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HomeMy WebLinkAboutItem 09City of Lakeville Administration Department Memorandum To: Mayor Anderson and City Council From: Allyn Kuennen, Assistant City Administrator Brenda Visnovec, Liquor Operations Director Copy: Justin Miller, City Administrator Date: April 24, 2017 Subject: Kenrick Liquor Store Retail Expansion Options Background Information The Kenrick store was constructed in 1997 and was designed to include a future building expansion towards the south to accommodate a larger liquor store. With the future construction of a store on Keokuk Avenue, and the addition of other liquor retail options within the Kenrick store market area, an expansion of the liquor store is no longer anticipated. However, the City has been approached by a national retailer interested in constructing an addition on the south side of the building for their use. In reviewing their proposal in relation to site conditions, parking needs, traffic circulation and the overall impact to operating the Kenrick store, staff found the site includes ample space for the building to be expanded to include two additional retail spaces. A 1,800 square foot addition could be constructed on the south side of the building, as requested by the retailer, and a 1,600 square foot addition could be constructed onto the north side of the building to accommodate another retailer (see attached). The site is also large enough to accommodate the additional parking required from the increased retail space; therefore, the City has the following options: • Decline Proposal: The City can decline the proposal from the retailer and maintain the site as is. • Design/Build: The current proposal from the retailer requires the City to design and build the addition and enter into a lease with the retailer. The City would incur all engineering, design and construction costs for the addition, but would retain all control over the site by becoming the landlord. Payback on this option is dependent on design, engineering and construction costs and negotiating a lease rate with the retailer. Preliminary payback estimates range between 10 to 15 years. 2 • Sale/Leaseback: The City could consider selling the entire property to an investor that would manage, lease and expand the building to accommodate the retailer. This would require the City to negotiate a favorable long-term lease for the liquor store space, and possibly negotiating a provision in the lease allowing the City some rights in approving future retailers locating within the adjacent spaces. However, it avoids the City taking on the responsibilities of being a landlord and the upfront construction costs to build the additional retail spaces. It also provides the City income from the sale of the property that could be used to help off-set the costs of constructing the Keokuk store in the future. Finally, it gives the City more options to modify the operation of the Kenrick store as needed to respond to future market conditions. With the property owned by a private investor it also becomes taxable. • Retain Store/Sell off Retail Pads: The City could consider retaining the liquor store portion of the site and selling the north and south ends of the property to an investor. This would require the property to be replatted as a Common Interest Community (CIC plat) which would include covenants and restrictions for developing the property, shared building and site maintenance and other responsibilities regarding the property. The income from the sale of the property would be substantially reduced, and finding a buyer to invest in a shared common situation may be more difficult. Liquor Committee At their April 17 meeting, the Liquor Committee reviewed the above options and recommended that staff focus on the “sale/lease” and “retain store/sell off retail pads” options. Conclusion/ Recommendation The overall goal in considering a private/public partnership for the Kenrick store is to increase traffic at the site with complimentary adjacent retail uses, reduce overall operation and overhead costs to maximize income, and to provide flexibility to modify our operations as needed to respond to future market conditions. Therefore, staff recommends the preparation of an RFP that allows a potential investor to submit a proposal for one or both options. The review and consideration of the proposals could follow the same process used when the 183rd Street property was sold. Staff will be available at the April 24 work session to discuss the above options. If you have any questions before then please feel free to contact me at akuennen@lakevillemn.gov.