Interstate 394 lures office developers, buyers and tenants

Commercial real estate folks call it the "Golden West."

It's the stretch of Interstate 394 between Hwy. 100 and Interstate 494 in suburban St. Louis Park, Golden Valley and Minnetonka, which has emerged as the power strip for office space in the Twin Cities -- no matter whether tenants are leasing or purchasing.

Just last week, the MoneyGram Tower and its brick sister in St. Louis Park, the 1600 Tower, sold to a New York real estate investment group for $81 million. The buyer, DRA Advisors LLC, had also purchased the Colonnade office tower and adjacent land across the interstate in Golden Valley for $52 million in late 2011. And on the north side of I-394 near the General Mills headquarters, financial giant Wells Fargo & Co. last fall expanded its suburban operations at the Metropoint complex.

"That corridor is one of the best-performing office corridors in the Twin Cities," said Tom Holtz, executive vice president of CBRE Group Inc. in Bloomington, who represented Equity Office/Blackstone Group, the seller of the MoneyGram and 1600 Towers. The two towers, developed in 1987 and 2000, are 90 percent leased.

He attributed the I-394 corridor's popularity to the Shops at West End lifestyle center, which features a movie theater, shops and restaurants that lure office dwellers, as well as the proximity of downtown Minneapolis and several "executive neighborhoods" such as Kenwood, Golden Valley and Minnetonka where CEOs and other company leaders settle.

With 1 million more square feet of office space occupied than vacated during the year -- a measure known as absorption -- the overall office market in the Twin Cities is in the best shape it's been since 2007, according to the Cushman & Wakefield/NorthMarq semi-annual Compass report released Thursday.

The total office vacancy rate in 2012 was 18 percent across all property types, but the I-394 corridor boasts a vacancy rate of top-notch Class A space of 7.8 percent. Or, as the report characterizes it, the stretch is "the low-vacancy leader."

"A lot of it has to do with the West End shops really turning into an outstanding location for employees and businesses because of all the retail offered at that complex," said Bob Revoir, senior director at Cushman & Wakefield/North Marq. "It's a major benefit, the connectivity and walkability."

The retail space at the West End complex is roughly 80 percent leased, said Patrick Mascia, senior vice president of the Twin Cities office of Duke Realty, the developer of the MoneyGram and 1600 Towers and the Shops at West End.

Plans for the area include constructing more office space east of the towers, a patch now largely vacant, Mascia said. Construction activity will hinge on demand, he added, noting the Chili's and Olive Garden restaurant sites could be sold for residential development. Already, the Excelsior Group is building the Flats at West End apartment complex across from the retail area, and near the Homewood Suites by Hilton hotel. Occupancy for the apartments is expected this spring, according to the developer's website.

The immediate downside to all the activity is the inevitable clog of traffic along I-394 during peak commuting hours. St. Louis Park community development director Kevin Locke said the city has encouraged public transit by reconfiguring some streets in the West End area.

The Compass report also notes that larger office-space users now in the I-394 corridor are expected to shift their attention to sub-market areas north and west in 2013, "as their options for [office] space in the 11 Class A buildings along the corridor have largely evaporated."

Janet Moore • 612-673-7752