Treasure Island Center in downtown St. Paul could get a $3.6 million loan from the Port Authority's nonprofit arm to avoid a default on its mortgage.
The 540,000-square-foot building is owned by Go Wild LLC, a joint venture in which the port's Capital City Properties (CCP) has a majority stake. Go Wild has not missed a mortgage payment, but it is not complying with a requirement that shows lenders how easily a company's operating cash flow can cover its obligations.
To comply with requirements and avoid a default — and the soaring interest rate and other expenses that would come with it — Go Wild's mortgage lender is demanding the owners make a total of $6 million in payments on the Treasure Island Center mortgage by mid-July.
The practice is fairly common in commercial real estate, Port Authority Board Member Matt Slaven said during a CCP board meeting Tuesday at Treasure Island Center. In some cases, lenders that relaxed requirements during the early stages of the COVID-19 pandemic are cracking down again.
CCP could provide a loan of up to $3.6 million, though it also could provide less depending on other sources. Two private investors that each have a 10% stake in Go Wild have committed a combined $2.4 million to the required mortgage payments. CCP also is in talks with an undisclosed, third-party investor who could contribute an additional $2 million, according to Port Authority documents.
The Port Authority began playing an aggressive role in financing downtown redevelopment efforts in the 1970s, only to see many of those projects, such as Galtier Plaza, default on their loans in the 1980s. In recent years, the port has had a hand in high-profile developments including CHS Field and Allianz Field.
Treasure Island Center sits in the heart of downtown St. Paul, on the corner of Wabasha and 6th streets. The building, constructed in 1962, formerly housed Dayton's and a string of other department stores until Macy's closed in 2013.
The Port Authority purchased the vacant site in 2014 and went on to lead its redevelopment into a mixed-use property that houses offices, restaurants, a Walgreens and a practice ice rink for the Minnesota Wild.
CCP grew its ownership stake in Treasure Island Center from 20% to 72.5% after developer Hempel Cos. cashed out most of its stake in 2020, according to Port Authority documents.
"Not many people want to be in a downtown project with significant loan guarantees," former Port Authority President Lee Krueger said in an interview with the Minneapolis/St. Paul Business Journal at the time, referring to the struggles COVID-19 created for commercial properties.
Go Wild is working to refinance its mortgage since its current agreement expires at the end of August, port President and CEO Todd Hurley said. Then, once the commercial real estate market starts to stabilize, he said the owners will look to sell the property.
"It's a good building. Maybe we didn't come out of the pandemic as quick as we probably wanted to, but things are normalizing, stabilizing," Hurley said, adding that parking numbers "are a pretty good indicator that things are coming back."
Overall foot traffic in downtown St. Paul is still down since many companies switched to remote or hybrid work in 2020. In 2022, nearly a quarter of downtown's office space was vacant, the highest vacancy rate in a decade, according to to the Greater St. Paul Building Owners and Managers Association's annual market report.