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When the eight-story Gallery Professional Building at 17 W. Exchange St. went up for auction in early October, it sold for more than the advertised minimum starting price of $125,000, but it’s listed on Ramsey. It was only a fraction of its estimated market value of $4 million. County property records.
The Twin Cities Salvation Army has not yet released the exact sale price until the purchase is finalized, but St. Paul developers familiar with the deal say the sale, or in some cases the lack thereof, of the downtown building will It said it raises questions about whether the downtown building is eligible for sale. Market forecasts say it is overvalued. Considering the age of these buildings, they tend to require high maintenance and reuse costs, and in some cases, unpaid property taxes can accumulate, resulting in a large financial burden.
These challenges raise the possibility that some buildings will simply have to be demolished rather than being converted to new uses such as housing.
A committee organized through the St. Paul’s Downtown Alliance and made up of downtown stakeholders from the public and private sectors asked real estate design and consulting firm Gensler to survey 20 downtown structures and determine which ones would be eligible for new commercial tenants. We asked them to decide whether to renovate or demolish the building. , perhaps creating space for new parks and plazas.
“We’re going to be faced with a harsh reality about the value of these buildings,” said St. Paul City Councilwoman Rebecca Knocker, who co-chairs the Downtown Commercial Real Estate Committee with Securian’s CEO. There’s no doubt about it.” Chris Hilger.
“The sooner we accept and recognize that, the sooner we can adapt and adapt to that new reality,” Knocker said. “It’s a tough situation, but the decline in these values is something that not just us but everyone in downtown is experiencing right now, but only the owners who profited from the artificially inflated prices. “It’s also an opportunity to open up the market to more players.” ”
In their efforts, commission officials say a new commercial redevelopment district, led by staff to be hired early next year, will acquire, reuse or demolish at least some of these buildings to create new public plazas. It said it could raise funds to create space for and other facilities and provide better connectivity. From Rice Park to Mears Park. The mayor’s office has created its own list of priorities for downtown revitalization, including hiring a new city project manager specializing in office-to-residential conversions.
New valuations will be announced in March
The two-story Gallery Tower office building at 27 W. 10th St., next door to the Gallery Professional Building, was auctioned Oct. 21-23, with no reserve price and opening bids starting at $1. The vacant building has an estimated market value of $1 million, according to Ramsey County property records. A spokeswoman for Catholic Charities, the real estate sales company, said Wednesday that it would decline to release the sale price until it is finalized.
Ramsey County Assessor Patrick Chapman said the closure of adjacent St. Joseph’s Hospital likely had a significant impact on the two medical office buildings, and the prospect of converting them to new uses would affect the sale price. Ta. Sales prices for comparable properties are just one of several factors that help the county estimate market value for an entire neighborhood when it conducts assessments each December, January, and February. It remains to be seen how auction prices will affect surrounding property values, but Chapman expects there will be a negative impact when property statements are mailed in March.
“Some of the properties for sale will likely have future uses that are no longer their current uses, so they will be sold at significant discounts to account for that change,” Chapman said. said. “We are trying to look at all the information like vacancy rates, capitalization rates, rents, etc. to come up with valuations for 2025.…We are historians of the world of values. uses this year’s events to determine the value of taxes to be paid next year, in 2025 and 2026. There are always downstream effects.”
The prospect of declining real estate values is not unique to downtown St. Paul; downtowns everywhere face tough challenges in the age of remote work and online retail. The Forum Building, a pair of office towers in downtown Minneapolis, sold in September for $6.5 million, 91% less than its previous sale price of $73.7 million in 2019.
Another vulnerable time
That’s small consolation for some St. Paul-based developers.
“Downtown St. Paul is once again at a vulnerable point in its history and requires significant new capital investment to revitalize the market,” developer Jamie Stolpestad said in a statement. “Unfortunately, new investments have gone from one of the nation’s worst rent control ordinances to uncoordinated state, county, and city efforts and resources, to a diversification of focus to the nonprofit sector, to public safety and public awareness. Numerous barriers exist to the safety of our downtown.”
“We look forward to reducing property tax assessments to current market values, enabling new tax increment financing and other fiscal incentives, and a streamlined permitting system in the near future.” Stolpe Stud added. “I believe St. Paul will have a wide range of thoughtful economic and We look forward to presenting a package of administrative initiatives.”We hope that we do not face a scenario where the situation gets worse before it gets better. ”
Chapman said a potential silver lining for St. Paul is that the city has become less reliant on the downtown tax base over the years, which can be interpreted both positively and negatively. .
Downtown buildings accounted for nearly 9.5% of all property taxes pre-pandemic in terms of taxes owed in 2021, but that number dropped to 7.5% in taxes owed this year. Downtown commercial properties (office buildings, retail stores, hotels) once provided 5.7% of city taxes. This year it is about 4.2%.
In addition to closing buildings, “we’ve also done some conversions from office space to residential space,” Chapman said. “There are several factors behind this number. St. Paul’s is ahead of the curve when it comes to this type of transition. We’ve been converting for 10 to 12 years. We have exposure, but Not as much as I thought. St. Paul is a balanced community and doesn’t rely too much on its downtown core to support its overall tax base.”
Madison Equities owes $3.24 million in property taxes.
When the St. Paul Athletic Club building on Cedar Street went up for auction in September, the 13-story office, hotel and gym building did not meet an undisclosed reserve price and was not sold. Ta. The building, owned by John Rupp, has an estimated market value of more than $3.8 million, down from $6.5 million in 2020. Approximately $536,000 in unpaid property taxes has also been accounted for, which could be forfeited in 2026. In property records.
Unpaid property taxes are not an isolated story in downtown St. Paul.
One potential stumbling point for banks and potential buyers is that many downtown office buildings are in arrears on taxes that accrue interest and penalties. These taxes would likely have to be paid before the buyer could acquire the building and repurpose it for a new use, such as housing.
Perhaps the most dramatic example is Madison Equities, which put a 1.6 million square foot property on the market in April. Ten properties, including downtown office buildings and parking ramps, are collectively behind $3.24 million in property taxes.
U.S. Bank Center owes $1.16 million. The First National Bank building is owed $1.13 million. Alliance Bank Center owes $494,000. The office building at 375 Jackson Street owes $390,000. And the stadium parking ramp is $67,000 in debt.
Some properties have already been traded. Madison Equities recently lost the 11-story Raleigh Apartments building at Fourth and Wabasha streets in a foreclosure auction when its mortgage lender acquired the former hotel. At the city’s request, a Ramsey County District Court judge appointed a receiver to manage the property, given the numerous code deficiencies.
Factors that prevent walking
Knocker said she and other active members of the St. Paul Downtown Alliance are well aware that some of Madison Equities’ properties are vacant or in disrepair, and that He said the lack of maintenance has contributed to the feeling that there’s a bit of a dead zone between it and Rice Park. Mears Park is sparsely populated, with vacant and little-used buildings locked and dark.
“We have a really compact downtown that’s small and walkable, but people don’t want to walk…mainly because they don’t feel comfortable,” Knocker said. “In fact, what discourages people from walking between Upper and Lower Towns is that donut hole in the middle.”
“Madison Equities owns some of the key buildings that are kind of a barrier for people who want to walk through our downtown,” she added. “We (as the city) or a private partner need to take control of the building first. That’s step one.”
To make the acquisition possible, the Downtown Alliance wants to create a commercial redevelopment district that spans much of downtown. How a new downtown company, led by new staff likely to be hired in early 2025, will raise funds, partner with businesses, acquire real estate and design a public space to replace the reconfigured and demolished site. You will find.
“This is going to be good for the whole downtown,” Knocker said. “We’ll raise money to get this person on board and give them staff.”
It remains to be seen which buildings will be the best candidates for the proverbial wrecking ball and what uses will replace them. In some cases, properly designed empty space (think university quads between crowded academic buildings) may be the most attractive use of all space, Knocker says. Said.
“Boston and Cambridge have large public spaces where you can host pop-up events and public markets,” Knocker said. “I was just in Toronto and I walked into the square and there were two different festivals going on, a Korean festival and a vegan festival.”
First published: October 26, 2024 at 6:46 p.m.
