Hows Downtown weathering the recession?

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August 27, 2010
By: Gregory J. Scott
Gregory J. Scott

// At a recent lunch with Council Member Lisa Goodman, experts weighed in on the three most troubling indicators: employment, the housing market and commercial real estate //

Man, talk about timing.

The day before Council Member Lisa Goodman (Ward 7) gathered a panel of Downtown experts to discuss employment, the housing market and commercial real estate, the city got blasted with troubling news on all three fronts.

August 24 headlines announced that home sales in the area nosedived 42 percent in July, placing the Twin Cities dead last on a nationwide survey of 20 big cities conducted by the National Association of Realtors. The same morning, the Downtown Hooters restaurant officially announced its shuttering, triggering worries over another black eye vacancy for Block E. Meanwhile, the jobs picture showed gains, but unemployment remained at a still uncomfortable 6.8 percent, unchanged from June to July.

The 30 or so people who gathered at August’s Lunch with Lisa — a monthly community forum with Council Member Goodman — wondered: Could times really be that tough?

Hardly, cried the experts.

Cathy Polasky, Andrea Christenson and Fran Davis each took a few minutes to give some context to the reports and statistics. Their message: Downtown’s clawing its way out of this recession, and recovery here is happening more quickly than in other places.

Housing Market

Fran Davis, who’s worked in local real estate since 1986 and currently sells for Coldwell Banker Burnet, read everyone’s mind when she stood to speak.

“Couldn’t be a better day for this than after yesterday, with the media telling the world that everything is awful,” she joked.

But Davis pointed out that, as with all real estate stats, the 42 percent statistic was a blanket figure applied to the entire metro, and takes into consideration neither the unique particulars of the Downtown area nor the unique particulars of our post tax credit market.

The big take-away, Davis said, is that all of the government incentives for first-time buyers simply front-loaded this year with sales activity. Plus, August is always a slow month, with the start of school historically pushing house hunting to the back burner.

“Everybody had to buy by April 30,” she said, referencing the $8,000 tax credit for first-time homebuyers. (A similar credit, in the amount of $6,500 for non-first-time buyers, also expired at the end of April.) “They had to close by June 30, with a few exceptions. And that just moved all of the market to the first half of the year.

“Even though you’re hearing ‘Worst market in years,’ year-to-date, the whole area is pretty much even. We just pushed all that business up earlier.”

According to Davis, for Downtown condos and townhouses, pending sales were only down 3.7 percent from last year, which she described as “a reasonable number.”

Closed sales of Downtown condos and townhouses were down 6.2 percent from last summer, according to Davis.

The Minneapolis Area Association of Realtors reported a much higher number, however, an 11.4 percent drop. The Association also lists that Downtown inventory has dropped 13 percent from last year, meaning units are moving.

Davis said the supply is hovering around 10 months.

“So they’re not the numbers we want to see, but they’re not what the media is telling us,” Davis said.

The main issue is lack of confidence, she added. Even with mortgage rates at a stunning low, worries over job security, unemployment and whether owning a home is still a path to wealth have made shoppers too timid to buy.

This confidence is further bruised by “irresponsible” media reports, commented Joe Grunnet, owner of the Downtown Resource Group. “That just adds gasoline to the fire that’s eating consumer confidence.”

Grunnet says it’s actually a better time to buy now than last spring. Low interest rates — 5.5 percent on average, according to Grunnet, as low as 3.75 for a 50-year mortgage, according to Davis — result in big savings on monthly payments. Not as sexy as an $8,000 gift. But it adds up to more savings in the long wrong.

As for the rental market, Goodman confirmed that it’s very strong. Occupancy levels are very high. She said that Laurel Village, Loring Green and Eitel Building City Apartments are all enjoying a vacancy rate under 10 percent. She added that units in the soon-to-open Mill District City Apartments, near the Guthrie, are also being grabbed up.

Grunnet confirmed that rentals in the so-called “shadow market” — condo owners who either need to or want to rent out their properties — are also moving quickly. The Downtown Resource Group, which has the top leasing model for Downtown, had the biggest month in the last three years this August, Grunnet claimed.

Employment

Cathy Polasky, the city’s economic development director, was upbeat in her assessment of the jobs picture. She championed the metro’s 6.8 percent unemployment stat, noting its drop from 8.1 percent in July of 2009. The national percentage currently hovers at 9.5 percent.

“From last June to this July, 9,399 more Minneapolitans are working than a year ago,” she said.

She noted that Forbes in June named the city one of the top three “Best Cities for Young Professionals,” due to the relatively low unemployment rate, a cost of living just below the national average and what the finance magazine describes as a “robust business environment.”

Asked about the loss of temporary census jobs — the Minnesota Department of Employment and Economic Development estimated that 1,400 of these positions were lost in July — Polaksy said the month still showed a net gain.

“We’ve been seeing the increase continuing beyond the census. Just between last month, between June and July, there were 1,700 new jobs in the city. So those are clearly not census jobs.”

Polasky did not say where specifically these jobs were added.

The temporary census positions evaporated in June, much earlier than the 2000 census, which stretched all the way through September.

Seeking specifics for Downtown, a post-lunch call to Sam Grabowski, Executive Director of the Minneapolis Downtown Council, deflated a bit of Polasky’s optimism. Each year Grabowski personally solicits employment reports from the top employers Downtown so he can present the info at the Council’s annual meeting.

“We don’t want the Minneapolis employment base,” he said. “We want to know what’s happening Downtown.”

And Grabowski said he’s seen a pretty steady slide.

As of last February’s annual meeting, he said “We’ve gone down 10,000 [employees] over the last two years. It’s been two years of atrophy.”

He senses that Target — whose health dictates the fate of a surrounding ecosystem of support businesses, including Downtown-based construction companies, law firms and architects — may be on the cusp of growth.

Grabowski also noted that hotels Downtown are enjoying a strong year, which has boosted their employment numbers.

Retail

Andrea Christenson, a commercial leasing agent with Cassidy Turley, warned the lunch crowd about impending closures. Then she urged them not to fret over them.

“Downtown retail in the next five years is going to completely flip. But it’s all positive,” she said. “You are going to see some closings coming, but that’s only because they are going to be replaced by stronger, better tenants.”

Christenson hailed Kieran’s Irish Pub, which replaced the defunct Bellanotte in Block E this March, as the shining example. She sees that transition as a symbol of a larger shift Downtown away from the nightclubs and towards more family-friendly, locally owned venues.

“[Kieran’s] was the first one,” she said. “But I can tell you there’s more coming. And it’s all going to be positive.”

The Hooters closing, she suggested, might become another example. Goodman went so far as to declare the restaurant, which was sued last spring for failure to pay rent, “a deadbeat company.” The vacated space clears the way for someone better to come in.

“There are a lot of people Downtown looking,” Christenson said. “I know of at least ten concepts looking for restaurant space.”

One huge obstacle facing Downtown shops, she acknowledged, is the lack of parking. Numerous lunch guests commented that their suburban friends view shopping Downtown as an immense hassle, forcing them to pay high prices for parking in lots and ramps.

“That is a fair criticism,” Christenson said.

Bergstrom Jewelers, which just announced it was leaving Downtown for The Shops at West End, cited customer complaints over parking as a big factor in the move.