MANKATO — The Mankato City Council approved a scaled-back tax subsidy Monday night for a years-long effort to replace a nearly windowless 68-year-old concrete block building along Madison Avenue with a modern office building.
Swapping out the squat bunker-like structure at the corner of Madison and North Broad Street with a two-story office building is expected to boost the property’s taxable market value from the current $143,600 to just over $1 million. But to make the project happen, the council first had to agree to return a portion of the increased property tax payments back to the developers to help cover some of the redevelopment costs.
Under the tax-increment financing plan authorized following a public hearing Monday night, $16,284 in newly generated taxes will go back to MAH BKS, LLC for each of the next 15 years. That $244,000 in rebated taxes would have been more than $80,000 higher under the original request by the developers for 20 years worth of rebates.
Council members were very enthusiastic in February when reviewing the redevelopment plans for the longtime eyesore, but they were more hesitant about the two-decade-long term for the subsidies because Mankato typically limits TIF terms to 15 years.
“So let’s just see what we can do to get it as low as we can and still have a doable project,” Mayor Najwa Massad said then.
Developer Habib Sadaka said after that meeting that he hoped to abide by the council’s wishes for a shorter term.
“If the city’s comfortable moving forward with the 15, we’ll try to make that work rather than going back and forth,” he said. “… Hoping to get that project going this spring if everything works out.”
Sadaka and other investors involved in the planned redevelopment had previously planned a three-story building with a mix of commercial space and apartments, but that project was found to not be financially feasible without a lengthier TIF term. The building was scaled back to two stories and the apartments were dropped before it came back to the council this year.
Although an analysis initially suggested that 20 years of subsidies were still likely needed, the final agreement settled on five fewer.
Because the TIF subsidies are “pay-as-you-go,” the developers will get the full rebates only if the project actually generates the entire anticipated additional taxes. In the event that the office building fails to hit the expected taxable market value, the annual payment to MAH BKS, LLC would be less than projected and the city would have no obligation to fill the gap, said city Economic Development Specialist Courtney Kramlinger.
“So that means that if there is a shortfall or tax increment is not generated as contemplated, the city is not responsible for the difference or the shortfall,” Kramlinger said.
Construction on the $2.35 million project is expected to be completed in 2026, resulting in 6,784 square feet of new office space and the creation of 25 full-time equivalent jobs.