Why Kmart still stands at Lake and Nicollet as other Minnesota outlets close down

Kmart on Lake Street in Minneapolis.
The Kmart on Lake Street in Minneapolis will be the last in Minnesota when stores in St. Paul and International Falls close on Sunday.
Matt Sepic | MPR News

Two of the last three Kmart stores in Minnesota are set to close Sunday. That means the Minneapolis store that blocks Nicollet Avenue at Lake Street — as it has for more than four decades — will be the retailer’s sole remaining outpost in the state.

City leaders have long hoped to reopen Nicollet. But given the history of development at the site, that won’t be easy.

After years of setbacks, work finally got underway in 1977 on a development that some future leaders would call one of the worst planning decisions in Minneapolis history.

The original proposal was far more ambitious than just those two stores, and it did not involve closing Nicollet Avenue. A plan from 1972 envisioned dual indoor malls with dozens of retailers. Planners also hoped to include a bowling alley, a cineplex and a health club.

The city borrowed $8 million to pay for the project; that’s about $35 million adjusted for inflation. It was among the first instances of Minneapolis using tax-increment financing, where revenue generated by the development would be used to repay bondholders.

Lee Munnich, a council member at the time, said those ambitions ran smack into a moribund mid-1970s economy. Retailers were uninterested, and the city was in a bind.

Former Minneapolis City Council member Lee Munnich
Lee Munnich, pictured at his home in 2017, served on the Minneapolis City Council in the 1970s.
Matt Sepic | MPR News

Munnich said the only suitor was Kmart, and the company drove a hard bargain.

They demanded the city shoehorn a standard suburban-style big-box store onto a city lot. That meant closing Nicollet at Lake Street permanently. Munnich voted yes.

“So, it was really a question of — ‘Do we accept the Kmart proposal and close Nicollet Avenue, or do we have nothing happen at Nicollet and Lake for who knows how long?’” Munnich said.

Forty-two years later, city officials hope to reopen Nicollet and run a modern streetcar up the avenue and through downtown. In 2017, council members took a step toward that goal by purchasing the 7-acre Kmart parcel.

But that was just a small step. Even if the twice-bankrupt Kmart closes its last Minnesota location —and there’s no indication it will — the Kmart affiliate that rents the land from the city has a lease that doesn’t expire until 2053. This affiliate also has the right to sublet the land to someone else without the city’s consent.

City officials tried to coax Kmart into building a new store rotated 90 degrees to face Nicollet. Even with proposed subsidies, the company rejected the offer.

Kmart on Lake Street in Minneapolis.
After two Kmart stores in St. Paul and International Falls close this Sunday, its Minneapolis store that blocks Nicollet Avenue at Lake Street will be the retailer’s sole remaining outpost in the state.
Matt Sepic | MPR News

It’s not hard to see why. Today, Kmart pays the city just 38 cents per square foot each year to rent the land. That’s 52 times below the market rate. Herb Tousley, who heads the real estate program at the University of St. Thomas, thinks Kmart would probably entertain the right offer from the city.

“In my mind, the question is: How motivated are they to make this happen? There’s a number out there that they could buy out that lease that Kmart would agree to. But it’s going to be a big number,” Tousley said.

For its part, the holding company TransformCo — which owns Kmart — declined to tip its hand to MPR News.

David Frank, planning director for the city of Minneapolis, said owning the land, as well as the shuttered SuperValu next door, gives the city leverage.

“We have rights as the landowner. And of course, we are the regulating agency for any new development that someone might propose on the site if they acquired the lease interest. So, we have lots to say,” Frank said.

Munnich, the former City Council member, said with four decades of hindsight, he probably would have voted differently.

Former Minneapolis City Council member Keith Ford.
Keith Ford, pictured at his home in 2017, served on the Minneapolis City Council in the 1970s.
Matt Sepic | MPR News

Keith Ford, also on the Minneapolis City Council back then, agrees that closing Nicollet wasn’t such a good idea. But Ford has no regrets about bringing in Kmart and SuperValu.

“That was wonderful to have a real grocery store in the neighborhood, and then to have clothing, shoes and all the other stuff you can get at a discount store available at low prices for the neighborhood,” Ford said.

As the city seeks to redevelop the Lake-Nicollet area yet again, Ford reminds his successors that many people of limited means live in the neighborhood and just want an affordable place to shop.

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