Why new development on Minneapolis Kmart site is at least four years away

When the Kmart store in south Minneapolis closed in summer 2020 it was meant to pave the way for the long-sought reopening of Nicollet Avenue. But new construction is at least another four years away.

A number of factors are behind the long timeline for the redevelopment: The aftermath of riots in the city, a lengthy public planning process, expected financing challenges for affordable housing, and the city's caution about delivering a redevelopment with wide appeal at a closely watched urban site.

"The city just doesn't want to get it wrong again," said Brandon Champeau, senior vice president of commercial development with Minneapolis-based United Properties. "It's a balancing act."

The city welcomed Kmart to the site in 1978 as part of an effort to revitalize the area around Nicollet Avenue and Lake Street. The move meant blocking Nicollet as an incentive for the retailer but it launched a decadeslong effort by many City Council members and community leaders to undo the decision.

Before any buildings rise on the 10-acre site, the city needs to build a section of Nicollet Avenue to reconnect the street.

"The street, if everything stays on track, would start construction in the spring of '25. We may be able to then see building construction two years later," said Rebecca Parrell, project supervisor for the city's Community Planning and Economic Development agency.

"That's a really long timeline. They have to be transparent," Mike Finkelstein, president of Maven CRE, a Minneapolis-based commercial real estate advisory firm, said of the city's process.

The Kmart store was in its final weeks of business when George Floyd was killed by Minneapolis police. Plans for its demolition, originally envisioned starting in late 2020, were halted after riots erupted following Floyd's murder.

The nearby Lake Street post office was among the more than 1,500 buildings damaged and the city leased space in the former Kmart to the Postal Service until a new building could replace it.

Demolition of the former Kmart could start in early 2024.

City redevelopment goals include affordable housing, creating opportunities for community businesses and re-establishing a shopping district on the site. But none of the specifics — how many units of housing, how many square feet of commercial space, how much public space the area will include — are known at this time.

"We expect that the cost estimates ... could vary widely based on the project design and scope," spokeswoman Sarah McKenzie said.

The city spent $22.4 million starting in 2015 to acquire control of the site. Last May, the city approved spending $500,000 to demolish the former grocery store that stood next to Kmart; it was torn down in October.

The city has three phases of engagement scheduled to collect feedback from residents about the site, a process that will run into 2024.

"I'm glad they're casting a wide net," said Jeff Carlson, community education coordinator for the Whittier Community School.

Carlson said that the majority of students at the school live near the Kmart site.

"For the neighborhood, this is like our downtown. People want it to be safe and feel welcoming," he said. It will be important for a project with a mix of housing and commercial uses to be a welcoming place for children and families, Carlson said.

Finkelstein said he sees the Kmart site as a good spot for retail and potentially even recreational and entertainment concepts. "It's Main and Main. It's a very good opportunity for neighborhood retail," he said.

The area also will gain more affordable housing with Wells Fargo partnering with Project for Pride in Living, a Minneapolis-based nonprofit, to redevelop a heavily damaged bank branch into a $58 million, 110-unit project at 3030 Nicollet Av.

Construction is expected to start this year and the development will include a new Wells Fargo branch. A planned second phase would add more units.

Champeau said that a major issue for the Kmart site will be finding a way to strike the right balance of housing and retail.

"The biggest challenge is you've got a number of neighborhoods that converge there, so how do you really prioritize the needs of those different neighborhoods?"