A San Francisco real estate firm chose Minneapolis as its first mid-America market with the purchase of three downtown office buildings from local developer Ned Abdul.
Spear Street Capital bought the properties — 510 Marquette Av. S., 123 N. 3rd St. and 300 1st Av. N. — for $87.5 million from Swervo Development Corp., Abdul's Minneapolis firm, on Friday.
It's the latest example of a traditionally coastal-centric real estate investor acquiring properties in inland cities like Minneapolis, Denver and Phoenix. "It's an interesting story of where a local developer meets national capital," said Scott Pollock, executive director for Bloomington-based Cushman & Wakefield/NorthMarq, who brokered the deal.
A year ago, Spear learned of an "attractive opportunity" to buy the TractorWorks Building in Minneapolis, a signature building in the city's North Loop district that formerly housed a John Deere factory. And while that deal didn't work for Spear, outcompeted by New York-based Goldman Sachs, the company was suddenly intrigued with Minnesota's largest city.
"They really came to like the market through that process, and it fits among the rest of its portfolio," Pollock said. "An educated workforce, downtown activity, a large corporate presence and infrastructure investments like the stadium. They felt it measured up to their other markets," like Austin, Texas, Boston and Toronto.
Meanwhile, Swervo was knee-deep in a massive renovation project on its 510 Marquette property that it had bought in 2013 for $6.7 million. The skyway-connected building, originally constructed in 1921 as the Minneapolis branch of the Federal Reserve Bank, had deteriorated from its previous glory.
Situated practically on top of the Nicollet Mall station that serves both the Green and Blue light rail lines, the building held promise for a faithful developer. With all-new windows, and "a lot of heavy lifting," Pollock said, Abdul "took something that was relatively unattractive to investors and in two years made it very attractive."
In a statement, Abdul said Swervo typically acquires for the long term. "In this case, however, we were presented a very attractive unsolicited offer from one of the pre-eminent real estate investment firms in the country," he added.
The other two properties that Spear purchased are red stone and brick buildings in the Warehouse District. 300 1st Av. N. is fully occupied while 123 N. 3rd St., also called the Colwell Building, is 90 percent leased.
The sale represents 10 percent of Swervo's total portfolio.