What's the Future of Small Business in Rochester? Let's Discuss Commercial Real Estate.

Rochester’s Realty Growth Inc. (RGI) is “small business at the core.” The family owned commercial real estate (CRE) firm was started thirty-nine years ago by Ed Pompeian and is staffed by a young team. RGI CRE agents Bucky Beeman and Dylan Carty value working with businesses from the ground level up and aim to help small businesses find the space they need in the developing city.

With the growth and evolving needs of the city, the youthful RGI team sees increasing demand for commercial properties around town. “We need it all,” explained Carty.

The city has particular demand for multifamily housing, office, and industrial space. Carty says the need for apartments developed first and will likely be fulfilled first.  “You can fill an apartment much quicker in most people’s minds than you can fill an office space,” he explained.

Right now, approximately 5,000 apartment units exist in Rochester: 1802 that are currently leasing, 860 under in construction, and 225 in the planning stages.

Carty believes that the demand for multifamily units will eventually reach a plateau, allowing focus to shift to other CRE needs like office and industrial space, which he says are “two types of [CRE] that I’ve seen a lot of people having a tough time finding multiple options for.”

Downtown Rochester is certainly the hot commercial area, filled with speculation about new developments and hype surrounding the Destination Medical Center (DMC) district buildouts. But Carty, Beeman, and the RGI team see growth in other areas of the city that may not be receiving as much attention.

For example, in northeast Rochester, the extension of 55th Street to US Highway 63, “changes a little bit of accessibility coming down 63,” Beeman explained. He also sees potential for residential development between Century High School and Highway 63.

Southeast Rochester is seeing change as well, with new retailers setting up shop and additional land to be developed around Rochester Community and Technical College.

Carty and Beeman note that the West Circle Drive and southwest Rochester office and retail sectors are begin to pop. These were the recent areas in Rochester where people began to see dirt moving, development start to happen, and new businesses begin to open their doors. Expansion in these sectors was in the planning stages since the early 2000s, with infrastructure laid and the areas readily accessible, but was halted by the economic recession. Now, development is in full throttle.

“But with that you see prices going up in Shoppes on Maine and West Circle Drive. So it’s going to push people to those northeast and southeast areas where we’ve kind of been forgotten about,” Carty explained.

Since people started to see actual development occurring around DMC- holes being made and steel frames going up- the RGI team has observed more people stepping off the sidelines and looking to become more involved than two years ago.

“The phones are ringing to a little bit different tone,” Carty explained. “I think we still have all those businesses who continue to grow in our market and expand and look for bigger spaces. But we’re seeing more people who’ve just heard the DMC talk and want to be a part of it and play the game.”

Beeman says DMC is great, but balancing growth with affordability can be sticky. Businesses see a timely opportunity to expand into the area with the increased visibility of Rochester and future speculations for the city. But this heightened demand- whether real or perceived- directly impacts the affordability of both apartment and office space.

Beeman still sees issues with the amount of affordable multifamily housing in Rochester. But this effect spills over into the non-residential sector as well. Because of the size and proposed impact of DMC, Beeman and the RGI team are seeing sellers ask land prices on pace with that in downtown Chicago.

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“It’s difficult to get people to understand it’s probably not achievable to reach that number from some of the buyers or tenants that we’re working with,” Beeman explained. Plus, the increased costs of operating within new or newly constructed space in downtown has made it difficult or nearly impossible for small businesses to operate in this sector of the city.

Because of these pressures, the RGI team is instead seeing small businesses develop in core neighborhoods around downtown, like the Cooke Park District, in the Forager area on 6th Street NW, and by Civic Center Drive and North Broadway. This allows businesses to be within reasonable distance to downtown to still receive high traffic flow and visitors while avoiding the high price tag of operating in downtown.

Beeman suggests that “adaptive reuse,” or revitalization and repurposing of old buildings for modern use or new tenants, is generally more affordable for small businesses, particularly in the downtown area.

There is certainly much focus, and sometimes even controversy, surrounding large developments in town like the 156-unit Opus Group and Titan Development apartment complex that will pop up at 1st Avenue SW and Broadway. RGI owner Nick Pompeian is the local spearhead for a $100M luxury apartment buildout with Alatus near Saint Marys. University of Minnesota Rochester has plans to expand.

Amid all this talk, less grandiose projects are also in the works. Plans that, Carty explained, could have real impact on community and neighborhood development and have much local involvement. These projects include revitalization of Goonie’s Comedy Club, which closed its doors last July. Redevelopments are occurring in a core neighborhood around Mayo Field, including a recent ribbon cutting at the revamped Lofts at Mayo Park. Plans are also in the works for revitalization of Third Avenue Lofts by Soldiers Field Park.

“These smaller projects can make a huge impact but we don’t always bring attention to those. But it’s amazing how they can affect our community in such a bright way,” Beeman said.