by Lee Schaefer
The advisory group that hopes to guide the redevelopment of the area around a new soccer stadium in St. Paul wanted, among other things, a plan that was “transformative and realistic.”
Soccer team principal Bill McGuire and the owner of the Midway Shopping Center recently presented transformative in spades. In addition to a genuinely beautiful design for a Major League Soccer stadium, their plan looks as if a new Emerald City will get dropped on what is now cracked surface parking and faded single-story stores.
With plenty of green space around a restored grid of pleasant streets, the new plan showed a cinema, a fitness club, residential buildings and four office projects. A representative of the firm that owns and runs Midway Shopping Center remarked that it could mean maybe $450 million in new construction.
Maybe the goal of realistic gets met down the road.
Standing there today, looking east from the Bremer Bank across Snelling Avenue, it’s just not easy to imagine several office buildings standing there, even in 15 years and with a gleaming soccer stadium right there, too.
Just because the master plan won’t likely get built as drawn doesn’t mean it wasn’t a serious effort, of course. The developers have started the process of getting people around the Twin Cities to think not about what’s on this 34.4 acre site now, but what could be there, including a space for them to move their business or even live.
That’s what will drive the redevelopment of the site, the businesses and residents who want to be there. It won’t be because any developer decided to launch a $450-million, build-it-and-they-will-come project.
How much of this is understood by the city planners and the citizens’ advisory council for the redevelopment is hard to know. One of the curious things about the business of real estate development is how insistent people can get about what should be built on property they will never own.
There’s two ways to think about how the market is going to dictate what gets built on the site. One is market demand, simply whether business owners and residents will want to be here.
The other is market viability, meaning that the rental rates that have to get charged to make the project work financially can’t be out of whack with the rental rates of other options available in the area.
The economic case for building a big new multitenant office building anywhere in the Twin Cities is a difficult one already, according to real estate pros like Jim Vos of the advisory firm Cresa, who advises tenants looking for office space.
To understand it, he said, imagine the most prestigious office addresses in the state, buildings like the venerable IDS Center in downtown Minneapolis. These are places where you can afford to have your offices if you are able to charge top-of-the-market fees for your legal advice or consulting services.
The IDS Center currently charges up to $25 per square foot in base rent for office space, with taxes and operating expense coming to just over $15 per square foot. So together it would top out at $40 per square foot in gross rent.
According to Vos, to justify building a big new multitenant office building in the Twin Cities, the developer would have to collect rent of at least $22 per square foot if not $25. Like at IDS, any tenant would still be on the hook for its share of the operating expenses and property taxes, and once fully assessed for property taxes that cost would likely come to about $14 per square foot. So call it $39 per square foot.
“To say you need to meet or exceed the IDS Center rents to make this work is a pretty graphic example of the challenge without being precise down to the last 50 cents of the deal,” Vos said.
Even talking about market demand in real estate is a little misleading. That’s because to get a project moving sometimes it’s enough to find a single business owner with a solid balance sheet who agrees to lease the first floor.
A letter of intent for a lease, a signed purchase agreement for a parcel for a new store, and now economic value has been created. It will be possible for the development team to start talking with lenders and investors about raising the money it’ll take to build. It’ll be time to refine the final design, hopefully resulting in a building with features that more people will actually be willing to pay for.
A good place to start with the redevelopment of this superblock is probably the retailer Walgreens, now part of a company known as Walgreens Boots Alliance.
Walgreens has a store at the Midway Shopping Center already, but it could use an upgrade. One recent plan that drew plenty of critics was to move Walgreens into a stand-alone store along Snelling Avenue. The most recent idea was putting Walgreens right at the corner of Snelling and University.
Walgreens has a good business reason to want to be there. It’s got its archrival CVS on the opposite corner, picking off its customers with a newer store at a far more visible and accessible location.
That CVS store is no architectural gem, and deciding to let anyone build Walgreens a store just like it on the opposite corner is not exactly transformative thinking. But what drives real estate development is a user who wants to be there.
Having real estate users bubble up and shape the project may take years and result in something that doesn’t look like the master plan that just was unveiled. But once the soccer stadium gets built and some additional building gets underway, more people should become interested.
With a Walgreens at one side of the property and a $150-million soccer stadium at the other, the realistic transformation of the site actually would be off to a pretty good start.
Someday it might even include an office building.
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