Down at the Depot

Mohid Elkhuffash's Smoke Depot is still standing, but for how long?
David Kern

"We will be open until April 30 of the year 2007," proclaims a sign tacked to the façade of the Smoke Depot. Inside, a crumpled cigarette butt smolders in an ashtray on the counter. Mohid Elkhuffash, the proprietor and sole employee of the tobacco shop at 4941 France Ave. S., has laid it aside in favor of a thick binder filled with wrinkled documents and clippings regarding the plight of his shop, perched on the border between southwest Minneapolis and Edina. As he leafs through his sheaf, Elkhuffash, a slight fellow with a sallow complexion and a flat-brimmed baseball cap tilted back on his head, keeps up a running commentary peppered with phrases like "bad-money men" and "false advertising."

A city-subsidized redevelopment project, he explains, is threatening to demolish the building and displace him. "We are a newborn business," he laments. "We've been open only two and a half years, and he tries to kill us, tries to keep our customers away. He makes false advertising and threatens us. It's some game to him. He's a man of no word."

"He," in Elkhuffash's estimation, is Pinehurst Properties, a Minneapolis real estate developer with a plan to elbow around the northeast corner of the intersection of 50th Street and France Avenue with a 40,000-square-foot retail and office complex that's slated to cost between $8.5 million and $11 million. Pinehurst has already demolished one building on the north end of the site--a small mall that once housed a Leeann Chin restaurant, a law firm, and various other tenants--and also purchased and demolished a neighboring house to make room for traffic lights and a new parking-lot entrance.

To complete the land acquisition for the project, however, Pinehurst must relocate the Smoke Depot, as well as an Amoco station on the busy corner of 50th and France. Delays in lining up tenants have left the project a year behind schedule, but according to Pinehurst principal Paul Maenner, the complex is preleased at 60 percent of capacity, and construction could begin by February. Thus far, however, the only visible sign of progress is a huge hole in the ground.

Across from Mohid Elkhuffash's shop, on the west side of France, stands a tidy row of upscale boutiques and salons. This is Edina, where property is currently assessed at $80 per square foot for tax purposes. On the more modest east side, where Elkhuffash's shop sits, assessed property value is $34.50 per square foot. Even the sunlight seems to be divided down the middle: On the west side it glitters in second-story windows, while across the street Minneapolis is cast in gloomy late-afternoon shadow.

In 1996 a task force of neighborhood businesses and residents on the Minneapolis side prepared a master plan with an eye toward the long-range commercial development of the area. After initial meetings between the developer and neighborhood residents, the city contracted with Pinehurst to redevelop the strip, and in 1998 the Minneapolis Community Development Agency (MCDA) issued a development plan that declared the retail strip at 50th and France "blighted" and "obsolete," and designated it as a Renewal and Renovation District.

According to Minnesota law, such a designation should be bestowed only on a site that is substandard, too obsolete for improvement, or hazardous to the "general well-being of the community." Although the Amoco station on the corner was found to conform to existing code requirements, it was deemed by the city to "seriously compromise traffic safety at a major intersection." The building that houses Mohid Elkhuffash's Smoke Depot was found to have substandard masonry, as well as defects in the steel support system. "During the past twenty years," the MCDA's report reads, "despite some public and private investment and modernization, the retail district has failed to remain competitive with the thriving commercial district located contiguous with it in Edina."

The difference between blighted and obsolete Minneapolis and bright and prosperous Edina, the MCDA concluded, is tax-increment financing (TIF)--a redevelopment strategy in which a city woos private developers to otherwise unattractive sites by offering them substantial property-tax breaks. In a successful TIF district, the increased tax revenue spurred by the redevelopment ultimately allows the municipality to recoup the lost revenue, and more. The Edina side of the intersection has been a TIF district since 1974, and apparently it's a successful one: By 1998 the five properties on the northwest corner of 50th and France had an estimated value of $2.25 million for tax purposes. By contrast, the estimated market value of the five properties on the northeast corner--in Minneapolis--was $1.5 million.

The way MCDA project coordinator Judy Cedar sees it, a TIF district on the Minneapolis side will even the disparity. "This is what you would call pay-as-you-go financing," Cedar explains. "The developer makes a loan to the city for site-assembly costs, purchasing the property, and relocation. Then the money will be repaid to the developer over 15 years in the form of taxes."  

The MCDA has agreed to subsidize up to $1.8 million in TIF financing to prepare the site. In addition, the city has pledged up to $430,000 from its general fund for traffic lights and a nearby municipal parking lot (which will require the demolition of five additional homes and which will ultimately be assessed back to neighborhood businesses through taxes). The developer is responsible for all other costs--an arrangement that is designed, Cedar points out, to place the risk on the shoulders of the developer. "Nobody is writing a check," affirms Pinehurst's Maenner. "People call it a subsidy, so people think the city's writing a big fat check to the developer to go do these things. But we're fronting all costs."

Barret Lane, who was elected in May to fill the southwest Minneapolis City Council seat vacated when Steve Minn took a job in Gov. Jesse Ventura's administration, was president of the Fulton Neighborhood Association in 1996 and facilitated the group's initial meetings with Pinehurst. "I've been able to support this thing because the developers really went out of their way to listen to neighborhood concerns," says Lane, adding that Pinehurst was especially responsive to neighbors' concerns about "commercial creep" and the increased traffic that would result.

Lane's fellow council member Doré Mead, however, questions the designation of 50th and France as a TIF district. "I'm very concerned about our heavy use of TIF," says Mead, who cast one of the two dissenting votes when the MCDA approved the plan in June 1998. At present there are an estimated 2,000 TIF districts in the Twin Cities, and by some estimates up to 13 percent of Minneapolis's tax base is tied up in TIF. "We shouldn't impose it so casually," Mead continues. "It may be an indication as to why we spend so much--it's reflective of not placing a high enough priority on growing the city's tax base."

Mead's concern--and one often cited by critics of tax-increment financing--is that a project that doesn't add to the tax base for 15 years may actually raise taxes on the rest of the city. A redevelopment project in "blighted" southwest Minneapolis, in other words, may be indirectly financed by tax revenue from other neighborhoods. "Frankly, I was stunned to see a proposal come forth for 50th and France," Mead says. "In my perspective it's a real stretch to call that a blighted area." In her view the critical question is whether a development could take place without public assistance; if so, shouldn't it be developed privately? "There's always what they call the 'but-for test,'" she explains. "Would this project happen without the city's assistance? I'm not convinced that test was satisfied."

 

According to the terms of its deal with the MCDA, Pinehurst is responsible for negotiating relocation settlements with property owners and businesses. In July 1998 Mohid Elkhuffash received a letter from Evergreen Land Services, a Minnetonka firm working for Pinehurst, informing him that the developer was negotiating with his landlord, Patrick Dowd, to purchase the building in which the Smoke Depot is located, and giving him 90 days to relocate. The sale never materialized, and the Smoke Depot remained.

Pinehurst subsequently had the store's fixtures appraised and made Elkhuffash an offer: $32,446. He refused, Elkhuffash says, because he was reluctant to cede his prime location, and because the new site the developer suggested, on Excelsior Boulevard in St. Louis Park, was only a block away from another tobacconist.

Pinehurst's Maenner declines to comment on specifics but says Elkhuffash's "wildly unrealistic" expectations for a settlement would have made further negotiations unproductive. Negotiations with Amoco likewise fizzled, Maenner acknowledges. (An Amoco spokesman says the company has no comment on the situation, but in the past the firm has expressed its unwillingness to sell.) As a result, Pinehurst must petition the city to force the issue.

The MCDA redevelopment plan for the project stipulates that if the developer is unable to negotiate the relocation of existing businesses, the city will invoke eminent domain to condemn the buildings. This stands to reason, says the agency's Judy Cedar, because on such projects site assembly is normally the city's responsibility. "Traditionally we would sell bonds, go out and purchase the properties, assemble the site, and sell it to a developer," says Cedar. "In this situation we just borrow money from the developer."

It's all very complicated to Mohid Elkhuffash: wheels within wheels--or, as he has grown fond of saying, "game-players playing games." Frustrated, he has mounted a countercampaign of his own, passing out leaflets, and, in February, filing for a restraining order against Pinehurst. (The request, made under domestic-abuse laws, was thrown out by a judge, who ordered Elkhuffash to pay $500 to cover Pinehurst's attorney fees. For his part, Elkhuffash says he went to the "wrong door" at city hall.)  

Still, the shop owner is optimistic, and believes the development has stalled. Elkhuffash says he has received assurance from Barret Lane that the pit to the north of his business will be filled in if construction doesn't commence before winter. He has even put up a second sign on the side of the building: "Demolition will not include the Smoke Shop," it reads. "Open for business, another nine years."

Lane, however, says he is confident that after a year of delays, the Pinehurst project is poised to proceed. "My understanding is that they're on the cusp of signing the final lease," he notes. "I've been told this a number of times before, though, so I don't know how imminent this imminent is."

And the Smoke Depot? "I sympathize," Lane says. "But he's going to get displaced."


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