Sherman Associates, a Twin Cities developer, plans to demolish a vacant office building in downtown Minneapolis and replace it with three towers of mostly apartments.

The $400 million project, expected to be completed in 2026, aims to help solve two metro-area real estate problems: too many offices and not enough housing.

"We are very excited and optimistic about the direction Minneapolis is heading," said Sherman President Chris Sherman. "We believe downtown Minneapolis will have a whole new level of vibrancy and livability for the people who live, work and enjoy downtown."

The firm recently paid $6.4 million for the block along Washington Avenue that's home to the now-vacant Wells Fargo operations center. It plans to replace that building with a 10-story, mixed-income midrise apartment building, a 20-plus-story, market-rate high-rise apartment tower and a 25-plus-story, mixed-use tower that could be a hotel, housing and/or offices.

The proposal is the Minneapolis-based developer's fifth and largest project now under way in the Central Business District, which has struggled to bounce back from the loss of office workers in the pandemic.

The Wells Fargo operations center, which had three levels of underground space, will be demolished. Sherman plans to reuse the foundation walls to build underground parking for almost 1,000 vehicles.

Though many key aspects of the project are in preliminary stages and subject to community feedback and market forces over the next several months, there's one thing that won't change: its name. A historical consultant helped unearth the history of the block over the last 160 years, leading Sherman to call the project "Harmonia."

The name is a homage to Harmonia Hall, a Victorian Gothic-style building that stood on a portion of the site from 1884 to 1962 and was used by the Harmonia Singing Society, an organization formed by Minneapolis' German community, which hosted concerts, charity benefits and cultural events until 1899. The building, which later was a theater, business college and bank among other uses, was demolished in 1962.

The name is also a nod to its physical location within the Central Business District, but close to the Mill District and North Loop neighborhoods.

"For us it really seemed to fit as it related to creating further harmony for the city and in connecting areas and uses where people live, work and play," Sherman said. "We want this block to really provide great energy and harmony for the city for generations to come."

Sherman said Harmonia will mostly likely include multifamily, retail and restaurant space, but there's also potential to include more offices, condominiums or hotel rooms if there's demand for such spaces.

The project, which was designed by ESG Architecture & Design, also includes a "feature restaurant plaza" and a courtyard.

A few blocks down Washington Avenue, Sherman is in the process of redeveloping another full city block, which includes a new fire station, a 22-story market-rate tower and a six-story income-restricted apartment building.

A few blocks away at the Northstar Center, Sherman is about to begin converting a 300,000 square-foot office tower into 216 rentals. The company is also redeveloping what's known as the J.I. Case Building, which will house its company headquarters.

These projects comes at a time of relative uncertainty for the downtown office market.

Though workers are trickling back, the office vacancy rate in the Central Business District is still hovering near all-time highs. And there's an expectation that as company leases expire, the vacancy rate could rise even higher.

Sherman said the objective of these projects is to remove unneeded office space. The conversion of the Northstar East building into housing and the demolition of the Wells Fargo building will remove close to 1 million square feet of excess and underutilized Minneapolis office space, he said.

The 550,000-square-foot Wells Fargo operations center alone represents about 10% of the vacant office space in the Central Business District, Sherman said.

Demand for housing has strengthened as the pandemic has waned. Across the metro, rental housing is still in short supply.. With mortgage rates on the rise, demand for rentals is expected to increase.

The average vacancy rate in downtown Minneapolis during the second quarter was 8% despite the addition of several hundred new apartments, according to Marquette Advisors. At the same time, renters in the area saw rents increase 5.8%.

Sherman said he expects to close on construction financing in the next 12 to 18 months and hopes that construction can be completed in early 2026.

"We're going to be having a lot of conversations with the community, the city, with other developers and with potential users," Sherman said. "Our goal is to have a very defined vision early next year so we can move full speed ahead on design."