What does it take to sell a downtown Minneapolis skyscraper in 2025?

NINA MOINI: Well, selling a downtown office building in the Twin Cities or anywhere these days is no easy feat. Very few buildings have changed hands since the COVID-19 pandemic, according to the Minnesota Star Tribune.

But almost every sale that did go through in the past years involved Harrison Wagenseil of commercial real estate firm CBRE's Minneapolis team. Wagenseil is part of the brokerage team behind the recent sale of the Wells Fargo, RBC Gateway, and Ameriprise towers in downtown Minneapolis. He joins me now in the studio. Thank you so much for being with us this afternoon.

HARRISON WAGENSEIL: Thanks so much. It's nice to be here.

NINA MOINI: So I want to know-- we're saying that it's hard to sell a skyscraper now. Was it easy before? What has the demand been like? And then how have you seen it change?

HARRISON WAGENSEIL: Yeah, great question. I'd say, so on my team, Ryan Watts, Tom Holtz, and myself, we really focus on two categories. It's institutional, larger skyscrapers, the stuff you see on the skyline, and then a little bit more private capital, which is, we'll call it-- sometimes smaller buildings are those that would trade for less than $10 million. There's a lot more activity in that second space, just because you can sign typically a recourse loan. You can get a bank loan for 50% or 60% of the transaction size. The larger the building, that's where it becomes much more challenging.

So I'd say pre-COVID, a couple of things. First off, you've got work-from-home headwinds that we're still coming out of. And then I'd say the second big challenge we've been facing is the lack of debt. So a lot of lenders, they're either playing defense-- they've got assets they own now from loans that were made pre-COVID and struggling through that.

And frankly, it's very difficult to get an office loan for a larger building. They just categorically don't want exposure. And that's not the rule, necessarily. There are certain cases where lenders, whether that's CMBS or a bank loan or a debt fund, will participate in an office transaction.

But for the most part, that's not really the chosen child, so to speak. Relative to the other food groups, industrial or apartments, they'd much rather put their money there. So those are the two real challenges, is vacancy and how are human beings going to work or continue to work. And does that look any different than it has the last couple of years? And then the lack of or the difficulty in getting debt, which is really what greases the wheels, so to speak.

NINA MOINI: So with that in mind, who's buying up these buildings? You mentioned apartments. As everybody's thinking about work-from-home and how to revitalize our downtowns, which is impacting what can be sold and how things can be used, what are you seeing happen with these bigger skyscraper buildings?

HARRISON WAGENSEIL: Yeah, so we've been fortunate or, I guess, unfortunate to work on some of the more marquee projects downtown and across the region. And I'd say the buyer profile has changed a little bit. Some of the more institution, the big, big names, whether those sovereign wealth funds or publicly traded REITs or some of the really large names that we'd all be familiar with, they have their pencils down on office right now. And they just see more opportunity or more safety, I'd say, in some of the other asset classes.

That will change. We're starting to see those groups come back into places like New York and Miami, some places in the Sun Belt. And that's a couple of reasons that the yield, so to speak, or your return, is much higher in office to compensate for the risk. So you're starting to see some of those dollars allocated to office.

But for the last, call it, I'd say, two or three or even four years, the buyer marketplace for institutional office buildings is much more private, ultra-high net worth individuals, family offices, and some hedge funds. And I'd say our bid lists are deep. We're getting lots of offers for our buildings, like when we took Wells Fargo Center to the market, RBC Gateway, which arguably is our marquee downtown asset. It's the newest, the sexiest. It's North Loop adjacent, which is where a lot of folks want to be, frankly.

Those, we had a lot of bidders. But for Wells Fargo Center and Ameriprise, which had some other challenges around Ameriprise's soon-to-vacate, which is later this year, those were a little bit more challenging. And just the pricing, unfortunately, was not anywhere close to the pre-COVID values. And there's a number of reasons for that, some of which are not as competitive from the institutions. They're not really bidding on this sort of stuff. The inability or just the challenges around getting debts-- you have to buy it all-cash or work out some sort of seller financing.

NINA MOINI: So who's going in those buildings? You mentioned hedge funds and family. Do you have an idea for those buildings that used to be critical or are critical to the downtown?

HARRISON WAGENSEIL: Well, so the way we think about our marketplace, two things. You've got the capital markets, which is what I do, which is buy and sell and finance office buildings. And then you have what we call the space markets. That's just a name for leasing. I'd say our leasing marketplace, the space markets, have improved a little bit marginally.

So we've had three consecutive quarters where we actually had net positive absorption. And what that means is we've got more people taking space than giving it back, essentially. So the users continue to be law firms. It's very difficult to practice law remotely. You've got confidentiality issues. You need access to various systems, some of the bigger finance firms, et cetera.

But we are seeing more groups come back. Obviously, some big name between 3M and Target now has, I think, a back-to-work policy-- certainly the state of Minnesota. And I know that this is a very-- people feel very strongly--

NINA MOINI: Yeah, they do.

HARRISON WAGENSEIL: --one way or the other.

NINA MOINI: They do. But it's so interesting to get the perspective. We'll hear from politicians or different downtown chamber-types of folks. But from your perspective, as the person who's making these buildings change hands, how are the downtowns doing? You alluded to this-- some people coming back. How-- is it really grim still, like it was for a long time? Do you think in perhaps 10 years, things might be promising? What's your sense?

HARRISON WAGENSEIL: So I'd say there's a noticeable difference between Fridays and Tuesdays, Wednesdays, Thursdays. Tuesdays, Wednesdays, Thursdays are vibrant. If you've got a Twins noon game-- there's a lot of energy, frankly, in downtown Minneapolis. We sit here in St. Paul, and that maybe deserves a different segment because you have this-- it's really the politics are run. St. Paul, you got a lot of state agencies that are the occupiers, rather than a third-party company.

But the feeling is much different than it was, I'd say, two or three years ago. It's vastly improved. I think it was very in vogue for a little while to talk about safety concerns downtown Minneapolis, just given our political environment. I don't know that that's really true right now. I certainly feel comfortable.

And some of the big companies, I think they were very resistant at first to call their people back. If something bad happened, that publicly could be very bad for their stock price. And we have some very large companies in Minnesota. So that used to be our strength. The last couple of years, it's been a little bit of an Achilles heel because we have some large companies, large occupiers that didn't have their people in the office. But that's starting to change. And obviously, Target is the big one that we're watching.

NINA MOINI: Do you feel like that's the most critical or among the most critical pieces of it is making people return to work? Because when I mentioned-- and I've talked to a lot of people on this show-- people want to live their life how they want to live it. And some people say, no, we've got to do this for the collective good and the vibrancy. Is that one of the biggest pieces? Or would there be anything else?

HARRISON WAGENSEIL: Well, it's a good question. And some people say, why is-- it's not up to me to improve the economic returns of XYZ investor from New York. And it's really not that at this case. At this time, I think people have a misunderstanding that it's these pinstriped bigwigs in New York that own all of this stuff.

And where we are at this point is really not-- it's about loss reduction. And we're all stakeholders in this, largely because the property taxes are what fund our budget. And so if there are shortfalls coming from the downtown skyscrapers-- which, of course, there will be. Its assessed values are a quarter or 50% of what they were previously. Unfortunately, the residents of Minneapolis, in some cases, will have to shoulder that burden.

So a couple of things. Yes, obviously, occupancy, vibrancy helps. I think the safety thing, we've definitely made a great turn there. And there are some things I think the city and maybe the state can do for soon-to-be vacant buildings or buildings that are obsolete in the office sector to make them economically feasible as something else, whether that's apartments, et cetera.

NINA MOINI: Sure, just people putting their heads together, getting creative. It's going to be a long road, from what you're saying, but some progress, which is really good to hear. Fascinating.

HARRISON WAGENSEIL: Absolutely.

NINA MOINI: Fascinating perspective. Thank you very much, Harrison.

HARRISON WAGENSEIL: Yeah, appreciate the time. Nice to talk to you.

NINA MOINI: That was Harrison Wagenseil, Senior Vice President at CBRE's Minneapolis Capital Markets Institutional Properties Group.