Council committee approves purchase of Kmart land

City Council set to vote on the $8-million deal — a step toward reopening Nicollet Avenue — later this month

Kmart has blocked Nicollet Avenue at Lake Street since the late '70s. Photo by Michelle Bruch

The city is moving toward completing its purchase of the land beneath the Lake Street Kmart store by mid-September, a small but potentially significant step toward reopening Nicollet Avenue.

Closing the deal would give the city “certainty” that Nicollet Avenue will one day be reconnected, said David Frank, the city’s director of economic policy and development, although he acknowledged it could be years or decades before that happens. In the meantime, the purchase would make the city Kmart’s landlord.

On Tuesday, a City Council committee voted unanimously to exercise the city’s $8-million purchase agreement for the 7-acre site at 10 W. Lake St., currently owned by Lawrence and Susan Kadish. The plan goes to the full council June 30.

But Kmart’s parent company, Sears Holding Corporation, has a separate operating lease on the site that runs through 2053. It has so far rejected city offers to move into a new building as part of a larger redevelopment plan for the site.

“When I say we’re buying certainty, I mean it might be 36 years. I sure hope not,” Frank said while briefing reporters the day before the committee vote.

He called the 1970s decision to allow Kmart to build a store essentially on top of Nicollet Avenue, severing the street grid for decades to come, the “worst planning mistake in city history.”

The city has been trying to work out a deal with Sears Holding Corporation since late 2015, when it negotiated an option agreement with the Kadishes and put down a non-refundable $800,000 toward the purchase of the ground lease. The city already owns 30 W. Lake St., an adjacent property that formerly housed a Supervalu grocery store, which it purchased for over $5 million in 2015.

Working with Ryan Cos., the city developed a proposal to build a new Kmart building on the same site, only “rotated” to allow for the reconnection of Nicollet Avenue, Frank said. The proposal was for either a mixed-use or a stand-alone development with a parking structure on the site.

But the two sides couldn’t come to terms, even after the city offered to subsidize Kmart’s rent.

Sears Holding Corporation was offered a rate of about $14 per square foot — a rental rate one-third less than the estimated market rate of $21 per square foot for a new building on the site, according to the city. That was roughly equal to a $5-million one-time subsidy from the city just to get Kmart into a new home on the same site.

According to a staff report, Kmart rejected the proposal, demanding rent set no higher than what the store currently pays, a “seamless transition” into a new home and help with moving costs. It also noted that the $5 million subsidy was “not close” to what it would have expected if the city instead offered to buy out the remainder of its lease.

In a statement released by Kmart late Monday, the company said it shared the city’s vision for a reopened Nicollet Avenue — as long as the store remained in the neighborhood and did not close during redevelopment.

“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% increase in rent the first year with a 50 percent increase over the next 20 years. No business would ever agree to these terms,” the statement read. “It is disparaging to read comments from city staff hoping for the demise of our store and business. We provide reliable jobs to the neighborhood. 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.”

The landlord on the operating lease, a Kmart affiliate known as Troy Coolidge No. 42 LLC, is also listed as the tenant on the ground lease the city will take over from the Kadishes after the purchase. Coolidge currently pays $115,556 per year in base rent. As landlord on the operating lease, it has the right to sublet the Kmart space without the city’s consent.

Addressing the City Council’s Community Development and Regulatory Services Committee on Tuesday, Frank said the city’s adopted plans for the Nicollet & Lake area call for mixed-use, multi-story development. He said redevelopment of the site would bring needed jobs, housing and retail to the area.

Ward 7 City Council Member Lisa Goodman, who chairs the committee, described the impending purchase as “a long time coming.” Council members Lisa Bender (Ward 10) and Elizabeth Glidden (Ward 8) credited their former colleague, Robert Lilligren, who previously represented the area, for keeping the reopening of Nicollet Avenue high on the city’s list of priorities.

Before the vote, committee members approved two amendments introduced by Council Member Alondra Cano. They directed staff to study and report back on how the city can support both current residents and business owners that potentially will be displaced by future redevelopment associated with the reopening of Nicollet Avenue.