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HomeMy WebLinkAbout2013.08.13 EDA Packet AGENDA CITY OF HUGO ECONOMIC DEVELOPMENT AUTHORITY TUESDAY, AUGUST 13, 2013 5:00 PM 5:00 pm 1. Call to Order 5:01 pm 2. Roll Call 5:02 pm 3. Approval of Minutes EDA Meeting of July 11, 2013 5:05 pm 4. Lake Area Bank • Gary White, Location Lead-Vice President, Business Banking 5:15 pm 5. Discussion on Marketing RFQ 6:00 pm 6. Discussion on Maxfield Research Inc. Proposal to Update the Downtown Market Study 6:20 pm 7. Update on Downtown Redevelopment 6:30 pm 8. Adjournment BACKGROUND MEMO FOR THE EDA MEETING OF TUESDAY,AUGUST 13,2013 3. APPROVAL OF MINUTES Staff recommends approval of the minutes from the July 11, 2013, EDA Meeting as presented. 4. LAKE AREA BANK Staff has invited Gary White of Lake Area bank to the EDA meeting. Mr. White recently joined the Lake Area Bank team and is the Location Lead Vice President in Business Banking. Mr.White will talk about his background and his role at the bank. Staff recommends the EDA welcome Mr. White to the community. 5. DISCUSSION ON MARKETING RFO At its July 15, 2013, meeting the City Council considered and approved the EDA's recommendation to send out an RFQ to commercial realtors to market the City owned property in downtown. Staff has enclosed a draft RFQ for the EDA to review. Staff recommends the EDA provide any comments on the request. Staff would like to discuss the qualifications,process, and timeline with the EDA. 6. DISCUSSION ON MAXFIELD RESEARCH INC. PROPOSAL TO UPDATE THE DOWNTOWN MARKET STUDY Staff has met with Maxfield Research, Inc. to update the downtown market study that was completed in 2005. The update will be funded as part of the LCDA grant from the Met Council. At its July meeting, the EDA agreed that the updated market study would make the City owned property more marketable to developers. Staff has received a proposal from Maxfield that outlines the work program to complete the update of the market study. It's in staff's opinion that the proposal meets the goal of what we discussed during our meeting for the update. EDA should review the proposal and provide comments to staff. Staff recommends the EDA make a recommendation to the City Council to enter into a contract with Maxfield for the update of the Downtown Market Study. 7. UPDATE ON DOWNTOWN REDEVELOPMENT Staff will update the EDA on downtown redevelopment. MINUTES FOR THE EDA MEETING OF JULY 9, 2013 Klein called the meeting to order at 5:00 pm. t3cvt/VL PRESENT: ArcandfDenaway, Gallivan, Klein, and ABSENT: Beve/ and Weidt STAFF: Bryan Bear, City Administrator Rachel Juba, Planner APPROVAL OF MINUTES FOR THE EDA MEETING OF JUNE 11, 2013 Arcand made motion, Puleo seconded, to approve minutes for the EDA meeting of June 11, 2013. All ayes. Motion carried. DISCUSSION ON MARKETING CITY OWNED PROPERTY IN DOWNTOWN At its June 11, 2013, meeting the EDA discussed options for marketing of the City owned property in downtown. The EDA discussed options such as, request for proposals (RFP), continue working with FBF, LLC, contact other commercial realtors, and creating a marketing packet. The EDA agreed that they needed some time to think about the marketing options and wanted to discuss it at the July 9, 2013, meeting. Staff has included in the packet the RFP that was use for marketing the City owned property in the Bald Eagle Industrial Park (BEIP). Since then the City closed on a portion of the former Carpenters property, the other portion has a title issue and the City plans for close on it in the next 3-6 months. Staff recommended the EDA discuss the marketing of the City owned property in downtown and provide staff with direction on how they would like to move forward. Arcand stated that the marketing of the City owned properties needs a new approach. Staff stated that the Maxfield Research Inc. Market Study for downtown is planned to be updated with the LCDA Grant from the Met Council. Staff has meet with representatives from Maxfield and expects a proposal for the update by the next EDA meeting. Denaway stated that he liked the agreement we had with FBF, LLC, but would like to open it up to other commercial realtors. He stated he is not sure what the RFQ would look like, but the EDA could discuss certain desired qualifications. Bryan Bear stated that the RFQ would be fairly simple for staff to draft and it would include qualifications and the marketing process. Arcand asked staff what incentives the EDA could offer to developers in the downtown. Bryan Bear talked about the basic incentives the City already has, but stated that if the EDA wanted to do something more they could make a recommendation to the City Council. The EDA agreed that a commercial realtor would help market the City owned property in downtown. Klein made a motion, seconded by Denaway, to make a recommendation to the City Council to send out a RFQ to commercial realtors to market the City owned property in downtown. All ayes. Motion Carried. UPDATE ON WASHINGTON COUNTY ECONOMIC DEVELOPMENT EFFORTS Over the past few months the County has been working on hiring a consultant to help with figuring out the best ways the County can help its cities with economic development. The County sent out RFP's to several consulting firms and conducted interviews with three of them. Recently the County selected Springsted as the consultant. They will provide the County and the economic development workgroup, which includes the cities and stakeholders, with an assessment and plan/strategies through meetings and workshops. Staff will keep the EDA updated as the project moves forward and meeting/workshops are set. DISCUSSION ON THE CITY'S WATER CONSERVATION WORKSHOPS On June 18, 2013, the Hugo City Council held the first of several water conservation workshops. The Council agreed the main goal is to protect the City's water resource, and they outlined several possible methods to achieve this. There are some methods that relate to businesses. Staff provided an overview of these items at the meeting. They included items such as, incentives for water reuse project, water audits, and educating the public. The EDA agreed with the direction the City Council was moving in regards to water conservation. UPDATE ON DOWNTOWN REDEVELOPMENT Staff met with the bank that owns the former Ricci's restaurant site and the purchase price has been reduced. Staff continues to meet with Pete Sampair on the redevelopment of his property. ADJOURNMENT Denaway made a motion, seconded by Puleo, to adjourn at 6:20 pm. All ayes. Motion carried. Request for Qualifications (RFQ) for a Commercial Realtor to Market City Owned Property in Downtown Hugo, Minnesota Proposals Due: September 30, 2013 Location: Hugo City Hall 14669 Fitzgerald Ave N Hugo, MN 55038 I. Purpose of the Request The Hugo Economic Development Authority (EDA) is requesting qualification from commercial realtors to market City owned property in downtown Hugo. The property is zoned for commercial development and guided for mix-use development.The EDA and Hugo community has a high desire for a restaurant in downtown. I1. Introduction The City of Hugo is a rapidly growing suburb located 20 minutes north of St. Paul with a population of close to 14,000 residents. The Minneapolis/St. Paul Business journal named Hugo as the fastest growing City in Minnesota in 2011 and third in 2013. The key factors driving this growth are the availability of undeveloped land and the close proximity of Hugo to major freeways and downtown St. Paul. Most recently, the City has been focusing on economic development opportunities in several commercial and industrial areas. These areas include the Bald Eagle Industrial Park, Downtown, CSAH 8 corridor, and the Peloquin Industrial Park. In 2012, the City earned an international award of excellence for its Business Retention and Expansion Program which the City completed through the University of Minnesota in 2010. In addition to retaining and expanding existing businesses, the City of Hugo has been actively involved in locating new businesses. a. Downtown Redevelopment In 2007, the City Council adopted a Downtown Master Plan and Downtown Design Guidelines. The goal of the Downtown Master Plan is to strengthen the commercial and service core of the City. While the core downtown is focused along Forest Boulevard (TH 61) from County Road 8 to 147th Street, the Downtown Plan extends north to the Post Office and 150th Street, south to 140th Street, and from the shores of Egg Lake on the east to the bend in County Road 8 to the west. The downtown is located within a Tax Increment Financing (TIF) District. The City Council has made it a priority and a goal to focus marketing efforts on downtown redevelopment. b. Description of Site The site consists of several vacant parcels totaling 4.19 acres in size. The site is located along Egg Lake and abuts TH 61 with direct access to the highway. The property is zoned Central Business (C-1) which encourages the establishment of a downtown 2 atmosphere with a blend of cultural, recreational, civic, entertainment, retail sales, and office uses. III. Goals of the RFQ This RFQ is designed to provide interested respondents with basic information to submit a proposal that will meet the purpose, qualifications, and desires of the project. It is not intended to limit request content or exclude any relevant information. Respondents are encouraged to expand upon the minimum requirements of the RFQ. IV. Realtor Qualifications a. Shall be licensed and in good standing with the State of Minnesota. b. Shall have an excellent reputation in the commercial real estate community. c. Shall be knowledgeable in the local real estate market. 1. Desired Realtor Commitment/Contributions a. Understand the Downtown Master Plan and Design Guidelines. b. Demonstrate the expertise necessary to market commercial property. c. Demonstrate experience in Restaurant real estate transactions. d. Develop a strategic marking plan for the sale of the property. e. Provide summaries of contacts that have been made throughout marketing process. f. Provide suggestions on how the property could be more marketable. V. Submittal Requirements A complete submittal shall contain the following: 1. A cover letter summarizing the offer being proposed and the realtor's level of understanding of the request and commitment desired. 2. Specific details of the proposed services and qualifications: a. Proposed commission. b. A list of publications or websites in which the property would be listed. c. A detailed description of experience marketing vacant commercial property i. A list of at least three references of the sale of comparable properties sold. ii. Experience with locating a restaurant on a vacant site in the last 5 years. d. A statement of qualifications 3 e. Description of basic marketing plan that could be used for the property VI. RFQ Schedule and City Contact All proposals shall be received no later than 4:00 PM, September 30, 2013. Fifteen copies of the proposals shall be provided. The City will review the proposals and schedule interviews within 30 days of the submittal. All proposals shall be sent and all questions and correspondence should be directed to: City of Hugo Att: Rachel Juba, Planner 14669 Fitzgerald Ave N Hugo, MN 55038 (651) 762-6304 rjuba@ci.hugo.mn.us 4 4—#xfield Research Inc. July 28, 2013 Ms. Rachel Juba Planner City of Hugo 14669 Fitzgerald Avenue North Hugo, MN 55038 Dear Ms.Juba: Thank you for requesting Maxfield Research Inc.to submit a proposal to complete an update market analysis for development in Downtown Hugo. As we understand, the City would like to understand the current market potential for various types of residential and commercial uses in the Downtown area and what has changed since the previous study which was completed in December 2005. The attached proposal outlines a work program to complete an update assessment of growth trends and current market conditions for general occupancy and senior housing, retail and of- fice space and lodging in the Downtown and identify specific product types that have market support along with a suggested timeframe for development. Specific characteristics of this as- sessment include: • Review of infrastructure projects completed for Downtown Hugo; • Impact of the economic downturn and its effect on redevelopment and new develop- ment; • Analysis of current mix of uses in the Downtown and a review the City's current business development and retention program. • Assessment of the ability to support specific uses in the Downtown including additional restaurants and lodging; • Recommendations for short-term and long-term development of various real estate segments; • Recommendations for an action plan to achieve goals. The analysis will provide: 1) updated demand calculations for real estate market components including general occupancy and senior housing (for-sale and rental), office and retail space (in- cluding restaurants) and lodging; 2) types of products/space in each component that would be most appropriate for Downtown Hugo 3) strategic plan for City's next steps, 4) projected devel- opment timeframes, and 5) synergies among various types of development in the Downtown and the immediate surrounding area. 612-338-0012 (fax)612-904-7979 1221 Nicollet Avenue S. Suite 218,Minneapolis,MN 55403 www.maxfieldresearch.com Ms. Rachel Juba, Planner July 28, 2013 City of Hugo Page 2 The update market analysis would be completed for$18,500.00, including all out-of-pocket ex- penses. The analysis would be completed within 90 days of a signed contract. Please review the enclosed proposal and contact me with any questions that you may have. We look forward to working with you on this important project. Sincerely, MAXFIELD RESEARCH INC. Mary C. Bujold President 612-338-0012 (fax)612-904-7979 1221 Nicollet Avenue S. Suite 218,Minneapolis,MN 55403 www.maxfieldresearch.com xfield Rencarch Inc. August 31, 2012 Ms. Rachel Juba Planner City of Hugo 14669 Fitzgerald Avenue North Hugo, MN 55038 CONTRACT FOR PROFESSIONAL SERVICES Maxfield Research Inc. proposes to complete an update of current market conditions for vari- ous real estate market segments in Downtown Hugo, including general occupancy and senior housing, commercial retail and office space and lodging to consider product types and a strate- gy for short-term and long-term development and redevelopment. The update market analysis will assess the potential demand for the above real estate products. Maxfield Research Inc. will update demographic and economic characteristics, current market conditions, for Hugo and surrounding impact communities (the "Trade Area") and will identify additional development supportable in the Downtown Area. The analysis will take into account: • Current and projected economic conditions; • Completed Downtown infrastructure and private development projects; • New developments and potential competitive development; The analysis will provide specific recommendations and a plan for redevelopment and new con- struction. The recommendations will consider how to best strengthen the Downtown utilizing a mix of new development and marketing/promotion strategies. The analysis will also focus on the potential support for additional restaurant space considering different types of formats and the support for lodging. The analysis will include a substantial amount of primary research - interviews with key stake- holders, business owners/property owners in the community, municipal staff, and others to provide a comprehensive assessment. 612-338-0012 (fax)612-904-7979 1221 Nicollet Avenue S. Suite 218,Minneapolis,MN 55403 www.maxfieldresearch.com Ms. Rachel Juba, Planner July 28, 2013 City of Hugo Page 2 METHODOLOGY The hallmark of Maxfield Research Inc.'s approach to all projects includes the appropriate blending of primary (field) research with secondary research. Primary research includes sur- veys of existing housing and commercial properties, one-on-one interviews with developers, Realtors, commercial brokers, city and government agency staff, and others familiar with real estate issues and market conditions. Secondary research includes data obtained from reliable published sources including the Census Bureau, ESRI, Inc. (a national demographics firm), and Metropolitan Council. Secondary published data is always reviewed carefully in light of other local factors revealed through the primary research that may have an impact on the analysis. The result is a custom analysis that provides the Client with information that is timely and locally pertinent. The Scope of Services on the following pages outlines the tasks that will be conducted to com- plete the analysis. SCOPE OF SERVICES I. Field Analysis of Current Conditions and Land Use A. Complete an inventory of businesses by type in Downtown Hugo through field work. Obtain additional information where available on parcel sizes, parking spaces (on and off-street), building sizes, among other items. Identify parcel ownership and parcels in transition. (NOTE: Maxfield Research Inc. will require the assistance from the City in obtaining some of this data). B. Segment existing businesses by market sector (retail goods, office, services, enter- tainment, recreation, etc.). C. Conduct interviews with Hugo business owners, business association members, city staff, and other key stakeholders to identify past, and current initiatives and key is- sues affecting businesses in the Downtown. D. Assess how any improvements to the community and to the Downtown have strengthened the community; identify the level to which outcomes were achieved; identify the level to which outcomes were expected or unexpected regarding the improvements that have been made or other situations that resulted as an impact from the redevelopment. II. Retail Market Analysis A. Define the trade area for retail goods and services in Downtown Hugo based on community orientation, travel patterns, and proximity to competitive developments. B. Assess the areas that exhibit strength and those that exhibit weakness; analyze how Downtown retail dynamics have changed over the past few years. MAXFIELD RESEARCH INC. Ms. Rachel Juba, Planner July 28, 2013 City of Hugo Page 3 C. Identify locations in the Downtown that represent the best potential locations for additional retail development. D. Analyze retail market trends in the Trade Area 1. Examine demographic growth trends and characteristics of the Trade Area. 2. Examine retail expenditure data for households in the Trade Area. 3. Examine data on overall retail sales trends in the Trade Area. 4. Conduct interviews with local businesses, Downtown business associations, retail leasing brokers and building owners, and others involved with the devel- opment of retail space in the Trade Area; identify areas near to the Downtown that compete for Hugo customers for various goods and services. E. Existing Retail Market Conditions 1. Update inventory of existing retail space in Downtown Hugo (utilize assessor's data in addition to physical visual inventory);focus on retail space added to the community since the previous analysis; identify how the retail mix has changed and update vacancies. 2. Compare lease rates for new space in Hugo to those of nearby communities; discuss the ability to capture new space based on lease rates for new users in the Downtown; assess challenges for different retail sectors. 3. Inventory any planned retail development, including renovations and expan- sions in the Trade Area. Assess their impact on the potential for retail in Downtown Hugo and the community as a whole. 4. Interview retail brokers in the area regarding retail market trends, positioning of Hugo within the Trade Area, the potential for new retail in specific locations and identify areas that would compete with new retail development in Down- town Hugo for customers. 5. Analyze the capacity to attract new restaurants to the Downtown; discuss ways to overcome the challenges in attracting this type of space to the area. E. Demand Estimates and Recommendations 1. Reassess the ability to support additional retail space in Hugo through 2020. 2. Identify unmet market niches that exhibit the potential to be successful in Hu- go. 4. Analyze the conditions necessary to attract certain types of users. S. Develop a plan for attracting these users. 6. Identify existing synergies and how they may be increased. III. Office Market Analysis A. Define the Trade Area for office space; examine demographic growth trends in the Trade Area. B. Update Employment Trends and Business Growth in the Trade Area. 1. Update overall employment growth trends for the Trade Area. MAXFIELD RESEARCH INC. Ms. Rachel Juba, Planner July 28, 2013 City of Hugo Page 4 2. Update business growth trends in the Trade Area (types of business establish- ments) focusing on growth among businesses that traditionally utilize office space. 3. Identify the key strengths and weaknesses of the area as it relates to the po- tential for new office development. C. Office Market Conditions 1. Update and review current market conditions for multitenant office buildings in the Trade Area, including information on size of building, lease rates/sales price, tenant profile, and building style. 2. Interview office leasing brokers regarding demand for space in the area; pro- vide information on types of tenants, overall market trends, and the potential for additional office space in Hugo. 3. Inventory any planned office developments in the Trade Area. Assess the po- tential impact of these projects on new office space in Downtown Hugo. 4. Interview local developers regarding near-term development opportunities in Downtown Hugo. D. Conclusions and Recommendations 1. Calculate demand for office space in the Trade Area through 2020. 2. Assess the ability of Hugo to capture office users and for what types of space. 3. Identify a potential timeframe for attracting these users. IV. Lodging Market Assessment A. Update and refine the draw area for a limited service lodging facility in Hugo. B. Examine growth in office/industrial space, new businesses and employment centers. C. Identify destinations, events and other special amenities in and near the Market Area that would attract the leisure market segment. D. Identify the type and level of room-night generators (i.e. tourist, conference, business travel, etc.) E. Examine historical (5-year) hotel market tends (occupancy, room rates, room supply, revenue) for properties that would be competitive with a new facility in Hugo. a. Inventory newer competitive hotel properties. Provide information on year built, number of rooms, room types, rates and property features. b. Conduct interviews with lodging managers, chamber of commerce and other hospitality operators regarding the need for hotel rooms in the area; c. Identify any planned or proposed hotel facilities within the Market Area and assess their impact on demand. D. Conclusions and Recommendations a. Calculate average daily room demand in the Market Area through 2020. b. Project the portion of room demand that could be supported by a hotel on the subject site. MAXFIELD RESEARCH INC. Ms. Rachel Juba, Planner July 28, 2013 City of Hugo Page 5 C. Recommend an appropriate hotel concept to be considered for the site, including num- ber of rooms, room types, rates,features/amenities,and project average daily oc- cupancy rate. d. Estimate the period of time it will take to reach stabilized occupancy. V. Residential Market Analysis A. Review and refine if necessary the draw area for multifamily housing in Hugo. B. Assess locations in the Downtown appropriate for in-fill housing development. C. Identify areas challenging to redevelop. D. Update and analyze data on growth trends and patterns in the Market Area. 1. Population and household growth trends through 2020. 2. Employment growth trends through 2020. 3. Age distribution of the population through 2020. 4. Household income by age of householder in 2013 and 2018. 5. Household tenure (owner/renter) in 2000 and 2010. 6. Household type in 2000 and 2010. E. Collect information on the average value trends for single-family homes and for-sale multifamily units in the Market Area, and overall rents/vacancies of rental housing. F. Collect information on competitive for-sale multifamily housing in the Market Area (projects that are actively marketing or were recently developed), including infor- mation on year built, number of units, pricing, market positioning, etc. Collect in- formation on newer rental housing (including senior housing), including year built, number of units, unit mix, sizes and rents, vacancies, market positioning, etc. G. Interview real estate agents and rental property owners and managers regarding the types of housing needed, image of the Downtown as an attractive residential loca- tion, and types and amenities necessary to attract residents to various types of housing products in the Downtown. H. Quantify the potential demand through 2020 for housing in the Downtown, includ- ing for-sale, rental, and senior housing. Identify unmet market niches and the ability to attract different market segments to housing in the Downtown. I. Identify general housing concepts that would be appropriate. 1. Identify housing priorities. 2. Examine the potential synergies between the various development compo- nents in the Downtown. VI. Strategic Plan Development and Implementation Guide 1. With information gathered in the update analysis, develop a next steps strategic plan for the Downtown. Identify the following: a. Key locations for new development b. Types of development most appropriate in the short-term C. Challenges to overcome for certain types of development d. Recommendations regarding marketing and promotion efforts e. Developer recommendations MAXFIELD RESEARCH INC. Ms. Rachel Juba, Planner July 28, 2013 City of Hugo Page 6 2. Implementation Guide a. Provide an implementation guide with action steps, responsible agencies/organizations and timeframes. VI. Meetings and Client Contact 1. One initial orientation meeting with Client to review study objectives. 2. One meeting with City staff to review market information and draft findings of the report. 3. One formal presentation meeting to City Council and key stakeholders. Total Cost for Staff Time—Market Analysis: 518,500.00 COST OF SERVICES Update Market Assessment and Strategic Plan The work outlined in the preceding Scope of Services is proposed to be completed for Eighteen Thousand Five Hundred Dollars($18,500.00), including the cost for out-of-pocket expenses for postage, photocopying, outside data purchases, two copies of the printed report and one elec- tronic copy. An executed contract agreement is required prior to the commencement of work. The balance of the contract amount will be due in installments monthly as work is completed on the project. Any additional research or meeting time requested by the Client beyond the Scope of Services outlined above will be billed at our standard hourly rates for staff time which range from $55 to $150 per hour. WORK PRODUCT The work completed under the Scope of Services will be presented in bound report format. COMPLETION TIME The work outlined under the Scope of Services will be completed within Ninety(90) days of the authorization to proceed with the study unless delayed by unexpected emergencies, forces be- yond the control of one or both parties or by written agreement of the parties. MAXFIELD RESEARCH INC. Ms. Rachel Juba, Planner July 28, 2013 City of Hugo Page 7 PAYMENT All invoices are payable to Maxfield Research Inc. within fifteen (15) days of receipt of an in- voice showing the work completed and the direct costs for expenses. A finance charge of one and one-half percent (1.5%) per month will be added to the unpaid balance of each invoice not paid within thirty (30) days. DISCLAIMER The objective of this research assignment is to gather and analyze as many market components as is reasonable within the time limits and projected staff hours set forth in this agreement. We assume no responsibility for matters legal in character. The property/land is assumed to be free and clear of any indebtedness, liens or encumbrances; and good and marketable title and competent management are assumed, unless otherwise stated. If building plans or site plans are included in the report, they are to be considered only approx- imate and are submitted to assist the reader in visualizing the property. We assume no respon- sibility for the accuracy of any building or site plans. Certain information and statistics con- tained in the report, which are the basis for conclusions continued in the report, will be fur- nished by other independent sources. While we believe this information is reliable, it has not been independently verified by us and we assume no responsibility for its accuracy. The conclusions in the report are based on our best judgments as market research consultants. Maxfield Research Inc. disclaims any express or implied warranty of assurance of representa- tion that the projections or conclusions will be realized as stated. The result of the proposed project may be achieved, but also may vary due to changing market conditions characteristic of the real estate industry, changes in facts that were the basis of conclusions in this report, or other unforeseen circumstances. In the event payment is not received on a timely basis, Maxfield Research Inc. shall be entitled to a lien against the subject property. This agreement will be construed according to the laws of the State of Minnesota. TERMINATION This agreement may be terminated upon written notification of either party to the other. In the event of termination, the Client will pay Maxfield Research Inc. for staff hours performed at the firm's normal hourly rates, plus all expenses incurred through the date of termination. MAXFIELD RESEARCH INC. Ms. Rachel Juba, Planner July 28, 2013 City of Hugo Page 8 If this proposal meets with your approval, please sign and return one copy to the offices of Maxfield Research Inc. Agreed to this day of 2013. MAXFIELD RESEARCH INC. CITY OF HUGO (Signature) Mary C. Bujold By: (Print Name) President Its: (Print title) MAXFIELD RESEARCH INC. 8 Minneapolis/St.Paul Business Journal i mspbj.com Augurt 2,2013 COVER • The new R1 JL_ of RETAIL , .� real estate Z- Twin Cities a BY JOHN V0MH0F JR. I STAFF WRITER After screeching to a halt during 0 Developer: • 'k the recession, retail development LL] 0010t 11),111 > Timeline:Doke grOUnd'in June: is starting to rebound. But it's not LU the same as it used to be. • Gone are the days when developers would take a chance on far-afield plots of land, counting on a SuperTarget or Cub Foods LU to generate additional interest in the projects.Now they're being much more cautious, only proceeding with inner-ring projects " that have firm commitments for most of the space before con- struchon even starts. * 1p "The fundamentals are the same, but some of the rules have been rewritten," said Tom Palmquist, vice president of ` J commercial development for Minneapolis-based CSM Co The pool of tenants also is ¢ changing, as Tar et Corp. and ' g rP Cub Foods haveP ut the brakes on B _ local development. Target is fo- "ifou're going cused on growing in Canada and y • Cub's growth has stagnated. t0 take Ot7 NCOp2!tj/, y0L' Yet, there are still deals to be �,. .�. had, and they can be big: The better have a strategy,largest project now under con- struction is Twin Cities at Eagan, and maybe a backup a 409,000-square-foot outlet mall that Paragon Outlet Partners strategy or two," broke ground on in June. Later this month, CSM will submit � ." plans for another 400,000 square Tom Palmquist feet of small and mid-sized retail Vice president,CSM Corp. shops elsewhere in the city, and several of the Twin Cities' larg- est malls are planning significant renovations and expansions. Central Park " Fill it before you build it However, the process can take much longer and developers U-1 Commons have to be much more proactive.Simply lining up a Target anchor and waiting for other retailers to fill ancillary space won't work 1anymore. Dev- " Developers now are looking for much more certainty,Palmquist •ro fY. said.They want to know exactly what their costs and potential re- UJ turns will be. "You can't build it and hope that they'll come,"Palmquist said. "If you're going to take on property,you better have a strategy— r) Timeline: and maybe a backup strategy or two." And because of rising land costs,developers cant afford to wait for a half-leased project to fill up. That's why CSM plans to"substantially" lease its Central Park Commons project in Eagan before breaking ground.The company is targeting a spring 2014 start. That approach has become the norm,said Mike Sims,president of Mid-America Real Estate-Minnesota.Many developers are wait- ing to begin construction until their projects are at least 60 percent or,in some cases,even 80 percent leased. "Most of the projects are almost fully committed before they 10%— TWIN CITIES RETAIL break ground,which is a pretty dramatic change" from the pre- recession norm,he said."Nobody's taking any risk." VACANCY RATES Thus, it remains predominantly a build-to-suit market, said Mark Schoening, senior vice president of national retail for Ryan 8% Cos.US Inc. He noted that most of the Walmarts being built are stand-alone stones, not anchors for broader developments. The exception is the former Brookdale Center site in Brooklyn Center—now known as Shingle Creek Crossing—where Gatlin Development Co.is building approximately 100,000 square feet of additional retail,with future plans for even more. "That's quite a bit different than it used to be before 2008,when the anchor might be less than 50 percent of the total gross leasable 41b � � 0� Q� �� R.�ha Oy$ area of a shopping center,"Schoening said. a► New tenants driving the market While consumer spending still lags,retail development is being Through the first halt driven by national tenants—grocers like Whole Foods or"junior- Source:Cushman&Wakefield/NorthMarq Augrst 2,2013 linneapolis/St.Paul Business Journal I mspbj.com 9 1 I 1 1 . • 1 1 1 1 r S box'retailers like T.J.Maxx and Total Wine&More—who are getting much interest today,"Palmquist said."The sites that are LOOKING FOR SPACE looking to enter the market or expand here.The Twin Cities're- receiving the most attention are good-quality sites that are well- tail vacancy rate dipped below 8 percent during the first half of located on well-traveled roads." A sampling of retailers who are actively opening stores or seeking 2013,the lowest level since early 2007. CSM's Central Park Commons fits that model.It's located at new locations. "The active tenants out there are just that the busy intersection of Yankee Doodle and Pilot Knob roads, —active," Sims said."They're not just dip- and Eagan has pent-up demand for additional retail space. BIG-BOX RETAIL SMALLER SHOPS ping their toe in.If they're here,they're here Eagan,though,may be as far out as developers are willing to Wal-Mart Mattress Firm to do deals." go now.Outer-ring power centers that were built just as the re- Vitamin Shoppe Deals, however, are often slow moving cession hit are still struggling to fill the space. SPECIALTY GROCERY Massage Envy because they're under more scrutiny than Ryan Cos. only recently filled up its Target-anchored devel- Whole Foods in the past.And many more people have to opments in Apple Valley and Otsego, and it's still working on Trader Joe's RESTAURANTS sign off on agreements. The Grove on the northern edge of Maple Grove.Those projects Lunds Popeye's "Ops — the guys who actually run the were well-planned,but fell victim to the recession,Schoening Aldi Chick-fil-A stores — has a much bigger say in new Sims said. Punch Pizza stores,"Sims said."There was a day in the "We've continued to work through them and,in some cases, JUNIOR BOXES Pizza Ranch industry when ops was a dirty word.You never had anyone we're nearly finished with them now,"he said,noting that they Cabela's Which Wch from ops weigh in.And that's not tenant-specific. I hear that typically attract a different group of tenants than the new,urban TJ Maxx Jersey Mike's from every retailer we work with.`We have to get ops to look projects."They took longer to absorb,but through some hard Marshalls Firehouse Subs at this.'" work and good locations,they're filling up." Total Wine&More Yogurt Lab Schoening expects retail development to eventually push fur- Bed Bath&Beyond Cherry Berry The donut gets smaller ther out into the suburbs,though he concedes that could take Goodwill Orange Leaf The vast majority of activity is in-fill development in strong, a while. L.A.Fitness dense parts of the Twin Cities core.That's where retailers want "As the economy gets stronger and single-family homebuild- to be when they enter the market, and vacancies are particu- ing continues to gain its footing,there just isn't enough room in larly scarce in those trade areas. the urban centers and the first-ring suburbs to accommodate finish up.And,of course,the next phase then would be that new "There exists a shrinking of the donut,meaning the sites that more dwelling units," he said. "So eventually—though it's a ones get started." are available in the third-and fourth-tier suburbs—that may ways out yet—some of those communities will begin to grow have been on people's radar screens 10 or 1L years ago—arent again,and the centers that were started,then sort of stalled,vvill jvomhof@bizjournals.com i(612)288-2101 kF, hc WE RAISE (APITAL TO AN ART FOR Me Sometimes a capital need calls for creativity. Y r Wipfli Corporate Finance Advisors (WCF) helps companies reach their strategic goals with a comprehensive range of capital raising and recapitalization services. Our seasoned leadership team draws on strong relationships with capital providers nationwide to identify the best potential partners for your needs. Once we determine the capital structure, we 4 present your company to best effect and negotiate key terms. WCF serves profitable ,...• middle market companies with revenues ofA' " $10 million to $500 million. �,; -j * l ' •Capital Raising: Senior debt, Subordinated/ Mezzanine debt, Equity 1V - • Business Unit and Company Sales # - • Business Acquisitions • Financial Advisory Services j Jeff Milkie, Managing Director jmilkie@wcfadvisors.com �' 651.766.2894 Registered Representatives of Rippe&Kingston Capital Advisors,Inc.,1077 Celestial Street,Cincinnati,Ohio 45202,phone:513.241.1375,a broker dealer registered with the SEC and FINRA.Member SIPC. Investment banking and corporate finance advice offered through Rippe&Kingston Capital Advisors,Inc. Wipfli Corporate Finance Advisors,LLC is a subsidiary of Wipfli LLP. Certain accounting,tax,business advisory and other services are provided by Wipfli LLP. ©2013 Wipfli LLP All Rights Reserved