St. Paul Port Authority guides some of city's highest-profile projects

Minnesota United's announcement that it would build a soccer stadium in St. Paul triggered cheers from fans and a bureaucratic flurry from city and state officials as they paved the way for construction — then the high-profile development hit a roadblock.

The team needed the land under Midway Shopping Center for its stadium, and the mall's owner wasn't interested in just handing over profitable property. Negotiations between the Minnesota United, the city and the mall owner were not getting anywhere, so they called the St. Paul Port Authority.

The quasi-public agency, led by a former retail leasing manager, has become Mr. Fix-It for some of the city's biggest development projects, from the soccer stadium to CHS Field to the former Macy's in the heart of downtown.

"It has more expertise than most city departments do in the development area," said Jim Stolpestad, who runs the St. Paul-based real estate business Exeter Group. "They are able to get things done."

That dexterity and expertise has prompted St. Paul officials to turn to the Port Authority for help on the commercial projects, raising the profile of an agency that has shied away from such work after the real estate bust of the 1980s left it with dozens of defaulted properties and an expensive bondholder lawsuit. The Port's process for selecting development partners has also raised concerns about transparency and fairness.

In the decades after the crash, the Port Authority retrenched to focus on what officials say is the agency's bread and butter: redeveloping industrial sites.

As the agency re-enters the commercial development arena with the Macy's and stadium site deals, it is handling projects differently than in the past, said Port Authority President Lee Krueger, who took the helm a year ago. The agency is partnering with private sector companies, which lowers its risk, he said, and unlike the 1980s deals, it has equity in these developments and is not responsible for the financing.

Port Authority staff is now very market-aware, St. Paul Planning and Economic Development Director Jonathan Sage-Martinson said, and when retail projects come up, it makes sense for the city to take advantage of Krueger's decades of experience leasing shopping centers.

"We're not going to see a whole lot of Macy's," he said. "But there will continue to be special projects like that."

A business partner

Most St. Paul residents know little about the Port Authority beyond its blue handprint logo, emblazoned on business centers across the city.

But they help pay for its work. Property taxes cover about a quarter of the Port Authority's expenses, which total nearly $4.8 million in 2017. The rest of the agency's revenue largely comes from fees for service and investment interest, as well as grants from its subsidiary, nonprofit corporation Capital City Properties.

"The Port is a major asset for the city of St. Paul," said Dai Thao, one of two City Council members who serve on the Port Authority Board, which Mayor Chris Coleman appoints. Krueger's "craftiness and creativeness" on retail deals is also an asset, Thao said, and he's not concerned about the Port working on such projects.

"We've learned from the past," he said.

The Legislature created the Port as a nonprofit governmental agency in 1929 to run the St. Paul harbor. Now, in addition to harbor management and industrial redevelopment, the 20-person staff also runs two statewide energy efficiency financing programs and consults on projects like the Twin Cities Army Ammunition Plant overhaul in Arden Hills.

But recently, splashy city projects have been taking up a lot of staff time.

Randy McKay said he talks to employees at the Port Authority every day. McKay is a principal at Hempel Cos., the developer of the former Macy's, now called Treasure Island Center.

"In my case they are acting like a real estate business partner," McKay said. "It isn't, 'Hey, it's after 4:30, leave me a message. I'll get back to you on Monday.' They get it."

After the city asked the Port Authority to take on the Macy's overhaul, Krueger said he immediately thought of the Wild. He talked with an architect he knew from his retail days and project designers. They came up with the idea of replacing some dated concrete walls with glass and putting the Wild's training rink on the roof, with office and retail space on the floors below.

"That just hasn't been done anywhere else in the world," McKay said.

Unlocking a stadium deal

A broker who knew the Midway Shopping Center owners asked Krueger last year to think about how to navigate financial complications related to tearing down a chunk of the shopping center to make way for the United soccer stadium.

Krueger said he was able to "unlock" some issues the city and team weren't considering, because he understands shopping centers and leasing.

Capital City Properties' board recently signed off on negotiating and entering a joint venture with Minnesota United and real estate developer Irgens. It will allow them to eventually reconstruct nearly half the 35-acre area at Snelling and University avenues, which will include the stadium and mixed-use development.

Capital City Properties carries out certain functions for the Port Authority, including a tax credit program and joint ventures, and protects the Port from the risk of operating those ventures. Boards oversee both it and the Port.

Residents rarely attend the entities' public meetings, which are often dominated by unanimous votes. But the Irgens contract prompted one dissent, and a discussion that showed how the Port and its subsidiary operate differently than the city.

Board Member Nneka Constantino questioned why they did not follow open bidding rules in selecting Irgens, and why women and minority workforce inclusion requirements were not in the contract.

"Is the process systemically excluding other people that we may not be connected to?" she asked.

Joint ventures do not have to go out to bid, Port Attorney Eric Larson replied. As for inclusion requirements, the Port Authority will have stepped away from the project when it comes time to select a construction contractor, and Irgens and the soccer team will be financing and managing it, Krueger said, adding, "We did take her words to heart."

They will continue to work on making sure the stadium development is equitable, said Thao, the Port Authority board member whose City Council ward includes the stadium.

But, he said, without the Port Authority, "I don't think this deal could have gone through."

Jessie Van Berkel • 612-673-4649