ROCHESTER – From his third-floor office, Mark Dickson sees signs of new vitality across downtown: the university housing constructed three years ago, the $17 million office tower opening next month, the corner lot where he plans to erect an office building.
These days, investors from around the world are vying for a piece of Rochester.
With word of the Mayo Clinic's massive expansion and the state's $585 million aid for the project spreading, Dickson has orchestrated separate sales of a nearby bank and skyway plaza to companies from the Middle East. Other real estate brokers have talked to investors from Venezuela, Saudi Arabia and India who are drawn by the idea that major medical centers are recession-proof.
"There's a lot of opportunity here," said Dickson, chief executive of Oxford Management, a Rochester real estate brokerage and management firm.
Foreign and local investors alike are snapping up land in the heart of Rochester as the largest economic development project in Minnesota history promises thousands of new jobs and residents here over the next 20 years. Hotels are rising. Senior housing complexes are opening.
Records show that in the district targeted for Mayo's expansion and for upgrades to public infrastructure, the number of real estate transactions has doubled in the last three years, with one-third of those selling for at least twice their estimated value. Purchases include $1.9 million in property bought by the University of Minnesota as part of a plan to expand its downtown campus.
But the growing whir of investment is also prompting concern, with some in Rochester asking how longtime businesses will fit into the boom.
Last year's $4 million sale of Associated Bank to Bloom International Realty, an investor from the United Arab Emirates, is displacing many tenants that occupied the seven-story building. Those include Exhibitor Media Group, which had operated from the South Broadway building for 42 years. Two weeks ago, Exhibitor and its 35 employees moved to a building nearby.
"We had to spend a ton of money not to better our business, not to make us more productive … to move a block," said president Randy Acker.
"I certainly have concerns about what's happening to people who have been the core, the nucleus of downtown Rochester, and what's happening with all these Destination Medical Center prices already going up," he said. "Our rent alone has gone up tremendously from what it used to be." He declined to say how much the rent was but said the firm's rent is now 40 percent higher.
The Dunlap and Seeger law firm will go from owning a floor in the bank building to renting more expensive space nearby, said Greg Griffiths, managing shareholder. He's concerned about downtown having enough office space and parking.
Meanwhile, CJ's Midtown Lounge closed earlier this year after its building was purchased. The bar opened a month ago 2 miles south, outside of downtown, because the owners couldn't find an affordable place nearby.
Some downtown Rochester leaders caution that the consequences of the $6 billion Destination Medical Center project on downtown Rochester won't really be known for years. Final plans for the project still await approval.
Yet real estate professionals who do business downtown say prices are on the rise and that it will be increasingly hard for people without deep pockets to invest.
Another Middle Eastern investor, Baheya LLC from Abu Dhabi, this fall paid close to $10 million for the Brackenridge Skyway Plaza in Rochester — more than twice its estimated value, according to county figures — where the tenants include a sandwich shop and the Mayo Clinic. The company bought another nearby commercial building for $5.3 million in 2011.
With the acquisition of Associated Bank, Bloom International has plans to tear down the building and construct a five-star hotel.
"What we're seeing is people are buying up land, and those that have land are either holding onto it in hopes of receiving a premium that some people have gotten, or they'll hold onto it and do something themselves," said commercial real estate broker Nick Pompeian.
In addition to Middle Eastern investors, Pompeian said he's shown property to prospective buyers from China who've been coming to the Mayo Clinic for years; they are considering developing a 30-story mixed-use building.
Dickson said foreign investors are also looking at Minneapolis, but the Destination Medical Center project makes a smaller market like Rochester attractive, too.
Still, regional players are doing most of the real estate deals in Rochester. Months before the state approved the Destination Medical Center project, a local investor group signed a $230 million agreement to buy a 1,222-room portfolio of four downtown hotels, including the historic Kahler Grand Hotel.
Rochester firm Titan Development and Investments is building a $17 million, seven-story plaza near the Associated Bank building and has plans to move in next month. The company is also working on a 25-story tower on Broadway.
Olmsted County property records show that one Rochester group bought a downtown property this year for $771,500, a third over its estimated value. Others from Minneapolis, Sioux Falls and Mankato have also made claims on land downtown.
A $68 billion impact?
Last Thursday, dozens of people met in the Mayo Civic Center to hear about the latest details of Destination Medical Center. Twenty years from now, they said, the Destination Medical Center program could have 320,000 square feet of shops, restaurants and entertainment venues, 2,850 housing units, 1,380 hotel rooms and 6.8 million square feet of health care facilities. Further space would be devoted to related medical businesses and education.
By 2034, leaders of the project estimated, the impact would be $68 billion, supporting nearly 51,800 jobs.
A draft plan detailing how the effort would shape Rochester, from remaking the waterfront to bolstering public spaces and transit, will be presented to Destination Medical Center's board next month, followed by a public comment period and final approval next year. The City of Rochester will also have to approve the blueprint.
"We're really trying hard to make sure people understand this, and it's their town and it's their decision," said Tina Smith, soon to be lieutenant governor, who chairs the center's corporate board, after the discussion.