MINNEAPOLIS-When several major tenants vacated a large medical office building near Minneapolis in a short time frame about four years ago, the occupancy rate dropped to around a troublesome 50%.

One of the tenants, Twin Cities Orthopedics, left a major chunk of space in the 6363 France Medical building to move into its own, newly built complex a block or so away.

It was at about that time when the landlord, Minot, ND-based IRET Properties, hired Minneapolis-based Davis Group to provide leasing services for the building, located on the campus of 352-bed Fairview Southdale Hospital in the Minneapolis suburb of Edina.

Four years later, the Davis Group recently reported that the building is close to being filled, with just one 1,200-square-foot space remaining. Jill K. Rasmussen, a principal with the firm, says that the small space has a probable tenant lined up, meaning the building's occupancy will soon be at 100%.

“Our strategy was to find new tenants and to renew and expand the leases of the existing tenant base,” says Rasmussen, an experienced healthcare real estate professional in the Twin Cities area of Minneapolis and St. Paul. “Among the tenants that we brought in was a behavioral health provider … that took 24,000 square feet. Plus, (the hospital) expanded its space in the building, adding cardiac recovery services and a sleep center.”

With the lease-up almost complete, IRET is embarking on a common area renovation.

“The plan was to do the lease-up strategy first,” Rasmussen notes. “Then, when the tenants were in place determine what the needs of the tenants were and move forward with a renovation. Buildings such as this have to compete with newer construction, so they need to be kept up to date to stay relevant.”

The market for MOB space around Fairview Southdale has certainly tightened up, Rasmussen comments, as IRET's four buildings on the campus have very little space available.

“For a while, there was plenty of uncertainty surrounding healthcare reform and other factors, but providers are starting to move forward with their strategies,” Rasmussen says of the Twin Cities market. “There's still some uncertainty remaining, and getting tenants to sign leases is still not all that easy. But things are certainly picking up.”

As an example, the Davis Group recently proposed two separate MOB projects in the western Minneapolis suburb of Minnetonk, and plans to start another soon in the St. Paul suburb of Vadnais Heights.

The larger of the two Minnetonka buildings would be a 60,000-square-foot, $17 million facility. The Davis Group, which completed eight MOBs in the past three years, has been working on the plans with the two-hospital North Memorial Health Care, which would occupy about half of the building. The ownership structure has yet to be figured out, Rasmussen says.

The other building planned for Minnetonka would be a 30,000 square foot MOB occupied by Minnesota Eye Consultants PA.

John B. Mugford is the Editor of Healthcare Real Estate Insights™, the nation's first and only publication totally dedicated to covering news and trends in healthcare real estate development, financing and investment. For more information, please visit www.HREInsights.com.