The makeover of Bloomington’s Penn American District is entering its second phase, with construction of a new hotel, restaurant and grocery store expected to begin next year near the intersection of Interstates 494 and 35W.

The Bloomington City Council recently approved United Properties’ plans for the project, which will be built immediately north of the three apartment buildings and commercial space that were finished last year.

The area, which includes Southtown, is one of three major redevelopment hubs in Bloomington. Once dominated by car lots, fast-food restaurants and retail, it will have a more urban feel after development, with multi-story apartment buildings that have commercial space at ground level.

Eventually a bus rapid transit station may be built nearby, with two major east-west and north-south bus lines intersecting there.

“This would be a major transportation corridor,” said Glen Markegard, manager of the city planning division. “We see this as part of the vision for the district.”

Last year, three apartment buildings with 234 units and 14,000 square feet of commercial space were finished. The apartments are full, according to Keith Ulstad, senior vice president with United Properties, which did the project with partner StuartCo. Two restaurants and a hair salon have opened in the first-floor commercial space.

“We’ve been very happy with the outcome,” Ulstad said. “The timing was good for that, because the apartment boom was in full swing.”

Cleared land sits where the next phase of construction will begin next year. The hotel, a Home 2 Suites by Hilton extended-stay hotel with 108 rooms, will have underground parking and be built along Penn Avenue. It will have space for a separate 200-seat restaurant on the ground floor.

A parking lot and one-level underground parking garage will be on the east side of the hotel. Across the lot will be a Fresh Thyme Farmers Market, a full-service grocery that specializes in fresh food and perishables.

The Home 2 Suites by Hilton and the Fresh Thyme Farmers Market are expected to be the first of their kind in Minnesota.

Markegard said the city expects redevelopment in the area will continue, but no other projects are planned right now.

City officials expect Penn American to become a major transit hub. Possible bus rapid transit stations have been discussed at either I-35W and American Boulevard or near the intersection of American Boulevard and Knox Avenue, Markegard said.

Both would require major road reconstruction. The transit options in the area are being studied by the state Department of Transportation and Metro Transit.