[Mpls] Minneapolis taxpayers - sharpen your pencils

[David Brauer]

On Jul 30, 2004, at 9:19 AM, Victoria Heller wrote:

> The big guys are bailing out of Minneapolis with big losses!
>
> Here's a sale that we can analyze from today's Strib.
> http://www.startribune.com/stories/535/4902009.html
>
> <snip>

> With interest rates at historic lows, it's really difficult to=20
> understand
> how real estate values can drop so dramatically.  Could it be that
> businesses don't want to be in Minneapolis?

In a word, no.

Vicki is fond of pointing out the less-successful real estate deals in=20=

town. She ignores two big non-Minneapolis factor (terrorism and the=20
post-dot-com 2001 economic bust) but more importantly, the city's real=20=

estate success stories =97 one big reason older buildings have lost =
value=20
is all the new buildings that are pressuring them.

If businesses are fleeing Minneapolis, how to explain these three=20
post-2000 additions to the Downtown scene:

US Bank Building, 8th & Nicollet
Assessed building value: $111,700,000
2004 Taxes: $4,709,201

Target Plaza South, 68 S. 11th Street
Assessed building value: $89,631,000
2004 Taxes: $3,753,908

Target Plaza North
Assessed building value: $49,700,000
2004 Taxes: $2,112,259

50 S. 6th St.
Assessed building value: $71,000,000
2004 Taxes: $2,993,857

(Note: the Target towers are not subsidized. This list does NOT include=20=

the Target store at 9th & Nicollet, or the Retek on the Mall building,=20=

another new taxpaying tower)

Add up just those three projects and you get $321 million of new=20
development (in today's valuation) and $13.5 million in taxes.

Those huge new towers pressure older buildings such as the=20
International Center.

According to the Strib, the selling price of International Centre I &=20
II fell from $59 million in 1998 to "slightly more than $40 million" in=20=

the current sale. Too bad for the International Centre folks. But the=20
three towers I listed above bring 15 TIMES as much value as this=20
15-year-old building lost.

Capitalism is creative destruction - but you're only destroying logic=20
if you don't look at the whole marketplace to analyze its health.

It's also worth noting several quotes Vicki strategically didn't quote=20=

from the Strib piece:

"We're very excited," Welsh President Bob Angleson said [Welsh, a "big=20=

guy" suburban firm, is buying into Downtown for the first time]. "It's=20=

a building that has a large upside that we're buying at a good price."

... "The building is well regarded downtown," he said. "Once we freshen=20=

it up a bit, that will go a long way. There will not be a significant=20
amount of repositioning."

... The Minneapolis office market, despite Class A vacancy rates of=20
more than 20 percent, is starting to rebound, Angleson said, and within=20=

18 months the downtown market should be doing well.

"We hope to cash in on a little bit of that," he said.

Pointing out economic & political vulnerabilities is good. But ignoring=20=

context and the big picture is just a scare tactic that shouldn't scare=20=

anyone.

David Brauer
Kingfield=