The mess at Normandale Lake
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Normandale Lake Office Park, with the 8500 tower in the foreground. Photo: Nick Halter/Axios
Normandale Lake Office Park is in a state of distress due to a complicated maneuver by an out-of-town investor whose tactics have raised eyebrows elsewhere.
The latest: The 8500 tower near the I-494/Highway 100 interchange — one of five buildings in the complex — sold last week for just $4 million, a jaw-dropping price because the 467,000-square-foot building is 75% leased and just three years ago sold in a larger deal that valued it around $100 million.
Why it matters: The ongoing devaluation of this office park — long considered a trophy asset — will put a dent in the tax base for Bloomington and Hennepin County.
- The new co-owner, New York-based Namdar Realty Group, has a track record of squeezing cash out of dying malls and has been fined for failing to maintain them.
State of play: The tower has some challenges. It's losing one of its largest tenants in Schwan's Co., and the southwest metro office vacancy rate was 27.7% as of July, according to a JLL Minneapolis report.
Yes, but: The big reason for the paltry sale price is how the previous owner structured its purchase.
- New York-based Opal Holdings bought the 1.7 million-square-foot complex in 2022 for $366 million, or $215 per square foot.
How it works: Opal, upon buying office properties, has a strategy of splitting the ownership of the buildings and the land on which the buildings sit, according to The Real Deal.
- Within two years of the Normandale purchase, lenders began foreclosure proceedings on individual towers, alleging that Opal defaulted on its loans.
- The 8500 tower that just sold has a ground lease for land owned by an entity with ties to Opal CEO Shaya Prager, according to the Minneapolis/St. Paul Business Journal.
- A source familiar with the 99-year lease told Axios that the owner of the tower must pay the Opal-related entity $2.4 million a year, but that amount increases annually, which devalues the building. That source was not authorized to speak on the record.
- The Real Deal says that this strategy might not be illegal, but ground lease experts frown upon it. A bank is suing Opal over a similar deal in Texas, alleging fraud.
Opal did not respond to a request for comment.
What we're watching: The other four towers could be next. As lenders foreclose on them, they are likely to sell and their values will fall.
- In 2022, the five towers were valued at more than $300 million and paid north of $10 million in property taxes.
The bottom line: What's happening at Normandale Lake isn't so much a reflection of the Twin Cities office market as it is a complicated real estate deal that is leaving some lenders with significant losses.