Bad economy spells trouble for St. Paul riverfront project

The developer set to take prime downtown St. Paul riverfront property off Ramsey County's hands and turn it into a $200 million office, hotel and condo project has walked away from the contract, but wants to keep working on the project.

Opus Northwest, based in Minnetonka, notified the county Monday that it is terminating the $10 million purchase agreement for the former West Publishing complex and adjacent vacant county jail. By doing so, Opus will keep its initial $250,000 in earnest money. The developer would have had to deposit another $750,000 today if it decided to pursue the project.

The problem? A sluggish economy. So far, Opus hasn't found a tenant to anchor the 504,000 square feet of office space -- a critical component, Opus has said, to starting the project.

"At this point, with very little if any job growth, it's impossible to break ground on speculation," said Tim Murnane, an Opus senior vice president. "We have every intention -- if the county's interested -- in continuing to work with them."

Ramsey County board members weren't surprised by Monday's development, and most indicated they would be willing to listen to what Opus has to say.

Murnane will give a presentation to county commissioners today to show them initial plans for building up the 6-acre site that stretches along Kellogg Boulevard and the Mississippi River bluffs from Market to Wabasha streets. "We love the site," he said.

"I'm anxious to hear what they have to say," said board Chairwoman Jan Parker. The county has been trying to shed the land for years so it can get back on the tax rolls.

Ortega, chairman of the board's facilities committee, which will hear the presentation, said he might be open to an extension, if that's what Opus wants.

Murnane said discussions with possible tenants are still taking place.

The move also lets the county reevaluate its options in dealing with its own employees. There are about 600 workers left in the West building, with 100 set to move across the river.

"It doesn't surprise me," said Commissioner Janice Rettman, who was the lone voice of dissent when the purchase agreement was approved in January. She said one of the concerns she had then was that the market was in bad shape.

"It may just be time for us to throttle back a little bit and wait for the market to get better," she said. "I'm prepared to do that."

The county then hired a national real estate firm to market the property on the Mississippi River bluffs. Eight bids came in, and the county narrowed those to three. Opus won out.

"For us, this is a critical project for downtown St. Paul in the conversation we have in seeing more businesses located down here," said Kris Johnson, president of the St. Paul Area Chamber of Commerce.

Downtown St. Paul was one of the few metro-area markets to have positive absorption of office space in the first quarter, according to a recent research report by the Twin Cities office of Colliers Turley Martin Tucker, a real estate company. But the uptick in leased space only made a marginal change in downtown St. Paul's vacancy rate, which continues to be the highest in the metro area.

At the end of the first quarter, the vacancy rate for office space in downtown St. Paul stood at 26.3 percent, compared with 16.9 percent for the Twin Cities overall, Colliers said. The vacancy rate for downtown Minneapolis was 16.5 percent at the end of the first quarter.

Typically, developers begin considering adding office buildings when a market's vacancy rate gets down to about 10 percent.