Minneapolis Weighs Deal to Lease Kmart Space to USPS

Minneapolis Weighs Deal to Lease Kmart Space to USPS

City delays demolition of vacant big box retail store.

The city of Minneapolis finally bought out the lease of the Kmart store at Lake Street and Nicollet Avenue in south Minneapolis earlier this year with the goal of razing the building to reopen Nicollet Avenue. The city had planned to demolish the building later this year.

But instead the city plans to temporarily lease space in the building to the United States Postal Service. The USPS Lake Street Station post office – about one block away from the Kmart site – was torched during civil unrest following the killing of George Floyd by the Minneapolis Police.

The USPS lease would start on August 1 and could last as long as two years.

Per the city staff report on the deal: “The USPS did an extensive search to find suitable locations in south Minneapolis, and the former Kmart store was the only viable option that met its needs with a start date in August 2020.”

Striking a commercial real estate deal in a matter of weeks is almost unheard of in that business.

The USPS-owned building at 110 E. 31st Street was severely damaged while the post office at 3033 27th Avenue South, where USPS leased space, was destroyed. Plans call for rebuilding both locations but, as the city report notes, the USPS “needs an interim, temporary location to conduct postal activities for both locations during the 12 to 24 months it will take to rebuild.”

The USPS is slated to pay $30,416.67 in monthly rent to the city for the use of approximately 36,500 square feet, just a portion of the former retail store. The rate works out to $10 per square foot per year.

The deal is structured as a six-month lease, but the USPS has the right for three six-month renewal options. If it exercises all of those renewal options, the USPS could be in the space until July 31, 2022.

Per the city’s staff report, the USPS will pay for the buildout of a secure postal space in the building. The city of Minneapolis is responsible for outdoor property maintenance, snow removal, and maintaining all of the systems within the building. The deal caps the city’s obligations for those costs at $365,000 a year, which will be paid out of the city’s Common Project Fund.

The Business, Inspections, & Zoning Committee of the Minneapolis City Council is set to consider the arrangement on Tuesday afternoon. It would ultimately have to be approved the full city council, which meets on Friday.

The city struck a deal to buyout the lease to the Kmart store for $9.1 million earlier this year. The city previously spent $13.3 million in two separate deal to buy the two land parcels on the site, which total roughly 10 acres.