East Lake Street Corridor Market Study Final Report

7/31/2019 East Lake Street Corridor Market Study Final Report

1/50

Market StudyEast Lake Street CorridorMinneapolis, Minnesota

Joe Urban, Inc.June 27, 2012


2/50


3/50

June 27, 2012

Spencer AgnewLongfellow Community Council2727 26th Avenue SouthMinneapolis, MN 55406

Dear Mr. Agnew:

Attached is our report assessing the market conditions and recommendations, solutions and

strategies for the East Lake Street Corridor in Minneapolis, Minnesota. We appreciate thisopportunity to provide a market analysis for this project.

The East Lake Street Corridor suffers from high commercial vacancy for a variety of reasons,compounded by the recent recession and street reconstruction. We believe there are a number ofstrategies the Longfellow Community Council can pursue to achieve a more vibrant corridor.

Specifically, the neighborhood, in conjunction with business along the Corridor must askwhat kindof corridor do we want? A more robust corridor planning effort, the engagement of the privatedevelopment and non-profit sectors, and leveraging current demand for residential housing could allbenefit the Corridor.

We thank you again for the opportunity to work on this assignment, and hope the informationproves valuable. Do not hesitate to call with any questions you have.

Sincerely,

Sam NewbergPresidentJoe Urban, Inc.


4/50


5/50

Market StudyEast Lake Street CorridorMinneapolis, Minnesota

Joe Urban, Inc.

Acknowledgments:Sam Newberg wrote this report, based on market research and fieldwork betweenSeptember 2011 and June 2012.

The following people and organizations provided data for this report:City of MinneapolisHennepin CountyMetropolitan CouncilStantecU.S. Bureau of the Census

ESRIVarious business and property owners, brokers, leasing agents and developers along the CorridorGVA Marquette AdvisorsCoStar


6/50


7/50

Conclusions, Solutions and Strategies Page 7East Lake Street Corridor Market StudyJune 27, 2012

EXECUTIVE SUMMARY...................................................................................................................... 1

INTRODUCTION AND CORRIDORCONDITIONANALYSIS ........................................................ 5Introduction .................................................................................................................................... 6East Lake Street .............................................................................................................................. 6Sections and Nodes ........................................................................................................................ 10Past Plans and Studies.................................................................................................................... 16Summary of Conditions ................................................................................................................. 17

COMMERCIAL MARKETANALYSIS.................................................................................................. 19Introduction .................................................................................................................................... 20Retail Typologies ............................................................................................................................ 20

Commercial Vacancy ..................................................................................................................... 21Recent Sales and Leasing Activity ................................................................................................ 24Leakage/Surplus Analysis ............................................................................................................. 25Taxes and Assessments.................................................................................................................. 28Parking ............................................................................................................................................. 28Summary .......................................................................................................................................... 28

CONCLUSIONS,SOLUTIONS AND STRATEGIES............................................................................ 31Introduction .................................................................................................................................... 32Conclusions ..................................................................................................................................... 32Solutions and Strategies ................................................................................................................. 32

Urban Design Recommendations ................................................................................................ 37


8/50


9/50

Page 1

EXECUTIVE SUMMARY


10/50

Executive Summary Page 2East Lake Street Market StudyJune 27, 2012

EXECUTIVE SUMMARY

The client, the Longfellow Community Council, (LCC), seeks to understand the reasons andsolutions for excessive commercial vacancy along the East Lake Street Corridor between

Hiawatha Avenue and the Mississippi River in Minneapolis, Minnesota. Significant commercialvacancy has occurred prior to and during the recent recession and rebuilding of Lake Street.

Our Corridor Condition Analysis revealed a number of notable retailers including grocery stores,pharmacies, and restaurants. The Corridor can be broken down in to three main sections (West,Middle and East) and into smaller sections and nodes within those.

Across the corridor, the commercial parcels along East Lake Street contain a wide variety of usesand building types, styles and ages. Retail tenants along the corridor are diverse and dontgenerally create synergies for customers. As well, building styles often do not relate well to thepedestrian-friendly street.

Commercial vacancy is 14.9% for the 932,000 square feet of space along the Corridor. Thegreatest amount of vacancy is in the middle section, and to the contrary, there is virtually novacancy east of 41st Avenue.

Available spaces, buildings and sites vary significantly in size, condition and price. Our analysis of spending surplus and leakage, traffic counts and incomes, preliminarily indicates

that there is overall sufficient commercial space along the corridor, and that even a reduction ofcommercial square footage along the corridor could be acceptable in the marketplace.

Our conclusions, solutions and strategies extend beyond the scope of simply awaiting a marketrecovery and filling commercial space. Solutions include allowing and encouraging additionalresidential development along the Corridor, and that some redevelopment of parcels can beresidential-only. Market rate or affordable residential units would be met with marketacceptance in any number of locations along the Corridor, provided the project pencils out.Furthermore, additional residential development adds potential customers to retailers along theCorridor.

Choose one section or node along the Corridor and focus attention on it. The rightdevelopment can be a catalyst for additional interest from tenants or the developmentcommunity.

We also recommend a vision and planning process by the community and businesses thatencompass the entire corridor, and that form-based codes are but one possible tool to betterencourage development of buildings that share more in common with one another in terms ofheight, appearance and use. More certainty with a vision and the code better encourages privateredevelopment and investment to occur, and better supports the vision of the neighborhood.


11/50

Executive Summary Page 3East Lake Street Market StudyJune 27, 2012

Making redevelopment of vacant properties work is a challenge whether it consists of renovatingexisting buildings or building new. Consider financial incentives, engaging a catalytic developerto assist with land assemblage and/or focusing on a catalytic development that will encouragefuture development to occur. Two examples of potential catalytic developments are the

northwest corner of 26th

Avenue and Lake Street and the Riverside grocery store at 39th

andLake, as the former would set an urban design precedent for development in the light rail stationarea and the latter would provide a retail anchor that would attract customer traffic and generateresidential interest as well.

Look to national precedents for urban design to find creative infill solutions that work on smallsites. Development is challenging along the East Lake Street Corridor, but possibilities exist thatcould generate interest from developers and add to the vibrancy of the corridor.


12/50

Page 4


13/50

Page 5

INTRODUCTION AND CORRIDORCONDITIONANALYSIS


14/50

Introduction and Corridor Condition Analysis Page 6East Lake Street Market StudyJune 27, 2012

INTRODUCTION

The Longfellow Community Council (the Client) asked Joe Urban, Inc. to analyze the causes of, andsolutions for, excessive vacancy along the East Lake Street Corridor in Minneapolis. The report

presents the results of our research and findings and points to a variety of potential solutions.

This section looks at current conditions on the East Lake Street Corridor, and breaks it down in tosmaller nodes and sections in order to better analyze existing similarities and suggest more targetedsolutions. This section also includes an analysis of past studies and land use planning efforts forsections of the corridor.

EAST LAKE STREET

Overall Orientation

For purposes of this analysis, the East Lake Street Corridor stretches from Hiawatha Avenue on thewest to the Mississippi River on the east. We analyzed all commercial parcels fronting on Lake Streetand those that are contiguous with Lake Street frontage. The map below shows all analyzed parcelsshaded in red and key retailers and destinations along the corridor.

Key destinations include:

Target Cub Foods Rainbow Foods


15/50


West River Commons Walgreens Ace Hardware

The map below shows restaurants along the corridor. Key restaurants include:

Gandhi Mahal Midoris Floating World McDonalds Merlins Rest White Castle El Norteno The Longfellow Grill

While restaurants are generally scattered along the Corridor, several are clustered around the 36th

Avenue and 27th Avenue areas.

Residential Development

While the East Lake Street Corridor is primarily commercial in nature, a variety of residentialdevelopment has occurred over time. The yellow dots on the map on the following page vary bysize and indicate the relative magnitude of each development.

We counted 276 units along the Corridor. The 53 units located in the West River Commonsproject (at West River Road) and 80 units at Hiawatha Commons (north of Cub Foods and Target)account for approximately half of the total.


16/50


The following map shows the location of apartments along the corridor.

Automobile-Related Businesses

The following map shows automobile-related businesses shaded in brown. These include autorepair, auto parts stores, automobile sales, and any business with a drive-through.


17/50


Among the many historical reasons for visiting Lake Street was to shop for a car. While no new cardealerships remain, several used car dealerships still operate. As well, two auto parts stores arepresent, with a third set to open soon, one car wash and several restaurants and banks have drive-thrus. While automobile-related uses are generally allowed, there are exceptions, like within a half-

mile of the light rail station where apedestrian-overlay district exists. Furthermore, the rebuildingof Lake Street was done in a pedestrian-friendly manner, and the City of Minneapoliscomprehensive plan would generally like to see development that better matched the streetscape inthis Corridor. However, it should be noted that these businesses have little to no vacancy.

Pedestrian-Friendliness

While apedestrian-friendly streetscape is important for beauty and to encourage walking andbiking, so is thepedestrian-friendliness of the buildings that face the street. The more doors andwindows per block, the friendlier a street is for walking, strolling, shopping and living.

The following map shows the number of doors per block that face Lake Street.

In his 2010 book Cities for People prominent Danish urbanist Jan Gehl measures the pedestrian-friendliness of urban streets on a 100-meter (328 foot) basis. Since blocks along Lake Street are


18/50


approximately 300 feet, we applied his criteria to our analysis. The following bullet points list howmany doors each block must have to fit a scale from active to inactive:

15-20Active 10-14Friendly 6-10Mixture 2-5Boring 0-2Inactive

The map on the previous page shows that no blocks along East Lake Street are consideredactive, and that just one is friendly. Several blocks, particularly near 27th Avenue and 36th Avenue,are a mixture, or pretty friendly. However, just eight of the 46 blocks in this study areconsidered pretty friendly or better, while a resounding24 (more than half) are inactive.

The city requirements call for a minimum of one door per building and one window every 25 feet

of building frontage.

SECTIONS AND NODES

For purposes of analysis, we divided the East Lake Street Corridor in to a variety of smallersubsections in order to better recommend solutions. The following bullet points show the threemain areas, then sub-areas:

Hiawatha Avenue to 28th AvenueWest Sectiono Big Box Nodeo 27th Avenue Node

28th Avenue to 37th Avenueo 28th Avenue to 34th Avenueo 36th Avenue Node

37th Avenue to the Mississippi Rivero 39th Avenue Node

Hiawatha Avenue to 28th AvenueWest Section

The map on the following page shows the Hiawatha Avenue to 28th Avenue Section, or WestSection of the corridor. Notable destinations in this area include:

Target Cub Foods Rainbow Foods The Hub bicycle shop Harriet Brewing Minneapolis Police Department Sector 3 station


19/50


Big-Box Node

Within the West Section is the Big BoxNode, which consists of theTarget, CubFoods, Rainbow Foods, nearby retailersand large surface parking lots. Thefollowing bullet points describe the BigBox Node:

Low vacancy but large amounts ofsurface parking 264,742 square feet of retail space

on 790,178 SF of land (18.1 acres).o Overall 0.34 Floor Area

Ratio (FARthe ratio oftotal building square

Surface Parking Lot Along Lake Streetin Big Box NodeTarget Store at Right


20/50


footage to site size).

Infill opportunity Redeveloping the entire site at 50 units per acre would yield 900 housing units Redevelopment of smaller portions of site could yield 100-200 units (Hiawatha Commons is

80 units)

27th Avenue Node

The 27th Avenue Node consists of thefour corners of 27th and Lake, three ofwhich are historic buildings with retail onthe ground floors and office and someresidential above.

Until recently, the buildings are thenortheast and southeast corners ofthe intersection were bank-owned.Bank-owned buildings presentchallenge with little interest inTenant Improvements (TIs) forpotential tenants. However, theColiseum Building (northeastcorner) was recently purchased bya new owner that may have better access to capital to improve the building.

Parking is an issue (unfortunate with excess parking one block away) Good character, traffic (car and pedestrian), and visibility

28th Avenue to 37th AvenueCentral Section

The stretch of the East Lake Street Corridor from 28 th to 37th Avenue, the Central Section,represents some of the highest vacancy on the corridor. The following are significant or notableretailers and destinations in the Central Section.

U.S. Bank Northern Sun Walgreens River Lake Hardware Merlins Rest

A map of the Central Section is found on the following page.

Coliseum Building at27th Avenue Node


21/50


28th Avenue to 34th Avenue Section

The 28th to 34th Avenue section inparticular has high vacancy, the fewestdoors and the least visual continuity.

Infill opportunities Five significant vacancies on

93,216 square feet of land. For

example, that could support 107housing units at 50 units per acre.

McMahons Pub site isapproximately 0.5 acre, and couldsupport 25 units at 50 units peracre.

Few visual anchors


22/50


36th Avenue Node

The 36th Avenue node has significantvacancy but also buildings with generally

good character, many doors and potential.

Good retail character Nine vacant spaces within two

blockso 33,770 square feet of

vacancy

40,075 square feet of land (0.9acre) available

Merlins Rest and River LakeHardware key anchor tenants

Vacant CTC space at 3400 EastLake occupied Ebenezer Fellowship and vacant space at 3424 East Lake occupy 33,977square feet of land. If assembled, it could contain 39 units at 50 units per acre.

3542 East Lake (NW corner) is key vacancy at corner of 36th and Lake Victory Christian Center occupies an architecturally significant building

37th Avenue to Mississippi RiverEast Section

The area from 37th Avenue to the Mississippi River, the East Section, is the healthiest section of theEast Lake Street Corridor. It has the lowest vacancy overall, although those that do exist are

significant. It also has an excellent example of infill development with West River Commons, amixed-use project built in 2005.

The Craftsman El Norteno Ace Hardware West River Commons (shown at

right) includes 53 apartments,three townhomes, and four retailspaces that include Dunn BrosCoffee and the Longfellow Grill.Its design and mix of uses sets ahigh standard for futuredevelopment along the Corridor.


23/50


39th Avenue Node

A key node in the Eastern Section is the39th Avenue Node. A key vacancy is theGC Peterson Building where a proposed14,000 square foot grocery store would belocated.

Six spaces are vacant or for salewithin two blocks:

o GC Peterson Buildingo Former SuperAmericao Former Taco Bello Video Lease spaceo 4009 East Lake, a small

vacant building with nearly10,000 SF site


24/50


o RW Auto Sales is interested in selling 24,554 square feet vacant 67,518 square feet of land (1.55 acres) on five sitescould accommodate 77 units at 50

units/acre

Key existing tenants: Blue Moon Coffee and Hymies, Ace Hardware Possible future use: Riverside grocery store on GC Peterson site

PAST PLANS AND STUDIES

Several studies and plans havebeen completed encompassing aportion of the East Lake StreetCorridor in the past 15 years.They are as follows:

Hiawatha-Lake StationMaster Plan2000

o 1,250 housingunits in 20 yrs.so far 100

o significant unmetdemand

o 150,000 SFcommercial(33% increase)

East Lake StreetCorridor Study2000o Not officially

recognized bycity, yet manyaspects havebeen achieved

o West RiverCommons asuccess, anchorand example

Minnehaha-HiawathaCorridor MarketAnalysis2008

o 27,500 SF likely overallo 14,000 SF pharmacy possible (CVS interested at one point)o 7,500 SF restaurants and bars


25/50


26/50

Page 18


27/50

Page 19

COMMERCIAL MARKETANALYSIS


28/50

Commercial Market Analysis Page 20East Lake Street Market StudyJune 27, 2012

INTRODUCTION

This section assesses the commercial market conditions in the East Lake Street Corridor, includingthe types of retail/commercial buildings and their positioning in the marketplace, and how the

Corridor fits in to the broader south Minneapolis and Twin Cities retail/commercial market.

RETAILTYPOLOGIES

In order to assess the retail/commercial market along East Lake Street, we must identify what typeof retail. Table 1 shows various retail typologies according to Bob Gibbs, a prominent retail marketconsultant who authored the recently-published Principles of Urban Retail Planning andDevelopment.

Type Anchor Trade Area Parking

Corner Store 1,500 - 3,000 - - 800 - 1,000 Several Blocks Convenient; on/off-street

Conven ience Cen ter 10, 000 - 30,000 1,000 - 1,500 - 2,000 - 2,000 1 - 1 .5 mi. area Convenient; on/off-street

20-60 foot deep bldgs

Neighborhood Center 30,000 - 100,000 1,200 + < 50,000 6,000 - 8,000 1 - 2 miles or more Convenient; 4 to 4.5/1,000

up to 15 tenants (supermarket)

Comm unity Centers 250,000 - 350,000 10,000 - 20,000 - 50,000 population 4 - 6 miles Off-street/Surface

(several)

Regional Centers 500,000 - 2,000,000 various (200-300k) 2 to 3 Dept. 150,000 pop. 10-12 m iles Off-street/Su rface or Stru ctured

Stores

Lifestyle Center 500,000+ mixed-use pedestrian-friendly Dept. Store 2,000 - 2,000 5-8 m iles Off-street/ Su rface o r Stru ctu red

office/housing or Civic Use $75,000+ Incomes

Source: Principles of Urban Retail Planning and Development - Bob Gibbs

Size (Range) Tenant Size Supporting HHs

Table 1Retail Typologies - Shopping Center Development

Based on Table 1, we conclude that a significant proportion of commercial buildings along theEast Lake Street Corridor are essentially a series of individual corner stores of 1,500 to 3,000square feet. There are some commercial buildings that are or could be classified as conveniencecenters, which are slightly larger at 10,000 to 30,000 square feet. These retailers located alongEast Lake Street draw from a very local radius of one mile or so, or are destination retailers withless customer traffic but a larger draw area. As well, these categories of retailers rely on acombination of off-street and on-street or otherwise shared parking, something that iscommonly found along East Lake Street.

The Rainbow Foods and adjacent in-line retailers are an example of a neighborhood center, andtheTarget/Cub Foods area of the Big Box Node could be considered a community center.These are not only larger developments but also draw from a larger radius of two to perhaps sixmiles. These retail centers require substantial off-street parking of four or more stalls per 1,000square feet of space. However, we note that in the East Lake Street Corridor there is a higher rateof transit usage, and therefore not typical utilization of off-street parking in the Big Box Node.


29/50


COMMERCIALVACANCY

There is substantial commercial vacancy along the East Lake Street Corridor, as shown on the

following map. The map shows the location of each commercial vacancy as well as the size ormagnitude of the vacancy, from under 1,000 square feet to more than 10,000.

Many of the commercial vacancies are clustered around the 27th Avenue Node, and between it andthe 39th Avenue Node. At the time of the survey in October 2011, there were no vacancies east of41st Avenue, and even as of June 2012 there is only one small vacancy to the east. Thus, most of thevacancies are concentrated between Minnehaha and 41st Avenues.

The chart at right shows overall square footage ofcommercial space, vacant space and the percentvacant by section, including West, Middle and East,as defined in the previous section.

We found a total of932,000 square feet ofcommercial space along the East Lake Street

Corridor. Of that, 139,000 square feet is vacant,or 14.9% overall.

As is shown in the table, the West section has the most commercial space by a two-to-one marginover the Middle section, and vastly more than the East section.

SF Vacant % Vacant

West 511,959 45,561 8.9%

Middle 248,778 67,534 27.1%

East 171,957 26,146 15.2%

Total 932,694 139,241 14.9%

Overall Commercial Space


30/50


Although the West section has significantly more commercial space, the Middle section actuallyhas more vacant square feet, with a 27.1% vacancy rate, compared to a healthier 8.9% rate for theWest section. The 15.2% vacancy rate for the East section is largely due to vacancies at and nearthe 39th Avenue Node, as there is no reported vacancy east of 41st.

The table at right shows overall retail space withinthe Corridor. Of the 932,000 commercial squarefeet, 777,000 is considered retail, mostly due tothe fact that it is on the ground floor.

Of the retail space, nearly89,000 square feet isvacant, or 11.4% of the total. Again, the Middlesection of the Corridor has the greatest amount ofvacancy, with a rate of 23%. The West section has just a 4.2% vacancy rate, mostly because theBig Box Node has little vacant space. The East section has a vacancy rate of18.1%. This

compares to an overallTwin Cities metro area vacancy rate of 5.9%.

The table at right shows 155,000 square feet ofoffice space in the Corridor. Office space isconsidered to include second floor space with nosidewalk or parking frontage, banks, or buildingsthat otherwise lack the windows or entrances toencourage the sales of goods.

The West section contains the most office spacealong the corridor, largely due to the office spacefound in the upper floors of buildings at the 27 th Avenue Node. The overall office vacancy rate is

32.4% versus a metro area average of 17.0%.

Available Space

Table 2 on the following page shows a variety of available and vacant commercial space or land inthe East Lake Street Corridor.

A variety of spaces and sites are available, including retail or office spaces within multitenantbuildings, standalone commercial buildings, vacant buildings that could either be retenantedor become sites for redevelopment, and vacant land.

The size of vacant spaces range from 1,371 to 20,180 square feet. Lease rates for available space range from $5 to $30. (We note that the $30 space, the

former Blockbuster video store at 26th Avenue and Lake Street, will soon be occupied byAutoZone, but we are not aware as to whether or not the lease rate of $30 was achieved.)

Several standalone buildings are for sale, ranging in price from $219,000 to $750,000. One site exists at 30th and Lake, nearly one-half acre in size.

SF Vacant % Vacant

West 441,479 18,681 4.2%

Middle 191,043 43,914 23.0%

East 144,505 26,146 18.1%

Total 777,027 88,741 11.4%

Metro Area 5.9%

Overall Retail Space

SF Vacant % Vacant

West 70,480 26,880 38.1%

Middle 57,735 23,620 40.9%

East 27,452 0 0.0%

Total 155,667 50,500 32.4%

Metro Area 17.0%

Overall Office Space


31/50


Year Buil ding Avai labl e

Complex Name/Address Built Size Square Feet Low High Comments

Former Blockbuster Video 1967 10,886 7,436 $30.00 - $30.00 Leasing Company: Colliers

2610 East Lake Street Land Area: 32,378 Building Style/Type: Two-Tenant MT Building

Vacancy Rate: 68.3% Tax/CAM: $9.25 Space Location/Typ e: In-Lin e Retail with Parking Fron tage

Parking: 40 spaces off-street/4 per 1,000

3016 Minnehaha N/A 7,000 7,000 $6.00 - $6.00 Leasing Company: Building Owner

3016 Minnehaha Av. Land Area: N/A lease: gross Building Style/Type: Single-Tenant Building Retail/Office

Vacancy Rate: 100.0% Space Location/Type: Sidewalk Frontage

Parking: On-Street

3024 Mi nnehaha N/A 4,200 4,200 $8.86 - $8.86 Leasing Company: Building Owner

3024 Minnehaha Land Area: N/A lease: gross Building Style/Type: Single-Tenant Building


Parking: On-Street

Mixed-Use Building 1908 6,416 N/A $500,000 - $700,000 Brokerage: Colliers

2629 East Lake Street 1996 Building Style/Type: Mixed-Use

PSF: 109.10 $ Space Location/Type: Main Floor Retail/2nd Floor-3 Apartments

Parking: On-street

3017 27th Av 1928 7,700 7,700 $14.00 - $14.00 Leasing Company: Colliers

3017 27th Av lease: gross Building Style/Type: Single-Story Single-Tenant

Vacancy Rate: 100.0% sale: $397,500 Space Location/Type: Retai l Storefront with warehouse/storage

PSF: 51.62 $ Parking: on-street

Ghandi Mahal Building N/A 5,435 N/A N/A - N/A Brokerage: Colliers

3009/15 27th Av Land Area: 7,767 For Sale bank-owned Building Style/Type: Single-Story Two-Tenant

Vacancy Rate: N/A Space Location/Type: Streetfront Retail

PSF: N/A Parkin g: o n-st reet/ off-s treet 15 sp aces b eh in d

Oddfellows Building 1909 37,486 2,000 $20.00 - $20.00 Leasing Company: CBRE

2709 East Lake (2003) Land Area: 14,213 lease: gross Building Style/Type: 2/3-Story MT Building

Vacancy Rate: 5.3% Space Location/Type: 1st Floor Sidewalk-Frontage In-Line

Parking: On-Street

Colisuem Building 1917 53,492 6,383 $5.00 - $9.00 Leasing Company: CBRE

2610 East Lake Street Land Area: 21,344 Building Style/Type: 3-Story MT Building

Vacancy Rate: 11.9% Tax/CAM: N/A Space Location/Typ e: 3rd Story Office

Parking: Off-Street/On-Street

3001 East Lake Site N/A Land Area: 21,344 $500,000 - $ 1,000,000 Leasing Com pany: C. Chase Co.

3001 East Lake Acres: 0.49 Building Style/Type: Land

PSF: 46.85 $ Space Location/Type: Corner

Parking: N/A

3117 East Lake 1947 15,000 7,000 $14.00 - $17.00 Leasing Company: Colliers

3117 East Lake St. Land Area: 31,363 lease: gross Building Style/Type: MT Building

Vacancy Rate: 46.7% Space Location/Type: Sidewalk FrontageParking: Off-Street/On-Street

3300 East Lake 1968 4,900 4,900 $18.00 - $18.00 Leasing Company: Java

3300 East Lake Land Area: 19,166 lease: gross Building Style/Type: Single-Tenant Former Restaurant

PSF: 121.43 $ sale: $595,000 Space Location/Type: S idewalk Frontage

PSF Land: 31.04 $ Parkin g: Off-St reet/ 50 Sp aces - 10 Per 1,000 SF

CTC Building 1925 20,180 20,180 $450,000 - $450,000 Brokerage CBRE

3400/08 East Lake Land Area: 20,437 For Sale Building Style/Type: MT Retail/Office


PSF: 22.30 $ Parking: On-Street

3533 East Lake 1925 1,500 1,500 $17.60 - $17.60 Brokerage: Java

3533 E as t Lake St reet Lan d Area: 2,300 leas e: gro ss Bu ild in g Style/ Typ e: Sin gle-Ten an t Att ach ed Bu ild in g

Vacancy Rate: 100.0% sale: $225,000 Space Location/Type: S idewalk Frontage/In-Line Space

PSF: 150.00 $ Parkin g: 4 Sp aces - 2.7 Per 1,000 SF/On -Street

3011 36th Av 1948 2,000 2,000 $219,000 - $219,000 Brokerage ReMax Results Commercial

3011/13 36th Av. S. Land Area: 2,000 For Sale Building Style/Type: Multitenant Building


PSF: 109.50 $ Parking: On-Street

G.C. Peterson Machinery Bldg. 1929 15,499 15,499 $750,000 - $750,000 Brokerage Colliers3801-25 East Lake Street Land Area: 27,007 For Sale Building Style/Type: Single-/Multitenant Building

PSF: 48.39 $ Space Location/Type: Sidewalk Frontage

PSF Land: 27.77 $ Parking: On-Street/Possible Off-Street

Former Taco Bell 1977 1,371 1,371 $250,000 - $250,000 Leasing Com pany: Diversified Acquisitions, Inc.

4020 East Lake St. Land Area: 14,215 Building Style/Type: Freestanding Restaurant

PSF: 182.35 $ Space Location/Type: N/A

PSF Land: 17.59 $ Parking: 14 spaces off-street/10 per 1,000 SF

Total Space and Vac ancy 193,065 - 87,169

Space and Lease Rate Ranges 1,371 - 20,180 $5.00 - $30.00

Sources: Building Owners, Brokers/Leasing Agents, Joe Urban, inc.

Table 2

Price/Rent Range

Commercial Space/Land For Lease and/or Sale

East Lake Street Corridor

March 2012


32/50


The chart below shows a breakdown of all commercial space in the East Lake Street Corridor,including the 932,000 square feet of commercial space plus the Minneapolis Police DepartmentSector 3 station and the East Lake Library.

Target, Cub Foods and Rainbow Foods alone account for 24% of all space on the corridor Restaurants make up 7% Leased office space is 11% of all space Civic (police and library) and auto-related uses each account for 6% of all square footage Vacant retail space represents 9% of all space Vacant office represents 5% of all space Other retail (non-restaurant, big-box, auto-related or vacant) space accounts for 32% of all

space. It is possible to break down Other Retail in to categories, for example, such aspharmacy or hardware, but we did not do that for purposes of this study.

RECENT SALES AND LEASINGACTIVITY

The formal date of the survey summarized earlier in this section is September 2011. The analysis isrepresentative of commercial market conditions on Lake Street at that time. In the intervening


33/50


months several changes have occurred that, while not necessarily changing the vacancy rates orconclusions of this report, are nonetheless worth reporting.

The Queens Grill opened in the Coliseum Building A check cashing outlet and chiropractor opened at the southeast corner of Lake Street and

27th Avenue

Forage, a furniture restoration and sales store, is planned to open at the southwest corner of41st Avenue and Lake Street.

The owner of the former Riverside Grocery store on Franklin Avenue (where the SewardCo-op is now located) is proposing to purchase the GC Peterson building and adjacentproperties to create a new 14,000 square foot Riverside Grocery store.

McDonalds is proposing to reconstruct their store on the existing site AutoZone is planning to open a store in the former Blockbuster space at 26 th Avenue and

Lake Street

Culvers and CVS have both expressed interest in an East Lake Street location, but to ourknowledge neither have found a suitable location and no deals are in the works at this time

A buyer has purchased the building at the northwest corner of 36 th Avenue and Lake Streetwith plans to open a furniture store, but we have no further information at this time

There is reportedly an interested buyer for the former Taco Bell at 41st and Lake, althoughwe have no further information

One offer for the former SuperAmerica store at 39 th and Lake is to use the parking lot astruck storage for a truck rental service. To our knowledge, that is not a serious offer andthere are no formal offers for that building/site at this time.

LEAKAGE/SURPLUSANALYSIS

We downloaded information from ESRI, a demographic provider, to analyze the spending patternsof household dollars for households located within one mile of the East Lake Street Corridor.ESRIs analysis takes in to account population, households and median income in the Draw Area,and breaks down the income figures in to various household expenditure categories. Thesecategories include housing expenditures (rent, mortgage, etc.), transportation (transit, car, etc.),utilities, furniture, food, and other necessities.

The purpose of the analysis is to understand whether households within one mile spend their dollarson Lake Street or travel farther to do so. Leakage is an undersupply of particular retail categories(based on households and income in the Draw Area relative to existing retailers there), and

surplus indicates a possible oversupply.

Within these categories, ESRI can tie expenditures with the amount spent within the immediateneighborhood, and also accounts for existing retail stores within the Draw Area where these dollarsare spent. For example, the immediate neighborhood has one gas station, and as a result adisproportionate amount of dollars are spent outside the Draw Area for gas. This is called


34/50


leakage, and any retail category with leakage is an indication of a potential retail opportunity,whereas any surplus is a reason to exercise caution or perform more research.

Based on our analysis of retailers that are under/over-supplied along the Corridor, we calculated the

total household dollars currently spent for each category, divided by a figure of $300 per square foot,a conservative figure provided by the Urban Land Institutes Dollars and Cents of Real Estate, atrade publication for commercial real estate. In other words, these are the amount of retail dollarstranslated in to real estate terms and can be tied to the potential for retailers to occupy vacant spaceon the Corridor.

Based on households and their spending potential within one mile of the Corridor, the followingcategories have spending leakage calculated on a square footage basis:

60,000 SF motor vehicle/parts dealers (AutoZone is evidence of demand) 50,000 SF gas stations 3,000 SF misc./other

There is presently an oversupply of the following:

100,000 SF oversupply of grocery stores 13,000 SF oversupply pharmacy 12,000 SF oversupply of restaurants 75,000 oversupply of overall retail space

There are several caveats to this analysis. For example, as noted in the retail typology analysis inTable 1 of this section, Cub Foods and Rainbow Foods draw from a trade area of up to six miles,

not the one mile analyzed in this survey. Therefore, available groceries within a four- or six- mileradius may be undersupplied. We do believe there is a slightly more upscale market niche for theproposed Riverside Grocery store not currently provided by Cub and Rainbow.

As well, restaurants typically are destinations and draw from a larger area. However, we note thatthe 75,000 overall oversupply of retail space is a figure to keep in mind for later sections of thisreport.

TRAFFIC COUNTS

The table at rightshows our analysis oftraffic counts at keynodes along the EastLake Street Corridor,as well as the totalnumber of households

Households Median HH

Node Within 1 Mile Income - 2010

Hennepin/Lake 16,240 39,639$ 35,600 21,000

Chicago/Lake 14,779 28,075$ 27,900 7,400Lyn Lake 21,003 37,057$ 26,000 20,800

27th and Lake 9,158 37,540$ 23,000 12,400

Ford/Cleveland 6,742 64,341$ 18,900 12,000

50th and France 7,208 85,349$ 13,800 11,200

Victoria and Grand 11,109 44,876$ 13,500 3,450

36th and Lake 12,025 39,981$ 12,900 2,750

Chicago and 48th 8,122 61,582$ 7,200 N/A

Traffic


35/50


and median income of households within one mile. We compared those figures to several notablenodes around the City of Minneapolis and in St. Paul. The table ranks the traffic counts from highto low for the busiest of the two cross-streets, comparing 27th and Lake and 36th and Lake withHennepin and Lake, Chicago and Lake, Lyndale and Lake, Ford Parkway and Cleveland Avenue,

50th

and France, Victoria and Grand and Chicago and 48th

Street.

The map below shows the nodes and results as well.

The results show that the Lake Street/27th Avenue intersection has a Lake Street traffic countin the middle of the range but less than points farther west on Lake Street. The number ofhouseholds and income is in the mid-range as well. Factoring in traffic on Hiawatha Avenue, this isan indication that the Big Box Node is suitable for large-scale retail according to this analysis.

The 36th and Lake intersection ranked very lowin terms of combined traffic counts, density andincomes compared to the other corners. This is an indication that this and other intersections alongthe Corridor may have an oversupply of retail space.


36/50


TAXES ANDASSESSMENTS

A common complaint heard by property owners along East Lake Street is taxes and assessments aretoo high, especially considering the recent reconstruction of the street and sidewalk. Overall,

commercial properties in the city, on and off Lake Street, are taxed at approximately 3.5% ofvalue. In other words, the taxes are the same rate for a used auto sales lot as they are a largemultitenant property, although the amount paid varies considerably based on valuation.

Assessments for the Lake Street rebuilding are applied on a front foot basis, or the amount offrontage on the street. In other words, the assessment would be the same whether a site had a usedcar lot or a four story apartment building. That cost can be spread much farther over a moredensely developed property. For example, we calculated that the assessment for RW Auto is $0.50per square foot of building on that site, whereas the assessment at West River Commons, spreadacross nearly 100,000 square feet of building, is just $0.01 per square foot.

Therefore, whereas the tax rate does not favor low versus high density, the assessment encouragesdensification. It should also be noted that a quick calculation of the citys tax collections indicates a100-unit apartment building would increase the citys collections by 0.4%, an indication thatincreased density and infill reduces the tax burden for all.

PARKING

Another common complaint from property owners and parking is not sufficient. A common rule-of-thumb for urban retail space is 3.5 to 4 spaces per thousand square feet of retail space. Thecity requires 3 per 1,000. While parking must be convenient, it can be on- or off-street.

Parking counts and availability varies wildly between properties along the Corridor, but West RiverCommons, for example, has 4.7 spaces per 1,000 square feet, a sufficient number.

Another thing to keep in mind is at the typical suburban mall there is 100 feet between the closestparking stall and the door to the mall, much less the store a customer is visiting. By that analysis,Merlins Rest, which has no off-street parking on their site, does have approximately 10 on-street spaces within 100 feet of its door, and additional parking in a shared lot across 36 th Avenue.

By that measure, nearly every retail space along the Corridor has at least one parking stall within 100feet. Parking varies by property, but parking also costs money, which adds to the potential cost for atenant or redevelopment. As well, shared parking opportunities exist along the Corridor, and we

encourage careful analysis of true parking need and creative solutions to achieve it.


37/50


SUMMARY

The summary of this section concludes that extensive commercial vacancy exists across a number of

space, building, site sizes and prices. While there has been recent retail leasing activity, it has notbeen sufficient to lower the overall vacancy rate. There also may be an oversupply of net retail spacealong the Corridor. Traffic volumes indicate there may not be additional demand for high-profileretail development that calls for substantial traffic counts. While parking is lacking in somelocations, it is more plentiful when on-street parking is included.


38/50

Page 30


39/50

Page 31

CONCLUSIONS,SOLUTIONS AND STRATEGIES


40/50


INTRODUCTION

This section presents our conclusions from the previous two sections on the current conditions andcommercial market analysis for the East Lake Street Corridor. This section includes key conclusions

as well as potential solutions and strategies to solve the glut of vacancies in the Corridor.

CONCLUSIONS

Key Conclusions

The Corridor is a major east/west thoroughfare across the City of Minneapolis, withMidtown and Uptown to the west and Marshall Avenue across the Mississippi River to theeast. It has historically been a strong retail street for south Minneapolis.

Buildings vary in age from the 1920s to the present day, and there is little building form oruses that tie the Corridor together. There are also major differences in building conditionacross the Corridor.

The Corridor can be broken down in to West, Middle and East sections, and broken downfurther to nodes and sub-sections in order to identify potential areas of focus.

There is nearly 1 million square feet of commercial space along the Corridor, of whichapproximately 15% is vacant. Nearly all vacancy is west of 41st Avenue. Spaces, sizes,prices/rents and styles vary considerably.

Our surplus/leakage and traffic count analysis indicate there may be a slight excess ofcommercial space in the Corridor.

SOLUTIONS AND STRATEGIES

We believe several strategies are worth pursuing. Some have to do with focusing on recruitingdesired tenants to the Corridor, while others have less to do directly with the commercial real estatemarket and more to do with vision and planning, residential development, a nodal approach andpotential incentives to encourage redevelopment.


Our survey found there to be very little residential development along East Lake Street.While substantial residential development has occurred in Midtown and Uptown to the west,very little has occurred along the East Lake Street Corridor despite apparent demand.


41/50


Recent projects such as Hiawatha Commons and West River Commons, as well as the VOAbuilding, all report high occupancy, and are an indication of demand for supportive,affordable and market rate housing along the corridor.

We recommend the Client engage and recruit residential developers to consider additionalprojects in the Corridor.

Chart 5 shows demographic trends nationwide in the next 20 years and their potential impact on realestate development in that time, particularly the demand for various types of housing.

The emerging demographic trends of an aging baby-boom population coupled with theirchildren, the echo boom, entering the housing market, represent significant numbers ofhouseholds statistically.

As baby-boomers age, if even a small proportion of them choose to downsize their housing,it will create significant demand for smaller homes, condos and apartments.

The echo boom isdemonstrating ahigher preferencethan pastgenerations forurban living andincreasinglydelaying thepurchase of ahome.

Coupled with asignificant existinginventory of largersingle familyhomes, it is forecastthat by 2030, therewill be substantialdemand for 8million new attached housing units (apartments and condominiums), 12 milliontownhomes and 39 million single-family homes on small lots (similar to the pattern ofhousing in core city areas like the neighborhoods surrounding the East Lake StreetCorridor). There is also a forecast oversupply of single-family homes on large lots

(suburban-style).

The national trends outlined in Chart 5 are likely to have a local impact as demand for housingincreases in the urban core cities and along commercial corridors like East Lake Street.


42/50


Vision and Code

Although there have been several studies and plans for various locations along the Corridor,not all have been formally adopted by the City of Minneapolis and none encompass the

entire corridor. Thus, there is no overarching vision for the corridor.

While the Citys Comprehensive Plan encourages development like West River Commons,the zoning code allows too wide a range of options for single-story and automobile focuseddevelopment. A developer considering a dense mixed-use project has no certainty that theparcels to either side wont have a vastly different form that might hurt the leasing or salespotential of the redevelopment.

We encourage a community-based planning process for the Corridor that is formallyadopted by the City and translated in to a stronger zoning code that takes in to accountnodes and the sections in between, providing more certainty and guidance to eventual

projects.

o There must be community and business buy-in to a visiono Ask what is the place you seek to create on Lake Street?o Ask why should we make it easier to build what we envision?

A form-based code is one potential solution. A form-based code can more succinctly guidewhat development should look like and how it should relate to surrounding buildings.Building heights and form can vary along the corridor, perhaps delineated by nodes andstretches where like forms should exist.

o One existing form-based code along the Columbia Pike in Washington D.C. wascreated alongside the existing zoning. Developers have a choice between the two,and in the eight years it has been in place, all developers have chosen the simplifiedform-based code.

o Consider working with the city to make the development process easier for the sortof development desired in the corridor vision. Examples include:

Administrative review for any parcel less than one acre Simplify process for larger projectsif the project meets key criteria based

on the principles of the vision, it should be approved No parking requirement for projects less than one half acre let the market

decide

You must also convince the City why it should prioritize East Lake Street.

Node and Section Approach

Choose one or two nodes or smaller stretches of the East Lake Street Corridor on which tofocus. For example, a form-based code could be applied to better guide development


43/50


around the 27th Avenue or 36th Avenue Nodes so as to preserve existing retail character, butthose improved nodes could encourage other nearby development.

Consider downsizing or eliminating retail in some places. Potential areas include the 28th to34

th

Avenue Section. A very good example exists at West River Commons, where residentialunits are located directly on the street.

Residential infill development would not only fill in vacant or underutilized parcels, but alsoprovide more customers for existing retail spaces.

A focus on a node or section could better unify the look and massing of buildings that linethat portion of the Corridor.

Other Strategies

Increase the role of the Lake Street Business Improvement District to include marketing andrecruiting of businesses.

Use vacant storefronts for temporary uses such as art installations or other activities that putthem in a positive light.

Network with food cart owners who may be seeking long-term permanent space to attractthem to East Lake Street.

Actively try to encourage/jump start development of the northwest corner of 26th Avenueand Lake Street. It is an underutilized surface parking lot at present and an attractive mixed-use project there would be met with market acceptance and catalyze future development inthe area.

If the proposed Riverside grocery store opens at 39th and Lake, it could catalyze additionalcomplimentary retail development in the immediate area, or make nearby sites moreattractive for infill housing development.

A catalytic developer could be a key asset with helping to assemble or write down the cost ofdevelopment for a key site or parcels along the Corridor.

Consider financing mechanisms that encourage developers to redevelop, including taxincentives/abatement, gap financing, tax-increment financing, stormwater, sewer and waterfee reductions, and/or a simplified approvals process. However, these may be difficult toimplement at the present time considering municipal budget constraints.

Are single-family home lots immediately adjacent to commercial property along the Corridorallowed to be redeveloped as part of infill development? It is often politically unpopular to


44/50


allow upzoning of stable single family residences for development, but considering theshallow lot depths along East Lake Street, an extra lot width can provide critical acreage for aredevelopment to be feasible.

Consider a neighborhood-based business investment group like that which has formed innortheast Minneapolis. They hope to pool enough capital (100 people investing $1,000each) to raise $100,000 and purchase a building along Central Avenue to renovate/redevelopor re-tenant.

Pro-Forma Analysis

We analyzed the development potential along the corridor by creating two prospectivedemonstration pro formas for projects, one redeveloping a site with residential development and theother renovating an existing commercial building. The following is a summary of our criteria and

conclusions.


In this scenario, an existing 10,000 square foot commercial building on a site slightly morethan one-third of an acre

o Occupied and in fair conditiono Current value - $500,000o Income $100,000 per yearo Content Landlord

Redevelop that building in to a 30-unit, three-story apartment building

o $5.1 million total development costo $950 for a one-bedroom unito Loss of $106,000 per yearo Laughing Landlord

Redevelop with a 48-unit, four-story apartment buildingo $6.5 million costo 50% tax abatemento Stormwater waivero Site cost reduction due to catalytic developero Nearby grocery store (+$50 per month rent)o $1,000 rents for one-bedroom unito Tenants drawn to transit-friendly location that saves $2,000 to $8,000 per yearo $24,000 annual profito Interested Landlord/Possible Investor


45/50


Commercial Development

Freestanding one-story 5,000 SF building $500,000 to purchase $650,000 renovation/development $22 net lease to cover mortgage, provide return for developer/owner

What the residential development scenario indicates is that some infill development wont likelyoccur without some form of assistance or incentives, but if just a couple forms of incentive orassistance exist, development does become more attractive. As well, the rental figures we used werein the middle of the range for rents we believe could be achieved on the corridor and West RiverCommons gets notably higher rents. Thus, a project located near the east end of the corridor maygenerate higher rents and may not necessarily need assistance or incentives to be profitable. As well,an affordable project with one-bedroom units rents for $750 to $800, where the structure of theproject was financed using tax credits or another mechanism to ensure affordability, would also be

successful and profitable in the marketplace.

Our commercial example indicates that given the right available building, a developer to manage itsrenovation and a tenant willing to pay a lease to cover costs, existing buildings can be redevelopedon a one-by-one basis along the corridor.

URBAN DESIGN RECOMMENDATIONS

Given the challenges of developing small sites along the Corridor, careful attention must be paid toproviding creative urban design solutions that enhance the Corridor. The following bullet points

provide good examples of small site infill development from around the country that could helpguide design of future projects along the East Lake Street Corridor.

High-quality urban developmentmust have strong urbandesign principles. Whetherthe development is mixed-use,retail-only or housing-only, thebuilding must relate well tothe public realm in apedestrian-friendly environment.

As this mixed-use project on ahalf-acre site in Portland,Oregon shows, there are anumber of creative ways todesign both housing andcommercial space on a site.


46/50


As West River Commons atright shows, a strongpedestrian environment canbe created even when the

development is residential innature. Residential unitsshould include ground-floorwalk-out units. Walk-out unitsbreak up the monolithicappearance large residentialbuildings can create and aremore neighborly, even on abusy thoroughfare like LakeStreet.

As this example fromVancouver at right shows,individual unit entrances do notneed to open directly andimmediately on to the sidewalk.Clear delineation of privatespace separated from the publicsidewalk can have good results.This arrangement provides theresidential unit with outdoorprivate space with a clear viewof the street and activity goingby, and could serve as a goodexample for residential infilldevelopment on Lake Street.

Every effort should be made tomaximize the number ofdoors that face the publicrealm/sidewalk. Danishurbanist Jan Gehl believes afriendly streetscape consistsof 10 to 14 doors per 100

meters (328 feet). Whetherthey are retail, office orresidential doors, the moredoors per linear foot of LakeStreet enlivens and activates thestreetscape. Be attractive,inviting and transparent.


47/50


West River Commons providesan excellent example of how thepublic realm should includepedestrian plazas located near

high-traffic areas such asbuildings, near major roadwaysand/or prominent privateplaces such as restaurants orcafes. The plaza at West RiverCommons provides places tosit, visit, meet people, haveevents, and is a place for publicart.

Parking is very important,even with most urban retaildevelopment. We recommenda retail parking ratio of at least3.5 spaces per 1,000 square feetof commercial space in the newcommercial development,possibly as much as 5.0 for arestaurant use. When possible,we recommend hiding parkingbehind the building. On-streetparking along Lake Street canhelp offset any slight shortagesin off-street parking.

Commercial spaces should havepedestrian access from thestreet and the off-streetparking area. It is possible tohave a common entrance andhallway from the off-streetparking area, but be sure it iswell-marked with signage, well-lit, open and inviting. This

example at right showsreasonable access, but isdecidedly uninviting to retailcustomers. We recommendattractive doors, windows andsignage to draw customersinside.


48/50


Off-street parking canalternatively be placed at theside of retail and/or

restaurant establishments.This example at right in Phoenixshows a high-quality pedestrianrealm with a restaurant withoutdoor seating facing it, andthe parking for the restaurant iswell-screened yet easilyaccessible and close to therestaurant entrance.

Retail parking, whether it isbehind or alongside the

building, must be clearlymarked from the street.Attractive screening can alsomitigate the presence of surfaceparking lots, greatly enhancingthe public realm. Convenientparking is an important factorfor any retail space. Again, WestRiver Commons provides agood example.

Small, incubator or startupbusinesses can be a good fitin mixed-use buildings. Theycan occupy spaces of less than1,000 square feet and demandvery little parking, which canoften be accommodated on-street, yet provide the presenceof occupied space and thepotential for growth. Thisexample in Austin, Texas showsa building with several small

successful incubator spaces butno off-street parking. It is alsoan example of an attractive andsuccessful project on a half-acresite.


49/50


This example of a small mixed-use project in Durham, NorthCarolina shows how tuck-underresidentialparking and drive

lane can be shared with acommunal courtyard toprovide parking access and openspace for residents to spendtime. When the trees shown inthis image form more of acanopy, they will also provideshade that will improve thecourtyard conditionconsiderably.

This example from the Bay Areaeast of San Francisco showsrowhome-style development,or side-by-side units. They aredeveloped to 43 units per acre,which is nearly as dense asapartment-style buildings likeWest River Commons. This sortof density may be one solutionfor space constrained sites alongthe East Lake Street Corridor,and the green courtyardsbetween buildings could providemore intimate private space forresidents to enjoy.

West River Commons providesa good example of howheightand density can be steppeddown and better blend in tothe surroundingneighborhood. This isparticularly important for the

East Lake Street Corridor, whichhas shallow lot depths andsingle-family homes immediatelyadjacent.


50/50

Documents

East Lake Street Corridor Market Study Final Report