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12-18-96
ECONOMIC DEVELOPMENT COMMITTEE AGENDA Wednesday, December 18, 1996 8:00 a.m. Army Reserve Center 4655 North Lexington Avenue 1. Call to Order 2. Approval of Minutes from November 20, 1996 meeting 3. Marketing Brochure 4. EDC - 1997 Direction 5. Council Comments 6. Committee Comments • 7. Adjournment If you are unable to attend this meeting, then please contact Julie at 633-5676. MINUTES CITY OF ARDEN HILLS, MINNESOTA • ECONOMIC DEVELOPMENT COMMITTEE MEETING WEDNESDAY, NOVEMBER 20, 1996 8:00 A.M. ARMY RESERVE CENTER 1. CALL TO ORDER The meeting was called to order at 8:04 a.m. 2. ROLL CALL Present were: Dan McCallum, Chair; Ray McGraw, Vice Chair; Jeanne Winiecki; Council Liaison, Beverly Aplikowski; and Kevin Ringwald, Community Development Director. Others present were: Tom Steele, Finance Committee Liaison and Julie Tostenson, Department Secretary. Absent were: Terry Nagle; Tom Andreason; Tom Goblirsch; Steve Freimuth; Ted Brausen; Arnold Lindberg; and Brian Fritsinger, City Administrator. • 3. APPROVAL OF MINUTES Minutes from the October 16, 1996 meeting were approved, following a motion made by Ray McGraw and seconded by Jeanne Winiecki. 4. BANNERS Staff presented the revised b_udget which provides for "off the rack" banners instead of the custom made banners and assumes that the use of a bucket truck will be donated. The revisions to the Spring/Summer and Fall/Winter banners had a revised cost of$4,080.00 which would provide an estimated cost savings of$3,187.31. The Spring, Summer; Fall and Winter banners had a revised cost of$6,720.00 which provide for an estimated cost savings of$7,551.33. The Committee decided to check with a couple of organizations such as; NSP, North Suburban Cable; and U.S. West Communications, to see if they were willing to donate the use of a bucket truck on an annual basis. It was suggested to check with more businesses for possible donations towards the banners. 5. MARKETING BROCHURE • The EDC Committee reviewed the information to be provided on the interior of the marketing brochure. Chair McCallum and Staff will be working on updating the data in the brochure. • The EDC decided to put the City of Arden Hills logo on the first page of the inside of the brochure and on the rear(bottom) of the cover. The EDC concluded that the paper color used on the interior of the brochure should match the City of Arden Hills' business cards (ie., tan paper with green ink). The paper used should be of quality stock with texture. A motion was made by Ray McGraw to present the marketing brochure to the City Council on December 11, 1996, with the modifications as discussed, Jeanne Winiecki seconded the motion. Motion carried 3-0. 6. COUNCIL REPORT Council Liaison Aplikowski stated that the City is in the process of hiring the new full-time position building inspector. The Lake Johanna Fire Department has completed the work on the lower parking lot that was previously approved by the City Council. The Fire Service contract will be reviewed in 1998. The Council is working on the Joint Powers Agreement for the I-35W Coalition • Corridor which will collaboratively work to: implement a Geographic Information System (GIS); develop a joint economic development marketing program; and coordinate transportation planning on the corridor. The City's Truth-in-Taxation meeting will be held on December 5, 1996, at the U.S. Army Reserve Center. The City Council is planning to conduct a Town Hall meeting in January of 1997. The meeting place and format are currently being discussed by the City Council. 7. MISCELLANEOUS a. Welsh Companies Welsh Companies is moving forward with their plans to construct a Phase I building in the Gateway Business District. The construction of Phase II (Pentair property) is also anticipated to begin in 1997. b. TCAAP The Army is finalizing its report on the clean up of the site. The EDC concluded that it may be a good idea to re-visit the "Plan" once the Army decides what portions and to what levels of clean up is going to occur on TCAAP. it • 8. COMMITTEE COMMENTS Chair McCallum stated that we was going to try different colors for the inside of the brochure and different color lettering and see what works out the best. The EDC unanimously congratulated Chair McCallum on the hard work he has put into the marketing brochure. 9. ADJOURNMENT The meeting adjourned at 9:05 a.m. • • CITY OF ARDEN HILLS • MEMORANDUM DATE: December 18, 1996 TO: Economic Development Committee FROM: Kevin Ringwald, Community Development Director • SUBJECT: Marketing Brochure The City Council at its December 9, 1996 meeting reviewed the marketing brochure (Exhibit A). The City Council unanimously authorized Staff to cause the publication of 500 copies of the marketing brochure, not to exceed $5,000.00, including assistance for graphic design presentation. The City Council also thanked the EDC and particularly Chair McCallum for your hard work in putting together the marketing brochure. • • '•` keT rr w A r the n Hit ffs COMMUnt JOT �YaM 'f� rd� �' :tia 1_••�"alNp.-i j a . � r :! �' ,�r r -CITY OF ARDEN HILLS-- •' .;¢,i +.• < tip. �.I -,ff-"v 1' TONY SCHM:- PARK uKE i : CL 1 • in.l dr '1 f: {+ •»..>.. 4. Ate• n�•• �•• i ••� JB L ..' .. M r..le .._�_..%� "- tea�• � ��••-+ �- y• 694 CITY OF 694 ARDEN HILLS uw 94 694 t UNIVERSITY QOF MINNESOTA ]6E 794 15 MINUTES OO F OWN ST.DOWNTOWN �15 MINUTES MINNEAPOLIS gq 17 MINUTES • iao 6w 494 AIRPORT 494 25 MINUTES • • CITY OF ARDEN HILLS 1450 WEST HIGHWAY 96 ARDEN HILLS. MN 55112.5794 DAN MCCALLUM Economic Development Committee PHONE: (612)633.5676 • FAX (612)633-7839 • WELCOME Dear Decision Maker: We welcome you to explore the benefits of locating in Arden Hills. We offer excellent business advantages along with wonderful residential locations and diverse recreational opportunities. You will find Arden Hills a friendly place to work, live and play. This exciting blend of activities has existed since much of our present city was occupied by Arden Dairy Farms. Our city has continued this tradition as we have grown and developed. Much has changed as a result of the transportation advantages brought by Interstate 35W and 694 in addition to Highways 10 and 96. We are proud to be the home to hundreds of businesses, both large and small. Arden Hills is corporate home of Cardiac Pacemakers,Mutual Service Insurance(MSI),Land O'Lakes,Delta Environmental and the H.B. Fuller Company. Control Data Systems and Pharmacia Deltec also have large facilities in Arden Hills. We expect many new businesses to join us in Arden Hills. Presently we have two areas under development. These consist of 80 acres in our Gateway Business District bound by Interstate 694 and 35W and our Lexington-Fox Area adjacent to a Target Greatland store. Substantial additional • growth and development will occur as the Twin Cities Army Ammunition Plant,consisting of 2,330 acres, is released for sale. The release of this land, already in the planning stage, will continue the Arden Hill tradition of commercial development, with additional residential and recreational opportunities. We are proud of our existing business community, our residents, and educational opportunities, especially being home to Bethel College and Northwestern College. We think the unique mix of our neighborhoods, businesses, lakes and other recreational facilities, make Arden Hills the perfect place to live, work and play. We hope that you will consider locating your company in Arden Hills and becoming a valued part of our business community. Please join us, Arden Hills Economic Development Committee %5 David J. Rader Vice President Business Banking Manager Nonvest Bank Minnesota, N.A. East Suburban Market NORWEST BANKS Arden Hitts/Spring Lake Park 1220 West County Road E Arden Hills, Minnesota 55112 Bus:6121422-7607 Fax:6121421-4714 November 25, 1996 Dear Prospective Arden Hills Resident: Welcome to Arden Hills. Norwest Bank has been a part of the Arden Fiills community since 1973. We see Arden Hills and the surrounding area as a very attractive place to do business. The area is experiencing growth that is greater than the Twin Cities average and there are a large number of major employers within a short distance of each Other as well as numerous smaller firths. Arden Hills enjoys a great location with easy freeway access to major shopping centers and both dov,-ntowns. It is a community ofcomntitted, civic minded citizens, an Outstanding school system, quiet neighborhoods and convenient, safe recreation areas for the family. We're sure you'll enjoy it. • Respectfully, David J. Rader • 7/1 Y • BUSINESS ASSISTANCE Tax Increment Financing Local Tax Increment Financing Assistance may be available to qualified development projects for certain public costs of development such as land acquisition, site preparation, water and sewer hookups and stormwater discharge ponding. Site Assistance The Arden Hills Economic Development Committee can help streamline dealings with government agencies and direct business to appropriate financial, labor training and management assistance programs. In addition the City will provide business with the specific site information necessary to encourage development within our community. Export Assistance The Minnesota Department of Trade&Economic Development offers a vast array of assistance to companies interested in entering the foreign market. Assistance includes export loan guarantee,training seminars,personal advise from international trade experts,trade missions, • trade shows and an extensive library of export data. Job Training Assistance Several programs are in place to provide subsidies to employers for the training costs of new employees. They are as follows: Minnesota Job Skills Partnership, Minnesota Employment and Economic Development (MEED), Job Training Partnership Act (JTPA), Targeted Jobs Tax Credit (TJTC) and Project JOBS. Small Business 504 Loans Long-term, below-market, subordinated financing may be available through SBA 504 Loan Program for up to 40% of project costs, between & $50,000 and $750,000. To qualify, a business must be existing, for-profit, "user" business with a net worth of not more than $6 million and net profits after taxes averaging less than $2 million. Loans can be used for land acquisition,construction or rehabilitation of a building,development costs, and acquisition of qualified machinery and equipment. �r COMMUNITY PROFILE LOCATION • County Ramsey Region Metro Distance from Minneapolis/St. Paul 8 Miles N Distance from nearest MSA N/A Senate District 53 House District 53A Congressional District 4 POPULATION Area 1993 Est. 1990 Census 1980 Census 1970 Census City 9,560 9,199 8,012 5,149 County 494,674 485,765 459,784 476,255 MSA 2,448,967 2,464,124 2,137,133 1,874,612 HOUSING Area Total Owner Percentage Renter Percentage Persons Per Occupied Owner Occupied Renter Household City 2,904 2,551 87.80% 353 12.20% 2.81 County 201,016 118,499 58.95% 72,001 35.82% 2.47 Nledian Rent Area Housing Values Arden Hills ..........................$505 Arden Hills ...........................$131,940 O Shoreview.............................$497 Shoreview..............................5121,300 j New Brighton .......................$483 New Brighton ........................$113,300 Roseville...............................$472 Roseville................................$101,600 Mounds View .......................$459 Mounds View ..........................$89,400 County ..................................$418 County .....................................S83,600 INDUSTRY Major Employers Products/Service Employees Cardiac Pacemakers Medical Manufacturing 1,777 AlliantTechsystems,Inc. Manufacturing Defense 1,200 Land O'Lakes, Inc. Corporate Offices 750 Control Data Systems Computer Equipment 725 NISI Mutual Service Insurance Corporate Office 640 Pharmacia Deltec Research Manufacturing 500 Johanna Shores Nursing Home 497 Delta Environmental,Inc. Corporate Office 445 St.Paul Book&Stationary Stationary Supplies 260 Dynamark Data Marketing 220 Holiday Inn Hotel/Restaurant 135 International Paper Paper Containers 80 MMMMMMMMMMd EMPLOYMENT 4VType of Employment County Employment MSA Employment Manufacturing 47,523 265,300 Non-Manufacturing 200,172 1,185,100 Total Employment 247,695 1,450,400 Available in Labor Force 265,286 1,509,900 Annual Average Unemployment 4.9% 4.3% OCCUPATION AND WAGES IN TWIN CITIES REGION Job Title Wage/Hour Job Title Wage/Hour Accountants&Auditors............................................$15.35 Machinists .................................................................$16.19 Assemblers&Fabricators .........................................$12.25 Maintenance Repairers..............................................$12.50 Bookkeeping&Accounting........................................$9.88 Offset Lithograph Operator.......................................$16.00 Comb. blachine Tool Operators................................$10.35 Packaging i✓tachine Operator......................................$7.93 Computer Operators ..................................................$10.88 Plastic Molding Machine Oper....................................$8.15 Computer Programmers.............................................$15.20 Receptionist&Info Clerk ...........................................$7.72 General Ivfanagers/Executives ...................................$26.07 Sales Representative..................................................$14.42 General Office Clerks..................................................$9.39 Secretaries..................................................................$10.49 Hand Packers...............................................................$6.50 Systems Analysts-EDP..............................................$20.25 Machine Feeders..........................................................$9.65 Truck Drivers-Heavy .................................................$13.82 TRANSPORTATION Highways Seasonal Load Limits Interstate I-35W,I-694 None State Highway 10,51 None County Highway 96,D,E,E2,F None Lexington,Hamline None City Roads 5-9 tons per axle Bus: iVletropolitanTransit Commission(MTC)serves the City of Arden Air. Hills with numerous designated passenger stops, The Roseville International Airport: Minneapolis/St. Paul Circulator also serves the area and will stop at any safe intersec- * 10 national/international carriers tion. In addition,Greyhound and Jefferson service the metro area. * 8 local/regional *7 air cargo * 20 charter Truck: * 35 freight forwarders There are over 24 truck lines headquartered in the metro area and * Distance to: 13 miles over 100 first class carriers. Trucking, Freight companies located in Arden Hills include Local Airport:Anoka County/Blaine McCallum Transfer and Tyson Trucking. * Minor Capacity Airport *Accommodates business,flight training, personal/recreational,military and Rail: air taxi users The Metro area is served by six railroad companies with the three *Distance to:2 miles dominating lines as follows: 1. Burlington Northern Other Airport: St.Paul Holman Field 2. Chicago&Northwest Transportation Co. *Corporate Flights 3. Soo Line Railroad *Distance to: 20 miles Arden Hills is serviced with a direct rail line maintained by Wis- consin Central. • Wjq MENOMONEE" CONINIERCIAL/INDUSTRIAL PROPERTY TAXES Municipal Rate ...............................................................17.616% Minnesota real estate taxes are based upon market value of real prop- • County Rate....................................................................43.785% erty construed to be the price that a willing buyer would pay a willing School Rate(ISD 62 1) ...................................................62.061% seller a in free market. Tax capacity times the tax rate equals property Miscellaneous Rate...........................................................5.796% taxes. Tax capacity is the value of the property under S 100,000 times Total Rate......................................................................129.258% 3.0% plus any value over$100,000 times 4.6 17o. GOVERNMENT STRUCTURE EMPLOYMENT Organization ......................................................... Mayor-council Fire.................................................................................Volunteer Refuse Service...................................................................Private Police Recycling Service................................................................... Yes Sheriff........................................................ Contract with County MasterPl an............................................................................. Yes EivIT Budget .................:......................................................$2,000,000 Other.........................................................................................20 Fire Insurance Rating .................................................................5 Industrial Plans Approved by: City Council after Planning Commission review UTILITIES • ELECTRIC POWER WATER SERVICE Power Supplier: ........................................Northern States Power Supplier: .........................................................City of Arden Hills Contact: .........................................Community Service Manager(6l2) 779-3t81 Contact: ............................................... Public Works Department (612)633-5676 Storage Capacity:............................................ 1.5 million gallons NATURAL GAS: Tapwater Hardness: ........................................................... 5 PPi41 Supplier: ...................................................Northern States Power Average Demand: ................................................985,000 gallons Contact: .........................................Community Service Manager Peak Demand:..............................................................2.7 gallons (612) 779-3181 Rates: .................................................Summer-$2.14/1,000 Gal. Note: Energy consultant can provide gas brokering and Winter-$2.09/1,000 Gal. transportation, engineering studies for installation of natural ;as and incentive programs for installation of natural gas technologies. WASTEWATER TELECOMMUNICATIONS Service:......................Metropolitan Council Wastewater Service Supplier: ....................U.S.West and other long distance carriers Race:......................................$2.69/1,000 gallons of water usage Equal Access Market s......................................... ................... Yes CITY OF ARDEN HILLS • BUSINESS AND COIVINIUNITY SERVICES AREA MEDICAL FACILITIES ARDEN HILLS ACCOMMODATIONS Health Partners .......................................................... Arden Hills Holiday[nn..........................................................(612) 636-4123 Arden Hills Family Physicians............................. Arden Hills Emerald Inn .........................................................(612)484-6557 UnityHospital ...................................................................Fridley Mercy Hospital ........................................................ Coon Rapids St.Johns Hospital......................................................Maplewood RETAIL SALES- 1995 St.Paul Ramsey Medical Center..................................... St. Paul Ramsey County....................................................$4,519,860,000 University of Minnesota Hospital ............................Minneapolis Arden Hills .................................................................$8,761,000 Ramsey County per Capita................................................59,137 RECREATION AND COMMUNITY ACTIVITIES PLACES OF WORSHIP Facilities: The New Ukrainian Orthodox Church 150 acres of active&passive park areas including 14 city parks& North Heights Lutheran Church 8+miles of hiking/biking trails;5 lakes with improved beaches Trinity Lutheran of Lake Johanna and playgrounds. y Pilgrim House Unitarian Church Festival/Arts: MN Zoo,MN Orchestra,Aquatennial,Winter Carnival,Minne- apolis Inst.of Art,Walker Art Center,Science Museum of MN, FINANCIAL INSTITUTIONS State Fair,Ordway Music Theatre,SPCO. Norwest................................................................(612)490-2681 Firstar...................................................................(612) 481-9500 Service Organizations: TCF......................................................................(612)484-4620 League of Women's Voters,Jaycees,Sportsman's Club,Rotary, Kiwanis,Chamber of Commerce. I EDUCATION STATEWIDE PROFILE OF SCHOOLS *Minnesota has the second lowest dropout rate in the nation. Schools Number Enrollment Grades Puoil/I'eacher *:Minnesota high school have 97 percent attendance. Ratio *;Minnesota ACT scorers are 4 percent better than the U.S.average. Elementary 8 5,537 K-5 25.5 Middle School 3 2,820 6-8 28.2 Profile Of Mounds View School District: High School 2 3,297 9-12 30.3 The City of Arden Hills is serviced by both the M Parochial 2 764 K-8 n/a ounds View School private 3 50 5-5 n/a ' District#621 and Roseville District#623,Mounds View#621 services the majority of the of the community. Mounds View School District SCORES is known for its high quality of education. This is evidenced by the ACT composite score 1993:..................................................23.2 numerous state and national awards seen over the years in both p i academic and teacher quality. The following awards and special SAT scores 1993: accomplishments rank Mounds View School District as one of the Verbal...........................................................503.7 best. i✓lath.............................................................577.6 *In 1993. Irondale High School was awarded "Blue Ribbon POST GRADUATE EDUCATION School of Excellence"by the U.S.Secretary of Education. Local Colleges *Several Future Problem Solving Teams have represented the *Bethel College-Arden Hills State at international competition since 1987. *Northwestern College-Arden Hills/Roseville *Numerous Odyssey of the Mind Teams qualified for World Nearest University Competition. *University of Minnesota Nearest Community College Teachin,Awards• *Anoka-Ramsey Community College *National Teacher of the Year *Century Community College *Two State Teachers of the Year Nearest Technical College *Century Community College I i AREA BUSINESSES • Typical Businesses* #of Employees in Arden Hills Cardiac Pacemakers Medical Manufacturing .................................................... 1,777 Alliant Techsystems, Inc. Manufacturing- Defense.................................................. 1,200 Land O'Lakes Corporate Offices ................................................................750 Control Data Systems Computers............................................................................725 Pharmacia Deltec Medical Manufacturing .......................................................500 Presbyterian Homes Elderly Housing/Nursing.....................................................497 Deluxe Corporation Telemarketins ......................................................................230 Dynamark Data Marketing....................................................................220 Resistance Technology Medical Manufacturing ............................I.......................... 190 HolidayInn Hotel .................................................................................... 130 Midway National Bank Banking/Elecironic Data ..................................................... 125 American Family Insurance Insurance/Service ..................................................................92 Scholls, Inc. Wholesale Distribution ..........................................................75 Firstar Bank of Minnesota Banking/Finance....................................................................50 • Norwest Bank Banking/Finance/ivlortgage ...................................................47 Homestead Mortgage lvtortgage/Finance..................................................................35 McCallum Transfer Inc. Transportation........................................................................60 TCF Bank Banking/Finance.................................................................... 15 Mutual Service Insurance Corporate Offices ................................................................506 St. Paul Book&Stationary Corporate Offices/Retail ...................................................... 175 Scherer Bros. Lumber Co. Retail/Lumber........................................................................62 Product/Service *There are over 330 business located in Arden Hills. This is only a partial list of the larger employers. CONINIERCIALANDUSTRIAL SITES-VACANT Criteria Gateway Business District Lexington/Fox Area Location Northeast corner of Lexington Avenue,south of Interstates 694 and 35 W Interstate 694 Landowner Multiple George Reiling Total Acreage Available 88 acres 8 acres Zoning Gateway Business I-Flex Water Yes Yes Sewer Yes Yes Electricity Yes Yes Natural Gas Yes Yes Rail Yes No TIF District Yes No LOCATIONAL SERVICES INCENTIVE Economic Development Authority...................................... Yes Arden Hills has made TIF available in a number of areas within the Local Development Corporation.......................................... No corporate limits. This incentive is primarily used for promoting Chamber of Commerce........................................................ Yes industrial development in the Gateway Business District.The City can also provide assistance with Small Business Administration (SBA) Locally Controlled Loan Program........................................ No and Minnesota Department of Trade and Economic Development Tax Increment Financing..................................................... Yes (DYED)programs. Brian Fritsinger CONTACTS City Administrator Suburban Area Chamber of Commerce City of Arden Hills 2489 Rice Street 1450 West Highway 96 Roseville,MN 55113 Arden Hills,MN 55112 (612)483-1313 (612) 633-5676 FAX(612)633-7839 COMMUNITY COIINIENTS Arden Hills has been considered a"village of homes"but has been successful in its efforts to attract desirable business and industry.Arden Hills encompasses approximately 9.7 square miles and lies in Ramsey County about five miles north of the St. Paul City limits.Arden Hills is home to the corporate headquarters for Guidant,Mutual Service Insurance,Land O' Lakes,Delta Environmental,and Pharmcia Deltec. 1=1 6 WARIU11" 11111V� t-4 FACILITIES Commercial/industrial Sites • *Twin Citv Armv Ammunition Plant(TCAAP) With a total of 2,370 acres,it will start a substantial influx of building activity if the land is ever released or sold. This site consists of one-third of the total land area within the city. The city is working with the Army to develop a master plan for the re-utilization of this site. *Gatewav Business District(GBD) These sites offer the most visible available property in Arden Hills. Located in the northeast quadrant of the intersection of 1-694 and 1-35W,this area is zoned to accommodate office and light industrial uses. It consists of 85.8 acres,owned by several different property owners. * Lexin;ton/Fox Area The area of commercial redevelopment available in Arden Hills is on the west side of Lexington Avenue,south of 1-694. This area has been rezoned to encourage the redevelopment into a compatible retail mix which would feed off the nearby Target Greatland. Building Permits Issued 1994 Use (Number of Valuation Permits Single Family 7 $2,148,846 CommerciaVIndustrial 71 $14,867,254 Other iia $2.271.030 TOTAL 236 $19,287,130 CITY OF ARDEN HILLS • MEMORANDUM DATE: December 18, 1996 TO: Economic Development Committee FROM: Kevin Ringwald, Community Development Director SUBJECT: EDC - 1997 Direction The City Council will hold its annual meeting with the committees and commissions to discuss what happened in the past year and what should happen in the upcoming year. The meeting is scheduled for Monday, December 16, 1996 at the U.S. Army Reserve Center. The EDC is scheduled to talk to the City Council at 4:45 p.m. At least one, if not several, of the EDC members should plan to attend. The Staff would suggest that EDC at its Wednesday, December 18, 1996 meeting may wish to review the direction and priorities for economic development provided by the City Council. Also, discussion of the methods for implementing those directions and priorities for economic development identified by the City Council would also appear to be appropriate. • CITY OF ARDEN HILLS MEMORANDUM DATE: December 18, 1996 TO: Economic Development Committee FROM: Kevin Ringwald, Community Development Director , SUBJECT: Monthly Report 1. State Budget Forecast Optimistic. The November 29, 1996 edition of Cities Bulletin as published by the League of Minnesota Cities contains an article by Gary Carlson discussing the anticipated $1.4 billion budget surplus by the State (Exhibit A). 2. 1997 Changes in Economic Development Programs and Funding. The December 9, 1996 edition of National Cities Weekly as published by National League of Cities contains an article by Cameron Whitman which discusses the Community Reinvestment Act and Bank Regulation Reform (Exhibit B). 3. Business Tracking System Quarterly Report. The October of 1996 edition (Special . Annual Issue) of the Business Tracking System Quarterly Report as published by the State of Minnesota Department of Trade and Economic Development is attached for your information (Exhibit C). 4. TCF provides Participation Loan Program for Small Businesses. The Fall of 1996 edition of TCF Cornerstone as published by TCF Bank Minnesota discusses the implementation of their Participation Loan Program for small businesses (Exhibit D). 5. Towle Report 1996. The 1996 Towle Report as published by Towle Real Estate discusses the commercial real estate market (ie., Office, Industrial, Apartment, and Retail) of the Twin Cities (Exhibit E). 6. Are Mall History? The December of 1996 edition of Twin Cities Business Monthly contains an article by Beth Mattson which discusses the interest in Power Centers, rather than malls (Exhibit F). 7. Minimum Wage, Maximum Hype. The December of 1996 edition of Twin Cities Business Monthly contains an article by Mary Lahr Schier discussing the interest in modifications to the minimum wage paid to workers by employers (Exhibit G). 8. Staying Power. The December of 1996 edition of Twin Cities Business Monthly contains an article by Beth Mattson which discusses how the business climate in Minnesota is warming up (Exhibit H). f4*(3 rT A Lemur n Cit.eprorno ting excellence Gt ie s ties Iletin n Number 29 November 29, 1996 I � State budget forecast optimistic Gary Carlson school levy recognition shift from the difficult to assess. Between now and The State Department of Finance current 18 percent to seven percent. January 7,we will likely see many The levy recognition shift was an proposals for spending the projected announced that the state will collect accounting maneuver first used in the surplus. However,keep in mind that expenditures through the end of the billion more than anticipated early 1980s to effectively borrow much of the$1.4 billion surplus is only expenditures school property taxes to balance the a projection. T 1998-99 biennium. Although the news state's budget. was not totally unexpected, it did run [he state is also required to set counter to several state budget studies aside the next$114 million of any The next issue of Cities that previously painted a gloomy additional surplus in an account to Bulletin will be mailed picture of the state's fiscal situation. eliminate the balance of the levy December 18 and will be the The Weber-Brandl report suggested recognition shift. In addition,state law that the state could have faced a deficit only issue published in requires that any additional surplus be of$812 million by the end of the 1998- used to increase the state school aid December. The weekly • 99 biennium while the"Within Our payment schedule to recognize that 90 Bulletin publication schedule Means"study suggested a$600 million percent of the state aids are paid in the will begin as the Legislature deficit. current year rather than the current 85 Current biennium convenes January 7, 1997. percent. i Most of the projected surplus can percent. be credited to a very strong Minnesota The outlook for the 1998-99 economy. State revenues for the biennium is similarly optimistic. The The League sends the Cities balance of the current 1996-97 bien- surplus of projected revenues over Bulletin to the mayor and to the nium are now expected to total $19.1 current law expenditures is expected to administrator or clerk. Be sure to billion,or$646 million more than the route it to your councilmembers total$916 million for the biennium. projections prepared at the end of the When added to the current biennial and department heads. 1996 legislative session. State expen- surplus,the state's total forecasted ditures for the balance of the current current law surplus is estimated to be biennium are now expected to total $1.4 billion above the current$611 $18.6 billion,down by$209 million cash flow and budget reserve amount. from the end of session forecast. Governor's plan By the end of the current bien- Governor Arne Carlson announced nium,the state is expected to have a that he will propose a three-way split of $522 million budget surplus. This the surplus. Although details of his surplus is computed after several plan will not be completed until early current law surplus commitments are next year,he did suggest that he would financed and it does not include the propose increasing the state's budget revenues set aside in the state's$350 reserve,dedicatincr money for an million cash flow account and$261 education reserve and school shift buy million budget reserve. back and using a portion of the surplus Current law surplus commitments for tax cuts for individual taxpayers. • Under current state law,the Overview legislature must use$180 million of The impact of the rosy budget any surplus revenues to buy back the situation on the upcoming session is I 1997 Changes in Economic Development Pro r�d funJing ,by Cameron Whitman to the new requirements thrifts and BIF-insured banks program,which$100 million growth in the CDF[ prog The Community Reinvest- imposed on the Bank Insurance will begin to share in FICO more than 1996.The agreement should be promoted prior to ment Act(CRA,and Bank Regu- Fund 111171 - insured banks. interest payments on a pro-rata also provides an advance appro- implementation of an effective • latory Reform These banks will have to pay a basis. (This means that banks priation for 1998 of 31 billion. management structure. Con. in the[tame of bank regulato- share of the annual interest pay- will pay about 75 percent of the Economic Development gress has not received a CDFI ry relief, persistent efforts to ments on FICO bonds dealing annual payment.) This final Administration(EDA) staffing plan to explain how the weaken the Community Rein- with the Savings and Loan legislation requires the FDIC to Despite repeated attempts office will be organized and what vestment Act, essential for bailout. Currently,the Savings merge the BIF and SAIF on Jan- during the 104th Congress to personnel resources will be increasing lending and invest- Association Insurance Fund uary 1,1999. eliminate the Economic Devel- required to carry out its various ment in underserved communi- (SAIF,is paying of;alone,$790 The final Appropriations opment Administration, the functions. ties, were initiated during the million a year in interest on the Agreement contained two minor agency survived in tact. After 104th Congress. $8 billion in Financing Corpora- legislative changes affecting the having its 1996 funding level Neighborhood Relmeshnent NLC joined with a large coali- tion (FICO) bonds issued in CIA. The first will permit an slashed from $450 million to tion of national and community 1989. annual inflation adjustment to $348.5 million, this year the Corporation(NRC) organizations to fight to pre- The Bank Insurance Fund the threshold ($10 million) for EDA did not experience further serve the CRA which,since its (BIF)insures bank deposits and depository institutions currently cuts in funding. Appropriators agreed to passage in 1977s,has produced is Fully capitalized so banks pay required to report under the On a positive note,Congress, increase funding fur NRC to more than$130 billion in lend- a fat annual fee of only$2,000 Home Mortgage Disclosure Act recognizing the assistance the $49,900,000 in 1997, from the ing to underserved,low-income for insurance on their deposits i HNIDA). The threshold will be EDA has provided local 1996 level of$38.667.000. This communities and borrowers. while thrifts must pay the raised immediately to approxi• economies devastated by natural is an increase of$11.23:3 million The immediate fate of the CRA undercapitalized Saving Associ- mately$28 million in deposits disasters and economic disloca- above the 1996 level and$5 mil- was determined during the ation Insurance Fund about$.23 before a bank would be required [ions,provided the agency with lion less than requested by the recent late-night negotiations of per $100 of deposits (about to report. Future adjustments an additional $25 million for Administration. r the Congressional appropria- $800•000 per year). to the threshold will be made 1997 to help with areas devas- The corporation helps local tors, and was included in the This disparity in insurance based on inflation. This will [aced by hurricanes Fran and communities establish working final Omnibus Appropriations fund payments has put thrifts at exempt an additional 1500 Hortence. Funding for the partnerships between residents Agreement(H.R.3610). a competitive disadvantage with banks from the requirement to Department of Commerce, and representatives of the public During the 104th Congress, banks. Thrifts cannot reduce report under IVvIDA. This isn't including EDA,was included the and private sectors. The part. numerous proposals were their premium rates until the a positive change as far as CRA Omnibus Appropriations Agree- nership-based organizations are defeated which would have trip- SAIF is fully capitalized. Under advocates are concerned but it is ment(H.R.3610). independent, tax-exempt non- - pled the CRA. Without serious this agreement,assessments on far less damaging than the pro- profit entities: Neighborhood harm to the CRA, the final BIF-insured banks will be one- posal in 5.650(the Senate regu- Community Development FinanCicl Housing Services INHSI.mutual Omnibus Appropriations Agree- fifth the assessment on the thrift latory reform bill) to raise the Institutions ICDFq housing associations,and apart- ment included several bank reg- deposits and these assessments threshold to$50 million which ment improvement programs. ulatory relief provisions which are to be paid through 1999.The would have exempted around Congress agreed to fund Collectively,these organizations affected the CRA only slightly thrifts must also pay a one-time 3,000 banks. CDF[,a pet program of Presi• are known as the Neighborhood- These CRA changes and other payment of$4.6 billion to capi- The second change to the dent Clinton; administered by Works network. provisions are seen as a balance talize the SAIF CRA will allow banks to estab- the Department of the Treasury; On January 1, 1999, the lish ATV[ locations without at $45 million during 1997. Nationally, there are 177 going through the regulatory Total funding for FY'95 and'96 Neighborhood Works organiza-n approval process required under was$50 million.This is$80 mii- tions which form a network in the CR-t.The original version of lion less than requested by the approximately 150 cities. They this legislation would have Administration. The 1997 fund- have effectively revitalized over exempted mergers and acquisi• ing level recommendation 348 neighborhoods.Seventyrone tions from the regulatory includes $3.6 million for Man- percent of the people served are approval process. This would agement and Administration, in ver:-Inw and low-income have eliminated the CRAB criti- $14 million for Incentives for bracket''- cal community monitoring and Depository Institutions,$8 mil- The eighborhoodWOrks net- comment process currently in lion for Direct Loan Subsidies, work improves the quality of life effect for banks when they apply and$19.4 million for assistance in distressed neighborhoods, to regulators for permission to to community development increases homeownership merge.acquire new banks.and financial institut ions. through targeted lending efforts, other tinges in the services Appropriators did not believe exerts a long-term. stabilizing they offer it was prudent to provide the influence on the neighborhood additional$80 million requested business environment, and Low-income Home Energy Assistance by the Administration for this reverses decline. These organ- Program(IIHEAP) new program which is in the ini- zations have been positively tial stages of beginning opera- affecting urban communities for tions and only now is issuing its over two decades.Recent experi- In the Omnibus Appropria- first round of awards from fund- ence has demonstrated the suc- tions Agreement iH.R.36LOi ing provided in fiscal year 1995. cess of this approach in rural Congress agreed to provide $1 In addition.House appropri- communities when adequate w - billion in 1997 for the LIHEAP ators did not feel that rapid resources are available. ,^ I • �L n J > FKA 61T � C-1 • �J 0 -.�r - >$' �1� 1>>41tt[�� I�j���� AA State of Minnesota Department of Trade and Economic Development • ° business Tracking System -Report Ar-%, Quart-,erly ,N innesota Bu,�ine.ss Births, Dissolutions, Expansions and Contractions Kim �V • �G i Introduction Tite DTED Business Tracking Report (BTR) examines the dynamics of business growth and decline in Minnesota, providing a better understunclinq of the process of job creation and of the competitive position of the various regions of the state. The BTR documents the chh and flow of business activiry in Minnesota by tracking business start-ups and failures, and major expansions and contrurtions around the state. While net cmpl„vntent change statistics are widely available and very usefid, they do not reveal the "churning" of business activity as jobs are created and lost in the economy. Information about this underlying activity provides a clearer picture of the vigor of hlinnesonu's regional economies. The BTR also tracks Minnesota manufacturers that have ceased operations in Minnesota, including those that have moved out of the state. to determine the cause of those dissolutions or relocations. October 1996 Table of Contents Page Minnesota Annual Analysis . . . . . . . . . . . . 1 Minnesota Quarterly Analysis . . . . . . . . . . . 4 Northwest Region . . . . . . . . . . . . . . 6 West Central Region . . . . . . . . . . . . 7 Northeast Region . . . . . . . . . . . . . . 8 Southwest Region . . . . . . . . . . . . . . 9 Central Region . . . . . . . . . . . . . . 10 Southeast Region . . . . . . . . . . . . . 11 Twin Cities Area . . . . . . . . . . . . . 12 Terms, Definitions and Sources . . . . . . . . . 13 This is the third annual summary of the Business Tracking System (BTS) from the Minnesota Department of Trade and Economic Development. The annual summary presents business activity data for third quarter 1994, through third quarter 1995. The third quarter is highlighted • for annual comparison because seasonal employment changes are less severe during this quarter in comparison to other quarters. The second part of this issue presents data for fourth quarter 1995 only, which continues the quarterly series of BTS reports. Similar data for the previous quarter and the corresponding quarter from one year ago are included for comparison. BTS provides important statistical evidence of the sources and dynamics of job creation in the I Minnesota Minnesota economy. This edition of BTS shows that the soft landing of the national economy during 1995 slowed new job creation by Minnesota businesses. Between third quarter 1994 Analysis' and third quarter 1995, the national economy decelerated from an annual growth rate of 3.9 percent to 1.9 percent, and job growth moderated from 2.2 percent to 1.3 percent. Although 3rd Quarter, 1994 Minnesota's new job creation also turned sluggish toward spring of 1995, it recovered to an through annual rate of 2.4 percent by early 1996, driven by renewed vigor of the national economy. 3rd Quarter, 1995 Small Businesses Created Most New Jobs I Compared to the vigorous 1993-94 period, Minnesota's economic activity slowed during the period 1994-95, which reflected sharply curtailed business expansions among small companies (less than 50 employees) and medium-sized companies (50 to 499 employees). Meanwhile, small business start-ups and dissolutions improved significantly during this period. Newly formed companies with less than 50 employees created 23 percent more new jobs than during the previous year, and comprised two of every three start-up jobs in the state. Job losses from small business dissolutions dropped by 11 percent from the previous period. During this period, new and expanding small firms accounted for three out of every four net new jobs in the state. Medium-size and large firms continued to downsize, cutting sharply their net new hirings from the previous period. This supports the finding by the U.S. Small Business Administration for Minnesota and the U.S., that "small firms with fewer than 20 employees grew fastest from 1990-1994, generating a majority of new jobs." (U.S. Small Business Administration, 1995 Small Business Profile, Minnesota, November 1995.) Job Growth by Company Size, (3rd Quarter 1994 through 3rd Quarter 1995) Size of Company (No. of Employees) Less than 50 50 to 99 100 to 499 500 or More Total Number of Jobs 3rd Quarter 1995 725,886 217,634 547,216 724,913 2,215,649 Number of Jobs 3rd Quarter 1994 674,414 213,365 540,998 718,939 2,147,716 Percent of Total 31% 10% 25% 34% 100% 1994-95 Changes 51,472 4,269 6,218 5,974 67,933 Percent of Total 76% 6% 9% 9% 100% Business Births 32,525 3,552 4,595 8,451 49,123 Business Dissolutions (19,671) (3,183) (4,722) (2,449) (30,025) Business Expansions 97,206 16,665 32,588 27,379 173,838 Business Contractions (58,588) (12,765) (26,243) (27,407) (125,003) Note BTS totals are not adjusted for late or missing employer reports, but the job data is edited for data entry errors. However, this data covers all expanding and contracting businesses in the state. Fewer Expansion Jobs In Retail Trade and Services Slowed Net Job Growth r�Y� The moderating job growth evident in the Department of Economic Security's (DES) seasonally adjusted employment data during this period was caused by a sharp drop in the number of expansion jobs. Although job losses from business dissolutions and contractions did • � P j g j not worsen during this slow period, business expansions produced 20,000 fewer new jobs. In contrast, during the previous 1993-94 period, aggressive business expansions fueled strong net job growth. Expansion jobs dropped by more than 10 percent among industries where small Minnesota businesses proliferate, such as retail trade, services, trucking and warehousing, security Annual brokers, and real estate agents. Manufacturing, construction and wholesale trade sectors Analysis showed smaller drops in expansion jobs. 3rd Quarter, 1994 The number of start-up jobs and terminations actually improved from the previous quarter, but through they involved far fewer jobs relative to business expansions and contractions. Job retention 3rd Quarter, 1995 and expansion among small- and medium-sized businesses continue to heavily influence job growth in the state, compared to the attracting of new business. Comparison of Job Gains and Losses, (3rd Quarter 1993-94 and 3rd Quarter 1994-95) 250,000 200,000 194,000 000 , 150 ---- c i V100,000 3rd Quarter 50,000 44,500 49,100 1993-94 E 0 �:] 1994-95 rd Quarter a -50,000 CL E-100,000 32,200 -30,000 - -150,000 124,900 -125,000 -200,000 Business Business Business Business Births Expansions Dissolutions Contractions Manufacturing Continued to Add Jobs The BTS identified more than 12,000 net new manufacturing jobs between third quarter 1994, and third quarter 1995, with most of the new jobs coming from business expansions. Business start-ups created less than 10 percent of the new manufacturing jobs. Durable goods manufacturing showed rapid job growth, particularly among industrial machinery and equipment (except computers), fabricated metals, scientific and medical instruments, and electronic components. These industries have high technology content and low (traditional) natural resource content. Among nondurable goods manufacturing, printing and publishing, food and kindred products, and rubber and plastic manufacturing led in the number of expansion jobs. Job expansion among manufacturing industries has flourished since the 1992-93 economic recovery, highlighted by the sharp increase in expansion jobs among nondurable goods manufacturing during 1993-94, and the current strong showing by high technology-durable goods manufacturing. Most new jobs came from expansions by existing businesses rather than start-ups, even for high technology manufacturing such as scientific instruments and medical products, industrial machinery (except computers) and electronic components. • 2 Strong Job Growth in the Twin Cities Area The Twin Cities area has sustained strong job growth since the 1992-93 economic recovery. " t� This region captured 62 percent of all expansion jobs in the state, while accounting for 53 • percent of all business establishments. The rapid job growth created pockets of labor shortages in some metropolitan cities, higher entry-level wages, and unprecedented low unemployment rates. During the 1994-95 period, two of every three start-up and expansion jobs in the large retail trade and service sectors were created in the Twin Cities area, particularly for business services (including temporary-help agencies), health services and professional services. The I Minnesota Twin Cities area also accounted for two-thirds of start-up and expansion jobs in Annual manufacturing, wholesale trade, finance and insurance sectors - the domain of medium-size and large companies. High technology industries such as scientific instruments and medical Analysis products have expanded in the Twin Cities area and surrounding region. 3rd Quarter, 1994 On the other hand, amusement and recreation businesses, hotels, and resorts grew most rapidly in through Greater Minnesota. Natural-resource-based manufacturing industries such as food and kindred products; 3rd Quarter, 1995 lumber and wood products; and stone, clay and glass continued to expand in Greater Minnesota. Recreational transportation equipment manufacturing also grew rapidly in northern Minnesota. Sources of Annual Job Growth, (3rd Quarter, 1994 through 3rd Quarter, 1995) Number of Business Establishments* Births Dissolutions Expansions" Contractions*" Total Industry No.Rate(%) No.Rate(%) No.Rate(%) No.Rate(%) Esaab!' Agriculture 280 10.1 152 5.5 1,063 38.4 821 29.6 2,802 Mining 7 3.6 9 4.6 66 33.7 60 30.6 189 Construction 1,218 9.7 1,006 8.0 3,907 31.0 3,420 27.1 12,226 Manufacturing 551 6.4 298 3.5 3,583 41.6 2,492 28.9 8,384 Trans., Comm., Utilities 600 10.4 416 7.2 1,876 32.6 1,403 24.3 5,929 Wholesale Trade 1,371 9.6 943 6.6 4,375 30.8 3,023 21.3 14,094 Retail Trade 1,971 7.1 1,856 6.7 9,619 34.5 8,233 29.6 26,779 Finance, Ins., Real Estate 1,237 9.8 854 6.8 3,040 24.2 2,801 22.3 12,711 Services 4,765 10.5 3,306 7.3 14,011 30.9 11,003 24.2 45,010 Public Administration 41 1.6 8 0.3 412 16.4 504 20.0 2,203 TOTAL 1994.111 - 1995.11112,041 9.1 8,848 6.7 41,952 31.7 33,760 25.5 130,327 TOTAL 1993.111 - 1994.111 9,900 7.7 9,540 7.4 44,422 34.4 36,294 28.1 - Number of Jobs* Births Dissolutions Expansions" Contractions" Total Industry No.Rate(%) No.Rate(%) No.Rate(%) No.Rate(%) Jobs""" Agriculture 884 4.0 383 1.7 2,991 13.5 2,098 9.5 22,772 Mining 12 0.1 13 0.2 242 3.0 253 3.1 7,620 Construction 2,783 2.9 1,717 1.8 12,722 13.3 8,950 9.4 95,377 Manufacturing 2,591 0.6 1,937 0.5 28,201 6.8 16,734 4.0 412,513 Trans., Comm., Utilities 2,027 1.9 1,254 1.2 8,551 7.9 6,563 6.0 111,075 Wholesale Trade 2,862 2.0 1,885 1.3 14,294 9.9 8,093 5.6 144,870 Retail Trade 17,461 4.1 9,930 2.3 35,271 8.2 26,553 6.2 420,741 Finance, Ins., Real Estate 4,177 3.0 2,296 1.6 10,082 7.2 10,560 7.6 134,952 Services 16,273 2.3 10,605 1.5 59,743 8.3 41,922 5.8 698,497 Public Administration 53 0.1 5 0.0 1,741 2.3 3,277 4.4 55,698 TOTAL 1994.111 - 1995.11149,123 2.3 30,025 1.4 173,838 8.1 125,003 5.8 2,104,115 TOTAL 1993.111 - 1994.11144,541 2.2 32,228 1.6 194,041 9.6 124,945 6.2 - * The rates in this table are based on totals front ?rd Quarter, 1994. ** Corers till expanding and contracting businesses in the state. *:k« Tonil establishments and total jobs, 3rd Quarter, 1995, tutadjusted frir late or missing employee reports. Note: See notes on Page 13 of Report fier Terms, Definitions and Sources. 3 Fewer Business Start-ups Reduced Fourth Quarter Economic Activity After a brief surge of economic activity during the third quarter of 1995, the national economy slipped back into slower growth during the fourth quarter. Consumer spending decelerated, increasing less than one-half of the previous quarter's 2.8 percent growth rate; • business spending slowed and inventory investment turned down sharply. Government consumption and investment dropped more than the previous quarter, aggravated by two federal government shutdowns late in the year. Although some regions grew during the quarter, Minnesota's seasonally adjusted total employment experienced little growth. Minnesota I Quarterly New business formation in the state declined by 26 percent during fourth quarter 1995, which Analysis caused the total number of start-up jobs to fall to the levels experienced in the soft landing of early 1995. Fewer new hires by start-up manufacturing and wholesale trade businesses was the 4th Quarter, 1995 primary factor in this slowdown. Within these sectors, new hirings slowed in food and kindred products manufacturing, rubber and plastics, printing and publishing, and nondurable goods wholesale businesses. The number of expansion jobs dropped sharply in food and kindred products, transportation equipment and scientific instruments. Quarterly Sources of Job Growth, (4th Quarter, 1995) Number of Business Establishments* Births Dissolutions Expansions** Contractions** Total Industry No.Rate(°6) No.Rate(%) No.Rate(%) No.Rate(%) Estab:** Agriculture D D 24 0.9 D D D D 2,917 Mining D D 4 2.1 D D D D 197 Construction 195 1.6 231 1.9 127 1.0 113 0.9 12,831 Manufacturing 134 1.6 86 1.0 120 1.4 73 0.9 8,781 Trans., Comm., Utilities 132 2.2 110 1.9 55 0.9 34 0.6 6,127 Wholesale Trade 304 2.2 207 1.5 44 0.3 35 0.2 14,724 Retail Trade 531 2.0 405 1.5 200 0.7 211 0.8 28,030 Finance, Ins., Real Estate 244 1.9 183 1.4 44 0.3 27 0.2 13,092 Services 1,099 2.4 798 1.8 298 0.7 214 0.5 47,261 Public Administration 7 0.3 4 0.2 11 0.5 10 0.5 2,556 TOTAL 4th Qtr., 1995 2,697 2.1 2,052 1.6 919 0.7 732 0.6 136,516 TOTAL 3rd Qtr., 1995 3,651 2.8 1,940 1.5 1,004 0.8 816 0.6 - TOTAL 4th Qtr., 1994 3,036 2.3 2,565 1.9 927 0.7 756 0.6 Number of Jobs* Births Dissolutions Expansions** Contractions** Total Industry No.Rate(%) No.Rate(%) No.Rate(%) No.Rate(%) Jobs*** Agriculture D D 23 0.1 D D D D 19,840 Mining D D 1 0.0 D D D D 7,839 Construction 420 0.4 212 0.2 2,163 2.3 1,876 2.0 92,254 Manufacturing 450 0.1 550 0.1 2,812 0.7 1,834 0.4 421,238 Trans., Comm., Utilities 330 0.3 291 0.3 1,735 1.6 734 0.7 116,429 Wholesale Trade 587 0.4 411 0.3 924 0.6 1,031 0.7 151,531 Retail Trade 5,346 1.3 1,950 0.5 4,610 1.1 3,742 0.9 448,451 Finance, Ins., Real Estate 454 0.3 294 0.2 1,102 0.8 541 0.4 145,225 Services 3,110 0.4 2,303 0.3 7,279 1.0 5,072 0.7 808,238 Public Administration 8 0.0 1 0.0 268 0.5 172 0.3 68,066 TOTAL 4th Qtr., 1995 10,840 0.5 6,036 0.3 21,130 1.0 15,334 0.7 2,279,111 TOTAL 3rd Qtr., 1995 11,590 0.5 5,394 0.3 23,994 1.1 18,390 0.9 - TOTAL 4th Qtr., 1994 13,451 0.6 5,612 0.3 22,437 1.1 16,261 0.8 - * The rates in this table are based on totals from the previous quarter. ** Covers only major expansions and contractions. *** Total establishments and total jobs. 4th Quarter, /995. unuljusted for late or missing employer reports. • D = Suppressed to avoid disclosure of individual comparry data. Note. See notes on Page 13 of Report ji�r Terms, Definitions and Sources. 4 1 0711 %- The number of businesses that closed and their job terminations increased from the previous :: quarter. The slowing economy adversely affected service-type businesses, where job losses =Y from closed businesses rose by 62 percent. Most job terminations occurred among temporary + ; help agencies, building maintenance services, and miscellaneous business services. xv::. Low Mortgage Rates Buoyed Construction Activity ' - (Special Industry Analysis—Construction) Low mortgage rates extended the robust summer construction activity into the fall quarter. Minnesota Among Minnesota's ten major industry sectors, the construction sector again showed the highest rate of new job creation from business expansions. Job losses from business Quarterly Analysis contractions and dissolutions remained at previous quarter's levels. Since the summer of 1994, 62 percent of expansion jobs in construction occurred among 4th Quarter, 1995 special trade contractors that work inside new and renovated buildings. Builders of new residential, industrial, commercial and warehouse structures provided 26 percent of expansion jobs, while highway and heavy construction created 12 percent. Within the special trade group that subcontract with these builders, the fastest growing work opportunities were in plumbing, electrical, masonry and concrete-laying jobs. Small businesses accounted for two out of every three expansion jobs in plumbing and concrete work. During the summer and fall 1995 quarters, more than 70 percent of expansion jobs in special trade construction occurred in the Twin Cities area. Significant job expansions were also evident in the Northeast, Central, and Southeast regions. Expansion jobs in highway construction and building construction were more evenly shared between the Twin Cities area and Greater Minnesota. • Survey of Manufacturers - Third Quarter 1991 through Fourth Quarter 1995 This annual summary of BTS reports provides an opportunity to present detailed information on manufacturing dissolutions that have occurred since the inception of the BTS. Between the third quarter of 1991, through the fourth quarter of 1995 (eighteen quarters), DTED identified 1,073 manufacturing dissolutions that occurred in Minnesota. DTED's follow-up surveys found that of the 1,073 dissolutions, 450 businesses (41.9 percent) cited financial difficulty as the cause for the business dissolution. One hundred and seven businesses (10.0 percent) consolidated operations, while 60 manufacturers (5.6 percent) moved out of Minnesota. The reasons firms provided for moving out of the state have generally remained the same since 1991. The majority of manufacturers moving out of the state cited both burdensome state-imposed taxes and high workers' compensation/unemployment insurance costs as the most significant factors in their decision to move. Good incentives from other states ranked as the next most significant reason for moving to another state. It appeared that high wage costs, inadequate public services, and unsuitable land and facilities were not significant factors in the decision by most manufacturers to move out of the state. i Neighboring states have been the most popular destinations among the manufacturers that have moved: 20 moved to Wisconsin; seven moved to South Dakota; four moved to Iowa; and four moved to North Dakota. The most frequently cited reason for moving to these states was the high cost of workers' compensation in Minnesota. • 5 i New Retail Trade and Service Companies Boosted Start-up Jobs Several medium-sized retail trade and health service companies set up new operations in urbanized areas of the northeast region. This doubled the number of start-up jobs created since the summer quarter. New business formation and expansion by these industries remained strong, continuing a trend that began in 1992. Major manufacturing expansions continued to fuel job growth in the area. Several services, Northwest retail trade, and construction businesses also expanded, albeit at lower rates than during the summer quarter. Combined with high rates of start-up jobs, the major expansions produced the Region highest regional performance at new job creation in the state. 4th Quarter, 1995 Number of Business Establishments Births Dissolutions Expansions Contractions Industry No. Rate(%) No. Rate(%) No. Rate(%) No. Rate(%) Agriculture D D D D D D 0 0.0 Mining 0 0.0 D D D D 0 0.0 Construction 5 1.3 4 1.0 4 1.0 D D Manufacturing D D D D 6 2.2 D D Trans., Comm., Utilities D D 4 1.5 D D 0 0.0 Wholesale Trade D D D D D D D D Retail Trade 12 1.1 15 1.4 4 0.4 6 0.6 Finance, Ins., Real Estate D D 6 1.7 0 0.0 0 0.0 Services 21 1.6 25 2.0 6 0.5 8 0.6 Public Administration D D 0 0.0 0 0.0 D D TOTAL 4th Qtr., 1995 49 1.1 60 1.4 25 0.6 20 0.5 TOTAL 3rd Qtr., 1995 80 1.8 42 1.0 32 0.7 29 0.7 TOTAL 4th Qtr., 1994 70 1.6 63 1.4 23 0.5 19 0.4 Number of Jobs Births Dissolutions Expansions Contractions Industry No. Rate(%) No. Rate(%) No. Rate(%) No. Rate(%) Agriculture D D D D D D 0 0.0 Mining 0 0.0 D D D D 0 0.0 Construction 3 0.1 5 0.2 65 2.5 D D Manufacturing D D D D 182 1.5 D D Trans., Comm., Utilities D D 0 0.0 D D 0 0.0 Wholesale Trade D D D D D D D D Retail Trade 136 1.3 45 0.4 94 0.9 81 0.8 Finance, Ins., Real Estate D D 12 0.7 0 0.0 0 0.0 Services 224 1.3 50 0.3 88 0.5 287 1.6 Public Administration D D 0 0.0 0 0.0 D D TOTAL 4th Qtr., 1995 382 0.7 124 0.2 537 1.0 437 0.8 TOTAL 3rd Qtr., 1995 186 0.3 136 0.2 692 1.2 439 0.8 TOTAL 4th Qtr., 1994 267 0.5 141 0.3 691 1.3 289 0.5 D = Suppressed to avoid disclosure of individual company data. Northtrest Region Counties: Beltranti. Cleanrater, Hubbard. Kittson. Lake of the Woods, ,Lluhnurnen. ,Wurshull, Norman, Pennington, Polk, Red Lake and Roseau. Note: See notes on Page 13 oJ'Report for Terms, Deftrtitions and Sources. 6 Construction Was Source for Large Number of Expansion Jobs During the summer and fall quarters, construction was an important source of expansion jobs in the West Central region. Building and special trade contractors expanded during the 1995 construction season, while highway and heavy construction slowed down. • Overall, new business formation and job creation declined sharply in the West Central region during this quarter. The large service sector had fewer new businesses and new jobs; while business dissolutions increased sharply. Retail trade showed a slight increase in start-up jobs from a smaller number of new companies. West CentrW Region 4th Quarter, 1995 Number of Business Establishments Births Dissolutions Expansions Contractions Industry No. Rate(%) No. Rate(%) No. Rate(%) No. Rate(%) Agriculture D D D D D D D D Mining D D 0 0.0 0 0.0 0 0.0 Construction 11 1.9 23 4.0 7 1.2 9 1.6 Manufacturing 9 3.1 D D D D D D Trans., Comm., Utilities 6 2.2 D D D D 0 0.0 Wholesale Trade 5 1.3 7 1.9 D D D D Retail Trade 21 1.5 17 1.2 9 0.7 10 0.7 Finance, Ins., Real Estate 4 0.8 5 1.0 0 0.0 0 0.0 Services 18 1.2 32 2.1 7 0.5 7 0.5 Public Administration 0 0.0 0 0.0 0 0.0 D D • TOTAL 4th Qtr., 1995 79 1.5 90 1.7 33 0.6 31 0.6 TOTAL 3rd Qtr., 1995 121 2.2 71 1.3 34 0.6 26 0.5 TOTAL 4th Qtr., 1994 89 1.6 94 1.7 33 0.6 23 0.4 Number of Jobs Births Dissolutions Expansions Contractions Industry No. Rate(%) No. Rate(%) No. Rate(%) No. Rate(%) Agriculture D D D D D D D D Mining D D 0 0.0 0 0.0 0 0.0 Construction 11 0.3 5 0.1 114 3.2 122 3.5 Manufacturing 28 0.3 D D D D D D Trans., Comm., Utilities 5 0.1 D D D D 0 0.0 Wholesale Trade 8 0.2 50 1.5 D D D D Retail Trade 146 0.9 82 0.5 138 0.9 156 1.0 Finance, Ins., Real Estate 15 0.6 3 0.1 0 0.0 0 0.0 Services 63 0.3 142 0.7 114 0.6 149 0.7 Public Administration 0 0.0 0 0.0 0 0.0 D D TOTAL 4th Qtr., 1995 291 0.5 292 0.5 513 0.8 474 0.8 TOTAL 3rd Qtr., 1995 374 0.6 180 0.3 568 0.9 490 0.8 TOTAL 4th Qtr., 1994 378 0.6 150 0.2 871 1.4 503 0.8 D = Suppressed to avoid disclosure of individual company data. Wert Central Counties: Becker, Cla,', Douglas, Grant, Otter Tail. Pope, Traverse, Stevens and Wilkin. Note: See notes on Page 13 of Report for Terms. Definitions and Sources. • 7 Business Expansion Sustained Job Growth in Northeast Region New business formation fell sharply in the northeast region, adversely affecting new job creation in all major sectors of the local economy. Consistent with DES reports of manufacturing net job losses during October and November in the Duluth-Superior area, the • BTS found large job losses from manufacturing business dissolutions during this quarter (Department of Economic Security, Monthly Labor Market Review, October, November, and December Issues, 1995). Northeast Major expansions provided numerous new jobs to offset losses from business downsizing and Region_ closures. In particular, services and retail trade picked up with the fall tourist season, which sustained the previous quarter's net job growth. 4th Quarter, 1995 Number of Business Establishments Births Dissolutions Expansions Contractions Industry No. Rate(%) No. Rate(%) No. Rate(%) No. Rate(%) Agriculture 0 0.0 D D 0 0.0 D D Mining D D D D D D D D Construction 20 2.5 12 1.5 7 0.9 D D Manufacturing 10 2.0 10 2.0 D D D D Trans., Comm., Utilities D D D D 5 1.1 5 1.1 Wholesale Trade D D D D D D 0 0.0 Retail Trade 36 1.6 20 0.9 8 0.4 10 0.4 Finance, Ins., Real Estate D D 7 1.0 D D D D Services 37 1.3 37 1.3 24 0.8 13 0.5 Public Administration 0 0.0 0 0.0 D D 0 0.0 TOTAL 4th Qtr., 1995 130 1.5 103 1.2 52 0.6 38 0.5 • TOTAL 3rd Qtr., 1995 202 2.4 100 1.2 53 0.6 40 0.5 TOTAL 4th Qtr., 1994 139 1.6 124 1.4 43 0.5 47 0.5 Number of Jobs Births Dissolutions Expansions Contractions Industry No. Rate(%) No. Rate(%) No. Rate(%) No. Rate(%) Agriculture 0 0.0 D D 0 0.0 D D Mining D D D D D D D D Construction 27 0.5 9 0.2 198 3.7 D D Manufacturing 48 0.4 139 1.1 D D D D Trans., Comm., Utilities D D D D 179 3.1 116 2.0 Wholesale Trade D D D D D D 0 0.0 Retail Trade 210 0.8 73 0.3 153 0.6 198 0.7 Finance, Ins., Real Estate D D 31 0.7 D D D D Services 78 0.2 49 0.1 482 1.1 256 0.6 Public Administration 0 0.0 0 0.0 D D 0 0.0 TOTAL 4th Qtr., 1995 419 0.4 351 0.3 1,152 1.0 783 0.7 TOTAL 3rd Qtr., 1995 757 0.7 255 0.2 1,049 0.9 839 0.7 TOTAL 4th Qtr., 1994 1,225 1.1 349 0.3 759 0.7 1,002 0.9 D = Suppressed to avoid disclosure of individual companv data. Northeast Region Counties: Aitkin. Carlton. Cook, Itasca, Koochiching. Lake. and St. Louis. Note: See notes on Page 13 of Report for Terms. Definitions and Sources. 8 Fann Machinery, Computer and Electronic Equipment u' A/i q Added Jobs Manufacturers of farm machinery, computers, and electronic products have continued to expand in the Southwest region since 1993. Retail trade and services also increased expansion • hirings, creating an increase in total expansion jobs from the previous quarter. Overall, the number of new businesses in the region declined by one-third during the fall quarter, but those start-ups that did occur were larger, creating more new jobs than the previous quarter's start-ups. The large sources of start-up jobs - retail trade, services and construction - increased new hirings during this quarter. Southwest Region 4th Quarter, 1995 Number of Business Establishments Births Dissolutions Expansions Contractions Industry No. Rate(%) No. Rate(%) No. Rate %) No. Rate(%) Agriculture D D D D D D 4 1.3 Mining 0 0.0 0 0.0 0 0.0 0 0.0 Construction 11 1.3 9 1.0 8 0.9 D D Manufacturing D D 4 0.9 11 2.4 6 1.3 Trans., Comm., Utilities 4 0.7 11 1.9 5 0.9 D D Wholesale Trade 4 0.6 7 1.0 D D D D Retail Trade 33 1.7 33 1.7 9 0.5 9 0.5 Finance, Ins., Real Estate 11 1.4 7 0.9 D D 0 0.0 Services 44 2.0 35 1.6 12 0.6 8 0.4 • Public Administration 0 0.0 D D D D D D TOTAL 4th Qtr., 1995 120 1.5 111 1.4 56 0.7 35 0.4 TOTAL 3rd Qtr., 1995 181 2.2 116 1.4 47 0.6 35 0.4 TOTAL 4th Qtr., 1994 158 1.9 119 1.4 27 0.3 37 0.4 Number of Jobs Births Dissolutions Expansions Contractions Industry No. Rate(%) No. Rate(%) No. Rate(%) No. Rate(%) Agriculture D D D D D D 70 2.0 Mining 0 0.0 0 0.0 0 0.0 0 0.0 Construction 78 1.4 20 0.4 133 2.4 D D Manufacturing D D 7 0.0 235 0.8 197 0,7 Trans., Comm., Utilities 5 0.1 17 0.4 80 1.8 D D Wholesale Trade 4 0.1 17 0.2 D D D D Retail Trade 292 1.4 123 0.6 145 0.7 122 0.6 Finance, Ins., Real Estate 15 0.3 4 0.1 D D 0 0.0 Services 68 0.3 87 0.3 231 0.9 198 0.7 Public Administration 0 0.0 D D D D D D TOTAL 4th Qtr., 1995 505 0.5 277 0.3 1,000 1.0 833 0.8 TOTAL 3rd Qtr., 1995 476 0.4 227 0.2 952 0.9 900 0.8 TOTAL 4th Qtr., 1994 634 0.6 259 0.2 584 0.5 589 0.5 D = Suppressed to avoid disclosure of individual company data. Southwest Region Counties: Big Stone, Chippewa, Cottonwood, Jackson, Kandiyohi, Lac Qui Parle, Lincoln, Lyon, McLeod, Meeker, • Murrav, Nobles, Pipestone, Redwood. Renville, Rock. Swift and Yellow iliedicine. Note: See notes on Page 13 of Report for Terms. Definitions and Sources. 9 Major Employers Increased Employment As in most regions, there were fewer new businesses and start-up jobs during this quarter in the Central region. However, new businesses in food and kindred products, lumber and wood g P products, and other local manufacturing created more start-up jobs compared to the previous quarter. Major expansions in the large service sector compensated for moderating growth during this quarter in retail trade, manufacturing and construction. Manufacturing expansions occurred in Central transportation equipment, rubber and plastic products, and electronic equipment. Major Region business downsizing eased among services, retail trade and manufacturing companies. 4th Quarter, 1995 Number of Business Establishments Births Dissolutions Expansions Contractions Industry No. Rate(%) No. Rate(%) No. Rate(%) No. Rate(%) Agriculture D D D D D D 0 0.0 Mining 0 0.0 D D 0 0.0 0 0.0 Construction 20 1.1 19 1.1 13 0.7 6 0.3 Manufacturing 20 2.0 6 0.6 9 0.9 8 0.8 Trans., Comm., Utilities 17 2.3 14 1.9 5 0.7 D D Wholesale Trade 10 1.3 13 1.7 D D D D Retail Trade 45 1.4 44 1.3 14 0.4 15 0.5 Finance, Ins., Real Estate 12 1.1 17 1.5 D D 0 0.0 Services 74 1.9 68 1.7 21 0.5 14 0.4 Public Administration D D 0 0.0 D D D D TOTAL 4th Qtr., 1995 207 1.6 184 1.4 68 0.5 47 0.4 • TOTAL 3rd Qtr., 1995 349 2.6 135 1.0 72 0.5 78 0.6 TOTAL 4th Qtr., 1994 294 2.2 226 1.7 66 0.5 66 0.5 Number of Jobs Births Dissolutions Expansions Contractions Industry No. Rate(%) No. Rate(%) No. Rate(%) No. Rate(%) Agriculture D D D D D D 0 0.0 Mining 0 0.0 D D 0 0.0 0 0.0 Construction 38 0.4 5 0.1 154 1.5 78 0.8 Manufacturing 80 0.2 27 0.1 200 0.6 203 0.6 Trans., Comm., Utilities 23 0.3 39 0.5 88 1.1 D D Wholesale Trade 22 0.3 23 0.3 D D D D Retail Trade 478 1.0 177 0.4 138 0.3 227 0.5 Finance, Ins., Real Estate 11 0.2 12 0.2 D D 0 0.0 Services 194 0.3 148 0.3 435 0.8 247 0.4 Public Administration D D 0 0.0 D D D D TOTAL 4th Qtr., 1995 867 0.5 431 0.2 1,156 0.6 800 0.4 TOTAL 3rd Qtr., 1995 1,182 0.6 431 0.2 1,141 0.6 1,932 1.0 TOTAL 4th Qtr., 1994 927 0.5 471 0.3 1,887 1.0 1,204 0.7 D = Suppressed to avoid disclosure of individual company data. Central Region Counties: Benton, Cars. Chisago, Crow Wing. (santi. Kanabec. ,Mille Lacs. Xforrismt, Pine. Sherbume, Stearns, Todd. Wadena, and Wright. Note: See notes on Page 13 of Report for Terms, Definitions and Sources. 10 Regional Economy Slows Despite Increase in Expansion Jobs Several businesses in the retail trade sector doubled the previous quarter's major expansion hirings, and downsizing eased among large manufacturers and service businesses in the area. • However, compared to the vigorous summer quarter, the Southeast region's economy turned _ sluggish during the fall. New jobs from business start-ups fell by one-third, while major expansion jobs declined by 43 percent. Wholesale trade and retail trade had big drops in start-up jobs. Food products manufacturing, health services, and business services drastically reduced expansion jobs during this quarter. Region Southeast 4th Quarter, 1995 Number of Business Establishments Births Dissolutions Expansions Contractions Industry No. Rate(%) No. Rate ( ) No. Rate(/) No. Rate(%) Agriculture D D D D D D D D Mining Construction 16 1.0 0.0 2 13 7 0'0 0 0. 0.4 18 1.1 1 � Manufacturing 9 0.9 10 1.0 17 1.7 12 1.2 Trans., Comm., Utilities 17 1.7 21 2.1 8 0.8 D D Wholesale Trade 20 1.6 13 1.0 D D D D Retail Trade 75 1.9 67 1.7 29 0.7 35 0.9 Finance, Ins., Real Estate 10 0.7 21 1.4 D D D D Services 77 1.6 83 1.7 31 0.6 19 0.4 Public Administration D D D D D D 4 0.9 • TOTAL 4th Qtr., 1995 233 1.4 240 1.5 103 0.6 95 0.6 TOTAL 3rd Qtr., 1995 313 1.9 222 1.4 111 0.7 94 0.6 TOTAL 4th Qtr., 1994 305 1.8 292 1.7 107 0.6 96 0.6 Number of Jobs Births Dissolutions Expansions Contractions Industry No. Rate(%) No. Rate(%) No. Rate(%) No. Rate(%) Agriculture D D D D D D D D Mining 0 0.0 D D 0 0.0 0 0.0 Construction 90 0.8 30 0.3 95 0.8 203 1.8 Manufacturing 25 0.0 99 0.1 293 0.4 260 0.4 Trans., Comm., Utilities 34 0.3 62 0.6 137 1.3 D D Wholesale Trade 77 0.6 53 0.4 D D p D Retail Trade 320 0.6 299 0.5 497 0.9 530 1.0 Finance, Ins., Real Estate 13 0.1 27 0.3 D D D D Services 209 0.2 186 0.2 628 0.7 354 0.4 Public Administration D D D D D D 57 0.7 TOTAL 4th Qtr., 1995 817 0.3 760 0.3 2,025 0.7 1,548 0.6 TOTAL 3rd Qtr., 1995 1,205 0.4 503 0.2 3,579 1.3 1,987 0.7 TOTAL 4th Qtr., 1994 1,194 0.4 544 0.2 2,050 0.7 2,213 0.8 D = Suppressed to avoid disclosure of incliriclual compunv data. Southeast Region Counties: Blue Earth, Brown. Dodge, Farlbcutlt, Freeborn, Fillnwre, Goodhue. Housum, Le Suety, Martin. hloxer, Nhollet, olmsted. Rice, Sible,,. Steele, Wabasha, Waseca, LVatxunoan. and Winomt. • Note. See notes on Page 13 of Report fbr Terms, Definitions and Sources. 11 �r 1 ++ Start-up Jobs in Retail Trade 1� de Increased by 50 Percent During the fourth quarter of 1995, several large retail companies continued to establish large stores in various locations of the Twin Cities area. This increased the number of start-up retail jobs by 50 percent from the previous quarter; raising the total number of start up jobs in the region even with fewer new businesses. With slow new business formation in most other regions, the Twin Cities area accounted for two out of every three start-up jobs in the state during this quarter. Twin Cities Area Major expansion jobs in retail trade, trucking, and warehousing rose sharply with the holiday season, but the economic slowdown had adversely affected growth by the large services, manufacturing, and construction sectors. Major manufacturing expansions continued among 4th Quarter, 1995 industrial machinery and computers, electronic equipment, and scientific instruments. Number of Business Establishments Births Dissolutions Expansions Contractions Industry No. Rate(%) No. Rate(%) No. Rate(%) No. Rate(%) Agriculture D D D D D D D D Mining D D 0 0.0 0 0.0 0 0.0 Construction 95 1.7 111 1.9 80 1.4 60 1.0 Manufacturing 75 1.6 47 1.0 69 1.5 42 0.9 Trans., Comm., Utilities 62 2.5 48 2.0 30 1.2 24 1.0 Wholesale Trade 138 1.9 97 1.3 30 0.4 24 0.3 Retail Trade 297 2.3 207 1.6 125 1.0 126 1.0 Finance, Ins., Real Estate 178 2.4 117 1.6 35 0.5 24 0.3 Services 734 2.7 488 1.8 190 0.7 136 0.5 Public Administration D D D D D D D D TOTAL 4th Qtr., 1995 1,598 2.3 1,129 1.6 569 0.8 444 0.6 TOTAL 3rd Qtr., 1995 2,075 3.0 1,113 1.6 641 0.9 496 0.7 • TOTAL 4th Qtr., 1994 1,730 2.5 1,482 2.1 611 0.9 445 0.6 Number of Jobs Births Dissolutions Expansions Contractions Industry No. Rate(%) No. Rate(%) No. Rate(%) No. Rate(%) Agriculture D D D D D D D D Mining D D 0 0.0 0 0.0 0 0.0 Construction 139 0.3 108 0.2 1,385 2.5 1,060 1.9 Manufacturing 253 0.1 264 0.1 1,741 0.7 1,122 0.5 Trans., Comm., Utilities 200 0.3 151 0.2 1,198 1.6 551 0.7 Wholesale Trade 322 0.3 201 0.2 624 0.7 815 0.9 Retail Trade 3,754 1.6 1,149 0.5 3,219 1.3 2,428 1.0 Finance, Ins., Real Estate 341 0.3 204 0.2 855 0.8 496 0.5 Services 2,092 0.5 1,555 0.4 5,116 1.2 3,359 0.8 Public Administration D D D D D D D D TOTAL 4th Qtr., 1995 7,114 0.5 3,648 0.3 14,277 1.1 9,995 0.8 TOTAL 3rd Qtr., 1995 6,774 0.5 3,550 0.3 15,656 1.2 11,370 0.9 TOTAL 4th Qtr., 1994 8,498 0.7 3,551 0.3 15,132 1.2 9,886 0.8 D = Suppressed to avoid disclosure of individual company data. 11r in Cities Region Counties: Anoka. Caner, Dakota, Hennepin, Ramsey, Scott and Washington. ;`',ve: See notes on Page 11 of Report for Terms. Definitions and Sources. • 12 F s and Definitions .- ing are definitions of some fundamental terms used in this report: Establishment: As defined by the U.S. Department of Commerce, a separate plant location or worksite of a t • r enterprise. Large companies may have several establishments in various locations around Minnesota. r' : The death of a Minnesota business establishment is assumed to have occurred when that establishment both port to the Minnesota Unemployment Insurance Program U-! tim nt cannot be found elsewhere in the U-I record Businesses which consecutive orarmerged and with when other establishments• when such sale or merger resulted in a name and identification number change, may occasionally be erroneously reported as dissolutions. Apparent dissolutions of manufacturing companies are fitrther verified by business termination data from the Department of Economic Security(DES),and through follow-up surveys administered by DIED. Birth: The start-up of a new company is determined to have occurred when the establishment first reports to the U-! Definitions Program. Sales or mergers of companies may occasionally be erroneously reported as births, when such activity resulted - 1 Sources a company name change. For manufacturing companies. DES's records and various industry sources are used to identify such business sales and mergers, which are then excluded from this category. Expansion: The DTED Business Tracking System reports only significant business expansions. A significant expansion 4th Quarter, 1995 occurs when a business establishment with over 19 employees increases employment by 25 percent or more over two quarters; or when any establishment adds 50 or more employees over two quarters. For seasonal businesses such as outdoor recreation and tourism,job growth is calculated from the same quarter of the previous year. Contraction: The DTED Business Tracking System reports only significant business contractions.A significant contraction occurs when a business establishment with over 19 employees decreases employment by 25 percent or more over two quarters; or when any establishment terminates 50 or more employees over two quarters. For seasonal businesses, job decline is calculated from the same quarter of the previous year. Sources For This Report The DTED Business Tracking System is based on information and data files provided by the Research and Statistics Office and the Tax Division of the Minnesota Department of Economic Security, including quarterly employer reports to the Unemployment Insurance Program (ES202). The data covers approximately 97 percent of all nonagricultural wage and salary employment in Minnesota. Those excluded from ES202 are the self-employed, railroad workers, most farmers, commission agents, students, religious workers and elected government officials. • Six months after the close of each quarter, DES provides DTED with raw data on employment and wages by business establishment for that quarter. This report is produced one to two months after DTED receives these data. Hence, the DTED Quarterly Report is issued approximately 8 months after the close of quarter covered. 13 TCF Bank Sets Up Participation Loan Programs for Small Business WomenVenture and Tff join Forces to samelikew ine. �,► flnance same like me, Inc. Founded in 1996, 9 same like me de- orking capital for a small business can come signs, manufac- ; from various sources; there are many, often tures and distrib- creative,equations for small business financ- utes children's _ ing.Along that line,TCF has developed a new equation: clothin andaline o q g TCF Bank funding + Funding through a non-profit of multi-cultural, o group = Small business participation loans. cloth dolls forgirls Small business owners who don't qualify for a bank between the ages loan often approach other funding sources for start-up of 3 and 8. The a J Orofit pital. Many apply for working capital through non- 22-inch dolls' organizations—that help clients grow their busi- skin, eyes, and AC nesses and that often use funds made available through hair color are a city, state, or federal lending program. Over the past created to match - year, TCF's Commercial Banking area has created a the features of participation loan program to support non-profit groups the girl who in their small business lending. will own the Women Venture,a St. Paul-based non-profit organiza- doll. The com- g' ' tion, offers a variety of services, including lending, that pany also offers The owner of same like me, inc., Jo Pfiefer, support small, growing enterprises. As a Small Business matching girl/ stands anidseveral huggable,washable,multi- Administration(SBA)micro-loan lender,WomenVenture doll clothing for cultural dolls in the cornpany'sworkshop.TCF can also tap into Urban Initiative funds, which come dress-up and ca- Bank and WomenVenture recentlyparticipated from Minnesota's Department of Trade and Economic sual wear. on a loan to fund the start-up business.Holiday Development, to finance small businesses. However, After receiving orders are already on the books. Urban Initiative Fund financing requires matching funds financing through the SBA 7A Program and individual from another source,such as grant money or a bank loan. investors, Ms. Pfiefer approached WomenVenture fora With similar programs in mind, TCF Bank set up the loan to complete her start-up capital requirements. participation loan program for non-profit organizations WomenVenture, in turn, referred Ms_ Pfiefer's request that help finance small businesses. The first participa- to TCF for review under the participation program. tion loan was completed in August under TCF's new Ms.Pfiefer"was very organized when she came to us," program.TCF Bank and WomenVenture awarded a 50/ said TCF Commercial Banker Julie Bleadorn. "Her busi- 50 participation loan to the president and owner of same ness plan was like a book; she'd analyzed everything. like me,inc.,Jo Pfiefer.TCF Bank funded half of the loan; Especially for a start-up company, it's very important to omenVenture, using Urban Initiative money, funded have a good business plan. I was impressed by how she'd other half. thought through the whole process and had all the details worked out,"said Bleadorn. same like me continued on back page 22, NEWSFROM TCF FOUNDATION NEW OFFICERS Peter Bell was appointed president of TCF Foundation effective October 31, 1996. Pe- ter retains his responsibilities as executive vice president of Corporate Community Af- fairs at TCF Foundation. In addition,Peter sl ,; serves on boards of directors of numerous I : local and national,social,and civic organiza- tions, including Hazelden,Citizens League, and Center for the American Experiment. He is also a founding member and chair of the Washington, DC-based Center for New Sewers,cutters and other workers at same like me hold t,. -cultural dolls— Black Leadership.Neil Whitehouse is retir- including those of African-American, Asian, Caucasian, and Hispanic origin. TCF ing as president of TCF Foundation,follow- Commercial Banker Julie Bleadorn holds a blond doll at the front left. ing 39 years of service with TCF. Carol Kelleher was appointed senior com- munity affairs officer for the Foundation. TCF Bank processed,closed,and will service the loan forsame like me•, Carol hasbeen the community reinvestment WomenVenture and TCF Bank share a 50/50 funding participation on officer for TCF Bank since 1992. this loan — although the participation ratio may vary under other CHARITABLE GIVING ' lending programs. TCF's participation loan program was set up for non-profit organiza- In 1996, the Foundation restructured its tions involved in community and economic development lending. The giving to emphasize education and commu- participation program can accommodate a range of loan sizes and types, nity development.Through the third - ter,the Founda don contributed and/or comcom- depending on program guidelines. Other non-profit developers and mitted$1,106,100 to our communities. community organizations are encouraged to consider TCF Bank — The Foundation requires the Minnesota when participation lending is appropriate. Common Grant Application for all requests same like me is located at 2543 Marshall Street N.E., Minneapolis, MN greater than$1,000.Funding decisions are 55418.To order a catalog, call toll free 888/772-9900 or 612/347-1237. made monthly or quarterly, depending on the size of the grant.Please send applications TCF CO&VERSTONE is published quarterly by TCF Bank Minnesota jib,801 Marquette Avenue.Minneapolis, to Carol Kelleher, TCF Foundation, 801 MN 55402,for community members and groups. Editor:Elizabeth Anders,Circulation:612 1661.8898. Marquette Avenue,Minneapolis,MN 55402. • Nftgll" �� o 3 TOWLE REAL ESTATE TOWLE REAL ESTATE COMPANY TOWLE BUILDING • SUITE 800 330 SECOND AVENUE SOUTH MINNEAPOLIS,MN 55401 February 1, 1996 TEL: 612 341 4444 FAX: 612 347 9389 Dear Clients and Friends, COLLIERS I N T E R N A T l 0 N A L We are pleased to present Towle Report 1996, a comprehensive look at the NORTH AMERICA ATLANTA commercial real estate market of the Twin Cities. The market has been extremely AKRCD. ALLENTOVVN active and we are witnessing many changes: BALIMC:E BOSTON CALGA: CHARLESTC^. • The vacancy rates are declining in almost all sectors and property types. CHAR= CHICAGO • Rising rents for apartments,office and industrial space are fueling CiNCINN.-' CLE:EIAND COLUMEA investor demand. DALIAS DArCN • User-buyers are paying asking prices for quality properties. DETRc EDMONTCri FORT LAUCERCA;_ • Sales activity is strong with listings generating multiple offers. GRAND RAP-Cc GREENWiC= Build-to-suit and semi-speculative industrial development is occurring. HARTFCRZ HOUSTON INDIANAPCUS • New office development will begin this year. KANSAS C_ Los ANGE'_3 LOUISvILE • Retail construction will continue as earlier projects move toward completion. MErnPHs MIWWAUKEE The professionals at Towle Real Estate/Colliers International rely on both MINNEAPCLS MCN R NEW IPSE experience and independent research to advise our clients on real estate matters. NEW YC:< OAKLAND Towle's brokers,consultants, leasing specialists, appraisers, mortgage bankers, CTTAV.A PHILADELPHIA construction experts, asset managers and property managers have an extensive track PHIOEN;Y P!EASANTCN record of success and expertise. PORTI LANZ RALE!G� SACRA1EN?_-- SAN DIEGO We provide client-driven,confidential real estate services for every sector of our local SAN FRANCISCO SA JC' market and any part of the world. We look forward to working with you on your S'ANNAr. SEAT^,E next commercial real estate assignment. ST.LOL.s TORONTO VANCW'E VICTOar We wish you a productive year. WASHINGTON.D.-- WINNIPEG Sincerely, INTEARGENTINA AUSTRALA BRAZI kt4 CHILE CHINA E'JRCPE HONG KONG INCA Mark W. Reiling, CRE Kathleen Nye-Reiling NDONESA President Pri APA� Principal >-ulA�s�A r,EW 2EAIA�C • PHILIPPINE: ROSS? SINGAPORE SOUTH AFRICA TA S\'A.N THAIAND 1:RKF" VIETNAV } esyt o ` e�na on enngcsrease?<zn a olnlcYg"`o i en:. a e largely y u • ��'',�`: rap d acceleration in manu acturin "act><v>< Minneapolis-St. Paul, known as the continues to be the engine of Twin Cities, is located along the METRO HIGHLIGHTS Minnesota's employment growth. Faster Mississippi River and represents than average job growth occurred in Minnesota's largest metropolitan area. ♦ Twin Cities'unemployment rate services, construction, utilities and Nationally it ranks 16th in size. The resumed its downward path to communications. As of third quarter MSA (Metropolitan Statistical Area) 2.6%, compared to the national 1995, the number of jobs in the metro includes the Minnesota counties of jobless rate of 5.6% area increased 1.8% from a year ago. Anoka, Carver, Dakota, Hennepin, According to the Minnesota Ramsey, Scott and Washington, known ♦ Jobs in the metro area increased Department of Economic Security, an as the seven-county core area, plus by 1.8%, slightly trailing the updated outlook for the state of Chisago, Isanti, Wright and the national growth rate of 2.0% Minnesota suggests that a wide range of Wisconsin county of St.Croix. The Twin job applicants will be needed through Cities serve as the center of the Jobs in construction, services, the year 2001. Although the state • economic and social activities for the ♦ state and the north central region. utilities and communications LARGEST U.S. CORPORATIONS The Minneapolis St.Paul metropol- grew faster than average WITH HEADQUARTERS IN THE itan area has a strong and diverse economic base with no dependency on ♦ For the second consecutive year, TWIN CITIES AREA any single employment industry. Home Washington County is the state's NATIONAL to 16 of the largest U.S.corporations(as fastest growing county COMPANY RANKING presented in the Fortune 500 table), it DAYTON HUDSON 30 includes a broad foundation of income- ♦ The Twin Cities 1990 population SUPERYALU 50 producing trades including agribusiness, totaled 2,464,124, reflecting 3M 58 computer high technology systems, growth o . from 1980 to g f 153%f NORTHWEST AIRLINES 125 machinery manufacturing, graphic arts, government, medical and educational 1990, which outpaced the average GENERAL MILLS 135 institutions. national growth rate of 10.8% HONEYWELL 195 NORWEST CORP. 197 ST.PAUL COMPANIES 243 ; r# w Employment has been rising steadi- UNITED HEALTHCARE 303 r� ly. Local unemployment rates have HORMEL FOODS 363 remained below the state and national BEST BUY 373 x o Y averages over the last ten years. As of HASH FINCH 398 November 1995,the national unemploy- NORTHERN STATES POWER 452 ment rate measured 5.6% and the state unemployment rate was 3.3%,compared FIRST BANK SYSTEMS 470 to the Minneapolis-St. Paul jobless rate INTERNATIONAL MULTIFOODS 495 of 2.6%. With nearly 62% of the state's LUTHERAN BROTHERHOOD 496 ♦ Downtown Minneapolis total employment, the Twin Cities area Source: FORTUNE,May 15,1995 • CITIES WITH BIGGEST NET POPULATION GAINS MINNEAPOLIS-ST.PAUL METRO AREA(1990-1993) 1990 U.S.CENSUS 1993 ESTIMATED POPULATION ` Yi . �•. •CITY POPULATION POPULATION GAIN _ -- COON RAPIDS 52,978 58,833 5,855 WOODBURY 20,075 25,875 5,800 EAGAN 47,409 53,004 5,595 LAKEVILLE 24,854 30,149 5,295 PLYMOUTH 50,889 55,137 4,248 Downtown St.Paul MAPLE GROVE 38,736 42,682 3,946 summarizes the income characteristics OAKDALE 18,374 22,192 3,818 for a variety of selected cities. Per APPLE VALLEY 34,598 38,261 3,663 Sales & Marketing Management, the EDEN PRAIRIE 39,311 42,442 3,131 metro area's buying power index contin- ANDOVER 15,216 18,304 3,088 ues to rank 12th and represents a weight- Source:Metropolitan Council ed index that converts population, effective buying income, and retail sales into a measurement of a market's economy is projected to continue migration. Of the ten fastest-growing 'ability to buy." generating jobs for workers at all levels counties in Minnesota, eight are located It is expected that the Minneapolis- of education and training, those requir- in the Twin Cities MSA. Adding to its St. Paul metropolitan area will continue in specialized skills in technical and 1990 population by 16.0%, Washington to maintain its standing as one of the professional fields are projected to grow County is again the growth leader this strongest economies in the nation and the fastest. year, fueled by the mushrooming popu- consumer confidence should remain For the past 40 years,Minnesota has lation in Woodbury, Oakdale and high. The Twin Cities is an attractive had a stable population, however the Cottage Grove. As noted in the table, living environment and stable urban population growth between 1990-1993 other counties experiencing significant community. There is steady growth in makes it the fastest-growing state in the population growth include Scott, Carver per capita income and job creation. All 0idwest. The Twin Cities 1990 popula- and Dakota counties. economic indicators point to another totaled 2,464,124, reflecting growth According to an August 1995 favorable year for the Minneapolis-St. 15.3% from 1980 to 1990, which out Sales & Marketing Management report, Paul metropolitan area. paced the average national growth rate Minneapolis-St. Paul continues to rank of 10.8%. high in several population income cate- The population change is the result gories from a national survey of 3115 MSA COUNTY POPULATION of two factors: natural increase and metropolitan areas. The enclosed table 1994 1990-1994 COUNTY POPULATION CHANGE NATIONAL INCOME STATISTICS WASHINGTON 169,300 16.0% MEDIAN BUYING SCOTT 66,585 15.1%METROPOLITAN TOTAL RETAIL HOUSEHOLD POWER CARVER 55,025 14.8% AREA SALES(000'S) RANK EBI RANK INDEX RANK DAKOTA 308,002 11.9% CHICAGO $68,555,104 1 $47,359 20 3.2821 2 ANOKA 266,713 9.4% DETROIT $40,973,297 6 S43,159 33 1.7938 6 RAMSEY 1,056,693 2.3% BOSTON $33,239,908 8 $48,448 17 1.6443 7 Source:Metropolitan Council 492,909 1.5% DALLAS $27,479,514 11 $42,442 41 1.2525 11 MINNEAPOLIS-ST.PAUL $26,742,318 12 544,377 29 1.1493 12 ST.LOUIS $23,172,840 15 $40,643 66 1.0217 14 DENVER $17,864,192 25 $40,587 67 0.7784 25 MILWAUKEE $13,507,683 37 $42,648 40 0.5951 37 KANSAS CITY $16,143,440 29 $40,963 59 0.6914 29 DES MOINES $4,844,914 94 $41,976 46 0.1875 98 OMAHA $6,785,994 72 S39,420 84 0.2719 74 �ource:Sales&Marketing Management,1995 Survey of Buying Power,August 30, 1995. �loMARKET SECTOR 3 MAP MINNEAPOLIS - ST. PAUL METROPOLITAN AREA ANOKA COUNTY Gs ti 4, w NORT EST _ SECTOR S10 NORTHE ST 694 SECTOR 00 v ° O v WEST ASS 01 1-694 MN 36 WEST C� -35W MN 36 1-394 US 12 G STS A L WASHINGT AVENUEIn - COUNTY o v� 1-94 M! EA IS PQb CO.62 2GF b Lo • SOUTHWEST h� Z SECTOR tiss :2 Gs6, MN 1 p M DAKOTA bQ COUNTY SCOTT COUNTY MN 55 ANOKA COUNTY SOUTHWEST SECTOR DAKOTA COUNTY • Anoka • Blaine • Columbia Heights • Bloomington • Chanhassen • Apple Valley • Burnsville • Eagan •• Coon Rapids • Fridley • Eden Prairie • Edina • Hopkins (part) • Hastings • Inver Grove Heights Spring Lake Park • Minnetonka (part) • Richfield • Lakeville • Mendota Heights MINNEAPOLIS (Boundary for West&Southwest Sectors is • Rosemount Excelsior Boulevard) NORTHWEST SECTOR SCOTT COUNTY •Brooklyn Center • Brooklyn Park ST. PAUL • Prior Lake • Savage • Shakopee • Champlin • Crystal • Maple Grove NORTHEAST SECTOR WASHINGTON COUNTY • Osseo • Robbinsdale • Arden Hills • Little Canada • Cottage Grove • Lake Elmo WEST SECTOR • Maplewood • Mounds View • Newport • Oakdale • Stillwater • New Brighton • North Oaks • St. Paul Park • Woodbury • Excelsior • Golden Valley • Hopkins . North St • Roseville Paul (part) • Minnetonka (part) • Plymouth . Shoreview • l Anthony • St. Louis Park • Wayzata • Vadnais Heights • White Bear Lake • J MOW 46 acancres5 n v �sgyy most ee e a win- °ifies' taghtest ever office market is polsea for new,development. MARKET Rents are on the rise after six years OFFICE MARKET HIGHLIGHTS of declining rates. The average quoted OVERVIEW OFFICE rent rose 9.6% to$8.76,due primari- Overall vacancy rates dropped to ly to a combination of fewer landlord The comeback continues for the an M-year low of 11.6% after concessions and rising base rental rates. Minneapolis-St.Paul metropolitan office peaking three years ago at 20.4% Class A average rents saw the biggest market as the absorption of the oversup- increase.The West Sector jumped 29.9% ply of space reduced the vacancy rate to After six years of declining net to $13.33 psf; the Minneapolis CBD an eleven-year low of 11.6°/%. For the rental rates, Class A rents in the reported a 22% gain to $11.37 psf; and year ending second quarter 1995, the the Southwest Sector, increased 11.6% total metropolitan absorption equaled Minneapolis CBD and the West to$12.77 psf. 955,326 sq. ft. of office space or 2.1% of and Southwest Sectors increased Average real estate taxes for most occupied base. 11-30% on average areas remained unchanged from 1994 The pace of leasing activity has with the exception of the St. Paul CBD s owed from the past two record-break- * St. Paul lowered its Class A Class A, B, and C buildings, which ing years which resulted in a total vacancy rate dramatically, reported as much as 24.6% decrease in absorption of 4.4 million square feet. improving by 7.9 percentage points property taxes.The tax abatement trend The slowdown is due to the shortage of is nearing an end since commercial and large blocks of contiguous space and no ♦ A fourth quarter survey of the industrial values are beginning to rise new office construction within the Minneapolis CBD reported again. During the last four years, marketplace.The vacancy rate continues sir-month negative absorption of millions of dollars in refunds have been to decrease because steady employment 85,834 sq.ft. awarded to owners of properties who growth is driving absorption. have successfully appealed to city For the year ending second quarter As building values climb, expect assessors that their properties were 1995, the leader for the metro area was overvalued and therefore overtaxed. the Minneapolis CBD, responsible for real estate taxes to rise Tenants facing lease renewals in the next 63.5% of the total market absorption. few years will be hit with the double Next is the the Southwest Sector with Class A buildings saw a dramatic surprise of higher net rents and higher 17.8% and Minneapolis Out-of-CBD improvement this year, decreasing its real estate taxes. with 14.7%. The highest loss was vacancy rate by 7.9 percentage points to suffered by the St. Paul Out-of- 19.4%. All combined,Class A buildings CBD with negative absorption of in the metro area absorbed 791,764 sq.ft. _ 142,685 sq. ft. of space, or 85% of the total annual Except for the St. Paul CBD, absorption of office space. i Class A buildings throughout the Twin Of the remaining 135,562 sq. ft. of Cities have vacancy rates below 8%. absorption, Renovated buildings were Again, the Minneapolis CBD led the responsible for 132,504 sq. ft., while _ �wa with a fourth quarter vacancy rate of Class B and Class C shared a total of . Though still struggling, St. Paul only 3,058 sq. ft. of positive absorption. ♦ Zeller Realty Corporation's proposed expansion of Norwest financial Center in Bloomington II (1U Ail FOUR QUARTER SURVEY REVEALS SIGNIFICANT CHANGES IN JUST SIX - MONTHS A fourth quarter 1995 office market ' survey of the metro area's two largest • sectors---the Minneapolis CBD and the Southwest Sector---revealed several ,-_ notable changes in a six-month period. First, the Minneapolis CBD fell from its position as the metro area absorption leader with negative absorption of 85,834 sq. ft. as of fourth quarter 1995. Corporate "right-sizing" contributed to the majority of this negative absorption. `"s The result was a rise in the overall Minneapolis CBD vacancy rate from 9.7% in second quarter 1995 to 10% in fourth quarter 1995. During this six- month period, all Minneapolis CBD Rendering of National City Bank's new 94,000 sq.ft.location in Gavu°dae Common,downtown Minneapolis markets, except Class C, reported nega- tive absorption. St.Paul and a handful of suburban build- to do so are St. Anthony Main in Conversely, during this same period ings reporting availability of 50,000 sq.ft. Minneapolis, Town Square in St. Paul, of conti the Southwest Sector experienced a guous space. With this shortage Diamondhead I<Iall in Burnsville, The considerable rise in absorption, report- of space, and with limited office devel- Crossroads in Eden Prairie and ing six-month net absorption of 398,339 opment on the immediate horizon, Rosedale Square North in Roseville. creative alternatives are occurring. There's plenty of elbow room in sq. ft. This lowered the sector's overall vacancy rate 2.1 percentage points,from Retail property owners are convert- St. Paul, and space is available for ing spaces for office use, especially for tenants in downtown and outside the 7.3% for second quarter 1995 to 5.1% for fourth quarter 1995. The majority of tenants looking at downtown St.Paul CBD.In fact,St.Paul has nearly the six-month absorption (74.9%) was Minneapolis. Examples of those who one-third (31.2%) of the metro area's reported by Class B buildings, which have converted some or all of their retail vacant space. Clearly, this is another • lowered its vacancy rate substantially, and entertainment space to office use are alternative for large space users who from 8. it m second quarter anti to Gaviidae Common, which leased 94,000 can't find space or the rental rate they sq. ft. to National City Bank and want in Minneapolis or the suburbs. 5.7% in fourth quarter 1995. Finally, the trend of rising rents Riverplace, which added 40,000 addi- continued, especially in the Minneapolis tional sq. ft. of office. Others who have CBD where Class A rents jumped up converted space to office or are planning another 10% in just six months to$12.51 sf. That means over°e last 18-month STATED NET RENTAL RATES period rents rose 34.3%. The Southwest Sector's Class A buildings reported a six- FOURTH QUARTER 1988 1995 month increase of 7.6% to$13.74 psf,for ©To,le Real Estate Company an 18-month total increase of 20.1%. $20 511.13 $16.45 SHORTAGE OF SPACE SPARKS $15.19 $14.61 CREATIVE ALTERNATIVES $1s S15.61 $15.30 $14.10 512.05 S11.44 S11.80 S13.14 With a total office universe of $12.33 $12.51 51 million square feet and just under $10 6 million square feet vacant, the market $8.88 $10.26 is tight,especially for tenants looking for $8.41 large blocks of space. Contiguous space $5 Of 50,000 sq. ft. or more is available in only a few Class A buildings. Even the number of Class B, Class C and 0 Renovated buildings reporting large 1988 1989 1990 1991 1992 1993 1994 1995 blocks of space is shrinking, with only MPLS CBD-CLASS A SOUTHWEST SECTOR-CLASS A • l� MARKET The Renovated segment suffered Avenue building became me single tenant negative six-month absorption of 39,402 and was removed from the study. And, SECTORS sq. ft. for fourth quarter 1995, raising its the former single tenant, 50,000 sq. ft. vacancy rate to 12.4%. Ministers Life building was sold, INNEAPOLIS CBD Although the Renovated segment renamed Lake Pointe Corporate Centre, As predicted, the shortage of space reported a 6% decrease in asking rents became multi-tenant, and was added to 4hd rising rental rates have slowed as of second quarter 1995, by fourth the study. Also added was the vacant tenant relocations in downtown quarter the stated net rental rate rose by University Park Plaza building. Minneapolis. Based on fourth quarter 6% to even out at$7.05. The 1995 vacancy rate rose 7.4 1995 data, the overall Minneapolis CBD Now a single tenant building, 1010 percentage points to 20.3%. The largest vacancy rate was 10% as a result of Metrodome Square was deleted from contiguous blocks of space available are negative six-month absorption of 85,834 the study. in University Park Plaza and Riverplace. sq. ft. By comparison, net absorption of Of the remaining buildings, the vacancy 606,850 sq. ft. was reported for the year MINNEAPOLIS OUT OF CBD rate is an impressive 4%. ending second quarter 1995. Following two years of negative The average quoted net rent rose Class A's vacancy rate remained at absorption, this sector, which is located slightly, by 1.9% to $9.33 psf. After a 4.5% because of minimal six-month outside the central business district of 4.8% decrease in property taxes the year negative absorption of 22,579 sq. ft. In Minneapolis,increased its occupied base prior, real estate taxes increased by 14% the Class A segment extremely tight by 140,655 sq. ft. from second quarter for the second quarter 1995, averaging conditions remain with only three build- 1994 to second quarter 1995. $3.42 psf. Average total expenses ings reporting available contiguous Several building status changes increased by 5.7% to$8.43 psf. space of 50,000 sq. ft. or more, including occurred in this sector. The 2500 Park International Centre, Fifth Street Towers, and First Bank Place. Over the twelve-month period STATED NET RENTAL RATES AND EXPENSES ending second quarter 1995, the average MINNEAPOLIS/ST.PAUL METROPOLITAN AREA-SECOND QUARTER 1995(PSF) Class A stated net rental rate increased 22% to$11.37 psf. It jumped up another AVERAGE NET RENT AVERAGE AVERAGE 10% by the end of fourth quarter 1995 to NET RANGE $12.51 psf. MARKET SECTOR RENT LOW-HIGH TOTAL �Tenants looking for space have ty of options in the Class B segment. Anoka County $8.89 53.00-$11.50 $2.53 $6.32 ery little change occurred for the Dakota County S9.70 58.25-511.25 52.85 $6.67 twelve-month period ending second Minneapolis CBD quarter 1995; the vacancy rate remained Class A 512.51 $6.00-$17.00 55.02 $10.16 the same as the year prior, at 20.1%. Class B $8.08 S3.50-512.00 $3.06 $7.98 However, as of fourth quarter 1995, Class C 55.67 $2.68-$8.25 $1.57 $5.21 Class B buildings reported negative Renovated 57.05 $2.25-$9.25 $1.82 absorption of 33,242 s ft., raisin the $6.01 q� g Mpls.0ut-of-(BD S9.33 $6.43-$16.00 53.42 $8.43 vacancy rate slightly to 20.8% Northeast $8.54 Asking net rents in Class B saw an S7.00-$12.00 $3.01 56.34 increase of 11.9% to $7.35 psf for the Northwest $7.03 $5.00$9.11 $2.51 $6.13 St.Paul CBD year ending second quarter 1995 and ticked up another 9.9% by fourth Class A $8.08 56.80-$9.50 $2.76 $8.21 quarter 1995 to$8.08. Class B 56.52 $3.00-513.50 $1.75 $7.82 After reporting negative absorption Class C $5.01 $2.25-S8.87 $.89 $5.55 for the year ending second quarter 1995, Renovated 57.95 $5.31-$15.50 $1.69 $5.39 the Class C segment experienced posi- St.Paul Out-of-CBD 56.87 $2.31-$12.40 52.09 55.70 live absorption of 9,389 sq. ft. as of Southwest fourth quarter 1995, improving its Class A 513.74 59.50-$18.00 53.68 $9.10 vacancy rate to 22.9%. Comparatively Class B $9.29 55.66-S15.50 52.50 56.75 low asking rents continued for the period Washington County $9.44 $7.25-$12.00 51.90 ,nding second quarter 1995, up just 2% West $5.84 to $5.19. However, by the end of fourth Class A .luarter 1995, the stated net rental rate $13.33 S10.50-516.00 $4.32 59.61 ncreased by 9% to$5.67 psf. Class B $9.09 $5.00$13.50 $2.45 $7.29 • Fourth Quarter 1995 Data ©Towle Real Estate Company NORTHWIST SECTOR The Northwest Sector continued its SOUTHWEST SECTOR VACANCY RATES slow but steady rate of positive absorp- tion. This year's annual absorption of FOURTH QUARTER 1988- 1995 10,572 sq.ft.resulted in a vacancy rate of 30% ©Towle Real EsmteCampo" • 16.0%, the lowest this sub-market has 29.6 seen since its peak at just under 38% in 25% 1988. zz•� 22.5 k17.0 Of the 11 buildings in this relatively 20% 18. small sector, seven buildings had equal 21.1 or better occupancy than a year ago. 15% 17.3 For the fifth consecutive year, real 14.3 12.6 estate taxes decreased, falling 8.1% this 10% 13.1 year to$2.57 psf.The average quoted net 8•a rent also dropped, by 3% to $7.03 psf. 5% 8.0 5.7 Total expenses decreased as well, falling 4.4 4.0 4.2% to$6.12 psf. 0 1988 1989 1990 1991 1992 1993 1994 1995 WEST SECTOR CLASS A BUILDINGS CLASS B BUILDINGS Another year of positive absorption totaling 69,885 sq. ft. resulted in an impressive 8.5% vacancy rate for this Class B market, with no buildings After suffering negative absorption sub-market. The large Class B segment reporting contiguous space available of for the first time in four years for the was the leader with approximately three 50,000 sq. ft. or larger. The average year ending second quarter 1995,Class B fourths of the 47 buildings reporting quoted net rent rose 12% to$9.09 psf. experienced a dramatic increase in equal or improved occupancy as of Real estate taxes in Class A build- leasing activity by the end of fourth i second quarter 1995. ngs remained the same for second quarter 1995, reporting six-month Two buildings became single tenant quarter 1995 at $4.34 psf, with total absorption of 306,236 sq.ft.This lowered and were removed from the study: the expenses increasing 2.3% to$9.61. Class the vacancy rate by 2.3 percentage points Class A, 349,430 sq. ft. Prudential build B Property taxes reported a slight to 5.7% in just six months. The largest ing at 3033 Campus Drive, and in Class decrease of 2% to $2.45 psf, and total gainers were the 8100 Building, BLN • B, the 338,649 sq. ft. former Prudential expenses increased 3.5% to$7.29 psf. Office Park II, France Place, the building at 3701 Wayzata Boulevard. Normandale Building, and Pentagon This reduced the amount of space in the SOUTHWEST SECTOR Office Park. multi-tenant market by 688,079 sq. ft. Another year of strong absorption With this extremely tight market, Class A buildings added 24,902 sq. decreased the Southwest Sector's the Southwest Sector is primed for a new ft. to the occupied base,with the highest vacancy rate to a record low of 5.1% as office building. Zeller Realty absorption reported in 601 Carlson of fourth quarter 1995. During a six- Corporation, TOLD Development Center. The vacancy rate in Class A month period this sector pulled ahead of Company, United Properties and Opus changed very little from last year's the Minneapolis CBD to become the Corporation all have announced plans. dramatic move from 18.4% in second metro area absorption leader. Active TOLD Development Company hopes to quarter 1993 to 7.7% by the second leasing resulted in 398,339 sq. ft. of break ground within the next year for its quarter of 1994.For second quarter 1995 absorption from second quarter 1995 to proposed six-story 140,000 sq. ft. first it increased just 0.1 percentage point to fourth quarter 1995. This sector has phase and eight-story, 180,000 sq. ft. 7.8%. experienced quite a turnaround since second phase at the northeast corner of With no contiguous space available 1991 when it reported a vacancy rate of I-494 and 35W. of 50,000 sq. ft. or more in this sector's 22%. Three buildings became single Class A buildings, average quoted rental Class A buildings experienced six- tenant and were removed from the study, rates rose significantly with a reported month absorption of 92,103 sq.ft.,lower- raising this sector's occupancy rate. range between $10.50 to $16 psf. The ing its fourth quarter 1995 vacancy rate Cargill now owns and will occupy 12800 average quoted net rent increased nearly to 4%.The majority of the leasing activ- and 12900 Whitewater Drive. $3 psf to$13.33 psf. ity was in the 8400 Tower, Opus Center, Paramount Plaza IV also became single The Class B buildings experienced a Southpoint II,and Southpoint Tower. In tenant. significant vacancy drop of 8.1 percent- this very tight submarket, space is Using fourth quarter data, the Class age points from second quarter 1994 to limited, with One Southwest Crossing A average rental rate increased a total of second quarter 1995 to a vacancy rate of and International Plaza reporting the 20.1% over the past 18-month period to 8.8%. As in Class A,space is tight in the largest blocks available. $13.74 psf. Class B asking rents rose • owners receiving tax Total OFFICE BUILDINGS SOLD IN 1995 expenses droed 9.5% t o$8.21 psf. Class B experienced negative BUILDING NAME SECTOR PRICE PER SO. FT. absorption for the third straight year, 40first Bank Place Mpls.CBD 5153 with a loss of 58,850 sq. ft.This increased 05 Waterford West 5113 the vacancy rate to 20.9%, up 2.1 Minnesota Center** Southwest Undisclosed percentage points from last year's 18.8% Southpoint East Southwest vacancy rate.The largest occupancy gain Health Association Bld .* $83 was in Capital Centre,which leased over 9 Mpls.Out-of-CBD S82 35,000 sq. ft. Last year only six of the 14 Prairie Lakes Office Center Southwest S79 Class B buildings experienced Southdale Office Center Southwest � positive Northland Plaza** S79 absorption. The largest occupancy loss Southwest $76 was in the Metropolitan Building,due to Minnetonka Corporate Center(12301 Bldg.)*** Southwest $73 the loss of Metropolitan Federal Bank Eagan Woods Office Park*** Dakota $72 via its sale to First Bank. France Place Southwest $64 As in Class A, the quoted net rent American Bank St.Paul CBD $47 for Class B buildings also decreased, by Centre Pointe Business Park Northeast $39 6.9% to$6.52 psf. The average property Capital Centre St.Paul CBD $38 tax decreased by 16% to$1.75 psf, while National City Bank M Is.CBD total expenses remained unchanged at p S23 $7.82 psf. Formerly University Office Plaza •'Part o/port/oro sale •'•Part of package sale ©Towle Real Estate Company Class C saw positive absorption of 54,946 sq. ft. for an annual absorption 12.7% in the same 18 month period to of this was due to space leased b rate of 10.1%. This resulted in a drop in $9.29 psf. Average property taxes and state agencies. p y the vacancy rate to 19.2% for second total expenses changed very little during The Class A vacant rate dro ed quarter 1995. Strong leasing activity in this same 18-month period in both considerably, from 27.3% reported in Metro Square was responsible for the Class A and Class B. p majority of the absorption in this second quarter 1994 to 19.4% for second market. The average quoted net rent quarter 1995. rose 21.3% to$5.01 psf. JJVUL CBD Net rental rates in the Class A he St. Paul CBD sub-market range between$6.80 and$12.40 The average real estate tax for segment ran Class C buildings was a reported$.89 psf, continues to struggle, reporting a 20.7% psf, with an average quoted net rent of down less than 1 percent from second vacancy rate,improving just 1.9 percent- $6.87 psf, down 2% from last year. quarter 1994. Total expenses increased age points from second quarter 1994. Real estate taxes also decreased, by by 6.5% to$5.55 psf. Gross rents in downtown St.Paul did not 37.3% to$2.76 psf.,due to many building change much during the past year,unlike the rest of the Twin Cities office market. The demand for space is still relatively VACANCY RATES/R H TES - p LL SECTORS weak,but increasing due to lack of alter- atives. There are many branch offices MINNEAPOLIS/ST.PAUL METROPOLITAN AREA • SECOND QUARTER 1995 of national companies or small business- 35 ©Towle Real Estate Company 's moving into downtown. °/a 32.3 If this market could end the outflow of tenant relocations, it could make 30% :ome measurable progress on rents and is occupancy rate. The continued soft- 25°/, 23'7 less has enabled many building owners 20.7 o significantly reduce their assessed 20% 20.3 alues and real estate taxes. 17.t The Class A segment saw the great- 15% 16.0 :st improvement, absorbing 100,060 _ ,q. ft. This accounted for 85.6% of this / - - - _97 Metro-Average-11:6%-3.0� 10/o _ _ ector's total absorption. The largest _ bsorption in Class A occurred in the 5% - - - _ e 5 tt t 7.2 forth Central Life Tower with over sq. ft. of absorption. Almost all 0 J � ot�a The Renovated segment also expe- rienced negative absorption, of 14,314 VACANCY AND ABSORPTION sq. ft., resulting in a vacancy rate of MINNEAPOLIS/ST.PAUL METROPOLITAN AREA 1993-1995 22.0%. First Trust Center, the Golden Rule Building, Lowertown Business NUMBER TOTAL TOTAL Center and the Army Corps of STUDY OF RENTABLE AMOUNT PERCENT NET • Engineers Centre have the largest blocks MARKET SECTOR DATE BLDGS AREA VACANT VACANT ABSORPTION of contiguous space available. The Anoka County 2nd Qtr.1993 9 382,028 68,297 17.9% 33,457 average net rental rate was reported at 2nd Qtr.1994 9 382,028 66,505 17.4% 1,792 $7.95 psf, up 2.4% from 1994. The 2nd Qtr.1995 9 382,028 65,408 17.1% 1,097 average property tax decreased by Dakota County 2nd Qtr.1993 18 925,868 158,780 17.1% -23,648 18.9% to $1.69 psf. Total expenses also 2nd Qtr.1994 19 1,031 673 198,897 19.3% 65,688 dropped,by 6% to$5.39 psf. 2nd Qtr.1995 18 855,688 203,056 23.7% -3,903 ST. PAUL OUT OF CBD Minneapolis CBD For the second year,this sub-market Class A 2nd Qtr.1993 19 12,701,697 2,005,132 15.8% 870,299 2nd Qtr.1994 19 12,101,691 1,056,999 8.3% 948,133 experienced negative absorption of 2nd Qtr.1995 19 12,676,319 574,050 4.5% 481,574 142,685 sq. ft. The vacancy rate rose 7.1 4th Qtr.1995 19 12,676,319 572,626 4.5% -22,579 percentage points to 32.3%. Class B 2nd Qtr.1993 26 4,571,793 1,050,713 23.0% 112,584 Contributing in part to this high 2nd Qtr.1994 26 4,533,988 911,135 20.1% 100,773 vacancy rate were two buildings that are 2nd Qtr.1995 26 4,562,710 916,062 20.1% 4,764 currently empty: the 1185 Concord 4th Qtr.1995 26 4,562,484 949,304 20.8% -33,242 Building and the former 31V1 building at 800 E. Nlinnehaha, which is now for Class C 2nd Qtr.1993 9 938,211 189,966 20.2% 28,325 lease and added to this second quarter 2nd Qtr.1994 9 938,211 198,076 21.1% -8,110 1995 study. Other buildings with high 2nd Qtr.1995 9 938,211 224,373 23.9% -26,297 vacancy levels include Court 4th Qtr.1995 9 938,277 214,984 22.9% 9,389 International, the Griggs-Nlidway Renovated 2nd Qtr.1993 25 2,770,352 428,266 15.5% -15,781 Building, The Energy Technology 2nd Qtr.1994 26 3,164,059 440,816 13.9% 109,242 Center and Spruce Tree Centre. The 2nd Qtr.1995 25 3,047,092 338,726 11.1% 146,818 combined vacancy rate of the remaining 4th Qtr.1995 25 3,047,092 378,128 12.4% -39,402 13 buildings equals 10.5%. Subtotal 2nd Qtr.1993 79 20,982,119 3,674,077 17.5% 995,416 . Several large blocks of contiguous 2nd Qtr.1994 80 21,338,021 2,608,026 12.2% 1,150,038 space were reported. The Energy 2nd Qtr.1995 79 21,224,398 2,053,211 9.7% 606,859 Technology Center has 125,000 sq. ft. 4th Qtr.1995 79 21,224,172 2,115,042 10.0% -85,834 available, 1185 Concord Building has Minneapolis 2nd Qtr.1993 12 1,079,038 58,991 5.5% 12,164 90,000 sq.ft.,800 E.Nlinnehaha building Out-of-CBD 2nd Qtr.1994 12 1,079,038 139,046 11.9% -80,055 has 60,000 sq.ft. and the Griggs-Midway 2nd Qtr.1995 15 1,338,463 212,132 20.3% 140,655 Building has 50,000 sq. ft. available. Northeast 2nd Qtr.1993 30 1,517,655 226,352 14.9% 90,731 The 106,000 sq. ft. never-finished mall at 2nd Qtr.1994 30 1,517,655 141,642 9.3% 84,710 2145 Ford Parkway was recently completed,named Parkway Professional 2nd Qtr.1995 30 1,496,584 121,440 8.1% 20,177 Building, and will be ready for occupan- Northwest 2nd Qtr.1993 11 866,601 210,607 24.3% -4,060 cy in August. 2nd Qtr.1994 11 866,601 149,479 17.2% 61,128 The quoted net asking rents ranged 2nd Qtr.1995 11 866,212 138,518 16.0% 10,572 between $2.31 to $12.40 psf, with the *4th Quarter Absorption figures reflect a 6 month net absorption 0 Towle Real Estate Company average rent reported at$6.87 psf,down slightly from last year's reported $6.99 psf.The average property tax rose 12.9% absorption for the second quarter 1995 is $8.54 psf, down 3.9% from 1994. The to $2.09 psf, with total expenses increas- 20,777 sq.ft. average property tax also decreased by inc,3.5% to$5.70 psf. From second quarter 1994 to second 2.3% to $3.01 psf, as did total expenses, quarter 1995, two-thirds of the buildings down 6% to$6.34 psf. NORTHEAST SECTOR in this sector reported equal or improved For the fourth straight year, the occupancy. ANOKA COUNTY Northeast Sector reported positive For the second consecutive year,the This market sector experienced absorption,lowering its vacancy rate to a quoted net asking rents decreased slight little change from the year prior, 10 year low of 8.1%. The annual net ly, with the average rent reported at reporting minimal absorption of less e than 1%. The absorption contributed to NUMBER TOTAL TOTAL a slight improvement in the vacancy rate STUDY OF RENTABLE AMOUNT PERCENT NET from 1994. The second quarter 1995 MARKET SECTOR DATE BLDGS AREA VACANT VACANT ABSORPTION vacancy rate is 17.1%, or 0.3 percentage St.Paul CBD point less than in 1994. The annual net �ss A 2nd Qtr.1993 4 1,156,489 303,392 26.2% 35,735 absorption is 1,097 sq. ft.,or 0.3% of the 2nd Qtr.1994 4 1,259,419 344,161 27.3% 62,161 occupied base. 2nd Qtr.1995 4 1,259,419 244,101 19.4% 100,060 The majority of this sub-market's Class B 2nd Qtr.1993 16 1,375,645 420,255 17.7% -188,935 vacant space, as well as the largest 2nd Qtr.1994 16 2,375,645 445,526 18.8% -15,271 contiguous space, is in the Columbia 2nd Qtr.1995 16 2,417,038 504,376 20.9% -58,850 Heights Business Center. The overall Class C 2nd Qtr.1993 7 950,462 442,296 46.5% 84,931 vacancy rate of all other office space in 2nd Qtr.1994 6 744,403 199,800 26.8% 36,437 this sector is 8.4%. 2nd Qtr.1995 6 754,403 144,854 19.2% 54,946 The quoted net asking rents in Renovated 2nd Qtr.1993 11 1,492,107 179,842 12.1% -57,809 Anoka County range between$3.00 and 2nd Qtr.1994 12 1,686,146 382,764 22.7% 8,283 $11.50 psf, with the average rent being 2nd Qtr.1995 12 1,712,839 376,061 22.0% -14,314 reported at$8.89 psf,up 2.4% from 1994. Average real estate taxes decreased Subtotal 2nd Qtr.1993 38 5,974,703 1,345,785 22.5% -126,078 11.9% to $2.53 psf. Total expenses 2nd Qtr.1994 38 6,066,213 1,372,151 22.6% 65,044 remained level at$6.32 psf. 2nd Qtr.1995 38 6,143,699 1,269,393 20.7% 81,842 St.Paul 2nd Qtr.1993 19 1,732,966 402,360 23.2% 83,812 DAKOTA COUNTY Out-of-CBD 2nd Qtr.1994 19 1,732,966 436,493 25.2% -34,133 Following last year's strong positive 2nd Qtr.1995 20 1,793,211 579,178 32.3% -142,685 absorption, Dakota County has taken a Southwest step backward this year with negative (lass A 2nd Qtr.1993 11 4,513,891 485,285 10.8% 182,140 absorption of 3,903 sq. ft. for an annual 2nd Qtr.1994 21 4,513,892 451,031 10.0% 34,254 absorption rate of -0.5%. Its vacancy 2nd Qtr.1995 19 4,386,131 256,733 6.1% 185,228 rate is 23.7% for second quarter 1995, 4th Qtr.1995 19 4,386,131 173,630 4.0% 92,103 the highest it has been in eight years. Class B 2nd Qtr.1993 109 7,966,563 1,062,271 13.3% 823,275 Increasino, vacancy among the • 2nd Qtr.1994 110 8,015,129 609,250 7.6% 501,588 majority of the buildings in this sub- 2nd Qtr.1995 109 7,958,839 635,911 8.0% -14,729 market accounts for this year's negative 4th Qtr.1995 109 7,958,839 451,528 5.7% 306,236 absorption. In fact, out of 12 multi- Subtotal 2nd Qtr.1993 130 12,480,455 1,547,557 12.4% 1,005,415 tenant office buildings in Dakota 2nd Qtr.1994 131 12,529,021 1,060,281 8.5% 535,842 County,10 reflected negative absorption. 2nd Qtr.1995 128 12,344,970 892,644 7.2% 170,499 The high vacancy rate is also due,in 4th Qtr.1995 128 12,344,040 625,158 5.1% 398,339 part, to The Eagan Corporate Center, a Washington 2nd Qtr.1993 4 280,877 21,300 7.6% 8,000 106,000 sq. ft.former single tenant office County 2nd Qtr.1994 4 280,877 8,166 2.9% 13,134 building that was added to the survey 2nd Qtr.1995 4 280,877 8,438 3.0% -272 last year and remains vacant. Since it represents over half of the total vacancy, West if excluded from the analysis, the Class 2nd Qtr.1993 8 1,813,686 333,155 18.4% 29,218 vacancy rate of the sector is 13%. 2nd Qtr.1994 8 1,813,686 139,647 7.1% 193,508 In addition, this year the 180,000 2nd Qtr.1995 7 1,464,156 114,745 7.8% 24,902 sq. ft. VISA Building became single Class B 2nd Qtr.1993 60 3,864,965 413,714 10.7% 193,034 tenant and was removed from the survey. 2nd Qtr.1994 61 4,103,434 711,858 16.9% 40,325 Average asking rents managed to 2nd Qtr.1995 60 3,876,971 340,412 8.8% 44,983 increase, rising 4.2% to $9.61 psf. Subtotal 2nd Qtr.1993 68 5,678,651 746,869 13.2% 221,252 Real estate taxes remained the same at 2nd Qtr.1994 69 6,017,120 851,505 14.2% 233,833 $2.83 psf,while total operating expenses 2nd Qtr.1995 67 5,341,227 455,157 8.5% 69,885 decreased by 3.0% to$6.62 psf. Metropolitan 2nd Qtr.1993 418 51,900,961 8,460,975 16.3% 2,297,411 WASHINGTON COUNTY Total 2nd Qtr.1994 422 52,841,213 7,032,291 13.3% 2,097,021 2nd Qtr.1995 419 52,067,357 6,058,575 11.6% 955,326 Very little change occurred in the '41h Quarter Absorption figures reflect a 6 month net absorption (9)Towle Real Estate Company vacancy levels in this sector, which is • made up of only four multi-tenant office buildings. The vacancy rate remains ��1'1 impress at 3.0%,down 0.1 percentage point from second quarter 1994. The annual absorption was barely negative with an annual absorption rate of -0.1°/a, or negative 272 sq.ft. As the State's fastest-growing county, Washington County is ripe for development. State Farm Insurance is - - constructing a new headquarters in Woodbury,and several large commercial lots are available with office zoning. :The dramatic change in this market was the 15.6% rise in the average quoted net rent to$9.44 psf. After experiencing a 10.2% drop in real estate taxes the year prior,property taxes ticked up slightly to r $1.91 psf. Total expenses rose 3.4% to $5.84 psf. ♦ TOLD Development's proposed office project in the Southwest Sector proposals to work up to market rates. Minneagaso site, the Conservatory, the MARKET Then, many upgraded tenants (who Ritz block, the Powers site and OUTLOOK moved up to Class A from Class B) will Metropolitan Centre Phase II. In the be forced back to Class B or take"as is" Southwest Sector, TOLD Development With the tightest office market ever Class A space with a less aggressive Company recently announced plans for reported by the Towle Report,we do not owner. As building values climb, real a two-phase, two-office building devel- expect absorption to continue at the estate taxes will rise, increasing tenants' opment. And in the West Sector, MEPC rates we saw in 1993 and 1994. However, operating expenses. continues to pre-lease its proposed the office market recovery will continue, On the subject of new office devel- 235,000 sq.ft.office tower. fed by continued job growth; rising opment, several points must be evaluat- The return of lenders to the real rental rates; no new space under ed even though many real estate estate market is also fueling the construction; and availability of capital observers feel the metro area is construc- construction talk. This talk gives rise to (debt and equity). tion-ready today.First,as long as compa- a debate over what to expect, build-to Tenants should plan ahead for nies see the value of buying versus build- suit for a single tenant or multi-tenant further market tightening as the market ing, we may not see new development office buildings? rebounds. Landlords want to keep big right away in the office market.A strong Whatever the result, few in the blocks of space available for larger indicator to look for is when companies industry are concerned about a repeat of tenants and expanding companies. stop buying. the disastrous 1980's cycle of 100% Small-tenant leases are likely a be Next, a building can't be started speculative office development. The renewed on a short term basis, or have until the pre-Leasing is at a rental rate Minneapolis-St. Paul metro area's office relocation clauses. Therefore, tenants that will support new construction. Net market has rebounded and is expected to need to be flexible and plan advance rents will have to be in the$17-$18 range remain healthy in the coming year. in suburban Class A, and $19-$20 in of their lease renewals. They may also downtown Class A.Though we're seeing consider alternate plans of going increases, as witnessed by the dramatic outside the Minneapolis CBD, Southwest and West suburbs. As space rise during the last 18-month period, it becomes more scarce and expensive in could take one to two years in the Southwest and West sectors and two to downtown Minneapolis and the suburbs, for example, St. Paul may benefit. three years in downtown Minneapolis. Thus, it appears a new office build- Another solution is to turn toward the in will be feasible in about a three year reuse of retail or entertainment space for g y period. This coincides with the amount office use. of time it would take to secure new Tenants must also be prepared for leases, design and build the structure. rising rents and operating expenses, especially as their leases with rock- Therefore we should hear an announce- ment this year about plans to build a new bottom rents expire. In most situations, Class A office tower.Possible downtown tenants will find stepped-rent-renewal development locations include the • k EJRKLAF ® An increasing demand for space and decreasing supply of space has set in motion new development plans totaling over 7 million square feet at last count. MARKET 10.9% in 1994 to an all-time low of 7.9% INDUSTRIAL MARKET HIGHLIGHTS for third quarter 1995. OVERVIEW INDUSTRIAL the BULK market absorbed ♦ Overall vacancy rate dropped to 366,052 sq. ft. and its metropolitan Three years of strong annual an eleven-year low of 7.1% vacancy rate declined slightly,from 7.8% absorption has resulted in record-low in 1994 to 7.1% for third quarter 1995. vacancy rates for nearly every sector of ♦ Annual absorption of 1.7 million Considering its peak vacancy rate in the industrial market. The combined sq.ft. reported for Metro Area 1992 was 19.6%, the BULK market has metropolitan total vacancy rate declined greatly improved. to an eleven-year low of 7.1%. This ♦ Developers propose new projects of iVletro-average asking rents in- steady absorption has lowered the more than seven million sq.ft. creased slightly in virtually all product overall vacancy rate an impressive 11.6 types. In the BULK market, office rents entage points from its peak of 18.7% ♦ Office tiY'arehouse is healthiest rose 4.2% to $6.89 psf and warehouse 990, product overall The industrial market continues to rents increased 6.5% to $3.40 psf. experience a tremendous level of activi- and 2.1 million sq. ft. in 1993. The Twin tv. The increasing demand for space and Cities'largest sectors,the Southwest and POTENTIAL DEVELOPMENT the decreasing supply of space has gener West, continued to dominate the BY SECTOR aced over seven million sq. ft. of marketplace absorption. The Southwest proposed industrial developments. The absorbed 591,000 sq. ft., the West proposed new development includes absorbed 381,000 sq. ft., and the Dakota ScoTT COUNTY 60,000 SF build-to-suit projects for sale and for Countv Sector was close behind with lease, as well as speculative multi-tenant 360,000 sq. ft. of annual absorption. WASHINGTON COUNTY 317,500 SF projects. More specifically,518,000 sq. ft. An overall review of the multi- CARVER COUNTY 500,000 SF of multi-tenant projects were completed tenant industrial market revealed the this past year and added to the Towle O/W market was the strongest NORTHWEST 520,000 SF Report survey. performer with 837,054 sq. ft. absorbed. Industrial building acquisitions are This resulted in an improvement in the SOUTHWEST 591,000 SF continuing at a healthy pace. Over the O/W metropolitan vacancy rate from o ° ANOKA COUNTY 638,000 SF past year, AMB Institutional Realty 9.2% in 1994 to 6.5%' .5/° for third Advisors and First Industrial Realty quarter 1995. NORTHEAST 666,000 SF Trust Inc. both added properties to their Although the OS/BC market has local multi-million square foot portfo- lagged behind the other markets in its ' "' lios. Additional industrial transactions recovery, its absorption of 581,760 sq. ft. were completed by several other institu p 'laced it a close second to the O/W 1,327,000 SIF tional buyers and local investors. market. Far from its vacancy-rate peak DAKOTA COUNTY , Net absorption for the combined of 16.4% in 1992, this year's strong metropolitan area totaled 1.7 million sq. absorption resulted in a decrease in the 0 .5 1 1.25 1.5 1.75 �mpared to 2.1 million sq. ft. in 1994 OS/BC metropolitan vacancy rate from TOTAe RDEVELOPMENT PLANNED=7.4 MILLION 50.FT. III Average asking rents in the OS/BC market remained stable at $7.93 psf for office and$4.02 psf for warehouse.In the ¢ s;. *r O O/W market,office rents increased 3.9% to $7.10 psf and warehouse rents rose 3.4% to $3.62 psf. OFFICE SHOWROOM/ - BUSINESS CENTER ANOKA COUNTY An impressive 4% vacancy rate was Newly constructed Lone Oak Commerce Center in Eagan reported in Anoka County due to annual absorption of 23,638 sq. ft. for third Roseville, this new OS/BC facility is occurred in Aurora Business Center, quarter 1995.The majority of the leasing approximately one-half occupied. Shingle Creek Plaza II and Wedgewood activity occurred in Fridley at River Annual absorption of 86,449 sq. ft. Commerce Center IIl. Road Business Center South and lowered the Northeast Sector's vacancy Average quoted net rental rates in University Business Center. No space of rate from 9.2% to 7.8% for the third the Northwest Sector remained the same 20,000 sq. ft. or larger is currently avail- quarter 1995. at$7.41 psf for office space and$3.86 psf able in this submarket. Although there was a slight reduc- for warehouse space. tion in average quoted net rental rates, DAKOTA COUNTY the Northeast Sector continues to be the ST. PAUL Dakota County experienced a highest in the Twin Cities metropolitan Another year of significant absorp- dramatic decrease in its vacancy rate, market,reporting$8.43 psf and$4.30 psf tion resulted in a 4.2% vacancy rate for dropping 5.7 percentage points to 9.4% for office and warehouse respectively. St. Paul's OS/BC submarket. Annual for third quarter 1995. Significant absorption of 47,266 sq. ft. was reported annual absorption of 143,811 sq. ft. was NORTHWEST for third quarter 1995. reported. Since its peak at 20.7% in Leasing activity in several buildings None of the buildings in this 1992, the vacancy rate has fallen a total in the Northwest Sector accounted for submarket have contiguous space of of 11.7 percentage points in three years the drop of 5 percentage points in the 20,000 sq. ft. available. And last year's and a total of 282,000 sq. ft. has been vacancy rate to 7.1% for third quarter new addition, Westgate Business Center absorbed. 1995. A total of 51,051 sq. ft. was III is now 100% occupied. absorbed, the majority of which MINNEAPOLIS Poor occupancy continues to plague the Minneapolis OS/BC submarket, VACANCY RATES which contains only three buildings MINNEAPOLIS/ST. PAUL SECTORS-THIRD QUARTER 1995 totaling 290,000 sq. ft. Negative absorp ©To.ie Real Estate Company tion of 5,000 sq.ft.increased the vacancy 30% rate to 24.4% for third quarter 1995.This marks the fifth consecutive year of 25% vacancy levels above 20%. Currently, there is contiguous space 20% of 40,000 sq. ft. available at Hennepin Business Center. 15% Op l=t6.3% OS/BC=1.9% NORTHEAST l0°%° euut=Lt% Ryan Construction completed phase two (75,000 sq. ft.) of Twin Lakes 5°%° Corporate Center bringing this submarket's total to 26 buildings 0 g 1988 1989 1990 1991 1992 1993 1994 1995 containing 1,352,518 sq. ft. Located in � OS/BC OFFICE WAREHOUSE BULK WAREHOUSE • SOUTHWEST of leasing activity occurred in Alpha i A third consecutive year of very Office Tech Center; Bloomington strong absorption for the Southwest Business Park Center; Eden Park Sector has lowered its vacancy rate to Business Center; Shady Oak Heitman °°. Annual absorption of 163,246 sq. Center; and Southwest Crossing 1-4. as reported for third quarter 1995. Average quoted net rents rose just T over 5.5 million sq. ft. of total 1% for both office and warehouse to rentable area in this submarket, condi- $7.95 psf and $4.03 psf respectively. tions have become very tight. Only four buildings currently have contiguous WEST ♦ Annapolis Business Party new OS/BC in Plymouth space available of 20,000 sq. ft. or more. Caliber Development recently Technology Park I11 (56,928 sq. ft.) completed Annapolis Business Center in This contributed to the annual absorp- became single tenant and was removed Plymouth and reported that the 35,000 tion of 71,299 sq. ft., which lowered the from the survey this year. The majority sq. ft. OS/BC facility is 100% occupied. `Vest Sector's vacancy rate from 9.3% in third quarter 1994 to 7.9% in third quarter 1995. Tight space conditions STATED NET RENTAL RATES AND EXPENSES continue for this submarket, with only 3 MINNEAPOLIS/ST.PAUL METROPOLITAN AREA-THIRD QUARTER 1995(PSF) of 53 buildings reporting available contiguous space of 20,000 sq. ft. or MARKET NET RENTAL RANGE AVERAGE NET RENT REAL ESTATE TOTAL more. SECTOR OFFICE WHSE OFFICE WHSE TAXES EXPENSES Average quoted net rents remain OS/BC flat at$8.36 psf for office space and$4.13 Anoka County $7.00-8.00 $3.50-4.00 $1.60 $3.80 $1.31 $2.63 psf for warehouse space. Dakota County 5.00-9.00 3.00-5.00 $1.13 $3.90 $1.78 $2.82 Minneapolis 8.00-8.50 4.25-4.50 $7.75 54.33 51.65 $2.14 OFFICE Northeast 7.00-10.00 3.50-5.00 $8.43 S4.30 51.96 S2.87 Northwest 5.25-9.25 3.50-4.75 $7.41 53.86 $1.76 $2.80 "`�� WAREHOUSE Southwest 6.00-10.50 3.00-6.00 $1.95 $4.03 $2.09 $3.12 St.Paul 7.00-9.75 3.60-4.75 $8.31 $4.06 $2.50 $3.45 DAKOTA COUNTY 7.25-10.00 3.45-5.00 $8.36 $4.13 52.12 $3.60 Two new Opus developments in Eagan were completed and added to the Metro Averages 55.00-10.50 S3.00-6.00 57.94 $4.05 $1.89 53.00 survey this year. Trapp Road Business 0/W Center in the Eagandale Center Dakota County $6.00-8.00 $3.00-4.00 57.06 $3.60 $1.24 $1.86 Business Park is 100% leased, adding Minneapolis 5.00-8.00 3.00-4.00 $6.57 S3.45 $1.75 S2.13 100,000 sq. ft. to the occupied base. Northeast 5.00-9.00 3.25-5.50 $7.10 S3.75 $1.35 $1.67 Construction was also completed on Northwest 5.00-9-00 2.40-4.50 $6.86 $3.41 $1.59 $2.25 Lone Oak Commerce Center with half of its 134,000 sq. ft. leased. The addition Scott County 7.00-8.00 3.50-4.50 $7.56 $3.88 $1.96 $2.61 to the survey of Corporate Center A in Southwest 5.50-9.50 3.00-4.50 $6.95 $3.54 $1.51 52.32 Eagan also added 96,000 sq. ft. to the St.Paul 6.25-9.00 3.25-4.50 $7.51 $3.75 $1.71 $1.97 survey base. The vacancy levels related West 6.00-9.00 3.00-4.50 $1.20 $3.54 51.64 $2.47 to these added buildings caused the Metro Averages $5.00-9.50 S2.40-5.50 $7.10 S3.62 $1.59 $2.16 overall vacancy rate in Dakota County to increase to 12.6%, despite reported BULK positive absorption of 153,047 sq. ft. for Dakota County $6.25-8.00 $2.25-4.00 $6.19 $3.21 $0.89 $1.42 third quarter 1995. Minneapolis 5.00-7.00 2.35-3.50 56.38 53.11 $1.08 $1.59 Northeast 5.00-8.00 2.45-4.36 $1.02 $3.50 $1.34 $1.75 MINNEAPOLIS Northwest 6.00-7.90 2.75-3.75 $6.85 $3.31 51.23 $1.12 Though modest, the annual absorp- Southwest 6.25-6.50 3.25-3.50 $6.50 $3.42 $1.39 $1.10 tion of 40,186 sq. ft. in the Minneapolis St.Paul 7.00-8.25 3.25-4.25 $1.63 S3.62 $1.21 $1,41 O/W submarket was enough to drop the West 6.00-9.00 3.00-4.65 $7.08 $3.59 $1.14 $1.75 vacancy rate by 5.1 percentage points to 4.3% for third quarter 1995. This is the Metro Averages $5.00-9.00 $3.25-4.65 $6.89 53.40 $1.19 51.62 lowest vacancy rate this sector has seen • ©Towle Real Estate Company since the Towle Report began tracking it eleven years ago! Strong leasing activity 1 at 2530 & 2550 Kasota Avenue and Broadway Business Center VI was VACANCY AND ABSORPTION responsible for the majority of this MINNEAPOLIS/ST.PAUL METROPOLITAN AREA 1993-1995 absorption. Presently, only three properties NUMBER TOTAL TOTAL AMOUNT VACANCY NET • have 10,000 sq. ft. contiguous blocks of MARKET SECTOR STUDY DATE OF BLDGS RENTABLE AREA VACANT RATE ABSORPTION space available. OFFICE SHOWROOM/BUSINESS CENTER MARKET Anoka County 3rd Otr 1993 9 600,146 40,810 6.8% 19,248 NORTHEAST 3rd Qtr 1994 9 600,146 47,430 7.9% (6,620) The Northeast Sector reported 3rd Otr 1995 9 600,146 23,792 4.0% 23,638 annual absorption of 89,685 sq. ft., Dakota County 3rd Qtr 1993 52 2,531,155 418,408 16.5% 101,189 decreasing its vacancy rate to an eleven- 3rd Qtr 1994 52 2,531,155 381,010 15.1% 37,398 year record low of 5.7%. Over the past 3rd Qtr 1995 52 2,531,275 237,319 9.4% 143,811 four years the vacancy rate has improved Minneapolis 3rd Qtr 1993 4 289,911 91,121 31.4% (6,621) by 10 percentage points (from 15.7% in 3rd Qtr 1994 4 289,911 65,786 22.7% 25,335 1992), even with the addition of six new 3rd Qtr 1995 4 289,911 70,786 24.4% (5,000) buildings in 1994 containing a total of Northeast 3rd Qtr 1993 23 1,155,506 64,860 5.6% 4,196 285,000 sq. ft. 3rd Qtr 1994 25 1,277,032 117,295 9.20 69,091 3rd Qtr 1995 26 1,351,518 105,846 7.8% 86,449 NORTHWEST Northwest 3rd Qtr 1993 14 932,890 87,716 9.4% 43,544 3rd Qtr 1994 14 1,022,465 123,345 12.1% 53,956 Even though the Northwest Sector 3rd Qtr 1995 14 1,019,877 72,302 7.1% 51,051 reported positive absorption of 42,731 St.Paul 3rd Qtr 1993 13 928,098 160,141 17.3% (4,051) sq. ft., its vacancy rate rose one 3rd Qtr 1994 14 1,023,285 90,243 8.8% 165,085 percentage point to 8.1%. This was due, 3rd Qtr 1995 14 1,022,538 42,977 4.2% 47,266 in part, to the addition of CSM Southwest 3rd Qtr 1993 117 5,544,344 754,755 13.6% 211,393 Corporation's Boone Avenue Business 3rd Qtr 1994 117 5,565,794 563,777 10.1% 212,428 Center Phase II. Of this newly 3rd Qtr 1995 116 5,504,716 415,862 7.6% 163,246 constructed 73,000 sq.ft.building,52,000 West 3rd Qtr 1993 52 2,685,169 382,896 14.3% 38,808 sq. ft.is available. 3rd Qtr 1994 52 2,685,169 250,510 9.3% 132,386 The recovery of this submarket is 3rd Qtr 1995 51 2,720,169 214,211 7.9% 71,299 quite strong, considering that just four Metropolitan 3rd Qtr 1993 284 14,667,219 2,000,717 13.6% 408,306 • years ago the vacancy rate was 22%. Totals 3rd Qtr 1994 287 14,994,957 1,639,396 10.9% 689,059 Average quoted net asking rents for 3rd Qtr 1995 287 15,041,150 1,183,095 7.9% 581,760 the Northwest Sector increased slightly. ©Towle Real Estate Company Office rates rose 2.7% to $6.86 psf and warehouse rates increased 1.7% to $4.47 psf. ST. PAUL reporting available contiguous blocks of Strong absorption of 105,190 sq. ft. space of 20,000 sq. ft. or more, and no SCOTT COUNTY was reported in St.Paul for third quarter developments presently under construc- 1995, reducing its vacancy rate to 7.4%. tion, tenant options in this sector are In its second year of inclusion in the diminishin° However,more options will Towle Report survey, Scott County The major contributing factor for its b p 21.3% absorption rate was the addition become available within the next two reported annual absorption of 18,467 ears if the nearly 600,000 square feet of sq. ft., lowering its vacancy rate by 8.4 of the recently completed 101,000 sq. ft. Y Y q percentage points s vacancy Westgate Business Center IV, of which projects proposed in the Southwest Presently,this submarket consists of 67% is leased. Sector are completed. four O/W buildings totaling 221,107 WEST sq.ft.,of which only 18,750 sq.ft.is avail- SOUTHWEST able for lease.With little space available, Very strong absorption of 244,451 Extremely tight describes the the demand for new development is sq. ft. was reported by the Twin Cities condition of the West Sector's O/W increasing. Plus, the recent opening of largest O/W submarket, reducing its market with its record-low vacancy rate the Highway 169 bridge across the vacancy rate by 4.6 percentage points to of 3.6% for third quarter 1995. It has Minnesota River makes the communi- an impressive 5.7%. experienced a very strong recovery, ties of Shakopee,Savage and Prior Lake Average quoted net rental rates considering that a vacancy rate of 27.3% more accessible, further fueling this increased 2% for both office and ware- was recorded in 1992. Significant annual demand. house space, to $6.95 psf and $3.54 psf absorption of 143,297 sq. ft. was respectively. reported, decreasing the vacancy rate With only three of the 86 buildings from 8.5% last year. Deleted from the survey this year, NUMBER TOTAL TOTAL AMOUNT VACANCY NET because it became single tenant, was the MARKET SECTOR STUDY DATE OF BLDGS RENTABLE AREA VACANT RATE ABSORPTION 40,000 sq. ft. KB Development II build- ing in Plymouth. Substantial proposed •Dakota County 3rd Otr 1993 26 1,616,703 191,054 11.8% 142,089 development for the West Sector may 3rd Otr 1994 26 1,616,703 154,369 9.5% 36,685 result in more than 1 million square feet 3rd Otr 1995 28 1,957,603 245,723 12.6% 153,047 of new O/W facilities. Minneapolis 3rd Qtr 1993 13 647,757 68,147 10.5% (15,833) 3rd Otr 1994 14 781,221 14,364 9.4% 133,148 Rental rates for the West Sector remained the same for warehouse space 3rd Qtr 1995 14 787,757 34,178 4.3% 40,186 Northeast 3rd Qtr 1993 53 3,081,596 466,709 15.1% 81,925 at$3.54 psf,but rose by 3.5% in office to 3rd Otr 1994 59 3,367,379 282,895 8.4% 469,597 $7.20 psf. 3rd Otr 1995 59 3,367,379 193,410 5.7% 89,685 Northwest 3rd Otr 1993 36 2,081,251 257,640 12.4% 197,817 3rd Qtr 1994 37 2,235,311 165,131 7.4% 246,569 \\ BULK 3rd Qtr 1995 38 2,413,811 195,400 8.1% 42,731 Scott(aunty 3rd Otr 1993 n/o n/a n/a n/o n/a �� WAREHOUSE 3rd Qtr 1994 4 221,240 37,350 16.9% n/a 3rd Otr 1995 4 221,107 18,750 8.5% 18,467 DAKOTA COUNTY St.Paul 3rd Otr 1993 10 545,319 71,700 13.1% 158,094 After suffering negative absorption 3rd Qtr 1994 10 545,319 51,890 9.5% 19,810 in 1994, the Dakota Countv BULK 3rd Otr 1995 11 646,319 47,700 7.4% 105,190 market reported absorption of 63,206 Southwest 3rd Qtr 1993 86 5,275,817 522,629 9.9% 69,352 sq. ft. for the third quarter of 1995, 3rd Qtr 1994 86 5,254,403 541,413 10.3% (40,198) lowering its vacancy rate 3.4 percentage 3rd Qtr 1995 86 5,234,601 296,962 5.1% 244,451 points to 11.8%. A look back to its 1992 West 3rd Qtr 1993 43 2,883,685 610,980 21.2% 262,314 vacancy rate of 45.9% shows a substan- 3rd Qtr 1994 43 2,884,685 245,727 8.5% 366,253 tial recovery! The majority of the 3rd Qtr 1995 42 2,843,694 102,341 3.6% 143,297 vacancy exists in one Inver Grove Metropolitan 3rd Qtr 1993 267 16,132,128 2,188,859 13.6% 895,758 Totals 3rd Otr 1994 279 16,912,262 1,553,139 9.2% 1,231,964 Heights building. The remaining six 3rd Qtr 1995 282 11,412,211 1,134,464 6.5% 831,054 buildings in this submarket of 1.8 million sq.ft.report an extremely low combined OLK WAREHOUSE MARKET vacancy rate of 1.1%. Dakota(ounty 3rd Qtr 1993 7 1,799,760 257,440 14.3% 181,232 3rd Otr 1994 7 1,799,760 272,800 15.2% (15,360) MINNEAPOLIS 3rd Otr 1995 7 1,778,191 209,594 11.8% 63,206 The Minneapolis BULK market Minneapolis 3rd Qtr 1993 6 961,082 55,680 5.8% 100,309 reported a setback for third quarter 1995 3rd Qtr 1994 7 1,033,082 70,000 6.8% 57,680 with negative absorption of 50,200 sq. ft. 3rd Qtr 1995 7 1,031,082 120,200 11.7% (50,200) This raised its vacancy rate by 4.9 Northeast 3rd Qtr 1993 6 1,542,500 0 0.0% 19,000 percentage points to 11.7%.Of the seven 3rd Qtr 1994 6 1,542,500 10,000 0.6% (10,000) buildings in this submarket, three 3rd Qtr 1995 6 1,542,500 79,000 5.1% (69,000) experienced negative absorption, Northwest 3rd Qtr 1993 11 1,738,161 192,922 11.1% 186,478 resulting in an overall absorption rate of 3rd Qtr 1994 11 1,738,261 44,168 2.5% 148,754 -5.2%. The Schoening Group's BULK 3rd Qtr 1995 11 1,737,261 5,000 0.3% 39,168 facility at 3939 East 46th Street that was St.Paul 3rd Otr 1993 14 1,565,000 80,000 5.1% 209,715 added to this survey last year is now 3rd Qtr 1994 14 1,565,000 150,703 9.6% (70,703) 100% occupied. 3rd Qtr 1995 14 1,565 000 153,000 9.8% (2,297) Southwest 3rd Qtr 1993 9 1,161,112 150,170 12.9% (498) NORTHEAST 3rd Otr 1994 9 1,161,122 149,430 12.9% 740 3rd Otr 1995 10 1,264,522 69,430 5.5% 183,400 Following three years of extremely West 3rd Qtr 1992 13 1,429,555 208,160 14.6% 120,420 tight space availability in the Northeast 3rd Otr 1993 13 1,429,555 205,358 7.4% 102,802 Sector, this submarket experienced 3rd Qtr 1995 14 1,638,087 114,115 7.0% 201,715 negative absorption of 69,000 sq. ft. for Metropolitan 3rd Otr 1993 66 10,197,180 944,372 9.3% 816,656 the third quarter 1995. This raised its Totals 3rd Qtr 1994 67 10,269,280 802,459 7.8% 213,913 vacancy rate to 5.1%, which is a signifi- 3rd Qtr 1995 69 10,556,643 750,339 7.1% 366,051 cant jump up from third quarter 1994s • ©Towle Real Estate Company reported vacancy rate of.6%. NIP All of its vacancy is located in Mounds View Business Park G. No new BULK NUMBER TOTAL TOTAL AMOUNT VACANCY NET warehouse development is scheduled for MARKET SECTOR STUDY DATE OF BLDGS RENTABLE AREA VACANT RATE ABSORPTION this sector in the next year; however COMBINED OS/BC,0/W,BULK MARKETS there are high-flex/high-ceiling buildings Anoka County 3rd Qtr 1993 9 600,146 40,810 6.8% 19,248 63 238 proposed as part of the City of 3rd Qtr 1994 9 600,146 41,430 1.9%3rd Qtr 1995 9 600,146 23,792 , ) • Roseville's I-35W Gateway project, 41.0%o 23,63 where a developer has yet to be named Dakota County 3rd Qtr 1993 85 5,941,618 866,902 14.6,a 424,510 for the 34-acre site. 3rd Otr 1994 85 5,941,618 808,179 13.6% 58,123 3rd Otr 1995 87 6,267,069 692,636 11.1% 360,064 NORTHWEST Minneapolis 3rd Otr 1993 23 1,898,750 214,948 11.3% 77,855 3rd Qtr 1994 25 2,110,215 210,150 10.0% 216,263 With only 5,000 sq. ft. of space 3rd Otr 1995 25 2,108,750 225,164 10.7% (15,014) presently available in this entire submar- Northeast 3rd Otr 1993 82 5,119,602 531,569 9.2% 105,721 ket of 1.7 million sq. ft., a record-break- 3rd Otr 1994 90 6,186,911 410,190 6.6% 528,688 ing low vacancy rate of .3% was report- 3rd Otr 1995 91 6,262,397 378,256 6.0% 107,134 ed by the Northwest Sector BULK Northwest 3rd Otr 1993 61 4,752,402 538,288 11.3% 427,839 market for third quarter 1995. A total of 3rd Otr 1994 62 4,996,037 332,644 6.7% 449,279 39,168 sq. ft. was absorbed at an absorp- 3rd Qtr 1995 63 5,170,949 272,702 5.3% 132,950 tion rate of 2.3%.These tight conditions Scott County 3rd Otr 1993 n/a n/a n/a n/a n/a make this submarket ripe for develop- 31d Otr 1994 4 221,240 37,350 16.9% n/a ment, however very little is currently 31d Qtr 1995 4 221,240 18,750 8.5% 18,467 planned. St.Paul 3rd Qtr 1993 37 3,038,417 311,841 10.3% 363,758 Average quoted net rents rose by 3rd Otr 1994 38 3,133,604 292,836 9.3% 114,192 3% for warehouse space to $3.31 psf, 3rd Otr 1995 39 3,213,857 243,670 7.6% 150,159 however while office rates remained the Southwest 3rd Qtr 1993 212 11,981,283 1,427,559 11.9% 280,247 same at$6.85 psf. 3rd Otr 1994 212 11,981,319 1,254,620 10.5% 172,970 3rd Qtr 1995 212 12,003,845 782,254 6.5% 591,097 SOUTHWEST West 3rd Otr 1993 108 6,998,409 1,202,036 17.2% 421,542 3rd Qtr 1994 108 6,999,409 601,595 8.6% 601,441 Due to significant leasing activity in 3rd Qtr 1995 108 1,166,950 430,667 6.0% 381,371 the 10901 Hampshire building in Metropolitan 3rd Otr 1993 617 40,996,627 5,133,948 12.6% 2,120,720 Bloomington and the addition to this Totals 3rd Otr 1994 633 40,176,499 3,994,994 9.5% 2,134,936 • survey of the fully occupied 7400 Bush 3rd Otr 1995 639 43,070,070 3,067,891 7.1% 1,784,866 Lake Road building, the Southwest ©Towle Real Estate Company Sector reported strong absorption of 183,400 sq. ft. This lowered its vacancy rate from 12.9% to 5.5% for third quarter 1995, the lowest it has seen in eleven years. NET ABSORPTION Rental rates in the Southwest 1.3% Sector rose 1.8% for office space to$6.50 1995 MINNEAPOLIS/ST. PAUL METRO AREA psf and 3.6% for warehouse space to ANNUAL NET $3.42 psf. SECTOR ABSORPTION (SQ.FT.) g � t 3k�'Z ST. PAUL ANOKA COUNTY 23,638 DAKOTA COUNTY 360,064 k 23 3% _ Little change was experienced in the St. Paul BULK market with negative MINNEAPOLIS (15,014) absorption of 2,297 sq. ft. raising its S NORTHEAST 101,134 vacancy rate slightly from 9.6% in 1994 NORTHWEST 132,950 to 9.8% for third quarter 1995. Though ST.PAUL 150,159 1% in previous years St. Paul has been a SCOTT COUNTY 18,467 fairly tight market,there is BULK space SOUTHWEST 591,097 now available in Midway Industrial Park WEST 416,371 6611m: --.Mj and in the North Prior industrial area. TOTAL 1,784,866 %OF TOTAL INDUSTRIAL ABSORPTION ©Tm le Real Estate Company • equipment expansions. Over the past three years, over six million sq. ft. of industrial space was y�r r absorbed, bringing the inventory of .F _ available space in line with the expand- ing demand. The present conditions, where supply and demand for industrial space are in balance, will benefit land- lords. Owners of well located,functional industrial buildings will enjoy high occu- pancies, rising rents, increasing cash c .r_ flows, and the opportunity to sell at lam attractive prices. As presented in our previous - outlook, after years of relatively static ♦ Opus Corporation's Elm Creek Commerce Center in Champlin asking rents, the industrial markets are now experiencing rental rate increases. WEST facility,70,000 sq.ft.has been pre-leased. Since there are no rental concessions, h d i The West Sector experienced the the rate increases represent real upside. Continuing its three-year recovery, p Additionally, the higher construction the West Sector doubled the strong largest increases in average quoted net rental rates. Offices ace rose 5.2% to costs associated with the new develop- absorption it reported last year with an P ments will keep upward pressure on impressive 201,775 sq. ft., or 15.2% of $7.07 psf and warehouse rents increased b 4% to$3.59 sf. rental rates. the occupied base absorbed over the past Y P The substantial amount of proposed twelve months. This resulted in a development has led to a significant vacancy rate of 7.0%. Since 1992, when rebound in industrial land prices. Well- this submarket's vacancy rate was 23%, MARKET located industrial sites are considered nearly 425,000 sq. ft. of space has been �\� very marketable and thus very valuable. absorbed! ` OUTLOOK The increased marketability of industrial Contributing to this year's absorp- land represents another sign the market Oarne was the addition to the survey of the The industrial markets have expert- is recovering.As the amount of available 532 sq.ft. building at 1000 Berkshire enced another year of strong recovery industrial land diminishes, prices will in Plymouth, reporting a vacancy and many experts believe we have fully continue to rise. The rise in prices will of 80,000 sq. ft. rebounded from the prior difficulties. push the demand for sites to new loca- With these tight conditions and Continued market success will be depen- lions. rising demand for space, new develop- dent on the general business economy One new location is Scott County ment is occurring. MEPC's Golden Hills and the balance of supply and demand and Shakopee, primarily due to the Business Park Phase I in Golden Valley for industrial space. Both the national recent opening of the Highway 169 is under construction and scheduled for and local economy are stable, resulting bridge crossing the Minnesota River. completion in March 1995.Of the 90,000 in profitable company operations, employment rowth, and plant and Another location is Dakota County, sq. ft. office manufacturing/distribution g P given the availability of land,close prox- imity to the airport, and equidistance between downtown Minneapolis and St. Paul. A third location is Washington County and Woodbury along I-94, espe- cially given the tremendous population growth in the area.Finally,the West and Northwest Sectors will continue to see new development,a result of the existing --- - industrial base and freeway systems. After years of languishing perfor- mance,the OS/BC market appears to be frebounding. The recovery of this --' product type can be traced to the posi- tive trends impacting the general office market. With its high percent of office finish space, the OS/BC product MfPC Corporation's Golden Hills Business Park in Golden Valley .\11\Q- OVER 7 MILLION SQ. FL OF POTENTIAL PROJECTS (COMBINATION OF MULTI-TENANT/SINGLE USER AND SPE(ULATIVE/PRE-LEASED DEVELOPMENT) PROJECT PRODUCT - NAME TYPE , SO.FT. DEVELOPER CITY • Air lake Industrial Park Varies 500 acres Aidake Development Lakeville Apollo Industrial Center O/W 168,000 sf RL Johnson Co- Eagan ♦ Example of new hybrid design,Industrial Equities' Arlington-Jackson Industrial Center Varies 350,000 sf St.Paul Port Authority St-Paul Interstate Crossings in Eagan Bass Creek Business Center O/W 89,000 sf Opus Corporation Plymouth Bass Lake Business Park 0/W 63,000 sf Caliber Development Plymouth represents an alternative to many Bohn Limited Partnership OW 94,000 sf Carl Bohn Burnsville general office users. The existing tight Bridgepoint Business Park varies 240,000 sf HRA office market conditions have allowed So.St.Paul Carlson Business Center-Phase I OW/OSB( 138,000 sf Carlson R.E. Plymouth OS/BC owners to lease more space at higher rents. Consequently,we expect to Chanhassen Business(enter 0/W 500,000 sf Ryan Construction Chanhassen see continued improvement in the Cornerstone Business 0/W up to 161,000 sf RLJohnson Co. Hopkins OS/BC market, resulting in lower (ortec Building 0/W 54,000 sf Cortec Corp. White Bear Lake vacancy rates, rising rents, increased Crosby Lake Business Park Varies up to 300,000 sf St.Paul Port Authority St.Paul sales activity and higher property Elm Creek Business(enter/ OW/058( 350,000 sf Opus Corporation Champlin values/prices. Commerce Center +25 acres The O/W and BULK market Enterprise Park 0/W 550,000 sf Multiple Developers Anoka segments should continue their strong Enterprise Business(entre 0/W 155,000 sf United Properties Mendota Heights performances. This strong performance Flagship Business Campus 0/W 275,000 sf Industrial Equities Eagan has resulted in new architectural design Flying Claud Business(enter 0/W 180,000 sf Opus Corporation Eden Prairie trends to fit the growing needs of tenants Gateway West O/W 212,000 sf (SM Corporation Roseville who require a unique blend of office, Golden Hills Business Park/2 Phases Bulk&0/W 270,000 sf MEP(Corporation Golden Valley production, warehouse and distribution Golden Triangle Business(enter 0/W 150,000 sf (SM Corporation Eden Prairie space.These new hybrid designs literally Hadley Ave.Commerce Or.2 phases O/W 117,500 sf (SM Corporation Oakdale cross over category lines and combine Interstate Crossings Business Or 0/W 133,000 sf Industrial Equities Eagan the styles of all three product types.With O/W 80,000 sf Industrial Equities Eagan • P YP Lakeview III the high ceilings of bulk distribution, the Meridian Industrial Center Bulk 110,000 sf Marfield,Belgarde,Yaffe Maple Grove the glass fronts, l bay Structure of , l warehouse, and Northland Interstate Business Center 0/W 60,000 sf Ryan Construction Brooklyn Park upgrades of office showroom/business landscaping and Northpark Industrial(enter 0/VI 88,000 sf Industrial Equities Fridley center, this industrial hybrid is some- Oakdale Interstate Crossing 0/W 100,000 sf local Partnership Oakdale times referred to as "office showhouse." Porkers Lake BULK/OW 230,000 sf United Properties Plymouth In conclusion, the next year should Plymouth Business(enter IV OW/OSBC 122,000 sf Welsh/St.Paul Co's Plymouth see significant levels of new construc- Plymouth Ponds-Phase I BULK/OW 215,000 sf Marfield,Belgarde,Yaffe Plymouth tion, including build-to-suit and specula- Rosemount Business Park 0/W 80 acres Steve Hoyt&city Rosemount Live developments. Rental rates should Roseville's I-35W Gateway 0/W 400,000 sf To be named Roseville continue to rise making new develop- Southcross Corporate(enter Varies p ty Burnsville o p 650,000 sf Devela Developers&ci ment more financially feasible. Trenton Commerce Center 0/W 100,000 sf Opus Corporation Plymouth Competitive investment yields for Valley Green Business Park 0/W 60,000 sf Valley Green Shakopee general purpose, well located industrial Building#4 Business Parkx H properties should result in an active sales Williams Hill Park Varies 300,000 sf St.Paul Port Autho rity St Paul market and increasing prices/values . Woodbury Commerce(enter Bulk/OW Woodbu 100,000 sf Opus Corporation Woodbury -` ©Towle Real Estate Company • s k5 t- +a- ,Y' �RU 0, 1 The Twin Cities apartment market experienced another positive and active year The metro vacancy rate declined to 2.4%from 3.1% reported a year ago. �• MARKET -� OVERVIEW APARTMENT MARKET HIGHLIGHTS VACANCY AND Fifth consecutive year of AVERAGE RENT The total metro area vacancy rate declined to 2.4% from 3.1% a year ago. declining apartment vacancies MINNEAPOLIS-SL PAUL METROPOLITAN AREA All sectors except St. Paul experienced 9/95 9/95 improvement in the vacancy rates. Class A projects are achieving NUMBER PERCENT AVERAGE Owners were more aggressive in 4-5% annual rent increases from SECTOR OF UNITS VACANT RENT raising rents in 1995 than in past years e-risting tenants; 6-10% increases Anoka County 7,197 1.8% 5537.83 and will be raising rents in 1996 too. on vacated units Dakota County 17,545 1.0% 5608.63 Rents rose 6% from September 30, 1994 Minneapolis 21,533 2.4% $501.46 AgWeptember 30, 1995.This compares to ♦ A shortage of multi family zoned Northeast 14,365 1.4% 5553.99 during the prior 12 month period. land presently a-rists in the most Northwest 13,697 7.3% S531.26 ost owners are raising rents 5% to desirable locations St.Paul 15,979 3.6% S501.28 10%. The highest increases are on the Southwest 20,335 1.5% $613.49 vacant units and the lower increases are ♦ Demand for apartments by Washington County 3,803 1.5% 5595.48 on renewals. Owners are very cognizant investors is strong West 18,681 1.4% $651.19 of turnover expense. Owners who want to sell have pushed rents hard to maxi Metropolitan Total 133,135 2.4% S569.08 mize value. Tenants know the "let's ©Towle Real EstateCompany make a deal" mentality is gone and their choices are limited. Relative to 1993, higher home mortgage interest rates AVERAGE VACANCY HISTORICAL SUMMARY contributed to slower renter turnover in 1995. Interest rates in 1996, combined MINNEAPOLIS-ST. PAUL METROPOLITAN AREA with higher rents, may increase the ©Towle Real Estate Company 10% turnover rate again on higher end apart- ments. Rents will continue to rise until 9% they support new construction. 8% I.aa%a Many apartment professionals feel 7% Class A rents need to increase 10% to 6% 5.7% 15% to support new construction. This 5% 4.8% means new projects are 1-3 years away. 4% 4.4°i° 37% The next new apartments will be town- 3.1 house style rentals as proposed in Eagan 3% and Woodbury. Townhouse properties 2% 2.4% are in high demand and tenants will pay 1% �igher rents for these costly units. 0 9/89 9/90 9/91 9/92 9/93 9/94 9/95 Rents in trie townhouse projects are generally$1.00/sf/month.There will be a few projects started in 1996 of less than 100 units and senior housing in r" r in-fill locations. The 108-unit Scandia r Shores senior apartments in Shoreview `+ ' is an example. High construction costs, high property taxes and high land costs are other barriers (in addition to rents) to new construction. Marty apartment ♦ Evans Meadows Apartments,a Class A project ♦ Century Court Apartments East and West,totaling developers are active buyers and will located in Elk River sold in 1995 2,300 units sold in 1995 continue to buy as long as they can make better investments than developing. Sales activity in 1995 has been RENTAL RATES strong,over 20 properties of 100 units or more have been sold in the metro area. MINNEAPOLIS/ST.PAUL METROPOLITAN AREA These include many large properties NUMBER AVERAGE such as Century Court Apartments 2,300 UNIT TYPE STUDY DATE OF UNITS RENT RENT RANGE units; Eden place Apartments 496 units; STUDIO and Class A projects such as Edina 1993 7,461 $370 $288-S447 Towers 193 units; and Chasewood Gates 1994 7,952 5380 5299-S551 394 units. Most of the buyers are local 1995 7951 S396 S303-S566 investors with some institutional buyers like GE, Prudential and RREEF. ONE BEDROOM Capitalization rates for Class A 1993 61,573 S478 S394-S572 apartments are 8.5-9.0%; Class B'9.5%- 1994 61,937 5487 S390-S640 10.5%;and Class C 11% and up. Fueling 1995 63,228 S506 S426-S660 buyer demand is: TWO BEDROOM • Abundant, low interest rate 1993 56,185 S601 5467-S748 financing 1994 56,357 S612 S473-S842 1995 56,608 $639 S506-5868 • • Steady population growth, THREE BEDROOM household formations and 1993 4,492 S761 S555-S975 job growth 1994 5,044 $788 S567-$1200 • Prices below replacement costs 1995 5,357 5813 5600-S1235 ©Towle Real Estate Company • Real "upside" over the already acceptable going-in yield • Inability to replicate good locations. AVERAGE RENT Apartment owners are now MINNEAPOLIS-ST. PAUL METROPOLITAN AREA required by law to perform criminal ©Towle Real Elate Company background checks on their property $580 managers. Some property owners are also doing this on their tenants in addi- $570 $570 tion to the normal credit investigations. 562 $560 S55s $550 $540 5531 $530 9/94 3/95 6/95 9/95 • re, eginning o'.. rrcnce he a nse ue c s o xa ding `. "yeTx'ty 'R d 7a fch ;yC y... - L ME ':. i retarl space to our• market The'1nusica a'rrsgame p aged retailers ' s getting very risky for shopping center owners. MARKET growing suburbs. Many new food OOVERVIEW RETAIL MARKET HIGHLIGHTS concepts continue to energize neighbor- VERVIEW locations including coffee, bagels, ♦ Metro-wide vacancy rates rose to and bread stores. In 1995, sir new shopping centers 9.1%from 8% last year. Total The Twin Cities' consumer spends a were added to our survey to total 287 absorption of space in the retail high percentage of disposable income on multi-tenant properties over 30,000 sq. dining out.Restaurants have been highly ft. This universe is just under 41 million market was 803,717 sq.ft. 1 successful at the Mall of America, and square feet exclusive of free-standing ♦ The boom in ill several MOA operators plan to open a power centers w retail not associated with a shopping second store in our market. Several center. continue for another eighteen national and regional restaurant chains We estimate there is at least 5 months as current projects move are actively seeking metro locations. 400lion additional square feet of retail toward completion The Twin Cities market is consid- ce occupied by major stores like Wal- ered very attractive to retailers, and the art, Target, Fleet Farm, and others in ♦ Generally, retailers have had a boom in power center development will free-standing locations. difficult year with escalating continue for the next eighteen months as In multi-tenant properties, the total costs and below plan sales current projects achieve completion. metro vacancy rate rose from 8% to The communities of Woodbury, Eagan 9.1% in the past year. One million sq.ft. ♦ National retailers and restaurant Maplewood, and Maple Grove will all of new multi-tenant retail space was chains continue to investigate see substantial retail development. added to the market. Total absorption in entry into the Twin Cities Several retail properties changed 1995 was 803,717 sq. ft. format in 1995. Riverplace converted Driving the market's expansions are ♦ Sir shopping centers were added most of its retail space to office use and two factors: big box retailers upgrading to the Twin Cities retail arena, is no longer included in this survey as to bigger stores and abundant low inter- retail. Additionally, the owners of est rate financin and one center was converted to g• Gaviidae Common in downtown Developers such as Ryan office use Minneapolis cleared retail tenants from Companies, Opus Corporation, the Robert Muir Company, and CSM have Recently, Builder's Square announced ' ^ relationships with key retailers and the that it would be leaving, which may financial capacity to be the major retail developers of the Twin Cities. accelerate the roll-out of Home Depot,Generally,retailers in our area have amega-retailer of home and improve- men(products. had a difficult year and below-forecast holiday sales. However, our market is Galyans, a sporting goods concept perhaps not as troubled as in other parts Purchased by the Limited, is searching of the country. for 130,000 sq. ft. stores in major trade There will be new names added to areas. Babies R Us, owned by Toys R Us plans to serve the baby products ♦ Opus Corporation's new 44,000 sq.ft.tenter, ist of retailers under financial strain. market with 40,000 sq. ft. stores in Highland Crossings in Highland Park Z It 04a upper floors to allow 94,000 sq. ft. of office use for National City Bank. That MARKET SHARE vs. SHARE OF VACANCY space was also deleted from our retail universe. 25% m Towle Real Estate Company ANOKA COUNTY • In 1995 over 140,000 sq. ft. of retail 20% space was absorbed in this sector. Vacancy rates rose from 7.9% last year to the current rate of 8.5%. 15% The amount of vacant retail space is 332,000 sq. ft. or 10% of the total retail - vacancy in the Twin Cities. 10% Northtown Village in Blaine was f ` developed by the Robert Muir Company ; and opened mid year. It is anchored by 5% *` � x Sportmart, Circuit City, Office Depot, _ Michael's Crafts and Media Play. The 0 180,000 sq. ft. center was entirely pre- Southwest Dakota Northeast West Northwest Anoka St.Paul Mpls. Washington leased before construction. The center was the ninth new retail development in %OF TOTAL MARKET UNIVERSE %OF TOTAL MARKET VACANCY this sector in the past ten years, reflecting the trade area's strong popula- Starlite Center, on Brooklyn Boulevard Simon Company is considering the tion growth. and Broadway. Anchors are Cub Foods, NWQ of I-694 and Highway 169. Two In Coon Rapids, Shamrock Target and Office Max. thousand acres now held by a consor- Development sold its 60 acre parcel on The future of Brookdale Mall is tium of owners are under option. Reisling Boulevard and Main Street to being studied by its new owner, Several retailers currently in our Home Depot. Plans include a 103,000 Equitable Life Assurance Society of the market are considered possible anchors sq. ft.store plus additional development. U.S., who took control of the property including Nordstrom, Dayton's, Sears In 1995 Andover Center in Andover recently. Although the property has and Macy's. The project is a possibility was renovated. The 113,000 sq.ft.center been for sale for the past several years, for 1998. was constructed by Robert Boisclair no potential buyers have surfaced with a A new 260,000 sq. ft. power center • in 1987. strong plan for redevelopment. General being developed by Opus Corporation is Growth Company continues to manage underway in Maple Grove. The anchors the property. are Gander Mountain, Home Place, There is a good possibility that the Kohl's, and Barnes & Noble. Phase I next regional center will be constructed opened in September 1993 and Phase II _ in Maple Grove. Both the Rouse will open in March 1996. Company (part-owner of Ridgedale Plans have been approved for CSM l j Mall) and Simon Company (part-owner Corporation to build a 95,000 sq. ft. of Mall of America and owner of the retail project, Westbrook Marketplace, Miller Hill Mall in Duluth) are planning at the northeast corner of Highway 81 developments: Rouse is considering a and Brooklyn Boulevard. ♦ Starlite Center,a 430,000 sq.ft.Community Center 199-acre site at the Northeast corner of In Golden Valley,Opus Corporation in Brooklyn Park was developed by Fine Associates I-94 and the planned Highway 610. is redeveloping the important Northeast NORTHWEST SECTOR This sector includes Brooklyn RENT AND EXPENSES Center, Brooklyn Park, Crystal, Maple MINNEAPOLIS-ST.PAUL METRO AREA-FIRST QUARTER 1996 Grove, Osseo and Robbinsdale. The vacancy rate is 11.8%. The Northwest MEDIAN NET RENT sector accounts for 11% of the market, CENTER TYPE LOW HIGH NET RENT RANGE AVG.CAM AVG.TAXES and 14% of the market's vacancy. Community 510.00 S14.00 $5.00-S25.00 S1.90 $3.01 Only one new retail project was Neighborhood 58.00 $11.50 52.00-S20.00 $1.74 $2.53 added to this submarket. In Brooklyn Specialty 513.00 S28.00 SI0.00-S50.00 56.53 54.61 Park, Fine Associates completed a Regional 516.00 $59.00 S6.00-S65.00 $6.50 S7.52 430,000 sq. ft. community center, ©Towle Real Estate Company • VACANCY AND ABSORPTION skewed heavily by the virtually empty MINNEAPOLIS/SL PAUL METROPOLITAN AREA'FIRST QUARTER 1994-1996 Conservatory project in downtown Minneapolis. Deleting that project from ' STUDY NUMBER OF GROSS the retail universe would mean an ANNUAL NET 0 MARKET SECTOR DATE CENTERS LEASABLE AREA AMOUNT TOTAL VACANT A SORPTION overall city vacancy rate for retail space ANOKA COUNTY of 9%. Neighborhood 1994 10 1,564,102 160,841 10.3% The downtown Minneapolis retail 1995 10 1,590,384 119,571 1.5% (361552 market is comprised of skyway retail, 1996 20 1,597,326 109,980 storefront retail including the booming Community 1994 7 1,305,263 6.2% 9'591 warehouse district, and traditional 1995 7 80,869 6.2% (4,556) 1,296,940 156,646 12.1% (84,100) retailing including department stores 1996 8 1,476,940 140,542 9.5% 196,104 and the two shopping centers, Gaviidae Regional 1994 1 811,000 16,000 2.0% Common and City Center. 1995 1 811,000 16,000 2.0% 0 1996 1 0 Downtown retail is relatively 816,000 81,136 10.0% (65,236) Specialty NONE healthy due to the strength and contin- Total 1994 18 3,680,365 251,110 7 ued growth of the downtown work force. 1995 28 3,698,324 292,717 7 0%0� (35,289) Over 140,000 people work downtown 1995 29 3,890,166 331,158 a (16,548) and over 25,000 people live downtown. DAKOTA COUNTY 8.5% 140,459 P P High traffic skyway space continues Neighborhood 1994 37 2,310,912 267,912 11.6% 25,682 to be in demand, with net rents ranging 1995 37 2,325,912 269,922 11.6% 12,990 from$12-$45 psf. Because of the limited 1996 37 2,154,153 228,933 10.6% 40,989 hours of operation, it is especially diffi- Community 1994 13 2,516,565 232,318 9.2% 22,525 cult for a skyway retailer to pay rents 1995 13 1,513,812 184,160 7.3% 45,415 that exceed 10-12% of their sales per 1996 13 2,533,214 153,010 6.0% 31,150 square foot. Some skyway space is best Regional 1994 2 1,714,343 25,000 1.5% 135,343 suited for an office or service tenant. 1995 2 1,664,343 56,000 3.4% (31,000) 1996 2 1,664,343 50,000 3.0% Many areas of downtown Specialty NONE 6,000 Minneapolis exhibit strong sales. More Total 1994 52 6,541,820 525,240 8.0% 183,550 than two dozen new retailers have 1995 52 6,504,067 510,082 7.8% 27,405 opened stores in the past 30 months. •MINNEAPOL 1996 52 6,351,710 431,943 6.8% 78,139 However, notable losses have been IS Filene's Basement, Mark Shale, Room Neighborhood 1994 7 381,141 14,966 6.6% 1995 8 438,141 (1,800) and Board,Juster's, and Pottery Barn. 1995 g 22,907 5.2% 59,059 The City is working with Ryan %141 438, 1,893 0.4 21,014 Community 1994 2 311,938 55,013 17.4% Companies to develop The Quarry, a (116,313 redevelopment of a group of industrial 1995 2 311,938 38,100 12.4% 1996 2 313,459 40,000 11.8% (1,300) buildings in Northeast Minneapolis.The Regional 1994 3 802,875 49,000 6.1% 270,359 project may be anchored by Target, 1995 3 804,645 68,000 8.5% (17,230) Rainbow Foods, Home Depot and 1996 3 711,054 50,284 7.1% 17,716 Petsmart. Completion is scheduled for Specialty 1994 6 787,544 267,117 33.9% 1995 S 101,946 157,500 367% (79'116) Fall 1997. 1996 5 701,946 254,500 36.3% 82,798 Apache Plaza, a distressed 531,000 Total 1994 18 2,283,498 396,156 17.3% 173,391 sq• ft. mall on 37th Street and Silver 1995 18 2,256,670 387,107 17.2% 62,019 Lake Road, is under consideration for 1996 18 2,165,600 346,677 16.0% 120 Y28 repositioning. Until new tenants are ©Towle Real Estate Company secured,the project's future is uncertain. corner of Hwy 55 and Winnetka as MINNEAPOLIS WEST Golden Valley Commons. The 47,000 This sector is the tightest in the sq.ft.center will have several restaurants Within the Minneapolis city limits, metro area in terms of vacancy and and is anchored by a 9,000 sq.ft.Snyder's Towle surveyed 18 centers of over 30,000 opportunity for development. The area Drug Store. Construction will begin sq. ft. There has been no new develop- represents 11% of the total market GLA Spring 1996 and is scheduled for comple- ment since 1993 when 200,000 sq. ft.was and 5% of the market's total vacancy. tion Fall 1996. added and the vacancy rate was at a Many retailers are seeking locations in decade high of 24.3%. the area. The current vacancy rate for all The vacancy rate within the West • centers in the city is 16% which is sector is 4%, down from 4.5% vacancy 1 i last year. Neighborhood centers showed a vacancy rate of 7.1% while community STUDY NUMBER OF GROSS TOTAL PERCENT ANNUAL NET centers are at 2.5% and regional centers MARKET SECTOR DATE CENTERS LEASABLE AREA AMOUNT VACANT VACANT ABSORPTION are at 1.9%. NORTHEAST CS!Iv1 Corporation has announced Neighborhood 1994 29 2,061,740 304,972 14.8% 132,278 plans to develop Boulevard Gardens, a 1995 29 1,036,425 239,475 11.8% 40,182 mixed-use project on the Northwest 1996 29 2,021,425 137,888 11.8% 1,587 quadrant of I-394 and County Road 73. Community 1994 6 1,229,803 33,046 1.7% 70,954 The project will include 250,000 sq.ft.of 1995 6 1,229,803 83,600 6.8% (50,554) 1996 6 1,229,803 63,900 5.2% 19,700 retail, 332 units of housing and a 63-unit Regional 1994 4 2,879,625 211,057 7.3% 59,014 apartment project. Scheduled comple- 1995 4 2,843,477 111,210 7.4% (36,301) tion for retail is Fall 1996. 1996 4 2,843,477 430,903 15.2% (219,693) Specialty N/A Total 1994 39 6,171,168 549,075 8.9% 262,246 1995 39 6,109,705 534,285 8.7% (46,673) 1996 39 6,094,705 732,691 12.0% (198,406) NORTHWEST Neighborhood 1994 20 1,508,239 197,089 13.1% (44,174) 1995 20 1,494,704 182,855 12.2% 5,407 1996 20 1,494,704 230,872 15.4% (43,309) Community 1994 7 1,351,096 90,685 6.7% (56,851) 1995 7 1,489,021 114,463 7.7% 114,147 1996 8 1,919,021 111,871 5.9% 431,591 Regional 1994 1 925,000 25,000 2.7% (15,000) ♦ West Village Center,a new 110,000 sq.ft.center in 1995 1 925,000 20,000 2.2% 5,000 Chanhassen developed by T.F.James Company 1996 1 986,000 177,480 18% (157,480) Specialty NONE Total 1994 28 3,784,335 312,774 8.3% (116,025) SOUTHWEST SECTOR 1995 28 3,908,725 317,318 8.1% 124,554 This large sector (39 centers) 1996 29 4,399,725 521,224 11.8% 230,802 accounts for 21% of the market's total SOUTHWEST universe, and 12% of the total market Neighborhood 1994 28 1,800,654 99,657 5.5% (16,128) vacancy. Within the sector,vacancy rates 1995 26 1,787,465 64,137 3.6% 22,331 have dropped from 4.7% to 4.5% with 1996 26 1,797,466 118,992 6.6% (4,855) • absorption of 134,803 s ft. Only neigh- Community 1994 5 805,066 34,989 4.3% 39,615 p q' y ne C, 1995 7 1,075,386 69,626 6.5% 235,683 borhood centers have seen an increase in 1996 8 1,078,885 59,669 5.5% 9,951 vacancy rates, from 3.6% last year to Regional 1994 4 5,550,221 475,560 8.6% (113,000) 6.6% currently. 1995 4 5,350,522 200,560 3.7% 75,301 Eden Prairie Center, a 1.1 million 1996 4 5,418,522 183,060 3.4% 85,500 sq. ft. regional mall was recently sold to Specialty 1994 1 417,784 62,200 14.9% 13,001 General Growth as part of a $1.8 billion 1995 1 417,784 75,201 18.0% (13,001) 1996 1 417,784 31,000 7.4% 44,201 purchase of Homart properties. The Total 1994 38 8,573,725 672,406 7.8% (76,512) Carson's store was purchased by 1995 38 8,631,157 409,524 4.7% 320,314 Dayton-Hudson Company who refor- 1996 39 8,712,656 392,721 4.5% 134,803 matted the 130,000 sq. ft. store to a ST.PAUL Mervyn's. Earlier, a new Kohl's store Neighborhood 1994 11 617,759 73,906 12.0% 33,890 was part of a two story expansion. 1995 10 534,214 52,324 9.8% (4,063) Hartford Place,a proposed 194,000 1996 11 578,214 40,566 7.0% 113,658 sq. ft center located on a 23 acre parcel Community 1994 4 882,935 100,880 11.4% 81,371 east of Eden Prairie Center, will be 1995 4 891,929 76,288 8.6% 33,586 developed by Ryan Companies. 1996 4 891,919 194,596 21.8% (118,308) Regional 1994 1 363,062 180,000 49.6% 1,062 One new center was added to the 1995 2 359,150 145,344 40.5% 30,744 sector - West Village Center in 1996 3 621,770 169,450 27.3% 343,514 Chanhassen. Built by the T.F. James Specialty 1994 5 162,650 22,580 8.6% 5,583 Company,it is a 110,000 sq. ft. neighbor- 1995 5 262,650 15,976 9.9% (3,396) hood center anchored by Byerly's. A 1996 5 262,650 28,000 10.7% (2,024) second phase of the development, on an Total 1994 22 2,126,406 377,366 17.7% 121,906 adjacent 5 acres, is planned. 1995 21 2,047,943 199,931 14.6% 56,871 1996 23 2,354,563 432,612 18.4% 336,840 ©Towle Real Estate Company • Roseville Crossing, a 32,000 sq. ft. STUDY NUMBER OF GROSS TOTAL PERCENT ANNUAL NET retail center on County Road C and MARKET SECTOR DATE CENTERS LEASABLE AREA AMOUNT VACANT VACANT ABSORPTION Snelling was completed by Slawik WASHINGTON COUNTY Enterprises. Neighborhood 1994 7 466,065 61,832 13.3% 10,950 Maplewood Retail Center,a 245,000 • 1995 7 466,065 45,664 9.8% 16,168 sq. ft. project located at Hwy 36 and 1996 7 467,065 57,500 11.3% (11,836) Community 1994 10 1,892,052 176,209 9.3% 37,581 White Bear Avenue, by Ryan 1995 11 2,006,452 226,506 11.3% 64,103 Companies, is anchored by Cub Foods, 1996 11 1,035,745 309,528 15.2% (83,022) Home Depot, and Petsmart. Opening is Regional NONE scheduled for Spring 1996. Specialty NONE Vadnais Square,to be developed by Total 1994 11 2,358,117 238,041 10.1% 48,531 Fontana Development,is a 260,000 sq.ft. 1995 18 2,471,517 272,170 11.0% 80,271 1996 18 2,502,810 361,028 14.1% (94,858) center in Vadnais Heights anchored by WEST Target stores. Neighborhood opposition Neighborhood 1994 31 1,734,416 91,503 5.3% 65,521 has delayed the project. 1995 31 1,677,732 100,052 6.0% (31,583) Maplewood will see increased activ- 1996 31 1,677,732 119,689 7.1% 14,013 ity with the completion of a new 225,000 Community 1994 7 1,063,548 68,711 6.5% (29,872) sq. ft. Daytons store (1997 opening) at 1995 7 1,063,548 67,757 6.4% 954 Maplewood Mall. This is the first new 1996 7 1,063,548 26,060 2.5% 41,697 Dayton's store in the Twin Cities in 17 Regional 1994 2 1,670,000 32,300 1.9% 16,125 years. With the new Dayton's store and 1995 2 1,670,000 31,000 1.9% 300 a new Mervyn's store,the Mall space will 1996 2 1,670,000 32,000 1.9% 0 Specialty NONE be increased by 20%. Total 1994 40 4,467,964 192,514 4.3% 51,774 The arrival of this premier anchor 1995 40 4,411,280 199,809 4.5% (30,329) creates tremendous excitement in the 1996 40 4,411,280 177,749 4.0% 55,710 adjoining and nearby retail centers. METROPOLITAN TOTAL Rates should increase and vacancies Neighborhood 1994 190 12,445,028 1,282,678 10.3% 175,486 should decrease in the next two years. 1995 189 12,351,042 1,096,907 8.9% 188,043 1996 189 12,226,226 1,146,313 9.4% 140,852 ST. PAUL ,Community 1994 61 11,358,266 872,790 7.7% 144,776 1995 64 11,878,829 1,017,746 8.6% 375,607 The St. Paul market consists of 23 1996 67 12,542,544 1,100,177 8.8% 527,569 shopping centers with a total of 2.4 Regional 1994 19 14,716,126 1,013,917 6.9% 353,903 million sq. ft. Vacancy rates overall are 1995 19 14,428,137 749,114 5.2% 26,814 18.4%, up from 14.6% one year ago. 1996 20 14,732,166 1,174,413 8.0% 10,321 Annual net absorption was 336,840 sq.ft. Specialty 1994 12 1,467,978 351,897 24.0% (60,592) 1995 11 1,382,380 358,677 25.9% (12,580) Anew 44,000 sq.ft.center,Highland 1996 Il 1,382,380 313,500 22.1% 1244,,915 975 Crossings, was completed by Opus Total 1994 282 39,987,398 3,521,282 8.8% 613,573 Corporation in Highland Park and 1995 283 40,040,388 3,222,444 8.0% 577,884 consists of Barnes and Noble Books, 1996 287 40,883,315 3,734,403 9.1% 803,717 Caribou Coffee and Video Update. ©Towle Real Estate Company In Richfield, Lyndale Shops I, was NORTHEAST SECTOR PERCENT OF TOTAL 10 YEAR completed in 1994 by CSM Corporation This sector includes the trade areas DEVELOPMENT BY SECTOR and added Best Buy, Sportmart and of Maplewood, Roseville, Shoreview, 12,570,135 SO.FT.DEVELOPED Petsmart to that trade area. Phase II is Vadnais Heights, White Bear Lake and SECTOR %OF DEVELOPMENT underway now and will host 100,000 other Northeastern communities (see Southwest 32% sq. ft. of additional space including the p page ) sector ma on age 4 . Dakota County 15% first new store for Land's End. It has 15% of the total market's Washington County 13% In Bloomington, Kraus Anderson is space and 20% of the total market's Northeast 12% renovating and expanding the 35-year vacancy. Absorption in 1995 was a nega- Anoka County 10% old Southtown Center by 110,000 sq. ft. tive 198,406 sq. ft. Vacancy rates have Northwest 7% A community center of 320,000 increased from 8.7% to 12% in 1995 with St.Paul 5% sq. ft. has been proposed by the Ryan the majority of the increase in vacancy in Minneapolis 3% Companies in St. Louis Park for the regional and community centers. West 3% eywell site near I-394 and Hwy 100. ©Towle Real Estate company The project is a redevelopment of the former Carson's store site. VACANCY RATES The largest new development in St. FIRST QUARTER 1988- 1996 Paul in many years is Midway Marketplace, a 367,000 sq. ft. redevelop- 30"/° mTowle Real Estate Company ment project on University Avenue east • of Snelling. New stores were construct- 25°/, ed for Montgomery Wards and Cub Foods. The developer is Dalan/Jupiter 20% from Chicago. Downtown St. Paul retailing is 15% about to experience more change. Town Square may shrink its retail area again, 10% this time in favor of parking. The Childrens' Museum opened, drawing 5% families into Downtown. The museum is connected to the World Trade Center's 0 retail area by skyway. 1988 1989 1990 1991 1992 1993 1994 1995 1996 It is interesting that over 60% of the COMMUNITY Z= NEIGHBORHOOD iiMl REGIONAL SPECIALTY total metro market's development is planned to occur in the East Metro(East of Mississippi River). This large site had been controlled This market represents 5% of the by Homart, General Growth and total market's space and 10% of the total DAKOTA COUNTY Developers Diversified. market's vacancy. This geographic sector boasts the Tamarack Village in Woodbury is greatest number of retail developments WASHINGTON COUNTY the largest single development under in the past ten years- 15 centers,totaling This is the fastest growing county in construction. The Robert Muir 1.9 million square feet. No new centers the metro region and has seen consider- Company is developing the 785,000 sq. were opened in 1995 and 78,139 sq. ft. able retail development in the past few ft. regional center scheduled for opening were absorbed improving the vacancy years. Vacancy rates are at a three-year mid-1996. Eleven anchors are featured rate from 7.85% last year to 6.85% high of 14.7 %, up from 11% last year. in the $35 million project including Cu currently. Overall, negative absorption of 94,858 Foods, Home Place, Media Play,Toys This sector represents 15% of the sq. ft. occurred last year. As a perspec- Us, Office Max, Petsmart, Mervyn's, total retail market and has 12% of the tive, five new retail centers totaling Home Depot and Circuit City. The 115 total market vacancy. 900,000 sq. ft. have been developed in acre complex is designed to resemble a Eagan Promenade, a 416,000 sq. ft. the past four years. village with a town square, fountains, development by Opus Corporation, is The high vacancy rate is a reflection and restaurants. This developer scheduled for a Spring 1996 construction of several centers with large vacancies. completed Woodbury Village Center start. Anchored by Home Place, (Phase II, 117,000 sq. ft.) last year. Byerly's,Office Max, Barnes and Noble, and Pier One Imports it is located on a 120 acre parcel near 35-E and Yankee TOTAL SHOPPING CENTERS HISTORICAL SUMMARY Doodle Road. In Apple Valley, Media Play has MINNEAPOLIS ST.PAUL METRO AREA(1987 1996) purchased a pad site at Ryan's Southport NUMBER Of GROSS TOTAL PERCENT ANNUAL NET Centre between Frank's Nursery and YEAR CENTERS LEASABLE AREA AMOUNT VACANT VACANT ABSORPTION Cub Foods. 1987 212 28,452,181 1,733,981 6.1% 943,791 A free-standing Kohl's Department 1988 225 19,800,841 2,131,853 7.2% 950,788 Store was added to Eagan Towne 1989 238 30,863,717 2,478,074 8.0% 673,655 Centre. 1990 253 32,077,132 2,551,077 8.0% 1,685,393 Cahill Plaza, a 65,000 sq. ft. center 1991 263 34,229,878 3,043,176 8.9% 1,877,697 on 80th and Cahill Road in Inver Grove 1992 271 35,884,916 3,762,170 10.5% 890,959 Heights, was completed in 1995 and is 1993 278 39,589,104 3,758,872 9.5% 3,847,711 anchored by a Super Valu grocery store. 1994 282 39,987,398 3,521,182 8.8% 613,573 Recently, land options expired on 1995 283 40,040,388 3,212,444 8.0% 577,884 land in the SE Quadrant of I-494 and 1996 287 40,883,315 3,734,403 9.1% 803,717 Hwy 3 in Inver Grove Heights. 0Terle Real Estate Cempmry • 2Tho Gam: MARKET ■ Some retail properties may be ■ In spite of challenging times for recycled for use by communities for retailers, more national and regional OUTLOOK schools,churches, housing or other non- retailers will expand into our market. retail uses. Ample parking and central We have high disposable income relative Oax ■ Many owners are poised to sell locations add to this general appeal. to other markets. eir centers, especially if capital gains reduction occurs this year. ■ It is the older centers, or the w unanchored centers that are suffering in the overall market. These centers,if well located, may offer a good return to PLAY developers who can redevelop and MEDLA r reposition them. C i /T s , ■ Retailers are beginning to take -X- f Ce part in an organized effort to reform g �EpOT state property tax classifications. This Y � ° vocal contingent of taxpayers could � IichadS _ make a meaningful difference in this T SPQR MAR growing controversy. _ -, .,. ■ The tax abatement granted to Southdale and Rosedale is just the beginning of reassessments. Increasingly, f = _ this issue will influence net rent levels,as more retailers demand gross rent terms. ♦ ■ Owners and managers of retail Northtown Village,a 180,000 sq.1t.Community Center in Blaine was developed by Robert Muir Company properties are recognizing the impor- ce of providing safe and secure retail vvironmentsandparking. As the popu- COMMUNITY CENTERS - HISTORICAL SUMMARY lotion ages, the key consumers are MINNEAPOLIS-ST.PAUL METRO AREA(1987-1996) acutely aware of safety. The additional costs of security are passed on to tenants, NUMBER OF GROSS TOTAL PERCENT ANNUAL NET another burden on limited profits. YEAR CENTERS LEASABLE AREA AMOUNT VACANT VACANT ABSORPTION 1987 36 6,293,840 457,634 7.3 353,450 ■ As special events such as aquar- 1988 38 6,640,890 520,556 7.8 284,078 iums and dinosaur exhibits are hosted by 1989 38 6,682,446 412,888 6.2 149,224 Mall owners, the retailer now competes 1990 42 7,628,555 669,184 8.8 701,109 with these attractions. In the past only 1991 51 9,358,139 959,527 10.3 1,574,813 food venues provided competition for 1992 56 10,316,342 917,583 8.9 1,000,147 the visitors' time. 1993 60 11,229,655 888,955 7.9 751,641 1994 61 11,358,829 872,790 7.7 144,776 ■ Retailers will face extremely 1995 64 11,878,829 1,017,746 8.6 375,607 difficult times due to rising costs for 1996 67 12,542,544 1,100,111 8.8 527,569 operations, occupancy, and advertising. ©Towle Real Esmte company Margins are low, sales are down, and ♦ 50%of all development in the past 10 years was community centers. many retailers cannot survive with esca- ♦ 30%of all current vacancy is in this category. lating costs. ♦ 61%of all absorption was in community centers. ♦ 31 community centers totaling 6,248,704 sq. h.was built in past 10 years. ■ Competition for market share will continue to be fierce among retail- ers. Only the leaders in each category will survive. • 516>6=� D E F I N I T I O N S Rentable Area Renovated The portion of the gross floor area on Buildings which have had a complete RETAIL CLASSIFICATIONS which rent can be obtained (BOMA renovation,including all mechanical sys- Shopping centers in this study have a• Standard). Office buildings reporting tems and exterior treatment. Many of minimum of 30,000 sq. ft. of gross usable area have been converted to these buildings have been readapted to leasable area (GLA), including anchor rentable sq. ft. by a factor of 1.15. office usage from multi-story industrial stores. Not included are single tenant, Gross Leasable Area (GLA) designs. free standing retail stores. The total sq. ft. (including anchor stores) Suburban - Class A Neighborhood Centers of a shopping center on which rent is Newer buildings, in first class condition Range in size from 30,000 to 100,000 sq. paid including the storage and common and decor. Large and/or tall in size with ft.of GLA and may have a supermarket areas. excellent visibility and highway access. as a major anchor. Satellite centers adja- Vacant Area Prominence and identity are key criteria cent to regional centers that do not meet The total sq. ft. of unoccupied space for this group. the criteria of any other retail classifica- including sub-lease space and unim- Class B tion are also included as neighborhood proved areas of completed buildings. Seasoned buildings, generally over ten centers. Net Absorption years old. Lower or smaller in size with Community Centers less than prime visibility and highway Range between 100,000 to 300,000 sq. ft. between study periods, including tenant access. of GLA.They are typically anchored by expansions or moves within the market a discount, small department or variety and new tenant additions to the market. INDUSTRIAL CLASSIFICATIONS store and quite often include a drug store,supermarket or warehouse grocer. Net Rent This report covers multi-tenant industri- The quoted asking rent less total al buildings. Not included are owner- Regional Centers expenses. user manufacturing/industrial facilities Include what are typically considered Total Expenses or single tenant buildings. regional or super-regional shopping cen- p ters. These centers have at least 300,000 The annual cost per sq. ft. of all operat- Office Showroom/Business Center to h GLA and must include a mini- 0 expenses, including real estate taxes. The office showroom/business center is defined for this study to (OS/BC) mum of one major department store. • OFFICE CLASSIFICATIONS include one-story multi-tenant projects Specialty Centers over 25,000 rentable sq. ft. with more Differ in size,theme,format and market This report includes multi-tenant office then 30% finished office space, typical orientation from the other classifications buildings 30,000 sq. ft. or greater. Not clear ceiling heights of 12' to 16' along but frequently have restaurants or enter- included are owner-user, single tenant, with nearby freeway access and high vis- tainment facilities as major tenants. medical or government office buildings. ibility.Usage flexibility,smaller bay sizes Central Business District (CBD) and better-than-average landscaping are APARTMENT DATA SOURCE Class A key criteria of an OSBC. This report uses data from The Newer buildings in first class condition, Office Warehouse Apartment Profiles in Minneapolis. The design and decor. Large and/or tall in The office warehouse (O/W) buildings study includes 80 percent of all metro size with mostly multiple skyway included in this survey are multi-tenant politan apartment complexes with more linkage. facilities of 25,000 rentable sq.ft.or larg than 30 units. For reasons of continuity, Class B er built after World War II. These facili- data was recalculated to fit geographic ties typically offer 10% to 20% office fin- boundaries in the Towle Re ort. Seasoned buildings in good condition ish and have 16' to 20' clear ceiling p and generally over ten years old. Mid- heights. rise in size and may include skyway linkage. Bulk Warehouse Class C The bulk warehouse (BULK) buildings, per this report, are described as multi- Older buildings of any size in average to tenant projects with 50,000 rentable sq. poor condition. They may or may not ft. or larger, constructed during the post have skyway linkage. war era. The BULK buildings offer 5% to 10% office finish and have 20' or greater clear ceiling heights. • By BETH MATTSON Maple Circ>vc,where for the last few years devel- oper have been evcing a spot near 77th Avenue and Highwav 169 as a Potential site for a Are Malls History? re- gional Casualties at existing malls;are rising.as evi- POWER CENTERS ARE THE NEW DARLINGS OF RETAILERS AND DEVELOPERS. deuced by darkened storefronts at Kno11- wobd,Norlhtown,and other smaller malls. But malls are not down for IF.ver since the country's first enclosed mall,South- Just as notable,Tamarack Village has enticed tradi- the count vet.Their sur- tional mall tenants.The inclusion of Limited Express, viva) lies in rcposition- dale Shopping Center, put Edina on the map in 1956, for example,marks the first time this apparel chain has ing. southd:tle, Rose- ventured out of the safe haven of shopping malls.The dale,and even Ridge- the Twin Cities have led the nation in cutting-edge re- power center also is home to such small retailers as dale have undergone Lane Bryant,Land's End,and Mail Boxes Etc. m u l t i m i l l i o n-d o I I a r tail developments. Minnesota again broke new ground Tamarack Village differs,however,from the tradi- makeovers to better tional power-center design—usually a cluster of generic compete with the Mall in 1992, with the opening of the Mall of America in concrete boxes.The developer wanted to create a pleas- of America•and so far ant shopping experience that showcases interesting ar- the three Dales have Bloomington. It was only a matter of time before Twin chitecture and landscaping that includes open-air public weathered Ilse changing plazas,flowers,fountains,and ponds. retail climate quite well. Cities developers discovered the"power center." Considering its aesthetic appeal,giant proportions, Keeping up-lo-date and unique tenant mix,Tamarack Village seems to be a with renovations and Tamarack Village,a 750,000-square-foot retail devel- roof and a couple of escalators shy of Tamarackdale.In maintaining solid anchor opment in Woodbury,is one of a handful of giant power fact,the city of Woodbury originally tagged the site for tenants is crucial to a centers that have popped up across the country.Bloom- a shopping mall in the mid 1980s. But given the high mall's longevity.After ington-based Robert Muir Company had two-thirds of costs and uncertain future of the mall,Robert Muir several unsuccessful at- the center up and running in November.The remaining didn't bother giving the project a second thought before tempts. Eden Prairie portion is scheduled for completion by spring 1997. opting to go with a power-center format. Center has finally landed What makes Tamarack Village a prototype of the Real-estate taxes alone at shopping malls are about a Dayton's store and is 21st-century shopping mall is its reliance on so-called $15 to$20 per square foot,while Common Area Main- planning$60 million in category-killer retailers—enormous stores tenance(CAM)costs are about$8 per square foot. renovations. Shopping (such as Best Buy,SportMart,and Power centers typically see taxes in the$3 to$4 per malls also are taking cues Office Depot) that provide square foot range,and CAM costs are about$1.50 to$2. from the Mall of Ameri- time-pressed shoppers with There are substantial differences in net rental rates as ca,beefing up their en- quick access to massive in- well.Regional mall rents average about$16 per square tertainntent offerings. ventorics with rock-bot- foot for smaller tenants and close to$60 for larger ten- Roller coasters and tom pricing.And if cate- ants. Rents at power centers average about$10 for aquariums may he out of or iv gory killers give heart- smaller tenants and about$16 for larger tenants.Most reach for the Iradtuunal burn to their competition small retailers simply can't afford mall rents. m all. but Eden prairie in small,local shopping Even the national chains are discovering the consider- Center has gone so far as malls Tamar Village tlla a able foot traffic - g generated by w ., g power-center er center anchors. to include, a 14-screen is a guaranteed ulcer. Some power-center retailers find that their sales nearly movie theater and an in- Tamarack Village is equal sales at their mall locations.Casual Corner,for door ice-skating rink in about twice the size of example,has found that its Woodbury Village loca- its renovation plans. ` the typical power center,mak- lion—another Robert Muir development—is one of the Shopping and figure ing it comparable to smaller regional chain's top-performing stores. eights all wider the same malls,such as the Eden Prairie Center and This changing retail landscape is challenging the via- roof. What will Ihev Maplewood Mall.Whereas most power centers bility of the shopping mall.Fewer than 10 regional malls think of next'' ■ are characterized by three or four superstar anchors,the are under construction across the country,and the Twin Woodbury development features a staggering 11 anchor Cities'ability to support another mall is questionable. 6t•rh ,llurrson is a Ire(.- tenants,including Cub Foods,Mervyn's,Petsmart,and Obviously,Woodbury has changed its tune when it inner nvifei in the Toriir Home Depot. comes to building a new mall.The next likely target is fines. )ECEMBER 1996 TWIN CITIES BUSINESS MONTHLY ILLUSTRATION BY SCOTT BUCHSCHACHER I I rxqwr MAXIMUM HYPE C� fl hen the 1997 legislature She'd be forced to raise prices,cut considers labor policy, back her hours, and reduce the Kris Jacobs and her or- number of employees. ganization of unions and Economist Preston Miller would social-service agencies want state rather legislators consider the big Too high or not lawmakers to remember Mike picture and the signals they are Kochevar. A single father from sending to young workers,particu- Hibbing,Kochevar works two part- larly to recent college graduates, high enough. time jobs as a bingo-caller at about like his two sons.They are well- $5.50 an hour to support himself educated,work hard, live reason- Wage issues on the and his daughter until he finishes ably well,and still do not earn what college.They could not survive on some legislators want to put into legislative docket have his wages alone and so rely on wel- law as a mandated "livable"wage fare, food stamps, a subsidized that every company receiving state business interests, apartment, and help from Mike's assistance of more than $25,000 parents. must pay.If workers with few skills Union and jobs Judy Cook,executive director of suddenly earn what those with col- the Minnesota Retail Merchants lege degrees get,education will be activists, and Association,does not want legisla- de-valued and our work force won't tors to forget small-business owners be ready for the challenges of a economists worIUn like Mary Woodward, who runs global, information economy, g Main Street Tanning in Brooklyn Miller says. Center. Her business fluctuates This is the tableau against which overtime. with the seasons. All of the atten- Minnesota lawmakers will take up dants at her salon work part-time, wage issues in the 1997 session. and some are high-school or college They'll hear impassioned stories of BY MARY L A H R S C H I E R students. If the state began setting hard-working people struggling in a wages much above the current min- service economy and flat statistics imum, her business would suffer. showing that only a tiny portion of ILLUSTRATION BY JAMES YANG TWIN CITIES BUSINESS MONTHLY DECEMBER 1996 41 • Minnesota workers earn the minimum.The debate will be complicated by hour. issues brought on by the new federal minimum wage,a new welfare law "I've been in the hotel industry 10 years and can't remember ever paying that forces more low-skilled workers into the market,and a growing sense minimum wage to anyone other than a waitress;'says Todd Bornhauser, of hostility between business interests and those representing low-wage general manager of the Super 8 Motel in Lakeville. workers. "This could very well be a tough session on wage issues,"says ',I don't think the current increase will have a huge impact;'Miller says. Tom Hesse,manager of work-force policy for the Minnesota Chamber of "It's mostly waiters and waitresses,so what we'll probably see is higher Commerce. restaurant prices." Kris Jacobs,executive director of the Jobs Now Coalition,an organiza- The livable wage is a calculation of what hourly wage it would require tion of more than 60 unions and social-service organizations, agrees. for one worker to support a family of three,sometimes four,people at a "We're going to take all the tough talk that was used against individuals in modest level.The first livable wage in Minnesota was put forward in 1905 the welfare debate and direct it at business,"she says. by the Jobs Now Coalition and was based in part on what it would take for The debates are expected to revolve around two mandated wage laws: a typical welfare recipient to support a family without public assistance. the minimum wage and the livable wage. Right now,neither law actually The model chosen was a single parent with two children,because that applies to a significant number of workers.Fewer than one in 20 Minrieso- tends to be the profile of people receiving Aid to Families with Dependent to employees earn the minimum wage or less.In the 1996 session,alimit- Children,the largest welfare program.That study set the livable wage at ed livable-wage standard of$8.25 an hour was approved but only applies $-409 a week,or just over$10 an hour.A Twin Cities task force on livable to companies receiving money through the state's Minnesota Investment wages was expected to release its report this month and put the livable Fund,it narrow program that is expected to affect about 25 companies in wage at about 110 percent of the federal poverty guideline for a family of 1997.The state uses a"prevailing wage"standard in state construe- four—or about$R an hour. lion projects,such as highway improvements,which generally sets wages "Nobody can live on even $7 an hour,"says state representative Toni Rukavina,a Democrat from Virginia and sponsor of the 1996 minimum- at union scale. wage bill in the Minnesota House."Even some Republicans couldn't stom- Lich the idea of not raising the minimum wage." ccording to the Minnesota Department of Economic Statistics, "Right now,the entry-level wage in Minnesota is$6 or$7 or$R an hour, about 4.5 percent of workers receive the minimum wage.Congress says Judy Cook of the retail-merchants group."Can you raise a family on raised the federal minimum wage to$4.75 an hour October I,with $7 an hour?Probably not.But people entering the work force for the first another increase to$5.15 an hour set for next July.Two-thirds of those time start at entry-level jobs,and they get training and supervision and earning the minimum work part-time.They tend to be young,with one- learn skills so they can move up.To assume that someone can march right third still in their teens and more than half under age 25.They also are dis- out and gel a$200)(1-a-year job is ridiculous. We could mandate it, proportionately female-63 percent of minimum-wage workers are then you'd have I3ig Macs that cost$6 and you haven't accomplishe women,and 7.8 percent of all women workers get the minimum.Many— whole lot." 38 percent—are clustered in the food-service industry,including waitresses The minimum wage—and now the livable wage—is more important e and waiters whose wages are supplemented by tips. Another significant its role in driving political discussions of labor policy."We don't like to see group works in general retail. More than 70 percent of minimum-wage this trend continue of government mandating wages,"says the Chamber's workers have ahigh-school education or less. In the Twin Cities,where a Hesse."If we end up with two mandated wages in the statutes,you'll sec shortage of labor is frequently listed as one of business's most pressing an attempt to move the minimum wage to the livable-wage standard. mum wage applies to few That's a debate most people in business don't want to see happen." problems,even activists concede that the mini minimum wage"of nearly$6 an Much of the struggle in the 1997 session is expected to hinge on which workers and that there is a i THE MINIMUM-WAGE CYCLE Mike Kochevar wants to be a schoolteacher.He wage cycle,but it's tough.When he finished high certified as a pre-kindergarten teacher and parent hopes to finish his degree at the University of school in Hibbing,he planned to go on to college educator.He volunteers as the leader of a parent Minnesota–Duluth in another year or so.For now, or vocational school.He'd been working at the discussion group for fathers and at the local Head every Tuesday through Saturday night,he heads local Hardee's,and the manager offered him a$1- Start program.When he's a licensed teacher,he'll over to a local church or the VFW Club in Hibbing an-hour raise if he'd work the day shift for a year.It earn double or triple his salary e.a bingo caller. where he calls the bingo numbers. would delay schooling,but at the time Kochevar But he says it's hard to get there.Even the He earns under$6 an hour at each of his two thought it was a good way to save money. smallest financial setback has deep repercussions. jobs,which is not enough to support himself and Four years later,he was still there. For instance,last winter his car died one day.He his 6-year-old daughter,Alicia.Money from AFDC, By then Alicia was born,and after a dispute with ended up dropping all of his courses that term food stamps,a subsidized apartment,and help her mother,Kochevar was granted custody."I was because he had no way to get to Duluth. from his parents have all been needed to get going nowhere,"Kochevar recalls."I was getting don't having a hard y who could Likinsurvive it," e says,"I through the past few years. deeper and deeper in debt." —M.L.S. At 26,Kochevar is ready to break out of the low- He started back to school and now plans to be minimum wage I 42 DECEMBER 1996 TWIN CITIES BUSINESS MONTHLY 3 side of the jobs equation is examined most closely. Activists,like Jacobs says.A higher minimum would not necessarily result in higher prices be- and Mel Duncan of the Minnesota Alliance for Progressive Action,want cause,in a monopsony,firms are making excess profits and would essen- to focus on business subsidies and job-quality issues."We want to see jobs tially swallow the increased costs.Judge cites a study of McDonald's become more valuable,"Jacobs says. Her organization plans to push on restaurants in California,where an increase in the minimum wage did not two fronts this year:creating tougher penalties for companies violating the affect the price of Big Macs. minimum-wage law and requiring greater accountability from companies "You want to send a message that work pays,"Judge says,"and right that receive state assistance. For instance,Jobs Now plans to push initia- now that just isn't the message." tives to compel companies receiving state assistance to provide information The monopsony theory is one that many economists do not buy,says about jobs created,including asking them to list every new job and its pay Miller,who views the minimum wage as a tax transfer without the middle- rate with a state service. Many of the jobs being created with state tax breaks and other subsidies are low-wage,"junk jobs,"she says. "Secrecy keeps wages down." Duncan's organization is developing proposals to require companies that DEMANDING WORTHY hold slate contracts to pay$7.28 an hour or more as a minimum wage. WORKERS They are also considering introducing a "maximum wage" law, under AND WORTHWHILE WORK which the state would set a level for paying the chief executive officer of a company—say,20 times the wage of the lowest-paid worker—and the company would lose (lie ability to dedulC( the rest of the CEO's salary. The personal is political for Kris Jacobs. The executive director of the Jobs Now Coalition helped push several They'll also go after any proposals to provide public assistance for a new mandated-wage bills through the Minnesota Legislature in 1996.All but baseball stadium as"corporate welfare." one were vetoed by Governor Arne Carlson,but Jacobs expects to be "I don't care how liberal somebody is,"Duncan says of the Pohlad fami- closely involved in several wage-enhancement efforts in 1997.And she ly,owner of the Minnesota Twins,"a family with a net worth of$840 mil- plans to keep the pressure on business. lion is not eligible for public assistance." Because of the new federal welfare law requiring a quicker return to The Chamber's Hesse also would like to see more public reporting of the work by welfare recipients,'Welfare is no longer a human-services issue," jobs created through state programs for business,but he thinks increasing Jacobs says."It's a labor-market issue." restrictions on business focuses on the wrong side of the equation."There "Employers are bitching about the supply side,"Jacobs says of • complaints about poorly trained workers,"but we'll keep them[the seems to be a big disconnect with Kris Jacobs and some of these other ac- legislature]looking at the demand side.As long as employers keep the tivists when you start talking about the employee,"Hesse says."They nev- focus on the supply side,they can say people are getting low wages er want to talk about the skill level of the people that are going to be hired because they are not worth it.But what about the demand side?These and their productivity.They've never been able to answer the question are throwaway jobs. that if the person does not bring$8.25 an hour or whatever to the business "Business won't like this context,"she continues. then how can (flat wage be paid? If a business can't get a certain value Jacobs's passion for politics took seed in rural Illinois,where she grew from the emplovec.they just won't hire." up poor.Her mother left the family when she was nine,and her father refused welfare.As a result,Jacobs and her siblings"ate field corn to That issue is expected to gain salience as the state moves forward with survive in the summer"and"skipped lunch at school so other kids would welfare-reform efforts.The new federal law requires that 30 percent of the not know we couldn't afford to eat." 50.000 single-parent families receiving Aid to Families with Dependent When Jacobs was 12,authorities took the children away and she lived Children be working at least part-lime when the new law is implemented, in an institution until she finished high school.It was when she first studied and 75 percent of the 5,000 two-parent families on welfare must have at economics that she saw where her family fit in the marketplace. least one worker. Minnesota Department of Health and Human Services "Society's contempt for poor people oppressed us enormously,"she expects that up to 12,(X)0 additional people will be moved off of welfare says,"and that's where I get my energy today." Jacobs's resume includes stints at the national AFL-CIO,the United and into work be(w•ecn now and 1998, largcly into entry-level, low-wage Steel Workers of America,the Village Voice,and the National Cambodia jobs."This is a very significant increase in emplovmcnl,"Duncan says. Crisis Committee.She co-founded OMB Watch,a group that monitors federal administrative and regulatory issues.She spent 12 years in Washington,D.C.,mostly working for the National Family Farm Coalition, ome economists argue that raising the minimum wage would actually an organization that lobbied for supply management in agriculture and increase the number of people working by making work more attrac- was noted for getting country singer Willie Nelson involved in federal live,particularly in an area where (here is a shortage of labor.The agricultural policy.While at the coalition,she"fell in love over the phone with a bankrupt farmer."They married,and she moved to Minnesota and current minimum wage creates a situation economists call"monopsonistic began working for Jobs Now in 1991. exploitation,"says Rebecca Judge,an economics professor at St.Olaf Col- Jacobs defies the image of a soft-hearted liberal.She's tough and likes loge in Northfield,who believes the minimum wage needs to be increased to show it,often telling business owners who complain about poor work more.A monopsony is a market in which the product or services of several habits among low-wage workers to fire the offenders. sellers is sought by only one buyer. 'They're surprised that a liberal will be hard-nosed about it,"she says. The theory assumes that companies hiring low-wage workers do not face "But when someone comes to work for Jobs Now and they don't do the much competition for those workers and so have discretion in setting job or they don't show up for work,they're out of here.That's how you wages.A higher minimum wage would increase productivity and employ- build value into the job." —M.L.S. menu because more people would want to work at the higher wage,.fudge TWIN CITIES BUSINESS MONTHLY DECEMBER 1996 43 • man. But it's not an efficient $400 a week job. transfer because it is not well Focusing the debate on im- targeted at the low-income proving salaries for low-wage IS YOUR COMPANY ON families it was originally in- workers ignores other signals WELFARE? tended to help."For every dol- the economy is sending,Miller lar of the minimum-wage tax, says.The widening gap among only 20 cents is going to the high-and low-income people Ever wonder how much"corporate welfare"your company is right people," he says. Poor grows from the basic shift to collecting?It might be more than you think,at least if you're willing to tally corporate welfare the way some progressive people cannot live on the mini- an information, computer- groups do. mum wage—and they aren't. connected economy. Similar The term probably was coined by Secretary of tabor Robert Low-income families receive increases in the gap between Reich and applies to a variety of tax benefits and direct subsidies other government benefits. the rich and the poor have oc- given to business.But how much it is depends on who is Under the old welfare laws,a curred during other major counting.The Minnesota Alliance for Progressive Action(MAPA) single parent with two children economic shifts,he says."You estimates that business in Minnesota benefited to the tune of working full-time at a mini- want people to shift to this $1.5 billion in 1995. More than half of that—$942 million—stems from tax-policy mum-wage job was eligible for new technology," Miller says, decisions the state has made.For instance,the state does not enough additional income to "It is very clear the returns to collect sales tax on business services,such as engineering, take home the equivalent of a education have gone up.You public relations,and accounting.That decision accounts for$432 million of the corporate-welfare total.Another$241 million comes from the state's corporate-franchise rules,which tax multistate corporations based on a portion of the sales rather than on the percentage of payroll or property in Minnesota. REWARD LEARNING The corporate-welfare total ignores the political balancing that WITH EARNING goes on in determining tax breaks.For instance,MAPA counts the 2-cents-a-gallon reduction in the fuel tax on gasohol as a • Preston Miller sighs in disappointment about the increase in the corporate-welfare scheme when it was created largely to help federal minimum wage.But it's not the money that concerns him. farmers who grow the corn that goes into gasohol.That tax In Minnesota,the increase will have almost zero effect,he decision counts as$14.2 million in corporate welfare. says.Maybe restaurant prices will go up,because so many Another$163 million comes from the state's 1990 decision to minimum-wage workers wait tables.What really bothers Miller, lower the classification rate on commercial and industrial property from 5.06 percent to 4.6 percent,even though the economist for the Federal Reserve Bank in Minneapolis,is Minnesota still has one of the nation's highest property-tax rates that"there were not good arguments raised in opposition.It's for businesses. very important to draw the distinction between low-wage workers Tax breaks aside,corporate welfare includes the direct and low-income families,"he says.Most analyses show that a subsidies communities use to attract business,including tax- significant majority of minimum-wage workers are teenagers increment financing es use 7 million),industrial-revenue bonds from middle-class families,waiters and waitresses who also receive tips,or married workers who have a working spouse. ($228.4 million),and grants and loans from the state Department It's the unintended effects of a higher minimum that also of Trade and Economic Development($20.3 million). —M.L.S. concern him.Students might be encouraged to drop out to go to work for a higher minimum.Employers might be encouraged to move more quickly toward automation of certain jobs. "More importantly,it blurs the distinction that a difference in have the market itself sending have to start at an entry-level wage usually represents in terms of a difference in skills,"Miller very strong signals: get job. Now, you can't just kick says.This worries him particularly as the political discussion of wages shifts toward the livable-wage concept,which is the wage trained. need to get the in- people off a cliffinthey have at which a single parent could support a small family,or more formatioon n out that this is to have some continuing level than$10 an hour. where the reward is." of assistance to get them to- Miller has two grown sons--one is recently married,the other Ultimately. lawmakers will ward self-sufficiency. These engaged.All four of the young people are recent college need to decide what role busi- are real issues. But we are so graduates."Not one of the four makes the so-called livable ness needs to play in helping stuck on the rhetoric—the wage,"Miller says."But how are they living?Pretty well,I'd say. low-income families."it comes good old rhetoric—that we One of them has a brand-new car.They live in nice apartments. down to the question of what haven't reached a point where "It is not fair to allow wages and tax transfers to create an is a job,"Duncan says."All we we can define the issues and environment where someone with little education eams essentially what a recent college graduate does,"he continues. are saying is that if a person problem solve." ■ "The best way of earning a livable wage is to get a permanent works all day,every day,they job.Just stay there and learn the skills.You don't want people to should at least be able to keep Mary Lahr Schier profiled be satisfied with the minimum wage.You want them to study and their family going." Nazie Eftekhari, owner of the to train and to do more to get more,"he says. Says Cook, If you are a Araz Group, in the November —M.L.S. grownup and you've never issue of Twin Cities Business held a job before,you still Monthly. • .7 NEW!1 1'3 P0, y-�'41t`` 'S�1•, }.c+iS- ,rx Expansion and Relocation Ft xx,.y i i f { s � g� . n We often hear about businesses that left Minnesota for tax breaks and incentives in other states. But these days, companies are finding that the business climate here is warming up nicely. he high price of doing business ings when it decided to keep jobs in Minneso- in Minnesota certainly is no sc- ta.TCF will relocate 400 Minneapolis-based cret. Employers cringe as employees to a new 150.000-square-foot facil- property taxes and workers- ity in Eden Prairie next spring.The decision ' compensation premiums cloud to stay in Minnesota was made after taking a "`• f company spreadsheets. But close look al expansion possibilities at exist- business owners who bother to look beyond ing facilities in the region,including in Wis- those costs are discovering that the big pic- consin,Illinois,and Michigan. �( ture is much more scenic. "We could no doubt do our processing R By Beth Mattson "1 believe that businesses are warming to work in another state without a lot of disrup- the fact that Minnesota is becoming a heifer lion." says TCF chairman William Cooper. environment to do business," says Mark But the decision took into account more than X Gustafson,director of the Office of Regional just the financial aspects."We're in the retail Initiatives at the Minnesota Department of banking business, and our biggest bank is Trade and Economic Development(DTE-D). here.We feel we owe something to Minneso- Although other states continually entice Min- ta."Cooper says. nesota businesses,fewer companies than even Cannon Equipment Company also recently just a few years ago are opting to pack up and considered moving out of state. When the leave Minnesota solely to take advantage of Cannon Falls—based company announced it lower costs in neighboring states. was seeking a site to build its new headquar- ,', TCF Financial Corporation recently passed ters. it was courted by Wisconsin and other up more than $250.000 in property'tax sav- neighboring states. Despite the incentives i TWIN CITIES BUSINESS MONTHLY DECEMBER 1996 69 ti`4 • Expansion and Relocation from competing states,Can- due to the business feeling June of last year• the state ing real-estate decisions. non selected a site in Rose- fed up with Minnesota. "It added a total of 51.485 jobs. "That 'people trade-ofl"out- mounl,and the company ex- had nothing to do with Other economic highlights weighs some of those added pects to move into a new 'Does the state of Minnesota saw Minnesota's ECOnonmic Costs of doing business in 100,000-square-foot facility love me?' or with incen- miles jtunp w;1 full 4 percent Minnesota•"MILISChlld says. next spring. lives,"Tobin says."It was a above its level of a year ago. Minnesota has the sixth- Although Cannon was substantive business rea- well surpassing thr 2.4 per- lowest unemployment rate in well aware of the savings it son." Arctic Cat needed to Celli growth ill the national in- the country.'I hC unadjusted, would have realized by mov- establish a distribution cen- des during: the same period. %c•CUnd-quarter 1996 rate was ing a few more miles east ter in a new geographic re- according to the Department 3.5 percent,which is the low- and over the Wisconsin bor- gion in order to reduce the of Economic Security. esl second-quarter rate this der, it chose to stay in the delivery time in getting parts CFED once again ranked decade, according to Min- Twin Cities because of the to its dealers,he says. advantages the area offers. Cannon—which also oper- CORPORATION CO ..;O ales facilities in St. Paul; Minnesota's Chattanooga,Tennessee; assets "We're In the and Garden Grove,Califor- Minnesota's overall business • nia—selected the Rose- climate looks pretty good retail banking mount site because of the when criteria such as its business, and our proximity to its two Min- strong economy,diversified nesota facilities,as well as a business base, educated ,- nearby airport and technical work force, and quality of school,says Ron Rosa,Can- life issues are tallied. Min- here. We feel we --=-� x non Equipment's president nesota has received high • and CEO. honors from the Corpora- "On paper,you can make lion for Enterprise Develop- 1 X the move to another state ment (CFED), based in x look pretty attractive."says Washington,D.C.,for sever- ti Bill Tobin,president of To- al years.The agency publish- bin Real Estate Company in es a "Report Card of the "• Minneapolis. "On the other States" that serves as a Minnesota's dcvclopntcnt rC- nesota's Department of Eco- hand, if the business has benchmark for businesses sources as the nation's best. nonticSccurih. worked for you and you comparing the business envi- The top honor is due to time .1-hat's good news for job have those emotional heart ronment in various states. state's superior high-school seekers hilt not such good significant enough reason to Minnesota high marks for its 1 strings, it's hard to garner CFED has repeatedly given t tdualion rate.CsCCllcnt hit- m - news for eployers. Many nom resources,and outstand- husinesscs are wary of relo- disrupt things."The negative top-ranking economy,busi- ing fiu;iuCial and iufrastruc- eating in a market where un- ' t aspects of uprooting are ap- ness sector,and collection of lure resources. Minnesota has employment is low. because parent,but most businesses development resources. long been ;I leader in educa- the available labor pool is that relocate to another state Minnesota has one of the tion and is home to 24 private smaller and expansion plans do so for solid, practical most stable, well-balanced Colleges, four Ilniycrsily of could be hindered without a business reasons."Frankly,I economics in the United Minnesota campuses 34 ICC1m- large,qualified work farce. have not heard a lot of busi- States and is home to 33 nical colleges,and 21 conu n u u- Bt Minnesota,which his- nesses saying,'1 have got to Fortune 1000 companies and nilycollegcs- torically has high employ- get out of Minnesota,"'To- 1l of the Forbes 400 largest °1 he good education and sent. also has low turnover binobin private companies. Accord- the work ethic arc the two and low absenteeism. About Tobin offers an example. ing to market ranks Minnesota's things that we hear about so 75 percent of working-age Thief River Falls-based Arc- job market ranks 13th in the often front meo mle"says'Ibm I I people are employed, and tic Cat opened a new parts country in long-term growth, I lauschild.a parumcr with the manv of them arc workint, t distribution center in Kansas and it added 17,900 new jobs Teem Group a Minneapolis- more' than 40 hours a week. this year.But the decision to from the first to second based firm that helps husi- "The work ethic is a little expand out of state was not quarter of this year. Since ncsscs tackle issue,sturound- more difficult to quantify,but 5 Expansion and Relocation there is a Midwest work eth- ration each month since is and maybe even a Min- idea gets a hearing by October 1995, not just somebody that nesota work ethic."says Jay The strong business cli- Novak, DTED commission. male is due largely to access has the ability, but by er. Minnesota ranks fourth of expansion capital. Min- People,who are conlpel_ in the United States in aver- nesota has more than 500 ing for That business," Novak says. "That's a age hours worked by full- banks, which is more per big advantage that en. time employees,and indus- capita than all but two other try productivity rates exceed states. Those banks rank srepreneurs have," he the national average by as among the best in the Unit- Says much as 27 percent,accord- ed States in profitability nd In 1994• the regional Y ing to statistics provided by stability. office of the U.S.Small Advantage Minnesota, a "The strong banking base BusinessAdminislration state-sponsored agency is one thing that we are ex- approved $59.6 million whose mission is to attract tremely lucky about,"says ns n Minnesota loans, the new businesses. TCF' ation's highest for the s Cooper. Minnesota second straight year, has a strong presence of banking powerhouses with `While stale-sponsored Finance and Norwest. First bank, and business financing pro_ infrastructure Firstar. "The banking crisis grams awarded nearly Minnesota has an excel- $22 million to more than emptied out some states,in- lent business climate for eluding Texas, and has be- d lio recipients. Inn, Minnesota's 24 Minnesota's 24 entrepreneurs, start-up p come a very big problem in venture capital firms companies, and small those states,particularly for disburse more than$500 businesses. Eighteen Min- entrepreneurs,"he says. nesota companies are on Each of Minnesota's 500 million each year.nc n- • lure capital financi ng works here because Minnesota venture firms have created some role- a° model successes," No- r vak says. In addition, many local govern- ntcnts,counlics, town- ships,and utilities pro- vide financial assistance• loan packaging.and do- vclopment lax credits to "4 expanding companies. ,ac ice;. `: In addition to a strong r banking infrastructure, *' Minnesota also boasts p qualily utilities and telecommunication sys- tems. Minnesota's tele- ;5 the Inc. 500 list of fastest- cities has a competitive c°nununicaliuus infra- growing U.S. companies, banking situation in which slrucdigi of switching,15 are on the Forbes the banks are not only will- rzed drgilal switching, 200 best small companies ing to lend to growing busi- advanced software ap- list. In addition, the state nesses but compete for that PltcalIons.and fiber-op- has been averaging about business. "Not every good .x Lnd, throughout facilities e 1.000 new firms register- idea for a startup or expan- extends throughout the ing for business incurpo- Sion gets funded, but ever state. Four national and Y three regional carriers ^7. b =' r,"A�17 A171 bi, ..lit Ex ansion and Relocation • WE'VE maintain more than a mil- also steps in to assist both MOVED, lion digital-access fines and existing businesses and relo- A short list of companies that announced 17.700 kilometers of fiber- eating firms.-fake for exam- plans to move or expand operations in 1996. optic cable. Nearly 100 ser- plc. Seagate Technology. vice providers provide low- NSP served as an economic •Banner Engineering Cor- company also has purchased a cost choices for the state's consultant to assist Seagate poration is moving to larger 182.000-square-foot expansion •' telecommunications users. in its Bloomington expan- headquarters in Plymouth. facility in Shoreview The state's utilities pro- sion last year by forming a Caire, Inc.,a maker of liq- • Multilayer Technology, vide low-cost reliable ener- consultative account man- uid-oxygen products, is build- Inc., a circuit-board manufac- gy. Commercial and indus- agement team. ing a new 80,000-square-foot hirer headquartered in Irvine, trial electrical rates are 21 corporate headquarters facility California.has expanded to Ro- below the U.S.aver- in Burnsville. P�crcenl Seville,employing 75 people. age, natural gas prices are Retaining •Cannon Equipment Com• • NordicTrack, Inc.. Chas- 8.8 percent lower,and resi- businesses pany.Cannon Falls,is building ka, opened a new plant in dential savings are even Retaining existing business- a new 100,000-square-foot Glencoe, Minnesota. The com- grealer,according to Advan- es and working with existing headquarters facility in Rose- pany also closed its 50-person tage Minnesota. Minnesota company expansions has mount. distribution center in Sioux r utilities have done a very long been the primary focus • Copper Sales, relocated Falls. South Dakota.and con- good job operating power of state economic develop- from Plymouth to Anoka and solidated those operations at its plants and delivering a low- ment efforts."Our No. I pri- expanded its manufacturing Chaska headquarters. cost product, says Tom ority is to make sure that we space • State Farm Insurance Micheletti.vice president of take care of the companies DataPower Internation• Companies has moved into .1, Inc.. a Norwegian produc- its new 473.000-square-foot ve- er of computer training courses, gional headquarters building in has selected Minnesota for its Woodbury. U.S.expansion headquarters. • Stratagem, Inc., W scon- • Excelsior-Henderson sin's largest information•,con- = Motorcycle Manufactur- suiting company, has opened ing Company,Burnsville,an- an office in Eden Prairie in the • nounced plans in August to first phase of an expansion of build a$20 million plant in Belle its Minnesota operations. The Plaine. company plans to emplov 200 • Fagen, Inc., is expanding people by the end of 1997. °'. is national headquarters in •Sunrise Packaging,Blaine, Granite Falls,Minnesota,retain- expanded into an existing build- ing 35 managerial jobs and ing in Olivia.Minnesota. l adding 20 engineering jobs • TCF Financial Corpora. over the next four years. tion plans to move 400.vork- Hutchinson Technology ers from downtown Minneapolis opened a metal-stamping plant to a larger 150,000-square-toot in Brooklyn Park in May,creat- facility in Eden Prairie in early ing 100 jobs. 1997. public and governmental af- in Minnesota,so we don't do Larex International, • Technimar Industries, a fairs for Northern States the aggressive recruiting that Inc., Roseville, built a new stone-products manufacturer, Power Company. oftentimes other states will manufacturing facility in Cohas- is planning a$32.5 million plant set, Minnesota. The company for Cohassel, Minnesota The Electric companies such as do," DT ED'S Gustafson anticipates the work force in the company expects to employ Minnesota power and NSP says. "We don't do bulk e also provide business grants mailings," he says. "We -Medtronic, 1998. more than 200 workers at the •Medtronic,Inc..headquar- plant within four years. and incentives to improve don't call on companies out- tered in Fridley, is adding •Value li a pharmacy ben- { energy efficiency. For exam side of the state. We don't 63,000 square feet to its neuro- efits management firm,is build- ` ple. Minnesota Power cus- need to. We have strong logical division in Columbia ing a 120,000-square-fool {� turners received nearly$1.4 growth." Heights to accommodate an headquarters in Plymouth and million in energy-efficiency DTED's Office of Region- additional 250 people. The will add 300 jobs. —8 M. upgrade grants in 1995.NSP continued on page 77 • 5/#7 • `; Ex ansion and Relocation RETAIL OF '1''1110 ;nrr�rfYn n ,urr r 74 CITIES un al Inliatives focses on The Twin Cities is the place to he for c"ntnlmtity-based eco- nomic development ac- national retail chains. I tivitics and works with communities to help identify financial re- sources.Minnesota does National retail chains have been popping up not have deep pockets in the Twin Cities market in recent years to when it comes to finan- cial sell everything imaginable, including wares incentives. The for the home,sporting goods,and discount state's most flexible pro- " baby clothes- `'� Despite few financial incentives for locat- gram is the Minnesota ing a business in Investment Fund,which Minnesota as well as the high costs of main- I taining one here,several retail chains have found that the bene- has nearly a $4 million fits of doing just that can outweigh the risks.Indeed,more than annual budget."When it t a dozen national chains have arrived in the Twin Cities this past comes time to providing year,and many have plans for multiple stores. financing,we don't out- The metro area's strong retail appeal comes from a combina- bid anyone," Novak tion of factors—a strong economy,a quality labor pool,and fa- says. "We promote the vorable demographics—but the key attraction is the area's in- attributes of the state, creasing population,size,and spending power.The Twin Cities help find sites,offer ex- is the 15th most pertisc, and help with populated metro- JUDY COOK low-interest loans. We politan area in the MINNESOTA RETAIL MERCHANTS ASSOCIATION don't buy jobs." country. D'I'ED approaches • .,It's a market That emplovers via business can't be ignored- oulrcach. It targets spe- simply because of cific industries,such as that number," says medical products,com- �; Mike Scott.a senior puler and peripherals, vice president at United Properties in wood products. and the � Bloomington. "It printing and publishing boils down to the industry. "We have in- ���,--,' . fact that it's a good k dustry specialists on place(for retailers) board to aggressively to do business." court the companies in The state's stable those Industries,"Gus- economy is another tafson says. "It's a nal- atlraclive selling ural that, because we point for retailers that are already in the market and are poised are strong in those ar- to expand. "The economy in Minneapolis is pretty terrific and cas,we look for startups has been for a while,"says Dick Ward.a senior vice president and expansions to pro- with the Ackerberg Group in Minneapolis.The Twin Cities retail tect the interests of the market is one of the best in the country,and the majority of re- existing companies." he tailers do well here."Sales in Minneapolis are very comparable says' to other large metropolitan areas,"Ward says. Minnesola's existing Minnesotans'high level of disposable income also is a strong niche specialties, such incentive to enter the market.Per capita disposable personal in- as its reputable "tech- come in 1994 was$18,792,while average household dispos- nology corridor" and able income was$44,717,according to the 1996-97"Compare "medical alley," pro- Minnesota"study published by the Minnesota Department of vide strong incentives continued on page 78 for startups, expan- sions, and relocations. 01 Ex_Ransion and Relocation Continued from page 76 • Trade and Economic Development. National retailers are overlooking the high costs of doing busi- ness in Minnesota,where property taxes alone can run in ex- cess of$15 per square foot at some of the regional malls. Frankly,some retailers are not aware of how high Minnesota's property taxes are before they enter the market, says Judy Cook,president of the Minnesota Retail Merchants Association, which represents 2,200 stores across the state. Most national chains can absorb the high costs of doing busi- ness in Minnesota and will also look at KATHLEEN NYE-REILINa m a x i m I z i n g PRINCIPAL AT TOWLE REAL ESTATE COMPANY economies of scale by opening multiple stores in the mar- ket. Multiple sites allow retailers to save costs on mar- keting, advertising, and management, says Kathleen Nye- Reiling, a principal with Towle Real Es- I tate Company in Minneapolis. Atlanta-based Home Depot has opened three Twin Cities stores this year and has plans for more.Baby Superstores, based in South Carolina,opened the first of four Twin Cities stores this fall in the Shops at Lyndale complex in Richfield. Land's End,based in Wisconsin,also has opened multiple Twin Cities locations,including stores in Richfield and Woodbury. • Many companies that have done well here in the past are bringing in new concepts.The Limited has introduced Indiana- based Galyans Trading Company, a sporting-goods chain, which opened stores in Woodbury and Minnetonka this fall.The Gap has introduced the Old Navy Clothing Company,with loca- tions in Woodbury and the Mail of America.The Mall of America has piqued the interest of a number of national retailers,and the mall's success has enhanced the Twin Cities'credibility among retailers.For example,Custom Foot,of Connecticut,and Just for Feet,Inc..of Alabama,opened stores at the Mall of America this year.Just for Feet also is looking for additional sites in this mar- ket. Other retailers that have been eying the area include At- lanta-based K&G Men's Center and S&K Famous Brands, based in Virginia.Virgin Records, based in London,also has been looking for potential sites in Minneapolis. "Retail has exploded so much there's a sense that you have to be here,"Cook says.New retail development has pushed to- tal retail volume in the metro area past 42 million square feet, which is about 16 square feet of retail space per capita The metro area can expect the flow of retailers into the market to decrease slightly over the next 12 to 18 months Regional and national retailers are"under stress,'according to Nye-Reiling, with unusually low sales over the past year,and most chains are expected to slow down their rate of expansion —B.M. LM The state's base of medical-prod- the Minneapolis area has a large sheet,if you will,adding up all of cilities.The company has main- ucts firms is one reason that Pos- quantity of those type of people." the costs of being in any particu- tained its headquarters and sis Medical. Inc.,stayed in the Other state economic develop- lar state,"says Jeffrey Green, largest facility in Hutchinson,em- area when it needed to expand ment efforts are directed at com- chairman of the board at Hutch- ploying 3,000 of the towns 11,000 its facilities.Despite offers from bating the aggressive marketing inson Technology.A business will residents.In addition.Hutchinson Iowa, Wisconsin, and South blitz and bidding tactics that other factor in the cost of recruitment. Technology opened a metal- Dakota,the company relocated states deploy.In many cases,it's a retraining and replacing workers, stamping plant in Brooklyn Park from Plymouth to a 50,000- competition that is tough to win. dealing with the legislature,taxes, in May that created 100 jobs- square-foot facility in Coon -Businesses will shop their wares and so forth.-Then you look at Rapids earlier this year. with many states or many com- the state with the lowest cost to "We're a latter-stage develop- munities within a state for the run the operation we're running." Improved ment company in a high-tech best deal,"Gustafson says."in he says.However,it's not always business medical-device field. We rely something like that,you need to a black-and-white issue.Some- resources quite extensively on Minnesota's be in the perspective of the busi- times a business has to make Minnesota is beefing up some of source of high-tech labor,"says ness. If it's available and you can some concessions on costs to se- its informational programs,and Bob Dutcher,president and CEO lower the cost of doing business cure other advantages,such as la- its first step has been to establish of Possis Medical."Any kind of a and improve the profit margin for bor and training.he says. a database of economic profiles of move would be extremely disrup- your shareholders.you'll do what- Hutchinson Technology has ex- Minnesota communities. "We tive to not only our existing labor ever it takes,"he says. But the panded into neighboring states have information on all communi- force but our ability to tap into an state is optimistic that seeking with plants in Sioux Falls.South ties with populations of more additional labor source for such handouts is not businesses' Dakota.and Eau Claire.Wiscon- than 100,and we are able to do growth,"Dutcher says."We felt only criterion. sin,while at the same time contin- pretty sophisticated sorts."Novak that Minnesota and particularly Businesses run a balance uing to expand its Minnesota fa- says.Companies interested in ex- i • it 1 f t i i