A local developer has agreed to buy the River West Apartments tower in the heart of the Minneapolis riverfront and plans to add the building to the accelerating condo craze downtown.
Developer Chip Johnson, founder of Minneapolis-based Turnstone Group, signed a purchase agreement for River West Apartments from Minneapolis developer Paul Klodt, according to real estate executives with knowledge of the transaction. Johnson intends to convert the more than 400 apartments to condos, those sources said.
Klodt declined to comment about a pending sale, saying he still owns the building. Johnson could not be reached for comment.
If the project moves forward, it would add to the almost 5,700 condos already in the pipeline for downtown Minneapolis, according to Minneapolis-based Maxfield Research Inc.
So far, the market has digested new projects, with about 700 new units expected to be absorbed this year. The wave comes as residents start moving into the successful $100 million Grant Park condo tower on the south side of downtown. The same development team of Opus Northwest, Minnetonka, and Apex Asset Management, St. Louis Park, are breaking ground on The Carlyle, a 283-unit condo tower located by the central post office.
But several residential experts expressed concerns about the large number of condos in the pipeline. Furthermore, factors such as rising interest rates and condo speculators could burst the bubble, industry sources said. Job growth downtown, or the lack of it, also will affect demand for the proposed condos.
The market will continue to absorb new condos during the next two years, but what will happen beyond that is unclear, experts said.
There’s probably room for one or two more condo towers, but the market for lofts is on the verge of becoming overbuilt, said Brent Wittenberg, vice president for GVA Marquette Advisors, Minneapolis. “In this kind of market, there will be winners and losers,” he said.
The market will continue to absorb about 500 units in each of the next couple of years, said Mary Bujold, president of Maxfield Research.
“My concern is that we end up with too much product, so everyone sells about two-thirds of their building and sits with the other one-third for a year and a half,” Bujold said.
Banks won’t necessarily stop lending to overexuberant developers, she said. “As long as [developers] can sell 50 percent of the units to start construction, the projects will probably move ahead.”
“I think it’s overbuilt,” said Larry Abdo, developer of Six Quebec, the conversion of an 11-story office building into 21 condos and retail space at Sixth and Marquette.
Low interest rates have fueled the housing boom in the Twin Cities, Abdo said. But a little-known factor influencing the condo market in Minneapolis is the presence of speculators who don’t intend to live in a reserved condo but hope to profit by flipping it after its value rises.
The fear is that such speculation could give the market a false sense of demand for condos that isn’t based on people who actually want to live in them.
From Abdo’s experience with Six Quebec, speculators account for about 25 percent of pre-sales. As for his own project, five owners have moved in and two more units are under construction. He hopes the addition of underground parking in the building will help sell most of his remaining units by the end of the year. “We were looking for another [project], but now you have to say the timing is against us.”
River West apartments
River West would be Chip Johnson’s largest project here to date. The complex, built in 1989, has 416 apartments of which about three-fourths are one-bedroom units. The building has a strong location and good views of the river, sources said. Its value for tax purposes is $27.4 million, according to Hennepin County records.
Johnson is known for a condo project called Calhoun Place in Minneapolis, which opened in 2003. He converted a nine-story apartment building to 109 condos.
That project was well-timed to take advantage of the condo-conversion trend fueled by rising home values and low interest rates. The cheap rates have resulted in monthly mortgage payments often as or more affordable than rent.
Johnson grew up in Minneapolis and returned to the area a few years ago. He left a job managing a large real estate portfolio in Japan for Los Angeles-based Colony Capital. Since returning, he started Minneapolis-based Turnstone Group, which focuses on investing in real estate in the Twin Cities.
Scott Pollock, a vice president and investment sales broker for Bloomington-based United Properties, said River West would be a big conversion for this market. However, speed in this market is important.
“If they’re able to buy this and offer it for sale quickly vs. construction, which would be delivered in 18 months, that could give them a real advantage,” Pollock said.