As the managing partner of a Minnesota alternative investment fund, Jon Lanners has seen the opportunity that can grow from distress.
Years after a global pandemic and civil unrest rocked this upper Midwest metropolis, his company, Onward Investors, spent the past two years buying some of the most prominent office towers in Minneapolis. That includes the 30-story Ameriprise Financial Center last year, and the 57-story Wells Fargo Center the year before.
Onward Investors saw potential in the office market again, he said. That promise has hit a roadblock this winter as a fresh round of unrest besets the city.
A federal government immigration crackdown touched off a new round of protests, and when U.S. Immigration and Customs Enforcement agents last month killed two residents in city streets, it reignited some impressions and fears of chaos and disorder that erupted after a white Minneapolis police officer killed George Floyd, an unarmed Black man, in May 2020.
“The current environment certainly is not helpful from [an office] demand perspective, investor appetite perspective, for assets in Minneapolis. I just don't think there's any two ways about it,” Lanners lamented. “I think you sort of have to acknowledge that's the case.”
No matter how people feel about the protests, it's a cold reality that can sometimes feel painfully familiar to those who have lived it before.
Indeed, the international headlines that focus on Minneapolis, especially the reports about the two fatal shootings, are seen as hampering the local retail and hospitality industries. Yet, several real estate professionals said in interviews that the underlying commercial property fundamentals in this Midwest market remain stable, even as they wait for the federal immigration operation — and the public reaction it caused — to subside.
Different realities, just miles away
Nicollet Avenue in south Minneapolis, where one protestor was killed on Jan. 24, is in a sense worlds away from Nicollet Mall, a corridor packed with offices and restaurants in the central business district about two miles north. Though a few "ICE Out" posters can be seen scattered across streetlights downtown, they're not emblematic of happenings across the city on recent weekdays.
Downtown pedestrians, flanked by office towers connected by a system of enclosed glass bridges, can clearly see their breath on a day that's sunny and 3 degrees below zero, but no ICE operatives are particularly noticeable.
Office workers were largely setting about business as usual, while city officials acknowlege the shooting deaths of Renee Nicole Good and Alex Pretti by federal agents in separate incidents has led to some employees avoiding workplaces and reports of some lower school attendance.
Walking through an enclosed glass bridge connecting a pair of corporate towers, a part of the city's miles-long Skyway System that's open mostly weekdays, office workers duck out of the frigid air and wind into the warmth of nearby skyscrapers.
Business leaders are working to make everyday calm span the city. In late January, the Minnesota Chamber of Commerce released a letter on behalf of more than 60 CEOs of Minnesota-based companies calling for an immediate de-escalation of tensions. National developer Ryan Cos. joined that list.
“There are headlines now, but at some point those headlines will change and the fundamental market drivers and the economic engine and the Fortune 500s that are here are going to be here,” Maureen Michalski, a regional senior vice president of development with Ryan Cos., told CoStar News in an interview.
Uncertainty hitting businesses
Meanwhile, the leader of the city’s downtown council and Downtown Improvement District Adam Duininck said uncertainty is causing some to hit the pause button and that broadly recent events are “unquestionably having an impact on business.”
He added that "anyone with retail and restaurants in their portfolio will be challenged in the coming weeks and months, unfortunately.”
Duininck’s team is working on what the next roughly 10 years in downtown Minneapolis look like, and a report from his group spelling out that plan captures the context of the current ecosystem and development since 2020.
The normalization of remote work popularized during the health crisis dramatically curtailed time spent downtown. Becoming the epicenter of a national racial reckoning fueled by the murder of George Floyd also reshaped the community.
“The worst of the ensuing fires and property damage didn’t happen downtown," the report said. "But downtown’s streets emptied and stayed empty."
Stable rental market
Minneapolis and neighboring St. Paul are broadly characterized by stability and moderate rent growth in most property types, according to a CBRE report on the Twin Cities released last month.
Well-capitalized office landlords across the market should expect increased demand, it noted, adding that more competition is expected in the market as requirements for office space remain robust amid diminished supply and a shrinking sublease market.
The report also characterizes the market as having sustained demand for multifamily housing and growth as a data center hub in the Midwest.
Minneapolis is home to the nation's highest per-capita concentration of Fortune 500 companies of any major metropolitan area that provided the Twin Cities office market with nationally acknowledged stability before the pandemic, according to CoStar’s latest report.
However, it also, paradoxically, has been a primary driver of historic demand losses during and after the pandemic as occupiers such as Target offloaded large blocks of space from their corporate campuses.
Fast forward to today and unpredictability in the market remains on the minds of some in commercial real estate, but definitely not all.
“If you're a good fiduciary of capital, which we are, I think you do have to reassess Minneapolis given the current environment. We obviously certainly factor in the current situation into our underwriting if we're looking at new opportunities,” Lanners said. In recent weeks, his team at Onward has ramped up its investment in Washington, D.C.
In Minneapolis, Onward signed sizable tenants at its Wells Fargo Center last year, including 87,000 square feet for law firm Robins Kaplan.
Multiple in-market leaders told CoStar News in January that deals are continuing to get made in the Minneapolis market and that activity is picking up. Bullish on the economy, they see the robust and diverse business community that includes several firms founded in Minnesota, a well-educated workforce and measured growth as the larger picture to the enduring legacy of the area.
“I had a tour yesterday with a company who chose to, they're a European company, they chose to open a 15,000 square foot office in Minneapolis. And the reason they chose to was the access to talent for what they do,” Brent Robertson, the market lead and managing director of real estate services firm JLL's Minneapolis and St. Paul office, said in an interview.
He added that “I had another company who I toured that was growing from 10,000 square feet to 30,000 square feet. And part of the reason they're growing to 30,000 square feet is because they're calling all their employees back into the office.”
As in other major markets across the U.S., office occupiers in the Minneapolis area often are seeking newer spaces, though that is not always easy to come by in the Twin Cities.
Outside the traditional central business district, the centers of gravity for metropolitan Minneapolis include the North Loop neighborhood adjacent to the downtown and the France Avenue corridor down south toward the airport, where much of the new construction in the region is underway.
That includes the 136,000-square-foot office project The Craftsmen that's expected to be completed this fall, in suburban Edina, Minnesota. Four miles away, construction began in the fall on Arcadia, a 115,000-square-foot office building.
Retailers among hardest hit
“We're community first and we're coffee second,” Vanessa Palestino said over coffee at her storefront Hola Coffee that sits just north of downtown across the Mississippi River. She opened the 725-square-foot shop in September 2024 and decided to join other small businesses shutting their doors on selected days in solidarity to protect the actions of ICE.
Choosing to close completely one day "was a very tough decision during a time here in Minneapolis where it's cold, and it's slow already for businesses like ours,” Palestino said. “Closing on a Friday, which tends to be a busier day for us in the slow season, is not easy."
Earlier that day, a barista at another chain coffee shop in the downtown core said the more residential area of south Minneapolis is more likely to have local shop owners experiencing the effects on the flow of customers as a result of concerns about by ICE in the city. That is where Glam Doll Donuts, close to where Pretti was killed, is located. The shop shared on social media it would close for a few days after the shooting but emphasized it would return.
Minneapolis has one of the largest Somali populations in the United States, part of the immigrant presence that has been a focus of ICE. Some businesses run by the area's Somali community were shuttered, The Associated Press reported last month.
But chain retailers in other pockets of the city, including at the Mall of America — one of the nation's biggest retail hubs, had a steady flow of shoppers on Jan. 30, a day some businesses around the country were staying closed in protest of ICE activities.
The city's tourism association, Meet Minneapolis, however, surveyed nearly 500 of its partners — including restaurants, hotels and retail shops — in mid-January on the business impact of the current federal activity in the area.
Of the more than 100 responses received, 90% said they’ve been impacted, and out of that group, 80% reported they have directly experienced canceled, postponed or reduced bookings or sales. Also, 90% said fear or stress was affecting operations, with 72% reporting staffing absenteeism. A few hotels even closed their doors.
Plus, some events in the city have been canceled, the Pioneer Press of St. Paul reported. Others scheduled to host meetings in the city in the coming months, including the Public Library Association that is holding a conference in the city in April, said they are “closely monitoring recent events.”
While ICE didn't respond to an email request to comment regarding if and how it sees its operation in Minneapolis affecting area businesses, U.S. border czar Tom Homan said on Wednesday that the goal "is to achieve a complete drawdown and end this surge as soon as we can, but that is largely contingent upon the end of the illegal and threatening activities against ICE and its federal partners that we’re seeing in the community."
Multifamily demand persists
Minneapolis saw some of the best year-over-year multifamily rent growth in December in the nation, at 2.4%, CoStar’s latest report shows.
The largest public housing redevelopment in city history broke ground last year. The $78 million project will preserve 221 units across two neighboring buildings in Northeast Minneapolis.
But broadly, limited new supply is continuing to fuel rent growth in the metro area, according to the latest report on the topic shared with CoStar News by Northmarq, a brokerage with headquarters in the metropolitan area. That report counted net-move ins of more than 9,800 units as asking rents posted a fourth consecutive quarter of growth to approximately $1,620 per unit.
Looking ahead, the Northmarq report notes, apartment completions are expected to decline, marking the slowest pace of new supply since 2019. That contributes to downward pressure on vacancy as rent growth is expected to moderate, with average rents forecasted to reach $1,670 a month by the end of 2026.
The absence of enacted rent stabilization in Minneapolis, compared to legislation in neighboring St. Paul that was passed but then rolled back, could be seen as attractive to investors given high demand.
One of the most prominent mixed-use developments underway in the metropolitan area includes Highland Bridge in St. Paul at the site of a former Ford Motor Co. plant. Ryan Cos. is developing that project and Michalski of Ryan Cos. said the legislation did delay the project and could potentially change the unit count by hundreds — though the number of affordable housing units would not be affected.
Growing industrial market
Ryan Cos. a few months ago celebrated the opening of medical equipment maker Boston Scientific’s new 400,000-square-foot campus northwest of Minneapolis in Maple Grove, Minnesota.
It comes as leasing momentum in the Twin Cities industrial market has held steady, CoStar’s latest report shows.
Nate Erickson, who co-founded the brokerage Stack Industrial Partners this year in the Twin Cities, said in an interview, that he has not heard from clients regarding the ICE operation and that the fundamentals of the Twin Cities remain strong.
Interest in the industrial sector, a market that CoStar data shows has a vacancy rate of 4.2%, has resulted in multiple sites of outdated office buildings being transformed into distribution space. For example, an office property near the airport once home to a culinary arts program sold last year and is set to be redeveloped into a warehouse, Minneapolis/St. Paul Business Journal reported.
“There's a lot of old antiquated office buildings that just need to be demo-ed and taken offline," Erickson said. That, he said, will help the city in its efforts to be more resilient to withstand the challenges that come to pass.