Minneapolis’ NAI Legacy is proving that big deals, and big retail deals in particular, can get done today, even in the age of COVID-19.
The Minneapolis brokerage and property management company yesterday announced that it has acquired the Restoration Hardware| Minneapolis – Gallery property located in Edina, Minnesota.
The RH store, one of the crown jewels of the city of Edina’s Greater Southdale District Plan, opened in 2019 at 6801 France Ave. South. The 58,000-square-foot three-story RH Gallery features a wine vault, showrooms filled with the brand’s furniture and a rooftop restaurant.
6801 France DST, a Delaware Statutory Trust controlled by NAI Legacy, acquired the property directly from RH in a sale and leaseback transaction that included a 20-year absolute net lease.
The combination of the store’s quality and its desirable location made the acquisition too good to pass up, said Michael Houge, managing partner of NAI Legacy and head of its net-leased division.
This didn’t mean, though, that NAI Legacy officials didn’t worry about closing such a big deal during a pandemic that has decimated the retail industry.
Houge said that NAI Legacy was ready to close this deal in March. Then COVID-19 hit. This caused NAI Legacy to pause the transaction.
“We had a good deal lined up,” Houge said. “Then COVID came along. We had to sit back and watch how that would impact our local economy.”
The RH-Minneapolis Gallery did close as Minnesota issued a statewide shutdown order. The store has since reopened and has continued to attract shoppers and diners to its restaurant. Houge said that the property remained attractive to NAI Legacy, so the company pulled the trigger on the acquisition.
“We don’t think there is ever a time where there is not the potential for additional viruses and pandemics throughout our country,” Houge said. “That is the way of the world. We have to be sure that the companies and facilities that we invest in are doing everything they can to shield themselves from that danger, are doing everything they can to make sure customers and employees are safe.”
The Restoration Hardware brand has safeguards against the virus built into the way it operates, Houge said. Customers don’t go to a central counter area to check out. The store is more like a showroom with staffers who help customers make design decisions. The layout of the store’s tables and showroom areas already encourage social distancing. There’s enough space here to avoid forcing customers into clumps.
The restaurant, of course, is different. Fortunately, RH-Minneapolis Gallery can follow state guidelines for how many diners can eat inside at one time. The shop’s restaurant also makes up a smaller portion of the facility’s revenues, Houge said, so limiting diners doesn’t hurt RH’s bottom line too dramatically.
The RH-Minneapolis Gallery is part of the RH Luxury Collection of stand-alone stores. The two-acre site sits at the northeast corner of France Avenue and West 69th Street, the gateway to Edina’s luxury retail district. This high-end district includes Southdale Center, The Galleria, The Westin Hotel, COV Edina and Lifetime Edina.
Jon Davis, former chief executive officer of Davisco Foods International and an investment partner with NAI Legacy, said that the store’s location played a key role in NAI Legacy’s decision to acquire it.
“I have committed to investing in trophy real estate assets in Edina and believe the redevelopment taking place in the greater Southdale area will continue to strengthen and define the entire neighborhood as the luxury epicenter of the Twin Cities,” Davis said. “I believe the long-term outlook for the Southdale corridor is extremely positive and the RH | Minneapolis site is the gateway corner to the high-end district.”
The Restoration Hardware brand is not new to the Edina area. RH was a long-standing tenant at the Galleria for nearly 25 years before acquiring the land adjacent to Southdale and building its own property.
NAI Legacy structured the ownership entity of the property as a Delaware Statutory Trust, something that provides positive tax attributes to its members. In addition to Davis, its members include Duane Lund and David Buelow, who, along with Davis, are also owners and officers of NAI Legacy.
Mortgage financing for 6801 France DST was provided by Edina based Tradition Capital Bank.
“This acquisition is consistent with our focus on providing tax-advantaged real estate solutions to our investors and represents another step in our development of a national DST platform,” said Garrett Farmer, senior director of NAI Legacy and head of its brokerage division.
Before acquiring the property, Houge said, NAI Legacy looked carefully at the demographics of the Southdale area. The numbers were impressive and indicated that the entire Southdale region will remain a strong one for higher-end retail properties.
“This location is easy to see and easy to get to,” Houge said. “It is an area that doesn’t have a lot of challenges.”
The strength of the Restoration Hardware brand was also attractive, Houge said.
“We are interested in investing in high-end, credit-worthy and financially sound companies,” Houge said. “This company really fit that bill. Restoration Hardware has shown nothing but growth. Their financials during the past few years have shown amazing upward trajectory, other than the drop in March from COVID-19. We are very excited about this company and this property.”