Schafer: Developers should look beyond destruction and see waiting customers

The Bismillah Grocery & Coffee shop was a block from the intersection of E. Lake Street and Chicago Avenue in Minneapolis. It was destroyed by fire last May, a few days after the murder of George Floyd about eight blocks down Chicago Avenue. Where it stood is today an empty lot.

Building owner Frederick Hribar explained he had operated a typewriter-services shop there for decades and the grocery entrepreneur was his latest tenant. The building was built in 1962, according to Hennepin County, which last estimated the market value at about $200,000. Construction costs these days suggest you would have to be frugal or lucky to replace it for $400,000.

You can't rebuild old and cheap.

That's one of the worries a year after hundreds of businesses on Lake Street and some other parts of Minneapolis and St. Paul were damaged or destroyed in a few days of chaos. With many of the old structures now gone and new buildings costing so much, there will be fewer places for any entrepreneurs with more hustle than capital to set up shop.

It's a little like a term used in affordable housing called NOAH, which stands for "naturally occurring affordable housing." These buildings along Lake Street had lower rental rates not because they were subsidized but because they were old.

An even bigger thing to worry about is nothing appearing on those sites anytime soon. It's hard enough to convince businesses and their customers that the area is healthy and getting stronger without having them go by empty lots.

A lot may remain vacant just because the owner did not have the insurance proceeds to rebuild anything comparable. They don't have the expertise or maybe the patience to be in the real estate development business anyway.

What they own is a vacant lot that would be of value as part of a redevelopment site, as Hribar does. So they wait.

This end of the market, for space in commercial buildings for cafes, stores and other small businesses founded by what CEO Mike Temali of the nonprofit Neighborhood Development Center (NDC) called "neighborhood entrepreneurs," doesn't use fancy terms like a "net lease."

The prospective tenant will walk through the space, be told rent's $1,800 a month plus utilities and then figure out if he or she can afford it. As a rule of thumb, that expense can't be more than 10% of gross sales, Temali said.

The NDC has long been active along Lake Street as well as in its hometown of St. Paul. Temali described, from a recent project in St. Paul, how NDC creates the kind of deeply affordable spaces a thinly capitalized local entrepreneur can afford.

"We went to all the time and trouble to make sure we raised the money to make the ground floor affordable," he said. "Which is a heavy lift."

As "heavy lift" implies, nonprofits might have good intentions, many friends around the neighborhood and deep professional expertise, yet they still don't have much of their own money.

Investors use the term "capital stack" to describe all the pieces of financing, with secured bank loans on the bottom and the owners' own equity contribution at the top. Staffers at nonprofits work with what they call the "subsidy stack" and it's often even messier, with a slew of grants, donations, low-cost loans and so on stacked on top of each other to fully fund a project.

It can take years to assemble.

Governments have money, too. But ask business owners in Minneapolis what they expect from the government, and you might not hear much about grants or low-cost loans. You will hear about how the city needs to get better at providing the basics. Getting a building plan reviewed and a permit issued doesn't have to be a monthslong slog.

The city also needs to take care of its own property. There has been research into the effects on home values when there's a blighted house on a block. Not sure if anyone has done any similar research on how many burned-out police stations it takes to depress values along a commercial strip, but it seems pretty obvious one is bad enough.

It was an extraordinary series of events that led to the crisis last year at the Third Precinct station on E. Lake Street. But the station still stands there vacant, with visible fire damage and surrounded by concrete barriers and metal and wire fencing. It's as much of an eyesore as anything along the entire length of Lake Street.

Across the street from the station, a Target store was ransacked and damaged. But no one at Target waited for the city of Minneapolis to get its act together. Our big hometown retailer announced its intention to renovate and reopen its Lake Street store the same day the Bismillah Grocery & Coffee store burned.

Target, which declined to say how much money it poured into this renovation, reopened there in November.

Across the street, a new store for AutoZone is nearing completion.

Cub Foods reopened its fully renovated store a short walk away in February after serving customers for months from a temporary space in the parking lot.

On the other side of Hiawatha Avenue and the light-rail station from the Target store sits Hi-Lake Shopping Center, also being rebuilt and nearing completion. At least one new national retailer, Burlington, will be opening there.

These organizations had insurance, capital or both.

But don't miss what their decisions and actions really tell us: Customers didn't go anywhere. The opportunity on Lake Street and in the other damaged areas still exists. Target recognized that immediately. And others came to quickly understand it, too.

What determines the kind of buildings a community has and how they are used are the people nearby and what they want to spend their money on. The customers of small businesses like the Bismillah Grocery are all still out there, too.

More funding from philanthropists and better leadership and financial support from government would ease the hard job that lies ahead for entrepreneurs.

But there's no question business owners will bring Lake Street and the other neighborhoods back. It's only a question of when.

lee.schafer@startribune.com • 612-673-4302