Developers hope $200M update brings Northstar Center back to life

When it opened in the 1960s, the Northstar Center in downtown Minneapolis was a hub of activity. Its main tower featured air-conditioned offices. Its swanky hotel had a restaurant that overlooked an indoor swimming pool. The block-sized complex was advertised as a “city within a city.”

But as newer construction has come along in the decades since, Northstar’s shine has faded. Now, developers plan to spend $200 million-plus to bring the complex back to life with new offices, a hotel and rental apartments.

“In its heyday it was an interesting and vibrant place,” said Matt Legge, principal with New York-based Polaris Properties Group. “Our ambition is to do something equally ambitious and different.”

At 1 million square feet, the Northstar project is the largest renovation in downtown Minneapolis since the Dayton’s Project, which formally opened last fall after four years and $350 million in spending. And the news comes just a week after Houston-based Hines proposed building a high-rise office tower two blocks from the Northstar complex.

Minneapolis-based Sherman & Associates will tackle converting the nearly empty 13-story Northstar Center East office building into about 217 apartments.

The residential component will include extensive amenity space, a high-end lobby and a skyway connection to other downtown buildings. It’s expected to account for about $85 million of the total spending, with work starting this year and finishing late next year.

Polaris Properties and its capital partner, Taconic Capital Advisors, will spend another $70 million to refurbish the 17-story Northstar Center West building, which includes offices and a 975-stall parking garage.

Madison-based Wilson Street Hotel Group is spending $25 million to remodel the former hotel, most recently a Crowne Plaza location, into the Hotel Indigo by late this year. The Minneapolis-based Bartmann Group will operate a bar and restaurant in the remodeled hotel.

With the downtown office vacancy rate hovering at about 30%, Legge said he hopes to differentiate the refurbished Northstar tower by positioning it as a “hospitality-grade” office building that will “be more competitive in attracting workers back to the office post-COVID .”

The Northstar Center project offers an opportunity to provide something that doesn’t exist downtown because it has a seventh-floor kitchen, which can be used to provide food service and catering to office tenants and their guests, Legge said.

“It’s rare to have a centralized commissary-grade kitchen that can power everything,” he said. “Office buildings don’t normally have that convenience.”

The building also has a 12,000-square-foot “SkyGarden” that will be reopened to tenants and their guests. A portion of that area will become a two-story “SkyLodge” bar and lounge.

The developers hired a firm called Convene to coordinate events, adjust and schedule work spaces, meetings, culinary services and health and wellness amenities in the renovated complex.

“That high standard of premium workplace experience has become even more important as landlords increasingly compete not only with other office buildings but also with the work-from-home option that employers are offering talent,” Legge said.

Legge said that as Polaris Properties was evaluating its purchase of the building, it was drawn in part to center’s 975-stall parking garage, an unusually high number of parking spaces for a project of this size. The ramp will get several upgrades.

When Northstar Center opened in the early 1960s, it sometimes was called the birthplace of the Minneapolis skyway system, which now includes 9.5 miles of pathways that connect 80 city blocks.

That helped land the entire complex as a listing on the National Register of Historic Places in 2016. The east office tower that will become housing originally was built in 1916 as the Pillsbury Building. The hotel tower and west office tower were built in the 1960s.

The building’s historic status will help it qualify for state and federal historic tax credits, which can help finance the expensive conversion and renovations. The future of the state’s tax credit program, which was set to expire, was in jeopardy but an extension was included in a tax bill by state lawmakers this weekend. Legge said his firm was able to submit its applications before the planned expiration.

Sherman also will apply for tax-increment financing to help keep rents low. That means 20% of the units will be affordable to households earning 50% or less of area median income. Eighty percent of units will not have rent restrictions but are planned to target renter households in the 80% to 120% of area median income. For example, a one-bedroom apartment with about 750 square feet would rent for about $1,700 a month at the market rate, but the income-restricted rent at Northstar would be about $1,300.

Though the downtown retail, office and hotel segments are still soft, demand for apartments downtown is rebounding.

In 2020, just as construction was reaching a peak and public safety concerns grew, the vacancy rate at Sherman’s downtown apartment building fell to about 85%. Today, the apartment occupancy rate among buildings managed by Sherman is about 97% and rent concessions are quickly burning off.

Chris Sherman, president of Sherman Associates, said the company recently launched the $30 million renovation of its historic JI Case Building. In the last two weeks, it also closed two new-build deals, including a 240-unit, 22-story tower at the corner of Washington and Portland avenues.

Not including its Northstar project, the company has 642 apartments under construction in Minneapolis.

“We have a lot of work to do,” Sherman said. “But I, and we, are feeling very optimistic about the re-imagination that’s occurring in the central business district.”

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