She’s buying downtown Minneapolis office space, sensing ‘greatest opportunity of our lifetime’

When the COVID-19 pandemic hit, Erin Fitzgerald was selling office buildings for commercial real estate behemoth JLL. A few years after the outbreak, as the Federal Reserve raised interest rates and remote work remained popular, she realized the coming years would bring rare opportunities for those on the buying side.

So this summer she left to launch her own commercial real estate investment firm, Willow Peak. Last week, the group closed on its first property, a five-story office building located at 300 1st Av. N. in downtown Minneapolis.

The property lies near the North Loop in the historic Warehouse District, an area that has become the focus on downtown revitalization efforts — in part because of the Minneapolis Renaissance Coalition, an initiative Fitzgerald founded to unite the public and private sectors around a shared vision for the urban core.

This interview has been edited for length and clarity.

Tell me a bit about your background.

I spent over 20 years working in commercial real estate — most of that time focused in downtown Minneapolis. I would say that my work has always been about finding ways to reimagine spaces so they serve both the community and investor needs. But one of my proudest achievements has been working with a variety of stakeholders to help shape Minneapolis’ North Loop neighborhood.

What made you decide to leave JLL and found Willow Peak?

I was valuing buildings for owners. It was the same time that the feds were raising interest rates. Every time I was valuing a building, the price would drop by 10%, 20%, 30%. Interest rates were increasing at such a rate that it was driving prices down.

Eventually, it moved from valuing the buildings for owners to valuing the buildings for the lenders of those properties. I spent a lot of time researching the loan maturities for buildings. And the conclusion that I came to was that a lot of these buildings were going to be facing loan maturity — or the debt was going to be coming due — in ‘23, ‘24, ‘25, ‘26. And because of the interest rate environment, they wouldn’t be able to refinance — and would more than likely be handing the keys back to the bank.

Finally, I just decided I couldn’t sit on the sidelines any more and watch this opportunity pass me by. Because I just realized that we were heading into the greatest buying opportunity of our lifetime.

How does Willow Peak operate, and who are your investors?

We have lots of partners that we outsource a lot of things to. I would say that founding Willow Peak was about taking my experience in transforming properties and creating vibrant spaces, and applying it on a larger scale.

For this building [300 1st Av. N.], some of it’s really just our own money, and then we have a couple partners on the deal with us. Willow Peak represents the general partnership of the building, and [Minnetonka-based] Onward Investors is the limited partner or the equity partner. Willow Peak is really the one who is in charge of the repositioning strategy, the lease-up — making sure that the building performs as an investment.

It’s very ambitious to say this, but our goal in 2025 is to raise a $100 million fund. There’s a lot of challenges in doing that, especially for a new firm like ours. But I think the opportunity is there — for family offices or high-net-worth individuals or financial advisers that are looking for alternative investments with a high return. With Willow Peak, investors are part of a mission-driven effort to support urban renewal while achieving meaningful returns.

What caught your eye about this building specifically?

300 1st Av. is a property with incredible history and potential. Its location at the intersection of the North Loop, the Warehouse District and the Gateway District make it ideally positioned to become a cornerstone of the downtown revitalization. The building’s architecture and character are rare. And we saw an opportunity to honor that history, while reimagining the space to support our existing tenant, [software company] Anaplan, and their employees, while attracting a mix of new tenants that will bring a new energy to the area.

What’s your vision for the property moving forward?

Our plans include creating a vibrant, mixed-use environment that supports office, retail and possibly wellness or hospitality spaces. But all designed to draw people downtown and support local businesses.

What’s next for Willow Peak?

We are evaluating a couple other buildings. The problem is, they’re so expensive to reposition. This building works because it really doesn’t need any work. Except for the roof, it’s in impeccable condition. A lot of other buildings, that isn’t the case. Like they need new elevators or all new mechanical systems. Or they’re vacant, and they don’t have any cash flow — and so it’s not enough that you’re getting the building at a significant discount.

I would love it if, before this market cycle is over, Willow Peak was able to do a deal where we brought in senior housing downtown. And a place for children. I think those are two really underserved markets. They make up probably close to 50% of our population, and there’s very few places for them downtown.

It also depends on what kinds of incentives are there, right? If something like the CUB credit — which would be a 30% tax credit for converting underutilized buildings — got passed, that would make it much more feasible to tackle some of the more challenging properties.

I know getting that tax credit passed is one of the goals of the Minneapolis Renaissance Coalition. Can you talk about how that group came to be and what its mission is?

The Minneapolis Renaissance Coalition is a public-private partnership of 150 members with a shared mission to bring vibrancy and investment back to downtown Minneapolis. We work collaboratively to tackle challenges, attract private investment and make sure that Minneapolis is a place that people want to live, work and play.

We looked at every area of downtown Minneapolis against three criteria: One, that it had a high concentration of buildings that would likely be going back to the lender or weren’t worth what their debt balance was, which is where the problem started from. Also, that it had a high concentration of buildings that could be converted from their existing use to something higher and better. And that it was an area of high crime that could benefit from a revitalization effort.

The group unanimously decided on the Warehouse District based on those criteria. Then we started telling people, ‘In order to try to help the revitalization of downtown kick-start faster, we’re going to focus on the Warehouse District.’ And people were like: ‘Oh, I’m really interested in that. Can I come to your meeting and help?’ And it just grew from there.

How would you paint the current moment in the commercial real estate cycle?

Downtown Minneapolis is at a critical juncture. The shift to remote work has had a significant impact on office space, with property values declining and new challenges in attracting foot traffic back to the city.

We have the potential to shape downtown Minneapolis into a more resilient, engaging space than ever before. But for this vision to become a reality, an alignment between the City Council and the business community is crucial. Right now, there’s a gap between the council’s intentions and a truly collaborative environment. So the biggest opportunity, in my opinion — and the biggest need — is for the City Council to partner with the business community in developing a shared vision for Minneapolis’ future.

I believe that we’re at the bottom, and we’ll be scraping the bottom for some time. For the past two years, the market just froze because interest rates were rising and property owners were saying, ‘I can’t believe my property is only worth that.’ And then the properties’ [values] just kept going down and down until they were forced to let it go. We’re just at the beginning of that cycle, where properties are actually coming to market. I believe that we’re going to be in this downturn for three to five years.