The owner of the second-tallest building in Minneapolis has been forced to hand the office back to its lender after failing to offload the property at a time of market uncertainty.
San Francisco development firm Shorenstein has handed back the 58-story downtown Capella Tower to an affiliate of New York City-based Metropolitan Life Insurance, commonly known as MetLife, according to a Hennepin County title transfer. It is the latest in a series of financial challenges for the former landlord that last August attempted to sell the nearly 1.5 million-square-foot property in order to repay its loan.
Yet after nearly a year on the market, and Shorenstein's willingness to accept a price below what it paid for the property about five years ago, no potential takers surfaced for the building at 225 S. Sixth St.
A MetLife spokesperson said the company could not comment on the details of the handover, but noted that Capella Tower is a high-quality asset in the Minneapolis market. The firm made plans earlier this year in preparation for a possible takeover of the high rise, reaching out to local brokerages that would be able to take on leasing and management responsibilities for the building.
Shorenstein did not immediately respond to CoStar News' emailed requests to comment.
The San Francisco firm paid $255 million to acquire Capella Tower in February 2018 and enlisted help from Eastdil Secured last year to land a new owner for the property. It was expected to sell for about $200 million, according to people familiar with the listing at the time, an amount that would have been enough to pay off Shorenstein's MetLife-issued loan of about $185 million.
Similar to some other trophy properties across the country, Capella Tower has struggled to maintain its tenant roster and fill vacancy gaps as demand for office space remains just a fraction of what it was prior to the COVID-19 pandemic's 2020 outbreak.
Tenants collectively signed on for about 395 million square feet last year, according to CoStar data, about 13% below the annual average reported in the years leading up to the pandemic. What's more, those lease deals are about 16% smaller on average than those signed between 2015 and 2019, exacerbating the vacancy challenges and available space across the country's largest office markets.
Sales volume has plummeted by more than 55% over the past year to $35 billion, according to CoStar data, a nearly 15-year low. Yet, on a quarterly basis, sales activity held steady throughout 2023 and even ticked up in the early months of 2024 as significant discounts pushed an expanding group of investors to take advantage of more deals.
The early 1990s-era Capella Tower, designed by famed architect I.M. Pei and recognizable for its lighted crown, is about 80% leased, according to CoStar data. Anchor tenant Capella University downsized from about 280,208 square feet to its current 111,700-square-foot presence in the building. Other tenants include law firm Winthrop & Weinstine with 106,200 square feet and accounting and consulting firm Baker Tilly with 91,100 square feet.