Vacancies plague key intersection in downtown Minneapolis

Over the past six months, all four corners of 7th Street and Nicollet Mall — for decades the heart of the retail scene in downtown Minneapolis — have been empty.

Mary Tyler Moore in 1970 exuberantly tossed her hat among the crowd of shoppers at that intersection, creating the TV moment that would symbolize the city to the nation for years.

Today's real-life dramas of the owners and tenants on that corner tell a bigger tale. An acceleration of retail store closings in the Twin Cities and across the country is pushing property owners into upheaval, forcing them to try new strategies to fill spaces that are often cavernous and awkward.

The tally of closings this year is huge and growing. Mall staples Wet Seal and the Limited are gone. Bebe, Teavana, Gymboree and BCBG are closing hundreds of stores. Sears is closing about 400 Sears and Kmart stores, J.C. Penney nearly 140. And Macy's closed 68 stores, including the 1 million-square-foot behemoth on the western corner of 7th and Nicollet that was once the flagship of the Dayton's chain.

But the air of a retail graveyard at 7th and Nicollet will end this week when Nordstrom Rack opens Thursday in the IDS Center. And last month, the former Sports Authority store in City Center gained an unconventional, temporary tenant — the volunteer offices for the 2018 Super Bowl.

"Downtown is at a pivotal point right now where there are opportunities for the building owners to really reinvent and recreate downtown shopping and experiences," said Tricia Pitchford, senior vice president for leasing at Mid-America Real Estate-Minnesota, which specializes in retail real estate.

The corners at 7th and Nicollet show four different ways those opportunities are playing out.

Signs outside City Center still advertise Sports Authority. But where there used to be racks of running shoes and sports gear, people are working on the country's most-watched sporting event.

The space is the headquarters for "Crew 52," volunteers who will help welcome visitors when the Super Bowl is played in Minneapolis in February. "We chose this location because of its proximity to the action in downtown Minneapolis," said Michael Howard, spokesman for the Minnesota Super Bowl Host Committee.

The office in coming weeks will see approximately 15,000 potential volunteers strut through its purple walls to be vetted and later assigned. The odd mirror still stuck to a store pillar is the only sign of its past retail life.

A subsidiary of Chinese conglomerate HNA Group purchased City Center and the adjoining 33 South Sixth office tower for $315 million, a record for any Minnesota building.

The three-level mall has had a revolving door of tenants over the last few years. Office Depot quit its space in 2014, after it merged with OfficeMax. Some restaurants have left and the 300-seat New Century Theatre quietly closed in May. Sports Authority, which took the mall's corner of 7th and Nicollet in 2015, closed after just one year when the Colorado-based chain went out of business.

Shoppers still frequent the Marshalls located in the basement. More than a year ago, Saks Off Fifth moved from Gaviidae Common into two floors of City Center that were formerly occupied by Office Depot. "We're pleased with our performance" in City Center, a spokeswoman for Saks Off Fifth said.

City Center's skyway level is very much alive with restaurants and shops that include Brooks Brothers, Union 73, Pacifier and Allen Edmonds. According to real estate services firm CBRE, which manages City Center for HNA, the complex "has some of the highest daily traffic of all downtown properties."

"The retail team is considering all options and has received a good amount of interest in [the former Sports Authority] space," CBRE said in a statement.

Across the street at Gaviidae, broker Kim Perry has had her work cut out for her.

For more than a year, she has sought a retailer to sublease about 14,000 square feet that Walgreens doesn't use on the eastern corner of 7th and Nicollet. The highly visible storefront should be appealing for retailers, but the two-year reconstruction of Nicollet Mall and the empty storefronts nearby have hurt.

"When people come in, especially retailers, and they tour a city, they want to see people," said Perry, who owns brokerage firm Minnesota Real Estate Dynamics. "They want to see foot traffic.

"When they see a few vacancies in the immediate area, of course it's hard for them to visualize," Perry said.

In 2014, local developer United Properties purchased part of the first two floors of Gaviidae Common, where Saks used to be, and agreed to rent the space to Walgreens. While the drugstore chain built what it called a "higher-end marquee" store, it's a far different type of retailer than the ones that used to be there — Saks, Neiman Marcus, Cole Haan, and even the Donaldson's department store, which occupied the block for decades.

"The wind has kind of gone out of those sails as there are easier and better and more efficient ways to buy those goods," Keith Ulstad, senior vice president of retail investment and development at United Properties.

"But in the meantime, downtown has slowly been filling up with bodies that live here even after 5 o'clock and those people need retail, but it's a very different retail," he said. "That's why you see a Walgreens flourishing on a corner that used to be the iconic corner for department stores."

One big addition coming to Gaviidae next year will be the YMCA of the Greater Twin Cities, which is currently building its new headquarters and downtown branch there. And United Properties itself has moved from Bloomington to office space it purchased at Gaviidae.

The best-known retailer at 7th and Nicollet is the store that many people still call Dayton's. More than a century ago, the Dayton's name first appeared on the block and over the years the flagship store developed a reputation as the go-to shopping destination for Minnesotans.

For its last decade, the store operated as a Macy's before it closed in March. New York-based real estate investment firm 601W Cos. purchased the property for $59 million and plans to turn the three-building complex, now just a skyway corridor, into an office and retail destination.

United Properties is the main developer but has remained mum on details for the property. Mid-America, which is handling retail marketing and leasing, has said it may someday hold an entertainment venue, food hall, restaurants as well as other retailers.

"We need to do more to bring people in, and so 'experiences' is really the key word for any type of retail to try to attract shoppers," said Pitchford, who is part of the lead retail leasing team for the project.

Pitchford said the goal is "to create a unique experience" that caters to people already in downtown. Many of the retailers in the remade Macy's building will likely occupy spaces that are relatively small; the largest will be around 10,000 to 15,000 square feet, she said.

The closing of the Gap in 2015, created a giant empty space at the bottom of the city's tallest skyscraper, the IDS Center.

But this week, Nordstrom Rack will open a 40,000-square-foot store, taking first-floor space abandoned by Gap and basement space that hasn't been used since 2004, when it housed a TJ Maxx store. Nordstrom Rack, which offers luxury brands at discounted prices, reportedly had been on the hunt for space in downtown for a couple of years before settling on IDS Center and its Crystal Court.

"We've been eager to find a location for Nordstrom Rack in downtown Minneapolis and are thrilled to open at Crystal Court," a Nordstrom spokeswoman said in an e-mail.

IDS Center general manager Deb Kolar said landlords need to look at retail trends when they try to find new tenants. "What is working for retail right now is discount," she said.

The IDS Center's Crystal Court has been lucky with tenants occupying most of its 166,000-square-feet of retail space. After fast-casual restaurant Cosi closed amid filing for bankruptcy last year, the building was in negotiations with its successor, Roti Modern Mediterranean, just a few weeks later.

She hopes that Nordstrom Rack will attract other retailers back to 7th and Nicollet.

"The big-box era is gone," Kolar said. "It's incumbent on ownership to rethink how to use that space and how do you break it up and how do you lease it differently."

Nicole Norfleet • 612-673-4495

Twitter: @nicolenorfleet