George Sherman: The patient developer

  • Article by: NEAL ST. ANTHONY , Star Tribune
  • Updated: April 10, 2011 - 11:23 PM

The industry veteran has weathered the real estate recession and managed to hang on to a $1.3 billion portfolio.

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Developer George Sherman this month officially will break ground on the $132 million overhaul of Riverside Plaza in Minneapolis.

Photo: David Brewster, Star Tribune

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Four years into a real estate recession that's busted developers from the urban core to the cornfields, George Sherman is still standing.

"If I had to do it over again, I would have stopped building sooner and sold more faster," said the veteran developer and project owner. "I was fortunate. I had at least one tire getting traction throughout."

Sherman, 57, an analytical biochemist by training, has a lighter wallet these days. But he still has a future as a developer.

His diversified portfolio of rental housing, commercial buildings and hotels, most of it in urban centers of Minneapolis, St. Paul, Duluth, Des Moines and St. Louis, has lost several hundred million in value. And his lenders required him in 2008-09 to inject about $35 million through asset sales and equity into a portfolio that he estimates is still worth more than $1.3 billion.

He had to sell dozens of condos in the Twin Cities, and 35 luxury houses through an ill-fated foray into Palm Springs, Calif., for as little as 50 cents on the dollar. But so far Sherman has not lost any major properties to his lenders. He knows his markets, keeps a conservative debt-to-equity ratio that approaches 50 percent and has demonstrated an ability to restructure deals outside of courtrooms, which these days are clogged with lawsuits among developers, contractors, lenders and tenants.

"He's been through tough times, and he's more sophisticated than a lot of developers," said Jim White, a former Minneapolis development official who watched Sherman during the 1980s and 1990s. "He was always willing to do what was needed when the cities needed developments done."

Sherman got in early and deep 30 years ago as Minneapolis and St. Paul used incentives to redevelop their abandoned, polluted riverfronts and turned skid rows into upscale art-and-entertainment nooks, and upscale housing.

On a whim in 1978, while working in sales for a medical company, he borrowed $100,000 from U.S. Bank (still his primary lender) and bought a small Uptown apartment building, refurbished it and sold the units as condominiums, grossing about $360,000.

"I had no idea what I was doing," Sherman recalled. Yet he quit his day job to focus on real estate projects.

"I like getting the numbers to work," said Sherman, a trim jogger, who grew up the son of a doctor whose early death was tied to smoking and drinking. Sherman has abstained for 25 years, wears a $35 runner's watch and drives a 10-year-old Audi that sports 230,000 miles.

Sherman is a political independent who voted for Independence Party candidate Tom Horner for governor. He generally avoids political contributions to municipal candidates. He has contributed to Republicans, including former U.S. Sen. Norm Coleman and Gov. Tim Pawlenty.

Sherman and his wife live in a house they paid $1 million for near Interlachen Country Club a decade ago. He reads a lot, watches the History Channel and hangs out with family and close associates.

"Developers have egos," acknowledged Sherman. "My ego may be quieter, but I like getting a good project to work. I like to have an impact."

Sherman has done upscale condo projects on the Mississippi River, new housing projects and signature renovations of old buildings, including his headquarters at 233 Park Av. S., where the Old Spaghetti Factory is the first-floor tenant. The offices of Sherman and Associates occupy the upper floor.

Major renovation

Sherman also is one of the Twin Cities biggest developers of subsidized and workforce housing. This month he officially will break ground on Minnesota's biggest-ever residential-project restoration. The $132 million overhaul of Riverside Plaza near the U of M's West Bank campus, a development that's challenged and intrigued him since he and minority partners bought the former Cedar Square West from the federal government for $17 million in 1988.

The then-controversial complex was born in the early 1970s as a federally backed urban renewal effort to help replace slums. But critics called the complex a Soviet-style model of several towers around a central courtyard and indoor community rooms that house charter schools and nonprofits. The complex boasts 1,300 apartments for students, immigrant families and workers.

When Sherman took over, it was mostly Vietnamese and Hmong. Now, the immigrants are mostly Somali.

Sherman is using a myriad of public and private sources to finance renovation. He got a boost in February when the AFL-CIO Housing Investment Trust committed $50 million in pension funds to help finance a restoration that will employ hundreds of workers over the next two years. The building-by-building overhaul will include new energy, mechanical, plumbing and kitchens.

Sherman plans to cut Riverside's $3 million annual utility bill by a third and create a much better place to live. He said the project has thrown off less than $2 million in cash flow over the years, while requiring about $1.5 million annually in repairs.

"We had to get ahead of this," Sherman said. "We were using the cash flow to constantly fix the property."

The financial package got traction last December when the 15-building complex was granted status on the National Register of Historic Places. The designation enabled Sherman to raise $28.9 million in federal and state historic tax credits that he sold to investors to help finance the project.

To make the financial package work, Sherman, under some pressure from critics, effectively cut his development fee from $8 million to $5 million. Sherman is buying out other minority partners in the deal and adding Google as a limited partner through its foundation. He also has agreed to take the balance of the development fee over several years out of cash flow from the project.

"George does good work," said Tom Streitz, the Minneapolis housing director who once negotiated with Sherman as a young legal aide lawyer.

Sherman has a personal connection to Riverside Plaza. He knows immigrant kids who grew up to be cab drivers, carpenters, doctors, lawyers and businessmen.

The complex includes day cares, a charter school, employment center, community rooms and a tenants association that Sherman funds at about $150,000 a year.

"Twenty years ago the tenants needed social services," he said. "The last 10 [years] it has been education and employment.''

Cecile Bedor, the planning director in St. Paul who once was an inner-city housing developer, called Sherman a patient developer.

"George works with the community and the city," Bedor said. "He doesn't storm in and say, 'If you don't do this, I'll raise hell.' He keeps his cool. He wants to make money, but he's in it for the long haul.''

Neal St. Anthony • 612-673-7144 • nstanthony@startribune.com

ON BUSINESS NEAL ST. ANTHONY

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