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Big deals mean big money, even in a city with a nonprofit as its top employer

The Berkman
The Berkman building on Monday, April 11, 2022, in Rochester.
Joe Ahlquist / Post Bulletin
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Rochester made history in early April when The Berkman, a 13-story apartment building and hotel with related townhomes, was purchased by CBRE Investment Management of Boston for a historic $187.6 million. That might be the biggest price ever paid for a single multifamily property in Minnesota’s history.

It is the largest real estate transaction in Rochester in the past nine years. However, the sale of The Berkman is $42.4 million less than a Med City deal that included four downtown hotels and a commercial laundry.

Learn more about it here

Wisconsin hospital executive and Oronoco resident Javon Bea led an investor group to pay $230 million to buy the Kahler hotel portfolio, anchored by the Kahler Grand Hotel, and the Textile Care Services laundry.

While these two mega-deals involve very different properties and circumstances, neither were put together overnight. What does it take to close a deal on that kind of scale?

“A lot of patience and also you have to have the stomach or fortitude to be willing to put yourself out there,” answers Rochester commercial real estate broker Mark Steege of Titan360.

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While Steege was not involved in either of those transactions, he has been involved in the Rochester commercial real estate market for almost 30 years. Most of that time he worked with legendary Rochester developers Gus and Andy Chafoulias.

A successful multi-million dollar closing looks like a big payoff from the outside, but it sometimes takes years of planning, a team of people working together and a lot of risk, adds Steege.

In the case of The Berkman, the original plan by Bob Lux’s Alatus development firm was originally announced in 2016.

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It involved working with Rochester real estate developers Ed and Nick Pompeian to line up the needed land, securing needed financing, addressing concerns by the neighborhood, working out helicopter safety plans with Mayo Clinic and securing tax increment financing from the City of Rochester.

“There was a lot of risk for all the investors involved with that. It was a beautiful project in the end. They've been rewarded because of it, but there were no guarantees that was going to occur,” says Steege.

If any piece of that plan had not happened correctly, the $115 million investment probably would not have paid off in such a historic fashion in 2022.

The size of the property or even prominence of a property doesn’t always add up to a big financial payoff.

In 2018, Olmsted County’s largest property under one roof and arguably the most recognizable non-Mayo Clinic structure in Rochester was sold for $33.9 million.

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IBM sold its almost 500-acre northwest Rochester campus with its 34 buildings for almost half of what the Waters on Mayowood senior living complex cost in 2022.

Inland Real Estate Group of Cos. purchased the Waters on Mayowood for a total of $67.3 million in February. At the time, that was Rochester’s biggest deal since the Kahler sale.

Of course, IBM did include leasing eight buildings for 12 years in its deal, so that probably impacted the final price.

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IBM campus in Rochester.
Post Bulletin file photo

Some seemingly simple deals open the door to changing a whole section of a city.

Rochester Toyota bought open farmland on the city’s far south side in 2006. When Rob Gregory broke ground for his new dealership on the opposite side of the city from the traditional Car Row, it was in the middle of miles of empty farmland.

However, that area quickly exploded under the guidance of Rochester developer Tom Hexum into the bustling Shoppes on Maine commercial area. Despite being stalled a bit by the housing recession, that area continues to grow.

A similar situation happened in northwest Rochester, when Costco opted to buy and build on a chunk of open farmland in 2012. Buying that land from Northwest Investments, Kwik Trip’s real estate development arm, lit the fuse on that area at West Circle Drive and 19th Street.

That open northwest Rochester land quickly blossomed into a major collection of restaurants, stores and, of course, bank branches.

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While those are just a few of Rochester’s big, non-Mayo Clinic deals, many real estate transactions that might have been the key to transformative visions for the city never crossed the finish line.

For every Berkman and Kahler plan, there are many deals that went off the rails long before coming into the station.

The money might be big when these big ticket transactions close, but it is rarely easy.

Jeff Kiger writes a daily column, "Heard on the Street," in addition to writing articles about local businesses, Mayo Clinic, IBM, Hormel Foods, Crenlo and others. He has worked in Rochester for the Post Bulletin since 1999. Readers can reach Jeff at 507-285-7798 or jkiger@postbulletin.com.
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