Former retail location of Lowry Hill Meats. (Image: Sam Maguire)
Ask David Wilson what has gone wrong with Minneapolis’s economy, and he does not start with interest rates or office vacancy. He starts with City Hall.
“We have some elected officials running the city who think it’s a priority to address foreign policy and niche social issues instead of focusing on the most urgent issue impacting residents in Minneapolis — our struggling local economy,” Wilson said.
Wilson, who is a gay man, cites the City Council debating sex club licensing while the commercial property tax base collapses, and Hennepin County commissioners who have not brought their downtown workforce back to the office as downtown commercial property values plummet due to, among other challenges, remote working.
Both, in his view, reflect a failure to understand the dire condition of the city’s commercial real estate market, and more broadly a lack of focus on promoting job growth and business creation.
Wilson knows the cost of that lack of focus up close. He is a co-owner of the Burch Building on the corner of Hennepin Avenue South and West Franklin Avenue, a property that was fully leased prior to the pandemic, but now has sat vacant for 3 1/2 years and is costing the ownership group roughly $450,000 a year to hold. The building’s retail and office suites are in move-in condition in what should be a prime location between downtown and Uptown.
The owners have had a team of brokers working to lease the space, offering rents at a fraction of what they were prior to 2020, but interest has been primarily from vape shops and cannabis dispensaries, which they don’t think enhance the building or neighborhood. So still today, no tenants.
“The demand for retail and office space has plummeted across the city,” Wilson said. “Restaurants are closing, small business owners are struggling and big companies aren’t growing their employee base in the city,” Wilson said.
The building is worth only a third of its January 2020 value, and the owners cannot find a buyer even at that price. Ownership successfully petitioned Hennepin County to reduce the building’s valuation and taxes paid on the property, a process that is happening across the city, especially among the highest-value commercial properties.
The sharpest edge for Minneapolis residents is the change in the local property tax base. As commercial valuations collapse, the tax burden will migrate onto homeowners. Hundreds of millions of dollars of valuation have been removed from the tax rolls in the last couple of years, and the tax burden once paid by these commercial properties is being shifted to residential properties.
“We have some elected officials running the city who think it’s a priority to address foreign policy and niche social issues instead of focusing on the most urgent issue impacting residents in Minneapolis — our struggling local economy.”
The Fault Lines
Ask Wilson what is actually wrong, and he recites a long list.
The pandemic and the shift to virtual work hit every major American city, he said, and Minneapolis is not unique there.
What is specific to Minneapolis is the stack of additional shocks on top. The murder of George Floyd and the unrest that followed. The contentious and ongoing debate at City Hall about how best to ensure public safety.
Infrastructure projects that take too long to plan and execute, and that hollow out commercial districts by the time they are completed. Operation Metro Surge and the federal immigration enforcement that came with it.
The Trump administration publicly vilifying Minneapolis and Minnesota, undermining the region’s reputation and ability to attract investment capital.
And the worst self-inflicted wound, Wilson argues, is a City Council that isn’t focused on the city’s economic recovery and cannot work well with itself or with the mayor.
The symbolic moment, for Wilson, came with the council’s recent debate about licensing sex clubs.
“When moderates and conservatives across the metro who might dine, spend their money in the city, who might recreate in the city, who might invest in the city, read the headlines that this is what the City Council’s paying attention to, it just adds another check mark for a reason why they’re not bringing their money, they’re not bringing themselves, to our city.”
The County That Hasn’t Come Back
The part of Wilson’s critique that is underreported is aimed at Hennepin County.
Downtown Minneapolis office vacancy has climbed to over 30%, a record high, double the 15% that was normal in a healthy central business district before the pandemic.
According to Wilson, the second largest downtown employer, Hennepin County, has not brought its office workforce back in any meaningful way. The county states that its remote work policies help with service delivery and employee retention, and the county doesn’t have an obligation to help fill downtown office vacancies.
Yet a growing body of evidence suggests that long-term remote work doesn’t necessarily improve employee performance or retention. Hennepin County-headquartered companies Best Buy and General Mills recently announced bringing hybrid workers back to the office four days a week.
And the county’s remote work policies are contributing to the conditions causing downtown commercial real estate values to fall, slashing property taxes paid by these properties and reducing demand for the hundreds of small businesses downtown that rely on office workers.
“It really concerns me that Hennepin County hasn’t brought their downtown office workers back,” Wilson said. “There are thousands of Hennepin County employees whose salaries are paid in large part through Minneapolis property taxes, and those people are not working downtown and they’re not supporting all the small businesses downtown that rely on office workers. The county’s remote workforce policies aren’t aligned with its purported economic development goals to creating vibrant, people centered places and develop, attract, retain and grow businesses.”
“What we need is an economic ‘Marshall Plan’ for Minneapolis.”
Wilson said he reached out in January to Commissioner Marion Greene, who represents Lowry Hill and downtown on the Hennepin County Board, to request a conversation about the return-to-office issue. According to him, Greene acknowledged the concern and indicated she would be open to talking, but Wilson is still waiting for a meeting.
In May, the Hill & Lake Press reached out to Greene’s office for comment on a similar assertion from developer Stu Ackerberg. According to County Commissioner Marion Greene last month, “approximately 4,472 employees are assigned to downtown county facilities. Of those, about 2,241 work in a hybrid model, 1,411 are fully in person and roughly 810 are fully remote. The vacancy rate in the county’s downtown office buildings is about 14%.”
Wilson’s broader concern about the county is about its focus. Hennepin County is the largest funder of local government services in the region, with responsibility for health, libraries and a significant share of the safety net.
“The county board is flying under the radar for most Minneapolis residents,” Wilson said. “It holds significant political power and a very large budget, yet we need greater engagement from county commissioners to support Minneapolis’s economic recovery. Minneapolis is by far the largest municipality in the county in both population and economic output — when the city thrives, the entire county benefits.”
An Economic “Marshall Plan” for the City
But the county can’t fix the city’s economic problems on its own.
“What we need is an economic ‘Marshall Plan’ for Minneapolis,” said Wilson, when asked what the one thing he would like the city to do.
“The City Council and mayor need to stack hands on an economic revitalization plan they can use as a guiding light for what to prioritize, where to spend money, where to provide leadership and support for our community.”
Wilson said his view on whether the current City Council can work on such an ambitious plan is mixed.
“I like to think that all our City Council members have the best interests of the city front of mind, but the polarization and infighting is hurting our city, and the lack of consensus between the Council and mayor on what they need to work on together puts the city’s economic recovery at risk.”
A Detroit Warning
Wilson grew up in the Detroit suburbs and watched how the economic decline of Detroit impacted the entire southeast Michigan region. The parallel he sees to Minneapolis is not racial, he said, and not necessarily economic. It is governmental.
“The one similarity that comes to mind between Detroit back in the 1970s and 80s and Minneapolis today is dysfunctional municipal government,” Wilson said.
“Bottom line, we need our city leadership, no matter their politics, to all agree that we need prosperity.”
Historically a thriving city, Detroit had political leaders who thought its economic vitality would continue, no matter the challenges caused by deindustrialization, suburbanization and misguided city leadership.
So when you look at the city’s fiscal decisions during this time, its policy and management decisions, instead of countering the threats to Detroit’s economy, city leaders made conditions worse.”
Fifty years later, Detroit’s residents are still enduring the results of economic decline.
When asked for solutions, Wilson said he would make economic development the guidestar for the city — focusing on measurable job growth, business creation and prosperity for people who live and work in Minneapolis.
The mayor, City Council and staff would prioritize spending time and taxpayer money on initiatives that make the best economic impact on the city. Staff would gather and publish data on what kinds of jobs and businesses are being created in the city, what the impediments to economic growth are and what policies need to be created or changed to encourage economic growth.
And he thinks the city can be pro-business without compromising on its residents’ core values.
“Minneapolis can be a city that is pro-business and at the same time committed to fair and equitable economic development. And with a growing economy and the extra revenue that flows from prosperity, Minneapolis will have more funds to invest in our residents’ most urgent issues like affordable housing, public safety, addiction and mental health. Minneapolis could — and should — become a national example of what a pro-business, ethical-business city looks like.”
“Bottom line, we need our city leadership, no matter their politics, to all agree that we need prosperity,” Wilson said.
Back inside the empty restaurant space on Franklin Avenue, that prosperity is still somewhere over the horizon.
Wilson and his partners have talked about handing the building back to the bank and decided, at least for now, not to.
“We don’t want to just dump this building and give up on our city” he said.
Craig Wilson is the editor of the Hill & Lake Press. He lives in Lowry Hill.
