Aug 3, 2022 - Real Estate

Why Twin Cities has so few condos

Illustration of a construction crane lifting another crane, which is lifting another crane, which is lifting another crane.

Illustration: Brendan Lynch/Axios

The Twin Cities is in a decade-long multifamily residential housing boom, but almost none of the new construction consists of for-sale condos. It's nearly exclusively rental units.

Why it matters: There seems to be plenty of demand for condos as people want fixed housing costs and opportunities to build equity. The few recent projects that were built have sold quickly.

State of play: Twin Cities has seen a few condo projects in recent years, most notably the Eleven tower and RBC Gateway Tower in downtown Minneapolis, as well as smaller scale projects in Wayzata.

  • But those have been priced mostly above $1 million.

Driving the news: With St. Paul’s new 3% rent hike cap, you’d think more developers would want to build condos to avoid the policy, but that has not been the case.

Threat level: Developers say condos are a massive challenge and often avoid such projects.

  • Investors and lenders are scared of them. Ari Parritz, managing principal of development firm Afton Park, said a small condo bust in the late 2000s has set a new industry standard: Rentals, rentals, rentals.
  • There are too few comparable projects for developers to point to as examples of success.
  • Lenders require developers to pre-sell a high percentage of units before even breaking ground, he said.
  • Parritz said condos are slow everywhere, but even more difficult in Minnesota due to state laws making it easier for condo associations to sue contractors.
  • Recent rising interest rates have made mortgages more expensive for condo buyers on a budget.

Between the lines: One logical place for condos would be Ryan Cos.' Highland Bridge site, which is on pause following the passage of the rent control measure.

  • The company had planned to build a small number of condos there this year, but has halted them because they were connected to the apartment projects.

But don't expect the company to pivot to building more condos instead. Ryan Cos. developer Maureen Michalski told Axios the units would have to be priced at $1 million and above due to building costs.

  • "It's highly unlikely that a meaningful amount of condos will be built at Highland Bridge," she said.

The intrigue: At least one project is bucking the super-expensive trend.

  • Portico at the Falls near Minnehaha is under construction and its website says 23 out of 26 units are sold, with many priced below $700,000.

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