Kelley Farm owners sue over airport expansion, zoning changes

For decades the Kelley Farm in Bloomington has been coveted by developers because of its proximity to the Mall of America, quick access to major highways and a spectacular view of the Minnesota River valley.

Now the owners of the biggest piece of undeveloped land left in Bloomington have sued, charging that the farm's value was hurt by airport expansion and city zoning changes. They're asking that the city or the Metropolitan Airports Commission (MAC) take the land by eminent domain.

In their suit, descendants of James E. Kelley, who bought the land in 1932, claim the property's value dropped after the airport opened a new runway in 2005. Bloomington officials say they changed the farm's zoning to agree with federal, state and Joint Airport Zoning Board requirements regarding runway safety zones.

Residential development is no longer permitted and office towers would be limited to about 14 stories high, depending where they were on the roughly 60-acre site. That's about three to five stories lower than under the old zoning.

The suit says the ordinance change derailed a family proposal for a combined office and multi-family residential project on the site.

"The property has suffered a substantial and measurable decline in market value," the suit alleges. It demands that the city and/or MAC take the land by eminent domain.

William Christopher Penwell, the attorney representing the farm's owners, did not return repeated phone calls from the Star Tribune. MAC and the city of Bloomington say the suit is groundless.

Monte Mills, an attorneys representing Bloomington, called the lawsuit "counterproductive." He said the city told the farm's owners in 2004 that the new ordinance would allow offices, hotels, restaurants, banks and other uses on the site.

"In 2004, the city invited the landowners to submit a new proposal for development within the parameters of the ordinance, but for nearly six years the city heard nearly nothing from them regarding development issues until it was served with this lawsuit," Mills said.

United Properties signed a purchase agreement for the site in 2009 but has not been able to finalize a deal with prospective tenants for an office development, said Bill Katter, senior vice president for development.

"We still think long-term that it's a good office site, but at the moment the economy is not cooperating," Katter said.

He said he could not comment on the lawsuit or the terms of the purchase agreement because he is bound by a confidentiality clause.

A barn still stands on the property and much of the land is leased as pasture for sheep and sometimes llamas. When James E. Kelley bought the farm in 1932, it was more than 1,000 acres. Kelley was general counsel to St. Paul's Theodore Hamm Brewing Co., the maker of Hamm's beer. He also once was president of United Properties, which was started by the Hamm family.

Parts of the farm were gradually sold off as Bloomington grew. In 1986, when the farm's owners contested city efforts to buy land for the mall, the city condemned 32 acres and paid the family $10.4 million.

The last family member to live on the farm was Cynthia Kelley O'Neill, who died in 2005. Plaintiffs in the case are Hampton O'Neill and James O'Neill, who live in Wyoming, and Kelley O'Neill of Minnesota.