4 min read March 2023 — Dan Collison, director of business development and public affairs of Sherman Associates, in an interview with Invest: talked about leaning into the new urban vision of right-sizing, the importance of downtowns and how the shift towards sustainable urban development is impacting the real estate market.
What have been some of the key highlights for the firm for 2022 and where do you see your priorities lined up for 2023?
Last year, Sherman Associates had three significant grand openings and a ground-breaking that point to the larger story of our work over the last 43 years, and who we are becoming. I joined the company in May 2022 and during my second week at work, we celebrated the grand opening of The Scenic, which is a market-rate property just south of downtown St. Paul. I bring this up because our firm has evolved over the past five to ten years to continue to go deeper with public partnerships at the city, county, and state levels to deliver a vast range of mixed-income and a variety of housing types on larger sites. If you look specifically at The Scenic, it is part of a multi-phase initiative that reclaimed downtown St. Paul riverfront space. In addition to The Scenic, we worked very closely with the City of St. Paul on land use to deliver a mixed-use project — West Side Flats — with 142 market-rate units, 36 affordable apartments and 6,185 SF commercial space. During COVID, Sherman closed on financing and started construction on Verdant, a fully affordable project, which opened at the same riverfront site in October 2021. It is a very special project because it is the first certified, mid-rise, Passive House multifamily building of this construction type in this climate zone which is a specific approach to construction that is a performance-based building certification that focuses on the dramatic reduction of energy use for space heating and cooling and represents Sherman’s commitment to environmental sustainability. About a year ago, when Sherman Associates compared energy bills between Verdant and a similar apartment it built during the same time frame, Verdant’s utility statements came in $58 to $68 less per month.
How do you see the rent policies impacting the market within the city?
Rent regulatory policies have a negative impact on so many levels in both St. Paul and Minneapolis. In Minneapolis, this matter of concern has been my number one focus on the public affairs side of the business for the last two to three months. We have had meetings between Chris Sherman, our president; the mayor; and every council member of Minneapolis. There is a lot at stake for developers who have invested hundreds of millions of dollars in new housing, including affordable housing, and it was a disappointment to have a faction of a city-organized rent stabilization workgroup hold a press conference in December 2022 declaring that a flat 3% rent control-no exceptions was their work group’s position. This was especially surprising considering the devastating effect of a similar policy in St. Paul that needed to be immediately amended to avoid a precipitous drop in housing investment, production, and preservation.
This serves as one example of why policymakers and developers need to work together. At Sherman, we work in regulated environments. Rent controls are a national trend and we acknowledge that it is not going to stop. So, our approach is to work with elected officials and talk about their goals for housing production and affordable housing and to share how the development community can be best positioned to meet those goals. Most importantly, we communicate that one-dimensional policy mandates placed on multi-dimensional market realities will have a dramatically negative impact on housing affordability overall.
While the flat 3% cap will not likely see the light of day, there will likely be some policy put in place, so we are urging policymakers to be realistic and flexible. For example, we have approximately 600 units in St. Paul and nearly 3,000 in Minneapolis with more in our pipeline. We’re not planning on stopping new development and continued investment in our properties, but the rent policies are difficult to navigate and in some cases, make financing on some projects very difficult. We are engaged with elected officials in both St. Paul and Minneapolis to talk about policy improvements and the need to understand how the erosion of the tax base works in connection to multi-family housing. Additionally, we discuss a well-documented reality that regulated environments result in 87% or 87.5% of investors simply leaving the market. So, in it all, we are trying to come up with potential solutions that both incentivize developers and hold them accountable around such public concerns as rent gouging.
What are some of the key challenges that you are seeing in the industry right now?
Like other developers, we have had supply chain issues with everything from power transformers to countertops, washers and dryers. Some of these pressures have abated. Yet, “anything with a chip” is still around 52 weeks out. We believe improvements in supply chain matters relate to a combination of a slowdown in construction as an outgrowth of the rising interest rates and the higher cost of debt for projects. On the human resources side, however, talent recruitment remains a persistent challenge because of many factors. Not the least of which we are going through a generational change as many in the baby boomer generation are retiring. So, we consistently need more facilities and operational staff across the portfolio.
How do you see the downtown area being revitalized?
I feel that more leaders across all sectors need to step up to provide the kind of leadership that can bring the outcomes that benefit everybody, specifically for downtowns. I have a huge passion for downtown Minneapolis because I began my business career as a volunteer for a downtown Minneapolis neighborhood association that was initially small and struggled to remain engaged until $3 billion came to the neighborhoods of East Downtown Minneapolis (East Town). At that moment my career grew with the association and all of the success in that area. The incredible new development felt balanced with new commercial, housing, affordable housing, riverfront redevelopment, public parks, transit and a new stadium. However, it came really fast and was only just beginning to mature when COVID hit.
Now, in the later stages of the pandemic, most downtowns are entering a new time of re-envisioning, including downtown Minneapolis. The CBD in Downtown Minneapolis has a lot of pressure points but even more opportunities to convert vacant offices to residential, re-imagine retail and street-level experiences, and to be relentless in reminding the world about the amazing vibrancy that exists here—most importantly with the growing and diverse residential population. Downtown housing is where Sherman Associates is most focused and will be part of leading the next chapter of downtown Minneapolis into its exciting future.
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