MANKATO — A $22.3 million redevelopment of a multiplex movie theater into student apartments received a $1.5 million boost from the Mankato City Council Monday night.
With the unanimous approval of the subsidy agreement, the latest phase of the University Square commercial-residential development just east of Minnesota State University is expected to begin construction this year with completion in 2025. A five-story apartment building — complete with study rooms, fitness areas, a game room and other amenities targeted at MSU students — will replace the former AMC Classic 6 Theatres that closed on New Year’s Day.
The project continues the 25-year effort by University Square Investments of Park City, Utah, to transform the previously run-down properties on the corner of Stadium Road and Warren Street that serve as a doorway to MSU.
The evolution started with two new apartment buildings totaling 84 bedrooms of student-oriented housing on the parcel’s northeast edge and accelerated two decades ago with the makeover of the area formerly home to the Albatross bar, a large Hardee’s restaurant and other commercial spaces. When it opened in 2004, the renovated and expanded University Square complex offered a variety of ground-floor restaurants topped by balconied apartments providing another 170 bedrooms of housing for college students.
The latest project will add 112,744 square feet to the complex — 59 apartments encompassing 215 bedrooms.
Most of the units will offer four bedrooms surrounding a shared kitchen and living room — a design that aims to “increase the socialization, decrease the isolation” of students living there, University Square owner David Peters said at a meeting earlier this year. The City Council approved a planned unit development and certificate of design compliance for the project in February.
Peters was back before the council on Monday, this time for the verdict on his request that additional property taxes generated by the project be returned to him for the next 15 years to help cover the cost of the development.
Known as tax-increment financing, the subsidies are permitted under state law for certain types of projects if the proposed redevelopment would not occur without the assistance. A review of the project financing found that the project was unlikely to move forward without the subsidies, according to a staff memo to the council, which also stated that the TIF is justified by the added expense resulting from redevelopment of the vacant movie theater property as opposed to building on a less complicated parcel such as a piece of farmland.
“The proposal seeks to maximize the development potential, but doing so comes with higher costs,” according to the memo. “This includes building demolition, environmental remediation and site improvements (earthwork and utilities). These are added costs to develop a site that was previously developed compared to developing a greenfield site.”
The subsidy approved Monday night will take a large portion of the additional property taxes generated by the project and return them to University Square Investments starting in 2027 and continuing through 2041. When completed and fully on the tax rolls, the expanded University Square complex will generate $103,748 in additional property taxes each year. The city will take $5,169 of that each year for administrative expenses, and the state auditor gets a cut of $373. That leaves $98,206 annually for the developer.
Over 15 years, the combined amount returned to University Square Investments will be $1,473,090. Even with the subsidy, the taxes paid on the existing University Square property will continue to be split by the city, Blue Earth County and Mankato Area Public Schools.
Starting in 2042, all of the property taxes at University Square — from the existing property and the upcoming development — will be paid in the entirety to the local governments.
In summarizing the plan for the council, economic development coordinator Courtney Kramlinger emphasized that the payments to the developer will be made each year only if the additional taxes are generated — not as an upfront contribution. Using that pay-as-you-go approach, the city is protected if the project falls short of expectations or fails completely.
“So if there’s a shortfall, the city would not be responsible for making up the difference,” Kramlinger said.
The tax increment financing was approved without discussion by the council following a public hearing where no one from the public commented.