Vacant offices to hot condos?

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November 12, 2002 // UPDATED 1:33 pm - April 30, 2007
By: Kevin Featherly
Kevin Featherly

Developer will convert an empty office tower into housing in the heart of Downtown.

Larry Abdo has a dream he thinks he can sell: condos, converted from a postwar office building dead in the heart of Downtown.

Abdo, a Downtown resident who owns Minneapolis-based developers Anxon Inc., closed last week on purchase of the squat, multi-tiered, art-deco former Firstar Building that sits vacant on the southwest corner of South 6th Street and Marquette Avenue.

Ignoring warnings about today's soft real estate market -- indeed, he says, refusing to listen to any advice at all -- Abdo spent roughly $2.1 million buying the building. Now, he said, he plans to spend another $15 million to gut the 1949 structure and renovate it to create 6 Quebec, a condo complex that would contain 34 units priced from $300,000 to $1.5 million.

He said he is leaping into the development and has secured bank financing after several rejections, without having pre-sold a single condo.

"I think it's edgy," he said. "But we love our city."

He also said he plans to do it all privately, without government subsidy. It is, he admits, a huge risk.

"The risk is that you pay for the building -- we don't have a tenant -- and if you sell the property, you probably take a huge loss on it," he said.

Nonetheless, he said he did no risk analysis when he delved into the project. It's the equivalent of walking a tightrope, blindfolded.

"I never looked at this building as something that's not going to work out," he said. "The analysis I did was, I walked the city three times, from the Convention Center to Washington Avenue, and from 1st Avenue to 2nd Avenue."

Those walkabouts gave him a sense of what kind of housing the area could use, he said. He also rented a Downtown apartment at South 9th Street and Marquette with his wife Caryl; together the couple spent a year attending weekend events, attractions and nightspots.

He said he witnessed the dense pedestrian traffic along 1st Avenue late at night, and saw how easy it would be -- in theory, at least -- to sell condos to young professionals who want to live near the heart of the action.

"We really think we are adapting to what's happening in the city," he said.

What's happening, according to Abdo, 55, is that a younger generation acts differently than his own. They aren't taking their dates out for a steak at Murray's, for example; they're hitting the bars. That, of course, involves alcohol. And for the young professional set, Abdo claims, that puts a premium on Downtown housing where you don't have to drive back to the 'burbs from the bars.

"We believe that all the Downtown housing becomes a premium because you can just walk there and walk back," he said. "You are just three blocks away from all that action Downtown has to offer."

Abdo is a trim man with a short pile of curly gray hair who tends to march as he speaks, emphasizing his points with whirlwind hand gestures that signal his enthusiasm. He is clearly enthusiastic about 6 Quebec.

Still, he is not simply operating on dreams and enthusiasm.

He is already leasing out skyway space on the second floor of the old office building, a section he plans to tear up later to add more room for shops. Currently, that space is as vacant as the rest of the structure.

"We'll have people selling goods and services and food by summer out of the skyway," he said. "And we're hoping by March of 2003 that we'll know exactly what our construction and move-in schedule will be for our city condos."

A trend in the offing? Abdo's vision may be the first time a newer office building has been converted into housing. So, will converting dead office space -- accumulating in a slow economy -- to supply the burgeoning Downtown condo market become a hot new trend?

Abdo thinks it's possible, especially as the city's nightlife grows with developments such as Block E. He also cites light-rail transit -- which will run a block away from 6 Quebec's door -- as a way to cart busy, traveling executives from the airport to homes near their headquarters.

However, George Karvel, a University of St. Thomas real estate professor, said it is impossible to gauge a trend based on conversion plans for one small office building.

"Is it a trend? Twenty-four units hardly makes it a trend," Karvel said. "It would take a tremendous amount of housing construction to create that."

Still, Karvel said, the market for housing is not nearly as soft as the market for office space, or even apartments, which are suffering Downtown from the low-interest loans driving people to home purchases.

"Demand for housing has continued to be strong," he said. "Prices have been very strong as well. From that standpoint, more housing as a general proposition is a reasonable idea."

The problem is in the area of high-end housing that Abdo wants to target. Karvel thinks the developers will be taking a big chance by selling upper tier units at $1.5 million, because that market has fared poorly in a bad economy.

There has been demand for high-end Downtown housing in cities around the country, Karvel noted. But there is no way to know if that trend can carry in Minneapolis until Abdo tests the waters.

"Personally I'm more comfortable if you build at price points where more people can afford the units," Karvel said. "I'm more comfortable if you're talking $300,000 or $350,000 than if you're talking a million-and-a-half."

Abdo, incidentally, did say he is willing to adjust his pricing to reflect what the market will bear.

One plus for the developer, Karvel said, is that the 6 Quebec building will have no real direct competition. There is a massive 330-unit condo complex being built in Elliot Park, but that is some distance away from the old Firstar building. Other condos rest on Downtown's fringes.

Regardless of what happens, Karvel pointed out, there is only one potential loser: Abdo and his company. The units he builds will exist regardless of whether the risk pans out for Anxon; the units will be sold eventually. It's a fact for which struggling Downtown retailers will be grateful, Karvel said.

"It's very difficult to judge whether [Abdo is] creating a white elephant or not," Karvel said. "If he's wrong ... he may lose a ton of money. But the units themselves will ultimately sell on the market at the value the market deems appropriate."

Abdo wouldn't argue. He knows he is rolling the dice transforming what he refers to as "the little building that could."

"We have nothing that guarantees that this building is going to work," he said. "It's just a true entrepreneurial approach."

He continued: "We went ahead anyway because the location is phenomenal, there is cheap money available for housing, the skyway we know will be solid, and we can attract -- we believe -- a segment of our population that wants to be really Downtown.

"This is really Downtown. This isn't 12th. This isn't Washington Avenue. This is Downtown."

Why 6 Quebec? You might wonder about the name developer Larry Abdo picked for the soon-to-be-former Firstar Building: 6 Quebec. Where does that come from?

Turns out it's an Abdo family obscurity. In years past, Larry ran an ice company, and for a time was busy traversing the Midwest acquiring smaller ice businesses. According to Paul Abdo, development manager at Anxon Inc. and Larry's son, these business trips were always made on the same plane.

The twin-engine aircraft's call numbers were N3316Q, and when it was approaching an airport for a landing, the control tower always called to it with the code, "November 3-3-1-6 Quebec."

After a few visits to the same airport, the plane's pilot would shorten the code name to "6 Quebec," as in, "This is 6 Quebec requesting ..."

"So my sister and I would just call the plane 6 Quebec," Paul Abdo said.

So the new name for the old Firstar building is mostly family nostalgia. But Paul Abdo said there is a secondary reason for so naming the building, which even Larry Abdo regards as something of a fly-by-the-seat-of-your-pants idea.

"This project is my father\'s dream in the sky, so he gave it the name," Paul Abdo said. "When all of the architects heard it, they thought it was sexy and romantic, so we kept the name."