The Commercial Correction

By Mark Hulsey (not AI)

Corrections in the real estate market are never fun to navigate, but necessary nonetheless. As we've watched estate cycles over the past 20 years where property values shoot to the moon at an unsustainable rate, we know what’s ahead.

But a correction is not a crash. Sadly, the Minneapolis / St. Paul metro market has had a few commercial sectors crash recently. Hard-core crash! That’s a big difference today compared to years ago. Most corrections today (and crashes) are quite localized and product specific (office versus industrial).

For example, in the Twin Cities metro market, our Central Business Districts, CBDs, have taken a massive beating on valuation as you’ve seen in the headlines. Most of which have been large office property assets:

Wells Fargo Center (Minneapolis CBD):

Sold 2024: ~$85,000,000

Sold 2019: $313,600,000

Ameriprise Financial Center (Minneapolis CBD):

Sold 2025: $6,250,000

Sold 2016: $200,000,000

First National Bank Building (St. Paul CBD):

Sold 2026: $3,800,000

Sold 2015: $37,250,000

Other CRE sectors did not take a beating, but instead remained stable or dealt with a modest correction. Naturally, interest rate increases are always the key driver to correcting a runaway real estate market.

Yet, market demand is fundamental to all metrics. Interestingly, within just the multifamily category, there has been a huge shift in market demand (desirability) between the urban core and suburban markets. Many local buyers and investors have turned away from Minneapolis and St. Paul specifically, for all the well-known reasons. (Yes, this does create opportunity!)

Part II Continues Below...

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The Commercial Correction

Continued From Above...

Industrial properties have been too hot for too long, but demand has generally kept pace. Retail can vary from geographic location along with Class A versus Class C assets within the metro. Land sales are far from immune from a correction. Whether it’s small urban in-fill or outer metro residential construction, the market varies tremendously, and lender interest alone tells that story.

Here’s the deal… we must dig deeply into the data, understand the trends, and underwrite properly. Sellers will not always like the fact that their numbers are no longer what they use to be. Buyers will not always like lenders who must hedge their bets against the current conditions as they anticipate what’s ahead for rates, employment, inflation, and all other economic factors that affect value.

CRE values affect all of us. Just ask the taxman. As those big downtown office towers crash in value, so does their property tax basis. Who do you think makes up the difference?

When you need help interpreting the CRE data, market stats, trends, or how to negotiate in the current market climate, Results Commercial is here to help. You can ask Chat, but I’d still trust a local experienced commercial real estate (human) advisor first and foremost.

Mark

Mark Hulsey

Managing Broker

Licensed: MN, WI & FL

mark@resultscommercial.com

Mobile: 651-755-2068

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