Shell Game

The old Sears complex isn't filling up with new tenants, but there's more than enough rancor to go around

There aren't many outward signs of life in the hulking old Sears complex at the intersection of Chicago Avenue and Lake Street in south Minneapolis. Grass sprouts through the parking-lot asphalt. Since Sears abandoned the 72-year-old site at the end of 1994, graffiti artists with no fear of heights have left their marks on the brown bricks high up on the main building. An American flag flaps atop the tower. A sign facing Lake Street touts the redevelopment of the complex as the Great Lake Center and lists the numerous government agencies that have lined up to help fund the $100 million project, which is to encompass a whopping 1.9 million square feet in the Phillips neighborhood.

But so far STA Development Corp., which has owned the 19-acre site for more than two years, has managed to attract only a handful of tenants. The primary occupant is a nonprofit organization called Minnesota Diversified Industries (MDI), whose tenancy predates STA's purchase. And all is not harmonious between tenant and landlord. MDI sued STA for breach of contract this past spring in Hennepin County District Court, alleging that the developer has refused to replace an increasingly leaky roof.

While its owner clashes with the city, the Sears building languishes
Michael Dvorak
While its owner clashes with the city, the Sears building languishes

MDI general counsel Elmer B. Trousdale believes STA doesn't have the money to fix the roof and is delaying repairs while trying to line up more financing. "What they want to do is replace the roof as part of a major redevelopment of the entire three-building complex, and we don't think that they have the financing in place for that," asserts the attorney. "But their duty to replace the roof is not conditional on their getting money to redevelop the entire area."

STA has countersued, seeking to evict MDI for violating its lease. "They've never been happy with the lease that we negotiated with Sears," retorts Trousdale, who says that until MDI filed its lawsuit STA hadn't raised any objection to the majority of issues mentioned in the counterclaim.

STA president Ray Harris says he can't discuss the lawsuit. As for Trousdale's statement that his company is short of funds, he says, "I'm not in a position to give you a response on that. I don't think that's the issue." Yet at an August 31 hearing in the matter, STA attorney Virginia Bell told the court, "We do not have the funds to replace the roof at this point," and argued that placing MDI's rent in escrow to help pay for the roof would create a "hardship" for STA.

Ray Harris is perhaps best known as the developer of Calhoun Square, which opened in 1984 at the intersection of Lake Street and Hennepin Avenue, and whose anchor tenants now include Famous Dave's, Figlio, and Borders. For a time he also held development rights to the City of Minneapolis's star-crossed Block E parcel downtown, which he lost when he was unable to secure financing. At 140,000 square feet, Calhoun Square is less than one-tenth the size of the Sears complex, which Harris says is "twice the size of the IDS building" in terms of available space. Harris will also tell you that few developers boast a résumé that includes what he's trying to pull off. "No one's done a 19-acre, 1.9-million-square-foot renovation," Harris says. "It's one of the largest in the country."

He and his partners first expressed interest in the Sears complex in 1997, after other redevelopment attempts there had failed. They purchased the site in 1998 for $5.9 million, with a $2 million mortgage assist from the Minneapolis Community Development Agency (MCDA) and a $200,000 grant from the Powderhorn Park Neighborhood Association. A 1999 MCDA state filing on the project waxed confident about a $98.4 million complex with a mix of light-industrial and retail use that would bring about 4,000 new jobs to an economically troubled area of south Minneapolis. But today the agency is singing a gloomier tune.

In a June letter to the developers, an exasperated MCDA executive director Steve Cramer tallied the substantial amount of money the MCDA had helped bring to the table to date: more than $23.6 million in public funds, including the MCDA's mortgage; $8.5 million in federal grants and loans for a planned parking garage; $4.5 million from the Metropolitan Council for pollution abatement; $3 million in state bonding money to help Hennepin County acquire space; and more than $3 million for a planned Metro Transit hub. The federal designation of Minneapolis as a so-called Empowerment Zone helped the project secure another $1.4 million in federal grants, Cramer noted; with an additional $17 million in public funds required to complete the parking garages, public investment in the project would top $40 million. But while public money has flowed in--$7.2 million has been spent to date, according to the MCDA head--STA has generated precious little cash of its own. Wrote Cramer: "Now is the time for STA to do its part to get the project underway."

Two key potential tenants, Hennepin County and Allina Health System, have not committed to the project. Richard Johnson, deputy Hennepin County administrator, says the county is interested in locating a service center and some offices on the property, and perhaps a medical clinic as well. But Harris, he says, is asking too much for the space. "We're committed to the area, but it has to make some economic sense for us," asserts Johnson, adding that the county rejected STA's most recent proposal. Allina spokeswoman Sarah Stoesz says the Minnetonka-based healthcare company has not yet come to a decision on whether to relocate its corporate headquarters to the site: "We're not sure yet that that building is going to meet our needs."

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