WELSH CONSTRUCTION

WELSH CONSTRUCTION
Our Newest Tenant at RMC Corporate Center

          
RMC Corporate Center welcomes its newest tenant Welsh Construction.  Welsh Construction secured the beautiful endcap space in this Minnetonka building.  After removal of the acoustical grid and tile ceilings, the tenant was able to take advantage of the heavily glassed space.  The newly built office configuration shows that desirable space can come from older building stock, providing the property is as relevant today as it was back in the early 1980’s when constructed.  Quality construction never goes out of style!
Tenants at RMC Corporate Center are poised to take advantage of SWLRT with a small station directly across Bren Road East.  The new station and many other amenities are within walking distance.  With 14’-0” clear heights, good parking ratios, excellent park amenities, including walking trails and green space, the property is a great option for a wide range of space users.  In addition, super easy access and exiting due to the change in some one-ways make this property desirable for any business.
Thanks to Brad Bohlman of Colliers for his assistance on this lease.
For more information about Welsh Construction visit their website at: https://www.welshconstruct.com
Don’t miss out on our current space options at RMC Corporate Center:
-2,814 SF office-warehouse; with drive-in door
-4,000 SF office-warehouse; with 2 dock doors
-5,000 SF all office
Written by:  Nancy Powell | Vice President

TRUSTING HEART BLOOD CENTER

Trusted Heart Blood Center

TRUSTING HEART BLOOD CENTER
Paramount Welcomes Our Newest Tenant to 7390 France Building
Trusting Heart Blood Center recently opened their first location!  They are our newest tenant at 7390 France Ave S, Edina.  This is the company’s first blood center and they have plans to open more centers throughout the US.  At the new center, Trusting Heart collects blood platelets from volunteers and supply these platelets to local area hospitals.  The hospitals desperately need them to save lives.  In addition, they pay volunteers for each visit.
BUILDING IMPROVEMENTS


For many years, Paramount Real Estate Corporation has managed and leased 7390 France Ave S.  Approaching it’s 50th anniversary, the building was in need of updating. That updating included gutting and rebuilding the entire interior of the building.  This was done to Trusting Heart’s design and specifications.  Therefore, the installation of new mechanical and electrical systems was imperative. This included a new energy management system, LED lighting and a backup generator.  Expanding the main entry to the building created a more modern look.  The contractor removed the traditional dropped ceilings in areas of the building.  As a result, the space is now open to the concrete deck, which was painted black.
The architect created a bright open reception area and adjacent canteen.  They did that so Trusting Heart can provide a welcoming atmosphere to its visitors.  Each patient donation area is semi-private with comfortable seating and a TV.  In addition, fresh paint, landscaping and the installation of window awnings spruced up the exterior of the building.  Also, a new illuminated monument sign was installed right in front of the building.
PARAMOUNT MANAGES CONSTRUCTION PROJECT

Lisa Borene, Vice President of Property Management at Paramount served as the owner’s construction manager for the project.  She worked closely with the contractor Gardner Buildings to assure that all work was completed on a timely basis.
For more information on Trusting Heart Blood Center and to donate, go to www.trustingheartbloodcenter.com
Thanks to Eric Sheaffer & Matt Friday of CBRE for their assistance on this lease.
Written and Leased By: Fred Hedberg, CCIM, SIOR | Principal

A CONVERSATION ABOUT CONSTRUCTION COSTS

Construction Costs Image

A CONVERSATION ABOUT CONSTRUCTION COSTS
Construction costs are going down due to the slower economy: True or False?  Our clients are asking us this question.  So we asked an expert, Jamey Flannery, Owner of Flannery Construction, to help us with an answer.  Flannery Construction is a mid-sized, woman-owned construction company that works all over the metro area.  They do ground-up construction of multi-family, industrial, and office.  They also do tenant build-outs.  Look for their signature building on I-94 just east of Allianz Field.

Q: Are construction costs going down?
A: I will say that as much as we would like it to be true, there is a lot of upward pressure on construction costs.  We are seeing huge increases on lumber.  That seems to have leveled off recently and even declined a little bit.  However, we were up almost 100% from pre-COVID levels.  We are seeing cost increases in PVC and a few other materials.  That has putting a lot of pressure on contractors.  While we are slower than we anticipated this year, we’re still fighting against really long lead times for materials.  We’re also fighting against cost increases for materials. So the answer is “NO” construction costs have not declined.

Q: Is now the time for businesses to do that $1 million construction project they have been considering?
A: I think they should do the $1,000,000 construction project that they are planning to do.  I think the only reason that the prices aren’t higher, is because contractors are absorbing cost increases.

Q: Is this in the form of reductions in fees and/or general conditions or just lower profits overall?
A: We are see lower profit margins overall.

Q: How are you doing with your supply of labor and is COVID affecting availability of labor?
A: COVID is keeping labor prices stable and we are seeing a lot of inquiries for jobs in the trades.  We’re seeing a lot of hungry subcontractors right now and good pricing.  They are essentially absorbing some of these cost increases.  However, we’re also seeing a few subs that have a crew or two who are down with COVID, so planned work isn’t exactly staying on schedule.

Q: Are wages for labor increasing too or is that staying pretty much stable?
A: We are a union shop so we will have a labor increase in May, but I think that, generally speaking, wages are going down and it’s favoring the employer right now.

Q: If you had to give some advice to people who are looking at a construction project, what delivery method would you say is the best way for them to go about it?
A: It is entirely up to the owner, but what I think is the best delivery method is negotiated or design build.  The reason for that is, if every team member really has a firm understanding of the intent behind the project, we’re going to make better decisions.  If the contractor really understands the project well up front, they’re going to help the owner make very informed decisions.  With the delays and with the cost increases, we are having to build our contracts a little bit differently.  We might have to submit a letter of intent to some of our subcontractors before we sign a contract because of the long lead times.

Q: Do you have any recent examples of the long lead times?
A: We had a conversation with a subcontractor supplier today where we need Hardie plank siding panel delivered on January 7th.  If we had placed that order one day later, we would be looking at a 30% cost increase to receive an order on a specific date.  That is true through April because they are so backlogged.  So, working with your contractor to understand what’s happening in the marketplace and what conversations need to happen before the contract is signed is important.  That really does emphasize the need to have a general contractor partner with a negotiated project.

Q: Some of our clients get concerned that without a full-on multiple bid process, they won’t get the lowest price. What do you think about that?
A: There has been a fair amount of research on delivery methods and while the hard bid may have an initial lower cost, the total cost can creep up pretty quickly because of change orders.  Having that group and team understanding of the project, leaves less room for change orders when we are delivering a turnkey project.  In a hard bid scenario, if there is a mistake on the plans or an omission or an assumption, then we’re going to assume the lower number because we want the project.  I’ve seen it many times where the hard bid is low and then the change orders start because there wasn’t complete understanding of the total project.

Q: What is hot right now in the marketplace in terms of construction projects?
A: Multifamily is still running hot.  There’s still a hot market in Saint Paul, Minneapolis and in the surrounding suburbs.  We’re not seeing very much in retail.  We’re not seeing very much in hospitality right now, which understandably so.  Industrial is a hot market as well.

Q: How are you seeing the approval processes in cities now that many of the city’s employees are working from home?
A: It is excruciating. It is taking longer now.  This is an anecdote in the City of Minneapolis.  While they are being as responsive as they can be while working from home, the process to upload plans is one page at a time.  Everything is just taking longer because there’s not a lot of collaboration so the person who’s reviewing can say to the person next to them “hey, what do you do in this situation”?  So there is less collaboration, and everyone is just a little burnt out.

Q: What’s your prediction for the future?
A: I am an optimist.  I think that we were due for a market correction anyway.  Unfortunately, it really is hitting a lot of people hard, and I’m not minimizing that on any level.  I do think that this correction is taking place of a market downturn that had been anticipated for 2021.  When there’s a widely available vaccine and it’s in place for at least a little bit, I think that we’re going to come back pretty strong.  I look at Architectural Billings as my leading indicator.  Contractors follow about six months to a year behind architects.  They have been down since March, April, and May.  The only positive indicator that they have is that new inquiries are up significantly as of September and October.  Money is cheap right now and I think that we are going to come back strong.  So, we’ll have a strong second half of 2021 going into 2022.  I am looking at shoring up my project management staff so that we can be ready to take on the increased workload that I am anticipating.

Q: Thank you Jamie and where can our clients get in touch with you?
A: Thank you, John they can find us at Flanneryconstruction.com or stop in our building on I-94 by Allianz Field.

1375 St Anthony Ave | Saint Paul, MN 55104
(651) 225-1105
flanneryconstruction.com
 Written By: John Young, CCIM | Vice President

ADOPTION OF NEW TECHNOLOGY

Adoption of New Technology

ADOPTION OF NEW TECHNOLOGY
The top-rated business trend in 2020 is adoption of new technology.  This is not new.  Anyone who is running a business or making decisions about business growth has been clamoring to create efficiency through technology.  In fact, over $4 trillion was spent by businesses world-wide on acquiring new technology, most of it for value creation.
One metric used by companies is sales per employee.  By any measure, this metric is growing, undoubtedly due to new technology to create value.  From 2018 to 2019 sales per employee in the manufacturing sector increased by over $200,000, which is a 12% increase.  There are many new technologies that are driving this increase.  One important advance is a sales-ready website. These websites are lead generations machines that are responsive and can be viewed on any device.  They also enable direct contact with end customers who are becoming more involved in product design and delivery much earlier in the process.
In today’s marketplace, more detailed content and more online interaction between the customer and the manufacturer is the norm, and not the exception.  Experts agree that employees in both large and small firms who have access to the latest technology will continue to outpace their relatively less sophisticated colleagues.
Written By: John Young, CCIM | Vice President
Source: Bizminor

Q3 2020 INDUSTRIAL MARKET UPDATE

Q3 2020 Industrial Market Update

Q3 2020 INDUSTRIAL MARKET UPDATE
Economic Overview
According to the Bureau of Labor Statistics (BLS), the unemployment rate for the Mpls-St Paul metropolitan statistical area (MSA) increased 500 basis points to 7.9% for August 2020 from 2.9% for August 2019.  The unemployment rate for the US was 8.4% in August 2020 up from 3.7% last year.  State of Minnesota unemployment rate was 7.4%.  The Mpls-St Paul MSA saw a decrease in job growth. Also a decrease in industrial job growth in manufacturing dropping 11,200 during the same period.
Market Overview
The Mpls-St Paul industrial market consists of 261 msf in eight counties across the metro and posted over 682,000 sf of positive absorption for Q3 2020 while multi-tenant properties posted 152,000 sf positive absorption.  The overall vacancy rate for the market stands at 4.9% and multi-tenant vacancy increased to 8.0% for Q3 2020.  The average asking lease low rate was $5.97 and high rate was $9.57 NNN for Mpls-St Paul. To date, there are 19 construction projects throughout the market totaling 2.5 msf and 17 properties were delivered year-to-date with 2.1 msf.
Market Highlights
At the close of Q3 2020, the market experienced over 2.5 msf of leasing activity in 180 transactions.  ShopJimmy was the largest space leasing 413,000 sf in the Southeast market.  The Southeast and Northeast markets vacancy rate being the tightest at 3.9% and 3.8% for all properties while the Southwest market topped at 6.6%.  The Northeast market had two of the top five property spots in absorption with Target buying 399,000 sf and Tomas Commercial buying 140,000 sf property.  The Northeast market experienced the largest vacancy of Modern Tool with 180,000 sf.  Sixty three properties sold with over 2 msf for $124.8 million.
Methodology
The Mpls-St Paul market consists of single and multi-tenant industrial buildings 20,000 sf or larger or part of a complex larger than 20,000 sf.  The geographic area includes Anoka, Carver, Dakota, Hennepin, Ramsey, Scott, Washington and Wright counties.  The tracked set does not include selfstorage facilities and non-conforming property types such as grain elevators or fuel storage facilities.  All tracked properties are existing. Statistically, net absorption will be calculated based on occupancy change during the current quarter.  Asking lease rates are based on an average asking rate and noted on a NNN basis.
Reach out to one of our Industrial Agents with questions:
Fred Hedberg, CCIM, SIOR, Principal
Phil Simonet, Principal
John Young, CCIM, Vice President
Joseph Schultz, Associate
Jack Buttenhoff, Associate
View Full Report: Q3 2020 MNCAR Industrial Market Report
Source: Minnesota Association of Realtors (MNCAR)

Q3 2020: OFFICE MARKET UPDATE

Q3 2020: OFFICE MARKET UPDATE
         
Economic Overview
According to the Bureau of Labor Statistics (BLS), the unemployment rate for the Mpls-St Paul metropolitan statistical area (MSA) increased 500 basis points.  To 7.9% for August 2020 from 2.9% for August 2019.  The unemployment rate for the US was 8.4% in August 2020 up from 3.7% last year.  State of Minnesota unemployment rate was 7.4%.  The Mpls-St Paul MSA saw a decrease in job growth.  As well as a decrease in office job growth in professional, financial and information dropping 21,300 during the same period.
Market Overview
The Mpls-St Paul office market, consisting of over 128 msf of space in seven counties across the metro topping 95,000 sf negative absorption for Q3 2020.  The vacancy rate for the market stands at 12.5% for all properties.  Multi-tenant properties posted 16.4% vacancy with over 64,000 sf negative absorption.  The average asking lease rate for Mpls-St Paul came in at $25.02 psf FSG.  During Q3 2020 there were 9 construction projects throughout the market totaling just over 1.3 msf.
Market Highlights
During the Q3 2020 the market experienced over 1.1 msf of leasing activity in 251 transactions. Class A properties vacancy rate dropped for all properties this quarter to 10.3% compared to 8.8%.  It also dropped to 15% for multi-tenant properties compared to 12.7% Q2 2020.  For multi-tenant properties the Northwest market posted the lowest vacancy rate at 10.6%, Mpls CBD vacancy was 18.7%, St Paul CBD was 18.4% and suburban markets was 14.6%.  Southwest market posted the most positive absorption of 137,000 sf with The Nerdery leasing 60,000 sf and new delivery of Bridgewater Corp.  The West market posted the largest negative absorption of 125,000 sf for all property types led by Dominium space available for lease with 53,000 sf.
Methodology
The Mpls-St Paul market consists of single and multi-tenant office buildings 20,000 sf or larger or part of a complex larger than 20,000 sf.  The geographic area includes Anoka, Carver, Dakota, Hennepin, Ramsey, Scott and Washington counties.  The tracked set does not include medical or government properties.  All tracked properties are existing.  Statistically, net absorption will be calculated based on occupancy change during the current quarter.  Asking lease rates are based on an average asking rate and noted on a FSG terms with Net type leases grossed up.
View Full Report: Q3 2020 MNCAR Office Market Report
Source: Minnesota Association of Realtors (MNCAR)

WHY OPERATING EXPENSES VARY FROM PROPERTY TO PROPERTY?

Why Operating Expenses

WHY OPERATING EXPENSES VARY FROM PROPERTY TO PROPERTY?
Have you ever wondered why operating expenses vary from property to property?  Energy consumption, service levels and service contracts can vary greatly so it is advisable to secure the details prior to lease execution.
Expenses May Vary
Paramount has been involved in several recent office lease transactions.  Many, highlight the need for a close review of the property’s operating budget.  Some “full service” leases may include daily cleaning, vacuuming, replacing light bulbs and cleaning your breakroom.  And then others may not include these services at all or the services may be on a more limited basis.
Avoid Surprises
Most property owners reserve the right to change rules and regulations and janitorial specs.  It’s a good practice for your representative to take the time to request the budget and janitorial specifications.  Once you have the detailed information you will be better able to compare properties.  After settling on your most desirable property, a close review of the associated lease language is advisable.  Although, this may uncover conflicts or missing details that might surprise you during your term.  As an example, say your employees prefer to eat lunch in your office suite.  As a result, this practice most likely makes it imperative that janitorial specifications would include daily trash service.  No one wants to smell that reheated salmon the first time let alone the rest of the week!
Knowing the service level upfront will allow you the opportunity to verify the details are incorporated into the final lease.  After all, operating expenses and real estate taxes can be 50% or more of your overall rent and you should only be paying for services you receive.
Need Real Estate Advice.  Call Paramount.
TRUSTED.  DEDICATED.  EXPERIENCED.
(952) 854-8290
Or reach out to one of our Trusted Agents:
Office Agents: Nancy Powell, Vice President | Jeffrey Swanson, Associate
Industrial Agents: Fred Hedberg, CCIM, SIOR, Principal | Phil Simonet, Principal | John Young, CCIM, Vice President | Joseph Schultz, Associate | Jack Buttenhoff, Associate

RELATIONSHIPS BUILT TO LAST

Relationships Built to Last

RELATIONSHIPS BUILT TO LAST

Paramount recently represented the Owner of 1000 West 94th Street in Bloomington.  The building is approximately 5,000 square feet, with about one-third of an acre of fenced and paved outdoor storage. The client has worked with the Paramount Team for 20+ years.  The relationship began with one transaction in the late 1980s, and has grown substantially since that first transaction.  A mutual trust was developed during the first lease negotiation through open communication, honesty, and truly working in the client’s best interests.  Over the last 20+ years, many more transactions have reinforced the trust that is the foundation of the relationship.
Too often commercial real estate services are commoditized.  Excellent customer service is a lost art that few providers genuinely offer.  Business owners generally have multiple projects underway at once.  The ability to retain a trusted advisor to handle all real estate related tasks can free up an immense amount of time for busy decision makers.  This allows them to focus on running the business.  That is not to say that the business owner is uninvolved, on the contrary; constant communication between the client and the advisor is the most efficient way to build trust and create a successful conclusion to a project.
Paramount prides itself on its customer service.  The team of Paramount professionals  have built a brand with a reputation that Paramount has the knowledge, integrity, expertise, and communication skills to not only satisfy their clients, but go beyond to deliver extraordinary results.  Paramount works hard for our clients, large and small, and seeks to obtain relationships built to last.
Written by: Joseph Schultz, East Team Associate

SUBLEASING IN TODAY’S MARKETPLACE

Subleasing in Today's Marketplace

SUBLEASING IN TODAY’S MARKETPLACE
Subleasing in today’s market is commonplace.  There are a variety of reasons why firms sublease their excess space.  However, for those who intend to sublease, some caution is appropriate.

Make sure to check on the credit and payment history of the firm subleasing the space, particularly if they will pay any part of the gross rent due and payable to the Prime Landlord.
Carefully read and understand the tenant obligations under the Prime Lease.  This is often an attached exhibit to the sublease document.  The Subtenant’s obligation is to comply with the terms of the Prime Lease.
Make sure to receive the Prime Landlord’s formal approval, in writing.  Sometimes this is as simple as a signed consent note on the signature page of the sublease document.  On the other hand, the consent form can be several pages.  If the Prime Landlord’s consent in the Prime Lease is something other than “reasonable,” make sure to understand what the “other” stipulations are.
If modifications are made to the space, understand the obligations in respect to the lease.  Removing modifications may be a requirement upon termination of the sublease.
Make sure the life safety and exiting requirements meet local codes.  Often times, a space carved from a larger space does not meet the proper exiting requirements, which may mean extra costs.https://paramountre.com/agent/phil-simonet/

For more information on subleasing space, reach out to our experts:
Phil Simonet, Principal | John Young, CCIM, Vice President | Nancy Powell, Vice President | Jeffrey Swanson, Associate | Joseph Schultz, Associate | Jack Buttenhoff, Associate

INVENTORY STORAGE? Proceed with caution.

INVENTORY STORAGE? Proceed with caution.
Since 2017, days of inventory have increased for manufacturing firms nationwide, which means inventory storage has also increased.  Days of Inventory in 2019 hit 59, up from 53 in 2018, and 51 in 2017.  Mathematically, a decrease in the cost of sales could be causing this.  COGS have actually increased slightly from 75.80% of revenue in 2017 to 75.98% in 2019.  This indicates that firms have an increasing amount of inventory.  Assuming this is not an over-production issue, firms are not selling as much as years prior.
This could be interpreted as a sign of economic slowdown, even before the Covid-19 storm made landfall.  The increase in inventory may lead some businesses to think that they need additional space, which they may have a legitimate need for, but if the underlying reason is because of a weaker economic environment, the right course of action for the business to take might not be committing to a new long-term lease.  Companies that absolutely need to move product offsite may want to explore third-party warehousing as an option.  It is not as cost-effective as leasing traditional warehouse space on a per square foot basis, but allows the end-user the flexibility to change on a month-to-month time horizon.
The global health crisis has further complicated the situation.  Some manufacturers now cannot keep enough stock to satisfy their customer’s needs.  This may temporarily reduce the need for additional storage, even though it would be financially feasible.  As with most circumstances, each should be evaluated on a case-by-case basis.
Source: Bizminer.com
Written by: Joseph Schultz, East Team Associate