Hillcrest Buying Unfinished Condo Site

MINNEAPOLIS, MN - The Reserve, a half-built and long-abandoned condo project in Minneapolis' Warehouse District, is under contract to be sold to Hillcrest Development. Minneapolis-based Hillcrest's managing partner, Scott Tankenoff, is considering developing housing and office space on the site. He hasn't decided when construction will start, much less hired an architect or general contractor. However, he has hired an engineering team to assess the site and has partnered with apartment developer and manager Stuart Co. on the property.

The 1.1-acre site now has an underground three-level garage and footings that were intended for an 8-story, $70 million condo project proposed in 2002 by Chicago-based Bejco Development Corp. Construction on the project stopped in 2003 and the project lender, New York-based Lehman Bros., eventually took control of the site.

Various developers have considered buying the site, including Chicago-based Magellan Development Group, but nothing came together, even as the Warehouse District experienced a strong resurgence in the past half-decade.

Tankenoff has been pursuing the site since last summer. He was close to a deal last fall, but it was delayed when Lehman filed for bankruptcy. His company, Hillcrest, owns office and industrial space in and around Minneapolis.

The deal gained steam again late last year, and firmed up earlier this month. It is expected to close in the next 30 days, after Hillcrest completes its due diligence.

Terms of the sale haven't been disclosed. The property, at 324 First St. N., is valued by Hennepin County at $1.8 million. The last recorded sale was in January 2002 for $5.75 million.

Hillcrest's partner on the project, Bloomington-based Stuart, owns about 4,100 apartment units in Minnesota and has been seeking multifamily investment opportunities. Last week it closed on the acquisition of an apartment complex in Plymouth (see page 7) for $22 million.

Stuart Nolan, company chairman and founder, said Hillcrest asked him to study the possibility of building rental housing on the site. "We are familiar with and like the immediate submarket because we are an owner and property manager at Heritage Landing across the street," Nolan said.

Tankenoff has hired an engineering team to study how the parking structure, which has never been used, can be adapted. Minneapolis-based Meyer Borgman and Johnson Inc. is the project engineer, Bloomington-based Braun Intertec Corp., is the soil consultant and St. Louis Park-based Egan, Field & Nowak Inc. is the surveyor.

Tankenoff said he doesn't have any specific plans yet. "The last thing we're going to figure out is what it should be. The first thing we're going to figure out is what is possible and what is feasible," he said.

Hillcrest will not attempt to use the name The Reserve because it is associated with a failed project, nor will it build a structure any taller than the one that was approved for The Reserve.

"[Building taller is] a non-starter for our neighbors," Tankenoff said. "I've promised them that we will not ask [the city] for any additional height."

This site isn't any different than other speculative properties Hillcrest buys, Tankenoff said.

"It has a dysfunctional building on it now. A lot of hope has been lost by the neighborhood. They've been led down the path by poor absentee ownership. It's time for something new."