Prominent corners of St. Paul are owned by an out-of-state pension fund. Some are bustling. Some are empty. – Twin Cities

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When management consultant Sherry Johnson co-chaired a neighborhood task force looking at all the vacant properties on St. Paul’s popular Grand Avenue business corridor, she was taken aback to discover how many spaces were owned by the same out-of-state pension fund — the State Teachers Retirement System of Ohio.

Unlike some other commercial owners willing to host seasonal vendors, pop-up shops and art collectives, the retirement system has kept some of the three-mile corridor’s largest retail areas empty rather than lower rents and negotiate with small, local businesses.

The Columbus, Ohio-based retirement system, known as STRS Ohio, owns the retail malls lining three corners of Grand Avenue and Victoria Street, home to such celebrated storefronts as the Bread and Chocolate restaurant and bakery, J.W. Hulme leather goods, Evereve clothing and Cafe Latte. But its mall at the intersection’s southwest corner runs for nearly half the block approaching Milton Street, and other than a sizable Pottery Barn furniture store anchoring the corner, it’s, by all appearances, vacant.

An M Health Fairview clinic relocated during the pandemic, and nothing has arrived to take its place. Other visible departures from the block since early 2020 include national clothing chains J. Crew and Lululemon.

“All those Lululemons and J. Crews are not coming back, and now we’re just stuck with all these empty husks of buildings,” Johnson said. “Personally, I’m just wondering if they’re waiting to sell them to a developer.”

A mix of retail spaces

STRS Ohio has invested its teacher pension funds in real estate from Boston to Seattle, but it appears to have a special interest in St. Paul’s Grand Avenue, where it owns a mix of retail spaces. To the delight of customers, some of the retirement fund’s St. Paul properties — like Highland Crossing on Ford Parkway and Victoria Crossing West on Grand — are bustling with small businesses.

And to the chagrin of St. Paul business and neighborhood advocates, some of its most prominent Grand Avenue retail malls have sat vacant or near-vacant for years.

Through a separate limited liability corporation, Milton Mall LLC, the pension fund maintains ownership of the retail center on the northeast corner of Grand and Milton, comprised in part by a shuttered Anthropologie clothing store that boarded its doors last November. A Park Dental clinic is still accessible from the parking lot off the back alley.

At a time when public pension funds across the nation are increasing their real estate investments to balance volatility in the tech sector and other risks, St. Paul has become an illustrative example of out-of-state control over neighborhood commercial hubs. STRS Ohio lost some $5 billion last year, and then even more money when Silicon Valley Bank collapsed.

Some observers see the many vacancies in its Grand Avenue portfolio as just another symptom of traditional retail’s national malaise in the era of online shopping, but neighborhood advocates like Johnson have noted there are alternatives.

In 2019, Edina-based Lunds and Byerlys purchased 791 Grand Ave. and adjoining properties with the intent of building a new grocery attached to housing. The plan stalled during the pandemic, so Lunds allowed the Grand Collective, a pop-up clothing store that drew inventory from 14 independent Twin Cities shops, to lease the former Ann Taylor/Restoration Hardware storefront.

The pop-up, which closed in 2022, lasted two years, ending only when storeowners got busy with their primary storefronts.

“I have nothing but good things to say about Lunds,” said Patric Richardson, a founder of the Grand Collective. “For me, that was a really great experience.”

People enter one of three buildings at the corner of Grand Avenue and Victoria Street in St. Paul owned by out-of-state pension fund — the State Teachers Retirement System of Ohio photographed on Wednesday, June 14, 2023. (John Autey / Pioneer Press)

‘They are remote’

Dan Marshall, who purchased a commercial building near Grand and Victoria in 2016, can name a number of locally-owned small businesses that no longer operate in the STRS Ohio properties, like the Lotus restaurant, Amore Coffee and Ten Thousand Villages jewelry and gift shop. He sees a pattern, and a lack of local accountability.

“The issue here is that they are a remote, institutional landlord making decisions in the interests of their portfolio of investments, not in the interests of the city or neighborhood,” said Marshall, proprietor of Mischief Toy Store. “There’s a long history of independent business getting pushed out of these buildings in favor of chain stores and health clinics. (But vacancies) make the avenue look blighted, and it doesn’t drive traffic.”

Speaking generally, Lisa Christianson, owner of Christianson & Company Commercial Real Estate in Bloomington, said there are a number of reasons why large landlords might prefer to keep a retail center vacant rather than lower rent.

“We get that question a lot — ‘Why don’t they just lease it to us for cheap?’ They may just be waiting for the right tenant, and they may need to get a certain face rate to justify the value of the building for their lenders or their investors,” Christianson said. “If they put a tenant in there at a low rent, that dramatically reduces the value of the property. If you’ve got investors in the property, you’ve got to make sure you achieve those returns you’ve promised your investors.”

She added: “They may have a strategy where they’re waiting to redevelop the property. It’s expensive and a lot of work to put a tenant in a space. There may be a tenant that moved out that is still paying rent, so it looks vacant to you and I, but they’re not going to let that tenant off the lease until they find a tenant that can pay as much or better.”

Then there’s the fact that commercial leases routinely run five to 10 years, which could block rather than help a future lease or building sale. Commercial “landlords are willing to wait for a higher rent offer because signing a lease involves tying their hands for a long period of time,” wrote researchers last month in a report for Harvard University’s Joint Center for Housing Studies.

Some see better days ahead

At Grand and Victoria, some foresee better days ahead.

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