Makeover masters

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September 12, 2011
By: Michelle Bruch
Michelle Bruch

Northeast-based Hillcrest Development has a knack for turning around problem properties

A couple of rundown blocks with empty restaurants are getting a fresh look from a veteran developer.

Northeast-based Hillcrest Development plans to buy the former Burger King at 1717 Central Ave. NE, as well as the old Totino’s
corner at 523 Central Ave. NE. The sites aren’t obvious gold mines — the empty Burger King quickly became a neighborhood eyesore, and Totino’s has flooded repeatedly since the restaurant moved out four years ago. But Hillcrest prides itself on cleaning up polluted sites no one else wants: the Crown Center on Tyler Street, for example.

“It can actually be a very good business model,” said Managing Partner Scott Tankenoff, a third-generation managing partner in the family business. “It’s about not guessing. … We are able to fund sites no one else can figure out.”

Hillcrest has a purchase agreement to buy the Burger King building that the franchise left behind more than two years ago. Given the economics of the Central Avenue area, Tankenoff thinks he will probably reuse the existing building. The restaurant could be converted into a daycare, medical or dental facility, he said.

“Forget about the architecture,” he said. “There are various things we can do to make the building look good.”

That’s not the story at Totino’s, however. Hillcrest has asked the city for permission to tear it down.

The building is a liability, Tankenoff said. It doesn’t have sprinklers, and it flooded the last three or four winters without anyone stepping in to clean it up.

Tankenoff said the site could remain a parking lot for a year before a new project commences. It will take time to figure out what kind of project would work best, he said.

“This is not a business where you guess in,” he said. “We’re looking for reality.”

Victor Grambsch, chair of the Nicollet Island/East Bank Neighborhood Association, said he isn’t too concerned about the pending demolition.

“I don’t think anybody is going to build a barricade,” he said. “We’ve had pretty good experience with [Hillcrest]. They’re the guys that bought the old Eastgate Shopping Center and brought in Exeter [Realty].”

A long history

When Hillcrest purchased the aging Eastgate Shopping Center at Central and University in 2003, the company was quickly inundated with offers to buy the site.

“We talked to 25 different people that wanted to do something,” Tankenoff said. He said Exeter didn’t have the highest-paying offer, but it had the best idea. Today, the site is home to the high-traffic Lunds grocery store and the 10-story Cobalt Condominiums.

Another bet that paid off for Hillcrest was its purchase of the Ford Center, which sits next to the Twins stadium and is in the midst of a $40 million renovation by the Pohlad family. When Hillcrest bought the old Model T factory in 1984, the building was in rough condition and had previously served as storage space for Honeywell. Hillcrest spent about five years renovating the building, making it code-compliant and adding an elevator. By the time the company sold it to Schafer Richardson in 1997, 100 tenants filled 99 percent of the building.

Sales like these have allowed Hillcrest to self-finance much of its work. Tankenoff said that’s vital for a company that
gravitates toward brownfield sites.

“Banks don’t understand what we do,” he said. “Banks aren’t going to be comfortable buying a burned-out, [environmentally-damaged] building.”

Polluted projects have earned recognition for Hillcrest in recent years. The company won an award last year from the NAIOP commercial real estate development association for its renovation of the old Crown Iron building at 1331 Tyler St. NE. Crown Iron originally operated a steel fabrication facility, and the campus once used to build B-26 plane wings for World War II. The project required the removal of 10,000 tons of contaminated soil.

Architect Jens Beck recalled encountering a leaky roof, troubles with electricity and plumbing, illegal artists’ housing, and rave parties.

“It was an utter disaster,” he said.

Today, the Crown Center buildings are home to the trendy Blu Dot furniture company, James Dayton Design (the architect behind the MacPhail Center), and a medical device company called Tactile Systems Technology.

Ceramicists, photographers and coffee roasters moved in down the street at the Frost building, another Hillcrest renovation. The building was an old paint factory dating back to the 1920s, and prior to the renovation, it served as a linseed
oil refinery.

The Northeast impact

Hillcrest has owned property in Northeast since the 1950s, and its Northeast headquarters is an old auto garage. The company’s position in the community is augmented by financial support for the Arts Action Plan, as well as an advisory role on a task force committed to saving the Hollywood Theater. Hillcrest purchased a lot next to the theater to give the building some breathing room for future parking or service access.

In a community that often worries about development pressure crowding out affordable artist space, Hillcrest has both welcomed and ousted artists at its properties. Artists were booted to make way for the Crown renovation, as well as the Stinson Technology Campus at Stinson Boulevard and Kennedy Street Northeast.

“If it’s cheap [space], that doesn’t mean it’s safe or a good environment,” Tankenoff said. “The Crown Center was an absolute fire and death trap.”

He said that bringing in high-paying employers like UCare Minnesota and Qwest was good for the community, and the project eventually freed up resources for Hillcrest to aid artists in the future.

“By doing that, it’s allowed us to go to other areas like Crown and Frost, and keep more affordable [space for artists],” Tankenoff said.

One of Hillcrest’s goals is to continue owning its buildings long after construction is finished. Tankenoff said it’s only right that his company self-finances projects and stands behind them, either to enjoy the windfall or weather the downdraft if necessary.

“Most of our peers over promise and under-deliver,” he said. “We’re trying to leave everything better than [the condition] we found it.”

Brian Steele, chair of the Northeast Park Neighborhood Association, said he’s glad the Burger King site already looks cleaner.

“They’re starting to make sense of the place,” he said. “I’m just happy that somebody that knows development is taking over.”