business

The credit crisis has thrown a wicked curveball at developers hoping to build places for people to live, work and shop in the area surrounding Target Field, the new Twins ballpark.

"Developers are talking, but there's almost no digging going on," said David Frank, project manager at Schafer Richardson Inc., whose work in Minneapolis' North Loop includes three condo projects at 710, 720 and 730 N. 4th St. All were finished before financing dried up for condos and other types of commercial development.

Frank said that by the end of this year his firm hopes to submit plans to the city for a $30 million apartment project at 800 N. 3rd St. But he said the construction timetable is far less certain and depends on getting financing in what continues to be a very difficult credit market.

Minneapolis developer Dan Hunt got city approval earlier this year for a 259-unit apartment building at 103 N. 2nd St. but is still working to secure financing for the $55 million project. "It's the most challenging thing I've done in my professional career," he said. Hunt is hoping financing can be finalized in a couple of weeks so work can begin in June.

And the company that's proposed the most ambitious development for the North Loop, Hines Interests, said it's also been hamstrung by the tight credit market. The Houston-based company, thought to be the largest private property owner in downtown Minneapolis, initially expected to start work this year on some parts of its project, called North Loop Village. Plans call for 1,250 residential units, 120,000 square feet of office space, 45,000 square feet of retail space and parking for 1,100 cars on an 8-acre site adjacent to the ballpark.

Now Hines is hoping that work can begin next year, according to John McDermott, a vice president in the firm's Chicago office.

The North Loop already has more restaurant and entertainment venues for Twins fans than the neighborhood surrounding the Metrodome, where the team will play its final game in just a few weeks. In recent years the North Loop has sprouted a community of businesses, many of them advertising and creative services firms, in former industrial buildings redeveloped into office properties.

But even some of that growth has leveled off this year. The vacancy rate in the Warehouse District now is at its highest level since the end of 2006, according to figures from the Twin Cities office of Colliers Turley Martin Tucker. Brent Erickson, a vice president at Bloomington-based NorthMarq, said the recession has been particularly hard on the type of small professional-service businesses drawn to the district, with some cutting back or shutting down. Office rents in the area, which had risen an average of 10 percent a year from 2005 to 2007, have flattened out, he said.

While the weak economy, which has sapped demand for office and retail space, is partly to blame, McDermott said the main reason for the delay in Hines' project is tight credit.

"The financing market is far more dysfunctional than the job market," he said. Hines has tried, but been unable to find a financing partner for the North Loop development that's expected to cost $500 million to $750 million, he said.

Thomas Crowley, a commercial real estate investment banker with Minneapolis-based Dougherty Funding, agrees. "Not only is the ability to borrow money basically zero but there's so much uncertainty for bankers these days," he said. "They're not sure what kind of new regulatory environment they're going to be operating in."

In addition to delays, the credit crisis also has resulted in some North Loop projects being called off altogether.

Seattle-based Milliken Development last year withdrew plans for One Washington, a residential and retail project to be built on the corner of Washington and Hennepin avenues, after failing to secure financing. Milliken has been trying to sell or to find additional investors for the project that was to include a Whole Foods Market.

Lupe Development Partners canceled plans last year for the Pacific, a $100 million retail, office and hotel project planned for the Warehouse District, after New York lending syndicates, which initially competed to finance the project, pulled out when credit markets collapsed.

Just a few months ago Hillcrest Development's plans to acquire the site of an abandoned condo project at 324 N. 1st St. fell through. Scott Tankenoff, Hillcrest's managing partner, said his firm couldn't resolve some engineering issues at the site with the property owner, Lehman Brothers, whose spiral into bankruptcy helped trigger the stock and credit market meltdown.

Mike Christenson, director of Community Planning and Economic Development, said the downturn in development activity isn't limited to the North Loop. He said there currently are about 15 stalled projects in the city.

In fact, that district might be in a better position than some parts of the city to bounce back when the economy and credit markets recover. A station hub, which serves the existing Hiawatha light-rail line and will serve the Northstar commuter rail line beginning in November, is next to the ballpark.

The same station would likely serve the proposed Southwest and Central Corridor light-rail lines. Hines has said that even more than the ballpark, the area's future as a transportation hub for residents, commuters and visitors makes the district attractive for development.

There's also been a significant amount of investment in public infrastructure, including the landscaped plaza outside Target Field that will link the stadium to downtown. The plaza will be open to the public every day, regardless of whether there's a Twins game.

In contrast, the plaza outside the Metrodome wasn't built until 1996, almost 15 years after the stadium was completed.

"We should have understood a lot earlier the need for public spaces not devoted to parking," Christenson said. "Investing in those things will encourage development in the long run. It brings certainty to that marketplace."

Although city planners' visions of a fully developed district with condo and apartment buildings overlooking the ballpark, office and retail buildings and possibly a hotel are taking longer than expected, a handful of smaller projects are moving ahead.

A new restaurant, Om, recently opened in the renovated ground floor of the Manufacturers' Building, the former home of Nate's Clothing. Circle Pines-based Uppal Enterprises bought the building at 401 1st Av. N. last year and has plans to develop apartments on the upper floors.

Another new restaurant, Bar La Grassa, will open next month at 800 Washington Av. N. in the space formerly occupied by Babalu. City Center Realty Partners, which bought the building last year, has done extensive remodeling in addition to building a deck, according to Eric Anderson, a partner in the Minneapolis office of the San Francisco-based firm. Occupancy of the upper office floors has risen from about 50 percent to almost 70 percent in the last year, he said.

Erickson, who handles leasing for the building, said it's likely that small projects like these will be the norm in the North Loop until credit markets loosen up.

"It's not the area," he said. "I don't know if even a new stadium could overcome the lackadaisical condition the economy is in right now."

Susan Feyder • 612-673-1723