Chicago-based real estate investor Redwood Capital Group, working in a joint venture with an affiliate of investor Heitman LLC, is expanding its Twin Cities footprint with a $43.3 million garden-style multifamily acquisition southwest of Minneapolis in Eden Prairie, Minnesota.
Before the sale, the property now known as Reserve Eden Prairie was a part of FPA Multifamily’s ReNew community brand as ReNew Eden Prairie. Built in 1986, the community consists of 375 units across five three-story garden-style buildings, according to a press release on the acquisition. Apartment units range from one to three bedrooms and an average of 965 square feet in size, and amenities include a standalone clubhouse, three swimming pools, a business center, a dog park and a 24-hour fitness center.
Redwood’s property management firm, Redwood Residential, will take over management of the community, according to the release. The company’s in-house construction division will also undertake a series of exterior and interior improvements, including modernizing amenities, building a new dog park and adding higher-end finishes to apartment interiors.
The community is located at the intersection of two major highways and sits on the path of the Green Line extension, which will connect Eden Prairie to Minneapolis via light rail by 2024. Over the past 10 years, Redwood has owned over 2,200 units in the Minneapolis suburbs.
“The appeal to us of the deal was really the location,” Bill McDougall, managing director, investments and head of acquisitions at Redwood Capital, told Multifamily Dive. “Eden Prairie is a very attractive southwest suburb… you've got very good schools, you've got very strong demographics [and] you've got access to jobs.”
In May, Redwood Capital Group entered into an agreement to be acquired by Stockholm, Sweden-based global real estate investment manager EQT Exeter. The acquisition, for an undisclosed price, is set to close later in 2022, and will not change any details of the Reserve Eden Prairie acquisition, according to spokesperson Matt Baker, a senior account executive at Taylor Johnson, which represents Redwood Capital Group.
The state of suburban development
The Minneapolis suburbs offer another appeal to investors, according to McDougall — a relatively low pipeline of new supply. McDougall attributed this not only to the rising price of building supplies in the current market overall, but the cost of building new properties in the Minneapolis market in particular.
“Replacement cost in the Minneapolis-St. Paul area for assets like this in locations like this is very high,” he said, “and thus you see much, much, much less construction of new apartment properties in the area, relative to areas like the Sun Belt.”
With 14,000 new units in its construction pipeline, the Minneapolis metro is seeing more apartment construction than nearby Midwest cities - but falls short compared to large Sun Belt markets like Orlando, Florida, (33,000 units) and Houston (21,000 units), according to Carl Whitaker, director of research and analysis at RealPage.
Over the last decade, much of Minneapolis’s new apartment construction has been urban-centric. However, this trend has begun to reverse, and today three-quarters of all new construction in the Twin Cities is taking place in the suburbs, according to RealPage data.
“This is due to a confluence of factors,” Whitaker said, “including stronger suburban market fundamentals, [such as] occupancy and rent growth generally outperforming in the suburbs versus downtown Minneapolis/St. Paul, and – more recently – the rent control legislation that was issued in the Twin Cities.”
In November, voters in the city of St. Paul approved a Residential Rent Stabilization Ordinance, which took effect on May 1. The ordinance limits residential rent increases in St. Paul to 3% in a 12-month period, but does not affect Minneapolis, the surrounding area or Reserve Eden Prairie.
It is unclear at this time whether the city will exclude new construction from the ordinance. At least one builder, Ryan Companies, has paused new multifamily construction in St. Paul following the start of rent control in the city, according to ABC news affiliate KSTP.
At the same time, while Minneapolis is only the 33rd most active acquisition market in the country, it is the second-most active in the Midwest behind Chicago, with $2.8 billion in apartment transactions in the year ending in the first quarter of 2022 — an acquisition volume that has grown by 100% over the last five years, according to Whitaker.
“Minneapolis certainly isn’t a ‘quiet’ market by national standards,” Whitaker said. “But similarly sized metros in the Sun Belt in particular have seen a lot more interest, both in absolute terms and in terms of relative increase of interest.”
