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‘Zombie buildings’ haunt Minneapolis

Vacant or nearly vacant buildings in downtown include 1010 Metrodome Square (above), the former Valspar headquarters and the Hennepin Steam Building. (Photo by Bill Klotz)

Vacant or nearly vacant buildings in downtown include 1010 Metrodome Square (above), the former Valspar headquarters and the Hennepin Steam Building. (Photo by Bill Klotz)

By Burl Gilyard
Dolan Media Newswires

Minneapolis — It sounds like a horror movie. In other parts of the country, commercial real estate pros have started to use the term “zombie buildings” to describe structures that sit empty or are otherwise distressed.

Minneapolis has a growing number of its own zombies.

Buildings in and around downtown Minneapolis that are vacant or nearly empty include 1010 Metrodome Square, the former Valspar corporate headquarters, the former home of RSP Architects (now called the Hennepin Steam Building) and the Federal Plaza building.

Two of the buildings, 1010 Metrodome Square and Valspar, were pitched to Minneapolis Public Schools as potential sites for a new administrative headquarters. But the school board opted for new construction in north Minneapolis.

On the horizon, another building could join the zombie crowd. Last week, HGA Architects and Engineers announced that the firm would move to the Ford Center. The move means HGA will vacate the 125,000-square-foot building where it has been the sole occupant. Ken Sherman, principal with Minneapolis-based Sherman Group, said he plans to find multiple tenants for the building.

Commercial real estate pros are reluctant to talk about empty buildings.

“When a building’s been on the market that long, you start wondering what’s wrong,” said a downtown real estate broker, who declined to be identified.

In a recent market report, the Minneapolis office of Cassidy Turley reported an office vacancy rate of 19.5 percent at the end of the third quarter in downtown Minneapolis. Cassidy Turley tracks nearly 26.5 million square feet of space in downtown Minneapolis, which translates into more than 5 million square feet of vacant space just in the downtown market.

Demand for office space is traditionally driven by job growth. But most companies are still not expanding.

Developer Larry Abdo owns an empty commercial property — a vacant, single-story building in downtown Minneapolis. Abdo’s Minn 3 LLC bought the small site for $1.2 million in March 2007 from another developer who had pitched condos on the site.

At one point, Abdo envisioned a boutique office building of 48,000 square feet on a site directly across the street from the Hilton Minneapolis. But that deal never went forward. Abdo said the market is still tough, and he plans to sit tight.

Other small buildings stand empty, including the Federal Plaza building. Developers had once pitched an office condo concept for the 40,000-square-foot building. Property records show that the building is owned by Fargo, N.D.-based State Bank & Trust.

Minneapolis-based RSP Architects moved out of its former home to the Grain Belt Brewhouse in 2002. Property records show that the building is now owned by Minnetonka-based MinnWest Bank. A market report from Bloomington-based NorthMarq shows the 33,000-square-foot building, now dubbed the Hennepin Steam Building, to be 96 percent vacant.

Scott Tankenoff, managing partner with Minneapolis-based Hillcrest Development, said many owners of distressed properties are unwilling to sell because they feel that today’s prices are too low. Tankenoff’s company specializes in buying challenged real estate and redeveloping it.

“Right now people are not liking where the market’s at, so they’re not selling,” Tankenoff said. “There’s going to be some challenges out there.”

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