Frothinger, a sales broker for U Flats, said students were able to move their belongings into most of the units last weekend but were not able to take residence because of inspections that took place Tuesday and Wednesday.

The construction stalled because of a delay in an order of windows, Frothinger said.

"These sort of things happen in construction projects; when there is one holdup, everything gets delayed," he said.

Frothinger said the landscaping and parking construction is still in progress and the facility might have a retail coffee shop.

Physics graduate student Marc Landeweer was optimistic about moving into his one-bedroom unit.

Landeweer, who is working on his doctorate, said he thought buying a place was a better investment than renting.

"It was one thing if I was planning on being at the University for a year or two, but I am planning on being here for a while," he said. "It would be a waste to throw $10,000 on rent, so I might as well build some equity and have my own place."

Landeweer was living in University Village apartments until last week, but with the help of his parents purchased his U Flats condo in the spring.

More than 70 percent of buyers have been parents of students, and the demand has been growing, Frothinger said.

Because of such demand the developer has launched a new project called M Flats, which is due for completion next fall.

The location of M Flats will be on 29th Avenue at University Avenue Southeast.

Twin City Condos

The supply of Twin Cities condos is at an all time high — with developers plopping down 100 and 200 unit projects on any site they can get their hands on. Old buildings are being converted and new ones are being built. The market has been on fire the past three years, but there are signs that demand from condo buyers is slowing. Prices have remained stable, but empty units are taking longer to sell than they did a year ago and new construction is taking longer to hit its pre-sales goals. Where the market goes in 2006 depends on how many people are willing to put some money in the game.

New Condo Development - Riverfront

Brighton Development Corp. has proposed a futuristic "boutique" condo development for the Minneapolis riverfront.

The 35-unit project, at Portland Avenue and Second Street, will feature two contemporary buildings, the Portland and the Nine. They were designed by noted Minneapolis architect James Dayton, the designer behind the Bookman Stacks in the Warehouse District, said Peggy Lucas, a Brighton principal.

The edgy design contrasts with Brighton's other riverfront lofts, which are renovations of historic mills. The project's site falls outside of a historic district.

"Even historians like counterpoints," Lucas said of the design.

The developer expects to start pre-sales in July and break ground by the end of the year. Prices will range between $300,000 and more than $1 million.

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.

Twin Cities condo market strong, says new report

Sam Black
Staff reporter

More than 2,100 new condos will be introduced in the Twin Cities in 2004, more than the units developed in the nine years combined, according to a report published this week by Dahlgren, Shardlow and Uban Inc. (DSU) in Minneapolis.

Despite the "gold rush" of condo development that the Twin Cities is experiencing, DSU predicts there's still room for growth long term.

The overall Twin Cities condo market is still trying to catch up with market demand, and so there's considerable volatility, in terms of pricing changes, new projects and product absorption rates.

Over the next few years, the market will settle into a more mature stage, where developers merely respond to year-by-year growth in the growth in the underlying consumer base.

"In many respects, 2005 could be a 'make or break' year for condos in the Twin Cities," the report said.

The depth of the market will be tested in Downtown Minneapolis. Between 2005 and 2007, construction is expected to begin on 5,100 new units in more than 40 condo projects planned or under construction there.

But DSU estimates that about 500 new condo units will be absorbed in downtown by the end of 2004. That number should rise between 750 and 1,000 in 2005 as more inventory becomes available.

The volume of construction is creating new sub-districts in downtown, such as Elliot Park, Loring Park, the Warehouse District and Washington Avenue near the mill ruins. Each has unique competition for builders and benefits for buyers, according to the report.

This is the first time DSU has issued a condo market report. The firm's two-year old market research division is led by Thomas O'Neil, director of market research.

The 18-page report shows that prices for new condos in the Twin Cities increased 10 percent annually between 1999 and 2003, based on sales through the Regional Multiple Listing Service (MLS). On a per-square-foot basis, the condos have increased from about $150 per square foot to $220 per square foot since the end of 1999.

Downtown Minneapolis is the highest-priced submarket, with average prices for new condos hitting $271 per square foot this year. Prices don't include data from all condo sales, however, because many projects bypass the MLS and are sold directly by developers, report said.