Construction workers are building away in downtown St. Paul just as in downtown Minneapolis — but without the cranes.

The physical makeover of the eastern Twin City comes with a twist: stately old buildings are being preserved and given new purpose, chiefly as offices become homes.

The recent reopening of downtown St. Paul’s post office under the new name “Custom House” epitomizes the phenomenon. In a $100 million conversion, the 17-story building now houses 200 apartments and will soon have a Hyatt Place hotel. It is one of several new residences downtown that are redefining the city’s development trajectory.

“St. Paul is definitely coming into its own right now,” said Jenny Noll, the building property manager.

While Minneapolis saw its North Loop and adjacent Warehouse District repurpose former industrial buildings, St. Paul’s growth harnesses something different: an office market that has struggled.

As downtown buildings aged, more and more became obsolete for modern offices. Last year alone, nearly 284,000 square feet of office space in downtown St. Paul — about the size of two Target stores — was converted to residences, the St. Paul Building Owners and Managers Association says. And more is on the way.

The conversions, and a few ground-up developments, are being driven by demographic and economic forces that helped generate a record amount of construction in Minneapolis two years ago. With a lower-than-average unemployment rate in the state, household formation is the on the rise, and among young people and empty nesters there’s a deepening desire to live in dense and vibrant communities.

Several key infrastructure improvements, including a new light-rail line between downtown Minneapolis and St. Paul, also made downtown St. Paul a more desirable place to live. And there’s an abundance of building sites and former office buildings that are ripe for conversion, offering developers who have nearly exhausted their options in Minneapolis a new frontier.

Madison Equities, which owns 15 of the most recognizable buildings in downtown St. Paul, is converting several. The St. Paul company is partnering with Sioux Falls, S.D.-based Stencil Group to turn the Empire Building at 360 N. Robert St. into an art-themed boutique hotel. They are partnering on a potential conversion of the Degree of Honor building at 325 Cedar St. into apartments or senior housing. And Stencil on its own plans to convert the former Pioneer Press building at 345 Cedar St., into 154 market-rate apartments.

But with housing projects outpacing commercial developments, and conversions gobbling up office space, St. Paul leaders are now focused on attracting employers and retailers so that residents have a place to work and shop — and a reason to stay.

“It’s important to make sure that we have that balance,” said Rebecca Noecker, St. Paul’s Second Ward City Council member. “We don’t want St. Paul to become a bedroom community.”

Jim Crockarell, owner of Madison Equities, is a champion of preserving St. Paul’s smaller-city charm, but he is also concerned about the lack of companies coming into the city’s core and the exodus of smaller companies, looking for free parking, to the suburbs.

“We’re not trying to be Minneapolis, but the danger here is with so many people moving in, we need to have enough offices for people to work in,” Crockarell said.

Conventional wisdom among urban revivalists holds that shops and commerce will follow a booming residential population. Crockarell says this is already bearing out in downtown St. Paul with new restaurants acting as the retail forerunner. He hopes a general merchandiser that offers basic necessities comes next. Anecdotally, he sees many downtown St. Paul residents ordering toilet paper and other basic household goods off Amazon to avoid the hassle of driving to the suburbs or down Interstate 94.

There has been some ground-up new construction, including the Penfield, an apartment building atop a Lunds & Byerlys grocery store that was built a few years ago on the edge of downtown. Its success became a catalyst for other projects.

Apartments are rising where the now-razed Seven Corners Hardware stood.

One of the biggest — and potentially most transformative — projects underway right now is the Oxbo, a six-story, mixed-use development that will have 191 apartments atop 11,500 square feet of retail space. The project is being built at the corner of W. 7th Street and Kellogg, and it replaces Seven Corners Hardware, which closed in 2014, across from Xcel Energy Center.

“This is really a great live-work-play location,” said Matt Rauenhorst, vice president at Opus Group, which is building it. The Minnetonka-based developer also has rights on a site across the street, where there’s a plan to build more housing and a hotel.

Nick Murnane, also of Opus, said that there’s pent-up demand for housing in the area and that the company is considering other sites downtown. And while there are far more sites available in downtown St. Paul than in Minneapolis, he said that they aren’t always less expensive and that the competition for those sites has doubled in recent months.

“It’s that resurgence that we’re seeing across the country, that shift to an urban experience,” Murnane said.

Crossing the river

Opus is just one of several Twin Cities-based developers to have crossed the river with their first project in St. Paul. Minneapolis-based Schafer Richardson, for example, has proposed its first St. Paul development, a 175-unit apartment building on a surface parking lot that’s just a block to Irvine Park and a couple of blocks to the Mississippi River in the West Seventh area.

The company is not currently pursuing other sites in St. Paul. “Depending on how this opportunity unfolds, we would certainly look at other sites in St. Paul in the future,” said Maureen Michalski, director of development for Schafer Richardson.

Much of the development that’s happening now is being done with connectivity to the Mississippi River in mind. The city is working on plans to build what it calls the River Balcony, a 1.5-mile overlook and pedestrian path that would stretch along the bluff from the Science Museum to Union Depot with several river connections along the way. The first phase would be built in front of the Custom House.

St. Paul city leaders are growing more confident about the city’s ability to attract residents and developers. Noecker said that for years the city has been generous with developers by offering big incentives to bring projects to town, but with growing interest in the area, that’s no longer required. That’s especially important given that 30 percent of the buildings in her ward are institutions that are off the tax rolls.

As for attracting new residents, St. Paul boosters feel the city offers old-world charm that appeals. “In St. Paul,” Crockarell said, “you can get your arms around the city.”









