Minnetonka-based Opus Development Corp. is gearing up to start construction on Nicollet Residences — a 33-story, 330-unit apartment tower with a budget topping $100 million — in downtown Minneapolis this summer.

“We’re just finalizing our financing structure,” said Dave Menke, senior vice president and general manager with Opus Development Corp. Menke declined to provide details about the financing that Opus is assembling, but said that the plan calls for residents to begin moving into the building in January 2014. The half-block site includes 415-427 Nicollet Mall and 426 Marquette Ave.

At the edge of downtown Minneapolis, Chicago-based Magellan Development Group LLC has proposed a 36-story, 355-unit apartment tower, also slated to cost more than $100 million. No groundbreaking date has been set for the project at 1368 LaSalle Ave.

The Minneapolis rental market hasn’t seen new rental towers of this scale in years. Some market observers are wondering if the market is there to support the top-tier rents that will be needed to support the construction costs.

Count developer Steve Minn among the skeptics.

“I’m trying to think about the last high-rise rental that was successful in this town,” said Minn, a principal with Minneapolis-based Lupe Development Partners. “Usually the winners on high-rise rental are the second or third owners.”

The Opus site, next to a light rail transit (LRT) stop, was the former home of the Powers department store. (File photo: Bill Klotz)

Minn said that Minneapolis lacks the dense urban environment of a Chicago or New York,   where people live downtown to avoid lengthy suburban commutes.

“We just don’t have the density,” Minn said.

But Menke remains confident that Opus has a strong site next to a light rail transit stop that can be skyway connected in the core of downtown. Menke argues that the site sets the Opus project apart from other proposed apartment developments.

“We think there’s depth to the market,” Menke said, noting that he does not see the Opus project to be in direct competition with the Magellan proposal.

Brian Gordon, a vice president with Magellan Development, did not have a projection for when his group could start construction.

“We got all the approvals and now we’re working on the financing. It’s slow, but it’s moving along. Nothing’s fast these days,” Gordon said.

Competition among apartment developers is heating up. Minneapolis-based Greco is under construction on its conversion of the vintage Holden Building at 607 Washington Ave. N. into 120 apartments in the North Loop area of downtown Minneapolis. A development team including Eden Prairie-based T.E. Miller Development is under construction on a 100-unit project at 701 Second St. N., also in the North Loop area.

Houston-based Hines is getting close to starting the 185-unit Dock Street Apartments at 333 Washington Ave. N., not far from Target Field.

“We are planning to break ground at the beginning of the second quarter,” said Steve Luthman, vice president of development with Hines. “We’re really excited about the market — it’s one percent vacant right now.”

Luthman said that financing is in place, but declined to discuss details. But he acknowledged that putting deals together is still complex, despite the enthusiasm for multifamily projects.

“I would say that there’s a lot of interest in Minneapolis apartments, but securing financing is difficult during these economic times, even for apartments,” Luthman said.

As Opus puts together its financing package, Menke said that the capital markets have a good view of the Twin Cities.

“Minneapolis is very attractive…we’re getting quite a bit of attention,” Menke said.

The most recent market study from Minneapolis-based Marquette Advisors showed market-rate apartment vacancy at 1 percent in downtown Minneapolis at the end of September 2011. Marquette reported the average rent for a downtown Minneapolis apartment at $1,230 per month – about 33 percent higher than the average rent of $925 per month across the Twin Cities.

Rents at the new towers are expected to be north of $2 per square foot, which would put them at the upper end of the market.

Menke declined to discuss rental rates for the Nicollet Residences, but has said that he expects them to be “competitive” with other luxury buildings.

Unlike denser cities like Chicago, Minn believes that there are a wider range of options in the Twin Cities.

“My belief is that there is still plenty of elasticity in our housing stock,” Minn said. “There are still people who want their yard and want their space.”

If the projects move ahead, either would rank among the largest apartment projects in Minneapolis. City of Minneapolis statistics list the largest single apartment buildings as the 408-unit building known as McKnight Tower at the Riverside Plaza complex on the West Bank and the 360-unit Churchill Apartments at 111 Marquette Ave. in downtown Minneapolis.

Herb Tousley, director of the Shenehon Center for Real Estate at the University of St. Thomas, said that while tower projects will be expensive to build, changing market dynamics could favor the developers.

“There’s more people that want to live downtown,” Tousley said. “We’re not Chicago, but we’re not overbuilt.”

Source: Burl Gilyard, Finance and Commerce / February 7, 2012