Minneapolis’ Inflation Win is Downtown’s Loss

CAL-087_Blog_Post_960x725_Article

Brian D. Milovich

Managing Principal, Calvera Partners

A recent Bloomberg article noted that Minneapolis is the only metro area in the country where inflation is currently below the Fed’s target of 2.0%. The inflation rate in Minneapolis was tracked at 1.8%, primarily due to low shelter costs. According to the Pew Charitable Trusts, median rents in Minneapolis from February 2017 to February 2023 have only grown 1% compared to 31% for the broader US. Both Bloomberg and Pew attribute the stagnant rent environment to zoning changes that allowed for higher density apartment development in neighborhoods where traditionally single-family homes and duplexes were the main sources of housing. I think that’s only part of the story. 

We own in downtown Minneapolis and have since 2017. New supply coupled with tepid demand has been a killer for rents and occupancy. RealPage noted that the occupancy rate in Minneapolis is more than 2 percentage points below its long-term norm. That’s the biggest drop out of the 50 largest metro areas in the country. Despite virtually no growth in rents and more supply increasing the amount of affordable housing, the Minneapolis City Council continues to try and push rent control. In opposition to his own City Council, Mayor Jacob Frey is quoted as saying, “I can’t tell you how many people were like, ‘Oh, look at all this supply, look at all these just brand new buildings,’ and kind of scoffing at it like this was going to lead to gentrification or rents skyrocketing. The exact opposite has happened.” 

Supply of housing is the biggest contributor to the rise or fall of rents. More supply leads to modest rent growth or even declines. Outsized growth in rent will happen with fewer apartment units built and steady demand. When you combine plenty of new supply with a city still not back to pre-Covid vibrancy, that’s a recipe for virtually no rent growth over a 6-year period! That brings us to demand, the biggest current issue for us as a landlord. Similar to places like San Francisco, Minneapolis is dealing with an image problem in the wake of 2020’s civil unrest and calls to defund the police. Contributing to the problem is a lack of major employers requiring their employees to come back to the office in downtown Minneapolis, even part-time. There are fewer people who want to come downtown for social activities and the daytime worker population is a fraction of what it once was. 

The Minneapolis/St. Paul Business Journal just had a front-page article, Are you there, Target?, where they effectively call-out the Fortune 500 company for seemingly abandoning their role as corporate citizen. Target’s logo and name is everywhere in downtown Minneapolis. It’s on Target Field (Minnesota Twins) and Target Center (Minnesota Timberwolves and Lynx). It’s on billboards, their corporate headquarters, and their downtown store. However, their 7,100 employees are nowhere to be found, and the CEO lives in Siesta Key, Florida. Target isn’t part of the tech industry that emptied out San Francisco due to politics, high costs, and ease of remote work. This is a singular homegrown company that has shown little regard for the health of the city and metro area that has provided so much for it.  

Other Minneapolis-based Fortune 500 companies have come back downtown, at least partially. US Bancorp with 4,300 employees is back three days a week, as is Ameriprise Financial with 4,500 employees. Wells Fargo retains a large presence in Minneapolis with 5,500 employees back in the office three days a week. Unfortunately, Target leaves the biggest hole. As a headquarters location, Target hires many recent undergraduates and MBAs for internships and full-time roles. This segment is the prime renter cohort, and there were apartment buildings informally known to house the young Target set. The rental trends of Target employees can send positive ripples throughout the housing market, and it’s still missing. 

Yes, supply has been a big factor towards cooling inflation in Minneapolis and keeping rents at bay over a six-year period. I recently read that there are now more residents living downtown than pre-Covid. An influx of new supply and lower rents have allowed more people to try living in downtown Minneapolis. That’s fantastic, however, it’s not enough. We need big employers like Target with a stake in the health of Minneapolis to come back. We need new entrants to bet on Minneapolis. We need a city government to produce a compelling story to both businesses and Twin Cities residents to explore downtown in greater numbers. Taylor Swift may have injected Super Bowl-like dollars into the Minneapolis economy, but people aren’t renting apartments because of it. Real, lasting solutions are needed to get Minneapolis back on track. 

Author

For more details about Calvera’s investment offerings, click here.

CONTACT
SAN FRANCISCO OFFICE:
2 Embarcadero Center, 8th Floor
San Francisco, CA 94111

MINNEAPOLIS OFFICE:
729 Washington Ave N, Suite 600
Minneapolis, MN 55401

GET INSIDER UPDATES

GET INSIDER UPDATES

© 2024 CALVERA PARTNERS

Performance data listed in this website or is otherwise provided by Calvera Partners, LLC, or its affiliates (“Calvera”) with respect to a particular property or project represents past performance calculated for the relevant project and does not purport to reflect the overall performance of any private funds managed by Calvera, which may include other projects, as well as charge additional fees or carried interest, or have additional expenses, which would reduce the overall performance of the project from the perspective of a fund investor. Past performance does not guarantee future results; Current performance may be lower or higher than performance data presented. Calvera is not required by law to follow any standard methodology when calculating and representing performance data; the performance of any of Calvera’s projects may not be directly comparable to the performance of other investment vehicles or funds; and qualified potential investors can contact Calvera Partners for more current performance data of any private funds managed by Calvera. 

This website is provided for informational purposes only. Nothing contained in this material is an offer or solicitation to buy or sell any security. In addition, (i) any securities offered to investors that respond to any general solicitation or general advertisement made by Calvera, may be sold only to accredited investors; (ii) such securities will be offered in reliance on an exemption from the registration requirements of the Securities Act and such securities offered are not subject to the protections of the Investment Company Act or required to comply with specific disclosure requirements that apply to registration under the Securities Act; (iii) Neither the SEC, nor any state securities regulator, has passed upon the merits of or given its approval to any securities offered by Calvera, the terms of the offering, or the accuracy or completeness of any offering materials or the accuracy or completeness of any of the information or material provided by or through this website; (iv) the securities will be subject to legal restrictions on transfer and resale and investors should not assume they will be able to resell their securities; and (v) investing in securities involves significant risks, and investors should be able to bear the loss of their investment. Please click here for additional important disclosures.