Opus Development's 365 Nicollet tests the upper end of rental market

It's a move-in day at 365 Nicollet, the latest luxury apartment tower in downtown Minneapolis. While Opus developers Nick Murnane and Matt Rauenhorst are dodging cleaners, movers and last-minute subcontractors, the superlatives are flowing: The 30-story building has one-of-a-kind amenities, the highest-quality finishes and the most carefully planned floor plans available, they say.

Though Opus — one of the oldest and most prolific developers in the Twin Cities — has developed 2,000 rentals and upscale condos in the Twin Cities, Rauenhorst is exceptionally proud of this 370-unit project. While it took just two years to complete the tower — two months ahead of schedule — it has been nearly four decades in the making.

Rauenhorst's grandfather and Opus founder Gerald Rauenhorst bought the site in 1983.

"It took until now for the north end of Nicollet Mall to be ready for this development," said Matt Rauenhorst, who is now vice president and general manager for Opus Development Co.

Completing this $120 million-plus project is a milestone for both the city and the developer. It's one of the biggest, most expensive rental projects ever undertaken by Opus. And with monthly rents peaking at $7,495 for available two-bedroom units and hundreds of upscale apartments nearby competing for residents, the developer is testing the depth of the luxury rental market.

The project also closes a critical gap in the redevelopment of the north end of Nicollet Mall, a several-block stretch that's considered a critical connection between the Central Business District, North Loop and Mississippi riverfront. Not long ago this section of the mall was a string of surface parking lots. Today, hundreds of people call this area home, and 365 Nicollet leaves only one full undeveloped block at the north end.

"It's another piece in the puzzle, and there aren't too many left to be put in place," said Steve Cramer, president and CEO of the Minneapolis Downtown Council.

When Gerald Rauenhorst bought what has been known as the Ritz block back in 1983 — it was his first purchase in the area — the site was occupied by a Sheraton-Ritz Hotel that was demolished 1990 by developers who had planned to build a second, taller IDS tower.

The Nicollet Hotel, which stood across the street at the corner of Nicollet Mall and Washington Avenue, was also later demolished. Washington Avenue and the riverfront just beyond was a neglected industrial wasteland dominated by weed-strewn surface parking lots.

Rauenhorst later acquired several other downtown parcels where the company developed high-rise office towers including the Fifth Street Towers, the Capella Tower and the Ameriprise Financial Tower. Rauenhorst died in 2014, leaving behind only two undeveloped blocks along Nicollet Mall.

A year after Rauenhorst died, Opus completed a 30-story luxury apartment tower called the Nic on Fifth on a portion of one of those blocks at Fifth and Nicollet. And the company built a 220,000-square-foot headquarters for Xcel Energy on the remainder of the block.

With apartments being rented faster than developers could build them, Opus quickly started building 365 Nicollet on its last downtown parcel: a full city block at the corner of 3rd and Nicollet in a section of downtown that's known as the Gateway District, a reference to a neighborhood that was dismantled in the 1950s during a period of urban blight.

Because 365 Nicollet doesn't take up the whole block, there's room for one more Opus project. Murnane, director of real estate development for Opus, and Matt Rauenhorst say they would like to build a matching apartment tower, but with market forces changing quickly, they are open to other options, including offices.

Minnetonka-based Opus Group now has a $1.6 billion pipeline of projects underway across the country — the most since the Great Recession — including thousands of rentals. That includes a 225-unit apartment building that's about to break ground just a half-dozen blocks from 365 Nicollet along West River Parkway in the North Loop. Opus paid the Star Tribune Media Co. more than $7 million for that vacant 2.6-acre site on Monday, and construction is expected to begin by the end of the year.

Murnane said he expects 365 Nicollet to take about a year to reach full occupancy. About 25 percent has been leased so far, and many of the most expensive units, including some that fetch more than $10,000 per month, have already been rented.

With two upscale condo towers about to break ground nearby, and a record number of apartments expected to be completed this year, there's some concern that rental absorption will slow.

So far, the numbers are encouraging. The average vacancy rate in downtown Minneapolis during the second quarter was only 2.9 percent, according to Marquette Advisors, not including buildings still in the lease-up phase.

That's why, Murnane said, the strategy was to offer the best possible amenities and finishes. The development team analyzed what worked best at Nic on Fifth, which filled quickly when it opened, and they toured projects in big cities across the country in search of the latest and greatest amenities.

The building has a bike lounge with a professional stainless steel wash station. Though there's a parking space for every unit, the building has its own transit center where residents can have a cup of coffee and watch a monitor that displays real-time information about ride-sharing services and the arrival of the next buses. There's a Zen relaxation room with bubbling waterfalls, a canine spa with an indoor doggy relief area (one for big dogs, another for small ones) and a private dining/boardroom for extra-intimate gatherings.

Based on leasing activity at Nic on Fifth, the developers increased the size of the units and included features meant to compete with for-sale condos. All of the units have smart thermostats that allow residents to control the temperature remotely, and some have real wood floors, walk-in pantries and custom cabinets including islands with waterfall-style granite counters.

From a wraparound balcony of a top-floor, 1,970-square-foot penthouse apartment that rents for $6,400, Matt Rauenhorst has a clear view of the last undeveloped block along the mall: the Nicollet Hotel block at the corner of Washington and Nicollet.

That's where, after years of planning, competing developer United Properties plans to start construction on an office-hotel-condo tower in the spring. The company has said it hopes to complete the building in 2021, exactly three decades after the demolition of the Nicollet Hotel.

Rauenhorst said that he's a champion of the United Properties plans for the site, which would fill the last full block along the Mall. It's a moment that has been a long time coming, he said.

He remembers walking the 365 Nicollet block with his grandfather shortly after he acquired it and listening to him envision what could eventually become of the Nicollet Mall: a place where people could live and work.

"He had great affection for the city of Minneapolis," Rauenhorst said. "It is amazing to see that vision alive, up and down the mall, from the collective efforts of so many who love Minneapolis."

Jim Buchta • 612-673-7376