Developer loses exclusive development rights, may lose interest in big housing-retail project
Sherman Associates’ $100 million Lake Street/Nicollet Avenue housing and retail redevelopment plan — including reopening Nicollet through what is now Kmart — has hit a brick wall.
Sherman’s exclusive development rights expired Jan. 12. The Minneapolis Community Develoment Agency’s (MCDA) Operating Committee voted 5-1 on March 4 "to take no action" to extend those rights, directing the Planning Department to create development objectives for the area. City Councilmember Dean Zimmermann (6th Ward) voted no.
A Sherman executive said prior to the meeting that without exculsive development rights, they would not continue with the two-block-plus project, even after spending $600,000 on it over three years.
"The work we have put in to-date probably would be sitting out there for anybody to use — or it may just be thrown away," said Loren Brueggemann, Sherman’s vice president for development. "We won’t keep investing and keep working on the project if we don’t think we have established rights."
Financing problems forced Sherman to scale back. The latest plan has a new Cub store on the northwest corner of Nicollet and Lake, the spot formerly slated for Kmart or another discount big-box retailer. Sherman’s plan has 400 new housing units — up from the 300 units proposed earlier.
Big-box retail is gone, however. Sherman now envisions putting the tax-exempt Hennepin County Family Medial Center, 5 W. Lake St., on the northeast corner of the Nicollet-Lake intersection.
City Councilmember Dan Niziolek (10th Ward), who represents the area southwest of Nicollet and Lake, said the intersection’s corners are prime retail spots, and the clinic is a bad fit.
"It puts a clinic on one of the most marketable retail spots," he said. "I don’t see the benefit of keeping [Sherman] on."
Niziolek said he also wanted the redevelopment plan to look at all four corners, not just the area north of Lake.
Facing financial realities
Sherman Associates’ current plan has a $3 million funding gap, according to Jim White, MCDA senior project coordinator. Several financial hurdles block Nicollet’s reopening and the Kmart site’s redevelopment.
White said Kmart initially wanted to participate in the project, but now is under the protection of the bankruptcy court.
MCDA’s site review did not find sufficient blight to qualify for a redevelopment district, which would provide the project the most subsidy. The project could qualify as a "renewal and renovation district" with smaller financial benefits, he said.
And because the Kmart site is in an existing tax-increment district, developers must pay $700,000 to $800,000 in debt before any redevelopment can happen, White said.
Sherman’s Brueggemann said at least one major discount retailer is still interested in the site, but Sherman dropped it from plans because project funding sources couldn’t support a second parking ramp.
"To have another large-box retailer, you ended up with a 600- to 700-car parking structure that costs $12,000 per vehicle," he said. "There wasn’t the dollars available to do it. If you can’t build huge structured parking ramps, you can’t have two big box retailers."
Brueggemann said he did not know if the clinic was the most appropriate use of the corner, but the development needed another major player with the money to make the financing work.
"You can’t put a bunch of small retailers in there, they can’t afford the acquisition and redevelopment expenses," he said. "You have to have something else major. I don’t know what that is."
Public support for Sherman
Zimmermann, who represents the area north of Lake Street, agreed that the Medical Center proposal was "underwhelming." And he supported a larger planning process for the area.
"There is no problem having a public discussion on this," he said. "The more input you have, the better we will come up with a solution."
At a recent meeting of the Nicollet/Lake Commons Task Force, a joint body of Lyndale and Whittier neighborhood organizations, some strongly criticized a proposed design charette for the area.
Becky Olson, former Whittier Alliance vice president, said councilmembers needed to pay attention to people in the neighborhood who have worked with the Sherman project for a long time.
"This upsets me a whole heck of a lot," Olson said.
Zimmermann said he understood the frustration of those who want to see Nicollet reopened.
"I can appreciate their impatience. I am a little impatient myself," he said. "Until we can strike a deal with Kmart so they can relocate, it will be hard to move on it."