Not dead, resting: Big changes ahead for City Center

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August 18, 2003 // UPDATED 11:03 am - April 30, 2007
By: Ellen Nigon
Ellen Nigon

The Downtown mall afflicted with vacancies plans a new look, new uses -- and hopefully, a new anchor (a grocery store?)

Passersby in City Center may have noticed that where ground floor retail once stood, brightly colored billboards cover rows of vacant storefronts. On the second and third floors, many of the windows that once displayed merchants' goods are now frosted and the doors locked. This abundance of vacancies leads many to ask, "Is City Center dying?"

According to a Betsy Buckley, an external consultant for Brookfield Properties (City Center's landlord), the 20-year-old retail, restaurant and office complex isn't about to expire -- but it will get some major CPR.

In January, the first part of a two-phase remodeling will begin at Center Center, the block-wide mall bounded by Hennepin Avenue, Nicollet Mall, 7th and 6th streets. Although plans are still in their infancy, Phase I will move third- floor retail tenants to the second floor (with the exception of the food court) and convert more of the third floor to office space. Phase I should last approximately 15 months and cost about $10-12 million, Buckley said.

Phase II focuses on attracting a yet-unknown anchor tenant. Buckley said the anchor would offer services that Downtown workers and residents want. Asked if a grocery store could be a possible anchor, Buckley said: "Absolutely. A grocery store is absolutely a possibility. We've gotten lots of good ideas, and we're working them all."

The stakes are higher than merely spiffing up a lame retail center. This year, City Center will pay nearly $10 million less in property taxes than it did in 1991 (adjusted for inflation). At a time when the city is absorbing state-aid cuts, it needs all the private-sector tax revenue it can get.

Phase I

According to Buckley, retail renovations are normally done in two phases. Phase I typically begins with "cleanup" -- thus, the flashy partitions masking empty storefronts.

"We want to make it a little more pleasing to the eye. You would at least like it to look not awful," Buckley said of the partially unoccupied center.

Following "cleanup" is what Buckley referred to as "fix-up." Fix-up planning is still underway, but Buckley said all of City Center would get a more contemporary look, with enhanced lighting and improved traffic patterns.

Phase I would also make the food court easier to get to, Buckley said, though designs are not yet finished.

"I've actually seen people get lost [going to the food court]," Buckley said, because two escalators go up to the food court, but only one escalator takes guests down. "This [redesign] is intended to make access easier and more obvious."

According to Buckley, moving third-floor retail down a level makes sense because "the third floor already has a significant portion of it as office space." Moving the third-floor retail down a floor will also help to consolidate the retail between two floors.

Radio Shack Manager Rick Kalthoff is philosophical about the move of his third-floor store to the second floor.

"The location now is decent. Everyone sees us on the way to the food court," Kalthoff said. "I'll get a remodel out of [the move] and more square footage. It's hard to say if it will help business."

Phase II

Buckley said, "Phase II will be when the dramatic stuff happens, but what that will be in our case, we don't know. Phase II [of retail redevelopment] is usually based on new uses or a new tenant and built around their needs. The game plan is to have one very big tenant on the first floor that will redefine the rest of the use."

While an anchor tenant has not yet been found, Buckley said that tenant would occupy the first floor space that is currently boarded up next to the 7th Street entryway. A timeline for Phase II is not yet decided.

In the meantime, Buckley said it is important that City Center simply look better to attract more tenants.

"Being the landlord of retail commercial property isn't really any different than being the landlord of a rental residential property. If you want to stay contemporary, you have to update," she said. "If you had an apartment building today that had green shag carpeting and orange vinyl wall paper, I don't think you would be attracting a lot of exciting tenants. It's just what you do in this business."

Ongoing struggles

City Center developers claim a 25 percent vacancy rate, even though appearances seem far higher. On some level, the mall has been fading for a decade. Anchor tenant Carson Pirie Scott (formerly Dayton's rival Donaldsons), moved out in 1993. City Center staged a "grand reopening" that year when Montgomery Ward occupied the Donaldsons space -- only to have Ward close in 1997.

Another major force behind the vacancies happened three or four years ago, when the Limited and stores it owned, such as the Express, moved out. "That was the big glut," Buckley said. "No single big tenant left, but everything associated with the Limited left, so it had the impact of a big tenant leaving."

Financially, City Center is the real-estate version of an Internet stock collapse. The mall is worth one-third today what it was in 1989, based on taxable market value. In 1989, City Center peaked at $275 million (adjusted for inflation) but now is worth $96 million.

The collapse has hurt the city's tax base. In 1991, City Center paid $14.6 million in property taxes, adjusted for inflation; this year, it will pay $3.95 million. (State property tax cuts in 2002 account for about $1 million of the decline).

Buckley says City Center's high vacancy rate has at least stabilized in recent years.

"Inside City Center right now it's essentially the same amount of space for the last two years. There hasn't been much additional vacancy," she said.

Roy Maunu, co-owner of Twins Town on City Center's first floor, agrees than an initial traffic downturn was due to the Limited and its subsidiaries leaving. However, City Center's biggest problem isn't its looks or flow, but that building management does not market the mall; to an urban customer.

"Management here needs to embrace the urban shopper instead of using a suburban mall model. You're an urban mall; you need to embrace the urban culture," Maunu said. "Anybody that knows retail knows that the 16-30-year-olds are the people who will spend money every day."