North Loop, Minneapolis
Built in 1865 as a hotel, the Pacific Flats building is a beautiful Italianate building located in the Historic Warehouse District of Minneapolis. Originally a multi-use building with storefronts at street level and a hotel occupying the upper two stories, the building was partially renovated in 2007 with four new retail tenants, but the upper floors remained vacant until Element’s team became involved. Over the course of four years, Element co-founders, JoAnna Hicks and Kevin Kuppe, worked with the building owner to renovate the upper floors, secure new tenants, and reposition the building as the premiere building within Minneapolis’s most popular and fastest growing neighborhood.
After touring the vacant floors with the building owner in 2013 while at a prior firm, Element co-founders began painting a vision for how the owner could improve the building’s value and cash flow by building creative office space. Tapping into the growing trend for brick and timber offices located in highly walkable areas, the renovation scope, budget and leasing plans presented to the owner were designed to be implemented after an anchor tenant was secured. Together, their vision was to see the property fully leased with market leading rents.
The first step was to stabilize and reposition the retail tenants on the first floor. When a tenant’s lease expired, the team secured national retailer, Filson Shinola, for the corner space at market leading rents. Filson Shinola’s stunning store set the tone for the next level of North Loop retailing, and is often cited as an indicator of the neighborhood’s success. The remaining retail leases were negotiated to provide a long-term stable base for the proposed renovations.
Hicks and Kuppe continued to clear project obstacles to commence renovation of the building with a range of strong, creative tenants. In the spring of 2015, the team secured a 10,000 square foot, 3rd floor lease that provided the owner with confidence to proceed with the renovation of the building. Construction started in July 2015, and the final lease for the building was signed in March of 2016.
The result of this work is a 200% increase in the value of the building, and a ten-fold increase in net operating income through a combination of new leasing and a shift from gross to net leases. 100% leased, the building has achieved market-leading rents due to the unique spaces and appeal to businesses that want to attract and retain employees. Although it took a year to secure the anchor tenant to allow the owner to kick off the renovation with minimal risk, the team achieved rents that were 20% higher than projected, and the project met the owner’s budget and schedule expectations with a 15% return on cost.