HRA 07/21/1997 JOINT - 6279JOINT CITY COUNCIUHRA MEETING
MONDAY, JULY 21, 1997
7:00 P.M.
PUBLIC COPY
(Please return to Community Development Dept.)
A
ri
MY OF
FRIDLEY
JOINT CITY COUNCIL AND
HOUSING & REDEVELOPMENT AUTHORITY
MEETING
July 21, 1997 - 7:00 P.M.
Meeting Room 1 (Lower Level)
1. Fridley Executive Center:
A. Discuss Master Plan.
B. Discuss Contract for Exclusive Negotiations.
2. Other Business.
rte.
Adjourn.
MEMORANDUM
DEVELOPMENT DIRECTOR
DATE: July 18, 1997
TO: -�
William Burns, City Manager /Executive Director of -HRA .
FROM: Barbara Dacy, Community Development Director
SUBJECT: Fridley Executive Center
TWO ISSUES
There are two issues for discussion:
1. Should the City continue to market the site as proposed in the current Master Plan?
2. Should the City continue a contractual relationship with MEPC American Properties?
MATRIX
In order to guide discussion, a "Matrix of Issues" has been developed to summarize key
information about four development options. A glossary of terms is also attached which
defines the terms in each of the options.
Four Scenarios
Scenario A, the "Corporate Office Park ", represents the existing Master Plan of 582,000
square feet in four office buildings. The 90,000 square feet of retail and service uses is
included in all of the four scenarios.
Scenario B, "Operation Center /Office Building ", is a 185,000 square foot multi -story
office building with 261,800 square feet in two operation center buildings (these are
two, two -story buildings).
- -11
Fridley Executive Center
July 18, 1997
Page 2
Scenario C, "Mixed Use Park ", proposes 250,000 square feet in two multi -story office
buildings and 100,000 square feet in two, one -story "tech flex" buildings. Tech flex
means a one -story research and development facility with a higher grade appearance
than a typical one -story office /showroom facility.
Scenario D, "Tech Flex ", is 240,000 square feet in two or more tech flex one -story
buildings.
1 sues
The first column in the matrix summarizes the financial impacts of each of the scenarios
in terms of the amount of annual taxes and the present value of tax increment. A
significant amount of time was spent making assumptions about the timing of the
development, the valuation per square foot, land sale prices (in some of the scenarios),
and the amount of development that can be accomplished on the site. These figures
come from a more detailed summary sheet entitled "Comparison of Scenarios ".
The second column is "net cost" which means the balance of expenses (parking ramp
costs) subtracted from revenues (tax increment and land sales). The expenses do not
include the Authority's previous costs from the site (acquisition, improvements, or
holding costs).
Scenarios A and B assume that all of the land is written down to zero. Scenarios A, B,
and C assume that all of the parking ramp expenses are assumed by the HRA (and
paid for via the tax increment). Scenario D assumes land sales and no parking ramp
expenses because the proposed development is entirely one story with surface parking.
Scenario C also assumes revenue from a land sale for the one -story building. Also
included on the matrix is the net revenue if the HRA were responsible for only 50% of
the parking ramp costs.
The third column in the matrix identifies pertinent issues to each scenario from a market
perspective. Tech flex is hot in the market today. Corporate office space will take
longer to attract a user.
The fourth column in the matrix is entitled "Development/Employment Impacts ". Each
scenario will produce different levels of density, jobs, and wage levels.
The fifth column pertains to the impact of each scenario on Fridley's "image ". How
does each of the scenarios enhance or detract from Fridley's image?
Fridley Executive Center
July 18, 1997
Page 3 =
The last column is "Neighborhood Impact".
land use impacts on the surrounding area.
Changing the land use may have different
Extra space has been provided within the matrix for the City Council and HRA members
to make additional notes during Monday night's discussion. A full sized site plan for
each of the options will be available on Monday evening
A video of examples of each of the different types of buildings will also be shown on
Monday ;evening, including an example of tech flex and an operation center building.
MEPC has submitted a letter (attached) summarizing their activity in the last 18 months
plus a summary of the proposals made. Based on their experience with the Lawson
proposal, their letter suggests pursuing Scenario C starting with 100,000 square feet of
tech flex but preserving the remainder of the property for a corporate office user(s).
The questions which will be used to guide discussion on Monday evening are simply:
1. Should the City continue to market the site under the current Master Plan?
2. If not, which of the remaining three scenarios is the preferred alternative?
MEPC AMERICAN PROPERTIES
Selecting MEPC as the site's representative has served the City well, despite the fact
that no development is underway. Some of MEPC's strengths are:
• National and international user contacts; some of the proposals have been made
because of relationships through prior leasing arrangements, either in the United
States or in London.
• Ability to self - finance was a key ingredient in the Lawson proposal.
• MEPC is well- respected in the metro area among commercial and industrial brokers.
• MEPC's mission to own and manage a corporate park is similar to the City's goal for
the property.
No matter the development scenario, MEPC is fully capable of carrying out a quality
project. Staff recommends the City continue to work with MEPC on any of the
scenarios.
Fridley Executive Center
July 18, 1997
Page 4
In marketing terms, the previous 18 month relationship with MEPC is a very short
timeframe. If the City were to initiate a process to select another developer, the City
would lose valuable time in the marketplace to attract a user.
NEXT STEPS
Depending on the outcome of Monday's meeting, staff will schedule the appropriate
action items. For example, a new contract of exclusive negotiations will have to be
negotiated and approved by the HRA.
M -97 -319
.,
5e b* E20 4
p em
^
ponsor
d.
Market Characteristics
MINNEAPOLIRST. PAUL OFFICE MARKET
OVERVIEW & FORECAST
BY STEVE CHIRHART, SIOR®
VICE PRESIDENT
GRIFFIN COMPANIES
The Twin Cities Office Market contains approximately 55 million square feet of multi -tenant office
properties. The Market consists of 40% Class A space, 37% Class B, with the remaining 23% consisting
of Class C & renovated properties.
Vacancy Rates
Total office market vacancy rates have Peached a twelve year lqw of 8 93u. and iiiie expected to drop to
7.9 % by June of 1997. ' The Southeast: Quadrant and St. Paul CBD rornain the softest market segments,
experiencing vacancy rates of.approximately.l6° /6. The*Si. Paul CBD; however,' has experienced both
extremely positive absorption, leading the Twin Cities market with"272,326 square feet and the strongest
improvement in rates, with increases averaging 25 %.
Rental Rates
Rental rate increases have averaged 13.8% with increases of as much as 20 251/6 within the Minneapolis
and St. Paul CBDs: The-average quoted net rental rate within the Twin Cities Metropolitan Area as of
June, 1996 was $10.23 per square foot. Gross rate differentials of as much as $10.00- .$14:00 per square
foot are now pccurring between Class A and other alternatives. Future increases in net iental rates are
expected to approach 1-3% before leveling off in late 1997, which will produce an average net rental rate
for the Twin Cities Metropolitan Area of $11.55 per square foot.
Absorption
Market -wide absorption for the last twelve months slowed to 912,000 square feet as .compared to
1,048,649 square feet the previous year. ,000
square feet. This decrease "will occur as a result of rapidly rising ren a aek of large block vacancies and
market conditions. It is also likelv that
Woodbury and ffiee-
absorption of space.
Economic Trends
of several CBD tenants-
M
arm insurance rrom Kosev111e. to -
further dampen the market's
The Twin Cities economy is doing extremely well and continues to show an amazing level of diversity.
Due to unemployment rates of less than 3% in the Metro area, the Twin Cities area has continued to
attract work force participants from areas beyond state lines. This fact coupled with a strong capital
market continues to bode well for start up companies and existing company expansions resulting 1n
continued long -term demand for office space. -
612- 336 -2328 Fax 612 - 338 -5285
Suite 300, 510 Marquette Avenue, 'Minneapolis, MN 55402
L-
Development Trends
i The short term beneficiaries of a tight office space market will be existing landlords of all classes of s ace.
Owners o ass B and C space may receive an added benefit as demand for low cost altematives
increases.. The long -term beneficiaries of the current market will be the office developer of the future who
can recognize changing demands and-produce an economically viable solution. This solution will result in
°'• a radically different office property over the next development cycle.
Smaller suburban projects are anticipated with more emphasis on function than form. They will have
smaller lobbies and common areas and will emphasize value. They will also occur in phases of 50,000 -
200,000 square feet rather than in 300,000 - 400,000 square feet increments. CBD development on the
other hand may move towards larger scale projects which help offset higher costs associated with site
assimilation. All properties will have a much stronger emphasis on electrical and mechanical systems to
meet the increasing technological needs and higher densities of office space users.
wed ihousanddsguare feet ofnew construction is expected to enter the suburban market in 1997 .
followed by 300 000 to 400,000 in 1998. Development in either Central Business District.is not expected
until at east mid 1999.
Market Volatility
The Southwest Quadrant is by far the most stable market at present based on current demand: and .supply.
The Minneapolis CBD on the other hand possesses the ability to fluctuate significantly in its direction if a
new tower.is developed or a major consolidation occurs. This impact is expected to hit the market by
1998 or 1 X99 and will likely increase vacancy rates back to a low double -digit level. St. Paul is doing a
very good job of capitalizing on its strengths and changing its perception, but the truth is, it lacks a great
deal of depth in the Class A segment, which has historically been higher in demand.
Sales Activity
Institutional grade investors will continue to focus on well located trophy properties and will push prices
on existing properties to their highest levels in years, although still below replacement cost. Class B, C
and renovated properties will also benefit from the improved market conditions and reduced short -term
risk associated with real estate investments.
Conclusions
A cautious approach with a close eye on absorption trends will be critical in the coming year. While
landlords attempt to maximize values by raising rents, there are limits to the achievement of this objective.
Lower cost alternatives will be sought by prices sensitive tenants who will look to Class B C or renovated
space as well as office/ showroom properties to satisfy demand.
There should.be no surprises on the supply side in the short term, but a new devi cle has now
begun. As we have learned historically there are many market variab whlCh could change the
characteristics of today's stable environment in a relatively short period of time..
i
i
i
iti'1INNESOTA - SOUTH DAKOTA CCIM
Office Nlarket Forecast
Steve Chirhart, SIOR
Total Inventory of space (Buildings As of
As of
greater than 20,000 sf) June 30, 1197
June 30, 1996
_ 55,482,469
55.282,969
Vacancy and Absorption
As of
June 30, 1996
Vacancy 4,384,112 7.9%
4,939,112 (8.93%) sf
+755000 sf 6/96 6/97
,
Absorption ( )
+916,653 sf (June 1995 -
June 1996)
Twin Cities Metro Area
Area Analysis (AB, C and renovated
Average NNN Absorption
space combined)
Rental Rate/SF +/- Sq. Ft.
. Inventory Vacancy
(Quoted)
NRA Rate
June1996 June 1997
Mpls CBD 22,732,149 8.6%
10.22
12.26
250,000
Northwest Market 6,482,204 6.9%
10.24
11.05
50,000
Northeast Market 3,251,039 9.5%
9.07
9.52
30,000
Southeast Market 1,102,069 13.7%
-
9.50
9.78
25,000
St. Paul CBD y 5,761,169 13.1%
8.53
9.80
150,000
Southwest Market 15,954,339 4:6%
10.71
12.31
250,000
Total 55,282,969 7.9%
10.23
11.55
755,000
Property Sales*
Suburbs
CBD
Average capitalization rate for sales of A and B space
10.25
10.25
Average sales $/ sq. ft. for sales of A and B space
$104.00
S108.00
Market Activity*
Suburbs
CBD
How many major corp. relocations (greater than 50,000 sf)
will come to the Twin Cities area in the next 12 months?
l " `
0
How many major move -outs /close
downs (greater than 50,000 sf)?
1
2
iv 1 L. FlUpG1lV 3alc;s rUrecasc ana :vtarketActivity will not be used as aradina criteria.
f
�i
Minnesota / South Dakota
CCIM Chapter
Office
Steve Chirhart, SIOR
Griffin Companies
Office Market Existing Universe
Steve Chirhart, SIOR
cao
: sw
Total
Office Market
Steve Chirhart, SIOR
Percentage of Total Available Space
by Property Classification
Gass C:
437
Gass 8 wa%
a 98695 sy n
Gass a n rx
t 136 ns sa n
R- cvatetl *6a%
7?ZI95 sa 1
Office Market Highlights
Steve Chirhart, SIOR
• Vacancy rates have reached a 12 -year low of 8.9%
and will dip to 7.9% by June of 1997.
• Net rental rates have escalated to 13.8% and will
rise an additional 12.8% before reaching their peak.
• Higher rents, a lack of large block vacancies, and a
fight labor market will slow absorption to 755,000
sq. fL marketwide.
CCIM
Office Market
Steve Chirhart, SIOR
Twin cities Office Market
by Property Classification
Office Market Projected
Steve
Universe®
Chirhart, SIOR
Projected Universe
narhet NRq Pbon Preiectetl
&98 G/9a Vacancy
Projected % of Increase
Rental over Previousi
Rates v
9e ys 200 000 v 01 , m.ovucoon
Tenant Considerations
Steve Chirhart, SIOR
- Corporate pressure to "right- size" is expected to
increase.
ety As market conditions tighten, expansion,
contraction, and renewal option language will
become increasingly important.
- Five -year leases will dominate the market for small
to medium firms. Larger tenants will seek security
in 10 -year leases with a focus on flexibility.
Office Property Sales
Steve Chirhart, SIOR
I
A
B I
Combination
Avg Cap Rate
9.5 .
11
1025
Avg $ /sf
128.00
80.00
104.00,
(suburban properties)
Avg $ /sf
140.00 '
f•6.00
108.00
(CBD properties) -
Trophy property demand will again exceed supply.
• The local investor has returned to the market as a
buyer of investment real estate.
Office Market Trends
Steve Chirhart, SIOR
- Rising tenant improvement costs coupled with
disappearing incentives will lead to a higher
Percentage of lease renewals.
With gross rate differentials ranging from $10 -
314 per sq. -t.. demand for Class B, C. and
renovated space will increase as tenants seek a
lower cost alternative_
CCIM
Office Market Projected Activity
Steve Chirhart, SIOR�,�
• New corporate relocations to the Twin Cities area
greater than 50,000 sq. ft. in the next 12 months:
_ -1
• Corporate relocations or "right - sizing" in excess of
50,000 sq. fL:
-3
CC[M
Office Development O
Steve Chirhart, SIOR
- 200,000 sf of new construction is currently
underdevelopment Preleasing*efforts are in
progress on ten additional sites.
• Suburban office development is less likely to
result in an immediate over supply condition as
development is- phased, geographically diverse
and smaller in scale.
• Development within either CBD may have a
more volatile impact on market conditions.
Office Market Trends
Steve Chirhart, SIOR
• Demand for office showroom space with
reasonable parking will also increase as a
desirable lower cost space alternative. '
The Class A office product of the-future will have
more of a focus on function, such as, electrical
capacity and improved HVAC systems than on
form.
• Commercial real estate taxes will escalate
sharply under their present system and
must undergo reform.
,
KOLI:
I H I R \1 E 11Ir
MINNEAPOLIS /ST PAUL:
OFFICE MARKET OBSERVATIONS
BY JIM JETLAND
VICE PRESIDENT
• Total universe of office space will remain stable but will increase the latter part
of 1997 with multiple new developments in the suburban market.
• Vacancy will drop slightly and absorption will decline due to a lack of
available space in the current universe.
Effective rental rates are at a historical high due to significantly increased net
rents combined with lower transaction costs and the elimination of free rent.
• Investor interest in the Twin Cities office market is high and should remain
strong for the near future. Real estate values have not reached a. historical
high however.
• Demand is slightly in excess of supply in both the Tenant/Landlord areas, as
well as Investor /Seller area of the real estate market, hence we will see a
continued increase in rents and sales.
• Replacement costs will create a barrier that will limit the rapid rise of
investment sales we have seen the last year.
• Real estate taxes payable in 1997 will increase as much as 20 -35 %. The
combination of increased net rents and real estate taxes will force selected
companies to downgrade from Class A to Class B or office/tech buildings_
• 17 new developments are being pursued in various stages throughout the
Twin Cities market. A significant increase in the total universe in a short
period of time will have a flattening or negative effect on net rents.
■
r
I
• Most new office developments will be smaller in size (80,000 - 150,000 square
feet) with fewer amenities than the office pi smaller
that was developed in the
late 1980's.
• Many corporate users are planning a significantly higher density of people, per
square foot than in the past, which will effect building issues such as
mechanical systems, parking, floor loading and restrooms. -�<
• Many large users are being forced to consider long -term lease commitments
with new development; however, flexibility will remain a key issue for the
corporate user.
• There will be less sublease space options in the market over the next 12
months; however, look for 1 -2 large subleases to become available through
further corporate downsizing.
MINNESOTA - SOUTH DAKOTA CCINI
Office itlarket Forecast
/ Jim .Jetland
Total Inventory of space (Buildings
As of
greater than 20,000 sf)
July 1, 1996
55,282,969
Vacancy and Absorption
As of
'
July 1, 1996
Vacancy
4,939,112 (8.93 %) sf
+916,653 sf (June 1995 -
Absorption
June 1996)
Twin Cities Metro Area
Area Analysis (A,B, C and renovated
Average NNN Absorption
space combined)
Rental Rate/SF +/- Sq. Ft.
Inventory Vacancy
(Quoted)
NRA Rate
June1996 June 1997
Mpls CBD 22,732,149 9.11%
10.22
12.78
140,000
Northwest Market 6,482,204 6.45%
10.24
11.74
85,000
Northeast Market 3,251,039 7.94%
9.07
9.11
50,000
Southeast Market 1,102,069 12.92%
9.50
9.77
35,000
St. Paul CBD 5,761,169 13.33%
8.53
8.77
65,000
Southwest Market 16,154,339 3.27%
10.71
12.20
270,000
Total 55,482,969 7.55%
10.23
11.69
645,000
Property Sales`
Suburbs
CBD
Average capitalization rate for sales of A and B space
A
9%
B 9.75%
A 8 %
B 9.5%
Average sales $/ sq.- ft. for sales of A and B space
A
B
A $14
$135
$90
B $95
Market Activity*
Suburbs
CBD
How many major Corp. relocations (greater than 50,000 sf)
will come to the Twin Cities area in the next 12 months?
0
How many major move - outs /close
downs (greater than 50,000 sf)?
I
I
* NOTE: Property Sales Forecast and Market Activity will not be used as grading criteria"
SL`�HQ1V1�1S QFl1 tsult louvlvntlt+
Minnesota / South Dakota
CCIM Chapter
Office
Jim Jetland
Koll
CC�m
Office...
Jim Jetland
� d
Submarket
I NRA Total i Vacancy 1 Absorption
f Vacancy i Rate 1991' +/_ Sq Ft
1996
Mpls CBD
22,732.149
2,071,5721
9.11%
740.0001
St Paul CBq
5,761,169
844,4421
14.66 %
85.000 j
NW
6,482.2041
445.687i
6.88%
50.0001
NE
3,251,0391
303,1401
9.32%1
35.0001
SE
1,102.0691
111,4801
10.12 %1
65,0001
SW
16.154.3391
717,791 !
4.44 %
270.0001
Total
55,482,969
4,494,1121
8.10 % j
645.000:
Office...
Jim Jetland ® Jim Jetland
Average NNN Rental Rate/SF (Quoted) Total Inventory of Space
Millions of SQ fl
60 1
56
'!A
52
so I
1993 1994 1995 1996 1997
55,482,969
Submarket i June 1996
1 June 1997
1 %Change
i Mpls CBD 10.22
1278
25%
1 St Paul CBD 8.53
8.77
2.8%
, 1024
11.74
14.6% I
1 N 9.07
9.11..04%
:SE
9.50
9.77
2.8% 1
i SW
10.71
12.20
13.9°lo i
Total
10.23
11.65
13.9%
Office.._
Jim Jetland
Avadaole in mlillons of so k Hercentage
a . 20
9f
is.
i
et ! 1
1
l0'
4i
5j
21 1
01 0 I
1993 :994 1995 19% 1991) 1993 1994 1995 19% 1991
1997 Base 55.482.969 million sq. ft.
1997 Prediction 4.5 million 5q. ft. 8.1%
Office._.
Jim Jetland
645.000 sq ft
s
Office...
Jim Jetland
Office...
Jim Jetland
Property Sales - 1996 Average
CBD
j8% g
y Avg Cap
Rate 9.75% Avg $ /sf $95
I
Office... O
Jim Jetland
Market Activity
- How many new office developments over 100,000
square feet are currently under discussion
- 17
- How many office developments in excess of
100,000 square feet will break ground in 1997
.2
Office...
Jim Jetland
Property Sales - 1996 Average
Suburbs ,
A g
Avg Cap
Rate 9 iE 9.75
Avg $ /sf $135 , $90
Office...
Jim Jetland
- Market Activity
- New major relocations to the Twin Cities greater
than 50,000 square feet in the next 12 months
- 2 - Suburbs
- Major move outs greater than 50,000 square feet
- 1 -Suburbs
- 1- CBD
CCIM.
Office...
Jim Jetland
- Effective rental rates at a historical high due to
increased net rents combined with lower
transaction costs and the elimination of free rent
- Demand is slightly in excess of supply in Tenant
/ Landlord market and Investor / Seller market.
hence we will see continued increase in rents
and sales.
Replacement costs will create a barrier that will
limit the continued rapid use of investment sales
Office...
Jim Jetland
Real Estate Taxes payable in 1997 will increase
23 %0
A5%. with increase net
rer#sAll.force selected companies to
=j tjowgtade from Class Kto Class B or
ON W :-0 fftce /te buildings.
Over`17 view developments are being pursued in
various stages throughout the Twin Cities
market. A significant increase in the total
universe in a short period of time will have a
flattening or negative effect on net rents.
Office...
■ Ask the experts
CCIM
ir.• ,
Office.._
Jim Jetland
- Many corporate users are planning a
significantly higher density of people, per square
foot than in the past, which will effect building
issues such as mechanical systems, parking,
floor loading and restrooms.
I
CCIM
CITY OF FRIDLEY, MINNESOTA
- - - - - -- - - - - -- - - --
COMPARISON OF SCENARIOS
5,871,479
5,405,934
Scenario A
CURRENT
Scenario B
185000 sq. ft. in
Scenario C
S� Q
1,029,938
2,993,973
MASTER PLAN
1 office building;
250000
sq. ft. in
2 office buildings;
240000 sq. ft. in 90
582000 sq. ft. in
261800 sq. ft, in
100000 sq. ft. in
2 or more flex
5,677,952
4 office buildings
2 operations Ctrs
2 flex space bldgs
space buildings
Construction Square Footage
Flex Space - Office
Operations Centers
0
0
0
100,000
240,000
Office Building
261,800
0
Total Square Footage
582,000
185,000
250,000
0
0
582,000
446,800
350,000
240,000 i
Estimated Market Value
'
Flex Space - Office
'
O
Operations Centers
Office Building
0
0
0
19;635,000
6,000,000
0
X14,400,000
52,380,000
---------- ____�_
16,650,000
____ ~-
22,500,000
0 I!
0 ,
Total Market Value
52,380,000
36,285,000
28,500,000
- - -`- -�
Estimated Annual Taxes
14;400,000
2,687,513
1,974,588
1,462,278
738,835
Estimated Tax Increment
18 986,739
15,310,264
11,081,642
6,802,555
Administrative Expenses
1,898,674
1,531,026
1,108,164
680,256
Available Tax Increment
17,088,065
13,779,238
Available Tax Increment P. V.
9,973,478
6,122,300
Land Sales
8,529,938
0
,
7 124 357
5,071,479
3,485,934
:Total Revenues
"`-
0
_________
800,000
1__920_000
8,529,938
7,124,357
5,871,479
5405934
Parking Costs (expenses) 100% "
'
iRevenues Less Expenses
5
0 ----
10,850,000
6,375,000
0'
;Add Retail /Service Net Revenues
(6,470,062)
2,993,973
(3,725,643 )
(503,521)
5,405,934
2,993,973
2,993 973
�
2,993,973
TOTAL REVENUES LESS EXPENSES
'
-`�"--
(3,476,089)~
(741,670)__
2,490,452
8,399.907
Use Ohl SO% Of Parkin Costs
Total Revenues
Parking Costs (expenses) 50%
Revenues Less Expenses
Add Retail /Service Net Revenues
t TOTAL REVENUES LESS EXPENSES
/lepcsum7.wk4
PREPARED BY KRASS MONROE, P.A.
DO sq. ft. restaur
110 room hotel;
20,000 sq. ft
Bank office bldg
5,375,000
275,781
2,411, 868
241,187
2,170,681
1,193,973
1,800,000
2,993,973
0
973
Ic
07/17/97
1,1 1
5,871,479
5,405,934
7,500;000
5,425;000
3,187,500
1,029,938
2,993,973
1,699,357
2,993,973
- 2,683,979
5,405,934
34
2,993,973
2,993,973
4,023,911
4,693,330 -
5,677,952
8,399,907
PREPARED BY KRASS MONROE, P.A.
DO sq. ft. restaur
110 room hotel;
20,000 sq. ft
Bank office bldg
5,375,000
275,781
2,411, 868
241,187
2,170,681
1,193,973
1,800,000
2,993,973
0
973
Ic
07/17/97
TERMS
Office Building: Multi- story; smaller floor plate; brick finish
Market Value /s.f.: $90
Taxes /s.f.: $4.62
Operations Center: 2 story; larger floor plate; precast finish
Market Value /s.f.: $75
Taxes /s.f.: $3.85
Flex Space: 1 story (16' -18' ceiling clearance); brick &
glass exterior; large floor plate; delivery
doors in rear
Market Value /s.f.: $60 :n
Taxes /s.f.: $3.08
Parking Structure
Office Building: Multi -story ramp: cost approximately
$7,500 /stall
Operations Center: Bilevel structure: cost approximately
$4,500 /stall
F \FRIDLEY \14 \DOC \TERMS.1
0000
July 17, 1997
Mr. Bill Burns
City Manager
Fridley Municipal Center
6431 University Avenue N.E.
Fridley, MN 55432
Dear Bill:
MEPC American
Properties
1550 Utica Avenue South
Suite 120
Minneapolis Minnesota 55416
Telephone (612) 546 -8000
Facsimile (612) 542 -9297
The following activities and material development has been enacted by MEPC over
the past year and a half in an effort to position and market Fridley Executive Center
for commercial development.
• Master Site Development Plan
Based on the research and secondary market information, we worked with city
planners, architects and engineers to establish an updated Master Site
Development Plan.
Focus Group Research
An exploration of attitudes and perceptions of Fridley and the Fridley business
community by the commercial real estate community.
• New Image (Fridley Executive Center)
Created to help achieve the City of Fridley's goal of upgrading and expanding
the image and perception of the community.
Developer of Minneapolis West Business Center and Norman Center
Mr. Bill Burns
July 179 1997
Page 2
• New Logo
A to o developed to provide a contemporary business image to prospective
company tenants.
method of impacting potential prospects with the image and site
iges of Fridley Executive Center.
A pe sonal introduction to Fridley Executive Center by key marketing
mem ers of the Twin Cities commercial real estate community. An
oppo 'ty to share, first -hand, the advantages of this unique site and to define
appropriate users according to the master site development plan.
• T Tnd a tpd Ma rlra*i
Developed a rendering of Phase I along with a total package of information
for use in all marketing activities directed to brokers and prospects.
Anno cing the Fridley/MEPC development agreement to commercial space
users and more than 500 key real estate brokers in the Twin Cities area.
ted marketing meetings with the leading local commercial real estate
ies to show the opportunities available at Fridley Executive Center.
Mr. Bill
July 17,
Page 3
♦ Conhmercinl .Ri
The f0owing service businesses were contacted to expand their understanding
of th opportunities available at Fridley Executive Center.
Hampton Inns - Tom Torgerson
Marriott Courtyards - Dan Mahoney
American Hospitality Management - Kirby Payne
Five tar Realty & Development - James Stuebner
Graves Development Corporation - Jim Graves
Homewood Suites - Cambridge Real Estate Company
Macaroni Grill/Chilli's - Brinker Corporation
Old Chicago/The Chop House - Brewery, U.S.A.
Olive Garden/General Mills
Cha s /Shelley's - A.B. Pettit Company
Nikal w Deli - Jim Nikalow
Outback Steak House - D.J. Sikka
Nortast State Bank - Ben Rasmussen
Alliarice Bank - Susan Hinrich
The f llowing proposals were presented as a second stage marketing approach
to interested prospects which had been developed through marketing efforts:
Dain
Express Financial Services (IDS)
Mr. Bill
July 17,
Page 4
Piper Jaffrey
U.S. est Direct
Augs urg Fortress Publishing
Home Builders Association of the Twin Cities
Pen ' , Inc.
Laws n Software
Summary:
Based on our experience with this development site and many conversations with
prospects and real estate professionals, it is apparent that demand for high density
executive of ce space in the northern Twin Cities market area is extremely limited.
However, gi en the explosive growth of technology firms and the recent success of
technology buildings throughout the Twin -City area we believe the Fridley Executive
Center site is ideally suited for this new wave of business space growth.
In meeting flie needs of the corporate users of today and in order to get development
going on this site, MEPC would propose the development of approximately 100,000
square feet of Hi -Tech space on the westerly portion of the site. The project would
be similar in quality and appearance to Golden Hills Business Park in Golden Valley
and Golden Triangle Technology Center in Eden Prairie. Both of the projects have
been successfully constructed and leased by MEPC over the last year and a half.
These projects are attracting fast growth, quality companies such as:
CyberOptics 711000 sf
Information Advantage 37,000 sf
Sedgewick James 2200 sf
Workstations International 13,000 sf
Sales Force Companies 22,000 sf
Mr. Bill I
July 17,1
Page 5
Many of these companies vacated office buildings to relocate to Hi -Tech facilities.
These Hi -T ch facilities offer a class "A" office environment with ease of access,
flexibility f r growth and the functionality of a one -floor operation.
With this r vision to the Master Plan, the City of Fridley would still have the
flexibility o developing approximately 250,000 sf of multi -story office space on the
balance of die site. MEPC believes that by beginning construction on the Hi -Tech
facilities no , we will generate new found attention to Fridley Executive Center.
In our exten ed discussions with Lawson Software, we found an interest to have both
a corporate headquarters site and also a one (1) story Research & Development
(R &D) facility at this location. We therefore believe this type of mixed -use park
would fit many corporate users and attract excellent, high - quality, skilled
professionals to the City of Fridley, but not limit the future development of office
space on tht balance of the site.
MEPC has eatly enjoyed the opportunity to work with a City that is so interested
in attracting and accommodating corporate users to this site. It has been a pleasure
to work wit i you and your staff and hopefully we can continue this relationship
through the ompletion of this excellent business park.
Sincerely,
MEPC AMERICAN PROPERTIES INC.
David M. Je lison � '
`� Iie Jowett, RPA
Regional
Marketing
DMJ /clp
;e President
Leasing Manager
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NAIOP 1996 ANNUAL OFFICE SPACE UPDATE
19% MARKET DATA REPORT
WEST & NORTHWEST
u_ SIGNIFICANT EVENTS AND TRENDS -i
• Overall v�mncy declined from 6.8 % to 5.2 %.
• Vacancy in Class A buildings decreased slightly from 3.6% to 3.1 %.
• Vacancy in the West Submarket is 3.0%, and 13.2% in the Northwest Submarket.
• Net absorption for 1996 is 117,347 square feet.
• 505 Wate ord Park sold for $119 per square foot.
• 55 West 1 inancial Center sold as a package deal along with City West Financial Center.
• The 1,000,000 square foot Interchange Office Park is under contract and is scheduled to close
in 1996.
• Carlson Real Estate developed a 65,000 square foot build -to -suit building for Grand Casinos.
• There are my four large blocks of space greater than 15,000 square feet, and three of these
blocks are sublease opportunities.
• Unlike the Southwest Submarket, the West Submarket did not break ground for new
developmerit in 1996, however, there are three to four sites that are poised for 1997.
23
NAIOP 1996 ANNUAL OFFICE SPACE UPDATE
1996 NL4RKET DATA REPORT
WEST & NORTHWEST
PERCENT PERCENT
TOTAL VACANT VACANT OCCUPIED
Existing Universe
of Space
7,222,930
372,457
5.2%
94.8%
Sublease Space
and Shadow Space
59,400
SUBTOTAL
7,222,930
431,857
6.0%
94.0 %
Projects Under
Construction
0
0
—
TOTAL PROJECTED.
7,222,930
431,857
6.0%
94.0%
1994 Estimated
Annual Net
Absorption
117,347
Supply of
Space in Years
3.7
5 Year Ave
ge Annual Net
Absorption
212,012
Supply o
Space in Years
2.0
Tax &
Operating
RENTAL
TES
Quoting Net
Estimated
High
Estimated
Low
Expense
Base
Class A
$12.50
$15.50
$9.00
$8.60
All Other B
ildings
$10.25
$12.50
$5.50
$7.40
Note: Rental r are based on quoted net rates without consideration of transaction costs.
Actual a ective rates will vary.
25
NA10P 1996 AL OFFICE SPACE UPDATE .�
Sq.
300,(
2009
100,01
0
Percent V
20% -r'
15%
10%
5%
0%
1996 MARKET DATA REPORT
WEST & NORTHWEST
1992 1993 1994 1995 1996
1992 1993
1994 1995
1996
24
NAIOP 1996 A NNUAL OFFICE SPACE UPDATE
Percent
Vacant
30% -r
20%
10%
1996 MARKET DATA REPORT
WEST & NORTHWEST
1993 1994 1995
_ . M1
OClass A Buildings ® Other Buildings
26
1996
construction -ready rate
the 25% increase in tt
net rent to $14.21 psf it
5.4% jump in rates t
brings the average net
psf. Including the 22,
rates reported for the yi
quarter 1995, this is ar
in two years! Asking
$10 to 22 psf.
Six new Class A
proposed for dov
Corporation has
opportunities for t
444 Marquette (Power,
600,000 sq. ft. build
featuring large flo
underground parking.
Avenue (Minnegasco
900,000 sq. ft. tower h;
with more typical floo
underground parking. A
no immediate plans,
development rights at
between Nicollet and M
and 4th streets.
Target Stores, Inc.
400,000 sq. ft. office tc
headquarters on a port
bounded by Nicollet N
Avenue and 10th and L
near the Government C
Phase H of the Metropc
in the early stages.
Ryan Companies p]
The Conservatory at 8th
build a 40 -story skyscral
sq. ft. of office space. E
Ryan is the 900 Tower,
office building to be to
planned Target store.
The challenge for t
is to convince would -be
with strong credit to si
lease (15 -20 years) at
could be $35 psf or moz
And finally, after fi
years of increasing vacaj
segment reported 26,
absorption for fourth qt
its vacancy rate to 21.6%
negative absorption of 2:
a vacancy rate of 253
ending second quarter
activity in four of the ni
this small segment impro,
rate by 3.7 percentage pt
Though asking
comparatively low, an ]
brought the average quc
TOWLE
REAL ESTATE
as evidenced by
average quoted
Class A. Another
y fourth quarter
•ent up to $14.97
o jump in rental
ar ending second
increase of 52%
ents range from
zthce towers are
,ntown. Opus
development
free sites. At
site), a 15 -story,
ng is possible,
)r plates and
At 707 Second
ite), a 35 -story,
s been designed
plate sizes and
[though there are
Opus controls
the Ritz block
arquette and 3rd
plans to build a
wer for its new
on of the block
all and LaSalle
th Streets. And,
enter, plans for
titan Centre are
ns to demolish
ad Nicollet and
;r with 750,000
so planned by
500,000 sq. ft.
ited above the
ese developers
anchor tenants
m a long -term
ross rents that
ur consecutive
cy, the Class C
131 sq. ft. of
uter, lowering
After suffering
,100 sq. ft. and
o for the year
1996, leasing
ie buildings in
ed the vacancy
$6.14 psf. By fourth quarter, another
13.6% increase brought the rates up to
$8.25 psf.
MINNEAPOLIS OUT -OF -CBD
This sector of 15 buildings, totaling
1,332,463 sq. ft. of office space, had one
of the most improved vacancy rates in
the metro area. The Out -of -CBD sector
reported annual net absorption of 55,533
sq. ft., reducing its vacancy rate by 4.0
percentage points to 16.3 %.
Strong leasing activity in University
Park Plaza accounted for the majority
of this absorption.
The average quoted net rent rose by
3 %, to $9.61 psf. Following the 14%
increase in the average property tax for
the previous year, real estate taxes decreased
by 9.6% to $3.12 psf. Average total
expenses decreased by 3% to $8.18 psf.
With a shortage of large blocks of
space, a new trend is emerging that is worth
noting: industrial warehouse space is being
converted to office space. An example of
this is the leasing of 180,000 sq. ft. at
Stinson Business Center by US West.
NORTHWEST
Several years of slow but steady
absorption have inched this sector's
vacancy rate down to 14.0 %. Ten out of
12 buildings in this small sector
experienced equal or improved
occupancy. The biggest gain was in
Earl Brown Tower where 28,000 sq.
ft. was leased to one tenant. Annual
net absorption was 8,562 sq. ft.
Added to the survey is the 63,000
sq. ft. Brookdale Towers, previously a
single tenant property, which sold and is
nearly half leased as multi- tenant.
STATED NET RENTAL RATES AND EXPENSES
MINNEAPOLIS /St PAUL METROPOLITAN AREA - SECOND QUARTER 1996 (PSO
MARKET AVERAGE
SECTOR NET RENT
Anoka County
Dakota County
Minneapolis CBD
Class A
Class B
Class C
Renovated
Mpis. Out -of -CBD
Northeast
Northwest
St. Paul CBD
Class A
Class B
Class C
Renovated
St. Paul Out -of -CBD
Southwest
Class A
Class B
Washington
West
Class A
Class B
rents are
8.3% increase
led net rent to fourth Ou"r 1996 Dom
NET RENT AVERAGE AVERAGE
RANGE PROPERTY TOTAL
LOW -HIGH TAX EXPENSES
$854
$3.00 -$1150
$2.47
$616
$9.23
$7.00- $12.00
$2.85
$6.79
$14.97
$11.00- $22.00
$551
$11.25
$9.81
$6.00 - $16.00
$3.08
$8.38
$6.97
$5.00 -$9.00
$1.39
$5.45
$8.25
$3.00- $16.00
$1.82
$6.24
$9.61
$7.00 - $16.00
$3.12
$8.18
$9.86
$6.40 - $13.00
$2.91
$7.02
$7.87
$550 - %10.00
$253
$659
$10.75
$8.00 - $15.00
$2.78
$7.85
$6.73
$3.00 -$1350
$1.79
$7.70
$4.96
$2.25 -$9.00
$1.16
$559
$7.48
$6.00-$10.00
$156
$5.62
$754
$4.00- $10.00
$2.05
$5.90
$14.70
$1250- $18.00
$4.29
$9.87
$10.42
$550- $14.00
$253
$7.13
$9.76
$7.25- $12.00
$1.80
$6.26
$15.00
$14.00 - $20.00
$4.67
$10.05
$9.97
$6.00 - $14.00
$253
$752
® Towle Real Estate Company
For the year ending second quarter
1996, the average quoted net rent rose
11.9% to $7.87 psf. And, after five
consecutive years of declining real estate
taxes, the average property tax increased
this year by 7.5% to $2.53 psf. Average
total expenses for the sector remained at
$6.59 psf.
WEST
For this very tight sub - market,
another year of str ng positive
absorption totaling 126,568 sq. ft.
resulted in a record -low tracancy rate of
6.2 %. The large Class 11 segment was
the leader with 36 of the 47 buildings
reporting equal or improved occupancy
as of second quarter 1996. The highest
absorption occurred in Interchange
Tower, Ridge Plaza, Willow Creek
Plaza and Westwood U w Office Park.
The Class B segme it experienced
substantial improvement in the past two
years, from a vacancy ra a of 16.9% in
1994 to a present vacant rate of 6.2 %.
The Class A universt added 26,670
sq. ft. to the occupied b e. The highest
absorption was reported inThe Colonnade.
The current vacancy rate of 6.0% is a
considerable recovery from the 18.4%
reported three years ago.
With low vacancy rates, development
action has heated up in this sub - market.
The Galbreath Co m any began
construction on its 70,000 sq. ft.
12600 Whitewater D ve Class A-
quality building in Minric tonka.
More development p ans abound in
the West sector. In Gc lden Valley,
Sherman Associates, Inc is proposing
Valley Creek Office Park a three phase,
105,000 sq. ft. project. Phase I is 44,000
sq. ft.
Opus Corporation plans to develop
a 25 -acre office camps with up to
500,000 sq. ft. of office space at the
northeast quadrant of 1-3 94 and Hopkins
Crossroads. Carlson R al Estate is
planning to build Two Carlson Parkway,
which will consist of two Class A- quality
buildings of 80,000 sq. ft each, across
from One Carlson Parkway in Plymouth.
And, MEPC continues t pre -lease a
proposed 12 -story, 230,OOD sq. ft. office
tower adjacent to the Travelers Express
Tower near Highway 100 and 394.
Class A net rental rates rose again
this year to an average quo ed net rent of
$15.00 psf, up 12.5% for th a year ending
second quarter 1996. To al operating
♦ The Ga/hrsolh Company hos began coastrorl/oa an IM10 W/Itewatei Delve in MiaaeMaka
expenses rose by 4.5% to $10.05 psf, and
the average property taxes increased by
8.1% to $4.67 psf.
Class B net rental rates jumped up
9.8% to $9.97 psf. Total operating
expenses and property taxes increased
3% to $7.52 psf and $2.53 psf
respectively.
SOUTHWEST
Despite extremely tight conditions,
the Southwest sector experienced
substantial absorption for fourth quarter
1996. Six -month absorption of
193,385 sq. ft. improved the vacancy rate
to 4.3 %. This is the lowest of all sectors.
The Southwest sector is the metro
area leader in several other ways. For
the year ending second quarter 1996, it
was the net absorption leader, reporting
295,700 sq. ft. And, with 129 buildings,
it has more properties than any other
sector. Hazeltine Gates, in Chaska, was
recently added to our survey of multi -
tenant buildings.
The majority of absorption for
fourth quarter, 249,031 sq. ft., was in
Class B buildings. This lowered the
vacancy rate to 4.7 %. The biggest
winners were NFC Center, Pentagon
Office Park, and Riverview Office
(formerly Appletree Square 1).
Class A buildings took a slight step
backwards for fourth quarter. Negative
six -month absorption of 55,646 sq. ft.
raised the vacancy rate from 2.3% at the
end of second quarter to 3.6% by fourth
quarter 1996. The very tight Class A
segment has few space options with no
reported contiguous space of
25,000 sq. ft. or more available.
Rents have risen enough to support
new construction. The current range of
asking rents is $12 to $18. A 9.8%
increase brought the average quoted Class
A net rental rate up to $14.03 psf for the
year ending second quarter 1996. By
fourth quarter, it ticked up another 4.8%
to $14.70 psf.
New developments need $14.00-
$17.00 psf net to work in the Southwest
sector. Class B rents are also on the rise.
As of second quarter, a 6.1% increase
brought the average quoted net rental rate
to $9.74 psf. An additional 7% increase
brought average rents to $10.42 psf by
fourth quarter 1996.
The race to begin construction of
a new office building ended with the
recent ground breakings of two
properties. Opus Corp's 122,000 sq. ft.
Pondview Plaza will be ready for
occupancy in October 1997 in the Opus
2 Business Park in Minnetonka. And,
United Properties began construction
on the 13.0,000 sq. ft. first phase of
the Centennial Lakes project.
Much more development is
proposed. TOLD Development plans to
construct Meridian Crossing in
Richfield. It will feature a six -story,
140,000 sq. ft. first phase and eight-
story, 180,000 sq. ft. second phase. Ryan
Companies is in the preliminary planning
stage of the 175,000 sq. ft. phase II of
Wilson Ridge in Eden Prairie. BTO
Development announced plans for
Smetana Lake Office Plaza, a 130,000
sq. ft. project in Eden Prairie. Pinehurst
Properties plans to build a 4 -story,
90,000 sq. ft. office project in Edina.
United Properties has proposed an
expansion of the Normandale Lake
Office Park on Highway 100 and 494.
SL PAUL CBD
In a dramatic comeback performance
after years of hardship, the St. Paul CBD
emerged as an absorption leader (topped
only by the Southwest sector) for the year
ending second quarter 1996. Positive
annual net absorption of 276,680 sq. ft.
TOWLE
REAL ESTATE
II. FUTURE PROJECI
Under Construct
Planned Projects
Future Projects
III. NET ABSORPTION
(Years Ended April 30)
NAIOP 1997 INDUSTRIAL SPACE UPDATE
OFFICESHOWROOM
- NE NNEAPOLIS & NORTH SUBURBAN
I. CURRENT
UNIVERSE
Occupied
Square Feet
107,473
Total
Occupied Annual Net
Occu P• Vacant Percent Absorption
(59,671)
179,305
(Sq. Ft.)
(Sq. Ft.) (Sq. FL) Vacant (Sq. Ft.)
Existing
Projects 1,992,165
1,899,872 92,293 4.6 55,403
New Projects
146,000
123,500 22,500 15.4 123,500
Curre
t Universe 2,138,165
2,023,372 114793 5.4 178,903
II. FUTURE PROJECI
Under Construct
Planned Projects
Future Projects
III. NET ABSORPTION
(Years Ended April 30)
Sq. Ft.)
Annual Net
Percent Of
Year
1993
Absorption
Square Feet
Occupied
Square Feet
107,473
6.5
1994
1995
(59,671)
179,305
(3.5)
9.6
1996
48,454
2.2
1997
178,903
8.8
5 Year
Average 90,893
III. LARGEST
CONTIGUOUS SPACE BREAKDOWN
Vacancy
Square
Size Number Of
Feet Projects
Square
Feet
0
1 - 9,99
19
8
0
24,978
000 10,000
25,000
24,999 1
49,999 1
17,000
40,033
50,000
99,999 0
0
100,000
Total*
+ 0
0
29
82,011
a rv• RENT SUMMARY
me
we Office Rent
w Warehouse
Blended
Taxes &
0* Taxes 0
Rent
Net Rent (Assuming 50%
Operating Expenses
my
Averag
$8.79
$4.40
Office) $5.28
$2.89
$1.96
* One block
of space per project. may not reflect total vacancy
Total
Number Of
Sq. Ft.)
Projects
35,000
1
110.000
1
145,000 2
FUTURE PROJECTS
Under Construction
- Twin Lakes Business Center III
35,000 sq. ft. _
Planned Projects
- Center Pointe Campus
110,000 sq. ft.
Low
- High
$6.00
- $11.00
$3.00
- $5.00
$1.00
- $3.79
$0.65
- $2.50
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