FORMER KABUKI RESTAURANT SITE SOLD IN EDEN PRAIRIE
Site Location: 6534 Flying Cloud Drive | Eden Prairie, MN
Paramount Real Estate Corp listed the former Kabuki Restaurant site for sale in the fall of 2018. The 2.5 acre site provides easy access to Crosstown 62 and Hwy 169. It is located between Shady Oak Road, on the West, and Valley View Road, on the South.
Not the Right Fit…
Due to its location, interest was high and the site tours were frequent. Interested users proposed many different uses. These included a dog daycare, pickle-ball courts, various types of restaurants and retail, a daycare, a brewery, storage facilities and office space. Many also wanted to use the site for outdoor storage, but current zoning does not allow this. In addition, the City was changing the zoning from Highway Commercial to Industrial Tech Flex. That alone prohibited many of the uses proposed. The Seller actually agreed to two separate purchase agreements. The agreements were then subsequently voided because the city discouraged both users’ proposed plans.
A Lot of Issues…
The sales process was an interesting one. The building was in poor condition with the HVAC, roof, electrical, plumbing and restrooms needing updating. The seller held an online auction to clear out much of the remaining kitchen equipment and assorted restaurant accessories. Unfortunately what followed the auction was a bit devastating; vandalism and unsold stolen equipment. As if that wasn’t enough, the former Kabuki site had household junk dumped and abandoned on four different occasions.
Finally, in December 2019, we finalized yet another purchase agreement for the former Kabuki Restaurant site. The Coronavirus did have an effect as well, delaying the normal due diligence process and typical closing. The result… business closings and financial issues. Amending and extending the purchase agreement three times also didn’t speed anything up. The sale did ultimately close in June 2020.
After all that said.. the sales process was long! Thankfully the Sellers, as well as their legal counsel, were patient and willing to work toward a final agreement. We commend them for their willingness to work through the many problems and issues that occurred throughout the process. That being said, all parties are relieved that the property finally closed.
Written By: Bob Johnston
FORMER KABUKI RESTAURANT SITE SOLD IN EDEN PRAIRIE
Written by: MNCAR/Redi Comps
According to the Bureau of Labor Statistics (BLS), the unemployment rate for the Mpls-St Paul metropolitan statistical area (MSA) decreased 30 basis points to 3.1% for February 2020 from 3.4% for February 2019. The unemployment rate for the US was 3.5% in February 2020 down from 3.8% last year. State of Minnesota unemployment rate was 3.1%. The Mpls-St Paul MSA saw an increase in job growth but a decrease in office job growth in professional, financial and information dropping 1,200 during the same period.
The Mpls-St Paul office market, consisting of over 125 msf of space in seven counties across the metro topping 133,000 sf negative absorption for Q1 2020. The vacancy rate for the market stands at 12.0% for all properties. Multi- tenant properties posted 15.6% vacancy with over 48,800 sf positive absorption. The average asking lease rate for Mpls-St Paul came in at $24.59 psf FSG. During Q1 2020 there were 22 construction projects throughout the market totaling just shy of 2.9.
During the Q1 2020 the market experienced over 1.2 msf of leasing activity in 283 transactions. Class A properties vacancy rate started the year at 9.0% for all properties and 13.1% for multi-tenant properties. For multi-tenant properties the Northwest market posted the lowest vacancy rate at 9.7%, Mpls CBD vacancy was 16.2%, St Paul CBD was 20.5% and suburban markets was 14.4%. Mpls CBD Core market posted the most positive absorption of 141,000 sf with Merrill Corp lease of 78,000 sf topping the list. Southwest market posted the largest negative absorption of 182,000 sf for all property types primarily due to Comcast vacating 108,000 sf and Cliqstudios vacating 104,000 sf in a single tenant properties.
Employment: up 1,969,253
Area Unemployment: down 3.1
U.S. Unemployment: down 3.5
Office Jobs: down 516,60
Total Inventory: 126,158,494 sf
Asking Rate: $24.59
New Construction: 2,895,944 sf
READ ENTIRE REPORT: Q1-2020_Mpls-St_Paul_Office_Market_Report
Written by: MNCAR/Redi Comps
According to the Bureau of Labor Statistics (BLS), the unemployment rate for the Mpls-St Paul metropolitan statistical area (MSA) decreased 30 basis points to 3.1% for February 2020 from 3.4% for February 2019. The unemployment rate for the US was 3.5% in February 2020 down from 3.8% last year. State of Minnesota unemployment rate was 3.1%. The Mpls-St Paul MSA saw an increase in job growth but a decrease in industrial jobs in manufacturing dropping 400 during the same period.
The Mpls-St Paul industrial market consists of 258 msf in eight counties across the metro and posted over 223,000 sf of positive absorption for Q1 2020 while 184,000 sf positive absorption for multi-tenant properties. The overall vacancy rate for the market stands at 4.7% and multi-tenant vacancy was 7.4% for Q1 2020. The average asking lease low rate was $5.81 and high rate was $9.35 NNN for Mpls- St Paul. To date, there are 23 construction projects throughout the market totaling just under 3.7 msf and 5 properties were delivered this quarter with 575,902 sf.
At the close of Q1 2020, the market experienced over 2.2 msf of leasing activity in 194 transactions with AbelConn leasing the largest space of 110,329 sf in the Northwest market. The Southeast market vacancy rate being the tightest at 4.1% for all properties while the Northwest market topped at 6%. The Northeast market had four of the top five property spots in absorption with Bluvera leasing 93,000 sf, Hajoca leasing 75,845 sf and Lindenmeyr Munrow leasing 60,102 sf. The Northwest market experienced the largest vacancy of Honeywell with 250,000 sf. The Southwest market held the next two spots with Sams Club vacating 180,000 sf and Quad Graphics/ American Color vacating 160,000 sf.
Total Inventory: 258,482,636 sf
Total # of Bldgs: 3,004
Asking Rate Low: $5.81 NNN
Asking Rate High: $9.35 NNN
Under Construction: 3,728,557 sf
READ ENTIRE REPORT: Q1-2020_Mpls-St_Paul_Industrial_Market_Report
JUST SOLD!!! 45 EMPIRE DRIVE | ST PAUL, MN
Congratulations to Ebisso Uka, owner of Rift Valley Transportation for his purchase of the building at 45 Empire Drive, St. Paul, MN. Rift Valley provides transportation to children who have no other way to attend school. The 33,000 square foot building will be used for storage and maintenance of vehicles used in the transport of children to and from school.
The building was formerly the home of Sitma USA, an Italian based manufacturer of integrated mail processing equipment. It was built and added to in 1991 and 1997, respectively. The 27,000 square foot warehouse will house up to 80 vehicles and the 6,000 square foot office will be the hub of the 200-person Rift Valley company.
This was a complicated transaction. It required Phase II environmental and vapor testing, a Class N license from the City of St. Paul, in-depth building due diligence, construction bidding, and financing approval. John Young and Joe Schultz guided this purchase through its many hurdles with a very short due diligence period. Both John and Joe extend a hearty “Congratulations!” to Mr. Uka and his company.
John and Joe continue to work for Mr. Uka in the lease or sale of his current building at 1033 Thomas Avenue, St. Paul. This 14,000 square foot building is near Lexington and University Avenues and is a great location for another small business growing in St. Paul.
Written by John Young, CCIM | Vice President
Is This 2008 All Over Again?
Industrial Building Values
Even in the best economies, owners are curious about the value of their building. In times of economic uncertainty, this question takes on even more significance. For many business owners, this recession may be forcing them to ask the tough questions related to building values. The short answer is that buildings are not worth what they were 60-days ago. Beyond that, future predictions require a well-informed analysis.
First, a bit of history. The 2008 Great Recession eliminated most of the demand for industrial space, both for lease and for sale; however, the supply of available buildings did not change significantly. This supply and demand imbalance created a significant drop in building sale prices that was at times up to 33%. Contrasted with today’s environment, the low supply of available buildings has pushed prices to unheard of levels. In fact, some high-quality owner-user buildings were selling for $100 per square foot or more, an all-time high in the Twin Cities. The current crisis will certainly reduce demand for buildings, which is already becoming obvious through terminated purchase agreements, fewer showings, fewer offers, and reduced offer prices.
Naturally, values must come down, but will they drop precipitously like they did in 2008? Probably not. And here are a few reasons why:
#1: Some industrial companies are thriving which will preserve some demand for industrial buildings
For example, clothing manufacturers are now making masks, plastic extruders are now making partitions for retail stores, medical manufactures are now making face shields, and the list goes on. This is different than 2008. During that crisis, it was hard to find any thriving industrial business that still wanted to buy real estate.
#2: Banks are still lending and interest rates for owner-users are exceptionally low
For example, the SBA 504 rate is currently 2% over the 5-year Treasury bill, which is under 1%. Bank interest rates are also 1-2% lower than before the crises. This lower cost of capital will help those who are thriving to borrow money for real estate.
#3: There is pent up demand
Many companies have been searching for the right building to buy for years. Because supply has been so low, these companies have lost out in multiple-offer situations and because many buildings traded immediately when hitting the public market. Many of these would-be buyers are still healthy and able to jump on the right opportunity when it appears.
So, back to the original question, what is the value of your industrial building today? Recent reductions in list prices and re-trading of existing deals indicates that values have declined by 10%-20%. A more accurate analysis is to look at values over time. Down 10%-20% today; however, if the drop-off in economic activity continues, values could continue to fall. A resurgence of Covid-19 could create the dreaded “W” recession, and another dip in economic activity and value. If the economy is opened for business soon and can get back to a more normal level of activity, values may stabilize and begin to rise as we all get back to work.
Stay tuned for more analysis as events unfold over the next few months.
Minnesota COVID-19 Resources for Businesses
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PARAMOUNT HAS MOVED.
We hope that this message finds you and your family healthy and adjusting to the new normal of social distancing and working from home. After a week of uncertainty about whether or not the move to our new headquarters could be completed on schedule, particularly with a stay-at-home order in place, all of our vendors came together and we moved into our new space at Southpoint Office Center on March 31, 2020.
Southpoint Office Center
1650 W 82nd St, Ste 725 | Bloomington, MN 55431
(All of our other contact information remains the same.)
Stop in and check out our new digs!
WE ARE HERE TO HELP YOU.
We are looking forward to the day when the entire Paramount Team can come back together to work in our new office space. In the meantime, we are working remotely and continuing to provide sound real estate advice along with seamless service to help our clients navigate in this rapidly changing business environment.
No one can predict for certain what the world will look like after COVID-19 is brought under control. Paramount has endured through many challenging times during the past 24 years and we are committed to be here for you in the future. Stay healthy, think positive and please let us know if we can be of any assistance to you.
Paramount Real Estate Corp | TCN Worldwide
Fred Hedberg, CCIM, SIOR | Principal
Is This 2008 All Over Again?
Is this 2008 all over again? The answer is “maybe”, but “probably not”. Let’s go back in time. The 2008 Great Recession started with cash being drained from the monetary system. This was due to a massive failure of collateralized debt obligations held by the largest banks and over-building in the housing sector. This created a liquidity trap where Federal Reserve monetary policy was ineffective. Interest interest rates were already low and consumers were holding cash. There have been three notable liquidity traps in recent history: post-depression 1930’s America; Japan’s mid-1990’s recession; and most of the world after the 2008 great recession.
Although we have not had the customary two quarters of negative GDP, most economists are saying we are now in a recession. However, this one did not begin with the same cash drain as the 2008 crises, but is it creating the same liquidity trap? Not exactly.
This recession started with sharply reduced demand due to social distancing/quarantining and subsequent job losses. It did not start with cash being drained from the worldwide banking system. To date, almost 10 million Americans have filed for unemployment and, according to Goldman Sachs, the U.S could lose 37% of its GDP, the largest hit to GDP in history.
What is the main difference between 2008 and now? The $2.0 trillion fiscal stimulus bill is more than twice the size of the stimulus bill in 2009 and it is focused on both businesses and consumers including a $1,200 direct payment for most Americans. In other words, there is far more fiscal stimulus pouring into the economy meant to save businesses and maintain some amount of consumer demand.
How bad will it get? Let’s think about a few important questions:
QUESTION #1: When will this current economic downturn end?
Answer: If the epidemiological models are correct, sometime in June or July we may get back to our near normal routines.
QUESTION #2: How much injury will be done to businesses and consumers?
Answer: It depends on how much cash businesses or consumers started with. If businesses and consumers have enough cash to pay rent, mortgages, and basic needs, then maybe there will be pent up demand and we can take off quickly. On the other hand, if working capital, credit cards, and other loans are already maxed out and cash is low, then a period of months (6-12 months????) may be necessary for the economy to come out of this recession.
QUESTION #3: Will the Fed, U.S. House and Senate be effective in combating this recession?
Answer: Yes, so far. They are bringing out the big guns with both fiscal stimulus and monetary policy.
QUESTION #4: Will there be an inflation hangover from all this borrowing?
Answer: Many economists are saying, “no”. Primarily because the U.S. is borrowing money at a negative real interest rate, and technology and innovation have kept inflation low since 2008, a trend that will probably continue. For example, we are all working from home now and most businesses will learn, just like 2008, that they can do more with fewer people and smaller real estate footprints. These factors, among others, should keep the inflation-making prices and wages mix under control.
One thing is certain, we all need to buckle up for a rough few months and cross our fingers that businesses and consumers are ready to spring into action very soon.
Minnesota COVID-19 Resources for Businesses
Call John Young
We are proud to announce that once again TCN Worldwide has been named in the top 25 for Lipsey’s Top Brand Survey. Each year the Lipsey Company performs a survey to establish the most recognizable names inside of the Commercial Real Estate Industry and this year TCN Worldwide increased its brand recognition moving up two spots. Thank you to all who voted, and especially our TCN members!
Learn more about Lipsey’s Top Brand Survey here: https://lipseyco.com/top-commercial-real-estate-companies/
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The former Java Jacks & Studio 2 Building in Minneapolis will become a new neighborhood hang out with the addition of a yet-to-be-named restaurant. John Young, Vice President Brokerage Services sold the building to a partnership between United Properties and Westwood Hills (a development company). Plans are in the works for a new restaurant, which should be open in late Summer or early Fall. The property garnered several offers and a lot of interest by the adjoining neighborhood. It has been a favorite in the area for a couple decades and now it will have another great community asset, coming soon.
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The Minneapolis-St. Paul Real Commercial Estate Market continues to perform admirably with office and industrial sectors demonstrating excellent performance throughout 2019. The Markets characteristics remain upbeat and include positive net absorption of vacant space, moderate to low vacancy rates and measured new speculative development. Economic conditions remain favorable however, recent statics raise concern for the continued overall economic growth in Minnesota and the USA. While inflation continues to remain low at about 2% (annualized), unemployment has increased from 2.5% to 2.9% and median income for Minnesota households as stagnated year over year at $70,300-both still much better numbers than the national averages of 3.4% unemployment and median household income of $63,179 respectively. The 15 month trade war with China combined with all of the uncertainty in Washington DC (impeachment and gridlock) and slowing business investment-down 1% on an annualized rate last quarter create potential headwinds to sustained future economic growth.
Industrial has been the best performing asset class of real estate since the Great Recession in 2009. Vacancy rates are at an all-time low (4.9%) in a Twin City universe of 248 million square feet and have decreases by 1% since the beginning of 2019.
Net Absorption of available space stands at 2.73 million square feet through the third quarter of this year with bulk (high-bay) warehouse experiencing 1.74 million square feet of net absorption. Driving the net absorption has been e-commerce related companies localizing the distribution of almost everything now available on the internet.
To date there are 27 industrial projects under construction totaling 3.6 million square feet. 1.9 million square feet has already been delivered to the market.
Collectively, what all this most likely indicates is a continuation, at least through 2020, of relatively good conditions and performance for the industrial market. The two current deterring factors, other than an economic slowdown, are the cost of tenant improvements and finding and hiring employees.
The office market continues its long standing recovery albeit some sub markets are stronger than others. The overall office vacancy rate for all Twin Cities office properties is 11.8%, which is down .8% from January 2019, however within multi-tenant properties the vacancy rate is 15.4%. The northeast office market has the lowest vacancy rate at 8.6% and St. Paul CBD has the highest vacancy rate approaching 20%. Class A multi-tenant office space has the lowest vacancy rate at 12.5%, Class B Office space is at 17.7% and Class C is 13.8%.
Net absorption Year to Date is 363,871 square feet. Actual absorption Year to Date is 504,247 square feet, however sublease space create 128,052 square feet of negative absorption.
The office market performance has instilled enough confidence in a local developer to spec a 361,104 square foot office building in the West End mixed use development named 10 West End. Net rental rates are projected to start at $25.50/sf.
One new office market characteristic that has been gaining momentum is the demand for building amenities. Many office buildings have completed or are planning to complete updates to building common areas, add amenities such as work out areas, coffee bars, common area meeting spaces, food service, and concierge services among other things. Many of today’s sophisticated tenants want space that is fun, functional and will retain and attract top talent in the current tight labor market.