They’re known in commercial real estate circles as “zombie buildings” — those properties that occupy space but lack a sense of verve and life.
That was the case for many years with Fifth Street Towers, the glassy office complex along S. 5th Street at Marquette Avenue in downtown Minneapolis. Built in 1984 and 1988 by developer Opus Northwest, the two towers were only 64 percent occupied when they were auctioned off at a sheriff’s sale last year.
The winning bid of $111 million was a joint venture between Zeller Realty Group of Chicago and Atlanta-based Invesco Real Estate. That was just one dollar more than the bid submitted by MetLife Inc., the lender foreclosing on the property.
Since then, the new owners have spent about $2 million to upgrade the property, slowly ridding it of its distinctive 1980s attributes. Remember the color teal? “It was everywhere,” said Michael Wilhelm, senior vice president of Zeller Realty Group, with a groan.
Common areas and the fitness center have been spruced up, and the building’s core fundamentals, such as heating and air-conditioning systems, lighting and plumbing have been improved. Future plans include spending another $2 million for more upgrades, primarily on elevators, lobbies, and restrooms and common areas on several floors of the towers, Wilhelm said.
The activity at Fifth Street Towers mirrors a multitude of development action occurring on the north end of Nicollet Mall, long a sleepy enclave of downtown. Currently, three luxury apartment towers are being built or rehabbed. Xcel Energy Inc. is expanding its campus along the mall, and two other buildings, 510 Marquette and the former Neiman Marcus store, have been sold to buyers bearing renovation plans.
“There seems to be an impressive amount of activity in that area,” said Brian Woolsey, managing director and principal for the real estate firm Cassidy Turley. “With light rail down there, it’s buzzing.”
Work on Fifth Street Towers appears to have paid off. The building recently achieved LEED Gold certification from the U.S. Green Buildings Council for environmental sustainability, no small task for an existing structure. And, last week, the 100-year-old Minneapolis law firm Moss & Barnett confirmed it would move into the tower at 150 S. 5th St., occupying two floors.
Wilhelm said efforts to attain LEED status involved “a process, it takes time and a healthy commitment from the building’s owners.” But prospective tenants, especially large corporate users, “definitely look for [LEED certification] because they want to be committed to environmental sustainability.” Beyond that, the building is expected to cut its utility bills by 30 percent.
The new owners are busy marketing the property — which has the biggest block of Class A office space available in downtown Minneapolis — while retaining stalwart tenants Leonard Street & Deinard, Bowman & Brooke, BBDO Proximity, RBC Dain Rauscher and Augsburg Fortress, among others.
Occupancy rates historically hovered around 90 percent until the Great Recession, but the towers have languished since then. “There was a lot of deferred maintenance,” Wilhelm noted.
And, until recently, little development activity has occurred on the north end of Nicollet Mall. For years, Fifth Street Towers was flanked on the west side by an unsightly surface parking lot. Now, that patch will be home to luxury apartment towers being built by Opus Development and Mortenson Development, respectively. Opus is also working on Xcel’s expansion along the 400 block of Nicollet Mall. And, across 5th Street, the historic Soo Line Building is being renovated into 250 apartments. The common theme among all of the developments, including Fifth Street Towers’ renovation, is the proximity of the light-rail station at 5th Street and Nicollet Mall and public bus service.
“More and more employers are interested in mass transit,” Wilhelm said. “It used to be a dead end down here, but now look what’s happening.”