Downtown Minneapolis office tower slated for apartment conversion

A downtown Minneapolis tower is slated to become the city's first conversion from offices to apartments since the pandemic hit.

Driving the news: Minneapolis-based developer Sherman Associates has proposed turning the 13-story Northstar Center East, at 608 2nd Ave. S, into 216 apartments.

• 20% of the units will be income-restricted, for those earning 50% or less of the area's median income.

Why it matters: This could be a sign of things to come as remote work has reduced the need for office space.

• The project would remove about 300,000 square feet of office space from a downtown Minneapolis office market with a vacancy rate of nearly 30%, according to a recent Cushman & Wakefield report.

Of note: Sherman is doing something similar in St. Paul with the Landmark Tower, converting the office space into apartments.

Between the lines: Northstar Center was struggling even before the pandemic hit after Wells Fargo moved its employees from that building into the new twin towers near U.S. Bank Stadium. Northstar's previous owners had contemplating an apartment conversion back in 2016.

• The deal will be aided by the help of historic tax credits and, perhaps, tax-increment financing from the city for the lower-income units.

The intrigue: Even with a downtown office vacancy rate of 30%, Houston-based developer Hines is moving forward with a 29-story speculative office tower in the area.

• That might seem crazy, but real estate experts call this trend a "flight to quality."
• Companies may be shrinking their office space, but they're working hard to lure their employees back. To do that, they want new, high-end space with lots of windows, lounges, fitness centers and restaurants.

What to watch: Sherman, which didn't respond to Axios' request for comment, said in its application that it anticipates buying the building this fall and finishing construction in 2024.