Posted: 4:29 pm Fri, March 2, 2012
By Burl?Gilyard
Tags: Brian Woolsey, Buyers Support Group, Collin Barr, Jim Vos, Mark Kolsrud, Michelle Beneke, Molly Snyder, Target Corp.
Experts say now is the time for the Franklin Street Properties Corp. to sell 50 S. 10th St., which Target Corp. will lease entirely by 2017. (Staff photo: Bill Klotz)
Downtown Minneapolis could see more Nicollet Mall real estate change hands, now that the Target Corp. has reached a major lease agreement for 50 S. 10th St., which sits along the mall between the retailer?s headquarters and its downtown store.
More downtown leasing deals are also likely as Target vendors in the building move out for the retailer?s office space expansion.
In announcing this week that Target will lease all 449,233 square feet of rentable office space in the building by 2017, the Wakefield, Mass.-based Franklin Street Properties Corp. suggested a possible sale of its property.
Franklin, which owns the building through a wholly owned company called FSP 50 South Tenth Street Corp., said in a news release that its ownership corporation ?plans to consider long-term permanent mortgage financing and/or a possible sale of the property.? (Franklin Street Properties officials could not be reached for comment.)
Commercial real estate experts say now is the time to sell because Franklin Street Properties has an agreement with Target to lease the entire building until March 31, 2030. Franklin-owned parcels on the site are assessed at nearly $63.5 million, with the major parcel purchased for $127 million in 2006, according to Hennepin County property tax records.
?It?s very promising to be able to sell such a great asset such as that building with a long lease and a quality tenant,? said Mark Kolsrud, senior vice president and director of investment sales at commercial real estate firm Cassidy Turley.
Jim Vos, a principal at Cresa, said that 50 S. 10th St. is at its highest value now and that a commercial real estate building?s value is based on lease income in the bank. Each day that goes by after the signing of the lease, the building?s value goes down.
?This building has its maximum value basically right now,? Vos said. ?If you?re ever going to sell it, you do it today, and then you go buy a building that?s 20, 30 percent vacant and hope to fill that up and sell those leases again.?
Target, which already has a lease or sublease for 259,000 square feet of the building, will have a direct lease for the entire building by 2017, according to U.S. Securities and Exchange Commission documents filed by Franklin Street Properties? ownership corporation. Target will lease the building through 2030, with no early termination rights.
Target also receives a $23.95 million ?tenant incentive payment? from Franklin Street Properties as part of the deal, according to the lease agreement included with the SEC filing. The payment is ?in lieu of any tenant improvement allowance, abatement of rent or any other lease concessions.?
Vos said that the payment was not unusual and that it?s designed to help tenants pay for renovations.
Target spokeswoman Molly Snyder said in an email that the company ?identified additional space that can accommodate our ongoing growth and expansion.?
That means the 25 other companies listed on the building?s directory, many of them Target vendors enjoying close proximity to the company, will likely have to find other space nearby in the coming years. That is expected to create further demand for office space in the downtown commercial real estate market.
Downtown Minneapolis has an 18 percent office vacancy rate compared with 19.2 percent for the entire Twin Cities, according to the latest report from Bloomington-based Cushman & Wakefield/NorthMarq Real Estate Services.
?The vacancy along Nicollet Mall has been almost nonexistent because of Target and the vendors,? said Brian Woolsey, a senior vice president and principal at commercial real estate firm Cassidy Turley. ?With their expansion it?s probably going to displace some of those vendors, which would make it more difficult to find space along the mall.?
Collin Barr, president of the Midwest region for Ryan Cos. US Inc., declined to comment on the development and construction company?s plans for its headquarters, which are at 50 S. 10th St.
Ryan, which counts Target as a major client and originally developed 50 S. 10th St., will sublease its space from the retailer starting April 1, according to the Franklin Street Properties-related SEC filings. Ryan previously directly leased 86,381 square feet from Franklin Street Properties. The building was completed in 2001.
Michelle Beneke, president of the Eden Prairie-based Buyers Support Group, said her company signed long-term subleases from Ryan for its sales and marketing offices at 50 S. 10th St. ? and the long-term nature of the agreements will stay intact.
?We signed long leases knowing this was something going around and a possibility,? Beneke said of the Target lease deal.
About half of the Buyers Support Group?s 33 employees work at its showrooms in the building at any given time. The company supplies sales and marketing expertise for Target and for manufacturers selling products to the retailer.
?Everything can be impromptu and at a quicker speed and a faster pace to get things done because you are so local,? Beneke said of the building. Even if it has to move out in the future, she said, the company will look for offices nearby.
Net rental rates in the building range from $18 to $19 per square foot, according to market statistics from Cushman & Wakefield/NorthMarq. At the end of 2011, the building was fully leased, with a small amount of space ? 16,563 square feet ? available for sublease.
Links to the SEC filing and lease agreements are available here, here and here.
Source: http://finance-commerce.com/2012/03/with-target-lease-experts-say-it%E2%80%99s-time-to-sell/
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