Minneapolis' long quest to redevelop the Kmart site blocking Nicollet Avenue took an unexpected turn Tuesday after new revelations that a Walgreens developer had outbid the city for a key parcel of land there.

Semper Development's bid for the former Supervalu site beside Kmart — owned by a local real estate partnership — means the city likely will not control the entire area as it seeks to reopen Nicollet Avenue at Lake Street and attract more development to create a more inviting urban landscape.

That complicates any future development plan, but also illustrates a growing private sector interest in the area.

"We see this as really a great sign that the private market is coming to this part of town where we want to see change happen," said Minneapolis City Council Member Lisa Bender, who announced the news at a neighborhood meeting Monday night.

The Kmart block is comprised of two parcels of land. The owner of the land containing a former Supervalu grocery store cautioned Tuesday that the November purchase agreement with Semper is unsigned, indicating that the parties are still negotiating. Neither Semper nor Walgreens responded to requests for comment.

Walgreens would be the second major retailer seeking to be a part of the site if its agreement becomes final. Kmart, which has several decades left on its lease, has insisted on having a presence at the intersection following the redevelopment. The city is still working to purchase the Kmart property, which would be needed to reopen the street.

The area around the Kmart site has long vexed drivers, bicyclists, bus riders and pedestrians.

The Nicollet and Lake intersection has long proved vexing and unpleasant for walkers, bus riders, bicyclists and drivers who must maneuver around a giant store and surface parking lot. The area was once a bustling grid of commercial activity — containing some seedier elements — before it met the wrecking ball as part of an early 1970s redevelopment plan. Years of delay finding an anchor tenant cost the city millions of dollars and ultimately forced local leaders to accept Kmart's demand for Nicollet's closure.

Council members said Tuesday that the design of the reopened street — including whether it will accommodate private traffic — would be determined through a public process.

"I cannot imagine not having transit on there, so let's just start with that baseline," Council Member Elizabeth Glidden said.

Transit is an important part of the project since Kmart sits at the epicenter of what could one day become a multimodal transit hub. Separate local governments are pursuing plans to build streetcars along the Midtown Greenway and Nicollet Avenue, a bus rapid transit station beneath nearby Interstate 35W and enhanced bus service along Lake Street.

The city expects to have an appraisal for the Kmart site in the next several weeks. If it purchases the property, the city would likely then seek private development proposals. The goals include having a mix of residential and commercial buildings with ground floor retail, rather than surface parking, that would meet the sidewalks.

"Among the things we wanted to pounce on right away when we heard that Semper had tied up the property was to make sure it's not just a single use," said David Frank, the city's transit-oriented development director.

Frank said Semper has been responsive to the city's request that they pursue a multifaceted development. "We have to have density here," Frank said. "And that message was received."

Nick Walton, a principal with CPM Development, said they are working with Semper to develop a market-rate housing vision for the site. "The entire redevelopment is wonderful for the City of Minneapolis and CPM Development wants very much to be a part of it," Walton said in an e-mail.

Coordination will prove important moving forward since the Kmart portion of the site is large enough to cover both sides of a reopened Nicollet. So if the city purchases the Kmart land, the western block of the redevelopment would have a mix of owners.

"Whatever happens [at the Supervalu site], we really, really want to make it coordinate with what's going to happen on the rest of the new block," Frank said.

John Leighton, a leader of the partnership that owns the Supervalu site, said he does not know why Semper hasn't signed the agreement. "We went through a negotiation process and for whatever reason [Semper] hasn't signed it," Leighton said, adding that "if somebody else came along and offered to purchase the property, they'd be first in line."

Frank said the unsigned agreement is likely merely a reflection of ongoing negotiations. "There are two private parties who have come to terms — or largely come to terms — and we the public are not in the business of trying to jump in there with our elbows out and force our way into the private market," Frank said.

Eric Roper • 612-673-1732

Twitter: @StribRoper