H.J. buys Opus project

Minnesota Real Estate Journal
September 1, 2003

Danielle Anderson

 

Company Grows Through Acquisition

 

H.J. Development has purchased another work in progress.

 

Last month, the company closed on Crossroads of Lakeville, a 140,000 square foot, Cub Foods-anchored shopping center at Dodd Boulevard and Cedar Avenue shortly after developer and general contractor Opus Northwest LLC broke ground.

 

"We were actually going into the purchasing of the project prior to them even breaking ground," says H.J. Development partner Gary Janisch. "They poured footings on Friday, and we closed on a Tuesday."

 

The sale was atypical for Opus, which generally sells a property after it has completed construction, says John Meyers, a senior director of real estate development at Opus. Under the agreement, Opus continues to serve as the general contractor and H.J. Development assumes the development, leasing and management duties.

 

"From our standpoint, it was a unique opportunity for a small developer to have a project that fit in their portfolio and get them in early. It just seems like a good transaction from both ends," says Meyers, who identified the location for the project and ushered it through the city approval process.

 

In addition to a 68,000 square foot Cub Foods store, the development includes about 40,000 square feet of smaller shops and another 30,000 square feet of outlot space. Great Clips, Quizno's and Caribou Coffee will occupy part of the main center, and Gooyear has purchased one of the outlot sites.

 

Janisch adds that a number of prospective tenants have expressed strong interest in the remaining space. He says that H.J. Development is negotiating with two possible tenants - a bank and a sports bar - for two of the pad sites. The firm also has a verbal commitment from a Chinese buffet inerested in a 6,000 square foot space.

 

The area's solid business commuity and Lakeville's steady growth help sell the project to local and national tenants alike, according to Janisch. The center is about five minutes from Airlake Industrial Park, which houses 100 businesses and more than 4,000 employees.

 

Those looking for signs of hope in a troubled economy may want to call up Bob Erickson. Ask the Lakeville city administrator a simple question like "How's business?" and you might just get an earful of impressive stats. For starters, Lakeville's current population of 47,000 is expected to rise to 91,000 by 2030. That's a 4 percent annual growth, which equals about 1,500 to 2,000 new residents each year for the next 17 years. Through July, 221 permits have been issued for single family homes and 196 permits have been issued for town homes. Erickson adds that the average value for the single family homes with lots is $350,000 to $400,000, while the average value for town homes is $141,000 without lots.

The city is also expecting 2003 building permits to total more than $200 million, up from $168 million last year.

 

"I've been here 14 years and I think that there are a lot of similarities between Lakeville, Woodbury and Maple Grove," Erickson says. "The three of us really enjoy good freeway access, we enjoy a superb quality of life with our parks, and a quailty education system."

 

Meyers says that these factors are what attracted Opus to the Crossroads site in the first place. "We saw Lakeville with its tremendous growth as an opportunity," he says.

 

Meyers adds that Opus is moving forward on another Cub Foods-anchored shopping center in the metro area. Scheduled to open in November, Savage Town Square at the corner of Highway 13 and County Road 42 in Savage comprises the 68,000 square foot Cub store, 20,000 square feet of shop space and three outlot pads. One of the pads has been sold to KFC and another is under contract to a bank.

 

H.J. strikes again

 

The purchase of Crossroads marks the second time in about a year that H.J. Development has bought a retail center that was under construction but not for sale. Last August the retail development company approached developer Oppidan Investment Co. and bought Albertville Crossing, a grocery-anchored center that was in the works near County Road 19 and 57th Street in Albertville.

 

H.J. Development is completing construction of the final building of Albertville Crossing, which totals 140,000 square feet including the outlot space. Janisch says that only 1,200 square feet of space is available for lease. Tenants include the 50,000 square foot Coborn's Grocery Store, Great clips, Wells Fargo Home Mortgage, Papa Murphy's Pizza, Turbo Nails, Women's Fitness and Totally Tan.

 

Janisch says that he and partner Jerry Hertel got the idea of buying retail developments during the construction process after years of developing strip centers on thier own. They started out small. Their first project, a 15,000 square foot neighborhood center in Savage, was completed in 1983. A more recent project that H.J. developed from scratch was O'Connell Square, also in Savage. The 53,000 square foot retail center was completed in July 2002, and helped spawn a new business strategy.

 

The H.J. partners realized that the biggest difference between projects like O'Connell Square and larger grocery-anchored centers was the size of the anchor. At O'Connell Square, for example, the largest tenant is 13,000 square feet, whereas grocery store anchors are often more than four times that size. At Crossroads, for example, Cub will occupy 68,000 square feet.

 

Janisch adds that H.J. prefers to take over management, leasing and devleopment after the large anchor has been landed. "We really want to work through Opus [and other developers] on a Cub-type tenant," Jansich says. "That is where their expertise lies in getting that off the ground."

 

However, the company does like to be involved during the construction process. "We are long-term owners and like things done a certain way," Janisch says, adding that the company holds on to property for about 15 years. "We really believe in quality. In bathrooms, for example, we insist on ceramic tile and quality wall sconces."

 

At Crossroads of Lakeville, H.J. Development expects to augment Opus' original landscaping plan.

 

Although somewhat unique, the growth strategy appears to be working for H.J. Development. Since January, the firm's tenant roster has grown to 135 from 100.