Emboldened by the popularity — and quick sale — of an 11-story office building in St. Louis Park, Ryan Cos. plans a second tower next door.
Bridge Office this week paid an undisclosed sum for 10 West End, a 343,000-square-foot office building in what's known as the West End area of the city.
Ryan broke ground on the project in 2019 and completed it in January 2021. Since then, the building has been fully leased, validating the oft-cited theory that Class A buildings — newer structures in the most desirable locations — are still attracting tenants despite a vacancy rate or more than 30% across the metro.
"What we've experienced is that there's a flight to quality in terms of tenants, but also capital," said Peter Fitzgerald, vice president of real estate development at Ryan Cos. "Tenants and capital are both looking for best-in-class assets."
Twin Cities-based Ryan developed, owned and managed the building in conjunction with the Excelsior Group and Sotarra.
Fitzgerald said the building was never actively marketed, but the sale to Bridge was a logical decision because of the company's extensive investments in the area.
In late 2020, the company acquired the West End Office Park, a 560,000-square-foot Class A office campus less than a half mile from 10 West End. And in Hopkins, the company owns the 508,000-square-foot Excelsior Crossings office campus.
Bridge Office is a subsidiary of Bridge Investment Group, a national real estate investment group based in Utah, and owns 13.1 million square feet of office space in 14 states.
"We thought Bridge was the ideal buyer considering their holdings in the neighborhood and their belief in the West End and in the Minneapolis market," Fitzgerald said. "Bridge now owns the majority of the West End neighborhood."
Fitzgerald said the 10 West End project has defied all the forces that have caused record office vacancies in parts of the metro. He said the building's occupancy rateis on pace to hit 96% by end of the year, leaving about 15,000 square-feet vacant.
Tenants include professional services and technology companies that have relocated from across the metro. The largest tenants include HDR Engineering, Old National Bank and CarVal Investors.
"Been a lot of talk about employees not returning to the office and the office sector being dead," said Fitzgerald. "But our experience says otherwise."
Based on the company's experience in St. Louis Park, Fitzgerald said the company is moving forward with plans for a sister building called 20 West End — an 11-story building with about 350,000 square feet.
To help secure financing for the project, he said, the company is looking for an anchor tenant, preferably one that would commit to 100,000 square feet or more.
"With rising interest rates, it's no surprise that it's a challenging market to finance all real estate right now," Fitzgerald said. "But leasing momentum is calling for a sister building."
According to a recent report from Cushman & Wakefield, which represented Ryan in the sale, the overall office vacancy rate in the metro declined by less than a percentage point while average asking rents continued to slightly rise.
In a statement, Edward Neblett, an associate at Bridge, said 10 West End exemplifies what today's employers are looking for in the office market.
"The building is a talent hub," he said. "The office market has bright days ahead as owners and developers pivot to address the new needs of today's workforce."