When the Normandale Lake Office Park in Bloomington sold for about $265.2 million in 2012, it was the second-largest office property sale in the Twin Cities market’s history. But the price a MetLife-led contingent paid for the five-building property this week will surpass that — and set a new high water mark for the metro in the process.
New York-based MetLife, Allstate Insurance Co. and Allstate Life Insurance Co. this week acquired the five-building, 1.7-million-square-foot office complex on the southwest quadrant of Highway 100 and Interstate 494 in Bloomington, the partners confirmed in a statement.
The “real estate submarket here is very strong, thanks to a diverse economy and a strong corporate business base,” Betsy Clark, managing director of MetLife Real Estate Investors, said in a prepared statement. “MetLife invests in real estate with a long-term perspective, and Normandale Lake fits right into this strategy.”
The previous owner was Equity Group Investments, the Chicago-based firm founded by Sam Zell decades ago. Zell’s group paid about $156 per square foot for the suburban office park in 2012, Finance & Commerce reported at the time.
While the latest sales price for the park wasn’t disclosed this week, parties to the transaction openly called it the largest in Twin Cities history. The current record, according to data from New York-based Real Capital Analytics, is $277.9 million paid for the IDS Center in August 2006.
“The park really has its own brand that stands for the best in class,” said Tom O’Brien, executive director for Cushman & Wakefield/NorthMarq and part of the team that sold the building.
Hennepin County values Equity Group’s holdings on the 23-acre Normandale Lake property at just under $264 million, according to property tax records.
Several factors will have driven the price up since it was last sold in 2012, brokers and real estate analysts said Thursday. For one, the five buildings are now 93 percent leased, up from 83 percent when Zell’s group bought them.
Longtime tenants include Tata Consultancy Services, Prime Therapeutics and Oracle Corp. In the past year, tenants including the Larkin Hoffman Daly & Lindgren law firm, Emerson Process Management and HQ Global Workplaces have signed new leases, renewed or expanded existing ones.
Also helping raise the price is the fact that the local market is stronger now than it was two years ago.
“The appetite for assets in markets like Minneapolis has increased pretty dramatically,” O’Brien said in an interview. “The focus on suburban office is different than it was two years ago.”
Some of the biggest local office sales since 2012 have occurred in the suburbs, including the $123 million sale of Cargill’s Excelsior Crossing buildings in Hopkins and the $75 million sale of the 601 Tower at Carlson in Minnetonka. The largest office sale of 2014 occurred when a German group paid $164.5 million for the 50 South Tenth building in downtown Minneapolis.
Ben Thypin, Real Capital’s director of market analysis, said MetLife and Allstate are among several buyers looking to secondary markets rather than staying in competitive coastal markets.
“They’re getting priced out of these markets and they’re looking at others that have a compelling demographic story and a compelling economy, but they can get a higher yield for lower prices per square foot,” he said.
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As the Patient Protection and Affordable Care Act reshapes the delivery of health care, investor interest in health care properties — particularly medical office buildings — remains strong in the Twin Cities and nation.
But a lack of supply has constrained investment activity, according to market observers.
Charles A. Greenberg, senior vice president of asset management for Minot, North Dakota-based Investors Real Estate Trust, said institutional investors tend to place a high value on the medical office building properties they own.
“There’s a lot of money out there that would like to be in medical office buildings,” Greenberg said. “But many … of the owners of quality ‘MOBs’ have no intention of letting them go right now.”
IRET owns various types of real estate in 11 Midwestern states. Because IRET is publicly traded, Greenberg said he can’t comment on whether the real estate investment trust is looking to acquire more health care properties.
Ben Thypin, director of market analysis for New York-based Real Capital Analytics, said the medical office category has been “the hottest by volume” for real estate investors not only in the Twin Cities but across the nation. The category includes doctors’ offices, urgent care clinics, and diagnostic laboratories and imaging centers. They typically produce stable cash flow that makes them particularly attractive to REITs.
In the Twin Cities area, 2014 purchase prices of medical office buildings tracked by Finance & Commerce have ranged from nearly $100 per square foot to $330 per square foot.
Thypin noted that the medical office building category has become more popular with investors because of the growing populations of insured consumers and senior citizens, and because hospital systems have been shifting more non-acute care to off-campus facilities, away from clinics in or near hospitals. Thypin also thinks sales activity this year has been limited due to a lack of properties available for purchase.
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Ben Carlos Thypin
I am currently the co-founder of Quantierra, the world's first data driven real estate brokerage and investment manager. In my former life as Director of Market Analysis at Real Capital Analytics, I worked with press outlets large and small to provide them with great data and insightful commentary. Here are some of the results of this collaboration. For the rest, please check out the News Archive.