Chicago Style Apartments

Why the windy city’s developers suddenly love Minnesota

Giordano's deep dish pizza and Portillo's hot dogs aren't the only Chicago export to Minneapolis these days.

A number of Chicago developers and investors are building apartments and buying properties all across the Twin Cities, with thousands of units and some high-profile projects in the pipeline, including downtown Minneapolis towers, the former Calhoun Square in Uptown, and Bloomington's massive DoubleTree hotel.

One reason for the interest, developers, and real estate professionals say, is a factor that you don't often hear associated with Minnesota: It's for our lower taxes.

"It's higher property taxes and concerns of where [Chicago] is going" said Brian Lipson, managing principal of TriCoastal Group, a Chicago-based real estate firm that owns The Andrus office building in downtown Minneapolis. "Developers are asking how deals are going to work out in Chicago. And they ask, where does it work out? And one of the logical first stops is Minneapolis."

The city of Chicago is facing a $1.2 billion budget gap for 2021, and the state of Illinois is projecting annual budget deficits of around $4 billion for the next several years. On top of that, a new Cook County Assessor was undervaluing them.

"Look at the fiscal situation of the city and the state," said Ari Parritz, Minnesota development director for Chicago-based Vermillion Development. "The only way they're going to make up for this is in taxes, and it's either going to be income taxes, which is going to hurt our demand base, or it's going to be real estate taxes, which is going to hurt us [developers] directly."

Parritz worked in Chicago for several years before moving back to his hometown of the Twin Cities two years ago, in part to come home and in part to open a Minneapolis office for Vermilion, which viewed the Twin Cities favorably. He's been working on a redevelopment of the Art & Architecture property, at 3338 University Ave. in Minneapolis' Prospect Park neighborhood, that could kick off next year and bring 256 housing units and commercial space.

To be sure, Chicago investors have always been active in Minneapolis and have owned and developed major properties. And it's not just Minneapolis that is seeing investment from Illinois.

"Chicago developers are seeing some pretty stiff headwinds in the Chicago market and they are seeking deals in other secondary markets in the Upper Midwest," said Lamar Newburn, principal at Lee & Associates' St. Louis Park office. Newburn worked in Chicago for seven years before moving to Minneapolis.

Newburn and his partner, Kai Thomson, represented two Chicago developers, CEDARst Cos. and Up Campus Properties, on acquiring major sites in the North Loop and Dinkytown for projects. "Chicago developers may see additional value, and they win the business because they are willing to pay more for the land," Newburn said. "The sellers of those sites are choosing Chicago developers because of the higher prices they are willing to pay." Besides opportunity, the Twin Cities region boasts other attributes that are attractive to Chicago developers, such as a good education system, a strong lineup of Fortune 500 companies and quicker commutes. “We have near nation-leading low unemployment," Parritz said. “We have strong but steady rent growth. We don't have wild ups and downs and volatility." The Twin Cities' slow-and-steady market is attractive to investors who want a balance of volatile properties and predictable properties in their portfolio, Parritz said.

Nowhere are Chicago developers more active than in Minneapolis proper. And none are more active than CA Ventures, the Chicago-based firm that recently rebranded as CA, and its frequent partner Harlem Irving Cos., also of Chicago.

CA's multifamily division came to Minneapolis in 2016, building the 336-unit Rise at Prospect Park in Minneapolis. It's now under construction on a 20-story, 350-apartment tower at 250 Hennepin Ave. and has pitched three more projects that would bring another 1,000 units.

CA did not respond to interview requests.

“They’re a reputable, established firm," Parritz said. “They're diversified across a number of different asset classes, with a senior platform, student platform, regular multifamily platform, and they may have others. They're big and growing."

Another player is Northpond Partners, which acquired some of the First & First portfolio of office and retail properties in the Twin Cities in recent years. It also bought the former Calhoun Square mall, rebranded it as Seven Points and is planning a renovation.

Chicago-based Up Campus Properties is targeting a spring groundbreaking on a 12-story student housing project in Dinkytown with 266 units and 761 beds.

Real estate pros know the name John C. Buck Cos, from when the Chicago firm flipped the IDS Center for about $50 million between 2004 and 2006. That firm, which owns other trophy assets, is one of two firms with interest in developing a nearly full block of downtown owned by the city of Minneapolis.

CEDARst acquired all of Duffey Paper's real estate in the North Loop and is under construction on 188 apartments and 19,000 square feet of commercial space, with 354 units and 50,000 square feet coming in a second phase.

In an interview in April, CEDARst CEO Will Murphy praised the Minneapolis market. "Historically, Minneapolis is the best Midwest market without a doubt, specific to jobs and historical performance," he said. “Market occupancy and rent growth trends are stronger than any other Midwest markets."

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