Space Race: urban commercial property is hot; suburbs have a new game plan | Crain's Twin Cities

Space Race: urban commercial property is hot; suburbs have a new game plan

For the last few years, there's been a mass exodus of companies from the suburbs to Minneapolis proper. Among the defectors: Select Comfort, Young America, FLM+, AimiaCarabrio, Education Credit Management Corp, Qumu Corp., Weber Shandwick and CBRE Group.

Seeing companies uproot from Oakdale, Bloomington, Plymouth and other suburbs, commercial realtors and developers are repositioning their suburban properties to make them look and feel more urban. The flow of companies from the suburbs to the core city has also accelerated the demand for mega "surban" developments. 

Company executives who have fled the suburbs say they are chasing young creatives who prefer to work close to the action.

Arctic Cat CEO Chris Metz said in August that millennial recruitment was the number one reason why the snowmobile maker decided to trade in its Plymouth office tower for a renovated warehouse in Minneapolis' hip North Loop neighborhood. Last year, Arctic Cat spent $27 million re-doing the Western Container warehouse with copious amounts of reclaimed timber, concrete and iron. The new office even has a full-size snowmobile suspended from the ceiling, just for the 'whoa' factor. 

The race from suburb to city is a short-term trend says Irvine, Calif. real estate consultant John Burns.  There's only so much real estate in the urban core and not many firms are free to drop millions to have an office next to hip eateries and shops, he says.

"Between land constraints and high rent, we think this trend is likely at its peak," said Burns, the co-author of a new book, Big Shifts Ahead: Demographic Clarity for Businesses (Advantage Media Group, 2016).

Still, savvy developers smell the marketing opportunity. For his new Fridley office park, for instance, Minneapolis developer Paul Hyde went with the name "Northern Stacks" and explicitly preserved a pair of old smokestacks that remained from the WWII era. To add to the trendy industrial verve, Hyde filled his marketing brochures with vintage photos from the site. In the 1940s, some 12,000 wartime workers made gun turrets and barrels for the U.S. Navy at this spot.

Other developers have gone even further--they are mapping out massive mixed use developments that combine retail, housing and office space on a tightly managed piece of real estate, often with shared amenities such as walking paths or central courtyards. "These giant new urban developments are really hitting a note with commercial buyers," said Burns. "It's quasi-urban."

Burns said this response to urban revitalization will actually be more enduring than the migration that initially spurred it on. "This phenomenon is so pervasive we even trademarked a word for it. We call it the 'surban' effect," he said.

Twin Cities examples abound. In Plymouth, CBRE Hotels is boosting its "Agora" plan as a new "urban-type village" with two upscale hotels, offices, retail, restaurants, a bank, senior housing and a "mini plaza."

In Chanhassen, the expansive "Avienda" development combines 300 market-rate apartments with 100 senior housing units, a 250-room hotel, 43,000 square feet of retail space and approximately 40,000 square feet of office space.

In Woodbury, developer Elion Partners went right for the punch with its own mega mixed-use project---they dubbed it "CityPlace."

In Arden Hills, developer Bob Lux proposed that the new development "Rice Creek Commons" include several explicit references to Minneapolis, including an amphitheater modeled after the Lake Harriet Bandshell and a walkable "Natural Resource Corridor" inspired by Chain of the Lakes. Lux did such a good job making the Minneapolis connection that last year Arden Hills city council member Brenda Holden complained to Lux: “I feel like you’re trying to build a mini-Minneapolis here in my suburb."

Lux said he doesn't hold any particular deep affection for the urban core. For him, it's simply a matter of consumer research and finding "what excites people."

"In cities, you have most of the things you need in one place," he said. "They also have unique experiences and cool places, not just the same thing over and over. This project is about creating a place that has those characteristics in a compact area."

Lux's development is definitely suburban--a Baja Fresh Mexican Grill is more at home here than a Bachelor Farmer. But that's okay, said Lux. As long as you have the right density, you can make a place feel urban-but-not-too-urban. A big part of the feel is nixing all of those empty parking lot acres.

"Combine the structured parking with higher density mid-rise concrete buildings, and then add in the restaurants and entertainment options on the first floor of the buildings. That will move you closer to the amenities that are only available in the larger core cities," said Lux.

Perhaps the grandfather of surbanity in the Twin Cities is the West End development in St. Louis Park, the 2006 mixed-use hit that delivered the first Trader Joe's to the Twin Cities metro. That development has been so successful that its still being expanded more than a decade later. Currently Ryan Cos. and Excelsior Group are constructing Phase IV of "Central Park West."

The development has expanded so far, in fact, that it finally spilled over into Golden Valley last year. In step with the times, the mid-high-rise office tower at "Central Park West" is being constructed with tarnished brick and towering sheets of glass--an aesthetic choice meant to recall the "feel" of an old warehouse building.

February 21, 2017 - 9:41pm