Highlights

• There are 14 specialty centers in the metro totaling 1.6 million square feet, and they range from trendy retail hubs like St. Paul’s Grand Avenue and Edina’s 50th & France to the highly popular lifestyle centers in Maple Grove and Woodbury. While many specialty centers are performing well—reporting little or no vacancy—the exception is Calhoun Square in Minneapolis’ Uptown. The 100,000-sq.-ft. center reported 45% vacancy in the first half of 2007, which helped push up the metro’s overall specialty retail vacancy to 5.6% from 2.7% at year end. (Specialty centers’ absorption fell to negative 19,114 sq. ft. from 39,722 sq. ft.)
• The good news for Calhoun Square is that the property has a new owner. New York investment firm BlackRock Inc. acquired the property from Principal Global Investors. Sources say BlackRock is looking at a redevelopment project that would include new retail, office and apartments, which would be a big boon for Uptown. A stronger Calhoun Square would bring the Minneapolis Uptown area back to life. Many stores at the center are vacant, and existing tenants are in limbo. Under Principal’s ownership, a redevelopment was delayed while officials decided what they wanted do with the center. The area around Calhoun Square, located at the corner of West Lake Street and Hennepin Avenue, has been struggling to retain national tenants. The Gap, Cold Stone Creamery, Border’s Books, American Eagle and Panera Bread recently closed stores in the area, but recent announcements of new tenants include Victoria’s Secret and American Apparel.
• Two national stores that realize Uptown’s potential are Victoria’s Secret and American Apparel Inc., a Los Angeles-based clothing retailer that will open its first Minnesota store in August at Lake and Hennepin—in space previously occupied by American Eagle Outfitters.
• Meanwhile, many other specialty centers are flourishing. The Galleria in Edina, which boasts high-end retailers, reports zero vacancy and has landed new tenants. Crate & Barrel, for example, is relocating from nearby Southdale Center and opening a two-level store at the Galleria in space remaining from the recently downsized Gabberts store. There is also an $85 million expansion underway at the Galleria—named the Westin Edina Galleria Hotel & Residences—which will include a hotel, condos, full-service restaurant and 980-car parking ramp.
• The 50th & France trade area is booming and there is very little space left to lease. Haugland Company’s new mixed-use redevelopment includes condos and 22,000 sq. ft. of retail. It was recently completed at the southwest corner of 50th Street and France Avenue and features high-end retailers Sur La Table (a kitchen store), Cos Bar (a cosmetics store) and R.F. Moeller Jeweler as well as Edina Grill and TCF Bank. Retailers are set to open this summer.
• Specialty grocer Trader Joe’s is expanding in local specialty centers. In addition to its first location at Excelsior & Grand in St. Louis Park, a location recently opened at Arbor Lakes in Maple Grove and another is under construction at Woodbury Lakes in Woodbury. There is also one planned at Ridgedale Center in Minnetonka.
• In activity along Grand Avenue, Salut—a French bistro concept—signed a lease for the former Sydney’s space. Salut also has a location at 50th & France.
• It looks like the redevelopment of a former movie theater in Edina may be moving forward. The Edina City Council has approved Cypress Equities’ retail-only project on the site of the former AMC Centennial Lakes Theater on France Avenue, after Cypress eliminated a controversial high-rise condominium tower from the project. Cypress Equities is a division of Dallas-based The Staubach Company. The project has been significantly scaled down from what Cypress initially proposed for the site, which included a 25-story condo building that was later reduced to 18 stories. Now Cypress has eliminated the condo tower completely and is concentrating solely on approximately 80,000 sq. ft. of retail. Potential tenants may include West Elm, a chain that features contemporary furniture designs and other housewares and is a subsidiary of Williams-Sonoma, Inc., the Container Store, a Dallas-based retailer of storage and organization products, and a handful of local and national restaurants. A fourth-quarter start date is expected.
• In another project making headlines, Duke Realty has dropped Madison Marquette Realty Advisors as its partner for the proposed development dubbed The West End, a 47-acre, mixed-use project slated for the southwest corner of Interstate 394 and Highway 100 in St. Louis Park. (It is the former Novartis Nutrition Corporation site.) It was reported that the partnership was dissolved after Madison Marquette executives opted not to invest in the development. Duke’s new partner is Jeffrey R. Anderson Real Estate Inc., based in Cincinnati. This firm has experience developing several lifestyle centers across the country. No work has yet begun on the redevelopment. Demolition is scheduled for fall 2007.

The Outlook

In addition to Cypress’ planned project in Edina, Solomon Real Estate Group is planning a 60,000-sq.-ft. development—called Windsor Plaza—at Eden Road and Highway 212 in Eden Prairie. The developer hopes to break ground later this year with high-end retailers and restaurants.

There are also six “preliminary” specialty centers in addition to West End. The others include 150,000 sq. ft. of retail, anchored by a Whole Foods store, at Washington and Hennepin avenues in downtown Minneapolis (see Minneapolis CBD section). Developer Forest City also is looking at developing 500,000 sq. ft. of retail at Powers Boulevard and the future Highway 312 in Chanhassen. (Chanhassen is a strong potential market for retail development.)

In addition, Jerry Trooien of the JLT Group has resubmitted revised plans for The Bridges of Saint Paul redevelopment, which calls for 450,000 sq. ft. of retail along the Mississippi River, across from downtown St. Paul. JLT submitted a proposal in 2006 and withdrew it after the planning commission rejected it twice. Trooien then met with neighborhood associations and community groups to obtain feedback and now changed the design plans, which include more walkways and sitting and gathering areas.

Two projects are in preliminary stages. Frauenshuh Company’s 600,000-sq.-ft. Sportstown USA development js located at 105th Avenue and Radisson Road in Blaine. Presbyterian Homes wants to build 150,000 sq. ft. of retail in Wayzata, at Lake Street and Superior.

Net rates are on the way up for specialty centers. The rate in the first half of 2007 was $42.45, a jump from $41.15 at year end.