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MINNEAPOLIS-One sign of how tough things have gotten in the Downtown office market: Two major office buildings totaling 610,000 sf here recently were returned to their lenders.

The International Centre and Kinnard Financial Center were returned to the lender, Travelers Life and Annuity of Hartford, CT according to Jim Gearen, a principal in Chicago-based Zeller Realty Corp. Zeller owned the buildings in a partnership with ING Realty Partners, an affiliate of the Dutch-based ING Group.

The transaction satisfies the outstanding debt on the property, a loan facility that totaled $57 million. Zeller and ING were current on making debt payments, and a significant, but undisclosed, portion of that debt facility had not been drawn on.

The transaction was completed last month.

Vacancy rates in the downtown Minneapolis market have risen to 17.5%, or about 21% if you add in the space up for sublease, according to a recent market report from United Properties.

The partners bought Kinnard in 1998 and completed its purchase of the six condominiums that comprised International Centre in 1999. ING owned an 85% share, while Zeller owned 15%. Although the buildings were virtually fully leased for most of the time Zeller and ING owned them, both buildings recently suffered some key tenant losses, including the Fredrikson Byron law firm. Now the buildings are more than a third vacant.

Late last year, ING decided to terminate Zeller’s management contract of the building, and turn the management duties of the buildings over the Bloomington, MN-based United Properties.

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