Why a downtown office tower sold at a 97% discount
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Ameriprise Financial Center could have been yours for $6.25 million. Photo: Nick Halter/Axios
A downtown Minneapolis office tower that sold for $200 million in 2016 has traded hands again, but this time for just $6.25 million — a 97% discount.
Why it matters: On its surface, this is a shocking drop in value that feels like doom for downtown and the city — but the price that local group Onward Investors paid for Ameriprise Financial Center makes sense when you look behind the curtain of the economics of owning office properties in our new era of hybrid work.
Catch up quick: The 31-story, 960,000-square-foot tower was built in 2000 for Ameriprise. The Fortune 500 company is moving employees into a nearby tower it owns, leaving the just-sold tower empty.
- This isn't a Minneapolis disinvestment by Ameriprise — the company just spent $22.3 million upgrading the other tower, according to building permits.
State of play: The rise of remote work has decimated office values in both downtowns as well as the suburbs in the Twin Cities. But with other recent sales, the discounts have been more like 65%.
Inside the room The Ameriprise Financial Center sold at a bargain due to its unique challenges, two sources familiar with the building and downtown real estate told Axios. They requested anonymity, because they weren't authorized to speak to the media.
- Those sources said banks have pulled back on lending for office acquisitions, so buyers are often stuck paying cash, driving down building values.
- Those sources estimated it would take $20 million to upgrade the building with a fitness center, lounges and other amenities to make it an attractive multi-tenant building.
- Then, the owner might need to shell out another $50 million to $60 million to build out offices for individual tenants and pay commissions to brokers.
- Meanwhile, office leasing is slow, and finding tenants to fill the building will be tough. A recent Newmark report projected that downtown's office vacancy rate will remain above 30% at least through 2028.
Yes, but: In announcing the acquisition, Onward Investors left the door open for converting some or all of the building into apartments or hotel rooms.
- That won't be easy, because the building has large floors that are tricky to convert to apartments.
- The building is not historic, so it can't get the 40% historic tax credits that older buildings get.
The bottom line: While the city's office real estate market remains in disarray, there are promising signs for downtown Minneapolis, with condo prices rising and tourism rebounding.