It seems a little early in the current real estate development upturn in the Twin Cities to see a beautiful rendering of an 80-story building that may never get built.
A proposal for a supertall tower like the one recently proposed in downtown Minneapolis usually means the market has to be nearing a top. A case in point is the near-perfect timing of the 150-story Chicago Spire. A hole actually got dug for that one — before the market collapsed and the lawsuits started.
The 80-story tower proposed here is the cornerstone of the development proposal a firm called Duval Development submitted this month to the city of Minneapolis for the “Nicollet Hotel” block. It was one of four proposals from local development firms for an overall project that’s supposed to be “iconic.”
A tower that tall is a lot of building for a site that’s been vacant since 1991 and wasn’t really economically viable for years prior to that. Like a lot of downtown Minneapolis, the Nicollet Hotel block has since been used mostly to park cars.
That’s one of the interesting aspects here, going 80 floors up in a downtown area that as of earlier this year, when a colleague counted them, had about 70 surface parking lots. Why go 900 feet up when there are 69 additional parcels nearby where putting up any building apparently doesn’t make economic sense?
Minneapolis is a big town, but a big town on the prairie. Some of those lots are already heading for development, yet a scarcity of sites to build something new isn’t one of the city’s pressing problems.
The head of Duval Development, Alex Duval, wasn’t yet ready to discuss the thinking behind his 80-story tower proposal. But it’s likely he’ll be selling a “catalytic effect,” that building something really big sparks more investment and building.
That brings to mind the optimism of the boosters who were once so enthusiastic about the potential for development of the surface lots around the new professional football stadium called the Metrodome. They were proven right — in 30 years.
In fairness to Duval, he’s thinking big because it was the city’s idea that anything built on this site needed to be iconic.
That may be a tiresome word in 2014, but iconic was specifically what the city called for in its request for proposals, from the opening paragraph to the specific criteria to be used to select the winner.
That’s why no one submitted a plan for a CVS pharmacy. The city said anything had to be “at least 20 active” floors, and don’t bother counting the floors of any parking ramp.
The proposal submitted by Doran Companies included a 30-floor building. Mortenson has proposed going up 31 floors, and United Properties has proposed a 36-story tower.
All three of those are also pretty tall for Minneapolis, but there’s no denying that this is an attractive site for something besides surface parking. It’s at the end of Nicollet Mall, which is about to get a major face-lift. Across the street is the Minneapolis Central Library and kitty-corner in the other direction is a new Whole Foods Market store.
For decades the Nicollet Hotel stood there. When it was conceived in the 1920s, its 18-story size made it, well, pretty iconic.
If land were actually scarce in the Twin Cities, building higher would actually make economic sense and wouldn’t just boost civic self-esteem. Adding floors adds rentable space to a given building footprint, but it comes at higher cost.
The elevator system in a tall tower is more complex and costly, the heating and cooling system is more complex and costly, even the window-washing system is. And it costs a lot to build a structure that can withstand the wind way up on top.
The city, of course, doesn’t want to turn over control of a key block to someone with a headline-grabbing plan that has little chance of being built because no one thinks it’s a good investment. So the city made financial backing part of its criteria when picking a plan.
The locals that came through with proposals are some solid corporate citizens. United Properties has a long track record, and Mortenson is both a major firm in its own right and has enlisted the Excelsior Group as a partner.
Doran, a well-known developer of multifamily housing that has proposed building 300 units of housing on the site along with a 172-room hotel, has Investors Real Estate Trust of North Dakota lined up as its financial partner. It’s a $2 billion REIT known locally as IRET. Doran may not even have to apply for a bank loan.
Duval Development isn’t a firm with a long history. But founder Alex Duval has experience in the field, including working for affiliates of John Portman, the architect and builder best known for his work in the Peachtree Center district of downtown Atlanta.
With that kind of background Duval certainly knows his way around a financial plan for an 80-floor tower — and he will also know that “iconic” only works when there are enough people willing to pay up for it. And it will cost a lot to be more than 800 feet above Hennepin Avenue.
One really interesting quirk of the real estate development business, however, is that the city could get its iconic building even if the project doesn’t make money. That’s because in real estate the product is more or less permanent. It doesn’t usually get scrapped if the customers never quite buy enough of it.
Another way to put that is that Duval Development can build its 80-story tower if it can raise enough money from equity investors and lenders to last through the grand opening.
Then if the tenants don’t quite materialize, the rents don’t quite reach the lofty level called for in the financial plan and the investors never get their money back, an 80-story tower in Minneapolis will still be standing.
And it will still be iconic.