Big developer AECOM looks to stretch its reach in the Twin Cities construction market

If you have been to a hospital, traveled by light rail or attended a sporting event in the Twin Cities, there's a good chance you have encountered an AECOM project.

Soon, you will be able to live in an AECOM building.

The Los Angeles-based company has helped develop some of the biggest health care, infrastructure and transportation projects in the metro over the past decade, but is now turning its attention to the residential sector with two gutsy new proposals: a nearly $1 billion mixed-use project that stands to transform the riverfront in downtown St. Paul and a boutique condo building with a groundbreaking design in Minneapolis.

Those projects mark a shift in strategy for AECOM, a $20 billion company with a sprawling international network of design, construction and finance divisions, which gives the company access to resources most regional players don't have.

"Competing with them has been disorienting," said Shane LaFave, director of multifamily development for Sherman Associates, one of several developers that vied with AECOM for both the Minneapolis and St. Paul projects.

AECOM's growth has largely been fueled by mergers and acquisitions in markets where the company lacked a presence. AECOM landed with a splash in the Twin Cities in late 2009 when it snapped up Ellerbe Becket, one of the biggest and oldest architecture and engineering firms in the Twin Cities whose clients included 3M and the Mayo Clinic.

AECOM expanded in the Twin Cities again in mid-2014 when it bought San Francisco-based URS Corp., an engineering, design and construction company with deep ties to the oil and gas sector in the U.S. and Canada. Like Ellerbe, URS had deep roots in the Twin Cities. It helped develop the $250 million Union Depot in St. Paul and the $32 million Marq2 transit corridor in downtown Minneapolis.

Changing market forces, however, make it a good time to pursue more residential work, according to Jim Thomson, vice president and managing principal for AECOM's central region.

"We're looking for balance," he said.

In pursuit of new markets in the Twin Cities, AECOM is targeting a pair of prime-but-challenging development sites that have the potential to reshape the Twin Cities skyline. That includes a narrow strip of riverfront bluff land in downtown St. Paul, which has been in play for several years and one of Ramsey County's top redevelopment priorities.

Until the county spent $17 million on demolition, the site had been occupied by the county jail and West Publishing Co. Several developers pitched their own ideas for the site, but the Ramsey County Board recently endorsed AECOM's ambitious plans to build up to four towers in three phases.

With a price tag that could ultimately reach nearly $1 billion, the project would include hotel rooms, apartments, condominiums, shops and offices atop a sloping land bridge with landscaped paths and open staircases that would span Shepard Road and the railroad tracks below.

The deal faces potential headwinds, including future demand for housing and offices, but the county and AECOM are within a six-month due-diligence period that gives both parties an out as they work out final details before negotiating a final development agreement and property sale.

AECOM said it will need anchor tenants before the office towers will be built.

The deal also hinges on the financial fortunes of the company itself, a publicly traded conglomerate that generated $20.16 billion in revenue in its most recent fiscal year, an 11 percent improvement over 2017. But profits are off sharply, to $136.5 million, compared with $339.4 million a year ago. Investors are lukewarm on the stock, which is off nearly 15 percent this year and has posted a five-year return that trails the S&P 500 stock index. The company told analysts it would exit underperforming markets and restructure leadership to shore up its bottom line.

From a construction standpoint, its Twin Cities projects are small potatoes. The company led construction of the 2012 Olympic Village in London and portions of the World Trade Center redevelopment in downtown Manhattan.

Brian Dusek, AECOM's managing principal for real estate development, said the St. Paul riverfront site is the company's most ambitious to date in the Twin Cities.

The proposal comes after several other development attempts. During a previous request for proposals (RFP) several years ago, the city selected another local company to develop a hotel on the site, but that deal fell apart. During the most recent RFP, there were three proposals in addition to the one from AECOM.

Last month Minneapolis city staff said it favored AECOM's plans for the vacant half-acre parcel, which is along the busy Washington Avenue corridor, just a block from the Mississippi River.

Construction is expected to begin sometime next year — about the same time as two other luxury condo towers several blocks away, so they will be entering the market with plenty of competition for buyers.

AECOM's strategy, Dusek said, is to build a boutique building with out-of-the box features other developers aren't willing to attempt. The project was designed by Twin Cities-based Dwyer Oglesbay and will be built to Well Building guidelines, which are new to the U.S. but popular in Europe, and LEED Gold energy standards.

"I think we've got a niche product that will do well because there's nothing comparable to it in this market," Dusek said.

Dusek said the condos will have efficient floor plans that will be priced at more than $500 per square foot, which is consistent with prices in the neighborhood but higher than average for condo sales across the metro.

Beyond these two projects, AECOM is working on others, including the possibility of partnering with other developers.

The goal, Dusek said, is to have two to five projects in the pipeline.

"Success breeds success," he said. "But it's going to depend on the market."

AECOM's willingness to tackle such complicated projects is no surprise to Nathan Johnson, partner at 4RM+ULA in Minneapolis and president of the AIA Minnesota. He worked with AECOM on the design of the Green Line stations, and said that because the company has expertise in just about every facet of the development process, they are in a unique position to tackle difficult projects.