Private investment in downtown Rochester fell in 2023

ROCHESTER – Downtown development increasingly relied on Mayo Clinic last year, capturing just $12.5 million in non-Mayo investments in 2023 — the lowest amount since the initiative to turn Rochester into an international medical hub began tracking investments in 2015.

In all, downtown in 2023 drew a little less than $150 million in private investment, a marked drop from a stellar 2022, according to Destination Medical Center (DMC) officials. Rochester City Administrator Alison Zelms downplayed the lack of non-Mayo interest.

“That’s a little bit less than we’ve seen in the past, but still really great investment considering we’re still recovering” from the COVID-19 years, Zelms said during a DMC meeting Thursday to review the group’s annual report to the Minnesota Department of Employment and Economic Development.

The non-Mayo investments includes new restaurants and expanded space in existing spots downtown. It also includes the former DoubleTree by Hilton renovation to create more student housing for the University of Minnesota-Rochester.

Mayo’s $133 million in 2023 investments included largely finishing the Anna-Maria and Stephen Kellen Building, the medical system’s newest cancer research center. It was the first major Mayo Clinic building project completed in Rochester since the clinic opened the Gonda Building in 2001.

Downtown Rochester had similar investments to last year in 2020 and 2021, during the height of the pandemic, but reached almost $200 million in economic development in 2022.

DMC averages about $173 million annually in downtown development.

DMC Executive Committee Chair Pamela Wheelock acknowledged high interest rates and the economic recovery from COVID has made private investments harder.

“I do hope that we continue to think through ... what we might need to think about differently or do differently to get over the hurdle,” she said.

The Minnesota Legislature in 2013 approved $585 million in city, county and state funding for DMC through 2033. Most of DMC’s annual budget, used to pay for public infrastructure to support development, comes from state funds, while its operating budget mainly comes from city revenue.

Thus far, DMC has spent or allocated about $220 million in public funding. That funding is contingent on ongoing private investment, but DMC has already met requirements to obtain the maximum annual funding each year, with more than $1.6 billion in investment so far.

The initiative is set to exceed its overall investment goals over the next few years thanks to Mayo Clinic’s multibillion-dollar expansion. Construction on several of those projects is expected to start this summer.

Zelms said downtown Rochester’s investment reflects only a small part of the ongoing growth in the city’s 55 square miles. She estimated that more than twice the amount of non-Mayo private investment took place throughout the city last year. More private development is expected in coming years as Mayo’s expansion draws additional staff and secondary businesses.

“It’s much easier to keep momentum and continue the flywheel going than to start it,” Zelms said. “We’re ahead of the game in the sense that we have continued to see investment particularly in our downtown, which is a more challenging space based on price, footprint, the cost of building.”