Neal St. Anthony/On Business: Metris to Expand in Duluth, Minnetonka
Neal St. Anthony
Tuesday, June 19, 2001
Fast-growing Metris Companies today will announce plans to open an operations center in Duluth that will employ 200 people by early 2002. Metris also will add 150
people this year at its 750-person Minnetonka headquarters, bringing the company's total state employment to more than 1,100.
Metris Chief Executive Ron Zebeck said state Sen. Doug Johnson, DFL-Tower, and Duluth Mayor Gary Doty contacted him last winter about participating in the
credit-card company's expansion plans.
The state and city apparently are not offering financial incentives other than job-retraining programs.
"We didn't go after that," Zebeck said. "There's some training programs. And the cost of rent, compared with the Twin Cities, is low. More importantly, there are good
people up there who want to come in every day and work. There are three major colleges up there and a lot of people who don't want to leave. We get a better-educated
workforce than, say, in Jacksonville, Fla.," where Metris considered an expansion.
The full-time jobs in the debt-collection center will pay $25,000 to $40,000 per year, including benefits. Metris will occupy 20,000 square feet in a modern building
previously occupied by a United Health Group unit that has moved to larger quarters.
Doty, who will attend a press conference today, said he was "thrilled to have an exceptional organization like Metris Companies expand to our community."
Metris, which earned $163.5 million last year and employs 4,200 people in seven cities throughout the country, is a direct marketer of credit, insurance and other
services.
The company, which has credit-card assets of about $9.5 billion, says it is on track to earn more than $2.50 per share this year, up double-digits in percentage terms
from 2000.
Vacancy rates head north
The vacancy rate for downtown Minneapolis commercial space, which hit a decade-low 5.7 percent during the late-1990s boom, has topped 9 percent and may hit 15
percent next year as the economy slows and two more office buildings come on line, commercial real estate watchers say.
American Express Financial Advisors is preparing to move workers still in the IDS Center to the second of its two new downtown buildings. And Wells Fargo
Mortgage continues to consolidate its operations at the old Honeywell campus in south Minneapolis.
"I'm sticking with my prediction of two years ago," said Russ Nelson of Nelson, Tietz & Hoye, which represents tenants exclusively. "The vacancy rate for all classes
of office space could be 15 percent, and 17 percent if you count the subleased space that's going to come on the market."
Nelson raised eyebrows with a 1999 report predicting double-digit vacancy rates by 2002 but lower than the 21.5 percent 1991 vacancy rate that resulted from the 1980s
building boom and subsequent recession.
What about prices? Net rental rates -- rent less taxes and operating expenses -- have dropped from a peak of $16.69 per square foot to $15.69 on average during the
first half of this year for "Class A" commercial space, according to recent statistics prepared by United Properties.
Here's some of what's happening:
American Express is completing its move from the IDS Center to a new headquarters on 2nd Avenue, resulting in a loss of about 600,000 occupied square feet for the
IDS building, including three floors of Target Corp. workers who are vacating for a new headquarters on the Nicollet Mall. That's about half of the 1.2 million square
feet in what still is downtown's cornerstone skyscraper.
David Sternberg and Corey Whitbeck, general manager and leasing manager of the IDS Center for owner Real Estate Investment Managers, haven't been sitting
on their hands. The firm has invested more than $20 million since 1996 in refurbishments to the Crystal Court and elsewhere. The tower was valued last year at $140
million for tax purposes.
Sternberg has filled or received signed commitments for about 360,000 square feet. Most recently, the law firm Gray Plant Mooty Mooty & Bennett signed to take up
to 100,000 square feet in 2004 when it moves from the Multifoods Tower. This spring, Genmar Holdings and Jacobs Management moved 125 people from longtime
headquarters in the Fifth Street Towers to 40,000 square feet in the IDS Center. The space had been the 28th-and 29th-floor headquarters suite for American
Express Financial Advisors.
Sternberg said lease rates, usually negotiated for 10 years, have held firm for upper-floor space.
"Considering that we had half the building come available, we're pleased with the response," he said. "There's only a finite amount of new large tenants, and we believe
we've gotten more than our share. We've been able to maintain net rental rates and grow a little."
Financial Advisors, also building a new customer service center in the loop, has seen its growth stalled this year amid the market downturn. The firm has decided to
sublease about 360,000 square feet in the decade-old U.S. Bank Place and consolidate the employees there in the new buildings. The firm employs about 8,000
downtown.
U.S. Bancorp will vacate about 480,000 square feet in the same building, managed by Hines Interests, to move to the new U.S. Bancorp Center on Nicollet Mall next
year. That leaves serious space for Hines to fill.
"We're working with a number of users but nothing we can discuss, and the space doesn't come due until September 2002," said Bill Chopp, a Hines vice president. "The
American Express space is their concern to fill. But it will affect the market."
Dorsey & Whitney will begin moving to a new Hines-developed building at Sixth St. and Nicollet later this year, opening space in the Pillsbury Center. Pillsbury,
meanwhile, is expected to move to a new Golden Valley building within three years on the campus of its soon-to-be owner, General Mills.
Fredrikson & Byron, the law firm, has committed to take more than 100,000 square feet in Pillsbury Center, pending final government approval of the General
Mills-Pillsbury merger, real estate brokers say.
American Express and Wells Fargo gradually are pulling jobs from several other downtown buildings, including the Baker Building, Northstar Center and Peavey
Building (since renamed the U.S. Trust Center). Wells Fargo Mortgage gradually is consolidating several Minneapolis-area locations at its new regional-mortgage
headquarters, the former Honeywell headquarters in south Minneapolis that will be home to more than 2,500 Wells workers.
About 1 million square feet of office space has come on line downtown since 1999, while less than 450,000 square feet was absorbed, according to United Properties.
Some owners will have to discount leases at the same time they update their properties to get through the first market downturn in a decade.
Staying downbeat
Bob Dickey, venerable technical market analyst at Dain Rauscher, expects another several days of sideways-to-down action on a Wall Street that has been
disappointed again by indications from some big technology and other companies that they will fall short of second-quarter expectations.
"The year-end and first-quarter earnings reporting periods both saw similar patterns to the current market," Dickey told Dain brokers Monday.
"The markets sold off during the pre-announcement periods and then rallied in January and April. The trend is similar this time, as the continued daily surprises will
likely cause the expectations to become too low when the actual numbers start coming out next month. The downside distance may not be great, but it will take some
time for the market to base before it will be ready for a good uptrend."
Meanwhile, Brian Belski, fundamental market strategist at U.S. Bancorp Piper Jaffray, said, "With ambiguity likely only increasing in 'Tech Land' over the next few
months, we believe health care remains a more consistent growth vehicle compared with technology and the broader market in general.
"We believe the market's current 'reactive mode' equals a low likelihood of tech turning positive in the fourth quarter."
No Nasdaq 5,000 for Christmas this year.
Neal St. Anthony can be reached at 612-673-7144 or Nstanthony@startribune.com.
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