Downsized Opus works to keep competitive edge

There's an empty, state-of-the art office building next to Opus headquarters that's a vivid reminder of the economic meltdown that has pummeled the Minnetonka developer and other players in commercial real estate.

Completed less than a year ago, it was supposed to house an expanded Opus, but the developer no longer needs it. The parent company, Opus Corp., recently announced it was shutting down, and Opus Northwest, its regional development arm in the Twin Cities, has shrunk its area salaried workforce to about 100, compared with about 385 just a couple of years ago.

Opus Northwest CEO John Solberg says some good decisions and a little luck are the reasons his company didn't wind up like three other Opus regional development companies that tumbled into bankruptcy this year. Washington-based Opus East already has closed, and Atlanta-based Opus South is shutting down. Phoenix-based Opus West will continue to operate in a greatly reduced capacity.

Like Opus Northwest, Chicago-based Opus North has survived, smaller but intact. Opus' total nationwide workforce has gone from about 2,000 at the start of the year to about 500.

Opus Northwest has not closed any of its other five offices that stretch from Minnesota to the Pacific Northwest. Solberg said that there might be more job cuts at his company but that they would be minimal.

"You don't want to cut so much that you lose your competitive advantage," he said. Solberg said he wants to maintain as much as he can of his workforce so he doesn't have to rebuild it when development activity revives. He's not sure exactly when that will happen, although he believes some parts of the market could be close to bottoming out.

Until then, he's focusing on competing for the smaller number of projects that are out there and trying to leverage its track record of public sector work, which hasn't fallen off like building for corporate America. He's also exploring taking advantage of Opus' relatively strong position in the beleaguered industry by developing properties that banks are eager to unload.

Opus Northwest had revenue as of Sept. 30 of about $380 million, down about 10 percent from the same period a year ago. But the business is profitable and has positive equity.

Develop and sell

That cannot be said for Opus' bankrupt entities. Opus West listed $1.5 billion in liabilities against $1.3 billion in assets in its court filing, while Opus East listed $502 million in liabilities and $238 million in assets. Opus South was forced to tap the parent company for more than $75 million in capital earlier this year and is thought to have burned through the funds in a month.

Solberg said Opus Northwest recently negotiated a new line of credit with its longtime lender U.S. Bank even as the bank and Opus Corp. were in a legal dispute over the parent company's default on a $150 million line of credit.

Solberg, who joined Opus in 1997, says a generally more cautious approach with less speculative development didn't expose Opus Northwest as much as its sister companies to the market downturn.

Merchant builders like Opus typically sell the projects they build. Solberg says he decided about three years ago that investors' huge appetite for commercial properties couldn't last and chose to sell projects quickly, rather than holding out for a better price. For example, it sold the first two buildings of Excelsior Crossings, a three-building office complex it is developing for Cargill Inc. in Hopkins, before they were completed.

As a result of that sale and others, Solberg says Opus Northwest now has just two unsold vacant office buildings -- one in Denver and another in Seattle. In contrast, Opus West had about 30 buildings empty or partially vacant on its books at the time of its bankruptcy filing, Solberg said.

Opus Northwest reduced its risk further with the third building at Excelsior Crossings, now under construction. It sold the site to Cargill, then collected a fee from the agribusiness giant to design and construct the building. Solberg said he decided a few years ago to offer this type of design-build service on more projects, using it with Medtronic Inc. for facilities it built in Mounds View for the company's cardiac rhythm management division.

Solberg said there were people inside and outside his company who questioned the strategy because it generates less revenue. "It wasn't a real popular thing to do during the go-go days," he said. "But you have to establish it during the good times, because when the tough times come it's impossible to start it up." It now has a $150 million backlog of fee-based projects, he said.

Solberg says Opus Northwest was fortunate that its territory didn't suffer as much as some parts of the country, like Florida, California, Texas and Arizona. But he concedes that some Opus bankrupt units had not spread their risk and were heavily invested in some segments where business fell sharply, like condominium development.

Too much autonomy?

Opus' regional companies were set up as independent entities with authority to make their own decisions and manage their own finances. Even so, area industry experts say the parent company was too hands-off, and they offer a comparison with Minneapolis-based Ryan Companies, which also has offices in Florida, California and Arizona.

Ryan officials declined to comment, but other area industry sources say that company strictly monitors its far-flung operations. "At Ryan they won't let a $1 million decision get made out in the field without approval from the central office," one industry source said. Observers say Ryan also may have taken on fewer risks, such as not focusing on condo projects.

Opus Northwest has dodged some problems by holding off on some developments like Xenia Ridge, 256,000-square-foot office property in Golden Valley, and Campus Crossroads, an apartment project near the University of Minnesota that Solberg said will be downsized. It also walked away from a couple of projects, letting a contract with an option to buy a 9-acre parcel near Excelsior Crossings expire and canceling a deal with Ramsey County for a 6-acre site on St. Paul's riverfront.

Like other developers, Opus Northwest is looking for work outside the private sector. Institutional work, like schools and government buildings, now accounts for less than 20 percent of its projects, but Solberg said that should increase to about 40 percent in the next couple of years. It is developing a sports and recreation center in St. Paul for the University of St. Thomas, the latest of several projects for the university that include its downtown Minneapolis campus.

Solberg said he's considering getting into projects that would involve picking up distressed assets, including buildings, vacant land or bad real estate loans. And he expects his firm to do more projects outside its customary territory that otherwise would have been done by Opus' other bankrupt units. It's already signed on for two -- a 717,160-square-foot industrial property near Nashville for Nissan North America that would have been done by Opus South and a 239,000-square-foot parking ramp that is the latest phase of an office park Opus East had been developing in Bethesda, Md.

"We've always been autonomous and now we're independent," said Solberg of the organizational changes dismantling the parent company. "It's not really a big stretch. The business strategy doesn't really change."

Susan Feyder • 612-673-1723