Posted: 7:40 am Mon, February 6, 2012


By Burl Gilyard
Tags: Blue Cross and Blue Shield of Minnesota, Chris Hickok, David Jellison, Janelle Schmitz, Jones Lang LaSalle, Liberty Property Trust, sale-leaseback, State Farm Insurance

Former Northwest Airlines properties, Eagan: listed for $17 million (File photos: Bill Klotz)

The recently closed deal for the Blue Cross and Blue Shield of Minnesota campus in Eagan marks the largest recent office sale and caps a busy couple of months for local investment sales.

Finance Commerce reported that based on certificates of real estate value filed with Dakota County, the Eagan campus sold for $152.9 million. An affiliate of New York-based W.P. Carey Co. LLC was the buyer, striking a long-term lease with Blue Cross.

But the investment sales market remains divided into two distinct camps: highly sought-after trophy deals such as the Blue Cross campus at one extreme and more challenging properties in varying degrees of distress at the other end of the spectrum.

At the same time, national trends point to a slowing of investment sales amid continuing economic uncertainty.

Atlanta-based Delta Air Lines has been trying to sell the former, vacant headquarters of Northwest Airlines in Eagan. The site, which totals 190 acres, is listed for $17 million. Delta just dropped the price from $24.5 million on Thursday.

“We still have it on the market. We’ve had some activity, but there’s nothing locked in at this point,” said Chris Hickok, executive vice president with the Minneapolis office of Chicago-based Jones Lang LaSalle, which is listing the property. “We’re not under contract.”

Delta bought Eagan-based Northwest Airlines in 2008. The real estate package includes 550,000 square feet of buildings: the empty 273,000-square-foot former headquarters at 2700 Lone Oak Parkway in Eagan and another building that houses flight simulator operations and office space. The airline is pulling flight simulators from the building and relocating those operations to Atlanta.

Hickok said they are “looking to get an investor or a tenant that has a need for the property.” He said he has seen an uptick in interest but acknowledges that it’s going to take a large player to make a deal for the site.

“The activity has definitely picked up. There’s more companies looking for space. In Minneapolis-St. Paul there’s not a lot of quarter-million and up square foot users moving around at any point in time,” Hickok said. “It’s clearly a very large facility. There’s some nice developable land there, but it’s a big site.”

In Woodbury, the former State Farm Insurance campus, a 100-acre site at Interstate 94 and Radio Drive, has been empty since 2005. The property, anchored by a 420,000-square-foot office building, is listed for $32 million. But no deals appear imminent for the property.

“It obviously has a great location and visibility … hopefully things will turn around shortly,” said Janelle Schmitz, planning and economic development manager for the city of Woodbury.

Office vacancy remains high across the metro area, which makes tackling vacant properties a challenge. In September, the Philadelphia-area Liberty Property Trust paid $11.43 million for a vacant trio of Minnetonka office buildings. So far, Liberty has not signed leases for the 231,000 square feet of empty space.

“We’re seeing activity. But we’re not looking at 15,000-square-foot users right now. We’re looking at major users that would take a predominant position … they’re really companies who want their name on the building and want to be visible from [Interstate] 494,” said David Jellison, who heads Liberty’s local office.

A flurry of local deals landed at the end of 2011. In December, Two MarketPointe in Bloomington sold for $60.6 million, and the Colonnade in Golden Valley sold for $52 million. In other sale-leaseback deals, Cargill sold 9320 Excelsior Blvd. in Hopkins for $69.5 million, and UnitedHealth Group Inc. sold the former ADC Telecommunications campus in Eden Prairie for $50 million. (UnitedHealth Group had paid $39.5 million for the property earlier last year.)

Former State Farm Insurance campus, Woodbury: listed for $32 million

But some other big properties remain on the market. In downtown Minneapolis, the 33 South Sixth Street office tower remains for sale. The 1.1 million-square-foot tower is largely leased to the Minneapolis-based Target Corp. and is owned by New York-based Brookfield Office Properties, a publicly traded company. The building has been on the market since mid-2011.

“There’s no update. The property’s still in the market,” said David Sternberg, who leads the Minneapolis office for Brookfield.

Historic trends signal a seasonal slowdown. The fourth quarter is typically the busiest time of the year for investment sales deals; the first quarter is generally the slowest.

New York-based Real Capital Analytics, an independent research company that tracks global sales of commercial real estate, recently reported that $220 billion of commercial real estate changed hands in the U.S. in 2011. That marked the best showing in four years and a 57 percent jump from 2010.

But Dan Fasulo, managing director for Real Capital Analytics, said that deal activity started to slow at the end of the year because of fresh concerns about the stability of the economy.

“We did see activity start to temper in the fourth quarter. Lenders are being more cautious,” Fasulo said. “If you really looked at the numbers and compared it to the fourth quarter of 2010, it was flat. It looks like we hit somewhat of a wall there in Q4. That doesn’t mean we’re going in reverse. The momentum has tempered a bit.”

Statistics from Real Capital Analytics tracked $2.27 billion in commercial sales in the Twin Cities last year, an increase of 70 percent compared with 2010. The company tracks office, industrial, retail, apartment, hotel and development site sales of more than $2.5 million.

“It’s a flight to quality, and it’s happening in every market nationwide right now. Investors need to see the uncertainty clear up. They need to see clear signs that the economy is improving before they put their money at risk,” Fasulo said.

Deals for distressed property can be difficult to finance, he noted.

“If you’re talking about buying a vacant office building in downtown Minneapolis, you’re not going to find any debt capital for something like that right now,” Fasulo said.

The presidential election could be another factor that might cool property sales in the year ahead.

“It’s just one more thing to think about that creates an uncertain environment. Uncertainty does not attract capital,” Fasulo said.

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