Once upon a time, developers were racing to build office towers. Now, brokers are working over time to maximize tenant occupancy for profit-minded owners trying to avoid the distress that has plagued much of the commercial real estate industry.

The Minneapolis office market has seen its share of foreclosures and deeds in lieu in the depths of the bust—and the ripple effect is still being felt. In January, Fifth Street Towers, a 1.1-million-square-foot office complex in Downtown Minneapolis, went back to the lender via deed in lieu.

The distress sparked a shift toward a value-add approach that aims to drive lease renewals and attract new tenants in the highly competitive Twin Cities market. Accenture Tower, a 621,193-square-foot (gross) office tower in the heart of Minneapolis, is perhaps the best example of how good facilities management can maximize tenant occupancy and, therefore, owner profitability.

"We've lost only two tenants in the past five years," says Jim Kenny, a vice president at CBRE and a member of the Accenture Tower leasing team. "One downsized and the other was a victim of the economy. But ownership understood where the project was in its property lifecycle and decided to make changes to reposition this 1987 building."

Accenture Tower rises 31 stories and offers an underground, four-level parking garage. The tower is connected via a skyway to the 701 Building and the Campbell Mithun Tower. The class A facility was built with all the modern office trappings tenants could expect, from a bank and a dentist office to a shipping center and a car wash. Restaurants and retail also call Accenture Tower home.

But after more than 20 years in the market, CSDV-MN LP (an entity set up by CalSTRS as owner of the building), decided it was time to modernize the asset with a mind toward maximizing tenant occupancy and profitability. While some building owners were handing back the title deeds to lenders, CSDV-MN was racking up millions of dollars in contractor assignments to position its building for growth.

Indeed, CSDV-MN started investing in the building at the nadir of the commercial real estate bust in 2009, adding a conference center and a fitness center to the property. Ownership also spent greenbacks to pursue green building status. The US Green Building Council awarded the asset LEED Silver certification for an Existing Building: Operations & Maintenance in June 2009.

Those upgrades helped Accenture Tower win BOMA International's Outstanding Building of the Year award in 2010 in the "500,000 to One-Million Square Foot" category. But ownership didn't rest on its LEED-certified, award-winning laurels. Since then, ownership has launched about $13 million in upgrades, including common areas, remodeling all the retail storefronts, restrooms, railways and green space.

"We undertook multimillion-dollar renovations at a time when no other office building was investing," says Bob Traeger of CBRE's Asset Services Division and general manager at Accenture Tower. "Ownership decided to invest now so we'd be ready when the market turns."

One of Accenture Tower's most ambitious investments is the just-opened sky tower. CSDV-MN acquired the one-acre parcel in front of Accenture Tower from Opus Development Corp. last summer for $3.2 million. That gave ownership room to construct a skyway from the asset across Third Avenue to the neighboring building, essentially moving the tower closer to the urban core by offering a direct connection to Downtown Minneapolis—a huge amenity in the snow-laden Twin Cities that actually could make or break a deal.

"We were connected by two skyways to other buildings but that wasn't enough," Traeger says. "We were cut off prospective tenants' short list many times because we were perceived as not being directly connected to Downtown. Now, we have a direct connection to what is considered Main and Main."

The total cost of the project was about $6.5 million, nearly $4 million less than it would have cost during the construction boom. Accenture Tower's occupancy rate has been hovering around 80% for the past few years. With the skyway complete, Traeger expects occupancy to start rising and is counting on a bump in rental rates with lease renewals and new deals over the next year.

"Within 20 days of opening the skyway, we started getting more prospects," Traeger says. "See, we're not promising upgrades—we've already done them. When the market recovers, we won't be getting ready—we will be ready. Also, ownership will get its investment back if it ever sells the building. In the meantime, within a year to 18 months we'll realize the impact of this investment. We expect to deliver greater profits to ownership by raising the rent and occupancy."

The skyway may be the tipping point, but Accenture Tower's ownership didn't stop with exterior improvements in its most recent phase of renovations. Ownership has also worked to make interior upgrades to the first and second floor lobbies (read: new storefronts, new lighting, new security, new information desks and new furniture) that have changed the look and feel of the interior.

With the co-working trend on the rise, ownership is striving to make its lobby a welcome environment for collaborative, impromptu meetings. On the outside, it is also leveraging a unique feature: green space. Beyond the government building Downtown, Accenture Tower is the only property with green space in the CBD.

"We're exploring organizing events like Tunes at Noon, where musical groups come out once a week and hold concerts on the lawn," Traeger says. "We're toying with concepts like installing a putting green to draw more people to our building during the daytime. We want to be community-minded."

The early impact of CSDV-MN's Accenture Tower upgrades is best understood by putting the class A building's performance into the context of the local market. The Twin Cities are recovering, slowly and steadily. The fourth quarter was the market's third consecutive quarter of positive absorption—23,000 square feet, according to CBRE. The Minneapolis CBD was the best performing market—and the class A sector led the charge. There's no spec construction underway (though the Mozaic, a mixed-use project in Minneapolis' Uptown area, was delivered in January, adding 66,000 square feet of office).

Despite eight quarters of increasingly good market news, however, overall leasing activity slowed in Q4. The reason: businesses are tentative about taking on new space in fear of a double-dip, driven largely by the European debt crisis. The coming presidential election only adds fuel also breeding uncertainty about the economy.

As of Q4, the vacancy rate for class A office space in the Minneapolis CBD was 13.5%, according to CBRE. Accenture Tower's vacancy rate has held steady at roughly 20% for the past several years. But Traeger and Kelly are expecting the new upgrades to drive occupancy above 90% over the next 18 months, outperforming the local market.

Beyond the economy, there is another threat: the alternative workplace strategy movement. A January Cisco study reveals virtual workplaces are en force and the demand is growing in the face of innovative mobile technologies that allow employees to work from anywhere. And CoreNet Global is predicting the "Bring Your Own Technology" trend will impact the size and design of the corporate office. All this makes tenant retention vital to maximizing occupancy and profitability.

"From a tenant retention standpoint, we have to remain on the cutting-edge," Traeger says. "You don't want someone looking at another building because it has the newest perk. Buildings that don't innovate will have to drop their asking rates; we plan to grow ours."

The average asking rental rate for class A office space in the Minneapolis metro is $13.59. Accenture Tower's asking rent range runs from $14 to $20. At a time when rates have been flat or slightly declining, Accenture Tower is incrementally raising rents and defying market norms.

Kelly says existing tenants are responding well—renewals are healthier than in previous years. And Traeger figures the LEED certification alone allows Accenture Tower to fetch an additional 50 cents per square foot over non-LEED buildings in the Minneapolis CBD. That said, Traeger understands CBRE can only push so far. Although the building is aiming to drive rents toward the higher end of the spectrum, "the market is the market."

Of course, it's still a tenant's world in Minneapolis, and free rent, aggressive lease rates and notable tenant improvement packages are still the norm. With at least $12 million invested in a three-phase improvement project over the past several years, ownership is in a good position to drive profitability by offering fewer concessions than competing office buildings.

"The standard here used to be one month of free rent for every year of a new lease term," Traeger says. "We're seeing that tone down. You might only get three months of free rent on a five-year deal today. A better product helps you achieve that. And we haven't even started phase-four improvements yet, which center on elevator upgrades. Ownership is committed to investing in value-adds."

At the end of the day, Kelly is confident that the ongoing investment will increase occupancy at a pace that outperforms the market, drive rent increases on new deals and renewals, spur faster lease-up times and result in overall tenant satisfaction that will help retention for years to come.

"Tenant retention has never been a problem," Kelly says. "Now, the underwriting percentage is going to skyrocket. This building was once perceived as off-thebeaten path but now, with the direct skyway link and all the amenities, tenants don't even need to leave the building because everything is right here. As we enter a recovering market, we're sure to capture more than our fair share of tenants."

Building Name: Accenture Tower

Location: Minneapolis, MN

Ownership: CSDV-MN LP

Management: CBRE

Size: 620,566 rsf

When Built: 1987

# of Tenants: 31

Largest Tenant & SF: Accenture, 161,109 rsf

Asking Rent Range per SF: $14-$20