Eastern edge of Rochester's downtown primed for development, eventually

ROCHESTER — Planned and potential development on the eastern edge of Rochester's downtown is poised to change a larger footprint in the city than Mayo Clinic's $5 billion expansion.

While Mayo Clinic's "Bold. Forward. Unbound. In Rochester." plans to transform 20 acres, various developers, as well as the city of Rochester, continue to ponder plans for more than three times that area near or along the Zumbro River.

"Done right, it could provide a lot of opportunities for housing development," Destination Medical Center Economic Development Agency Executive Director Patrick Seeb said of anticipated public and private development on more than 20 blocks within an approximately 50-block area east of Broadway Avenue. "It could provide lots of upgraded entertainment options."

The scope of the potential development projects, from the former Kmart site to proposed housing north of the Mayo Civic Center, continues to unfold. Some have tentative deadlines, while others are still only conceptual.

All are making preparations within a changed dynamic brought by inflation, post-COVID supply issues and an uncertain workforce.

"Even under normal timing all of this is going to be a while, but when you layer on top of that where we're at as a country in the whole, there are very few construction starts happening right now," said Carole Mette, a senior developer for Sherman Associates, which plans to build a 319-unit apartment complex north of Mayo Civic Center. "When we look back, we're going to see a big dip in the (construction) trend line."

Sherman Associates' plans have been in the works for more than two years after the Rochester City Council agreed to a proposal to redevelop a city-owned parking lot to provide needed housing options.

The Minneapolis-based developer is planning two buildings: A 14-story tower with 243 market-rate units and a four-story building with 76 units kept affordable through public support, which are now expected to be dedicated to senior housing.

"There was a lot of consensus that there was a lack of options for seniors, so that's what we're doing with the affordable building," Mette said.

While the plans are in place, financing remains a concern.

"It's not easy right now with the economic state we're in to make any developments work in Rochester, and I think that's something that the city and DMC understand right now," Mette said. "The economics in Rochester compared to the Twin Cities is not as robust, so the rent levels aren't as high."

Lower rent levels in Rochester, compared to the metro area, mean developers can't recoup their costs as quickly, and when rents are kept artificially low under affordable housing requirements, the gaps become greater.

The Sherman project has a financing plan in place for the proposed market-rate apartments, but it failed to secure Minnesota Housing funds after two applications, so the city and the state's DMC Corp. board have approved up to $16 million in support, for the estimated $127 million project, partly to help the overall project connect to the city's new geothermal energy district.

Mette said the developer is committed to meeting the city's expectations that both buildings are completed at the same time, but a timeline hasn't been finalized.

"Our hope has been to have a spring 2025 start to the project," she said. "The current challenge is finding gap sources for the affordable project, so that is the key to really being able to move forward."

She said federal and state support continues to be sought.

If funding is secured and construction starts next year, the housing near the intersection of Center Street and Third Avenue Northeast could be the first project completed on downtown's east side, coming in ahead of plans to redevelop the former Kmart and AMPI sites less than a mile to the south.

Rochester's Kmart closed in 2018, followed by the AMPI cheese processing plant at the end of 2019, and the sites left 23.5 acres along the east side of the Zumbro River for potential redevelopment.

Purchased by Camegaran LLC, a company led by developer Pat Regan, development plans have been initiated with a general development plan approved earlier this year, outlining parameters for future development with separate future projects expected to be tackled within the site.

The plan's adoption puts redevelopment of the sites ahead of deadlines set in a lease agreement that authorized temporary use of the property for Mayo Clinic employee parking. The agreement calls for construction bids for planned development to be sought by the end of 2029.

Representatives of Camegaran did not provide the latest details of their development efforts in response to a Post Bulletin request, but Rochester Assistant City Administrator Ryan Yetzer said the company is working on a required environmental review as the next step in development.

The proposed development is part of a larger 60-acre small area plan that would include potential development of land north of the Camegaran property, including sites owned by Mayo Clinic and Olmsted County.

While the vision for the area east of the Zumbro and between Fourth Street Southeast and Ninth Street Southeast, known as the Downtown Waterfront SE Small Area Plan, offers the potential for multiple types of housing and commercial development, the actual outcome will depend on developers and available funding.

The scope of the potential work, which was funded by the city, Camegaran, Mayo Clinic and the DMC EDA, also means it will likely take time.

"The bigger the site, the harder it is to get it going, because when you have a big site there are so many options about what you can do with it," Seeb said.

Carmegaran's Regan has repeatedly said that any development will rely on the installation of a Sixth Street bridge over the Zumbro River.

The city has secured a $19.9 million federal grant for bridge construction, along with traffic safety and riverfront improvements surrounding the new bridge, with added commitment of state DMC funding.

Josh Johnsen, the city's strategic initiatives director, said work to design the bridge continues, with the expectation that construction will start in early 2026 and wrap up with landscaping and other work along the riverfront in 2027.

Seeb expects the work to provide a catalyst for Camegaran and other developments.

"I think once we put in the Sixth Street bridge, that will start to frame up the site," he said, adding that the anticipated 2026 launch of the city's downtown rapid-transit service will also likely spur development, since the eastern endpoint of the transit line will meet the northern edge of the Camegaran property.

The new 2.8-mile transit line largely along Second Street southwest and southeast will also connect Sixth Street Southeast to create an eastern endpoint south of Mayo Clinic's existing shuttle lot and recycling center.

The Link rapid transit line will feature five dedicated stops in each direction between the endpoints. The stops will be at Mayo Civic Center, Second Avenue Southeast, Sixth Avenue Southeast, Mayo Clinic Hospital-Saint Marys, and 19th Avenue Southeast.

Mayo Clinic has listed potential changes to the 9.5-acre east shuttle lot in past five-year plans submitted to the city, but nothing is currently being considered.

"Mayo Clinic's east lot will continue to serve as parking for staff," Communications Manager Kristy Jacobson said in a statement. "We have been and will continue to collaborate with the owners of the former Kmart and AMPI sites and the city of Rochester as development plans are considered. With the development of Link Bus Rapid Transit, we expect that parking will continue to be part of short- and long-term development plans."

Johnsen said some discussions with Mayo Clinic have pointed to reducing activity at the recycling plant, and the small area plan for the larger site shows the potential for future development that ties into the transit system.

Just north of the Mayo Clinic site, Olmsted County is taking a wait-and-see approach on two properties it purchased in 2018 and 2019.

The Rochester Community Warming Center occupies one site, at 200 Fourth St. SE, but staff have questioned whether the aging building is worth the cost of renovations that are needed to shore up the building for the long term. Moving the shelter to another location has been periodically discussed.

The other site, at 210 Fourth St. SE, is where the county demolished a former Subway restaurant. It is used for occasional parking.

Mat Miller, the county's director of facilities and building operations, said both properties were purchased to address long-term space needs with the potential to support the courthouse annex building to the west.

"The annex building was originally constructed to support several more floors," he said. "These adjacent properties could support expansion of services in the annex building."

Shifting space uses in other county buildings have sidetracked some downtown expansion discussions, and Miller said future planning efforts will likely determine how the area could be redeveloped.

The county's space for potential redevelopment south of the city-county Government Center is small compared to the 5 acres the city owns east and west of the shared building that houses City Hall and the courthouse.

The combined sites are part of the city's Riverfront Small Area Plan adopted in 2022, calling for a mix of public and private development in an area that includes a variety of parking spaces, including the Second Street parking ramp, as well the former Legends and Mr. Muffler buildings, which are owned by the city.

"Along a waterfront the aura of a city resides, and Rochester deserves to have a riverfront as remarkable as its people and institutions," the plan states in creating a potential vision for redevelopment.

The vision, which comes after a project proposed by Bloom International Realty failed to move forward, includes opening visual access to the river west of the Government Center while maintaining flood control elements. It also calls for partnering with private developers to create a mix of housing and commercial space on both sides of the Government Center.

While the city was unsuccessful in obtaining a requested $23.3 million from the Minnesota Legislature last year to help fund the project, discussions regarding a follow-up request are being held, and the council is expected to decide on it by the end of the year. Heather Corcoran, Rochester's legislative affairs and policy director, said the updated request could be pared down to focus on initial planning expenses.

Meanwhile, plans to solicit private development participation are also in the works.

Irene Woodward, the city's community development director, said the goal is to gauge interest and qualifications from potential developers through a public process that could result in the city selecting a partner for the work near the Government Center.

"It's not asking a developer to come in with a fully baked plan," she said. "It's allowing them to kind of demonstrate their experience and where we can find alignment."

She said the request likely will allow developers to focus on the east or west side of the larger site, since they are expected to be developed separately, but a plan for the overall project could also be considered.

Woodward said the east side of the project, south of Mayo Civic Center, offers more potential for private development.

"I think our goal there is that it's an opportunity to bring in more housing and have some kind of, I'm gonna say, neighborhood commercial within that," she said.

To the west, between existing South Broadway Avenue properties and the river in an area that extends from Second Street Southeast to Fourth Street Southeast, Woodward said public space is likely, along with infrastructure needed to develop the area.

No timelines exist for that project as the city considers financing and partnership options, and the potential for a delayed project is seen in the Rochester City Council's recent approval of $1 million for needed repairs to the Second Street parking ramp.

Woodward said the ramp is expected to be replaced with future development, even though some recent maintenance work could not be avoided.

"The parking ramp could be there for a few years," she said, noting that funding for the work comes from the city's parking revenue.

Between the city's planned riverfront project and Sherman Associates anticipated housing north of the Civic Center sits an additional one-block parcel set for future development.

The former Post Bulletin site, west of the Civic Center, was demolished in 2020, nearly a year after it was vacated and sold for $10.5 million.

More recently, Empire Hotels purchased the property last year for $12.5 million.

Harshal Patel, a founder of the company based out of Minneapolis and Buffalo, N.Y., said no concrete plans for the site exist at this point, but the company is reviewing concepts for development.

Empire Hotels has 21 hotels in its portfolio, operating three in Rochester — Fairfield Inn & Suites, Hampton Inn South and Best Western. It also owns and manages the Empire Event Center in southwest Rochester.

Given current economic conditions, city planners and some developers said it's understandable when potential projects take time before being submitted for public review.

At the same time, Johnsen said some plans are moving forward in parts of the city in the hope of beating an anticipated contractor and trades crunch when Mayo Clinic ramps up construction amid city growth.

"We are seeing a lot of developers that are trying to squeak in before Mayo really breaks ground on some of their big infrastructure projects, but it's really going to squeeze our resources locally," he said.

Still, Woodward said the redevelopment east of the Mayo Clinic expansion is likely to take a decade, if not longer.

"Not specific to this, but I feel like generally for cities to have significant changes, you are talking about 10 years," she said. "I think some of these will go sooner than others, but some of them are just long-term. They are complicated sites that take time."

Here's a look at how opportunities for development have unfolded:

– Fullerton Lumber Co. sells that 12.9-acre site at 416 Second Ave. SE to Mayo Clinic for $2 million.

March 2018 – Kmart closes.

August 2018 – Olmsted County purchases strip mall at 200 Fourth St. SE for $970,000.

February 2019 – Camegaran purchases Kmart site for $7 million.

February 2019 – Olmsted County purchases former Subway Restaurant at 210 Fourth St. SE for $465,000.

May 2019 – Post Bulletin sold to Forum Communications.

September 2019 – PB Rochester Investments LLC purchases former Post Bulletin building for $10.5 million.

November 2019 – AMPI announces decision to close Rochester plant.

February 2020 – Temporary parking use approved for former Kmart site.

July 2020 – Former Post Bulletin site cleared.

December 2020 – Camegaran purchases AMPI site for $3.7 million.

April 2021 – Downtown Waterfront SE Small Area Plan adopted by Rochester City Council.

March 2022 – Rochester City Council reviews preliminary plan for development north of Mayo Civic Center.

July 2022 – Rochester City Council adopts Riverfront Small Area Plan, covering several city-owned properties east and west of the city-county Government Center.

February 2023 – City of Rochester agrees to pay Olmsted County $450,000 for its share of the former Mr. Muffler shop at the intersection of Fourth Street Southeast and Third Avenue.

April 2023 – Empire Hotels purchases the former Post Bulletin site for $12.5 million.

June 2024 – Rochester City Council authorizes up to $16 million in financial support for Sherman Associates plan to create affordable senior housing north of the Mayo Civic Center. The state's Destination Medical Center Corp. board approved the funding a month earlier.