Since developer Bob Lux and his firm, Alatus LLC, signed a purchase agreement for Block E in Minneapolis, Shea has been assisting with due diligence efforts. Alatus LLC has been a long-time client of Shea's, and the two firms recently collaborated on a redesign and repositioning of several municipal parking ramps that Lux purchased from the city of Minneapolis for about $69 million. For more on the Block E story, read the Business Journal article by John Vomhof and Sam Black below:
DEVELOPER LUX HAS DEAL FOR BLOCK E
Minneapolis / St. Paul Business Journal - by John Vomhof Jr. and Sam Black Staff Writers
Twin Cities real estate developer Bob Lux has a deal to buy the troubled Block E retail and entertainment complex in downtown Minneapolis.
The Business Journal learned last week that Lux was pursuing a deal for the center. After being contacted by the Journal for the story, Lux's firm, Alatus LLC, issued a statement saying it had signed a purchase agreement and that it would "significantly invest" in the property. Lux declined to comment further.
Lux would acquire downtown Minneapolis property from Union Labor Life Insurance Co. (ULLICO), the Washington, D.C.-based lender that recently took over ownership of the center from the developer, Chicago-based McCaffery Interests Inc.
ULLICO was the primary lender for the $135 million project, which opened in 2002.
The purchase price was not disclosed. The transaction, which is expected to close in late summer, will not include the Graves 601 Hotel Minneapolis, which is separately owned.
Lux did not respond to calls or e-mails seeking comment prior to publication. ULLICO and McCaffery officials also could not be reached.
Turning things around
Once Lux acquires the site, he will have his work cut out for him to revamp the property, which has been plagued by some high-profile vacancies in recent years. The former Borders bookstore has been empty for more than two years, and GameWorks went dark last week. However, in a big win for the property, Kieran’s Irish Pub recently filled the former Bellanotte restaurant space, signing a 10-year lease.
In the statement, Bob Lux said: "With the opening of Target Field, there is an excitement on Hennepin Avenue, and Block E is at the center of it. We intend to significantly invest in Block E to attract tenants that complement the neighborhood's new energy."
Retail sources speculated that Lux might pursue big-name retailers like Richfield-based Best Buy Co. Inc. and Edina-based grocer Lund Food Holdings Inc. He landed a letter of intent for a Lunds store at an Alatus development at 10th Street and Hennepin Avenue, just a few blocks from Block E, but construction has not started.
Best Buy and Lunds would be logical targets for Block E because they are high-profile tenants that could help the center differentiate itself, said Dave Brennan, co-director of the Institute for Retailing Excellence at the University of St. Thomas.
“It doesn’t have anything unique — a destination-type tenant to draw people to Block E,” he said. “They just don’t have destination type entertainment or retailers.”
But Block E needs more than just a few new tenants, said Andrea Christenson, a retail broker in Cassidy Turley’s Minneapolis office. It also could use extensive renovations, including more windows and improved street-level access. And the bus stops outside the center also should be relocated, she said.
“I think it needs a name change and a brand change,” Christenson said. “Block E has such negative connotations — whether it’s reality or perception, it doesn’t matter.”
Mike Christenson, director of the city of Minneapolis’ Community Planning & Economic Development department, said he wasn’t aware of a potential sale of Block E. He is not related to Andrea Christenson.
Since the retail center opened, its owners have worked with city leaders to position the property. That includes some successful efforts lately, such as establishing a “SafeZone” on the block, washing the sidewalks, greening up the planters and street level, and most recently, repositioning the Kieran’s space, Mike Christenson said.
“They’re trying to make progress through a whole new generation of tenants,” he said. “Everybody hopes that Kieran’s is the lucky vein, but who knows.”
Although the city doesn’t have any formal say in the ownership of Block E, it does have some skin in the game, said Patrick Born, the city’s chief financial officer.
The city invested $29 million toward the center’s development, issuing bonds that are repaid through a combination of property taxes paid by Block E and annual payments from the owners of Graves 601 Hotel Minneapolis and the Kerasotes Block E Stadium 15 theater. The outstanding balance on the bonds is $18.8 million, with annual principal and interest payments of $1.85 million. The bonds will reach final maturity in 2027.
Lux long-time urban player
Lux and his firm, Alatus, has either led or been part of several successful ventures in Minneapolis during the past decade. He was one of the principal developers of the Grant Park condo tower that kicked off the downtown housing construction boom in the early 2000s. He also was part of the team that developed The Carlyle condominiums, a luxury tower, near the main downtown Minneapolis post office, that sold its last available unit in late 2009.
In 2007, Alatus bought six municipal parking ramps from the city of Minneapolis for about $69 million.
Alatus financed that acquisition with the help of London-based investment firm Invesco. The city of Minneapolis had selected Alatus’ proposal over competitors because of the redevelopment plans Alatus had for the ramps and the potential tax base it would create.
Alatus had planned a $13 million mixed-use project at the Downtown East Parking Garage, at 424 S. Chicago Ave. S., and a $9.8 million mixed-use project at the Seven Corners Ramp. at 1504 S. Washington Ave.
Neither of those redevelopment projects has broken ground due to market conditions, Mike Christenson said.
Alatus has completed improvements to the Center Village Ramp at 700 S. Fifth Ave. and Loring Ramp, that he promised to do as part of the purchase agreements, he said.
The Penfield, in St. Paul, is another high-profile and stalled Alatus mixed-use development. The city of St. Paul recently made plans to take over the development of an apartment and grocery store project from Lux and his business partner Sherman Rutzick.
Lux and Rutzick are still trying to stay involved in the scaled-down version of the project by consulting on it for the city.
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