You may have noticed recently that big box retailers all over the country are shutting their doors. Sears, Macy’s, Bed Bath and Beyond, CVS, the list goes on and on. Though the COVID-19 pandemic and its impact on our economy may account for some of the most recent closures, box stores have been closing for quite some time. Approximately 9,300 store closings were announced in the United States in 2019. Experts predicted this number to rise in 2020, estimating as many as 12,000 major chain stores to close — and that was before the pandemic.
Fergus Falls has seen the effects of these closures first-hand. Our community has experienced the loss of retailers like Target, Sunmart, and Kmart. In 2019, Shopko filed for bankruptcy and became the latest in the line of box store closures.
The Changing Landscape of Retail
It’s no secret that retail has begun to change over the years. Online shopping has provided retailers with a cost-effective way to reach consumers with fewer brick and mortar stores. The combination of online retail and different economic factors has contributed to closures of box stores everywhere.
For many retailers, the decision to close a store is never made lightly. It often comes after a lengthy evaluation process, which was the case when Target decided to close a dozen stores in 2018 — including the Fergus Falls location. At the time of the closure, Target spokeswoman, Kristy Welker, explained:
"We have a rigorous process in place to evaluate the performance of every store on an annual basis, closing or relocating underperforming locations as needed. Typically, a store is closed as a result of seeing several years of decreasing profitability."
These closures can have a pretty significant impact on rural communities, including lost jobs and tax revenues. While the same can’t be said for every community, Fergus Falls is lucky enough to be able to provide workers with similar positions at locally owned small businesses. Many of the businesses in our community also offer the same or similar goods that you would find at a box store. In the case of lost tax revenue, it’s crucial to note that property taxes are still being collected based on the building’s assessed value.
While multi-faceted, one of the most challenging parts of losing a big retailer is finding a way to fill the empty space that the store leaves behind. This is no easy feat, especially with today’s changing retail landscape.
But it’s not impossible.
Empty retail spaces like Target or Shopko provide a unique opportunity for redevelopment. Developers all over the nation are finding creative and outside the box ways to repurpose big box stores. These successful redevelopment projects are proof that it can be done, and it can be done well. They bring amazing benefits to the communities they reside in, including:
Increasing the tax base
Attracting new businesses to the area
Improving the quality of life
Supporting community growth
These are exactly the type of benefits Donavan Rogness and the rest of River’s Edge Investments intend to bring to the Fergus Falls community with the redevelopment of the former Shopko site.
The Shopko Redevelopment Project
The old Shopko building is located along the Otter Tail River in downtown Fergus Falls. With scenic views and great walkability, the site is an excellent location for mixed-use development. Seeing the potential to repurpose the Shopko site, developer Donavan Rogness teamed up with four other investors to form River’s Edge Investments. The investment group was established with the sole intention of redeveloping the former Shopko site.
Their plans for the site include a four-story, mixed-use building. Class A commercial space will span the entire main level, amounting to approximately 7,500 square feet. The remaining three stories will be reserved for market-rate residential apartment units. This new building will be located in the former parking lot of the Shopko site. Once complete, the group plans to demolish the existing building.
The decision to designate the main level as Class A commercial space is strategic. National chains and franchises tend to seek out these types of spaces because of what they represent. Along with being the newest and highest-quality buildings in their market, they typically include:
Exceptional construction and aesthetics
High-quality infrastructure
Convenient access in a great location
The team at Greater Fergus Falls has been assisting River’s Edge Investments with the acquisition process since mid-2019. Like most projects, the redevelopment of the site will take some time. In the meantime, the group wanted to find a way to generate some income to help finance the project and put the vacant Shopko building to good use.
Greater Fergus Falls helped River’s Edge Investments find a solution that allowed them to support local manufacturers and meet the city's demand for more warehouse space. Working with the Fergus Falls Planning Commission and City Council, we were able to secure an interim use permit that would allow them to do so. This was a step in the right direction, and ultimately what made it possible for River’s Edge Investments to purchase the Shopko building this past April. Vector Windows and Balance Gymnastics Center now lease space in the building.
While the ball has already started rolling, there are still quite a few things to do. As Rogness explained, there are many moving parts to any redevelopment project. One of the next steps on their list is to secure financing through a critical tax incentive called TIF.
What is TIF?
Tax increment financing (TIF) is a powerful tool designed to revitalize communities through new construction and redevelopment projects. TIF helps a company or developer finance a project using funds from the increase in property tax generated by the project. These funds are referred to as “tax increments” and are used to pay for costs associated with the project.
TIF has been used to finance projects all over the United States. One of the most notable is Amazon’s HQ2 in Arlington, Virginia. This redevelopment tool has also been used throughout Minnesota, financing projects like:
Cabela’s, Rogers
Water Street Inn, Downtown Stillwater (Renovation and expansion)
The Spam Museum, Austin (Formerly Kmart)
Eden Prairie Library, Eden Prairie (Formerly Lunds Grocery)
There are many steps to qualify for TIF, which you can learn more about in this blog post.
If awarded the tax incentive, the developer is rebated a portion of the increase in property taxes after the initial payment. It’s important to note that these funds don’t exist before the start of the project. They are generated solely from the increased tax revenue resulting from the proposed project. If the developer is denied TIF, the funds never come to be.
The failure to secure TIF financing can stop a project in its tracks. Redevelopment projects that include blighted buildings require cash flow, which TIF provides. Without it, the project may not happen; vacant lots and buildings remain blighted and any potential jobs and tax base increases vanish.
Benefits of Redevelopment in Rural Towns
Projects like the Shopko redevelopment are crucial to small towns like Fergus Falls. Effectively reusing abandoned box stores improves the community’s economy and its quality of life.
River’s Edge Investments’ plan to convert the Shopko site to a mixed-use space is a prime example of how to do so. The addition of commercial space will bring new businesses to downtown. The new residential units will provide much-needed housing and can encourage people to stay here or move to the area. These units also inspire permanent residents to visit and support over 100 downtown Fergus Falls businesses.
The investment group is the first to take on a project of this kind. If completed successfully, it can be a poster child for what can be done with these types of vacant spaces. As Rogness points out, it can also show other developers how much potential our community has and encourage them to do something similar.
“We’re showing other investors and [developers] that we believe in our community and that Fergus Falls can support a project like this. If we can show them how it can be successful, other development projects like it can happen in our community as well.”
For more information about the Shopko project, check out our recent press release. If you’d like to learn more about TIF, redevelopment in Fergus Falls, or have questions, get in touch with our team.