Amid drop-off in multifamily construction, new condo project fills void for Minneapolis buyers

A pair of Twin Cities developers will seek final city approval this month to build 15 upscale condos in a quaint south Minneapolis neighborhood, making it what could be the biggest condo project in the city to break ground in at least five years.

The four-story Fletcher at Linden Hills comes at a time when multifamily construction is dwindling, leaving many potential buyers with limited options. The most recent major condo projects to hit the market in the city were the Eleven on the River in the Mill District and Four Seasons Private Residences in downtown Minneapolis, which both broke ground in 2019.

Since the completion of more than 100 luxury condos in those two buildings and a smattering of much smaller condo buildings elsewhere in the metro, developers have been focused on building luxury rentals, especially in the suburbs. During the past year, however, developers have pulled back significantly on even rental buildings. Despite strong demand, higher mortgage rates and construction costs have made it difficult to finance these multifamily buildings.

Last week, Housing First Minnesota said during November developers pulled only enough permits to build 196 rentals. That was a 45% decline from the previous month. At the same time, builders pulled 660 permits for single-family homes, a 15% increase from the same time last year.

So far this year, housing construction has fallen dramatically compared with the previous few years. During the first 11 months of the year, cities issued permits for 7,700 houses and apartments, about half as many as two years ago. Of that total, only 1,840 are multifamily units, accounting for less than a quarter of planned home building in the metro. Typically, about half of housing construction throughout the metro is multifamily rentals.

Steve Sohre, broker/owner of the Realty House, has been marketing the Fletcher project since July. He said because nothing had gone up in several years, he was optimistic buyers would step forward. Demand for the larger units has been especially strong, with about two-thirds of the penthouse units already reserved.

“There’s not much product out there for them. They want something larger. They can’t fit into 1,300 or 1,400 square feet,” he said. “It was a little unclear how the market would respond, but the appetite is definitely out there.”

Mary Bujold, president of Maxfield Research, a real estate research and consulting firm, said while the condo market is facing some headwinds, the Fletcher project is in a desirable location and is likely to appeal to buyers who want an alternative to downtown Minneapolis.

She added the target market for upscale condos is people who are able to sell their single-family homes and pay cash, making them less likely to feel the impact of persistent higher mortgage rates.

“Although market activity has declined, prices are still increasing on homes,” she said, “and buyers that can sell their homes can still realize significant appreciation.”

The Fletcher project comes at a time when condominium listings are rising at a much steeper pace than single-family houses, and they’ve been taking longer to sell.

On average, new and existing condos took 71 days to find a buyer during October, about 30 days longer than single-family homes, according to the latest sales data from the Minneapolis Area Realtors. Pending sales of condos were down nearly 6% compared with a 2.6% increase in single-family homes.

Bujold said rising homeowners’ association dues, on top of higher mortgage rates, have been a drag on sales.

“Usually, in periods of high mortgage interest rates, condo sales seem to slow down,” she said.

She said throughout the metro, there are no age-restricted condos in the pipeline, although there are two age-restricted cooperatives in the works. There are other association-maintained projects under construction, including detached villa-style homes and twin homes.

“The location of the property is very important as well as the amenity value,” she said.

Condos at the four-story Fletcher at Linden Hills will range from 1,600 to 2,400 square feet, replacing a trio of houses at the corner of 44th Street W. and Vincent Avenue S. It’s about three blocks to Lake Harriet and next to a local retail hub with several popular shops and restaurants including Sebastian Joe’s, Martina and Rosalia Pizza.

The development team, including Thomas Hertzog of Good Neighbor Homes and Charles Burdick of Streetfront Development, said the original plan was to build nearly 40 rentals on the site. But they reversed course after market analysis showed there’s a dearth of options for people who want a new condo in an established neighborhood.

“In Linden Hills, you have this cherished, beloved neighborhood with all of its cute amenities and walkability and access to Lake Harriet,” Burdick said. “In this location, it makes a ton of sense.”

Condo prices at the Fletcher start at $1.2 million, while the bulk of the condos already in the city, the developers say, are under $500,000 or more than $2 million. That would make them too small — or too expensive — for buyers who are downsizing from single-family houses.

“We tried to fill a niche with this project between those two,” Burdick said. " Not a lot of [baby boomers] are sensitive to mortgage rates, so that hasn’t been a drag on presales.”

Hertzog said construction won’t begin until half the units have presold, but with seven already reserved, the team expects to hit that threshold quickly. And because the project doesn’t ask for any variances, he also anticipates a quick approval upon presentation of the final preliminary development review packet and land-use application later this month.

“We’ve designed the project to meet all city requirements so the approvals will all be administrative,” Hertzog said.

One of those early reservations is an example of the exact kind of buyer the Fletcher targets: those who want maintenance-free living outside of downtown Minneapolis, which tends to be the go-to place for condo buyers.

Ken Raskin and Lynn Lederman, whose 6,000-square-foot house in Golden Valley is far too large now that all four of their kids have moved out, said for the next phase of their lives, they wanted to be in a leafy neighborhood close the city’s lakes rather than a high-rise tower in the urban core.

Finding a condo big enough to accommodate family gatherings and some of their most important possessions wasn’t easy, they say, and many of the condos in their preferred area were built 60 to 100 years ago.

“There aren’t very many new condo projects, so [we] had to look at existing ones,” Raskin said. “And there was not much in south Minneapolis, so this was really something unique.”

Raskin and Lederman signed up for a 2,400-square-foot, top-floor condo with a large outdoor space perfect for the extended-family gatherings they regularly host.

“It’ll be a very nice patio to have a cocktail and to have a barbecue,” Raskin said. “And having everything new is appealing.”

Having so much space means they won’t have to give up their dining table or grand piano, and they’re looking forward to taking long walks and spending less time tending to their house and yard.

Lederman said downtown Minneapolis and its adjacent neighborhoods weren’t really an option because they wanted to be in a more established neighborhood where they can walk to shops and restaurants.

“The location was a big draw for me because I just love Linden Hills,” Lederman said. “I lived there 30 years ago, so it’s very familiar. It seemed like coming home, coming full circle.”