Market Opportunity

In February 2007, Turnstone Group acquired the Pence Building and adjoining surface parking lot, located at 800 Hennepin Avenue, Minneapolis, Minnesota. Originally built in 1909, the Pence Building had been occupied by a single-tenant owner/user who has recently vacated the building. The skyway-connected building is well-located on the edge of the central business district and in the heart of the Minneapolis Theatre District. In addition, the building’s proximity to both the Target Center, home of the Minnesota Timberwolves, and Target Field, the new home of the Minnesota Twins starting in 2010, reinforced the viability of the asset as a repositioning opportunity.

Strategy

Turnstone Group negotiated an off-market transaction directly with the seller, facilitating a purchase price well below replacement cost and at a significant reduction to the other comparable transactions in the area. Upon acquisition, Turnstone Group implemented a repositioning program to make the building suitable for multitenant use, which included receiving a historic designation, affording it the opportunity to sell historic tax credits and significantly reducing the overall building improvement costs. In addition, Turnstone Group exposed many of the building’s historic features, such as high ceilings, concrete forms and columns, which appeal to the many design and creative firms that favor the building’s location.

Results

Despite a difficult market, leasing interest in the building has been strong, achieving 75% leased in the spring of 2009. Current projections anticipate a project IRR of approximately 19% and a cash flow-to-equity multiple of 2.0x.