As commissioner of theMinnesota Department ofEmployment and Economic

Development (DEED), I’ve visitedwith businesses throughout thestate and reviewed some timelydata on Minnesota’s economy.Although there are short-termeconomic soft spots, businessesand the economic data suggestthat the Minnesota economyremains strong and vibrant.

2007 Economic ReviewThe big economic story of 2007nationally and in Minnesota wasthe loss of momentum in the housing market and theresulting credit crunch. These changes contributed toemployment losses in the construction and finance industriesand have trickled over to many sectors, including retail.

On the other hand, the economy is continuing to grow.DEED’s employment data shows some important sectors areperforming well, including medical-device manufacturing,insurance carrier operations, business services, tourism andsome retail segments including general merchandise anddepartment stores. The national economy continues togrow. The Federal Reserve has lowered interest rates,encouraging lending and boosting investor confidence.

Minnesota manufacturers reported a relatively strong 2007,according to DEED’s recent Manufacturing BusinessConditions Survey. Significant employment and profit growthelude the industry, but increases in orders, productivity andproduction levels appear to offset some of those effects.

State manufacturers are also continuing to benefit fromincreasing exports. Minnesota’s third quarter 2007 exportsreached a record high with growth of nearly 12 percentfrom the third quarter of 2006.

Feature

MSCA Connection Feb 081

msca-online.com

February 2008

In this Issue

No. Branch Mktplace - SNAPSHOT 1Credit Crisis --- HOT SPOTS / COLD SNAPS 2lucy -------------------- RISING STAR 3Colianni / Moen ---- MEMBER PROFILES 5MSCA Board ------ COMMITTEE PROFILE 5Mpls Momentum -- PROGRAM RECAP 6

Minnesota Shopping Center AssociationVol 22. No 2

Location: NWQ I-35 & Highway 95, North BranchMonth/Year Opened: Under construction – store openings inOctober 2008Owner: North Branch Marketplace LLCManaging Agent: Steve Johnson, Solomon Real Estate GroupArchitect & Construction Contractor: Amcon ConstructionSite Planner/Engineer: Westwood Professional ServicesGLA and Tenants: 186,000 sf including a Shopko, unnamedGrocer, 21,000 multi-tenant retail space, Holiday Gas, Arby’s andthree outlot padsMarket Area Served: North Branch & surrounding communitiesConstruction Style: Concrete block, brick, glass and EIFS storefronts with awningsAdditional Facts/Narrative: North Branch Marketplace is a 43-acre retail center with excellent visibility and easy access off I-35.The unique mix of a general merchandiser, grocer, conveniencestores, and highway-related services offer retail opportunities tothe City and Highway corridor traffic. The synergies of this retailcenter coupled with the existing Outlet Mall to the south providesa much-needed and unique shopping venue to the region.

Snapshot

Trends Look Promising for State Economy

North Branch

Marketplace

ConnectionGuest Author: Dan McElroy, MN Dept of Employment & Economic Development

2008 Sponsors

American Engineering Testing, Inc.Aspen Waste Systems, Inc.Barna, Guzy & Steffen, Ltd.Bremer Bank, N.A.Brookfield PropertiesCB Richard EllisCSM Corporation Cambridge Commercial RealtyCapital Growth Madison MarquetteChesapeake Companies Chuck & Don's Pet Food OutletColliers Turley Martin TuckerThe Collyard Group L.L.C.Commercial Partners Title, LLCCuningham Group Architecture, P.A.Cushman & Wakefield of Minnesota, Inc.Dick's Sanitation, Inc.Doran CompaniesDougherty Funding LLCEmmes Realty Services LLCExeter Realty CompanyFaegre & Benson LLPFendler Patterson Construction, Inc.Fredrikson & Byron, P.A.General Growth Properties, Inc.Gray Plant MootyGreat Clips, Inc.Griffin CompaniesH.J. Development, Inc.HempelInland Real Estate CorporationItasca Funding Group, Inc.JE Dunn ConstructionJones Lang LaSalle/Rosedale CenterKKE Architects, Inc.Kraus-Anderson CompaniesLandAmerica LandformLarkin Hoffman Daly & Lindgren Ltd.Let There Be Lights!M & I BankMcComb Group, Ltd.McCombs Frank Roos AssociatesMesserli & Kramer P.A.Midwest Maintenance & Mechanical, Inc.Minneapolis/St. Paul Business JournalNAI WelshNorthMarq Capital, Inc.Olsson AssociatesOppidan, Inc.Opus Northwest LLCPark Midwest Commercial Real EstatePaster EnterprisesRJ Marco Construction Inc.RLK IncorporatedRSM McGladrey, Inc.RSP Architects Reliance Development Company, LLPRobert Muir CompanyRyan Companies US, Inc.Shea, Inc.ShingobeeSolomon Real Estate Group Inc.Stewart Title Guaranty CompanyStonehenge USATCF Bank Target CorporationU.S. BankUnited PropertiesThe Velmeir Companies Venture Mortgage CorporationWeis Builders, Inc.Wells Fargo Bank, N.A.Westwood Professional Services, Inc.Winthrop & Weinstine, P.A.

MSCA Connection Feb 082

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While 2007 may not be remembered as ahigh-flying year, there certainly were somepositive conditions as the calendar turnedto 2008.

Outlook for 2008The housing sector was a stimulus to theeconomy during the recession earlier thisdecade, but the housing sector is likely tocontinue to be a drag on the economy in2008. While many economists expect slowereconomic growth to continue in 2008, theygenerally agree that housing will not dragthe economy into recession. The housingdownturn continues to be offset by a solideconomic foundation.

Several factors point to the ability of theeconomy to continue with positive growth.For example:

� Strong corporate bottom lines shouldsupport healthy levels of businessinvestment. New orders and shipmentsfor capital goods will be the key tounderstanding the industry’s healthover the next few months.

� Slower economic growth in the U.S.should dampen inflation pressures,giving the Fed room to cut rates further.

� Growth momentum will remain strong inmost developing countries in Asia, LatinAmerica and Europe.

� The decrease in the value of the U.S.dollar relative to other currenciesmakes U.S. exports more competitive.As a result, Minnesota businesses shouldcontinue their long-term trend of strongexport growth.

Minnesota manufacturers are optimisticthat growth will be solid in 2008, accordingto DEED’s recent Manufacturing BusinessConditions Survey. Orders, production levelsand productivity are expected to expandand produce mild employment growth.

Prospects for the Retail IndustryWhile some retail industries areexperiencing short-term soft spots, the long-term outlook for retail businesses inMinnesota remains promising. Recently, thecombination of falling house prices,tightening credit standards, higher energyprices and a weaker job market havetaken a toll on U.S. consumer confidence.Slower consumer spending will affect theeconomy through softer retail sales, andthus weaker demand for goods.

In the longer term, Minnesota’s populationand household growth will lead the nation’sheartland and rival many western/southernstates. The state will add more than 500,000residents and 200,000 households through2015 with large gains in Dakota, Scott,Wright and Sherburne counties.

Population gains are good news for theretail market, although the demographicshifts accompanying the growth willinfluence retail trends. The largest increaseswill be in people ages 55 to 69, withincreases also for those younger than 14and those 25 to 34. Likewise, the number ofempty-nesters and one-person householdswill increase. The ability of retailers to adaptto changing demographics and consumerpreferences will be vital.

Trends Look Promising - continued

Americans will not look back fondly onthe country’s economicperformance in 2007. The word

“subprime” has become so common,college students use it as an adjective todescribe their poor exam performance. (Ihope the word does not apply to thisarticle!) As the residential mortgage crisisunfolded early last year, commerciallenders were comfortable that the crisis wascontained. The fundamentals ofcommercial real estate remain sound;occupancy is good and mortgage defaultsare at historic lows. Why then would theresidential credit crisis affect commercialreal estate lending?

First a brief background of the recent CMBS(commercial mortgage backed securities)market, which accounted for 54% ofcommercial loans in 2006.1 They were thefastest growing segment of the commercialdebt market because of their high LTV(loan-to-value), low rates, and otherborrower-friendly terms. Similar to homeloans, CMBS loans are packaged by banksand sold to outside investors. When therating agencies saw what was happeningon the residential side, they began toquestion the underwriting standards of thecommercial paper investors were buying.Potentially risky terms including high-

Have We Bottomed Out?

Hot Spots / Cold Snaps by Ross Dahlin, Itasca Funding Group, Inc.

The Credit Crisis and Commercial Real Estate Lending

continued on page 7

Portland, OR-based lucy Activewear, Inc.opened its first Minnesota store at theGalleria in Edina in March 2007. The storetargets affluent women who lead activelifestyles and features a widerange of activewear, designed tofit and flatter a woman’s body.

At the time of the opening, TheMinneapolis/St. Paul BusinessJournal quoted CEO MikeEdwards as saying thatMinnesota is a strongmarket for the company.He said that he viewsMinneapolis as “a veryeducated, very activemarket that is totally right”for the lucy concept. lucyhas had a strongMinnesota customer basefor many years with itsonline sales at lucy.com.

Since the opening of the2,100 sf space at Galleria,lucy has been scoutingother sites in upscale Twin Citiescommunities, and in October 2007, openedtheir second location at The Plaza atRosedale. The company hopes to openmore locations in Minnesota within the nextfew years. The company currently has 61stores nationwide with just over a third inCalifornia. lucy is growing at a record pacewith 19 new locations opened in 2007,adding Minneapolis, Santa Barbara,Danville, Marlton (NJ), Las Vegas, Monterey,Detroit, West Hartford (CT), Greenwich (CT),Ardmore (PA) and Boston as new markets.In addition, lucy plans to openapproximately 20 new stores per year until it

reaches 300 doors. They have seen 60%growth, double digit comp stores sales andsignificant operating margin improvements.It was also recently announced that

Galleria’s lucy is one of the bestperforming stores in the nation.

The company’s exclusive lucylabel, described by the companyas a line that is ideal for active,on-the-go women who are

looking for the perfectcombination of fashionand function, accounts forover 80 percent of lastyear’s sales. The versatilecollection is ideal foreveryday performancesuch as travel, getting inshape or simply leading abusy and active lifestyle,and it fits active womensizes zero to 18.

Last May, at the ICSCSpring Convention in LasVegas, lucy was awarded

the “2007 Hot Retailer Award”, along withJ.Crew, The Little Gym International, Inc.,Uniqlo, Ulta and Winestyles. These weredeemed the “hottest and most wanted”retail concepts shopping centers areseeking astenants.

lucy.comWeb Sites

nrf.com

retailstore.blogspot.com

retailcontrarian.com

labelscar.com

Featured Sponsors

Barna, Guzy & Steffen, Ltd.To provide our clients withhigh quality legal services atreasonable rates, whilebuilding strong relationshipsand confidence as we’vedone since 1938.

Brookfield PropertiesTo be a leader in the NorthAmerican commercial realestate industry.

Chesapeake CompaniesTo create exceptional valuefor our clients built on afoundation of honesty,integrity and mutual trust. Wedevelop enduringrelationships with sharedgoals, personal pride andunwavering ethicalleadership.

Cuningham GroupArchitecture, P.A.Cuningham GroupArchitecture, P.A. seeks tocreate memorablearchitecture that enriches ourclients and communities. Wedo this by collaborating withclients to realize their visionsthrough the design of the builtenvironment.

Dick’s Sanitation, Inc.To provide innovative solidwaste solutions to businessesboth large and small anddeveloping creativealternatives to problem wastestreams.

Fendler PattersonConstruction, Inc.A “true” design build generalcontractor providingexceptional retail based onquality, service andaccountability.

Great Clips, Inc.Working together to build themost profitable and enduringbrand.

Hempel We develop collaborativerelationships both internallyand with firms who share ourinnovation, determination andexceedingly high expectations.Our efforts will result in adistinctive, thriving portfolio ofreal estate developments.

MSCA Connection Feb 083

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by Andy McDermott, Shea, Inc.

lucy Activewear

lucy plans toopen

approximately 20new stores peryear until it

reaches 300 doors

Opus Foundation donates $25,000 to The Caring Tree

This is the latest example of Opus’ leadership in philanthropic giving. Committed toachieving long-term impacts, Opus prioritizes its support of organizations that addressearly childhood education, youth development, workforce and employment trainingand community revitalization.

Thank you to Opus Foundation.

Pictured left to right:

Karla Keller Torp, MSCA/The Caring Tree,Executive Director, Hans Rasmussen, OpusNorthwest LLC & Caring Tree Vice President,Bruce Carlson, United Properties & MSCAPresident, Mike Sims, United Properties & CaringTree President

rising star

� � Best Buy will open a store at the Mall of America in the former SportsAuthority location on the third floor in the west wing.

� � LA Fitness announced they will be taking the former Mervyn’sspace at Midway Marketplace in St. Paul. They also have locations inApple Valley, Edina, Brooklyn Park, and Roseville, along with severalother locations under development.

� � O’Reilly Auto Parts signed an 8,100 sf lease at ChamplinPlaza in Champlin. O’Reilly now has 1,830 stores across the UnitedStates.

� � Jimmy John’s signed a 1,600 sf lease in a new free-standing building at Market Street Station in Chanhassen.

� � Little Caesars Pizza signed a 1,450 sf lease at RosemountVillage in Rosemount.

� � Buffalo Wild Wings, Inc. has agreed to purchase leasesand other assets of up to eight Don Pablo’s Mexican Restaurantlocations from Avado Brands, Inc. The sale will includeMinnesota locations, although they have not been disclosed atthis time.

� � Crate and Barrel is relocating from the Young Quinlanbuilding in downtown Minneapolis to the Galleria in Edina. Thestore will feature additional furniture. Target CommercialInteriors store will backfill the Crate and Barrel space in theYoung Quinlan building. J.B. Hudson Jewelers is set to openin February in 9,000 sf of space on the first floor on the YoungQuinlan building as well.

� � Seasonal Concepts, with roots dating back to 1962when it began as Flowertown, has changed ownership. Thecompany was purchased by Mark Austin Smith and Greg Danielin November 2007. They will continue to keep open theWoodbury, Minnetonka and Bloomington locations.

� � Nate’s Clothing, located in downtown Minneapolis, plans tomove to the suburbs sometime in 2008 after the sale of its building is

finalized.

� � The sale of the Macy’s Distribution Center at 701 IndustrialBlvd NE, Minneapolis, has closed effective December 26, 2007.

� � Flame - Cooking With Fire, a brand new restaurant concept isslated to open May 2008 at The Plaza at Rosedale Center. Flame creates a

distinctive experience centered on the theme of fire, where the food and itspreparation, as well as the environment, will consist of various elements of fire.

2008 Leadership

OFFICERSPresidentBruce Carlson, United Properties1st Vice PresidentCindy MacDonald, Kraus-Anderson Companies2nd Vice PresidentStephen Eggert, Target CorporationTreasurerPeter Austin, NAI WelshSecretaryPeter Berrie, Faegre & Benson LLP

DIRECTORSJack Amdal, KKE Architects, Inc.Eric Bjelland, United Properties Deb Carlson, Cushman & Wakefield of Minnesota, Inc.Peter Dugan, CB Richard EllisJohn Gelderman, Opus Northwest LLCNancy Litwin, General Growth PropertiesTom Madsen, Benson-Orth Associates, Inc.Immediate Past President (as director):Jay Scott, Solomon Real Estate Group

COMMITTEE CHAIRSProgramPaula Mueller, Northtown Mall/Glimcher PropertiesJeff Wurst, Chesapeake CompaniesMembershipMark Norman, Park Midwest Commercial Real EstateJeff Horstman, Paster EnterprisesNewsletterDeb Carlson, Cushman & Wakefield of Minnesota, Inc.Andy McDermott, Shea, Inc.AwardsDan Parks, Westwood Professional Services, Inc.Steve Johnson, Solomon Real Estate GroupLegislativeHoward Paster, Paster EnterprisesRob Stolpestad, Exeter Realty CompanyRetail ReportJen Helm, United PropertiesDrew Johnson, United PropertiesTechnologySean Cullen, McCombs Frank Roos AssociatesJim Mayland, ColliersGolf Brad Kaplan, United PropertiesPaul Sevenich, Kraus-Anderson CompaniesSponsorshipNed Rukavina, United PropertiesStephen Eggert, Target CorporationCommunity EnhancementNikki Aden, Target CorporationJennie Zafft, Cousins Properties, Inc.

STAFFExecutive DirectorKarla Keller Torp(P) 952-888-3490 (C) 952-292-2414ktorp@msca-online.comAssociate DirectorStacey Bonine(P) 952-888-3491 (C) 952-292-2416sbonine@msca-online.com(F) 952-888-0000

MSCA Connection Feb 084

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Press ReleasesEvents

Mar 5 Business Day at the Capitol@ Crowne Plaza St. Paul

Mar 12 Monthly Program:Shopping Center/Mall Focus

Apr 2 Monthly Program (afternoon):Retail Focus Development

May 7 Monthly Program:Retail Focus

For program place and times andmore info, please go to www.msca-online.com

Press releases are printed based upon availability of space and relevance to the local market.

MN MARKETPLACE

Technology Tip

When doing research, or just taking a stroll down MSCA memory lane, you’llfind a full history of presentations, newsletters and publications atmsca-online.com. For past presentations, click on Meetings and thenPresentations. Past newsletters are available for members only. You can findthem by logging in under Members, click on Publications and thenNewsletters. Past legislative studies are available for downloading by clickingon Resources, then Publications. Past Retail Reports are available forpurchase at the same location. If you have any questions please callSean Cullen at (763) 476-6010.

On behalf of MSCA, I would like to welcome our new Board Members. 2008 marks the 20thyear of MSCA. The strength and success of this organization is no accident. Our growth is aresult of enthusiastic involvement and quality leadership of our members. I would like tothank and recognize this year’s MSCA leadership members.

In addition to the ten committees, MSCA is headed by our dedicated and experiencedstaff of Executive Director, Karla Keller Torp and Associate Director, Stacey Bonine, alongwith an active group of Officers and Board of Directors.

MSCA welcomes new officers: Stephen Eggert, TargetCorporation, 2nd Vice President; Peter Austin, NAI Welsh,Treasurer and Peter Berrie, Faegre & Benson as Secretary.They join Cindy MacDonald, Kraus-Anderson as 1st VicePresident. MSCA Directors serve a two-year term.

New Directors for 2008 are: Jack Amdal, KKE Architects;Eric Bjelland, United Properties; Peter Dugan, CB RichardEllis; John Gelderman, Opus Northwest and Nancy Litwin,General Growth Properties. They join existing Directors DebCarlson, Cushman Wakefield and Tom Madsen, Benson-Orth Associates. Each year the MSCA strives to have anarray of industry disciplines in the Officer and Directorpositions. If you are interested in serving as leadership,please contact Karla Keller Torp, a Board Member, or me.

MSCA Connection Feb 085

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New Members

Jenni FaulknerCity of Burnsville

Brian NorthVenture Mortgage

Leslie NordbyAmerican Engineering Testing, Inc.

Matt SwensonLandform

James KennedyPfeffer Companies

Brent NassetKimley-Horn & Associates

Peter LavangerRegis Corporation

Eric JonesED Development/SUPERCUTS

Jack AppertKraus-Anderson Companies

Molly MurnaneCushman & Wakefield of Minnesota, Inc.

Kari L. ThomasLeonard, Street & Deinard

John BrickleyThe Velmeir Companies

Sherry WeberKraus-Anderson Companies

Nathan StanleyOlsson Associates

Kennedy Joins Pfeffer Pfeffer Company, Inc. is pleased to announce James Kennedyhas joined their Sales Team as Sales Associate.

Ashley MoenHempel

Committee Chat by Bruce Carlson, MSCA President

Jennifer ColianniCushman & Wakefield of Minnesota, Inc. Primary Career Focus: Retail Leasing and Tenant Representation

Hometown(s): Lakeville, MN – Resides in Hudson, WIEducation: BA Business Administration, University of Wisconsin – StoutFamily: Husband, Nick & Chocolate Lab, AvaHobbies: Reading, outdoor activities – biking, wakeboarding/waterskiing, horseback ridingVery First Job: Assistant at a car dealership in LakevilleDream Job: Own racehorsesSecret Talent: Can make a mean chocolate chip cookie!Favorite Food: ManicottiMSCA Involvement: Newsletter Committee

Primary Career Focus: Office and Retail BrokerageHometown(s): Ivanhoe, MNEducation: Bachelor of Science – Commercial Real Estate, St. Cloud State UniversityHobbies: Long walks, swimming, watching sports, shoppingVery First Job: Lifeguard and swimming lesson instructor at the Ivanhoe poolDream Job: Baywatch... just kidding, but no, seriously.Secret Talent: If you consider wiggling your ears a talent, it’s mine!Favorite Food: Meat

Member Profiles

Member News

More New

Members

Luke SoisethMod & Company, LLC

Michael GrossMidwest Management, Inc.

Kyle JonesThe Velmeir Companies

Bonnie PadillaWipfli, LLP

Scott McIntyreReliable Property Services

Alan LeirnessColliers Turley Martin Tucker

In Remembrance of Maurie Wagner It is with great sadness that we announce that MSCAmember Maurie Wagner passed away on January 15thof an apparent heart attack. Please keep his wife, Bonnieand the Wagner family in your thoughts and prayers.

January

Professional

Showcase

O l s s o n

A s s o c i a t e s

Olsson Associates offers afull range of engineeringdesign and planningservices to commercialand retail clientsthroughout Minnesotaand the greater Midwestregion. Their servicesinclude landdevelopment, survey,municipal, transportation/traffic, environmental,urban planning, LEEDdesign, landscapearchitecture, waterresources, water/wastewater, publicinvolvement andconstruction services.Olsson’s commitment toquality, innovation andservice translates intosuccessful projects andstrong, continuingrelationships with theirclients.

The January 9th program, moderated by Liz Picking, of Brookfield Properties, featuredthree panelists with various views of downtown Minneapolis. The panelists Mike Christenson,of the City of Minneapolis, Ann Wimmer, of the Downtown Council, and James Stanton, ofthe Shamrock Companies provided views of downtown retail opportunity from theperspective of city, recruiter, and developer.

Mike Christenson, of the City ofMinneapolis, began the presentation with abrief synopsis of the current Minneapolismarketplace. Minneapolis’ downtown coreserves over 160,000 downtown workers dailyand attracts over 18.3 million visitors annually.There are 22,650 residents that live within aone-mile radius of 9th Street and Nicollet.According to Christenson, Minneapolis wasrated by Marketwatch magazine as being thebest city to conduct business in 2007, and oneof the top 10 destinations for tourism.Minneapolis will benefit from significant events in the next year, including the RepublicanNational Convention, which is projected to draw over 55,000 visitors and internationalmedia. According to Christenson, most negative views of downtown Minneapolis are myths.Crime is down 3.5% in the core, and there are indeed opportunities for activity,development and retail (even big box). Christenson also mentioned the construction of thenew Twins ballpark and the links to light rail, the Northstar commuter line, and furtherdevelopment of Hennepin Avenue, all of which will bolster retailing efforts.

Ann Wimmer, of the Downtown Council, presented the report of a national retailingconsultant, who recently delivered an analysis of Minneapolis downtown retail. Accordingto the findings, retailing in Minneapolis isn’t necessarily flourishing, but it isn’t waning either.There are many successful retailing examples in the core, but several challenges faceretailers downtown. Among them is the competitive nature of the skyway system.Consumers and retailers face competition for street level storefronts by a vibrant skywaylevel. The consultant also advised improvements to access to parking, and access for carsto travel along Nicollet Mall. Wimmer went on to point out that unique activities ofdowntown should convey unique retailing experiences as well. A new focus on the theaterdistrict on Hennepin should bring with it restaurants and shops that cater to anentertainment/theater crowd. According to Wimmer, the Minneapolis core should be ableto absorb an additional 200,000 sf of retail through 2011. With a trade area of 2.5 millionresidents within a 30 minute drive of downtown Minneapolis, Wimmer is very bullish aboutthe retailing potential of the core.

James Stanton, of Shamrock Development, ended the presentation with a brief andPowerpoint-studded finale. Stanton, mentioning the recent success of Shamrock’scondominium development in the downtown area, said that the market, even in its current

state, could still absorb up to 700 units annuallyfor the next several years. The trick to selling,according to Stanton, is knowing what themarket demands, and working to deliverprojects that make sense economically, ratherthan pursuing public funding or subsidy. Stantonwent on to mention the ongoing difficulty ofvertical mixed-use development, but also theneed to create balanced development withmixed-use and higher densities. Stanton sees astrong market in the future for upscale seniorhousing and the services that cater to the emptynester crowd who are relocating to thedowntown area.

MSCA Connection Feb 086

msca-online.com

763-972-0000

• CONSTRUCTION

• DESIGN/BUILD

• FEASIBILITY STUDIES

• DEVELOPMENT ASSISTANCE

2376 Copeland Rd Maple Plain MN

www.bauerdesignbuild.com

...Building Quality

...Providing V alue

The Momentum of Mpls

by Christopher Naumann, KKE Architects Inc.

January presenters: left to rightMike D. Christenson, City of Minneapolis

Ann Wimmer, Minneapolis Downtown CouncilLiz Picking (moderator), Brookfield Properties Corporation

James M. Stanton, Shamrock Companies

CORRECTION

Please note that themember referral giftcertificate of $50 toPittsburgh Blue Steakhousethat was given out at theJanuary program wasactually donated onbehalf of Hempel. Hempelis a developer of office,hotel and retail properties.Based in Maple Grove, thefirm has over 1.4 million sf inthe Twin Cities metro areaand is looking to expand itsportfolio of retail propertyover the next year.

Program Recap

MSCA Connection Feb 087

Horizon Roofing & Sheet MetalHorizon Roofing & Sheet Metal

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We’re not the big dog of the city,but we feel that makes us workharder and bring a bigger treatto the table. Try us, we’ll prove it!

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Patent Pending

msca-online.com

Hot Spots/Cold Snaps - continuedleverage lending, interest-only payments, and lending onfuture income assumptions became increasingly common in2005 and 2006. These lax standards could likely lead to anupsurge in defaults and investors began to demand morestringent underwriting and higher yields. CMBS (conduit)lenders had no choice but to raise rates and offer fewer“perks” on their loan terms.

A commercial credit crisis was avoided but manytransactions came to a halt with the new reality in lending.Buyers and sellers could no longer come to terms becausefinancing expectations did not materialize. Traditionalsources of debt including life insurance companies andbalance-sheet commercial banks saw a huge influx ofpotential business as they became competitive again. A lifecompany executive recalls a morning last August when adozen loan packages were piled on his desk that wouldhave normally only been sent to the conduits. Borrowerseither accepted the lower proceeds or are waiting for theCMBS market to come back.

However, a more conservative lending environment may behere to stay. CMBS interest rates have risen to ±6.5% but arestill great by historical standards. Although life companiesmay offer slightly better rates; conduits still hold theadvantage for dollars and many other loan terms. There isan equal playing field among all lenders today. In addition,capitalization rates are rising as real estate values adjust.Many agree that commercial real estate values wereinflated prior to the summer of 2007, with aggressive lendingpractices a primary cause. “If a real estate deal won’t work

under today’s numbers, it is probably not a deal worthpursuing.”2

Commercial real estate lending survived the residentialmortgage crisis, but it may still take a while for everyone toadjust to the new reality. “Although the short-term effectsmay be painful, 2007’s correction should prove positive forCBMS financing and commercial real estate in the longrun.”1 Going forward, the biggest challenge will be keepingproperty fundamentals strong. Hopefully, a recession can beavoided with export growth offsetting the downturn inhousing and consumer spending. If the economy sours andoccupancy and rent become issues, it could prove to bemuch more serious to the industry than the recent creditcrisis. 1 Smith, Dan & Rhodes, Todd. “CMBS Hits a Wall.” MortgageBanking Jan. 2008: 58.2 Lynn, Scott R. “Reflections on the Market Correction.”Mortgage Banking Jan. 2008: 82.

The MSCA Golf

Event will be

held June 16 at

Majestic Oaks.

Correction >

8120 Penn Avenue South, Suite 114, Bloomington, MN 55431

FIRST-CLASS MAILU.S. POSTAGE

PAIDMINNEAPOLIS, MNPERMIT NO. 27334