Want to invest in downtown Fargo? Kilbourne Group aims to raise $40M for building projects
FARGO — Doug Burgum has been the public face of Kilbourne Group, the real estate development firm that has had a large role in transforming downtown.
Burgum’s determined focus on redeveloping notable old buildings and constructing new landmarks grew out of his efforts to salvage the former Northern School Supply building, which became the start of the downtown campus of North Dakota State University.
It’s widely known that Burgum sunk part of the wealth he earned as a technology entrepreneur. He was the driving force behind Great Plains Software and later was a Microsoft executive, among other accomplishments.
But it’s much less known that Burgum had a lot of financial help from silent partners — 77 investors each investing at least $250,000 for a total of $44 million to help launch projects that include Roberts Commons, renovation of the Black Building and development of Block 9, which will tower 18 stories over Broadway.
To raise the capital for its portfolio of projects, Kilbourne Group created a pooled investment fund called the Downtown Fargo Real Estate Fund I in late 2014, a securities offering with the goal of raising $40 million to $60 million.
That pool of funds, in turn, helped leverage other financial sources, including bank loans, that generated funding for $350 million in projects, said Mike Allmendinger, president of Kilbourne Group.
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Since becoming North Dakota's governor in 2017, Burgum has withdrawn from any managerial role in Kilbourne Group, which he founded in 2006. But Burgum invested heavily in the fund, which was a key signal to other investors, said Lauris Molbert, Kilbourne’s executive chairman of the board.
“He personally put his balance sheet to work,” he said.
Similarly, Kilbourne also formed an investment group, Block 9 Hotel, to raise almost $11.7 million for the 125-room boutique hotel that will be part of the Block 9 tower, scheduled to open in the fall of 2020. Kilbourne’s Downtown Real Estate Fund is one of the hotel fund’s shareholders, Molbert said.
Molbert assumed the top executive role at Kilbourne after Burgum stepped aside. An accountant and lawyer, Molbert has previously been the CEO of TMI Hospitality and chief operating officer of Otter Tail Corp.
Now, with a new slate of downtown development projects in the pipeline, Kilbourne has launched a third investment fund, the Great Plains Opportunity Zone Fund.
Once again, the goal will be to raise at least $40 million from investors, Molbert said. To be eligible, investors must be accredited, with an established investing background.
As the name implies, the Great Plains Opportunity Zone Fund seeks to take advantage of the tax benefits for opportunity zones — all of downtown Fargo falls within an opportunity zone — established by the 2017 tax law.
Kilbourne representatives are meeting with prospective investors, as well as tax advisers, financial advisers and tax lawyers, Molbert said. “We’re trying to create awareness,” he added.
Prospective investors have been contacted in Fargo-Moorhead and around the region, but also on the coasts, where investing in real estate ventures in the Midwest are an opportunity to diversify, Molbert said.
“We think Fargo’s going to continue to evolve over the next 10 years,” he said. “When Block 9 gets built it’s going to continue this momentum.”
In meeting with prospective investors from outside the region, Kilbourne finds itself having to deal with stereotypes, some lingering from the Coen brothers’ movie, “Fargo,” depicting the area as a flat wasteland populated by people who talk with a funny accent, Molbert said.
The other common misconception, he said, is that Fargo is in the midst of North Dakota’s Oil Patch. “There’s a perception that it’s all about oil,” he said.
Still, once made aware of Fargo’s amenities and quality of life, as well as high rankings in many lists, those perceptions turn around, Molbert said.
Kilbourne Group, which has 38 employees, acts as a consultant for the fund. Its compensation for serving the investors often includes incentive payments for successful projects, Allmendinger said.
As work continues on projects including Block 9 and the Dillard building, adjacent to Roberts Commons, design work and preparations are in progress for the new slate of projects.
One is the Mercantile building, 401-403 Broadway, a redevelopment of the former Schumacher Goodyear site. The building, envisioned as a six- or seven-story building, will wrap around a 370-stall, $11 million parking ramp that will be owned by the city of Fargo.
Another project in development is the Kesler building, which will sit across the street from Roberts Commons and next door to the Graver building, 630 2nd Ave. N.
The Kesler building will be six stories tall and is estimated to cost $10 million or $20 million, depending on the building’s footprint, which in turn will depend on the building’s setbacks, Allmendinger said.
Both buildings will combine residential and commercial uses, along with walkability and preserving historic character, all hallmarks of Kilbourne’s downtown redevelopment philosophy. That theme will continue, and has been well received by tenants and others, Molbert said.
“That’s the design aesthetic that we’re really focusing on,” he said.
“We’re very pleased with RoCo” — the nickname for Roberts Commons — “and how much interest there was in that and how quickly it leased up,” Molbert added. “People like to be in walkable areas and not drive every place.”
Downtown Fargo now is home to 5,100 residents, a number well on the way to the city’s goal of having a downtown population of at least 12,000, increasing 300 to 400 per year. “So we certainly align with that,” Allmendinger said.
Sanford Health’s plans to invest more than $100 million over the next 20 years in its downtown medical campus, highlighted by an expanded Roger Maris Cancer Center, will help to spur growth downtown, Molbert said.
Sanford will be seeking a hotel partner for patients and their families. “We would definitely be interested in that, as will others,” he said. “I’m confident there will be other hotels that will be built downtown.”
Public investments, including permanent downtown flood protection and the new City Hall, also enhance downtown and will help spur private investment, he said.
Downtown Fargo will continue to evolve over the next five to 10 years.
“We’ve done some dreaming what it will look like,” Molbert said.