Real Estate & Construction Blog

New Legislation for Data Centers in Minnesota Clarifies the Path Forward

Data centers and data center regulation were recurring topics in the Minnesota legislature’s 2025 session. As data centers flock to Minnesota, there was a concerted effort to create a clearer framework for data center developments. In its June special session, the state legislature passed several new requirements for data centers in Minnesota that will shape their construction, finances and regulatory permitting processes. The legislation, judged a bipartisan compromise by the Star Tribune, maintains or extends some tax breaks for data centers while imposing new rules aimed at protecting the environment and helping individual energy consumers. Here is an overview of the key provisions of this legislation: Tax exemptions While lawmakers eliminated the electricity sales tax exemption for data centers, they also extended a sales tax exemption for software and IT equipment for large-scale data centers to 35 years. Previously, the exemption had been set to expire in 2042. Water use and green building standards The legislature established a new category of water appropriation permits for over 100 million gallons per year. Projects using over this amount of water must undergo pre-application evaluations and meet new permitting conditions. Additionally, new green building standards state that data centers must qualify under one of several sustainable design standards. Centralized permitting & regulatory support The new rules require all state agencies to refer data center inquires to the Minnesota Business First Stop program. This change is intended to improve permitting timelines and interagency coordination. Electricity regulations The law added ratepayer protection language to stipulate that large-scale energy users cover their own costs. The goal is to ensure that utilities and/or ratepayers are not subject to increased costs due to the large energy needs of data centers. Legislators also established an optional clean energy tariff to segregate clean energy costs to clean energy users. Additionally, they removed data center power from the calculation used for public utilities’ minimum solar generation requirements. Megawatt usage fees to fund conservation programs Data centers are subject to a new annual fee based on their peak demand megawatt (MW) usage, as outlined in the table below. This fee will be used to fund energy conservation programs for low-income households. MW Usage Fee 100- 250 MW $2,000,000 251- 499 MW $3,000,000 500 – 749 MW $4,000,000 750+ MW $5,000,000 Wage standards for workers The new law defines prevailing wage requirements for construction laborers and mechanics working on data centers. What these changes mean for data centers in Minnesota going forward If you’re planning to build or expand a data center in Minnesota, the new legislation brings some clarity to the process. With these changes, developers can more confidently move ahead with data center projects designed to leverage Minnesota’s advantageous climate, location and workforce. As always, early engagement with legal, engineering and utility partners will be critical to clear the path ahead.

July 28, 2025

Real Estate

Listen to Bisnow’s Twin Cities State of the Market Recap With Jake Steen on The Larkin Hoffman Real Estate Podcast

In the second episode of the Larkin Hoffman Real Estate Podcast series, I had an opportunity to wrap up a recent Bisnow panel I moderated at Bisnow’s Twin Cities State of the Market event held in Minneapolis in late August. The panel covered the trends, opportunities and forecasted growth of the Twin Cities construction and real estate markets including predictions about where capital investments are going; the effect of rising interest rates on new development projects; the impact of rent control policies; how developers are pushing new projects forward; what a return to the office is looking like; and the future of redevelopment in downtown Minneapolis and St. Paul. I was joined on the panel by Jackie Knight, COO, Ackerberg; Ericka Miller, Senior Development Manager, Alatus; Phil Cattanach, VP & General Manager, The Opus Group; Josh Budish, Principal, Endeavor Development; Brent Webb, Development Executive, Mortenson; and Alex Cole, Senior Manager, Nuveen Green Capital. _________ Jake Steen advises and represents businesses, developers, and property owners seeking favorable government approvals including licensing, zoning, environmental review, and other ‎regulatory matters. Contact Jake Steen at jsteen@larkinhoffman.com

October 10, 2022

Construction

Multifamily Housing Shifts Focus to the Suburbs

Like most things in 2020, the multifamily housing market is in a state of flux. Recently, I had the opportunity to moderate the Bisnow webinar, Twin Cities Deep Dive: Multifamily Update. The panelists included Brent Webb, Development Manager, Mortenson, Christian Osmundson, Director of Development, Alatus, and Josh Brandsted, President of Greco Properties. These leaders of the multifamily housing market discussed the current state of the industry and made predictions for the future of the Twin Cities real estate market. The webinar began with a look at how the pandemic has changed the multifamily housing market. Most notably, the panelists discussed how developers are beginning to take a closer look at first and second-tier suburban markets. Many projects located in Minneapolis are not receiving the same attention from developers that they once received. The panelists discussed how vacancy rates in high-demand areas like the North Loop, North East, and South Minneapolis have remained steady while downtown vacancy rates have declined in recent months. Many rental properties in the suburbs that were hovering near 80% are now at full occupancy. Although migrating to the suburbs could be a short-term trend, the two leading factors for renters leaving downtown are home purchase and crime. These factors coupled with the closure of restaurants, land values, taxes, and a lack of parking have given investors pause when considering investing in the downtown market. A “new” inclusionary zoning policy went into effect the first of the year in Minneapolis and the country went into a state of lockdown shortly thereafter. It is hard to separate its impact from the pandemic, but the added challenge of supporting affordable housing seems to be a factor in development. Places like Edina and Saint Louis Park have more tools than Minneapolis to make the math work for new projects. Panelists agree the influx of remote workers has impacted the multifamily housing market. Buildings currently under construction are being modified to accommodate work from home offices and increase connection to outdoor recreation. Larger units and two-room apartments have also seen an increase in popularity since working from home has become commonplace. It may be too soon to see new projects being designed with pandemic restrictions in mind, but the panelists felt that there will be a significant change coming to future builds. A prioritization of wellbeing and amenities seems unavoidable with most of the population spending more time at home. The amount of leasable space vs. amenities in new buildings will become critical when creating an environment attractive to future renters. Finally, the panel discussed the eviction moratoria during the pandemic. There was a general consensus among the panelists that the moratorium is not impacting the market as the majority of renters dealing with financial hardships seem to be willing to create a plan with their landlords. There seem to be conflicting views on the best way to proceed, but all the panelists agreed that open communication is essential to creating a way forward. Click here to listen to the Twin Cities Deep Dive: Multifamily Update webinar. Jacob Steen part of the Larkin Hoffman real estate team. He is available to answer your real estate and land use questions. Jacob Steen, jsteen@larkinhoffman.com.

October 12, 2020

Construction

Pandemic Disrupts the Multifamily Housing Market

The global pandemic has affected every aspect of life in America and across the world, the multifamily housing market is no exception. The impact of the pandemic is affecting every aspect of multifamily development from product design and selection, to getting deals done, to building management and operation. Over the last decade, there has been a strong trend in young professionals flocking to the Twin Cities, especially to amenity-rich areas of Minneapolis like the North Loop and Northeast. With the onset of the pandemic, many of these professionals are now working from home and have limited high-contact extracurricular activities. This new way of life is resulting in an increased demand for additional flex space within apartment units. Whether it be in the form of additional bedrooms, in-unit offices, or flexible workspace amenities, these new space demands have a strong potential to change product offerings as developers evaluate projects. Project evaluations and deal-making, like all traditional interactions, have also been forced to adapt to our changing circumstances. Social distancing and work-from-home orders have encouraged, if not forced, changes while putting together projects. Developers are using remote video and drone surveys to evaluate everything from site conditions to building envelope inspections. Like many traditional in-person interactions, the days of the in-person marketing of projects to partners and other key players are over as meetings have moved to a video conferencing format. Unrelated to the pandemic, high taxes and costly land prices in Minneapolis has been a slow-moving trend in recent years as developers have sought more affordable land and lower taxes. While the Minneapolis market has remained strong, these factors combined with incentives such as suburban TIF and opportunity zones are making the first and second ring suburbs more enticing. Managing tenancies has also changed over the past several months. Existing tenants are protected by a residential eviction moratorium leaving some multifamily property owners stuck with tenants unable to pay rent and unwilling to leave without recourse. Other landlords are struggling to get multifamily occupancies leased pushing concessions to renters in an effort to incentivize the signing of new leases. Many properties outside of high-demand neighborhoods are offering two or three months of free rent, discounted parking, and other incentives. While changes in the multifamily housing market are the result of several factors and were in motion before the pandemic, the prospect of a lingering public health crisis well into 2021 and beyond will influence the direction of future trends. Join moderator Jake Steen (Larkin Hoffman) with panelists Brent Webb (Mortenson), Chris Osmundson (Alatus), and Josh Brandsted (Greco) on Wednesday, September 30th, at 2:30 PM for a Bisnow panel to learn how pandemic lifestyle changes are affecting the multifamily market. To register for the Bisnow Webinar click on the link below: TWIN CITIES DEEP DIVE: MULTIFAMILY UPDATE: HOW THE LANDSCAPE WILL CHANGE POST-PANDEMIC

September 25, 2020

Legislative and Judicial Updates

Navigating State and Local Governments During a Pandemic: How Continuing Government Action on Major Issues Can Impact Your Investments

Peter Coyle and Jacob Steen discuss the land use, government relations and regulatory environment during the COVID-19 pandemic. They share examples of how Larkin Hoffman has been able to assist clients in overcoming the unique challenges presented by a statewide stay-at-home order and discuss the ways that the global pandemic has shaped the local land use and zoning approval process. About the Larkin Hoffman Podcast Briefings The Larkin Hoffman Podcast Briefings series was developed to discuss issues affected by the COVID-19 crisis. Our attorneys will address corporate, employment, real estate, construction, franchise, bankruptcy, insurance, litigation and other matters in this series. Over the next few weeks, there will be several podcasts on developing matters. Larkin Hoffman is available to help. Please reach out for additional guidance

May 1, 2020

Planning and Development

What Happens to Minnesota’s Zoning Shot-Clock During a Peacetime Emergency?

Like many states, Minnesota has an automatic approval statute, or “shot clock,” to protect applicants for zoning and land use applications. Minnesota Statutes section 15.99 requires that local land use authorities must act within 60 days of receiving a completed zoning application. If the government fails to act within that time frame, the application is automatically approved. But what happens during a global pandemic when government employees (and everyone else) must shelter in place for two weeks, six weeks, or even longer? In response to the COVID-19 pandemic, Governor Tim Walz declared an initial two-week “stay at home” order from March 27 through April 10, 2020, which has since been extended to more than five weeks, to May 4, 2020. With no clear end of the pandemic in sight there may be real implications for land use applications under Minnesota’s automatic approval statute. The governor’s order requires workers to stay home, if possible, but local governments can decide which of their workers are essential. Most jurisdictions are still working to process applications, but many zoning applications require public hearings before a planning commission or city council. As governments scramble to adjust public hearings to safer telephonic or video formats, many hearings have been delayed, which means applications have been delayed, thereby risking automatic approval when applications cannot be acted upon in a timely manner. Some cities have put legally dubious moratoria in place, temporarily prohibiting the acceptance of new zoning applications. But as of today, local governments must still comply with the 60-day decision-making period. Minnesota cities are actively lobbying for an extension of the shot clock, whether by executive order or legislation; however, an extension should be unnecessary given that governments can already extend the shot clock in writing an additional 60-days if need be. Absent intervention at the state level, the 60-day shot clock still applies.Under the circumstances, applicants should anticipate that local governments will extend the decision-making period to 120-days.While there is no mechanism for governments to extend the period further, applicants can do so in writing; such extensions should be approached cautiously and should never be open-ended.

April 10, 2020

Local Government

Minneapolis Bans Drive-Throughs; Will It Do Any Good?

In August 2019, the Minneapolis City Council adopted an ordinance banning new drive-through windows in the city. With the adoption of the new Minneapolis 2040 Comprehensive Plan, beginning in January of 2020, all gas stations will soon be prohibited, as well. These policy changes are part of the City’s aggressive goal of reducing greenhouse gas emissions by 80 percent by 2050. While these goals are laudable, the impact of these policies is likely to be nominal at best, and will almost certainly have unintended impacts. In other places, drive-through bans are usually adopted with the goal of curbing obesity. In Minneapolis, however, which consistently ranks as one of the healthiest cities in the nation, cutting emissions is the goal. While the few studies available have shown that drive-through bans have little or no impact on health outcomes, there is little or no evidence that such a ban will have an impact on greenhouse gasses. While it seems logical that a ban may reduce some emissions, the act is more likely to be a symbolic act signaling the city’s aggressive stance on climate change. Minnesota law protects land uses that are subjected to new zoning regulations. An existing drive-through use that is lawfully established will become “grandfathered” or legally nonconforming when the ban goes into effect. Therefore, as long as a nonconforming drive-through remains in continuous operation, the law will protect that use in perpetuity. While a nonconforming drive-through cannot be expanded, it can be repaired, replaced, maintained, and improved, including through reuse by a new operator. While the city ordinance alludes to “being consistent” with the goal of reducing emissions, that assumes that drivers will use drive-throughs less, which seems like wishful thinking. The policies will eliminate new drive-throughs, but the existing uses in operation are likely to continue to operate in perpetuity or at least until redevelopment of the property. From an economic perspective, banning drive-throughs actually fixes the supply. If demand increases for convenience uses, such as drive-through coffee shops, the existing uses will have a higher property value and thus, no incentive to redevelop into newer concepts that may otherwise serve their customers and align with City land use goals. Practically speaking, even if one operator goes out of business, the use may continue as long as a new operator is established within a year. It’s clear this policy will yield little real gains in terms of reducing emissions and, at the same time, create challenges for individuals with disabilities. More than half of the dozen or so drive-throughs approved in the city from 2013-2018 were for pharmacies and banks. Unlike fast food drive-throughs, banks and pharmacies are low volume but critically necessary for individuals with disabilities. The drive-through ban does not apply to parking spaces designated for curbside pickup; however, as a practical matter, requiring store staff to walk from the store to customers is likely to increase idling time. Moreover, in sub-zero temperatures, if the city decides to enforce its ban on cars idling for over three minutes, the policy will be to force individuals with disabilities to either break the idling ordinance or sit in freezing temperatures. Accordingly, the city is asking those who rely on drive-throughs to bear the burden of the city’s new policy. Minneapolis’s ban on drive-throughs is a symbolic act that is likely to have limited impact on greenhouse emissions. While the goal is worthwhile, this policy will ensure that existing drive-throughs will retain their value as demand increases and the supply remains consistent or decreases. And as the median age of Minnesotans continues to rise, the impacts of the city’s policies will fall disproportionately on those with disabilities and limited mobility.

October 30, 2019

Planning and Development

Minneapolis’s Inclusionary Zoning Ordinance is Failing to Make Gains

When the Minneapolis City Council adopted its inclusionary zoning ordinance, together with its Unified Housing Policy, in late 2018 there was optimism that the ordinance would result in the creation of much needed affordable housing in the city. The ordinance mandates a minimum percentage of 10-20 percent of units within multifamily buildings be affordable where the project requires certain approvals, including variances, zoning amendments, or density increases. Since it became effective at the beginning of this year, the ordinance has failed to make gains towards affordability. In Minneapolis, planning staff estimated between 364 and 728 affordable dwellings would have been created had the inclusionary zoning ordinance been in effect from 2015 through 2018. Housing advocates expected that subsequent development would follow suit. However, in the first six months the ordinance has been in effect, only one project was subject to the ordinance. At only seven units total, that project at 2521 Bloomington Avenue did little to move the needle on the city’s affordable housing numbers. While the pace of multifamily development in Minneapolis does not show signs of slowing, the inclusionary zoning ordinance has not created new affordable units. The development community loudly warned of such unintended impacts, forecasting that developers and investors would avoid substantial loss by working around the mandate of developing unsubsidized affordable housing. This prediction appears to be materializing, as developers are finding ways to avoid the triggers for inclusionary zoning. Developers appear to be making concerted efforts to propose projects that avoid rezoning applications, variances and density bonuses, all matters that would trigger the ordinance. If this is true, it is possible that an unintended consequence of the inclusionary zoning policy is that it is encouraging developers to follow adopted city policies and zoning ordinance more closely. On its face, this is a desirable outcome from a planning perspective. However, another likely long-term effect of this trend is that the supply of readily developable land in the city will disappear, driving up land prices and, as a result, the cost of housing. Accordingly, as developers continue to avoid triggering the inclusionary zoning requirements, the city’s inclusionary zoning efforts may have the opposite effect of the city’s intent by reducing affordability of new units. While the city has indicated that it will continue efforts to fine tune the inclusionary policy, early results are not promising.

August 14, 2019

Local Government

Reasonable Accommodation and Group Homes

In the realm of local land use there are few development proposals that have the tendency to evoke neighborhood resistance than a new group home. The response is particularly vehement when the home is intended to serve those with chemical dependency and especially controversial in a low-density neighborhood. While most people acknowledge a need for residential treatment, “not in my back yard” is a common response when residents perceive a threat to their property values, neighborhood character and safety. As treatment models have evolved, residential group homes have become the gold standard for treatment and recovery. Group home and residential treatment models have popped up in residential communities across the country as health professionals and families grapple with the opioid epidemic. While the perception is that group home residents are “outsiders” coming into the community to spread crime, the reality is that the addiction is a disability that affects every community and class of society. These are the brothers, sisters, and parents, and friends who already live in our communities. What protections are afforded to those who are simply seeking a safe place to recover and overcome in a familiar community, close to their support network? The Federal Fair Housing Amendments Act of 1988 (FHAA) was intended to expand the Civil Rights Act of 1968, which prohibits discrimination in housing based on race, color, religion, sex or national origin. The FHAA extended those protections to families and persons with disabilities and makes it illegal to “discriminate in the sale or rental, or to otherwise make ‎unavailable or deny, a dwelling to any buyer or renter because of a handicap of . . . that buyer or ‎renter . . . or any person associated with that buyer or renter.” ‎Discrimination includes “a refusal to make reasonable accommodations in ‎rules, policies, practices, or services, when such accommodations may be necessary to afford ‎such person equal opportunity to use and enjoy a dwelling.” ‎ Individuals living in group homes recovering from alcohol or chemical dependency are classified as having a “handicap” under the FHAA and are protected, as long as they are not currently engaged in the illegal use of or addiction to a controlled substance. As a result, in the context of group home locations, discrimination by local government can include the refusal by a municipality to make reasonable accommodations to spacing requirements, occupancy restrictions, and use restrictions under the ‎local zoning ordinance. ‎ The FHAA does not preempt local zoning control, but it does require reasonable accommodation of zoning rules that otherwise would not permit residents of group homes to live where they want, with the services they need and in an environment is conducive to healing. Reasonable accommodation protects disabled persons’ right to live in the dwelling or home of their choice, not just some property within the community. These protections apply even if the local zoning code does not allow the use, or in some instances, specifically prohibits the use. Despite the fact that the FHAA is 30 years old this year, many communities still resist new group homes based on the fears of residents. The resulting burden on project proposers to obtain relief under the FHAA is often far heavier than it should be under the law. As the opioid epidemic continues to rage and the group home model continues to gain movement as an effective tool in overcoming chemical dependency, it remains to be seen whether local governments will willingly recognize their responsibilities under the law.

March 29, 2018

Legislative and Judicial Updates

What the Supreme Court’s Murr v. Wisconsin Decision Means for Property Owners

To what extent can the government restrict the ability of property owners with lakefront and riverfront property from developing their land before those restrictions go “too far”? A recent U.S. Supreme Court ruling may change the threshold. In a decision that may have substantial impacts on property rights throughout the state and the region, the U.S. Supreme Court recently ruled 5-3 in a decision that sided with governmental regulators and environmentalists. In Murr v. Wisconsin, four siblings challenged a state law that prohibited the development of two adjacent lots on the St. Croix River, the border between Minnesota and Wisconsin. The lots were acquired separately by the siblings’ parents in the 1960’s and conveyed to the siblings in 1994 and 1995. The siblings sought to sell one parcel to fund the improvement of the other parcel but were precluded from doing so under a state law requiring the “merger” of two adjacent commonly owned parcels if the parcels consisted of less than one acre of developable land. The St. Croix River is a designated Wild and Scenic River under the Wild and Scenic Rivers Act of 1972 (the “Act”). The Act required the state to develop a management and development program for land along the river in order to preserve the nature of the river corridor. The merger provision at issue in the case is similar to widely-used provisions that affect many of the waterfront properties in Minnesota and Wisconsin. By requiring adjacent substandard lots to merge into one, the siblings argued that the merger constituted a regulatory taking under the Fifth Amendment of the U.S. Constitution, which prohibits the taking of private property for public use without just compensation. The court considered the “ultimate determination” as to whether a regulatory determination has occurred: “What is the proper unit of property against which to assess the effect of the challenged governmental action?” Because a regulatory taking is determined by comparing the value taken from the property with the value that remains in the property, defining the “property” is the most critical consideration. The court’s opinion described a new three-factor test for making the ultimate determination of the property to be considered: 1) the treatment of the land under state and local law; 2) the physical characteristics of the land; and 3) the prospective value of the regulated land. The third factor, the court stated, should give special attention to the effect of burdened land on the value of other holdings. In applying these factors, the court ultimately held that the two parcels should be treated as a single property for the regulatory takings analysis. The court’s decision was based on: the fact that the merger provision had long applied to the property; the physical conditions of the property; and the fact that the lots were more valuable as a single parcel. This ruling may have significant implications for properties on the combined 30,000 plus lakes and rivers in Minnesota and Wisconsin. As both states and most communities have merger provisions for shoreland lots, this case will likely form the basis for broader efforts to limit the development along protected bodies of water. Environmental groups will likely see the establishment of a new rule as an opportunity to push for broader land use protections in shoreland areas, with the rule giving expanded cover to local governments to expand regulation.

July 11, 2017

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Jacob W. Steen