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Sherman Goes Big for 'Super Desirable' but Challenging Minneapolis Site

At least two other developers considered projects there
July 6, 2018
Sherman Associates has lofty ambitions for a new project it hopes to pull together on a much sought-after site on Washington Avenue in downtown Minneapolis.

The developer wants to build a 22-story, market-rate apartment tower with 250 units, along with a six-story affordable apartment building with 90 units, a six-story, 312-stall parking deck and (possibly) a new fire station. The ground floor of the tower would include 6,000 square feet of retail space fronting on Washington.

Minneapolis-based Sherman is also angling for a new skyway connection that would tie its development into the rest of downtown.

If all goes as planned, the tower would be the tallest building the company has ever attempted and the project one of its most complex yet, said Shane LaFave, the company’s director of multifamily development.

"The highest we’ve ever gone is 12 [stories]," LaFave said on Tuesday. "The tower will have views of the [Mississippi River] and downtown when you get to the upper stories, which is not something everyone has. If you go up that high you can see everything."

All together, the new construction would take up three-quarters of the block bounded by Portland Avenue, Third Street South, Fifth Avenue South and Washington Avenue, the latter of which is a main arterial for downtown and a hotspot for new development.

Preliminary estimates put the total development cost at about $125 million, LaFave said.

The land is not yet in hand. LaFave said Sherman is in discussions with Minneapolis’ Allied Parking, which owns a half acre on the block’s northeast side and a 1.1-acre tract that takes up most of the south half. The remainder is occupied by Minneapolis’ Fire Station Number 1, built in 1908, and some modest-sized commercial buildings that house establishmens such as the Crooked Pint, a Caribou Coffee, a yoga studio and a bar, among other things.

Those buildings are not part of the new project and are likely to stay as-is.

Because of its location, the site has generated lots of interest among Twin Cities developers, LaFave said, though it never has been officially marketed for sale. The site straddles the line between the downtown core and East, a district anchored by the Guthrie Theater that has been a hotspot for new development in the last 10 years, LaFave said.

"You’re still only a block off of the river and the Stone Arch Bridge, but close enough that the rest of downtown is accessible, especially if we get the skyway connection," LaFave said. "That would be the best of both worlds."

Other developers have looked into building there, LaFave said, but were put off by Allied's insistence --a condition of any possible sale--that the buyer replace the parking operation it would lose if the lots were redeveloped.

One company that has put feelers out to Allied in the past was Minneapolis-based developer Alatus, said the company’s Director of Development Chris Osmundson. Osmundson said the site is indeed a "super desirable location," and one of the last along Washington that is just open space. Alatus looked into building there about a year ago, but was put off by the parking requirement and several other factors.

"We had thrown it out there as a potential objective, but between the price [Allied] was asking for, and building the parking and the firehouse we thought there were too many complications to do a deal there," Osmundson said on Tuesday. "Then again, we never really considered the type of density that they are considering."

Executives with Allied could not be reached for comment.

Sherman is working on a separate deal with the city for the firehouse. The city pitched the idea of redeveloping the fire station site about a year ago, when it began looking for places to build a new one, said Chuck Lutz, deputy director of community planning and economic development with the city of Minneapolis. Sherman was one of the developers that responded to the call, as did Minneapolis’ Ryan Cos. US Inc., he said.

"They would be buying the fire station and then would be responsible for tearing it down," Lutz said. "We would be buying a pad from them for the new fire station, so it’s basically a swap."

The parties are still discussing the terms of any possible agreement.

"Nothing is written and signed yet," LaFave said.

If all goes well, the deals with Allied and the city will be tied up by spring of next year, probably around May.

The next hurdle would be to secure financing, which could be a challenge, LaFave said.

"The interest rate environment has gotten tougher and tougher, and with a project of this size you’re limited to a specific group of lenders," LaFave said. "Not everyone can do that size of a loan."

Construction will likely take about two years, and would unfold over a series of intricately choreographed phases, he said. The fire station and the parking ramp would come first, the affordable housing would be next, and the tower would be the final piece.

"If we do come to terms with the city, the fire station would have to stay in operation the whole time we were building it," LaFave said. "Only once we open the new one can we demolish the old one."

Based on all the foregoing, Sherman is anticipating opening the tower in 2021.

Minneapolis architecture firm ESG is doing the design. No builder has been selected as yet.

Sherman has been very active in the east sector of downtown. On July 20, a new Trader Joe’s grocery store will open in the bottom of East End, an apartment complex Sherman recently completed at the corner of Washington and Chicago Avenues. The company is also working on a new Canopy by Hilton hotel in the Thresher Square building at 700 S. 3rd St., and is on track to wrap up construction there in December. The hotel will open in early February 2019.

The company also has at least two other irons in the fire. It is refining plans for a mixed-use development with apartments, a daycare, a fitness center and a hotel that would go up just to the south of Thrivent Financial’s new headquarters. Sherman also put in a development proposal for a city-owned site at 800 Washington. The city has not yet disclosed who is angling for the property, or which suitor it will choose.


Clare Kennedy, Minneapolis / St. Paul Market Reporter  CoStar Group   
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