Across the Twin Cities, office-to-multifamily conversions are on the rise, making up a 78% share of the city’s adaptive reuse projects — up 40% from the previous year, according to RealPage. Over 1,870 units are in the area’s pipeline, and an estimated 18 million square feet of office space in the market is suitable for conversion.
Among these projects is The Stella, currently under construction in St. Paul, Minnesota, from Minneapolis-based Kaeding Development, Minneapolis custom home builder Ron Clark and Oak Brook, Illinois-based Inland Real Estate. Built in 1971, the 16-story tower served as the headquarters for water treatment company Ecolab for more than 40 years, according to the Urban Land Institute.
The property was sold in 2018 and passed to its current owner, Inland Real Estate, for $17.87 million in 2022, according to Minneapolis-based equity financier PACE Loan Group. The $68 million capital stack for the project includes tax equity financing from San Francisco-based Foss & Co., a $15.8 million loan from PACE Loan Group, and nearly $18 million in historic tax credits.
Once completed in 2026, the 16-story tower will include 178 units and 2,800 square feet of retail space. The unit mix will include eight penthouses on the top floors, including two multistory lofts, according to the Twin Cities Pioneer Press.
"The Stella will not only breathe new life into a historic landmark but also provide much-needed housing that will support the growth and vibrancy of downtown St. Paul,” said Chris Fields, acquisitions agent for Foss & Co., in the release.
Amenities will include a coffee lounge, a mailroom, tenant storage, a dog run, coworking rooms, a fitness area, a yoga studio and a rooftop deck, according to PACE. The PACE loan will finance energy conservation retrofits for the property, including windows, HVAC, plumbing, lighting systems, mechanical systems and hot water pumps.
Local constraints
New development in St. Paul has had its ups and downs since the city’s voters approved a rent stabilization ordinance for the city in November 2021. Under this ordinance, residential rents cannot be raised more than 3% in a 12-month period. Exemptions are available if the property owner appeals to the city based on a right to reasonable return on investment.
Since the project consists of upscale, market-rate units, Foss and Co. does not expect the rent stabilization ordinance to significantly impact its financial model, spokesperson Fernando Nuñez told Multifamily Dive.
“Some developers have expressed concerns that even with the exemptions, rent caps could discourage long-term investment in existing rental properties, particularly in cases where operating costs rise faster than the allowable rent increases,” Nuñez said. “Others argue that the policy plays a crucial role in preventing sudden rent spikes and maintaining affordability. I think it’s fair to say it has both downsides and advantages.”
A number of developers, including Minneapolis-based Ryan Cos., stalled their development plans in the city after the ordinance was passed, according to the Rental Housing Journal. The St. Paul City Council amended the ordinance in 2022 to exempt any apartments that are less than 20 years old, including older commercial buildings recently converted into multifamily.
However, the law’s passage has still had a dampening effect on new development in the city. New housing permits in St. Paul fell by 80% between 2020 and 2023, according to MinnPost. In 2024, the city only distributed 332 housing permits for single-family and multifamily units combined.
