Downtown Minneapolis Is Still Holding On

How COVID-19’s impact on the city’s central business district has bruised some, broken others, and affected the whole region
The pandemic may leave scars across downtown Minneapolis
“The central business district is the economic engine for the entire metro area. It’s the economic engine for the entire state of Minnesota,” says Kevin Lewis, president of the Building Owners and Managers Association of Greater Minneapolis

Photo by Malik Blaylark

In just over a decade, downtown Minneapolis has been utterly transformed: two gigantic new sports venues (Target Field and U.S. Bank Stadium), renovations of Target Center and Nicollet, more Blue Line light rail stops, and too many condo and hotel projects to name.

There are Fortune 500 corporate offices, some of the biggest providers in local media, premier entertainment venues, luxurious hotels, and scores of dining options. But down on the street level, the human and financial challenges come into clearer view.

Marbella Herrera Villanueva, for one, is eager to make it back downtown. She used to take the 22 bus from her apartment in south Minneapolis to the CenturyLink Building across from City Hall, where she helped feed the bustling local workforce during 40-hour weekly shifts at Subway. When everything ground to a halt last March, she found herself completely out of work for two months. At home, she had an elderly mother with diabetes, a father who lost his restaurant job at the Mall of America, a son home from college, two teenage daughters at South High trying to keep up with distance learning, and spotty internet that cut in and out.

Those were dark days for Herrera Villanueva. A cousin gave her rides to the Salvation Army and church, where she’d stand in food pantry lines for the first time in her life. She had to make arrangements with her landlord when she couldn’t pay rent on time. As time went on, a little work trickled back. Her manager promises there will be more this spring, when office workers gradually return. “It’s the only thing that gives me hope right now,” Herrera Villanueva said through a translator. “Let there be more work. [Office workers] work at home. They have their computers and their papers in the house, but not us.”

With vaccine rollouts, businesses are itching to reveal their triumphant return-to-work campaigns summoning life and activity back to the skyways. About 218,000 people normally work downtown, but as of mid-January, downtown’s largest office buildings’ occupancy was only 16.1%, according to the Minneapolis Downtown Council.

Downtown’s largest employer, Target, has said its 8,500 office workers won’t return before this fall. Notable newcomer Shoreview-based Deluxe Corp., a Fortune 1000 financial service company with more than 500 employees, decided mid-pandemic to sign a 16-year lease in the former TCF Building, effective this fall. “The move will help maintain downtown Minneapolis’ vibrancy and will help our entire state prosper,” Gov. Tim Walz said when the news was announced. To sweeten the deal, the State of Minnesota gave Deluxe $1 million to build out its new office—which, at 95,000 square feet, is less than a third of the total space it held in Shoreview.

CEO Barry McCarthy thinks of Deluxe’s move downtown as one step in its evolution from an old-school check-printing company to a modern technology company—to become “less like the post office and more like Google.” He believes the office’s proximity to downtown Minneapolis’ world-class nightlife, sports, and theater, the Hen House brunch destination across the street, and Manny’s Steakhouse, a block over, will attract top talent. Some Deluxe staff were apprehensive about safety and how the perception of crime could hamper recovery, McCarthy admits.

“I share that concern and sentiment, I think, with the other CEOs in downtown Minneapolis. But I will tell you—I’ve heard from a few of them that they are incredibly pleased and proud of us for taking a leap forward, a leap of faith, and believing in the future of the city and the future of downtown,” he says. “Remember, this is a 106-year company. We’re not building a company for the next six months.”

About 218,000 people normally work downtown, but as of mid-January, downtown's largest office buildings' occupancy was only 15.6%, according to the Minneapolis Downtown Council
About 218,000 people normally work downtown, but as of mid-January, downtown’s largest office buildings’ occupancy was only 16.1%, according to the Minneapolis Downtown Council

Photo by Malik Blaylark

The Big Pause’s Big Impact

Nearly a year after Gov. Walz enacted Minnesota’s first peacetime emergency executive order, the city’s economic engine is at a standstill, and the implications are huge. At first glance, the businesses, commuters, and tourists who come downtown for a night out don’t directly correlate with the concerns of outer Minneapolis neighborhoods, schools, and working-class families living miles away from downtown.

But there is a connection: About one-third of city and public-school revenues come from property taxes. Under state law, top-tier commercial real estate is taxed the heaviest. As a result, 40% of Minneapolis’ property tax revenues come from the roughly 3% of its total land mass that comprises the central business district, according to the Downtown Council. “The central business district is the economic engine for the entire metro area. It’s the economic engine for the entire state of Minnesota,” says Kevin Lewis, president of the Building Owners and Managers Association of Greater Minneapolis, which represents the local commercial real estate industry. “That doesn’t place any less value on other destinations in the state of Minnesota. Merely from a financial and economic standpoint, it is a major contributor.”

Downtown’s dining, theaters, and parking ramps also generate a substantial inflow of sales tax and fees. That contributes to non-police violence interrupters, housing for homeless students, therapy for survivors of domestic abuse, and countless other services and programs found beyond the shadow of the IDS Center.

The workings of a healthy city and the wellbeing of all residents are inextricably tied, says Steve Cramer, Downtown Council president. Cramer, a city council member and urban planner more than 30 years ago, is also the former executive director of Project for Pride in Living, which connects low-income people to affordable housing and job training.

“We had a roughly 10-year run that we saw valuation increases, more than 100 companies have relocated into downtown Minneapolis, we saw the count of employees growing, we saw the residential population growing, especially market-rate rental. So it has been a good ride. The ride came to a crashing halt,” he says. “It’s in the city’s interest, and all of our interest, to try to get downtown revved back up.”

How hard did it crash? As of last December, average unemployment in Minnesota was 4.4% with nearly 240,000 fewer jobs than December 2019, when the unemployment rate was 3.5%, according to the Minnesota Department of Employment and Economic Development. Nearly half of the jobs lost were in the leisure and hospitality industries. At the start of the pandemic, Minneapolis hotel occupancy dropped as low as 2%, and by the end of 2020 it had rebounded only to 12%, according to international hotel market data firm Smith Travel Research.

The tourism industry may be concentrated downtown, but its employees live citywide, says Melvin Tennant, president of Meet Minneapolis, the city’s tourism agency. Thousands work “back of house” in sports facilities, hotels, and the airport. They’re culinary and utility workers and the housekeeping fleet, and a majority of them are women, people of color, recent immigrants, and new Americans.

“It has been a devastating time. It came upon us so abruptly and profoundly that we didn’t really have any time to prepare,” Tennant says. “What I am hopeful for is that we don’t forget that we have a lot of people of color, and minority populations that were already marginalized, when we recover.”

In normal times, the convention center—where two-thirds of staff are people of color—is booked year-round, hosting travelers who spend money up and down Nicollet and Hennepin Avenue. Suspending that piece of the economy has cost Minneapolis $71 million in local taxes and $1.2 billion in visitor spending, which totaled nearly $8.2 billion in 2019, according to Meet Minneapolis.

Among the hospitality-sector businesses lost: Peace Coffee closed all of its cafes, and a long list of restaurants including McKinney Roe and Erik the Red disappeared. Several hotels closed temporarily and one downtown Minneapolis hotel has closed permanently—the Crowne Plaza hotel in the Northstar Center. It let 51 employees go in the summer of 2020, then broke the news to the remainder of the staff in October.

Derek Perillo-Yoshinaka, a senior banquet server who worked at the Crowne Plaza for 10 years, was one of the last to go. “A lot of us would kill to just go back to our jobs because we’re busybodies, we want to be out there,” Perillo-Yoshinaka says. “It’s not like we want to be sitting at home collecting unemployment. After this thing is done, we want to be right back there helping the city be what it is, filling it up, making it feel busy, contributing to the taxes. Don’t forget that, you know, don’t forget about us.”

Instead of hosting and catering to business travelers, Hennepin County has contracted with several hotels to house the homeless, including purchases of the LuMinn Hotel and University Inn to give shelter to COVID-positive community members. The Minneapolis Convention Center has alternately served as home base for the National Guard, for police evicted from the burned-out Third Precinct, and for COVID testing. After Minneapolis spent big to market itself as a destination city by hosting the Super Bowl and Final Four, its $2 billion worth of sports infrastructure has been used at a fraction of their capacity going on a year.

Looming over pandemic concerns, downtown Minneapolis endured widespread violence in 2020. In late August, with a summer of unrest still fresh, a Minneapolis Police pursuit of an armed homicide suspect ended in the man’s suicide in front of the US Bancorp building. Some social media accounts pinned the blame on police, and hundreds of people stormed downtown, breaking windows, ransacking stores, and setting fires. Although smaller compared to what Lake Street and North Minneapolis went through earlier in the year, it still damaged more than two dozen businesses in the high-traffic district. After a large fire, Brit’s Pub announced a spring timetable for reopening.

Then, on New Year’s Eve, a group of about 75 people dressed in black allegedly shot fireworks at passersby and spray-painted buildings with “Kill all Kops” and “Crimewave 2021.” (Three of five people charged with felony riot were from outside Minneapolis.)

Despite the data from the Minneapolis Police Department’s First Precinct, which services downtown, showing that there were fewer violent crimes in 2020 than in four of five previous years, and fewer property crimes than in all five, last year’s events took a huge toll.

In fact, a group of 40 downtown restaurant owners wrote an open letter in September to Mayor Jacob Frey and the city council, pleading for help rehabilitating downtown’s image. “Even those who refuse to let fear run their lives, even those who live in the city and have spent years feeling relatively safe despite the occasional incident, are turning away,” the letter read. “The numbers speak for themselves, and the vibrations throughout Minneapolis can’t be ignored: Perception begets reality, and the strong feelings of unsafety in our downtown are very real.”

It’s a different story in neighborhoods beyond downtown. According to Minneapolis Police Department’s citywide 2020 numbers, more than 550 people have been shot, homicides surged 73% from 2019, carjackings more than 300%, and big businesses like the Uptown Apple are calling Minneapolis quits. But in the inexact realm of public perception, what happens in the rest of the city is inextricably tied to downtown.

James Everett (right) of the Minneapolis Youth Coordinating Board
James Everett (right) of the Minneapolis Youth Coordinating Board

Photo by Susan Du

Keeping the Faith

These days, a mostly inert downtown still shows signs of life—some watching the streets, and some hoping to hold on to their businesses long enough for things to turn around.

Elise Houndjo and Minneapolis’ Ambassadors still suit up every day in highlighter-yellow uniforms to walk the near-empty streets of the central business district. Depending on the season, between 50 and 80 Ambassadors—employees of the Minneapolis Downtown Improvement District—roam downtown, directing tourists, sweeping up litter. Now they’re mostly concentrated to a thin vein of traffic running down Nicollet. Like the personification of downtown putting on a brave face, they’re still here, even after many office workers left, bars and restaurants closed, and the Minnesota National Guard occupied Nicollet in late August.

Minneapolis Ambassador Elise Houndjo
Minneapolis Ambassador Elise Houndjo

Photo by Susan Du

That’s why the Ambassadors still come out in full force, says Houndjo, who is 53, a mother of two college boys, and the sole full-time breadwinner after her husband lost his IT work to the pandemic. Their presence on the streets helps downtown retain some sense of confidence.

Meanwhile, utility service workers can bring equipment onto the empty streets to jackhammer underground. On a winter morning, there’s the rush of the light rail and the ubiquitous clanging of construction. Houndjo pauses at the foot of the Gateway project, a massive, 37-story office tower steadily rising across from Central Library. It’ll house RBC Wealth Management and a Four Seasons hotel when it’s done next year. Craning her neck, Houndjo cheerfully declares, “Money is good!”

At night, veteran outreach worker James Everett patrols eerie downtown streets with the Minneapolis Youth Coordinating Board (YCB), which has funded non-police violence intervention for many years. YCB outreach workers are unassuming, non-threatening, and do more than break up fights between kids, though the brand does give them plausible deniability to slide between grown men beefing on the light-rail station because they can then point to the women pushing strollers on the corner of Hennepin and Fifth, and say, “Not in front of the kids.” On a typical weekend, Everett—a lifelong Minneapolitan—would be in front of Cowboy Jack’s. But with bars and restaurants closed, he stays on the move, circling Nicollet, keeping an eye out for trouble.

Over in the basement of the Northstar Center in the heart of downtown, there’s a food court connected to the skyway where, in normal times, office workers would grab quick bites to go. There was Cheetah Pizza, Bamboo Garden Chinese takeout, Twin City Bites deli, and La Loma Tamales. Now everyone is gone but for Walkin’ Dog, a hotdog stand in a postage-stamp sized corner space, where owner Dave Magnuson slings Chicago dogs for $2.45 apiece. He has been there for 30 years. Magnuson’s current lease ends in October, and with the exception of the landlord’s offer of a three-month rent abatement, he still needs to make money from the stand. His monthly rent is as much as his mortgage, and customers are few. Regulars stop by now and then to encourage him to keep on.

For the downtown service sector’s unemployed—both union and non-union—the hospitality union Unite Here quickly set up a relief fund to get small cash grants to help workers keep their phones on and prescriptions filled. Next, Unite Here’s political director Wade Luneburg says they’ll try to pass ordinances in Minneapolis and St. Paul directing employers to reinstate the same workers and compensation post-pandemic, instead of using COVID as an excuse to start fresh with lower wages and fewer benefits. Ward 3 council member Steve Fletcher recently proposed a “right to recall” ordinance to the Minneapolis City Council.

“I was around for 9/11, and the impact that had on the industry was devastating as well,” Luneburg says. “A third of the industry disappeared overnight for a period of time, only to recover and then go through what was a pretty damaging recession. But this [loss of jobs] is just seismic in impact.”

Increased layoffs in retail, hospitality, construction, and janitorial services created more potential for wage theft, a common occurrence when workers don’t receive their final paycheck. From mid-March to December, the city of Minneapolis’ two wage theft investigators resolved 78 complaints and recovered $47,600 in unpaid back wages. The state Department of Labor and Industry, which has 17 investigators, collected $673,900 in the same time frame. These figures are vastly under-reported, according to the Economic Policy Institute, which estimates wage theft in a regular year to be in the tens of millions in Minneapolis and $600 million statewide.

Some downtown workers have testified about employer abuses at city budget hearings, but it’s still a difficult fight, says Isabela Escalona of Centro de Trabajadores Unidos en la Lucha (CTUL), a labor rights organization whose members are janitors, fast food workers, and other hourly labor. “When unemployment is so high, you’re not going to speak up,” she says. “You’re not going to say you never got a paycheck. If you got paid a little, at least you still have a job. That’s going to be a really, really dangerous kind of dynamic that workers are going to be facing. Bad conditions at a job is better than no job.”

L'More Chocolat
L’More Chocolat

Provided

Betting on Downtown

For Kathy Ehrmann Bohnen, the pandemic posed an opportunity to move her shop, L’More Chocolat, from Wayzata into downtown Minneapolis at the corner of Hennepin Avenue and 13th Street. She’s an empty-nester who raised her children in Orono and spent the first part of her career in commercial real estate. A friend’s untimely death from cancer convinced her to pursue her real passion—making chocolates. She now specializes in custom designs for corporate clients like RBC, Dorsey & Whitney, and Porsche.

Her rent in Wayzata was more expensive than the trickle of customers the location attracted. Downtown Minneapolis brings her far more foot traffic despite COVID, an uptick in citywide crime, and a higher-than-normal 11% vacancy in area apartments, per Minneapolis real estate consulting firm Marquette Advisors’ third-quarter data, Ehrmann Bohnen says. A small-business grant from the state of Minnesota helped finance the move. If it weren’t for the pandemic, the landlord wouldn’t have agreed to a short-term lease and a favorable rent.

“We were thrilled to come downtown and thrilled to be able to be part of this community,” Ehrmann Bohnen says. “Yeah, there’s crime down there, but it’s not going to be like that forever. I hope that I’m right, but even if it’s just for the short term, I would do it again because we’ve had an amazing season. We’ve already earned new clients. People have respected us for doing something silly, like expanding and relocating during a pandemic.”

Nearby upscale apartments are reportedly offering concessions of up to two months of free rent, while condo buyers are scoring $80,000 discounts on new-construction luxury homes.

“It’s very significant when you have more than 10% vacancy,” says Cecil Smith, president of the Minnesota Multi Housing Association. “Obviously, there are some rent concessions that are going on, if you will sign a longer lease. … I think that’s a great opportunity for renters.”

Ehrmann Bohnen is not the only one making the move. Along with Deluxe Corp., the art-deco Rand Tower Hotel has opened, the vegan and gluten-free eatery Hark! Café recently arrived on First Avenue, and Tennessee-based discount retailer Dollar General debuted its first DGX concept store in Minnesota on the long-vacant corner of Nicollet and South Fifth Street in January.

None of downtown Minneapolis’ Fortune 500 and Fortune 1000 companies—including Target, U.S. Bank, Ameriprise Financial, Xcel Energy, Thrivent Financial, Sleep Number, and Capella University—have announced plans to leave the city, for now. (Thrivent recently sold its brand-new downtown building for a reported $130 million, and then signed a 20-year lease with the new owners to stay there. “We look forward to being a part of downtown Minneapolis for decades to come,” chief financial officer Vibhu Sharma said in a statement.)

“We feel that the commercial real estate industry is still a strong entity and will continue to be in the future,” says Kevin Lewis, of the Building Owners and Managers Association. “You might see some adjustments, but also companies expand in size, too. It’s a mixed bag right now, but the key here is that everyone is pausing and evaluating their own re-entry with their employees. And then as their leases are coming up, they’re considering what options they have.” Companies are privately discussing options for either downsizing downtown space or moving operations to the suburbs, he says.

In 2020, the city granted permits for nearly $1.8 billion in construction projects, down 17.4% from 2019, according to the Office of Community Planning & Economic Development. In addition to United Properties’ ongoing Gateway project, the city of Minneapolis’ shiny new Public Service Building is barely broken in. The IDS Tower just announced a multi-million-dollar renovation of its Crystal Court for next summer. And Minneapolis Parks and Recreation will soon complete its Mississippi riverfront Water Works project, converting the historic Mill Ruins into a pavilion and restaurant for chef Sean Sherman’s latest Native American cooking concept, Owamni.

The Dayton’s Project, the highly anticipated, nostalgia-driven department store renovation, is nearly done. The project had marketed a socially equalizing design that would merge the laboring class in the street with the suits in the skyways. Ribbon-cuttings have been postponed, however, as the project struggles to sign corporate tenants for its state-of-the-art, pathogen-proofed office spaces. Same for the Andrew Zimmern-curated food hall and ground-level “experiential” retail—all on hold.

“For those in the initial throes of putting together a project for more commercial space, that’s probably been placed on hold, just as people can work through the COVID situation,” Lewis says. “You’re seeing, generally speaking, a pause on new projects from local, national, international investors in our area. That’s probably true throughout the U.S. With regard to our efforts now, as we look at the re-entry of the workforce, it’s really about recovery, rebound.”

Since March 2020, Cramer has been meeting with the HR directors of major companies and the commercial broker community to relay their concerns over COVID-19 and public safety to city policymakers still determined to dismantle the Minneapolis Police Department. There’s tension, Cramer says, because a few companies have indicate that they plan to leave when their leases expire, while others that were considering moving in have struck Minneapolis from their list. Cramer is determined to keep downtown together, and Minnesota looks to do the same—with a state budget proposal with an estimated $1.6 billion surplus for 2022 into 2023.

“We know that there will be some degree of return to office, probably in the latter part of the second quarter, into the third quarter [of 2021], and the downtown economy will begin to reactivate,” Cramer says. “As we move towards that, we need to make smart decisions about keeping the downtown as safe as possible, keeping it clean and green, coming up with the right kind of messaging that can be delivered at the right time. We just need to keep the wheels on the road while we get through this difficult time.”

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