The financial deal that the retailer Kmart scored when it built the infamous Nicollet-Avenue-straddling store in south Minneapolis is the gift that keeps on taking.
After all, the company’s lease payments were a bargain when the store opened in 1977; they are a bigger bargain now — and they will be an even bigger bargain still when the lease expires in 2053. Then there’s the fact that Kmart has veto power over what is done on the adjacent parcel of land now owned by the City of Minneapolis. Worse, even if the store goes out of business — not exactly a remote possibility given the condition of traditional retail and the health of its parent company, Sears Holding Corp. — the company can sublet the store to somebody else until the lease expires.
All of which means that the Nicollet Avenue location might have one of the few profitable Kmart stores in the country, a fact that is making it difficult to cut a new deal with the retailer and allow fulfill a long-term land-use dream in Minneapolis: reopening Nicollet Avenue between Lake Street and West 29th Street.
Still, the city persists. And so, on Tuesday, city staff will ask the council’s Community Development and Regulatory Services Committee for authority to buy the lease for the ground beneath the store for $8 million. The staff will then continue to see if it can get Kmart to agree to a plan that would: demolish the store; reopen the street; build the company a new store on the east side of Nicollet Avenue; and even subsidize the rent below what current market rate might be (but much higher than the $9,700 per month Kmart pays now).
As of Monday, the company hasn’t agreed. David Frank, the director of Minneapolis Economic Policy and Development, said the city still hopes it can come to an arrangement. That, in turn, would allow for redevelopment of the blocks on either side of Nicollet Avenue between 1st Avenue South and Blaisdell Avenue.
“We will continue to try to see if there’s a deal that works for them, that satisfies their requirements and works for us to either relocate them to a different spot on site or potentially buy out their lease,” Frank said. “So the important thing we are buying … is certainty that the street will go in and that there will be denser development on site.
“What we don’t know, and won’t know, is when that will happen,” Frank said.
Council Member Lisa Goodman, who chairs the Community Development and Regulatory Services Committee, said she supports the proposal. “It has been a longstanding development goal of the city to rectify the destruction of the street grid and open Nicollet where Kmart now sits as a reminder of past poor planning decisions.”
Kmart shares city’s vision?
Frank said Kmart’s negotiating position includes a stipulation for a seamless transition, so that a new store would open before the existing store closed. The company also wants no increase in rent and wants the city to cover any expenses of moving to a new store.
Still, Darin Broton, a local public affairs consultant working with Kmart, said in a statement Monday that the company shares the city’s vision for the area.
“We have consistently stated that a workable proposal must allow Kmart to remain open during any redevelopment and ensure the store continues to be part of the neighborhood,” he wrote. “Unfortunately, the City’s proposal did not specify the type of development planned on the entire property and potential neighbors, and included a 1,000 percent increase in rent the first year with a 50 percent increase over the next 20 years. No business would ever agree to these terms.”
“If the City Council moves forward and becomes our landlord, we hope they would be a champion for our store and its 100 employees, and support the community members that Kmart serves,” Broton wrote.
The land beneath Kmart is now owned by Lawrence and Susan Kadish, who agreed a year and a half ago to a purchase option with the city. Minneapolis paid $800,000 in a non-refundable deposit while it decided how to proceed. That $800,000, however, can now be applied to the $8 million purchase price. The money for that will come out of the city’s streetcar accrual account, which is funded by property taxes from five parcels along Nicollet collected to help pay for a streetcar line between Lake Street and N.E. 7th Street that would use Nicollet and Central Avenue for right of way.
Because the purchase of the Kmart land is furthering the acquisition of streetcar right of way, it is a legal use of the funds. But Frank said the city hopes that it will be able to repay the fund if and when it is able to redevelop the superblock at Nicollet and Lake.
Regardless of whether the city buys the Kmart land, however, it would continue to own the western third of the property, which contains a now-closed grocery store and a parking lot. But under another agreement, the city can’t do anything — including redirect the parking to other uses — without Kmart’s approval.
‘The worst planning mistake’
Frank said that almost since it happened, the closure of Nicollet has been called “the worst planning mistake in Minneapolis history.” Opposition formed immediately, but the city council decided the city’s financial condition at the time outweighed objections.
In a MinnPost story on the history of the site, Iric Nathanson wrote that a city tax increment financing district formed to remake the then-struggling neighborhood wasn’t working as hoped.
“City officials had ambitious plans for the Nicollet-Lake district,” Nathanson wrote. “Some said it had the potential to become a mini-Southdale, with a large shopping center surrounded by apartments, offices, restaurants and a movie theater. … But at Nicollet-Lake, the city began acquiring sites and clearing them without any firm assurances that development would, in fact, take place.”
It didn’t. And with demolitions outpacing new construction, none of the increased property taxes needed to pay off development bonds was produced, forcing the city to dip into the general fund to service those bonds. Facing a financial mess — and despite protests from neighborhood residents and businesses — the City Council voted 10-2 to agree to the demand that Nicollet be vacated.