The collapse of the commercial real estate market has been a constant in the news since 2020. It has driven a chain reaction of phenomena that portend deep problems for the core Twin Cities and even some suburbs. But it’s a slow-moving crisis whose depths and ultimate impact remain difficult to gauge.
Depending on who you talk to and which articles you read, the problem is work-from-home, the problem is leverage, the problem is vacancies, the problem is employers indifferent to the health of cities, the problem is bad landlords, or maybe there’s no problem at all other than capitalism.
The national crisis began with the pandemic and was deepened locally by George Floyd’s murder. At its five-year anniversary, it seemed a good time to dig into what’s happened, explore why, and try to divine what the future holds. TCB spent two months in conversation with local and national CRE experts, debt savants, and public officials trying to get answers.
Case Study: Urban Reinvestment
Wells Fargo Center (1987)
90 S. Seventh St., Minneapolis
Owner: Onward Investors (Minnetonka)
% Vacant: 27.5
An icon of downtown Minneapolis’ skyline, Cesar Pelli’s Wells Fargo Center sold for $315 million in 2019 when it was 85% occupied; it sold to Onward this year for $85 million. Onward partner Jon Lanners says the building now carries no debt, and the partners are eager to find and invest on behalf of new tenants. New dining amenities are to come for the lobby level.
1. What are the roots of this mess?
Before the pandemic, the Twin Cities had a reasonably healthy commercial real estate (CRE) market. We had a thriving corporate sector and reasonably high occupancies across all our major CRE hubs (downtown Minneapolis, I-394, I-494). Buildings carried a lot of debt, but that was common in the industry. (Downtown St. Paul’s CRE market is subject to different dynamics and is not the focus of this story.)
Once America got beyond “two weeks to stop the spread,” and companies got used to work-from-home—yet there was no clear end to the pandemic—many changed their approach to office space. They let leases expire, or they downsized or planned to downsize. (Most office leases run five to 10 years, so this is a slow-moving phenomenon.) Some left buildings and complexes entirely (Ameriprise, Thomson Reuters, BlueCross BlueShield, UnitedHealth Group, U.S. Bank).
Vaccines pointed a way out of the pandemic within a year, but companies didn’t go back to their old space. The civic disorder and chronic public safety problems that followed Floyd’s killing made workers reluctant to go downtown. Other entities (Target, Hennepin County) replaced local workers with out-of-market talent or declined to order workers back to offices.
Largest Local CMBS Delinquencies
1) UnitedHealth Group HQ, Minnetonka
Foreclosure, delinquent $47 million mortgage
2) One Liberty Corporate Center (Workspace Property Trust), W. 78th St., Bloomington
30 days delinquent $29.6 million mortgage
3) Park Place East, Wayzata Blvd., St. Louis Park
Foreclosure, $26 million mortgage, in receivership
Source: Trepp
2. Is this one crisis, or many?
It’s a three-legged stool of problems, if you will, all precipitated by WFH. One leg is vacancies. Another is mortgages and debt. A third one is tax valuations and economic shortfalls. They are interconnected.
Building occupancies declined, but by and large tenants were still paying rent on unexpired leases; but then leases expired. There was no demand for the excess space. Urban downtowns, particularly in northern cities, lost vitality and small businesses in them failed.
“We went from a market with healthy 5% to 10% vacancies to 25–30% or more,” says Russ Nelson, the retired founder of Minneapolis-based CRE advisory firm NTH. “Our traditional financial model can’t sustain that.”
“On average tenants are seeking 30% less space than before,” explains Brent Robertson, managing director and market lead at brokerage JLL‘s Minneapolis office.
Plummeting rental income created problems for building owners, who are often heavily leveraged (80% is not uncommon). Interest rates then skyrocketed, making it difficult or impossible to refinance when mortgages came due. Some landlords defaulted.
“If there’s no demand for your product, there’s not a price at which it will move,” notes Jim Freytag, senior vice president at the Minneapolis office of national brokerage CBRE.
“We’re really only in the second inning. When do we get back to [a market as vibrant as] 2019? 2030 is optimistic. Some of this space will never be reoccupied.”
—Russ Nelson, retired cofounder, NTH
The Hennepin County assessor’s 2025 market report said the value of existing office space in the county declined 13.4% year over year, the largest sector decline. As leases negotiated pre-pandemic continue to expire over the next half-decade, there is more pain to come. Minneapolis’s 2025 assessor’s report declared that the portion of total net tax capacity of commercial properties declined from 35% to 27% over the immediate 10-year period. Year-over-year declines in commercial space valuations ranged from 9.5% downtown to 2.8% in Uptown to 0.5% elsewhere in the city.
The CRE crisis portends a far greater threat to cities than any single recession or lifestyle change of the last century. Yet it has largely been brought on by a choice—a choice that business has made to abandon the traditional office.
“Are half the buildings downtown under water?” says Jon Lanners, a partner in Onward Investors, which recently bought the Wells Fargo Center and Ameriprise Financial Center downtown. “That’s plausible. It might be more.”
Which precipitates a perfect storm, he explains. “You have maturing debt, rising interest rates, declining income, and more conservative lenders. Who fills that gap?”
“Lenders get involved,” says Robertson, “the building goes into foreclosure or receivership,” and often a cycle of disinvestment ensues. “Get on the wrong side of a bad market, and there’s nothing to save you.”
The Flight to Quality
- RBC Gateway (2022), Minneapolis, 99% leased
- 10 West End (2021), St. Louis Park, 93% leased
- North Loop Green (2024), Minneapolis, 70% pre-leased, record-breaking lease rates
Source: JLL
Case Study: Suburban Reinvestment
Meridian Crossings (1998)
I-494 at I-35W, Richfield
Owner: Piedmont Office Realty Trust (Atlanta)
Total square feet: 397,000
This two-building campus was last occupied by U.S. Bank, which departed to consolidate in other metro-area spaces it leased. Owner Piedmont conducted an analysis and decided the complex’s central location justified a major investment in a very soft market. Renovations of Building 2 concluded this spring. “Amenitized” is the keyword: Fitness centers, new lobbies, cafés, conference center, coworking spaces, all designed to create a luxe hotel (not “hoteling”) feel. Piedmont does not carry debt on its buildings, a source of appeal to today’s corporate tenants.
3. Is CRE distress worse in the Twin Cities than elsewhere?
It’s an accepted truism that California and northern cities, harder hit by WFH, are experiencing a more distorted leasing environment than Sun Belt cities. The urban Midwest has been hard hit.
“The Twin Cities in particular has a high concentration of class A office space [relative] to population,” explains Nelson, referring to the newest and most expensive CRE.
CBRE’s Q1 2025 vacancy analysis found downtown Minneapolis at 28.7% compared to 23.3% for the broader Midwest and 19.5% nationally. Metrowide, we’re at 23.9%, the Midwest is 21.5%, and the country as a whole 19%. JLL’s Q1 market-by-market comparison showed downtown Minneapolis at 28.9% vacancy, among the worst in the nation, but not as bad as Atlanta; Austin, Texas; Denver; Oakland, California; Portland, Oregon; San Antonio, Texas; and San Francisco. Downtown Denver is over 35% vacant.
The other area of concern is building debt. Overleverage unleashes a cycle of default, disinvestment, and outright abandonment of buildings. In March, Cred iQ, a national firm that monitors convertible mortgage-backed securities (CMBS) debt, placed the Twin Cities at the top of its distress watch list, with 52.5% of CRE debt considered distressed. (“Distress” includes default, missed payments, and other nonconformance with loan terms.) The next-closest top 20 market was Denver, at 29.7%.
“Up until 2020 there was a place in the market for cheap space. That market has dried up.”
—Brent robertson, managing director/market lead, JLL Minneapolis
(Not all CRE debt is equal. Mortgages held by banks and other private entities are not widely visible to outside watchdogs, who mostly track CMBS. Those represent 15%–20% of the CRE mortgage market, but the experts who track it believe it’s representative of the larger debt universe.)
Cred iQ told TCB it is confident in its data, though its primary competitor, Trepp, places the Twin Cities lower on the trouble scale, with a 23% CMBS delinquency rate, good for ninth of top 25 markets. (Trepp’s national delinquency rate is 10%.)
“The common denominator of distressed office markets is long-term macroeconomic headwinds—brain drain, industries leaving,” explains Tom Taylor, senior manager of research for Trepp. Taylor thought these phenomena were more typical of Rust Belt markets like Hartford, Connecticut, and Milwaukee than the Twin Cities.
That said, “we are in the highest third nationally” of debt distress, says Lanners. “Our recovery has been slower. This market is experiencing low job creation and growth, which exacerbates things.”
Demolitions
- American Family Insurance, Eden Prairie, 200,000 square feet (2025)
- Prudential Campus, Plymouth, 450,000 square feet (2024)
- Thomson Reuters campus, Eagan, up to 1.2m square feet (2025)
Receiverships
- City Center, Minneapolis
- Dayton’s Project, Minneapolis
- UnitedHealth Group HQ, Minnetonka
Source: JLL
Case Study: Suburban Foreclosure
Normandale Lake Office Park (1983)
Norman Center Drive, Bloomington
Owner: Opal Holdings (New York)
Total square feet: 1.7 million
Once the shining star of the west metro, the five-tower Normandale Lake was 90% occupied when it sold for $366 million in 2022 and remains substantially leased, according to CoStar data. Nonetheless, three of the towers have been in foreclosure after Opal breached mortgage terms after monetizing the land under the buildings in a complicated transaction known as a ground lease. Receivers have been appointed to secure the interests of the lenders, which include local banks and credit unions.
4. Why should anyone care about a bunch of investment funds and REITs losing their shirts?
That’s a take. JLL’s Robertson sort of buys in, noting “investors and lenders are getting hurt, but I don’t translate it as bad. It’s capitalism.”
Mostly institutional investors own or carry the debt on large buildings. But when those investors decide to stop paying loans, the buildings go back to lenders, who aren’t always in a position to manage them. And if the banks don’t want them, they default to counties or cities, as we have seen with Madison Equities‘ properties in St. Paul.
A widespread cycle of disinvestment and delinquency can leave a city with large swaths of unrentable space in buildings that become blighted (Madison Equities again). It makes the broader downtown unsavory and unsafe, and a domino effect of more vacant buildings ensues.
Even if a city can stave off an outlier situation like Madison Equities, falling values also drive down property tax collections. Commercial property tax is an essential component of city and county budgets. The response of Minneapolis and Hennepin County has not been to spend less, but to tax other categories more. This phenomenon is still in early days, because tax valuations take years to respond to valuation changes. Declining commercial property values are already driving up residential property taxes in hard-hit municipalities, making them less affordable places to buy homes. The alternative to shifting the tax burden is cutting public spending, which could impede cities’ ability to fund basic services.
Mega-Vacancies (by vacant square feet)
- City Center* 1.01 million square feet
- Dayton’s Project 933,000 square feet
- IDS Center 413,000 square feet
- Wells Fargo Center 401,000 square feet
- Two22 (222 S. 9th St.) 381,000 square feet
* Target’s vacated space in City Center is available for sublease, so technically
not vacant.
Source: CoStar
Mega-Vacancies (by available square feet)
- City Center* 1.01 million square feet
- Dayton’s Project 664,000 square feet
- IDS Center 468,000 square feet
- Capella Tower (225 S. Sixth St.) 414,000 square feet
- Wells Fargo Center 406,000 square feet
Source: CoStar
5. So the leasing market is still bad, bad, bad?
Actually, no. Major commercial real estate firms say business is great, as companies come off bloated pre-Covid leases and look for new, slimmed-down, amenity-rich space. Very few tenants are sticking with what they have, meaning there’s lots of transaction activity. It’s the one part of the market that’s dynamic. “We’re having a great year,” notes CBRE’s Freytag.
What tenants want is highly “amenitized” space customized to the expectation of a WFH world—space that motivates workers to leave home offices. “There’s no problem leasing beautiful buildings,” says Lanners.
JLL’s Robertson cites this example: New office buildings like RBC Gateway and 10 West End are basically full. “North Loop Green [which opened last year] was 70% pre-leased at rates that are record-setting.” he says.
The contrast is entities like Baker Center or the Forum Buildings (formerly Oracle) in downtown Minneapolis, which have been unable to make major investments and are losing tenants. “Those are hard places to lease right now,” Robertson continues.
“The common denominator of distressed office markets is long-term macroeconomic headwinds—brain drain,
industries leaving.”—Tom Taylor, Sr. manager of research, Trepp
There’s also a perverse flip side to this phenomenon, where building owners simply choose not to pursue new tenants. Commercial real estate leases don’t deliver profits until the back end of the lease. New tenants typically receive improvements to their space before they occupy, and it takes years to recoup that investment. Buildings that are in debt or occupancy distress and struggling with cash flow often lack the liquidity to make the investments needed for new tenants. “There’s no real incentive; it costs less to leave the space empty,” explains Lanners.
Why don’t brokerages just market their space at bare-bones lease rates to appeal to frugal tenants? “Up until 2020 there was a place in the market for cheap space,” says Robertson. “That market has dried up.”
“Tenants have choices,” adds Anna Coskran, president of Minneapolis-based CRE consultancy NTH, “and they want amenitized space, not cheap, uninspiring space. They are trying to motivate people to come to work.”
Case Study: No Tenants
20 Washington Square (1966)
20 Washington Ave. S., Minneapolis
Owner: Shorenstein Properties (San Francisco)
Total square feet: 182,000
A global architectural landmark designed by Minoru Yamasaki (World Trade Center) and last occupied by Voya Financial, the Northwestern National Life Building sits elegantly at the top of the Nicollet Mall, awaiting its next iteration, which could include residential or hotel use. The building’s age and small footprint make it of questionable appeal to office tenants.
6. What’s going to happen to these nearly empty buildings?
It’s a good question. Onward Investors just bought the soon-to-be vacant Ameriprise Financial Center for $6.25 million, ostensibly a steal for a building that sold for $200 million less than a decade ago. But with Ameriprise moving out, the 25-year-old building needs many millions in updates and other changes if it’s to serve multiple tenants rather than one. “Everything in it is 25 years old,” adds Lanners. “We’ve got a lot to figure out.”
There’s a strong buzz about residential conversions, but Lanners says the costs of converting Ameriprise “don’t pencil out.” That’s not the case everywhere. Northstar East has been converted, and Robertson says the flour and grain exchange buildings in Downtown East will be converted soon. He credits Mayor Jacob Frey with removing hurdles, but says widespread conversions will require government subsidies.
Long-term, it’s a murky situation. Minneapolis doesn’t have many office buildings that are more than about 60 years old; it tore them down in the 1960s and 1970s to build modern ones. Those modern buildings (Ameriprise is an exception) have a poor ratio of windows to floor space, leading to residential environments without natural light, usually a deal-breaker for tenants. (St. Paul, ironically, does have many convertible older buildings, but lacks residential demand.)
There will be demolitions: such as the Prudential campus in Plymouth and the Thomson Reuters campus in Eagan.
“We’re really only in the second inning,” adds Nelson. “When do we get back to [a market as vibrant as] 2019? 2030 is optimistic. Some of this space will never be reoccupied.”
The news is not all bad. There are engaged local entrepreneurs like Lanners and Twin Cities-based Willow Peak, whose CEO Erin Fitzgerald wrote on LinkedIn in May, “Smart capital is starting to flow again. [Developer] Brookfield raised almost $6B in 1Q25 to go after financially distressed commercial real estate assets. Our strategy is to come in just below these institutional players—being able to seize high-quality, cash-flowing urban office assets at 50–75% discounts from their last trade.”
It’s going to need to be locals like Fitzgerald who make those moves. “Institutional investors see our market as business-unfriendly,” says CBRE’s Freytag. And investment doesn’t solve cities’ tax base dilemmas, nor necessarily repopulate downtowns. But when capital can be motivated, innovative solutions often follow.
Case Study: Bargain Space
Kickernick Building (1896)
430 First Ave. N., Minneapolis
Owner: Space Unlimited (Minneapolis)
Total square feet: 164,000
Available square feet: 47,000
United Properties bought and renovated the Kickernick for $20 million-plus in 2017. It sold the Warehouse District landmark at First Avenue and Fifth Street in 2024 for just under $4 million, with virtually no tenants in occupancy according to media reports. The Class B building has gone against the grain, attempting to make a market for low-cost space where supposedly none exists. CoStar data shows the building as 71% leased.
Case Study: In Default
City Center (1983)
33 S. Sixth St., Minneapolis
Owner: 33 South Property LLC
Total square feet: 1.45 million
Available square feet: 1.01 million
The brutalist pile on the Minneapolis skyline, City Center is substantially vacant, with nearly 900,000 square feet released by Target Corp., which is still paying rent on a lease that expires in 2031. Nonetheless, the building’s ownership consortium failed to pay off or refinance its $130 million mortgage by a January deadline, setting off foreclosure proceedings.