Big
Names such as Carlson Real Estate joined market
The
Twin Cities area hasn't seen nearly as much office condo
development as metro areas such as Phoenix, which is one
reason both small and large developers are betting that
there's still plenty of pent-up demand for office condos
here, so long as interest rates don't spike.
One
of the big names in the market is Carlson Real Estate, which
has a 50,000-square-foot office-condo project in Plymouth
that it expects to complete by late this year. Carlson also
is considering another office condo as part of a 50-acre
mixed- use development in Oakdale.
Matt
Van Slooten, president of Carlson Real Estate, said the
company normally builds and holds its office buildings,
but office condos represented a good opportunity in an otherwise
tough office market.
Prices in the Plymouth project, Town Center Office Plaza,
start at $280,000 for a 1,560- squarefoot condo. The project
is aimed mostly at small businesses that otherwise couldn't
afford to have their own building.
"Demand
has been really strong here for about the last two years,"
Van Slooten said. "We feel that small business is the
part of the economy that is coming back a little more quickly.
A lot of them are businesses that follow residential growth:
CPAs, lawyers, insurance agents, chiropractors, dentists.
They don't seem to be as affected by the overall economy."
While
Carlson is new to the market, David Ficek, principal in
Roseville-based DaVem Inc., did his first office-condo project
back in 1998. He figures that he has built 400,000 square
foot of office-condo space since then. Two of his more recent
projects are Annapolis Office Park in Plymouth and Overton
Office Park in Vadnais Heights, which are expected to open
in August.
"You
had lawyers and accountants tired of paying rent and being
at the mercy of a landlord," Ficek said. Spaces in
his projects are often in the 2,500- to 3,000-square-foot
range, with prices of $280,000 to $380,000.
Office
condos work much like residential condos. The owners pay
association fees for snowplowing, lawn mowing and other
maintenance. The fees tend to be about the same as the operating
expenses businesses normally pay as part of their lease.
Overall, monthly outlays are often less than what people
pay to lease space.
Many
office condos have the look of their residential counterparts,
with stick frames and pitched roofs. Some higher-priced
projects, such as Garlson's in Plymouth, have the concrete-
and brick construction of most commercial office projects.
The
advantages of condo ownership include the ability to capture
appreciation or depreciation (for tax purposes), as well
as visibility, because the company can have its name on
the front of the building.
Business owners like the idea of investing in something
tangible, especially since real estate has proven such a
good investment in recent years. "Businesses are a
little frustrated writing a rent check and not seeing a
return," said Lisa Christianson, an independent commercial
broker who is working on an office-condo project called
Oak Hill Executive Center in Mahtomedi.
"They
also get a little more control over their space" when
they buy, she said. "It diversifies their holdings
and their risks."
Some
of the risks are logistical. Damiani said that, among other
things, companies owning condos can lose their flexibility.
"If you are a 1,500-square-foot user and you decide
you now need 2,500 square feet, it's hard to buy the unit
next door," he said. "It's not like a lease where
in three years you can move or expand."
Brent
Erickson, a senior associate in office brokerage at Bloomington-based
United Properties, said there's also straight financial
risk, depending on how long owners stay in the property
and other circumstances.
"Some
people think, 'Well, I've refinanced my house two times
in four years, and the value has gone up a ton, and my house
is real estate,' " Erickson said. "But this real
estate is not guaranteed to appreciate. It's not as easy
to establish the value of a building as a house. You just
can't say it will appreciate 5 or 6 or 7 percent a year."
He
noted that if a business changes or a partnership dissolves,
office market forces take over. The alternative to selling
at a bad time is "to play landlord. Now you're competing
with every building on the block."
Because
the office-condo market is made up primarily of new properties,
Van Slooten said that "in some ways the market has
not been tested. A lot will depend on location and the quality
of the product."
Miller,
who bought his first office condo 18 months ago, sees nothing
but pluses. He's not only bought two condos in Maple Grove
but, more recently; two others in Plymouth.
Miller
has the advantage, though, of a ready-made universe of tenants
- Farmers agents. He said that each of his Maple Grove buildings
were recently appraised at $365,000, up from the $224,000
he paid.
Scott
Robertson, CEO of Select Food Products Inc. in Plymouth,
also is a believer. He bought his 3,000-square-foot office
condo in Plymouth three years ago and has gone on to buy
more in other states.
Select's
Plymouth headquarters staff, which supports an operation
that manufactures food products for club warehouses and
other retail outlets, had been in a traditional space in
an office tower.
Besides the financial advantages to the condo, Robertson
said the concept "coincides with how I want to run
my life and my business." •
"There's
more of a homey feel vs. a cold corporate tower."
