Switch from light-industrial to housing causes complications
Karmel Properties, owned by Basim Sabri and the Whittier Community Development Corporation, has made a last-minute overhaul of a proposed $4.5 million Whittier development. Gone are plans to build light-industrial space and expand the Somali-oriented Karmel Square mini-mall, in favor of a 24-unit townhome development with commercial/retail space.
The project is located between Pleasant and Pillsbury avenues south of the 29th Street Midtown Greenway, just north of Karmel Square, which Sabri owns.
Dean Dovolis, a principal with DJR Architecture, said the first floor of the new project would have 26,000 square feet of commercial and retail space. The townhome sale price had not been set, but he expected them to be in the $180,000 range.
The Minneapolis Community Development Agency (MCDA) had expected to close on the 1.5-acre land sale, known as the Elroy site, by mid-January, said Wayne Olson, project manager. Olson expected a light-industrial/mini mall project when Sabri "sprung" the new plans, he said.
"We are just now beginning to digest what he has proposed," Olson said. "Staff is studying the proposal against current contract and current approvals."
Sabri, Karmel Properties’ majority stakeholder, was on vacation and unavailable for comment before deadline.
At issue is whether new developers should get to bid on the project if housing is an option. In March 2001, the MCDA’s executive director recommended selling the land to Karmel Properties for $126,000.
City Councilmember Dean Zimmermann (6th Ward) said Sabri would have to go through the approval process again, but stopped short of saying the city should ask developers for competing housing proposals.
"Everyone agrees this is more than a slight amendment to his proposal," Zimmermann said. "We are back to ground zero. We are going to run it by the neighborhood and see how it flies."
Zimmermann said the city should work with Sabri because his plan relieves serious parking problems around Karmel Square . Dovolis said the project includes 158 parking spots — or 60 more than code requires.
The city allowed Karmel Square to open with insufficient parking, expecting the Elroy site to pick up the slack. Parking problems got out of hand when the Elroy site project stalled, Zimmermann said.
Sabri was indicted in the bribery scandal of former City Councilmember Brian Herron, Zimmermann said. The courts eventually dismissed the charges against Sabri, but the controversy sidetracked development.
That left two years for parking problems to build in the neighborhood — and two years for market shifts to affect redevelopment plans.
Tom Reynolds, executive director of the Whittier CDC, said light-industrial space was not economically viable anymore. Other Somali markets, called souks, got built during the last two years, reducing demand — and rents from the immigrants’ souk, and commercial space, was going to subsidize the light-industrial project.
Karmel Properties would need to charge $12.50 a square foot for light-industrial space to cover costs, Reynolds said. Market rate is $4.50 to $8.50 a square foot.
"If you are talking about a 26,000-square-foot portion of the building, we would have had to subsidize about $110,000," he said. Without the souk "we can’t carry the deficit."
Zimmermann and Olson said Sabri told them he changed the project because prospective Elroy light-industrial tenants had leased other properties from him.
"He doesn’t want to build that and compete against himself," Zimmermann said. "That is why he changed his proposal."
In addition to possible city approvals, the new plan has at least one technical hurdle. The city earmarked $62,000 of Minneapolis Industrial Land and Employment Strategy (MILES) money for the project. MILES dollars support higher-density industrial developments with mid-range-paying jobs, Olson said.
Sabri’s original light-industrial businesses met the MILES requirements, according to an MCDA staff report. Now, MCDA has to figure out whether it can repay that money and drop light-industrial from the plan, Olson said.