MANKATO — One of the biggest investments in downtown Mankato history, a $92.7 million two-hotel complex that will rise 10 stories above Main Street, was cleared to break ground following approval Tuesday of $11 million in local and state subsidies.
“I think Mankato is very smart investing in something like this,” said Mayor Najwa Massad, predicting the 282 new hotel rooms would be a major boost to the city-owned convention center and to small businesses at the heart of the downtown hospitality economy.
A $1.1 million redevelopment grant by the state of Minnesota — 60% of the what the city had sought on behalf of hotel developers in a July application — was announced by the Department of Employment and Economic Development Tuesday morning. The Mankato City Council followed up Tuesday night with approval of $9.94 million in tax increment financing.
The state funds will be used to cover some of the utility and infrastructure expenses and the cost of razing the former Holiday Inn/City Center hotel and the adjacent Landmark Building to make room for a towering AC Hotel by Marriott and a smaller Element by Westin hotel.
City Manager Susan Arntz praised city Economic Development Specialist Courtney Kramlinger, who she described as “a whiz” at applying for state grants, for the success in winning the redevelopment funds.
“We were very surprised at the size of the award,” Arntz said.
DEED’s enthusiasm for the project was somewhat evident in Tuesday’s announcement of how the Mankato site will be transformed.
“Historically used as a hotel and auto dealership, this site will be redeveloped into two hotels: a four-story, 126-room hotel and a 10-story, 156-room hotel with a restaurant,” the agency announced. “It is anticipated the project will create 111 jobs, increase the property tax base by $566,738 and leverage $80.9 million of private investment. Matching funds will be provided by tax increment financing and developer equity.”
The Mankato development was one of nine projects awarded a combined $4.7 million in state grants on Tuesday, topped only by a $1.49 million cleanup grant for a large parcel in Crookston that had been home to an arena for livestock shows and will be redeveloped into a credit union.
The city subsidies approved in the evening will come in the form of tax-increment financing, which calculates the additional property taxes that a real estate development will produce and returns most of those added taxes to the developer for a specified number of years.
“Essentially, we’re rebating a portion of the taxes that get paid,” Arntz said.
State law governs what sorts of projects can apply for TIF, along with the specific types of expenses the subsidies can be used for. And it allows the development tool to be used only if local elected officials determine that the project would not move forward “but for” the subsidies.
The Mankato project, proposed by a group of prominent local developers operating under the name Hotel Mankato LLC, is set to begin yet this year with demolition of the existing buildings along 100-block of East Main Street.
After the two vacant and deteriorating buildings are removed, along with an underground parking ramp, construction of the Marriott will begin on the Landmark site. The Westin will rise on the adjacent property originally built as a Holiday Inn but more recently operating as the Center Center Hotel before it closed.
The hotels would share a common lobby, pool, fitness center, 168-stall underground parking garage and courtyard complete with grilling stations and fire pits. Plans call for a rooftop restaurant atop the Marriott.
The City Council, acting as Mankato’s Economic Development Authority, reviewed the TIF financing application in August and found that the project met state eligibility requirements because it involves the removal of blighted properties. The city’s TIF consultant — Baker Tilly Municipal Advisors of St. Paul — determined that it met the “but for” test because the project’s profitability would fall below industry standards without the assistance.
In fact, to meet those profitability benchmarks, the project required a more extensive TIF package than Mankato has traditionally approved, according to Baker Tilly. The added property taxes created by the project will be returned to the developers for 26 years under the plan — the maximum term allowed under state law and 11 years longer than the 15-year limit the City Council typically sets for TIF assistance.
Council members on Aug. 12 said the additional assistance is warranted because of the hotel project’s unique potential to accelerate the revitalization of Mankato’s once-dormant city center, partly because more hotel rooms connected directly to the civic center complex will boost the size of conventions it can attract.
There was minimal discussion prior to the 6-0 vote Tuesday night approving the subsidies (Council member Jessica Hatanpa was absent). Council President Mike Laven emphasized the limited financial exposure the city faces. The annual payments to the developers only occur once the project is constructed and the promised payments will be reduced in size if the additional property taxes generated by the hotels are less than projected.
Laven also asked Arntz to summarize the repercussions of not authorizing the subsidies.
“By electing not to go forward you continue to have a portion of your downtown that’s going to continue to degrade …,” Arntz said.
Council member Michael McLaughlin focused on the fact that the payments going to the developers are from the additional taxes the project will generate rather than from taxes collected from other Mankato property owners.
“So it’s not taking from others to fund the project,” McLaughlin said.
If anyone in the area is skeptical of the subsidies, they didn’t show up at Tuesday night’s meeting — which included a mandatory public hearing for residents to share their thoughts before the council votes. The only person to step up to the microphone was Tony Frentz on behalf of Hotel Mankato LLC.
The group includes something of a who’s who of local developers and investors, according to the TIF application. They include Frentz and Rob Else of Neubau Holdings, ISG principal Chad Surprenant, Tailwind Group, former banker Bryan Sowers, Landmark Real Estate’s Jon Kietzer and TPI Hospitality, a Willmar-based hotel owner/operator.
Frentz pledged the group would build a high-quality project and expressed gratitude to city staff and the council.
“Thanks for all the work you all put into this,” Frentz said. “It took a long time to get here.”
If the project sticks to the schedule outlined in the TIF application, it will take exactly two more years to reach the finish line. Work is to begin next month and be completed in October of 2026 — generating an estimated 228 construction jobs in the process.