Once upon a time, an office building was an office building, a hotel was a hotel, and an apartment building was an apartment building. But today, mixed-use projects combining different property uses are increasingly popular. While the most common mixed-use developments are apartments with ground-floor retail space, many developers are assembling a wide array of mixed uses, sometimes in unexpected combinations.
Mixed-use development isn’t the future of commercial real estate; in many cases it’s already become the norm.
But mixed-use projects are more challenging than a single-use development. For starters, different property types have differing operating needs and components. The challenge for developers is finding a way to smoothly combine two or more different property uses in a single project.
“Mixing two uses is a complex thing. I wouldn’t say it’s simple,” says Tony Barranco, senior vice president of real estate development with Minneapolis-based Ryan Cos. US Inc., a firm that has developed many mixed-use projects and continues to do so.
In the Uptown area of south Minneapolis, Ryan is redeveloping the former Sons of Norway office site. The new project will include 318 apartments, plus office and retail space. But in looking to strike the right balance, Ryan is adding only about 6,500 square feet of retail space on the Lake Street side of the project—a relatively small amount.
Another key part of mixed-use projects can be connecting with partners with more expertise in specific property types. With the Sons of Norway project, Ryan has teamed up with Weidner Apartment Homes, based in the Seattle area with a Twin Cities office. “We are not apartment operators,” Barranco says.
Large and small
While some mixed-use projects might be on a single site or city block, others are master-planned for sites that cover significant acreage, such as the site of the old Ford factory in St. Paul, which stretches over 122 acres.
Ryan has been tapped as the developer for the Ford site. Ryan’s vision calls for 3,800 units of housing, along with retail and office space. Barranco says Ryan was guided by the master plan that the City of St. Paul had developed for the site over the course of a decade. Barranco estimates that it will take 10 to 15 years to fully develop the site.
The Minnesota Vikings moved their training camp from Mankato to Eagan in 2018, but team owners have much bigger plans for the 200-acre swath of land now being billed as Viking Lakes. Vikings owners Zygi, Mark, and Leonard Wilf founded MV Eagan Ventures to develop the project. The ambitious plans ultimately call for 1.2 million square feet of office space, 950 units of housing, a new hotel, and 160,000 square feet of retail/entertainment space.
“You can’t do this all at once,” says John McCarthy, senior managing director for the Minneapolis office of New York-based Newmark Knight Frank, who leads the brokerage team marketing Viking Lakes.
McCarthy says the Wilf family wants to strike the right balance among all of the project components, from future corporate office tenants to new retail stores. That means being selective about what fits and what doesn’t. McCarthy notes that the presence of a hotel is a strong selling point for future office users.
“We are also talking to many retailers trying to figure out what the right mix is,” McCarthy says.
Plans call for linking many of the commercial buildings.
“The idea is to connect them all as they’re built,” McCarthy says. “We’re in the early stages.”
One of the advantages of mixed-use plans is that they can make the overall plan more attractive to potential tenants.
“In our view, [mixed-use] creates a more unique, exciting, attractive, and sustainable environment for today’s workforce,” says Bill Katter, president and chief investment officer for Minneapolis-based United Properties Development.
Following a request for proposals, the City of Minneapolis selected United Properties as the developer for a city-owned downtown surface parking lot. United Properties announced in April that RBC Wealth Management will lease approximately 310,000 square feet of office space in the Gateway building for its U.S. headquarters. In November, United Properties revealed that it had signed a term sheet to bring a five-star Four Seasons Hotel to the project, which also calls for additional office space and a small number of condos at the top of the tower.
United Properties discarded its original concept for apartments at the site in response to its read of the market.
“As a developer, you have to be flexible and you have to manage risk,” Katter says. “Mixed-use does allow for a way to effectively manage some risk.”
As mixed-use development grows more common and popular, Katter says that the bar is higher for some new projects.
“I think you’re getting a glimpse of the raising of the bar for mixed-use office space with the Gateway project,” Katter says.
Selected Metro Mixed-Use Projects
Ford site, St. Paul
Ryan Cos. US Inc.
The site of the former Ford plant in the Highland Park area is 122 acres, huge by urban development standards. It will take 10 to 15 years to redevelop the site. In broad strokes the plan calls for 3,800 units of housing, 150,000 square feet of retail space, 165,000 square feet of office, commercial, and civic space, and more than 50 acres of public and open space.
Canterbury Commons, Shakopee
Canterbury Development LLC
Current plans outline a vision for up to 800 units of housing including townhouses and senior housing, as well as a business park with up to 500,000 square feet. Longer-range concepts include adding hospitality and retail/entertainment elements. The project will take five to 10 years to fully develop.
Viking Lakes, Eagan
MF Eagan Ventures
At 200 acres, Viking Lakes is even larger than the Ford plant project in St. Paul. The site is already home to the football team’s training camp, plus offices for the Minnesota Vikings and the Twin Cities Orthopedics medical office building. Construction is underway on a 320-room hotel. Long-range plans call for 1.2 million square feet of office space, 950 housing units, and 160,000 square feet of retail/entertainment space.
Sons of Norway site, Minneapolis
Ryan Cos. US Inc./Weidner Apartment Homes
The site on Lake Street near Hennepin Avenue was the longtime home of the Sons of Norway. Construction is underway on a project that will include 318 apartments, 15,000 square feet of new office space for Sons of Norway, and 6,500 square feet of retail space.
Former Dayton’s/Macy’s store, Minneapolis
601W Cos./United Properties
The last department store in downtown closed in early 2017. The big-picture plan calls for overhauling the vintage building to create 750,000 square feet of office space and about 200,000 square feet of retail space, including a food hall.
Kraus-Anderson block, Minneapolis
Kraus-Anderson Development Co.
On a full city block, the completed project includes a 100,000-square-foot headquarters office for Kraus-Anderson Cos., 306 apartments, the 168-room Elliot Park Hotel, and Finnegan’s House, which includes a brewery, event center, and nonprofit incubator space.
Gateway project, Minneapolis
A mixed-use tower with more than 30 stories will include 480,000 square feet of office space, a 280-room Four Seasons Hotel, and 24 to 30 condos on the upper floors. Its location is the corner of Hennepin and Washington avenues. RBC Wealth Management will lease about 310,000 square feet of the office space.
United Properties also is involved in the overhaul of the former Macy’s store in downtown Minneapolis. New York-based 601W Cos. acquired the property for $59 million in 2017. United Properties is a development partner and minority investor in the project.
“Our focus has been primarily involved in the retail component,” Katter says. “It’s just a very dynamic retail location.”
With the fall opening of the new Elliot Park Hotel, Minneapolis-based Kraus-Anderson Cos. wrapped up its development of a full city block in downtown Minneapolis. The site now includes Kraus-Anderson’s new headquarters office building, apartments, the hotel, a brewery, and an event center. The project took two and a half years to construct. After city planners initially balked at the company’s plan for an office building and surface parking lot, the developer brought a new mixed-use vision.
“We realized that there was a bigger value to the property and a bigger lens that we could look through,” says Mike Hille, executive vice president with Kraus-Anderson Realty Co. “Very rarely do you have an opportunity to develop an entire block,” he says, noting that the project is unique in metropolitan areas.
The mixed-use trend is even drawing some business leaders with no background in commercial real estate development. Publicly traded Canterbury Park Holding Corp. operates a horse racetrack and a card club in Shakopee, where the company is based, and is now engineering a large mixed-use project called Canterbury Commons.
“We started this process about 10 years ago. At that time, our vision was much more retail-oriented,” says Randy Sampson, president and CEO. “Obviously, that market has gotten much more difficult,” he says. “Retail is tough. There is more residential to it because that market is still very strong, especially in Shakopee.”
Bloomington-based Doran Cos. broke ground at the site in October for a project called Triple Crown, the first phase of multifamily development there. “It is a partnership,” says Sampson of the deal with Doran. “We will be a minority partner in that.”
Initially, Sampson is focusing on the housing and office components. The site has about 150 acres for the mixed-use development; the housing and office portion will occupy 60 acres. Beyond that, he is looking to hospitality and entertainment concepts that could be a good fit with the racetrack.
“That piece of it is less defined,” Sampson says. “Is there a bowling concept? Is there potentially a movie theater? Another option is a hotel waterpark.”
Calling large-scale mixed-use projects complex is an understatement. Minneapolis-based Alatus LLC has been tapped as the master developer for the expansive former site of the Twin Cities Army Ammunition Plant in Arden Hills. The 427-acre site is now being billed as Rice Creek Commons. Conceptual outlines of the long-range plans call for 1,460 housing units and enough commercial uses to support 4,000 jobs. Alatus has sketched out plans for a 46-acre “commercial campus,” 20 acres of mixed-use retail, 20 acres of office space, and 73 acres of “flex business space.”
Late in the year, however, a standoff between Ramsey County and Arden Hills was casting a cloud of uncertainty over the project. Alatus principal Bob Lux declined comment as of mid-November.
In expanding urban areas like Minneapolis/St. Paul, mixed-use can offer a strategy for more efficient land use by combining different property types into one project. But sometimes city leaders or planners might be pushing a mixed-use project on a site where developers don’t think the market can support all of the included property types. For example, a good office site is not necessarily a good retail site or a good residential location.
Says Barranco, “Finding the right planning balance with mixed-use is a challenge.”
Burl Gilyard is TCB’s senior writer.
This article is reprinted in partnership with Twin Cities Business.