Southtown Herberger's and Toys 'R' Us in Bloomington could be torn down

Two buildings that once anchored Bloomington's Southtown mall could be demolished before the end of the year, after the City Council voted Monday evening to declare them "structurally substandard."

Demolition would free up space at the mall and Bloomington is opening the door for tax incentives for owner Kraus-Anderson to redevelop it.

"This is just one small step to a long process yet to come," said Jason Schmidt, assistant administrator of the Bloomington Port Authority, the city's economic development arm. But he said this could be an opening for the kind of pedestrian-friendly redevelopment the city has hoped for along Penn Avenue over the last decade.

Kraus-Anderson touted the mall's high occupancy rates after the 2008 recession. But more recently, major tenants have disappeared as big-box retail chains have gone out of business. The Herberger's building has been vacant since the department store chain shut down in 2018, and the Toys "R" Us store was emptied in 2015. Bed Bath and Beyond closed its Southtown store earlier this year.

The Bloomington Port Authority has not committed to public funding for any redevelopment of Southtown, but the port commission will vote next week to declare the buildings substandard — which creates the possibility of future tax incentives.

The intersection of Penn Avenue and American Boulevard has been a target for development in Bloomington for the last decade. The city has sought to move away from the big-box stores that have defined the area along Interstate 494, with hopes of creating something more urban-feeling, similar to the mixed-use development around the Bloomington Central light-rail station.

To spur that redevelopment, Bloomington will consider creating a tax increment financing (TIF) district around Southtown, according to city meeting documents. A TIF district directs the increased property taxes that come from redevelopment of a specific area toward that development for a set period of time, rather than letting the new tax revenue from higher property values go toward general services like police, fire and schools. Good Jobs First, a nonprofit that advocates against the use of TIF, estimated Bloomington lost out on more than $1.3 million in tax revenue in 2022 because of TIF.

Schmidt said Bloomington would use incentives to push the kind of denser, pedestrian-friendly development the city has been hoping to build along Penn Avenue and American Boulevard.

Bloomington's city planners have seen Southtown as an area ripe for redevelopment, especially after the Orange Line bus rapid transit connected the mall to south Minneapolis and downtown. But past attempts to change the makeup of the mall have sputtered.

Eight years ago, the city and Kraus-Anderson clashed on a proposal to rezone Southtown to push development of more pedestrian-friendly retail and higher-rise apartments, hotels and offices, rather than big-box stores surrounded by acres of parking lot.

Kraus-Anderson proposed demolishing the Herberger's store and Southtown Lanes bowling alley in 2021 to build a Hy-Vee grocery store and liquor store, with the possibility of building high-rise office and apartment buildings around the shops. The company withdrew the proposal a few months later.

Kraus-Anderson does not have plans for the site, according to city meeting documents. The company did not immediately return phone messages Monday.