Lilydale-based Michael Development is floating plans for a new 63-unit apartment building at a former service station site in the North Loop area of downtown Minneapolis.

The site, at 600 Fifth St. N., is two blocks from the Target Field baseball stadium.

The North Loop is one of the busiest areas in the metro area for apartment development. According to Finance & Commerce research, more than 1,200 apartment units are under construction or proposed in the North Loop.

Mike Swenson, owner of Michael Development, said that rents in the proposed building won’t be quite as steep as some of the other apartment projects under construction.

“We hope to cater to maybe some people who can’t pay $3,000 a month,” said Swenson, who has partnered with Randy Hobbs and Terry McNellis on the project.

Swenson estimated the project budget at $8 million. The plans call for 63 market-rate apartments and 4,000 square feet of commercial space. Minneapolis-based Collage Architects is designing the complex.

Although the project is small, David Frank, president of the North Loop Neighborhood Association, said it is significant because it’s slated for a “pioneering” location in the neighborhood.

“It’s most notable for being the first residential development to jump the [Interstate] 94 ramps, which to now have been the demarcation line for residential development in the neighborhood,” Frank said. The site is south of the Interstate 94 ramps.

Fritz Kroll, who chairs the Livability Committee for the North Loop Neighborhood Association, agrees with Frank about the significance of the location. Kroll said that he has lived in the neighborhood for 10 years and that the site has been vacant the entire time.

“I think that has a lot to do with [the renovation of] Ford Center and the transit station coming online. I think that’s a huge sign,” Kroll said, referring to nearby projects. “I think it’s wonderful that someone’s jumping over there.”

Neighbors were “generally supportive” of the proposal at a recent neighborhood meeting, Frank said. New zoning in the area would allow for a much larger project on the property, which prompted some residents to lament that the proposal wasn’t big enough, he said.

In just about every other city neighborhood, developers routinely deal with the opposite objection: that their proposals are too big.

“There was some concern expressed that it’s only a five-story building,” Frank said. “Only in the North Loop, right?”

Frank said he had no predictions about the depth of the demand for new apartments in North Loop.

“We are close to 600 units — just with what’s under construction,” Frank said. “I don’t have an answer.”

Minneapolis-based Marquette Advisors reported the apartment vacancy rate for downtown Minneapolis at 1.9 percent at the end of 2011. While that’s still historically low, it did represent an uptick from the vacancy rate of 1 percent reported at the end of the third quarter.

Two weeks ago, Finance & Commerce reported that the Minnetonka-based Opus Development Corp. has a contract to buy the Merit Printing site at 103 Second St. N. for a 106-unit market-rate apartment complex there.

Swenson’s site is next to the new home of Fulton Brewery at 414 Sixth Ave. N. The brewery converted a 1950s era warehouse into its production facility.

The vacant property for the apartment complex is owned by St. Louis Park-based 600 5^th St. N. LLC which paid $360,000 for it in May 2011. The assessed value is $190,000. The empty building on the site dates to 1953, according to Hennepin County property tax records. Swenson said his group has a contract to buy the site.

Environmental issues there are not daunting, he said. “There’s some cleanup, nothing huge.” He is also confident that financing can be assembled for the deal. “It shouldn’t be a problem.”

Swenson said he expects to charge rents in the range of $1.60 to $1.70 per foot. While that’s not cheap, it’s less than the rents of more than $2 per square foot sought in new luxury projects.

The developers have yet to submit plans to the city of Minneapolis for review.

“It’s a long way from done. We have preliminary plans, and we’re out for bid,” Swenson said.

Source: Burl Gilyard, Finance and Commerce - March 8, 2012

Minnesota business and insurance industry advocacy groups may have a point when they say that the state’s mandated health insurance benefits are driving up costs.

Citing the Blue Cross Blue Shield Association, the National Conference of State Legislatures lists 49 health insurance mandates in Minnesota: 28 benefits that must be covered, 13 types of health care professionals that need to be covered, and eight types of patients mandated for coverage.

Minnesota has the sixth highest number of health insurance mandates in the country. The top five, in order, are Maryland, Virginia, Texas, California and Connecticut.

So how do the top six states stack up on health insurance premiums?

The Kaiser Family Foundation’s statehealthfacts.org website has employer-based premiums data from 2010. The six states with the most mandates had an average single premium of $4,965. For family premiums, it was $14,166. The six states with the least mandates – Nebraska, Hawaii, Iowa, Mississippi, Alabama and Idaho – had an average single premium of $4,582 and an average family premium of $12,675.

Minnesota itself had an average single premium of $4,964 and an average family premium $13,903, above the national averages of $4,940 for a single premium and $13,871 for a family premium. Employers in Minnesota on average pay about four-fifths of the premium, with workers contributing for the rest.

The legislators who got the mandates passed over the years in Minnesota might argue, though, that the extra cost is worth it because coverage isn’t being denied.

The Affordable Care Act that Congress passed in 2010 might smooth the situation out anyway, thanks to the creation of online health insurance exchanges that will allow individuals and small business owners to comparison shop for health plans.

The same Web page on the National Conference of State Legislatures site that includes the mandates table also explains that the federal health reform “requires states to defray the cost of benefits required by state law in excess of essential health benefits for individuals enrolled in any plan offered through an exchange.”

States can get around this by benchmarking the exchanges off one of the following health insurance plans:

• One of the three largest small group plans in the state by enrollment;
• One of the three largest state employee health plans by enrollment;
• One of the three largest federal employee health plan options by enrollment;
• The largest HMO plan offered in the State’s commercial market by enrollment.

Still, the federal health reform might soon smooth out some of Minnesota’s web of health insurance mandates.

Source: Chris Newmarker, Finance and Commerce / February 12, 2012

Developer Steve Minn, retailer dream big after May tornado

Last May’s tornado in north Minneapolis may have accelerated the redevelopment already occurring at Penn Avenue North and West Broadway Avenue — a blighted area that officials hope could someday become like 50^th and France or other key Minneapolis retail hubs.

Businesses that shut down because of tornado damage included the Broadway Liquor Outlet at 2201 W. Broadway Ave. and the fast food joint Fire ’n’ Ice, which was run out of a former Burger King at 2220 W. Broadway.

Broadway Liquor’s owner Dean Rose also owned the 2220 building. Rather than try to rehab 2201, he decided to seek a mixed-use development around 2220, where Broadway Liquor could eventually reopen.

Nearly a year later, Rose has formed a business partnership with developer Steve Minn and his Lupe Development Partners. The resulting plans call for a roughly $15 million project with retail and 75 apartments covering several properties.

Much of the financing will come from government sources; the intersection is in an area of the city that local officials have deemed blighted because of damaged and abandoned properties.

West Broadway Avenue is the western border of the Jordan neighborhood, which saw its population decline nearly 20 percent in the past decade. Median household income in the neighborhood from 2005 to 2009 was $30,280, compared with $45,625 for Minneapolis as a whole, according to Wilder Research data cited by the city.

The Lupe/Rose project has faced some hurdles because Keith Reitman, a major owner of rental housing and other properties in the area, has held off selling a building in the development area, even saying he might want to engage in his own development.

Rose, a third-generation liquor store owner in the neighborhood, says the tornado created a “unique opportunity to expand our concept beyond just our store; to look at how we redevelop Penn and Broadway from the mass devastation that happened from the tornado.”

“This is the result of the tornado,” Tom Streitz, the city of Minneapolis housing director, said of the Lupe/Rose project. “It’s an opportunity to redevelop.”

Streitz said the intersection’s potential for the neighborhood is comparable to other retail hubs in the city: 50^th Street and France Avenue, or Lake Street and Lyndale Avenue.

The project, which could break ground as soon as this year, is happening around the same time as CommonBond Communities plans for a $9.8 million, 50-unit apartment building at 2022 W. Broadway Ave. Local projects completed in recent years include the $3 million 5 Points building at 2119 W. Broadway Ave., which involved developer Stuart Ackerberg, and the $750,000 Capri Theater renovation at 2027 W. Broadway.

The Penn and Broadway intersection is also part of a 38-block area in which the city is looking to acquire 42 homes for redevelopment as part of the Penn Avenue North Redevelopment Plan.

Both the Lupe/Rose and CommonBond developments are expected to draw much of their funding from housing revenue bonds allocated by the city, as well as grants and loans from local and state agencies. Requirements for the government funding mean the housing will be for a working-class population — people making 60 percent of the median income in the area, or about $30,000 to $50,000 a year.

“Those are your teachers, police officers, nonprofit workers, etc. — a huge part of the workforce,” said Erin Jerabek, executive director of the West Broadway Business & Area Coalition. She thinks the Lupe/Rose and CommonBond developments will meet a strong need for affordable housing post-tornado. In the case of Lupe/Rose, there could also be needed retail.

Streitz said the rental housing vacancy rate in the city is 1.5 percent — a historical low — and the demand for affordable rental housing is “very high.” He said units in the Lupe/Rose and CommonBond developments will likely run at $850 to $900 per month for one-bedrooms and around $1,100 for two-bedroom units.

For now, the Lupe/Rose project is still in its early stages of planning, with no architect or general contractor selected yet, Minn said.

Besides the 2220 W. Broadway Ave. property, Lupe and Rose want to acquire two abandoned rental housing buildings owned by the city at 2423 and 2413 Penn Ave. N. The Minneapolis City Council’s Community Planning and Economic Development Committee on Tuesday approved development rights for the parcels, an initial step toward a purchase.

The committee also heard objections from Reitman, who owns an abandoned commercial building at 2419 Penn, right in the middle of where Lupe and Rose want to build.

Lupe and Rose have been trying to buy the building from Reitman, who says he instead wants to spend a few hundred thousand dollars of his own cash to renovate.

“I’d like to do a development with my money and my building. … Now it’s go time, and why should I be left in the dirt when I have a lovely building?” Reitman told the committee.

Minn told the council committee he doesn’t need Reitman’s building anymore. He said he has a preliminary agreement with the Church of St. Anne-St. Joseph Hien to buy a parcel at 2512 Queen Ave. N., which would give Lupe and Rose room to build around Reitman.

Source: Chris Newmarker, Finance & Commerce / February 15, 2012

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

As competition intensifies among apartment developers, Minneapolis-based Schafer Richardson has financing in place and is ready to start construction in May on Third North, a 204-unit apartment project in downtown Minneapolis.

The $38 million market-rate project calls for new construction on a site at 800 N. Third St., where the developer would raze an existing industrial building.

Maureen Michalski, a project manager with Schafer Richardson, said that the developer has put together financing including a mortgage insured by the U.S. Department of Housing and Urban Development (HUD). Michalski said that lenders and investors are still bullish for multifamily projects.

“We have all of our private equity lined up for the deal as well,” Michalski said. “People seem to be more interested in putting their money in the market.”

Michalski said that financing is being arranged by CBRE HMF Inc., part of Los Angeles-based CBRE Group Inc. Michalski said that Schafer Richardson expects to start construction on the project in May, with completion set for September 2013.

The North Loop area of downtown Minneapolis, home to the Target Field baseball stadium, has been a draw for apartment developers.

At one closely watched project, the former Jaguar car dealership at 222 Hennepin Ave., developers say that they’re getting close to starting. Ryan Companies US Inc. and the Excelsior Group, both based in Minneapolis, have a joint venture to redevelop the site with 287 apartments anchored by a grocery store.

“We’re getting real close,” Mark Schoening, a senior vice president with Ryan Companies, said of the project.

Developers began construction in November on a 100-unit project at 701 Second St. N. The project is a joint venture between Eden Prairie based-TE Miller Development and developer Curt Gunsbury. A formal name for the project has not yet been announced.

“We should be open in August,” said Robb Miller, vice president of TE Miller Development. “I think there’s a lot of depth to the market. The North Loop in particular is an area that I think can absorb a lot of units.”

Miller said that rents in the building would be above $2 per square foot, like many of the newer apartment buildings. He said that rents would start at $1,100 per month for studios and would be more than $2,000 per month for two-bedroom units. Michalski said that rents at Third North would also be about $2 per square foot.

Finance & Commerce has been tracking the local apartment development pipeline. Currently, Finance & Commerce has tallied about 10,000 new apartment units under construction or proposed across the Twin Cities.

Observers have started to question how many new projects the Twin Cities can support, particularly at the steep rental rates demanded by the costs of new construction. There’s general agreement that not every proposed project will be built.

“I think there’s still some uncertainly about some of the proposed developments,” Michalski said.

“I think that the first few projects that go up are going to do well. I think there’s definitely a need for some of that product downtown,” said Herb Tousley, director of the Shenehon Center for Real Estate at the University of St. Thomas. “I know that they’ve done studies and they’ve demonstrated that there’s demand downtown.”

Minneapolis-based Marquette Advisors reported apartment vacancy across the Twin Cities at 2.3 percent at the end of September. But in downtown Minneapolis, Marquette Advisors reported a vacancy rate of just 1 percent. Marquette Advisors reported the average rent for a local apartment at $925 per month at the end of the third quarter, but reported an average rent of $1,230 per month for downtown Minneapolis.

While financing deals today requires more equity from developers than it did in the past, deals are getting done. Daniel Trebil, a senior director with Bloomington-based NorthMarq Capital, said that he’s seeing lenders provide loans in the range of 65 percent to 80 percent of the total project costs today. He noted that lenders are particularly focused on doing deals with experienced teams and project developers.

“There’s a heavy reliance by the banks on the sponsorship,” Trebil said. “Underwriting a sponsor is every bit as important as underwriting the deal itself.”

Trebil noted that part of the current development climate is being driven by the relative lack of new apartment construction in the recent past.

“We haven’t had a lot of supply come online here over the last decade,” Trebil said. “Clearly there’s some room to add units.”

Michalski said that new apartment projects in the area are varied enough to attract a range of residents. Schafer Richardson also has plans for a smaller, 44-unit apartment project – a conversion of the historic Cameron Building at 756 N. 4^th St. in the North Loop area of Minneapolis.

“There’s some competition…there’s plenty of room still in the market,” Michalski said.

Source: Burl Gilyard, Finance and Commerce, January 26, 2012

What’s more, “first-time” delinquencies -- loans that have never been delinquent before -- made up only a quarter of all new delinquencies, which LPS says is a sign of an “improving trend for new problem loans.” 

Overall, about 4 million loans are 90 days or more delinquent or in foreclosure, shrinking to 2008 levels. 

There’s still a long way to go, however. Of the nearly 46 million loans that were current by the end of August, 23 percent were still at high risk of defaulting, LPS notes. 

“August results showed an all-time high in the number of loans shifting from foreclosure back into delinquent status, suggesting that process reviews and potential loss mitigation activity are continuing,” LPS noted in a public statement. “As a result, foreclosure timelines continue to increase, with the average loan in foreclosure having been delinquent for a record 611 days.” 

According to LPS, the states with the highest percentage of loans in delinquency or foreclosure are:

• Florida
• Mississippi
• Nevada
• New Jersey 
• Illinois

Source: Melissa Dittmann Tracey for REALTOR® Magazine Daily News

His remarks come at a time when more than 6.3 million homes are 30 days or more behind on their mortgage payments or in foreclosure, according to Lender Processing Services. 

The Fed has taken steps that have been keeping mortgage rates hovering at or near record lows in recent weeks, but with unemployment still high, Bernanke said that record-low interest rates don’t seem to be helping the housing crisis.  

During the speech, Bernanke called long-term unemployment a “national crisis.” About 6.2 million Americans, or 45.1 percent of all unemployed, have been jobless for more than six months — a total that is at its highest point since the Great Depression, HousingWire reports in citing government stats. 

"Clearly getting more money into the hands of home owners who spend it could help to fuel GDP growth," Eric Rosengren, president of the Federal Reserve Bank of Boston, said in remarks on Wednesday. "This would reduce one of the impediments to a more significant effect from the monetary policy actions taken to date."

Source: “Bernanke Calls for More Housing Help from Washington,” HousingWire (Sept. 28, 2011)

The number of U.S. homes that receiving an initial default notice rose 33 percent in August from July. That increase represents the biggest monthly gain in four years, according to RealtyTrac.

"This is really the first time we've seen a significant increase in the number of new foreclosure actions," says Rick Sharga, a senior vice president at RealtyTrac. "It's still possible this is a blip, but I think it's much more likely we're seeing the beginning of a trend here."

The uptick in foreclosure activity follows after months of a slowdown in foreclosures, which started last fall, with banks reviewing foreclosure policies and paperwork after facing lawsuits and criticism over how they processed foreclosures. Some banks even temporarily halted their foreclosures as they more carefully reviewed pending cases. The slowdown was also blamed on court delays in some states.

But some housing experts say the increase in foreclosure activity actually could be good for the housing market. A faster turnaround in foreclosures could help clear the glut of shadow inventory hovering over the market, which many say has caused home values to plummet.

The “bloated foreclosure pipeline now presents the greatest obstacle to a housing market recovery," said Josh Levin, a Citi analyst. About 3.7 million more homes are in some stage of foreclosure than in a normal housing market, Levin said.

Banks are on track to repossess about 800,000 homes this year — down from more than 1 million last year, Sharga said.

Overall, 228,098 U.S. homes — or one in every 570 U.S. households — received a foreclosure-related notice in August, a 7 percent increase from July. However, that represents a 33 percent decline from August 2010.

Source: “Report: Mortgage Default Warnings Spiked in August, Signaling Potential New Foreclosure Wave,” Associated Press (Sept. 15, 2011)

Foreclosure Notices Drop, Threat Still Looms

Overall, the number of homes repossessed by lenders in the first half of this year dropped 30 percent compared to the same period in 2010. But foreclosure processing delays — with lenders taking longer to take action against delinquent borrowers — is stalling the housing recovery, experts note.

About 1.2 million homes received a foreclosure-related notice in the first six months of this year — in other words, one in every 111 U.S. households, RealtyTrac reports.

Nevada continues to face the most foreclosures; one in every 21 households in that state received a foreclosure notice in the first half of the year.

The foreclosure process continues to lengthen too. From April and June, homes took 318 days on average to go from the first stage of foreclosure to ultimately where it was repossessed by the lender — that’s up from 298 days in the first three months of the year. (In New York, the foreclosure process took the longest at an average of 966 days or 2.6 years; Texas boasted the shortest at 92 days.)

Source: “Delays in Bank Processing Push Likely U.S. Foreclosures Until 2012, Stalling Recovery,” Associated Press (July 14, 2011)

Kaczynski masterminded several bombings between 1978 and 1995. He opposed technology, so the property isn’t served by power, water, or sewer lines. Kaczynski’s cabin was removed by the FBI as evidence.

John Pistelak Realty in Lincoln, Mont., who has the listing, advertises it as “secluded," while urging, “Don’t miss this one!”

Source: Christian Science Monitor, Laura Forbes (12/5/2010)

On the House side where lenders are expected to appear before the Financial Services Committee on Thursday, U.S. Rep. Spencer Bachus, an Alabama Republican and next year’s front-runner for chair of the panel, has criticized federal regulators instead of bankers. “It is disappointing that the regulators didn't catch this before the media,” he wrote in an e-mail.

Outsiders see only gridlock. "I have no hopes for this Congress whatsoever," said John Taylor, president of the National Community Reinvestment Coalition.

Source: Reuters News, Dave Clarke and Joe Rauch (11/15/2010)

There are many ways to restructure the system.  Here are the four that have the most support:

1. Fully Private System. Eliminate Fannie and Freddie and let private lenders take over.  The problem is that the market for mortgage backed securities issued without government backing is small - perhaps non-existent until the market stabilizes.

2. Semi-Private System. Disolve Fannie and Freddie and turn their function over to private companies that would pay for the right to issue government backed mortgage securities. Small banks object to this because it would inevitably increase the role of the "big four." (The four largest banks in the U.S.)

3. Hybrid System: Fannie and Freddie would compete against other companies that would also offer government backed securities.

4. Government Run System: Fannie and Freddie would become part of the government.  This is unpopular because it would expand the governments already large role and increase our federal debt.

Source: Associated Press, Alan Ziebel (8/9/2010)