Scott Burns credits Madison Equities with inspiring him to break into the downtown St. Paul real estate market, but only as models for how not to run historic office space.
“Nothing but good can come from them exiting our market,” said Burns, a technology entrepreneur and venture capitalist who has long bemoaned the real estate company’s lack of tender loving care for some of the city’s most iconic downtown buildings.
The neon sign atop the 1st National Bank Building in downtown St. Paul.
Madison Equities, previously led by the late Jim Crockarell, has advertised 10 commercial properties for sale en masse, including six downtown office buildings and two parking ramps — a total of more than 1.6 million square feet of commercial space. If a buyer comes along willing to scoop up all 10 sites, Burns said he hopes they’ll invest in better upkeep and maybe position the properties for resale in a more organized fashion.
“Sometimes the first bounce isn’t the most important,” said Burns, a general partner at Mairs and Power Venture Capital who in 2017 became a minority shareholder in a former Ecolab office tower, the Osborn370 building on Wabasha Street. “This could happen in a couple moves. It wouldn’t surprise me if somebody bought the entire thing and better organized themselves to sell it in pieces. It is unprecedented to have that many properties on the market.”
Properties for sale
Among the Madison Equities holdings are the iconic First National Bank Building, U.S. Bank Center, Alliance Center and the Park Square Court building, all of which were once major draws for law firms, banks and other private sector tenants.
Now, some are roughly half full, and Park Square Court sits empty. Not included in the offering, made public this week by the brokerage CBRE, were the company’s downtown residential properties like the 7th Place Apartments or the Lowry Apartments at Fourth and Wabasha streets.
Even as some Madison Equities properties have dwindled in tenancy, Osborn370 has drawn a cross-section of start-ups, nonprofits and mid-tier companies since Burns and other owners came onboard in 2017.
In other words, Burns said, it can be done. Burns said he has no interest in adding further to his own real estate portfolio, but he still sees hope for a brighter future, especially if public sector partners and economic development agencies like the St. Paul Port Authority, Greater MSP and the St. Paul Downtown Alliance help market the properties to a responsible owner.
St. Paul City Council Member Rebecca Noecker also thought the sale will boost the city’s core.
“The stars are aligning in a very positive way for downtown,” said Noecker, who has been bullish on the possible redevelopment of Central Station. She said downtown improvements have increasingly drawn energy from public-private partnerships, and she hoped for a buyer who would capitalize on that spirit.
Another view
John Mannillo, a longtime downtown developer, is less optimistic.
He suspects few buyers would probably want to own all 10 properties, even for their resale value, unless they’re sold at hugely discounted prices. And that would have potential consequences for the city’s tax base, where office values have already taken a hit.
“When you buy it, you’re buying carrying costs,” Mannillo said. “Why someone would want to do that, I’m not sure, unless they get such a deal. And what does that do to our valuations everywhere else downtown?”
A major revaluation downtown could have ripple effects across the city. As office buildings lose value, it raises the possibility that homeowners will have to contribute more in property taxes to make up the difference.
Like Burns, Mannillo is of the opinion that Madison Equities has done downtown few favors.
“Here we are with all these properties he made no improvements on,” Mannillo said. “If they split it up and sold each building, they have a better chance of making more money. … They’re less than half occupied, and some of those buildings are vacant. Despite what some people think, you can’t just buy an old building and turn it into residential. It’s cheaper to (demolish) and rebuild than it is to try to retrofit into residential. We’ve got a problem now in downtown that is not an easy problem to solve.”
City Hall studying housing conversions
A spokesperson for Greater MSP on Wednesday declined to comment on the real estate offering.
Nicolle Goodman, director of St. Paul Planning and Economic Development, said the city is exploring how to repurpose more “underutilized” downtown office buildings into housing, and the Madison Equities offering could become part of that effort.
“This provides us an exciting opportunity to move forward our ‘all-in’ housing approach and downtown investment strategy,” Goodman said. “We look forward to collaborating with CBRE to pitch St. Paul a great place to invest. The recently released Downtown Investment Strategy recommended the creation of an acquisition fund to repurpose underutilized office buildings downtown. If and what the public sector’s role might be in the creation of such an effort is yet to be determined.”
The city recently released a request for proposals to develop the land around the Green Line’s Central Station stop, “which is in very close proximity to many of the buildings being marketed in this portfolio,” Goodman noted. “We could see a significant transformation of this area of our downtown in the coming years. We will continue to work closely with our public partners and the private sector in these efforts.”
Burns noted that some out-of-state investor-owners in Grand Avenue real estate have allowed their spaces to remain vacant long after national retail chains pulled out.
“Look at the Grand Avenue situation. The type of owner you get matters a lot,” he said. “I hope we get a really active owner. That’s what those buildings need.”
Still, 10 properties is quite a lot.
“I’ve been thinking about it all day,” Burns added. “What a crazy portfolio. I hope it works.”
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