The original location of Dayton's, the predecessor of national retailer Target, is a cherished downtown Minneapolis landmark for many residents of the Twin Cities and outlying parts of Minnesota's largest metropolitan area. So it appeared that developers who transformed the site into a mixed-use project had momentum and fanfare on their side before the pandemic hit.

Generations of shoppers in the Minneapolis-St. Paul area have fond memories of flocking to Dayton’s, a high-end department store, during the 100 years it was open for shopping excursions and holiday flower shows. The early 1900s building has polished terrazzo floors, cast iron fixtures and terra cotta engravings dotting the brick exterior. A top-shelf architecture firm designed the renovation that adds modern amenities without sacrificing historical design flourishes.

All those factors were in play when 601W Cos. prepared to open its $375 million mixed-use redevelopment of Dayton’s in early 2020, with about 85% of the 1.2 million-square-foot site made into offices and the rest as retail and dining space. But then the pandemic hit in March 2020. And, even though it didn’t happen downtown, the killing by a white Minneapolis police officer of unarmed George Floyd, who was Black, in May 2020 cast a further pall over the Twin Cities.

Fast-forward to 2024 and the Dayton’s project is not exactly the success story expected by its backers. About 80% of the office space hasn’t been leased and the retail space remains mostly empty. It wasn’t supposed to happen this way, said Steve Bieringer, an architect at Gensler's Minneapolis office who worked on Dayton’s design.

“It was a project that hit the market at about the worst possible time,” Bieringer told CoStar News. “Downtown Minneapolis has so much potential. We have major theaters downtown, all of our major sports teams play downtown. It makes us unique for a top 20 U.S. market to have all that energy downtown.”

Though well-known former downtown department store buildings might seem like can’t-lose candidates for restorations, it’s been a mixed bag. As flagship downtown department stores lost their luster, first to suburban shopping malls and, later, to the rise of e-commerce, the fate of the prime real estate has been up in the air.

Long-vacant buildings in Houston, St. Louis and other cities remain empty despite occasional restoration plans floated by overly optimistic developers. Across the Mississippi River in downtown St. Paul, Minnesota, a vacant, 60-year-old former Sears store has been the subject of renovation plans but none have come to fruition.

For every successful renovation, like the former Horne’s department store in Pittsburgh or the former Meier & Frank in Portland, Oregon, there are historic former department stores that remain vacant. Some examples include Battelstein’s in Houston, Famous-Barr in St. Louis and AM&A’s in Buffalo, New York. Many others have faced the wrecking ball, like J.L. Hudson in Detroit and Thalheimers in Richmond, Virginia.

At least in the case of Dayton's, the building itself has been renovated and is ready to welcome new office workers, stores and customers. But landlords and brokers across the United States are struggling to retain and recruit office and retail tenants for properties in downtown districts.

The Dayton’s project recovery from the pandemic doldrums has been slow. The retail space remains empty despite having both skyway-level entrances and street-level connections to Nicollet Mall, a pedestrian-only street.

The former Dayton's jewelry showroom, with dark wood paneling and elaborate cast-iron fixtures, was earmarked for a white-tablecloth restaurant. It so far has no takers. The space slated for a food hall is also empty.

The office portion at Dayton’s has attracted a handful of tenants, including consulting firm EY and insurance giant Prudential. But spacious speculative suites featuring trendy designs still await tenants.

New York-based 601W has successfully completed several mixed-use renovations of historic buildings, including the 83-story Aon Center tower in Chicago. It also redeveloped the Old Post Office in Chicago into nearly 2.3 million square feet of office space that is almost fully leased, according to CoStar data.

601W acquired the 1.2 million-square-foot Dayton’s building in 2017 for $59 million, according to CoStar data. With partners Telos Group and United Properties, 601W began a $375 million makeover later that year.

“It’s a rare find in our business to discover such a historically significant building in a prized location with such world-class potential as this one,” Brian Whiting, president of Telos Group, said in an October 2017 statement about the redevelopment.

The struggle to find retail and office tenants created financial issues for 601W. In 2021, it sued Monarch Alternative Capital, the mezzanine-debt lender for Dayton’s, to block a threatened foreclosure triggered by not meeting leasing goals. Monarch and 601W later settled the lawsuit.

Trana Freedman, a spokesperson for 601W, declined to comment for this story. Don Kohlenberger, president of Hightower Initiatives, the local representative for 601W, also declined to comment.

Gensler devised a renovation that walked a fine line between nostalgia and modern amenities.

“We didn’t want to make a museum out of it,” Bieringer told CoStar News. “We wanted to update it and give it another 50 to 100 years of life.”

Some renovations of historic properties include museums. The Hilton Richmond Downtown hotel in Virginia, located in a former Miller & Rhoads department store, has a museum in the lobby telling the story of the department store that operated for 105 years before closing in 1990.

The Dayton's marketing pitch for potential tenants seemed perfect for drawing attention in Minnesota. Advertising focused on Minnesotans’ emotional connection with the legendary department store.

Promotional leaflets in downtown Minneapolis nod toward those experiences, as 601W asked local residents to submit their memories of visiting Dayton's over the years.

• “As a kid, I would be pretty bored watching mom shop for fabric in the Dayton’s basement, but I always got new clothes during each trip.”
• “1968 — we were old enough to ride the bus by ourselves at 12 years old! Time to go to Dayton’s and spend our allowance in the basement.”
• “My first professional paying job at age 16 was selling scarves on the main floor.”

The original Dayton's ceased to exist by name in 2001 when it was rebranded as Marshall Field's and, later, Macy’s. The flagship downtown store closed in 2017 as a Macy’s. The 601W renovation began later in 2017.

It was a smart move by 601W to emphasize the region’s affinity for Dayton’s and for Gensler to craft a design that plays up the old department store’s character, said Rich Bradley, former executive director of the DC Downtown Business Improvement District in Washington, D.C.

“Where there is a memory of a market, a place where people came for years and they looked forward to visiting, you don’t have to establish a brand,” Bradley told CoStar News.

“Brands are connected to our emotions and if everyone already has a very positive feeling for this place, Dayton’s, you’re already ahead,” Bradley said.

But downtown Minneapolis isn’t what it was in the mid-20th century. City sidewalks were nearly deserted during an October weekday when the weather was still pleasant enough not to force pedestrians into the skyways, the network of indoor bridges that connect dozens of downtown buildings.

The retail market in downtown Minneapolis has struggled, said Brian Anderson, director of market analytics for Minneapolis at CoStar.

“There’s a perception of safety concerns about downtown,” Anderson told CoStar News. “There are still a lot of tenants opting to leave the downtown core for more of the emerging live-work-play districts, like the North Loop.”

Several high-profile office tenants are planning to flee downtown for the North Loop, Anderson said. Piper Sandler will move its headquarters from US Bancorp Center to Hines’ North Loop Green in 2025. KPMG will also move to North Loop Green, vacating space at Wells Fargo Center.

The downtown Minneapolis office market improved in 2023 but is still losing tenants, according to CoStar data. Tenants vacated 183,356 more square feet of office space than they occupied in 2023. That's an improvement from 2022, when they vacated 1.88 million more square feet of offices than they occupied.

Dayton’s developers aren’t giving up. They recently dropped Mid-America Real Estate Group as retail leasing agent. A new brokerage firm may be announced in late January to handle retail and restaurant leasing, Kristin Longhenry, vice president at Transwestern and general manager of the Dayton’s project, told CoStar News.

The office portion at Dayton’s has made headway despite the broader weakness in the office leasing market. In addition to Prudential and EY, other new office tenants at Dayton's include Unilever, L’Oreal and Bluebird Group and Uncommon Retail, two consulting firms that do work for Target. Target’s headquarters is two blocks away at 1000 Nicollet Mall.

Ann Rinde, vice president at CBRE who represents 601W on office leasing at Dayton's, told CoStar News that more potential office tenants are in the pipeline. CBRE in December inked a 24,000-square-foot office lease with an unidentified tenant.

“We’ve signed more new leases in the past year than any other downtown building,” Rinde said during a tour of the property.

An event featuring pop-up retailers downtown during the holiday season was successful, said Adam Duininck, CEO of the Minneapolis Downtown Council, a business-improvement advocacy group. That gives downtown boosters hope for the Dayton’s project.

“There is still optimism,” Duininck told CoStar News. “The kind of momentum we saw with the pop-up market is what we need.”

But the headwinds that Dayton’s faces are similar to what many cities face, Bradley said. The downtown department store doesn’t hold the same cachet as it once did.

“Downtowns, 30 or 40 years ago, really had so much hold on the population,” Bradley said. “Going downtown still has a sense of value, but people have so many other options now.”

Ann Rinde and Larissa Bodine at CBRE represent 601W on office leasing. Gensler was the design architect. Gensler, ESG Architecture & Design and Eastlake Studio were the interior designers. Gardner Builders was the general contractor. Kristin Longhenry at Transwestern is the general manager for the Dayton's project.

Updated Jan. 17 to include ESG Architecture & Design and Eastlake Studio as interior designers.