A Minnesota investment firm has scored another jaw-dropping bargain with its second deal in less than two months for a downtown Minneapolis office tower.
Onward Investors paid $6.25 million for the 30-story Ameriprise Financial Center tower at 707 Second Ave. South, a deal that represents a roughly 97% discount compared to the previous selling price for the skyline fixture. A joint venture between investment firms Morning Calm Management and Axar Capital Management, the tower's former owners, purchased the roughly 960,000-square-foot property for $200 million in 2016 in one of the largest office deals to close in Minneapolis' history.
"The purchase of the Ameriprise Financial Center is another demonstration of our desire to be an active participant in the recovery of downtown Minneapolis," Onward Partner Jon Lanners said in a statement. "We believe that now is a great time to be investing in the city's future and look forward to engaging a multitude of stakeholders in the coming months as we re-imagine this well-known asset in the Minneapolis skyline."
The sale spotlights the severe decline in office valuations in downtown Minneapolis as well as other markets across the country. The Ameriprise building, built in the late 1990s, has housed its namesake tenant's headquarters for the past quarter century. However, with Ameriprise Financial's full-building lease slated to expire in October, the property is facing a looming vacancy that, while vexatious for some, Onward views as a lucrative opportunity.
The firm is "exploring a variety of options for the property," Lanners said, weighing whether to convert all or some of the building to another use other than office.
The Ameriprise purchase follows closely behind Onward's acquisition of the Wells Fargo Center, a trophy office tower down the street that the Minnetonka-based firm bought late last year through a joint venture with global asset manager Cross Ocean Partners and Neuberger Berman, a private investment firm based in New York. The trio paid $85 million for the more than 1.4 million-square foot high rise — Minneapolis' third-tallest structure — far below the $313.6 million that seller Starwood Capital Group paid in 2019.
Bet on recovery
The combination of depressed demand, stagnant leasing and the ongoing impacts of flexible work has helped push the national office vacancy rate to a record high of nearly 14%, according to CoStar data. Tenants collectively handed back upward of 65 million square feet last year, boosting the total to more than 210 million square feet of move-outs since the start of 2020.
Those pandemic-induced factors have been exacerbated for many landlords across the country, and some — especially if they're facing maturing loan deadlines or mounting financial distress — have been eager to offload their troubled properties, even if it means closing a deal at a deep discount to their initial investments.
Sales volume nationally has plummeted by more than 55% over the past year to $35 billion, a nearly 15-year low. Yet, on a quarterly basis, sales held steady throughout 2023 and have even ticked up since the start of 2024 as significant discounts pushed an expanding group of investors to take advantage of more deals, data shows.
Roughly $24.5 billion worth of office deals closed within the first nine months last year, according to CoStar, with activity across each quarter surpassing the last.
What's changing now, however, is that there is a lengthening parade of larger investors marking their return to the capital markets, often with an eye on scooping up trophy properties such as the Ameriprise Financial Center and the Wells Fargo Center — especially if they can get them for a bargain price.
Cousins Properties, for example, closed a $521.8 million deal to acquire Sail Tower, a roughly 800,000-square-foot skyscraper leased entirely to tech giant Google in Austin, Texas.
Other landlords such as BXP and Douglas Emmett have also recently emerged from the investment sidelines with deals that have leveraged discounted valuations and serve as a bet on the office market's future trajectory.