This Space for Rent

Norm's miracle: How long before downtown St. Paul recovers?

Last week, a coterie of St. Paul bigwigs--including Senator Norm Coleman, Mayor Randy Kelly, and Bob Naegele Jr., owner of the Minnesota Wild--engaged in a little civic chest-pounding. Specifically, the group was championing a study of the purported economic benefits from the publicly subsidized construction of the Wild's home, the Xcel Energy Center.

Commissioned by the St. Paul Area Chamber of Commerce, the study estimated that the $175 million arena will pump $103 million into St. Paul's economy this year alone. That it has created 660 full-time jobs. That it generates $20 million in additional household income in St. Paul alone.

The study served as a ringing endorsement for the most notable feature of Norm Coleman's tenure as mayor of St. Paul: the public-private partnership. So it was fitting that Coleman and the gang chose to hold their press conference at Fhima's restaurant, itself the recipient of considerable taxpayer generosity under Norm. Not only did the downtown eatery receive a $700,000 grant to open shop in St. Paul in the summer of 2002, it's in the Lawson Commons office building, a beneficiary of the largest taxpayer subsidy in the city's development history.

Despite the chamber's report, less rosy numbers indicate a higher cost for such spending. While estimates differ, it is generally agreed that the city's central business district is now experiencing its highest office vacancy rate ever, at about 30 percent--worse than the metro-wide vacancy rates (estimated at 19 percent this summer) or downtown Minneapolis (21 percent).

Not surprisingly, skeptics like Progressive Minnesota director Ben Goldfarb are openly suspicious of the financial conclusions of the Xcel arena study. "Time after time, folks who study this--and who aren't paid by the Chamber of Commerce--have demonstrated that stadiums don't bring a net positive economic impact to a region," Goldfarb notes. The study, he theorizes, is aimed at greasing the skids for an even bigger publicly financed deal: a new ballpark for the Twins in downtown St. Paul. (Despite the team's latest playoff run, that's probably a long shot: In a much stronger economy, St. Paul voters resoundingly rejected another Twins stadium plan in 1999.)

But whatever one thinks of the Xcel deal or a prospective Twins stadium, there's mounting evidence that some of the other large, publicly subsidized projects from the Coleman days have left an increasingly problematic legacy in downtown St. Paul.

For instance, Class A buildings--top of the line offices which a few years back were leasing space for $35 a square foot--have cut their rates dramatically; some, like Lawson Commons, are now said to be subleasing for as little $10 a square foot. Owners of class B buildings, which make up the majority of the downtown market, are dropping their rents accordingly. And many Class C buildings--older, less amenity-laden--are no longer turning profits. As a result, more than 600,000 square feet of those structures are now being converted into apartments and condos.

"Downtown retail is in such bad shape in St. Paul that if you can get operating expenses you're doing all right," says John Manillo, a commercial real estate broker and owner of downtown's Gilbert Building.

Obviously, the slumping national economy plays a large role in the downturn. But, critics like Manillo contend, the high vacancy rates in St. Paul have been made much worse by a glut of sweetheart deals between developers and City Hall in the late 1990s.

Lawson Commons is a perfect example. In 1999, St. Paul built the gleaming, 13-story office building to lure Lawson Software across the river from Minneapolis. The city paid for the $110 million project. Then city leaders turned around and sold everything but the parking ramp and 15,000 square feet of street-level retail back to the developer, David Frauenshuh, for $54 million.

It was an unprecedented deal, but one that boosters promised would further revitalize downtown--a favorite Coleman theme--and add 1,000 well-paying, high-tech jobs.

But that was before the tech bust. On September 22, Lawson announced its third major round of layoffs in less than two years. Last year, the company eliminated some 345 positions. This time, 82 employees--mostly in St. Paul--got pink slips. According to several news reports, most of the jobs are being outsourced to India.

In its deal with the city, Lawson Software is obliged to remain in the building for a full 15 years--a prospect that's dimming. "The fear I have is that Lawson doesn't make it," Manillo says, noting the downsizing. "If Lawson doesn't hold on, that's a problem."

Manillo is not alone in his concern. Despite optimistic projections from the company--and a slight recovery in stock value following a precipitous decline--Lawson's future hardly seems assured. After the last round of layoffs, one investor chat site was filled with dire predictions--and a little bit of gallows humor. One poster offered the following advice:

Lawson employees, get out while you can! Otherwise your employer is likely to spring a little surprise on you in the future.

Manager: Knock-knock?
Employee: Who's there?
Manager: Not you anymore.

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