MINNEAPOLIS, MN - Investing in commercial real estate just isn't what it used to be. After posting double-digit returns from 2003 to 2006, the equity index of the National Association of Real Estate Investment Trusts (NAREIT) was down 3.6 percent for the first half of this year. The lackluster performance follows a 15.7 percent downturn in the index for 2007.
Retail-oriented real estate investment trusts, or REITs, were down nearly 5 percent as of June 30, while office and industrial REITs posted a -6.4 percent return. REITs connected to the lodging industry fared the worst and were down nearly 21 percent. Bloomington-based NorthMarq recently confirmed the sluggish investment market conditions in a midyear report, which said the dollar volume of property transactions is down 34 percent from last year.
That's partly because sellers are having to accept more modest purchase prices and because of the lack of blockbuster deals. A few significant office properties in downtown Minneapolis, 225 South Sixth Street, Dain Rauscher Plaza and TriTech Office Center are up for sale, but so far no deals have been announced. "Clearly there is a large amount of investment capital sitting on the sidelines, waiting for the dust to settle," NorthMarq said in its report. "The willingness to invest depends on buyers and sellers drawing closer on their understanding of building valuations in this new, more conservative era of risk underwriting."
Multifamily properties are the one area that have seen relatively brisk activity in transaction volume, NorthMarq said. "Investors foresee continued improvement in market fundamentals," the report said. Recent area listings include Uptown City Apartments, two mixed-use buildings at 714 and 1220 W. Lake St. The properties, which include 163 apartments, 4,000 square feet of retail space and 222 enclosed parking spaces, are being marketed by the Twin Cities office of Colliers Turley Martin Tucker. A mixed-use property in northeast Minneapolis that was 90 percent vacant a year ago has been fully leased by Colliers' local office.
Meritex Enterprise Inc. recently signed on as an office tenant at the three-building complex known as 24 University. Earlier this year, ad agency Preston Kelly, formerly known as Kerker Inc., moved from Edina to a renovated historic fire barn that is part of the property. A wine bar will move into retail space in the complex along with Panera and Chipotle restaurants, both of which were tenants before the recent round of leasing activity. The property is owned by Hunt Associates, which built the newer buildings around the older fire barn about six years ago.
Source: Star Tribune