Stadium Plaza, which is located off of 69th and Cliff is quickly gaining tenants and adding new businesses to the area. According to the article, “A new fast-casual restaurant, a fitness studio and a medical office will be among the latest additions to a fast-growing south Sioux Falls intersection.“  “We’re very excited for the new businesses to bring locations to the development as the housing nearby will have some built-in customers looking for their services and become a valued amenity for the neighborhood,” said Chris Daugaard, a partner with Ernst Capital, which assisted the property in its Signature Fund IV, which raised capital – largely from local investors – to support multiple projects for developer Clint Ackerman, owner of Signature Cos.  

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Two years ago, the northeast corner of 69th Street and Cliff Avenue was among the last large parcels of available land in the rapidly developing area of south Sioux Falls. One year ago, there were hints of its promise as the first commercial buildings began taking shape. Today, it’s a bustling corner filled with retail and residential growth – plus more on the way.

“We were attracted to the potential of a new, infill development on a corner that was already seeing so much traffic,” said Chris Daugaard, a partner in Ernst Capital. “The location was destined to be attractive.” The 20-acre parcel became part of Ernst’s Signature Fund IV, which raised capital – largely from local investors – to support multiple projects for developer Clint Ackerman, owner of Signature Cos.

“There was so much activity already around this area, and the concept of retail with multifamily really brought in uses that complemented one another,” Daugaard said. “There was an opportunity to partner with others looking to build or locate businesses there, bring in some of our own retail to complement it and add in a multifamily project to capitalize on the development. We felt it could be a real win-win, and that’s definitely been the case.” Zach Neugebauer, owner of Year Round Brown, saw the potential early. He invested in a retail center called The Bloc fronting Cliff Avenue that also became a location for his tanning salon.

“Year Round Brown has seen a significant increase in traffic since moving a few blocks down the road to the new location at The Bloc,” he said. “This large space really allows us to offer our full line of services such as sunbeds, spray tanning, red light therapy and 3 Degrees infrared saunas with virtually no wait times. As for the location, the combination of a great tenant mix bringing more people to the area and easy access off Cliff Avenue makes visiting Year Round Brown really enticing.” The retail center leased quickly and now includes Gloss Nails, Starbucks and Cookie Co.

“The feedback on our strip mall has been just as positive,” Neugebauer said. “The tenants have all expressed happiness with the consistent daily traffic, visibility and tenant mix. In addition to the success we are having at The Bloc, we are also really excited with the development around us.” The corner also proved a hit for new B&G Milkyway franchisees Josh and Christie Aberson. They’re wrapping up their first season and said the location has been fantastic.

“It’s truly a neighborhood restaurant, and the surrounding community has welcomed the store with open arms,” Josh Aberson said. “It’s very approachable from either north/south- or east/west-bound traffic, but also pedestrian with a lot of families making it a destination for a walk, bike ride or after-school treat. We hear that the oversized patio space with turf, games and furniture is exactly what customers were looking for and now the double drive-thru is open and running great to ease those busy drive-thru lines. We’ll be excited to see the rest of our neighbors finish out their projects and construction to finalize the development.” That progress will be continuing through this year and into next. Casey’s General Stores is making solid construction progress along 69th Street. And soon, the first residents are expected to be living within an easy walk of the neighborhood businesses.

The Overture is a 258-unit apartment building that will offer lofted studio, one- and two-bedroom apartments. “They are very interesting and appealing floor plans,” property manager Ilaria Blackwell said. “We’re already getting interested in them in anticipation of residents moving in before the end of the year.” The apartment community will include an attached two-story clubhouse and full slate of amenities, including a swimming pool, extensive indoor-outdoor community space and a fitness center. “The walkability is incredible here,” Blackwell said. “Whether you’re walking for coffee or fitness, Sioux Falls Christian Schools or the USF sport complex, there’s such a wide variety right nearby.”

Additional retail centers are under construction with a number of tenant announcements expected soon. “We’re looking to fill in with some more businesses that are complementary to what you see already. It would be great to add some retail service businesses or office-type users. We have room for something like a day care or bar/restaurant,” Daugaard said. “We love the idea of adding amenities to the neighborhood, both for use by our apartment residents and others in the area.”

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The projects are getting bigger. The geography is getting bigger. And the combination led to the biggest year yet in 2022 for Sioux Falls-based real estate investment firm Ernst Capital Group. “For us, 2022 was a record year in a significant way,” partner Chris Daugaard said. “We focused both on setting up our portfolio for long-term success and on capturing larger opportunities that are allowing us to build some economies of scale.”

For instance, the firm is invested in 14 active construction projects, which continue in 2023. Combined, they total more than 2,500 units of multifamily housing being added to the portfolio in addition to multiple retail centers. “Our average multifamily development in the past was 100 to 150 units, and now it’s not uncommon to see 275 to 350 units,” Daugaard explained. “We saw an opportunity while interest rates were still favorable and worked  to start new projects in a condensed time frame of eight or nine months, instead of spreading them out over 18 months as we might have done in a different environment.” That strategy allowed Ernst to appropriately time the interest rate environment and build projects, while addressing the continued high occupancy rate in its portfolio and within the markets it serves. “Our occupancy is holding very firm – currently 97 percent occupied and between 97 and 98 percent leased on a general day, and that’s been pretty consistent even in the heart of winter,” Daugaard said. “So it’s still very healthy and strong both in Sioux Falls and the other markets we’re developing.”

Ernst began with real estate investments in Sioux Falls, and about half its current development pipeline is still within the city and adjacent communities. But the firm also has expanded with investments in Brookings, Box Elder, Sioux City and Rapid City, as well as Des Moines, and with a planned entry into Omaha. “We’re making a more deliberate effort to grow in markets that we think have strong fundamentals and the stability to deliver similar results as we’ve seen in Sioux Falls,” Daugaard said.

Ernst also prioritized investing in its current portfolio within the past year, including significant refinancing across the portfolio and capital investments to support its existing assets. “These are things that might not have needed to be done today, but we had an opportunity to either set aside funds or start work today knowing we have to do it in the next few years, so we were able to take advantage of the low interest rate environment,” Daugaard said. “We did as much as we could to remove hurdles that might have presented themselves in the future.” That included things such as refreshing common spaces in some commercial buildings and setting aside reserves for build-outs or tenant needs. “On the investor front, I think investors continue to appreciate the consistent returns we’ve seen from real estate, especially multifamily,” Daugaard said. “We haven’t had any real drop-off in investor interest from the past couple years.” The coming year will bring continued investment in multifamily development on the east side of Sioux Falls, where Willows Edge had a successful lease-up and demand for residential options continues. Projects also are in development in northwest Sioux Falls, the far east side and in Omaha.

Existing work will continue in the Stadium Crossing development at 69th Street and Cliff Avenue, and in Harrisburg, where additional multifamily and new retail are under construction. Key drivers going forward continue to be construction costs, which have moderated some but more importantly have become more predictable, he said. The slowdown in single-family housing has improved the labor supply more broadly in construction, he added.  “Our focus is on making sure we do what we can to build efficiently and find the right deal and the right deal structure in an interest rate environment that’s changed drastically.” The changing approach to financing has weighted deals heavier in equity, he said. “Even if our deal sizes moderate this year, we could be raising more capital than last year,” Daugaard said. “Our deals will likely have a lot more equity in them.”

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