Retail Keeps Moving In
One CCIM works hard to bring retail to a new market.
Many retail experts are
looking to smaller markets and unusual properties to create income-producing
developments.Anthony A. Strauss, CCIM, senior associate with Welsh Companies in Minneapolis, has done just that. Using a 30,000-sf
industrial property in the Historic Mill District of Minneapolis, Strauss
converted the 70-year old building into a retail development with some office
on the second floor. Since the population of the area had just begun to expand,
Strauss had to work through several challenges to make this project a reality. Commercial
Investment Real Estate asked Strauss to discuss his involvement with this development.
CIRE: Can you provide more details on your recent retail
development in the Historic Mills District?
: 5th and Walsh was a small industrial building
across the street from a six-block stretch of surface parking lots, which were
all guided by the city for mixed-use developments. My colleagues and I were
attracted to the project because the area was about to change dramatically, and
the building laid out nicely for the conversion. We also felt that there would be
a long-term opportunity to play a part in high-density development and on the
CIRE: How did you obtain financing in a market that doesn’t
have the most retail support?
: There was
very little retail or restaurants in the area when the project started, but we
were fortunate to have investors that believed in the area as much as we did.
We entered the project with a blend of cash and private financing including
about 15 percent cash, 15 percent mezzanine debt, and a two-year interest-only
construction loan for the balance. When we put the permanent financing in
place, the property was substantially leased and occupied while many of the
developments had broken ground.
CIRE: What were some of the preleasing challenges you
encountered? How were you able to work through them?
: The labels on our aerial had a lot of “planned” and
“proposed” markings next to everything we were showcasing. Many prospects
rejected us because our timing was too early. Our biggest challenge was
convincing tenants to open up ahead of the curve. Our goal was to get one
well-known tenant on board and build from them. When Caribou Coffee responded
to use, we gave them everything they asked for and in return, they validated
out project to both the marketplace and our lenders. They are our anchor
CIRE: Once the well-known tenant was secured, how did you
market the area? Did you offer any leasing incentives?
: Since the office market was soft and having
street-level amenities gave us more to offer, we put most of our energy into
leasing the street level retail first and dealt with the office space after. We
marketed heavily to the local retail brokers and did a lot of cold calling to
had the Mills District on their radar because it appeared to be a sea of
parking lots. We created a press release that highlighted all the planned
development in the area and sent it to local newspapers, neighborhood
publications, and real estate trade journals. The press release also became an
insert in our marketing materials.
leasing incentives, we offered rent abatements or lower starting rent to
address anticipation by tenants that they would need a longer time frame to
ramp up sales.
CIRE: Once you had interested tenants, how did you decide on
a right mix or did you only market to specific retailers?
: One of our project amenities is a 16-stall parking
lot located in front of the building. This was designed for short-term parking
only. Since this isn’t a lot of stalls, we tried to look for tenants that would
have different peak hours of operation instead of tenants that compliment each
other, so that each one could benefit from parking. The daytime population and
venue traffic already existed to support restaurants, so we targeted that category
CIRE: What is the current state of the project?
: The project is stabilized with well-branded,
long-term tenants and the district is almost fully developed. Our current
tenant mix includes Caribou Coffee, Subway, Planet Beach, Core Power Yoga,
a night club, and bar/grill. We plan to offer the property for sale this summer.