February 19, 2026

Data Goes Downtown

A top-dollar deal shows there's a place for urban server farms, but they may not work everywhere

Data Centers Go Downtown cover story image

Cailtlin Anderson, Minneapolis / St. Paul Business Journal

The new owners of the 20-megawatt data center in downtown Minneapolis, located in the former Sleep Number headquarters, paid more than $235 million for site and plan to invest more to boost its power capacity. Several blocks down the street, Minneapolis developer Sherman Associates Inc. plans to expand the power of its existing data center in the basement of the former Wells Fargo Operations Center.

In both cases, the leaders behind these properties say they aim to leverage demand for data center space to better use their properties. As the downtowns of Minneapolis and St. Paul seek a comeback after suffering a spike in office and retail vacancies during the pandemic, leaving distressed buildings and lowered property values in its wake, what role will data centers play in that recovery?

Real estate and data center experts say the potential is big, but downtown buildings often have shortcomings that limit that reuse. And one downtown leader doesn't think it's a good idea at all.

Data center boom

Data centers are popping up all over the nation as digital demands, especially the increasing popularity of artificial intelligence, continues to rise.

The Twin Cities is also seeing that growth. The market had an inventory of 65 megawatts in the first half of 2025, representing a modest increase from the year prior, according to CBRE Group Inc.'s data center trends report. The size and capacity of data centers is generally measured by the power required to run them. One megawatt-hour can power between 500 to 1,000 households for an hour.

Data centers are generally used to store, process and distribute digital data and applications to support an increasingly interconnected online ecosystem. They typically require significant resources, like power, cooling systems like water, and square feet.

Data centers usually get their power from public utilities, and for Minneapolis and St. Paul, that is Minneapolis-based Xcel Energy Inc. (NASDAQ: XEL).

In Minnesota, cities like Rosemount and Becker, located on the edges of the metro, have become hotspots for new data center projects due in part to their available space. For example, Meta Platforms Inc., the parent of Facebook, built a 715,000-square-foot data center in Rosemount, representing an $800 million investment. Becker offers close proximity to Xcel's existing Sherco power plant, where the utility is winding down coal operations to replace with solar.

While more suburban and rural areas are seeing developers pursue larger, hyperscale data centers, industry experts say urban cores could provide opportunities for smaller data centers.

Why downtown?

A downtown location for a data center is attractive because of existing connections and infrastructure, experts say.

Downtown areas like Minneapolis typically have a robust fiber-optic network. Having a data center located within these networks allows the speedier movement of data compared to rural areas, said Daniel English, managing partner and founder of Legacy Investing, which operates the data center in the Sleep Number building at 1001 Third Ave. S.

The power infrastructure is also a proven system, said Don Kohlenberger, president of Hightower Initiatives, a Prior Lake-based company that consults on downtown repositioning projects. He is working with Minneapolis developer Sherman on the redevelopment of the vacant, 550,000-square-foot former Wells Fargo Operations Center project.

"You're in a place that has a history of very solid electrical provision," Kohlenberger said.

Data centers located near these robust fiber networks can reduce what the industry calls latency, the delay between the user's request and the system's response time. Low latency is especially important for increased AI use that requires quick responses, like ChatGPT, explained English.

"Data centers are delivering digital packages to your phone the same way that your Amazon package is coming," he said. "... The road, in this case, is fiber."

English's company, Legacy Investing, developed the TS@Minneapolis data center in the Sleep Number headquarters in 2019. It replaced a former data center that was used by previous tenant American Express Financial Advisors, which is now known as Ameriprise Financial Inc. (Ameriprise's headquarters is now in a separate office building across the street.)

English said the company was first interested in downtown Minneapolis for all the reasons mentioned: "It was a mixture of overlapping infrastructure, a good location ... and an ongoing trend in data centers being increasingly dense and serving humans and near humans.

"When you bring in data centers, there's significant investment that we are making and capital we're putting into those buildings to enhance them," he added.

Legacy has since sold the building to new owners, Cloud Capital and Arcapita Group Holdings Limited, who plan to expand the building's existing capacity by more than 10 megawatts of computing power. The buyers paid $235.8 million - more than eight times the property's 2025 assessed market value and far more than other big-dollar deals for single buildings, including 2023's $225 million sale of the 525,000-square-foot office portion of RBC Gateway tower and last year's sale of a 400,000-square-foot Boston Scientific facility in Maple Grove, which traded for $188 million.

English didn't comment on the sale price.

The demand for data center space was at least part of what led Minneapolis developer Sherman to retain the existing multilevel, below-grade data center at the former Wells Fargo Operations Center - and even seek to expand it.

The move represented a pivot from Sherman's previous plan to redevelop the entire site into a mix of housing, office and retail. The developer still plans to add mixed uses above the data center.

Sherman President Chris Sherman said the pivot was the best and fastest way to facilitate new investment at the site, based on market conditions and financial feasibility.

What's possible?

While data centers present an option for the revitalization of downtowns, it doesn't come without challenges and in some cases, should be avoided, experts say.

In the wake of the Covid pandemic, Twin Cities downtowns have existing office buildings that are no longer being used, which has led to dereased property values. Data centers could play a modest role in absorbing some of this excess office space, city of Minneapolis spokesperson Jess Olstad said in a statement.

Despite infrastructure in place, data centers still need significant amounts of power, and it's up to local public utilities to determine whether there's enough capacity in a given area.

"The crown jewel is always the provision of available excess power," Kohlenberger said.

It's unclear exactly how many megawatts the downtowns of Minneapolis and St. Paul currently use for data centers, and to what degree Xcel could expand its capacity.

Xcel states that it will play a key role in supporting data center development in the urban core, and that the company supports that use.

"Data center development in Minneapolis and St. Paul creates significant construction jobs and capital investment for our region while bringing new life to underutilized buildings and enhancing property values," Xcel Energy spokesperson Theo Keith said in a statement.

However, the potential for office building conversions may be limited by their existing power allocation, said Robbie Pinkas, senior vice president of originations for Minneapolis-based PACE Loan Group. He recently led the firm's underwriting of a data center conversion in the Kansas City area.

Existing buildings also may have physical limitations, such as ceilings that are too low or floors that can't support the weight required by data equipment. Data centers typically require more than 12 feet of clear height and a floor that can bear at least 250 pounds per square foot, according to English. That could

require buildings to have to locate any data center space in basement levels or ground floors.

Kohlenberger advocates for a "wedding cake" approach in which a developer could add a data center to the basement level and some other use, such as residential, above that. He used an example of an old building that an owner would like to redevelop but is running into a large rehabilitation cost.

"Residential might not get you to that threshold, but providing the capital investment of a data center would get you to that threshold," he said. "If that is the thing that gets you over the hump to make a deal viable, now you can go ahead and do the residential conversions. Now you can bring people into downtown, whereas before you couldn't."

The rental rates for data center space in the Twin Cities range between $130 to

$190 kilowatts per month, according to CBRE's report. That's the equivalent of renting Class A office space Midtown Manhattan, English said.

Plus, new construction or tenant improvements to build out a data center often have high valuations, which can increase property values and tax revenues, said Drew Johnson, senior vice president of Excelsior-based Oppidan Investment Co. "They could help boost the eroding tax base," he added.

Advanced technology now allows data centers to take up smaller footprints than before. Developers can now fit 40 megawatts of computing power into a 40,000-square foot space that previously would have only supported four megawatts, English said.

However, pursuing such data center projects can hurt the vibrancy of a downtown, said Dave Higgins, president of the St. Paul Downtown Development Corp. His nonprofit, aimed at revitalizing the St. Paul core by acquiring troubled properties, will not consider data centers as part of its effort to reposition the buildings it's acquired.

For example, Alliance Bank Center does have below-grade space, such as loading docks and parking spaces, but those will be important for the building's future reuse, he noted.

Data centers could exacerbate problems downtown, such as lack of foot traffic since data centers aren't a huge employer, Higgins said. He added that downtowns need a diversity of uses that add vitality to the human experience, like residential, retail, office and hotel uses, which are "in direct contrast to a data center."