Village Green plans 250 units at Soo Line Building next to LRT line downtown.
What was once the tallest office building in downtown Minneapolis is on its way to becoming the city's next luxury apartment high-rise.
Michigan-based Village Green closed on the sale of the 19-story tower called the Soo Line Building, which it plans to gut and transform into about 250 upscale apartments with the location and kinds of amenities that are now difficult to find downtown.
The deal was consummated after more than a year of negotiations and at a time when thousands of apartments have already been proposed for downtown Minneapolis as developers try to outpace each other in their attempts to meet the needs of a hungry rental market. Questions remain about the depth of that market, but the project is being tackled by a developer with a long track record of successful projects and in a part of downtown that is foreign turf for housing developers.
"Everybody wants to build a better mousetrap to try to attract people and to be unique and distinctive," said Mary Bujold, president of Maxfield Research Group and an expert on the downtown apartment market.
Indeed, the race is on for apartment developers. And this one is among the most unusual. When the building was built as the headquarters for the Soo Line Railroad in 1914, it was the tallest office building in downtown Minneapolis. Though the Soo Line railroad was eventually acquired by Canadian Pacific Railway, there are still more than 400 railroad workers in the Soo Line Building, which is now home to Canadian Pacific's U.S. headquarters.
Analysts say the building was ripe for the picking by an apartment developer. Demand for commercial space is soft, but the rental market is red hot. Before the Great Recession, the Soo Line Building had been slated for conversion into a hotel by its owner, Hempel Properties, but those plans were put on hold. Downtown office vacancy rates are unusually soft, and the Soo Line Building is only about half-full.
Hot market for rentals
Meanwhile, rental vacancy rates have dropped to record lows as those looking for urban housing shift their focus to rentals rather than homeownership. And because the building is shaped like a U, the units will have lots of windows, which makes it ideal for conversion to living spaces.
The conversion means that within the next year, Canadian Pacific will relocate its U.S. headquarters and all of its employees into One Financial Plaza next door that was recently acquired by Hempel, which declined comment for the story.
Ed Greenberg, the railway's Calgary, Alberta-based spokesperson, welcomes the move, which will happen gradually over the next year, because the new space will offer some of the modern conveniences the old one didn't.
"The new accommodations will mean a new era for Canadian Pacific U.S.," he said. "The Soo Line Building will always have a special place in our company's history, but it became evident that for our modern railroad and operations, One Financial Plaza is a good fit for our company."
Village Green's plans are still somewhat under wraps. The company made the announcement with a brief note and its website, and Chairman Jonathan Holtzman isn't talking about the project.
Abe Appert, a first vice president for CB Richard Ellis and the broker who handled the deal, said that he expects the project to have about 250 apartments done with the kind of flair that has become Village Green's trademark. The company has done several projects in Minneapolis, including a massive renovation and addition to the Eitel Hospital along the edge of Loring Park. The most recent project was Mill District City Apartments, which has helped light a fire under other developers because the entire building rented ahead of schedule at prices that some considered aggressive. Rents averaged about $2 per square foot in some cases.
Appert expects the Soo Line Building to have amenities similar to Eitel and Mill District, which have resort-style amenities including outdoor movie theaters and an indoor-outdoor swimming pool.
Holtzman reportedly paid about $11 million for the building, which Hempel bought for $23 million in 2008. If the building has 250 units, that puts the average cost per unit at about $44,000, a veritable bargain compared with new construction costs today of about $180,000 per unit for concrete and glass high-rise construction, Bujold said.
There'll be competition
In recent weeks, plans have been revealed for building three high-rise apartment towers in downtown Minneapolis in addition to hundreds of units planned throughout the city, raising questions about how many units the market can absorb.
Bujold said she's a "little concerned." The key to avoiding a glut will be staggering completion of the projects.
The location of the Soo Line Building bodes well, Bujold said, citing the lack of new rental construction with skyway access during the past 25 years. "There's an expanding resident and workforce base in downtown," he said. "People want to be there."
City Council Member Lisa Goodman said that this is one of few projects downtown that'll be able to take advantage of the city's expanding transit/train system. The building is across the street from the light-rail station.
"I firmly believe the market will drive which projects move forward and which will not," she said. "There will clearly be a market for units in a historic building and right on the rail line, these factors make this project different."
Jim Buchta • 612-673-7376