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The last Kmart in Minnesota will close after the city of Minneapolis agreed to pay $9 million to end its lease, clearing the way for the reopening of Nicollet Avenue for the first time in more than 40 years.

The deal, eased by the bankruptcy of Kmart's parent company, marks the end of a decadeslong quest to reverse what Mayor Jacob Frey described as "one of the worst urban planning decisions in our history."

It also forces the city to decide, after spending $22 million to gain control of the property, how it will develop 10 acres in a way that's welcomed by the working-class neighborhood.

"It's exciting, and there's opportunity there," said Kaley Brown, executive director of the Whittier Alliance neighborhood association. "But I think that we definitely have to make sure that we get it right."

Built in 1977 as part of a city redevelopment project, the Kmart at 10 W. Lake St. cuts off Nicollet Avenue, one of the city's main thoroughfares. Cars, buses and pedestrians must detour around it to get from one side of Nicollet to the other.

It's also a fixture in the neighborhood, offering affordable clothing, furniture and other items for local shoppers, who helped cement its reputation as one of the most successful stores in the fading national-discount chain.

For decades, city officials have tried to persuade Kmart executives to rotate the building or move to another location so that they could reconnect Nicollet Avenue and boost public transportation.

In 2015, the city paid $5.25 million to buy the site of a former Supervalu store near the Kmart. Two years later, the city paid another $8 million to buy the land under the Kmart, but its lease remained in effect until 2053.

Negotiations began anew after Sears Holdings Corp., the parent company for Kmart, filed for bankruptcy in 2018. "We discovered that there was more interest on the part of the company to talk about making a deal like this than there had been in the past," said David Frank, director of the city's Department of Community Planning and Economic Development.

The city reached a tentative deal to pay $9.1 million to end the lease, requiring Kmart to close the store and move out by June 30.

The City Council will vote on the deal next week, and Frey said he will approve it.

The money will come from the Streetcar Value Capture Fund, which pools property taxes from parcels along a proposed Nicollet-Central streetcar line. The fund currently has $19 million.

After Kmart leaves, the city will solicit contracts for demolition work and begin planning what should happen next to the property.

Robin Hutcheson, director of the city's Public Works department, cautioned that it could be a year or more before Nicollet Avenue reopens. "If we're doing it right, it's not fast," she said of the road work.

When it does, public transportation will be a top priority for city officials, though support for a streetcar has been waning.

"We need public transit that goes from Lake Street down Nicollet, all the way up through central and northeast [Minneapolis]," Frey said. "That's not an option. In my mind, it's a necessity."

Council President Lisa Bender, an early advocate for the streetcar, said she's focusing more widely this time around. "For me, the transit improvements are the priority, regardless of what mode it would be," she said Thursday.

Beyond that, the city must decide what to do with vacant land left over after Nicollet reopens.

The Whittier neighborhood is home to nearly 15,000 people. According to statistics compiled by Minnesota Compass, a project of the nonprofit Wilder Research, a quarter of Whittier residents do not have vehicles. Nearly half live in households that make less than $35,000 per year.

For people who live nearby, the store helps fill a need.

Kendra Montgomery comes about once a week and likes the inexpensive clothing, particularly women's boots, and the layaway options. She said it's cheaper than Target. "Don't close our store," Montgomery said. "We love our store."

Margarita Carrillo, who was buying a pair of high-heeled boots Thursday, said in Spanish she was sad to see the Kmart go. "But what can we do about it?" she said.

Will Reynolds takes the bus from his home in downtown Minneapolis to shop at Kmart. He buys hair products for his daughter that would be hard to find elsewhere, he said.

He also worries about the employees. "The staff here are very diverse. ... What are they doing to do?"

Employees were told of the closing Thursday morning, Frank said.

It's unclear how many people work there. Larry Costello, a spokesman for Transformco, which acquired Kmart stores in the bankruptcy, declined to comment.

City leaders have promised a process with robust public input. Brown, with the neighborhood group, hopes they follow through. To her, that means offering more than an online survey. And it means providing translators at meetings.

She hopes the city will take time to listen to residents and understand how changes might contribute to gentrification. She said, "I really want us to take care to approach this with eyes wide open and understand how people who will be most impacted can help design the process and design the ultimate outcome."

University of Minnesota student Cleo Krejci contributed to this report.

Liz Navratil • 612-673-4994