After more than six months of attempting to work out a plan for redeveloping the former Macy’s building in downtown St. Paul with Oppidan Investment Co., the St. Paul Port Authority is going in a different direction.
The board of commissioners for the agency’s nonprofit subsidiary, Capital City Properties, is now slated to vote Tuesday on entering a $60 million joint venture agreement on the project with the Hempel Cos., a Minneapolis-based commercial development firm.
Last September, commissioners voted to begin negotiations with Oppidan. The Port Authority and the Excelsior-based developer opted to part ways due to differences over timing and risk assessment, said Lee Krueger, president of the Port Authority.
“We just hit some snags,” Krueger said. “Oppidan would like to get this open in May of 2018, and we would like to get it done in September of 2017, so it’s a matter of different risk taking … Different developers have a different appetite for risk.”
“It’s not a bad thing,” added Lorrie Louder, senior vice president of business and intergovernmental affairs for the Port Authority. “We have a good relationship with Oppidan, but the timing thing is something we need to push.”
Oppidan executives could not be reached immediately for comment, but a company spokesman released the following comment via email.
“Oppidan has been fully committed to redeveloping the former Macy’s building in downtown Saint Paul since we announced our partnership with the Saint Paul Port Authority in September of 2015,” the statement read. “At no point over the last eight months has our interest, enthusiasm or commitment to seeing this project through to its successful completion wavered. Unfortunately, although they had made a commitment to Oppidan and although we believed they were honoring that commitment, the Port Authority has begun working with a different developer on the Macy’s site. We saw great potential for this development and for the positive impact it would have on downtown Saint Paul, so, as you can imagine, we are incredibly disappointed in this turn of events.”
The Port Authority is shooting for a September 2017 opening because it coincides with the start of the Minnesota Wild’s training camp. A rooftop rink for the NHL hockey team and other ice users is a key component to the Port Authority’s redevelopment plan for the block-long home of the former department store.
The rest of the facility is slated to be converted into a lot of parking. About 360,000 square feet of its 540,000 footprint is planned for vehicle stalls. Other likely tenants include a craft brewery, a medical clinic and a two-story Walgreens drug store.
Krueger said the latest concept for the building’s occupancy is about “90 to 95 percent” firm, though no leases have been signed.
Assuming the Port Authority’s board of commissioners approves the joint venture agreement with Hempel next week, work on redevelopment of the building will be “ready to rock and roll,” Krueger said.
Hempel was founded in 2011 by Jon Hempel and is described on its website as a company that “specializes in turnaround projects and new and re-use development properties with a focus on retail, office and hospitality.”
Some of the projects it has had a hand in include the Grove Village in Maple Grove and the Canadian Pacific Plaza in downtown Minneapolis.
Hempel executives could not be reached for comment Friday afternoon.
The Wild are reportedly waiting on the joint venture agreement before finalizing negotiations on their contract to lease the rooftop rink and a space for training and conditioning in the facility’s basement, Krueger said. He added that he suspects other leases will begin falling into place shortly thereafter.
The project’s $60 million price tag includes the $3 million the Port Authority paid to purchase the building in early 2014, plus money it has sunk into keeping it operating since then.
The rest will pay for costs such as asbestos abatement, interior demolition, new heating, ventilation and air conditioning systems, bringing the 1962 building up to code and renovating the building’s facade. The most dramatic changes will appear along Wabasha Street, where bay windows will front passers-by.
Hempel plans to secure a $46 million loan to help pay for the project, plus invest $4.5 million of its own capital to match the Port Authority’s contributions. Other various financing streams, such as the sale of 25,000 square feet to Walgreens, will cover the rest of the cost, Krueger said.
A portion of the project’s debt service would be paid for with proceeds from an $11 million “tax increment financing” note.
While TIF loans are controversial because they redirect tax dollars into private development, Port Authority staffers have called the financing essential.
“If there isn’t a TIF revenue stream generated (for this), then there isn’t money to pay the loan and this (project) doesn’t happen,” Krueger said.
Other financial streams expected to help pay down the debt include rent from building tenants, parking ramp revenue and naming rights associated with the new ice rink.
The building is expected to generate about $3.8 million annually, with about $2 million going toward loan repayment and the rest split 20/80 between the Port Authority and the developer.
The Port Authority also will have a 20 percent ownership stake in the building once the loan is paid off.
Getting to this point with a developer has been an arduous road, Krueger said. He noted that Port Authority employees likely met with about 75 developers since it took over ownership of the building more than two years ago, many of whom said they wouldn’t touch the Macy’s redevelopment “with a 10-foot pole,” Krueger said.
A lot of that had to do with the warehouse-like facility’s location on a slope, as well as challenges with light penetration and market conditions.
Part of what is attractive to the Port Authority about working with Hempel is that it is a long-term holder, versus Oppidan, which often buys and sells buildings quickly, Krueger said.
“Both are great models, and both models work,” Krueger said. “But knowing who our long-term partner is on this helps a lot.”