On Jul 30, 2004, at 9:19 AM, Victoria Heller wrote:
The big guys are bailing out of Minneapolis with big losses!
Here's a sale that we can analyze from today's Strib. http://www.startribune.com/stories/535/4902009.html
<snip>
With interest rates at historic lows, it's really difficult to understand
how real estate values can drop so dramatically. Could it be that
businesses don't want to be in Minneapolis?
In a word, no.
Vicki is fond of pointing out the less-successful real estate deals in town. She ignores two big non-Minneapolis factor (terrorism and the post-dot-com 2001 economic bust) but more importantly, the city's real estate success stories — one big reason older buildings have lost value is all the new buildings that are pressuring them.
If businesses are fleeing Minneapolis, how to explain these three post-2000 additions to the Downtown scene:
US Bank Building, 8th & Nicollet Assessed building value: $111,700,000 2004 Taxes: $4,709,201
Target Plaza South, 68 S. 11th Street Assessed building value: $89,631,000 2004 Taxes: $3,753,908
Target Plaza North Assessed building value: $49,700,000 2004 Taxes: $2,112,259
50 S. 6th St. Assessed building value: $71,000,000 2004 Taxes: $2,993,857
(Note: the Target towers are not subsidized. This list does NOT include the Target store at 9th & Nicollet, or the Retek on the Mall building, another new taxpaying tower)
Add up just those three projects and you get $321 million of new development (in today's valuation) and $13.5 million in taxes.
Those huge new towers pressure older buildings such as the International Center.
According to the Strib, the selling price of International Centre I & II fell from $59 million in 1998 to "slightly more than $40 million" in the current sale. Too bad for the International Centre folks. But the three towers I listed above bring 15 TIMES as much value as this 15-year-old building lost.
Capitalism is creative destruction - but you're only destroying logic if you don't look at the whole marketplace to analyze its health.
It's also worth noting several quotes Vicki strategically didn't quote from the Strib piece:
"We're very excited," Welsh President Bob Angleson said [Welsh, a "big guy" suburban firm, is buying into Downtown for the first time]. "It's a building that has a large upside that we're buying at a good price."
... "The building is well regarded downtown," he said. "Once we freshen it up a bit, that will go a long way. There will not be a significant amount of repositioning."
... The Minneapolis office market, despite Class A vacancy rates of more than 20 percent, is starting to rebound, Angleson said, and within 18 months the downtown market should be doing well.
"We hope to cash in on a little bit of that," he said.
Pointing out economic & political vulnerabilities is good. But ignoring context and the big picture is just a scare tactic that shouldn't scare anyone.
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