Minnesota Real Estate Journal
November 2, 1998

Zeller Realty acquires International Centre
FIVE OWNERS SELL INTERESTS
By Liz Wolf

In what best can be described as a complicated sales transaction, Chicago-based Zeller Realty Corp. purchased most of the 341,000 square foot International Centre office building in downtown Minneapolis on Oct. 15 for an undisclosed price.

The property located at 900 Second Ave. S., previously had been set up as an office condominium with six separate owners, five of which agreed to sell their interests: Phillip Jaffe and Tom Holtz of CB Richard Ellis represented the five investors in the transaction. Zeller represented itself.

The sixth condo owner, Fredrikson & Byron, which controls two floors of the building or 11.5 percent, has retained its ownership, according to Jim Gearen, vice president of Zeller. The law firm also leases four additional floors in the building.

“Five of the condo units thought it was the right time to sell, both in terms of the market and for themselves,” says John Kelly, vice president of Ryan Cos., which developed the building in 1984 and was one of the condo owners. Kelly acted as the point main in representing the owners and worked closely with Holtz and Jaffe in marketing the property.

“For ourselves and the other condo units, we tried to make the process as easy as possible,” he says. Part of the marketing strategy, he explains, included a commitment from each of the five owners that they would sell - before Holtz and Jaffe hit the street searching for potential buyers.

“It was a challenge and a little unique in terms of the typical investment transaction,” Holtz says. “All of the professionals involved, including attorneys and underwriters, made the process a little more cumbersome. Basically, five transactions were taking place simultaneously. But having said that, condominium ownership is nothing new; it has been around a long time.”

Some people were surprised that the building was put on the market with only five of the six owners willing to sell, Holtz adds. “But those owners recognized it was a good time to come together and bring it to market,” he says. “From Zeller’s standpoint, having the majority of the building coming under one ownership will bring consistency. Before, there were six owners with different objectives and long-term goals.”

Despite the complexity of the deal, Zeller officials aggressively pursued the purchase and are please with the investment.

“Zeller is known for complicated deals,” Gearen says. “We think this is a first-class building. The problem was there was not a unified marketing and management structure. That’s something we can solve simply by buying the property.”

The assessed market value of the building, including the two floors that did not sell, is $24 million, according to Hennepin County records.

The tower currently is 98 percent leased. However, Ryan, which is headquartered on two floors, plans to vacate its space in 2000 when it moves into the new piper Jaffray Center it is developing downtown.

Gearen says he is not worried about filling he is not worried about filling that vacancy when the time comes.

“The market is very tight and will remain tight at least until mid-2000,” he says. “if you look at absorption trends of the last 10 years and how much space is precommitted, you’ll get up to a 5 percent vacancy in Class A… Right now the market is too tight.”

Zeller acquired its first property in the Twin Cities in 1991, with the purchase of Norwest Financial Center in Bloomington. In 1994, the company picked up the Highland Bank Building in Bloomington, and a year later, it acquired The Waters I in Eagan. All three have since been sold, but Zeller continues to lease and manage the properties.

Whether Zeller will retain ownership of International Centre long term will depend on the market.

“My guess is it will be longer rather than shorter,” Gearen says.

Meanwhile, the Kinnard Center, located next door to International Centre, is on the sale block as well. The 270,067 square foot building also was developed by Ryan in the mid-1980s.

The Class a property is owned by co-mingled fund that is managed by Heitman Minnesota Management. Heitman hired United Properties to market the building on behalf of the owners.

Investors are showing interest in the property, but there is no sale to announce, according to United officials.

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