Grande Market Square, a three-story office building built as part of Burnsville's ambitious Heart of the City redevelopment project, has tumbled into foreclosure.
The largely vacant property was developed by Sherman Associates Inc. at Burnsville Parkway and Nicollet Avenue -- an intersection once considered the city's downtown before losing its luster after Burnsville Center was built near County Road 42. The Heart of the City development was designed to revitalize the area with offices, stores, restaurants, housing, a park and a performance center.
Grande Market Place, a retail and apartment complex next to the office building that also was built by Sherman, is not included in the foreclosure.
Founded in 1979, Sherman has had a role in several high-profile developments in the Twin Cities, including the Midtown Exchange apartments and loft condominiums in Minneapolis' former Sears, Roebuck building. Representatives of the Minneapolis company, including founder George Sherman, declined to comment on the Grande Market Square foreclosure.
Dakota County property records show a foreclosure sale Aug. 9 for $2 million to a business entity of Rialto Capital Advisors, a New York investment firm. Sherman owed more than $4.6 million, including principal, interest, taxes and other fees, on the original mortgage of $3.5 million.
Completed in 2004, the office property has struggled to attract and retain tenants. Its ground floor has two tenants, Jensen's Cafe and Ficus & Fig, but a third space once occupied by a floral shop is empty. Only about half the third floor is filled by a title company.
Meanwhile, the second floor is totally vacant. Two tenants have occupied and moved out of the space, which was designed to serve as a cooking school and banquet facility.
Skip Nienhaus, Burnsville's economic development coordinator, said he believes the building's woes aren't that unusual, given the economic downturn that sapped demand for commercial space. "Sherman faced the same thing that just about every developer in the Twin Cities has faced in the last few years," Nienhaus said.
Even so, the building's vacancy rate is well above average for comparable south-metro office properties and higher than older, lower-tier office buildings in Burnsville. A marketing brochure for Grande Market Square by Colliers International, recently hired to market the building, says it is about 35 percent vacant. That compares with a 16 percent average vacancy rate for comparable south-metro office buildings, according to research from Cushman & Wakefield/Northmarq. The firm's research also shows only a couple of Burnsville office properties with more than 35 percent of their space unfilled.
Steve Shepherd, leasing agent for Colliers, said he already has shown the building to some prospective tenants. He said filling the second-floor space is probably the biggest challenge. "There still is the question of whether [a banquet facility] is the highest and best use of that space," he said.
Sherman's Grande Market Place also has struggled to land tenants for its ground-floor retail space. Most of it is unfinished and unfilled. Nienhaus said Sherman envisioned having two restaurants occupy large blocks of space, eventually setting that plan aside after securing Anytime Fitness as a large tenant.
Nienhaus said he is hopeful, given the overall improvement in the economy as well as the addition of a CVS pharmacy scheduled to open this fall across Nicollet Avenue from the office building.
"Once the CVS goes in, that changes the dynamic," he said. "We've seen that happen before. When Cub went in, it drove traffic to the area. Anytime you get another big component like that, it drives traffic and benefits other retail and offices in the surrounding area."
Changes are also coming across Burnsville Parkway from Grande Market Square. Tenants of the two-story Parkway Place office building, which includes offices of U.S. Rep. John Kline, the Burnsville Chamber of Commerce and the Star Tribune, have been told to move out by Oct. 31. Representatives of Pinehurst Properties, which owns the building, declined to comment on redevelopment plans for the site.
Susan Feyder • 952-746-3282