March 2023 Meeting

We had a great Shareholder Meeting on March 4. Everyone in attendance was engaged, we had great conversations and it was good to catch up with everyone.

Topics of discussion included what makes a good shareholder, 2022 financial review, current and 2023 market conditions, upcoming events in 2023, how to engage G4, the family website and getting to know our tenants.

Did you know that our Top 10 Commercial tenants (meaning they pay us the most in rent) account for 49% of our income!

Familiy Council News

The Family Council had a meeting to debrief the family meeting and to set a focus for the rest of the year. We are hard at work planning our upcoming events - such as a May family Bowling event, July BBQ at the Simpsons as well as Arrowwood. Important agenda items for Arrowwood include engaging G4 and how do we do that, Philanthropy and Business Education. Is there anything you think would be a good topic for Arrowwood?

Tenant Spotlight

Valley Square and West Eco Systems

The historic rapid rise in interest rates and slowing economy are stressing many real estate sectors; and office space is perhaps the most stressed of all. Technology and the post-Covid work-from-home movement have made large parts of the traditional office market obsolete. The office space that is still relevant in today’s market is driven by a strong location, comfortable scale and amenities.

Valley Square, located in Golden Valley, is the only “pure-play” office building in the portfolio. It has fundamental qualities, that we believe will keep it relevant for future office users. One of its chief strengths is its high walkable score having many diverse amenities within walking distance. Second is its comfortable scale at slightly over 37,000 square feet in three stories. Both its location and size make it desirable for professionals seeking a comfortable environment for their staff and clients. We are also reinvesting where necessary to keep the building fresh and competitive in the market place.

A key driver of strong investment performance is keeping properties full by renewing and even expanding existing tenants. At Valley Square, we have recently renewed two dental practices and a third-floor tenant, West Eco-Systems, to long-term leases.

West, which we highlighted at the March family gathering, not only renewed their lease but almost doubled their space and is now the largest tenant in the building at just under 6,000 square feet. They signed a new 7-plus year lease and, with strong growth prospects, may take even more space on the third floor. We are now well underway in building out their expansion space.

Apartment Updates

Currently, we have a 3% vacancy rate at the apartment buildings. We have 7 vacancies total. 2 of those are at Barcelona, 4 at WVV and 1 at Sterling Manor. Ultimately, as I mentioned in the last newsletter, we have had a large number of deaths at WVV and/or those moving into assisted living. We have a very aging population at Westview. Our hopes in the Spring are to host a Open House to drum up some interest.

In the meantime, since we have so many vacant units at WVV, we thought this would be a good time to start thinking about making some in-unit improvements. As we discussed, WVV is 43 years old and it is beginning to show its age. WVV is a building we want to hold onto for the next 100 years, so now is a great time to start this. We are looking into Architects and local contractors to assist us with apartment renovations as well the common areas.

Commercial Updates

Office/Warehouse vacancies continue at historically low levels in the broad market (2.6%). Leasing activity and showings, however, have slowed recently as tenants prepare for an anticipated recession. Deal activity within the portfolio, however, continues to happen with new leases and renewals at much higher rates than current leases, especially in the industrial buildings.

Cambridge leasing activity is relatively strong. We are in the process of renewing a couple of leases at Bury Drive, Speed Pro and USA Security. Speed Pro, a commercial printer, leases approximately 5,600 square and is extending their lease for another five years.

USA Security, a commercial security service company, is renewing their 10,000 square foot lease as well as expanding into an additional 6,000 square feet of space for five years, bringing Bury Drive to 100% occupancy. Moreover, both the Speed Pro and USA Security lease transactions were completed with few tenant improvements.

We are also close to finalizing a deal on 5,500 square feet at Westview Business Center (Fast Signs) to replace a tenant who is consolidating and leaving their present space early (Lube Tech).

As for vacancies, we have a 13,000 square foot space becoming available at Plymouth Tech 1 on May 1st (Turk production space). We also have a 5,000 square foot space at Parkers Lake becoming available on June 1st (Medical 21) and a retail location of about 2,700 square feet at Chanhassen Ridge.