There’s no doubt that 2020 has been a year that commercial developers in the Minneapolis/St. Paul region would like to forget.
Developers have had to work through the COVID-19 pandemic and the resulting business shutdowns, adjusting the way they run job sites, obtain financing and drum up business as the economy reels and unemployment soars.
Then came the death of George Floyd, who died after a Minneapolis police officer handcuffed him and knelt on his neck while three other officers watched. That brought on both peaceful protests against police brutality and violent riots and looting, leaving residents and business owners in the Twin Cities – and across the country – reeling.
It’s combined to make this one of the most challenging years for commercial real estate and development.
But some of the top commercial developers in the Twin Cities expressed hope earlier this week, saying that the Minneapolis/St. Paul commercial real estate market is a strong and resilient one, and that new development won’t stop, even after a week as brutal as the one the region recently suffered through.
That was the gist of the Commercial Developer Leadership Webinar held June 3, part of REjournals’ Breaking Through the Disruption series of webinars.
Participants Bill Katter, chief executive officer with United Properties; Matt Rauenhorst, executive vice president, The Opus Group; Blake Hastings, chief executive officer of Oppidan; Mike Ryan, president of Ryan Companies; and Anne Behrendt, president and chief executive officer of Doran Companies, said that CRE professionals and developers have adapted, meeting the challenges brought on by 2020.
When asked about the damage caused by the riots taking place this week and last, the developers said that they were most concerned with the safety of their employees and the tenants in their buildings.
“It has been a very difficult and tragic week here in Minneapolis,” Katter said. “Physically, we have been lucky. None of our buildings suffered any damage. But it has been a difficult time for our employees and some of our clients. I am impressed by the courage of the people who continue to run our job sites. They have shown up and worked all the way through this, getting very little time off during the protests. Hats off to the contractors. They have been incredible.”
Behrendt said that the protests have shown that change is needed, not just in Minneapolis but across the country.
“Our world has changed in the last week-and-a-half,” she said. “We have been busy taking care of our employees. We have some people who live in the neighborhoods that were affected. From an asset standpoint, our buildings did not suffer any damage. We were lucky. But there were certainly tense moments for everyone.”
Behrendt added that Minneapolis can’t just ignore the problems that led to the protests and riots. They won’t go away on their own, she said.
“This is a community that I love,” Behrendt said. “I grew up here. These are tough times. We all need to have a very real commitment to making positive changes. We have to ask ourselves how we can be part of the solution.”
Ryan said that he was relieved that none of Ryan Companies’ employees were injured. He also said that he learned plenty about the challenges of hiring private security. Ryan Companies’ did employ private security personnel at its buildings as the riots raged on to help protect them and their tenants.
Ryan Companies has also been active in efforts to board-up damaged buildings and clean up broken glass in the aftermath of riots.
“We are all kind of reeling,” Ryan said. “It is more triage at this point than anything else. The real healing is going to come later.”
The Opus Group closed several of its construction sites on Friday of last week and over the following weekend, Rauenhorst said. Those sites, he said, were simply not in a safe position.
“Now we are looking for opportunities to be part of a solution,” Rauenhorst said. “Friday was a hard, busy day. It was a challenging day. I think it was a day none of us could have imagined happening.”
Oppidan, too, hired private security to help keep its residents and properties safe, Hastings said. It’s now time for real estate companies to work with the community on ways to improve the lives of residents who for too long have felt ignored.
“It’s important for us to not just worry about this today,” Hastings said. “We need to worry about it for the years ahead. We need to push our influence to make change. Parts of the community are very damaged. It is very sad to see.”
The riots, of course, come amid the backdrop of the COVID-19 pandemic and the challenges brought on by the virus. Even before the violence of the last week, the Twin Cities, like the rest of the country, was dealing with a damaged economy, high unemployment, social distancing and the challenges of safely reopening the economy.
Dealing with these challenges alone has been difficult enough for commercial developers. But again, participants said, work has continued throughout the pandemic thanks to the resiliency of the commercial development industry.
Rauenhorst said that The Opus Group has maintained several active job sites during the pandemic. The focus has been on keeping site workers safe. This means following CDC guidelines and social-distancing rules. It also means that on-site personnel must wear face coverings.
“It evolves each week as we learn more,” Rauenhorst said.
He added that he and everyone at the management level at Opus are grateful for the work done by site personnel.
“We are so grateful and appreciative for our teams in the field who have effectively worked through the pandemic while I am sitting at home,” Rauenhorst said. “They have made it so that we can move forward with what is an essential part of our country. We are operating and we are excited to kick off a few new buildings in the coming weeks. We are happy to se that most of the backlogs and delays seem to be clearing up.”
Ryan said that operating job sites has been challenging during COVID-19. Ryan Companies has instituted temperature checks on some job sites. At others, they are passing out questionnaires about the health and recent contacts of site workers.
Workers must also wear protective equipment while on the job site, something that isn’t easy, Ryan said.
“It is a pain to work with a face mask on all day,” Ryan said. “It’s jut not how it’s supposed to be done. The first four weeks of this felt like chaos. We were layering on new policies, strategies and tactics and changing them every day. It was really tough the first four weeks. The last four, though, have been different. I’ve really been impressed with the positivity on job sites. People have realized that we are fortunate to be an essential service. We have not had the carpet pulled out from under us.”
Behrendt said that she has been impressed with the ingenuity displayed by workers in the field. They have been creative, she said, in coming up with solutions to a seemingly never-ending array of problems.
“In the beginning of this, no matter where you were in the construction process, you had to implement a new solution,” Behrendt said. “They rose to the occasion. They brought in new ideas. The people in the field are used to solving problems. This has been a huge challenge, but they have been up to the task.”
Participants were also asked about the impacts that COVID-19 and the resulting business shutdowns were having on their portfolios. Not surprisingly, this impact varied depending on the type of commercial property.
Hastings said that most of Oppidan’s portfolio of properties is doing well. He did say that he was concerned, though, about retail assets.
This isn’t surprising: The retail sector, along with entertainment and hotels, has been hit particularly hard by the pandemic and economic shutdown.
Katter, too, said that he is most concerned about the retail segment of United Properties’ portfolio. Katter said that United Properties is committed to working with its tenants on payment plans, deferrals or other strategies to help keep them in business until Minnesota’s economy rebounds.
“The smaller retailers who haven’t been allowed to open fully have no way to pay their rents,” Katter said. “We don’t want to put them out of business. We don’ want to be the reason they fail.”
Behrendt said that during the early stages of the pandemic and stay-at-home orders officials with Doran Companies were most worried about multifamily and the ability of tenants to pay their rents on time. So far, though, most renters have paid on time, she said. Behrendt said that multifamily rent collections have been near the same levels they’ve been at historically.
“Multifamily has been the bright spot during this time,” she said.
Ryan said that retailers are struggling today, unless they are operating grocery stores or pharmacies. He did, though, say that Ryan Companies has collected most of its owed rent on office space, another sector that many had worried would falter during the pandemic. The Paycheck Protection Program has helped in this sector, Ryan said.
Ryan also said that seniors housing has continued to perform well during the pandemic. Leasing rates have remained strong at these facilities, he said.
The developers said, too, that they have been able to secure financing for projects, though much of this financing has come from regional banks and lenders and not the country’s biggest financial institutions.
“Our regional banks are open for business,” Rauenhorst said. “They are closing loans for a variety of product types, including speculative industrial. We are seeing a thawing in the capital markets. We are very encouraged by that. The largest of the lenders, though, are still a bit on the sidelines. When it comes to our speculative projects, the institutional folks are moving slower. They want to let someone else go first.”
Behrendt said that it is possible to get financing today. Developers just have to spend more time looking for willing lenders, she said.
“The pause, the wait-and-see mentality is there,” she said. “But it’s not there across the board. Getting financing is more of a challenge, but it’s not insurmountable.”
Katter praised the financial institutions with which United Properties has long worked. They have stepped up during these challenging times, providing the capital United Properties needs, Katter said.
“We have a great set of banks,” Katter said. “We are fortunate to be working with them.”
Ryan said that Ryan Companies has closed about eight to 10 development deals since the COVID-19 outbreak began in March. Financing, he said, is there, it’s just a bit more challenging to get it.
“The capital markets are open, but they are, without a doubt, different,” he said.
And this might not be the best time to sell assets, Ryan said.
“We have seen price compression with the exception of industrial,” Ryan said. “If you have the ability to sit on some of those sales, you might want to do that. That is the attitude we are taking.”