During the Great Recession, Todd Simning wagered much of what he had earned over the previous 18 years that the downturn would be short-lived and that he would get back to business quickly. It wasn’t and he lost a boatload of money.
In this economic downturn, the Twin Cities developer said he is not going to let history repeat itself.
“I was way too optimistic and I waited, thinking that things would turn around fast,” he said of his experience during the recession. “I’m not going to make the same mistake again — ever.”
After more than a year of planning, Simning recently pulled the plug on TMBR, a 10-story condo building in the North Loop neighborhood in Minneapolis, and is instead moving forward with plans for a shorter building with 100 rental apartments.
Simning said tightening credit markets played into his decision to change course on the project, which some said is the first notable development casualty of the government shutdown. It also reflects the difficult choices developers must make when evaluating long-term commitments in uncertain times.
When Simning and co-developer Colin Oglesbay, managing principal with D/O Architects in Minneapolis, initially proposed the TMBR project in early 2019 the project seemed like a slam dunk. There was little competition. Only a couple of condo projects had been proposed, so they acquired a small parking lot at the corner of First Street and N. Third Avenue in the heart of the North Loop.
The proposed 10-story tower was innovative in a number of ways, including that it was to be the tallest all-wood building in the Midwest.
Simning said that after nearly a year of marketing the units, which ranged from about $500,000 to more than $2 million, he had commitments in place for nearly a third of the 59 units.
Those reservations had recently started converting to purchase agreements, but they will now be canceled and deposits/earnest money will be refunded. DRG, the North Loop brokerage that was in charge of marketing the condos, will be in charge of leasing the apartments if the project gets built.
Simning said he still needed at least 30 presales before he could secure financing and break ground on the project. Given the uncertainties about how long the pandemic would last and the lingering pain of the decisions he made during the 2008 recession, he decided it wasn’t prudent to move forward. His decision was solidified after talking with his banker, who made it clear that credit markets were already tightening.
“I vowed that I would always have a Plan B and wouldn’t wait around hoping things would get better,” he said. “But are you going to wait for six months or a year?”
Simning notified the North Loop Neighborhood Association of the change in plans late last month and expects to present new plans by Tushie Montgomery Architects for the building to the group’s planning and zoning committee on May 20.
He said the new tower would resemble the old one, but be only six stories instead of 10 and 40-feet shorter. The top five floors of the building will be stick-built atop two levels of concrete construction that will include the main level of the building and parking.
Elsewhere, developers are moving forward with plans to build thousands of rental apartments this year. Kelly Doran of Bloomington-based Doran Cos. said this week that leasing and rent collection “remain robust” across the company’s residential portfolio with “little to no signs of distress,” and that he’ll keep his focus on building luxury apartments.
In addition to several projects underway, Doran Cos. is moving forward with plans to develop a 500-unit rental project in St. Anthony, a third 154-unit phase of its Reserve at Arbor Lakes apartment project in Maple Grove and a 101-unit project in St. Louis Park for another owner/developer.
The company is also planning for a second phase of its soon-to-open Expo luxury apartment community along the Mississippi River in Minneapolis and the Triple Crown gated apartment community in Shakopee, next to Canterbury Park.
Given his bullish position on the market, Doran is also hiring for a variety of full- and part-time positions. That includes leasing, property managers and housekeepers.
For Simning, apartments seem like a safer bet despite a lack of new condo buildings in the pipeline. Unlike the late 2000s, when there was already an oversupply of condominiums and more on the way, there are relatively few for-sale condos on the market and only a couple luxury condo buildings on the drawing board. At the same time, Simning is getting signals of instability in the luxury market. He also runs a custom homebuilding company and before the pandemic had five deals in the works ranging from $1.4 million to $4.5 million.
“With the stock market going up, consumer confidence was really strong,” Simning said. “We really thought going into 2020 that was going to be our year.”
All of that changed when the pandemic took hold and the stock market volatility began. On the Sunday after Gov. Walz announced the stay-at-home order in March, Simning said two of his clients called within an hour of one another and put their projects on hold.
“Their permits were ready to go,” he said. “But they said ‘don’t dig.’ ”
The next day, another client called and put their project on hold. “They said ‘we just need to see how this plays out.’ This caught everyone flat-footed.”