by Brent Robertson, Vice President, Minneapolis/St. Paul Agency Leasing
The old dog. Every investor has had one: that older building that just won’t lease. It was the empty building thrown in with a larger portfolio, or acquired in 2008 by a former boss or the building bought through auction because it seemed like a great deal. Today, that building is a drain, and it has become obsolete in today’s market based on its current use. Like in many U.S. cities, smart investors in the Minneapolis/St. Paul area have chosen a more fruitful path when renovating simply isn’t enough: repurposing.
The office building
If they have the right bones, older office buildings can transform into hip and contemporary. However, due primarily to small floor plates, an insufficient amount of elevators and lack of onsite parking, not all buildings can make this transition. New conferencing and fitness centers simply aren’t enough to make them desirable to offices users. But, like in many U.S. markets, multifamily and hospitality demand in the Twin Cities is very strong, and those smaller floor plates (between 7,000 and 15,000 square feet) lay out fantastically for these uses. Limited elevator service? Not a problem. Onsite parking? Not required. Does the building qualify for Historical Tax Credits? Even better.
The retail building
Has urban retail worked in your market? It hasn’t in Minneapolis/St. Paul. But the frames of these properties, particularly their well-lit atriums and larger floor plates, are desirable for today’s office user. These properties are usually in great locations and can be delivered at a price below new construction cost. JLL is working on two such conversions in Minneapolis (Gaviidae Common and Mayo Clinic Square) and the response from office users has been extremely positive.
Watch this video see how Mayo Clinic Square has been transformed.
The industrial building
Twelve-foot clear height. One dock door. Poor rail and highway access. An industrial user’s dream? Not exactly. But, if the location is right, older industrial buildings are great candidates for select retail or office conversion. Minneapolis/St. Paul has seen a dozen new brew pubs open in the past two years, and they love buildings like these. And boot strap tech and marketing companies who prefer concrete floors and vaulted ceilings to ribbon glass and dropped ceilings are popping in some glass packs and turning these properties into the fun and exciting environments that today’s Millennials are seeking.
Old dogs can learn new tricks. It just takes some acceptance and vision. If your old building simply cannot compete in the market, don’t fight it; consider an alternative use if the market demand exists.
For more information and ideas, please contact the author of this piece, Brent Robertson.
This story was originally posted in Real Estate Finance Intelligence.