If not a casino, what's Plan B for Minneapolis' Block E?

  • Article by: JANET MOORE and ERIC ROPER , Star Tribune staff writers
  • Updated: January 30, 2012 - 5:56 AM

The retail-entertainment complex held such promise when it opened 10 years ago.

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Ten years after Block E opened with promises to bring crowds to downtown Minneapolis, the storied building has become a ghost town.

Fueled by a $39 million public subsidy, the hulking behemoth on Hennepin Avenue opened in 2002 as a retail-entertainment complex after a tumultuous former life as one of the city's seediest streets.

But recent closures have left the space about 50 percent empty -- a figure that will rise when the AMC movie theater departs this fall -- as stores and nightspots perished in the downturn and Block E's new owner let leases expire.

Minneapolis-based Alatus LLC, which bought Block E for $14 million in 2010, says it wants the building to be a "clean slate" as the company fights for the right to build a $400 million casino, a plan that Mayor R.T. Rybak says is getting no traction at the Capitol. But executives explained Friday that another plan is waiting in the wings if gambling falls through: heavily branded office space with retail and restaurant components.

These days, except for the AMC theater's ticket desk, the skyway level of Block E now essentially serves as a breezeway for people heading to other destinations -- either City Center, Target Center or beyond. Remnants of Mrs. Field's Cookies, Cold Stone Creamery and other stores are barely visible behind metal gating. Security guards with walkie-talkies patrol the area on foot.

Last week, John Thao of Brooklyn Center briskly strode through the Block E en route to his car parked in the Target ramp.

"This place is dead," he said.

When asked if he ever frequented Block E when it had more tenants, Thao shrugged. "Once in a while I'd get a cookie over there," he said, motioning to the shuttered Mrs. Field's.

A number of factors are blamed for the failure of Block E to live up to its promises. Former city development chief Mike Christenson said poor design played a role. Rybak says its first owners failed to properly market the facility, which never had a grand opening. But most of all, a complex with the same national chains available with free parking in the suburbs just didn't draw customers downtown.

Betting on a casino

The Block E casino idea first emerged in early 2011, and has most recently been proposed as a possible method to fund a new Vikings stadium.

But the likelihood of extended legal challenges has made Gov. Mark Dayton less inclined to support gambling options. Rybak told a gathering of liberal activists Thursday that the proposed Block E casino "doesn't seem to be going anywhere at the Legislature."

Alatus isn't giving up hope on the casino, however, and executives aren't ready to say when they will resort to Plan B. But either way, Block E needs a new vision since the former strategy has "failed," according to Alatus principal Bob Lux.

"It needed to be virtually totally repositioned," Lux said. The desire to retool the property may have contributed to Alatus' lackluster response to recent suggestions that a Wal-Mart store move in.

While strong tenants remain at Block E, including Kieran's Irish Pub and the Shout House piano bar, many more have departed in the past 10 years, including GameWorks, Applebee's and the Hard Rock Cafe. Some, such as Borders books and Italian restaurant Bellanotte, closed in a tough economy. Others, like Panchero's Mexican Grill, shut their doors following lease disputes.

"If the entity had not proven a history of being successful ... then they shouldn't be there," Lux said. "That's just a reality."

Last week, the 15-screen AMC movie theater lost a legal battle to stay in Block E. The theater's lease will be terminated when it expires in September.

That will leave four tenants in Block E -- Kieran's, Shout House, Jimmy John's and Starbucks, as well as a 555-stall underground parking garage.

Public cost

The initial subsidy of Block E passed the City Council in 2000 on an 8-5 vote. Of the $39 million public cost, about $29 million came from the common method of capturing property tax dollars spurred by the facility to pay down development debt.

Alatus and owners of the adjacent Graves 601 hotel pay about $1.7 million a year to help service those bonds, which are expected to be paid off in 2027, or possibly earlier. And while tenants continue to exit, the parking garage helps to keep the property solvent.

Rybak opposed the initial subsidy of Block E, which took place before his tenure, but says he has used his mayoral clout over the years to help woo tenants. He says he pitched the space to Richfield-based electronics retailer Best Buy before the recession, and worked hard to retain a former movie theater tenant.

Alatus has to make a decision about the site's future, he said, adding that he has peppered the developer with his own thoughts. The mayor also "offered that I would be an aggressive part of his leasing team. And I remain deeply committed to helping in any way without a checkbook."

Alatus executives concede more office space downtown won't be as "transformative" to the city as a casino, but could still prove to be a "unique destination" on its own.

"Nothing is going to transform or change downtown the way we believe the casino can, in a positive way," said Alatus principal Phillip Jaffe. "We believe if we went to Plan B, it'll be something that we're proud of and is a nice improvement to the city, but it's ... not going to change downtown."

Alatus would gut most of the inside of the building to make way for 75,000 square-foot plots of office space and possibly build an additional floor. A business moving there could advertise itself in signage wrapping around the exterior, a rare branding opportunity allowed only in limited areas of downtown.

"It would be the most visible office in downtown," said Carl Runck, Alatus' project developer.

eroper@startribune.com • 612-673-1732 jmoore@startribune.com • 612-673-7752

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