Lake Street: High hopes, higher taxes

E. Lake Street has undergone a remarkable transformation. But along with increased business and property values come rising rents and taxes.

Chris Serres, Star Tribune
Last update: January 30, 2006 – 7:16 AM
Online at http://www.startribune.com/535/story/210866.html

Few commercial strips in Minneapolis had a worse reputation than E. Lake Street in the early 1990s, with dozens of buildings abandoned, vandalized and trashed.

A decade later, some of the most infamous stretches of Lake Street are no longer recognizable. Where a vacant Sears distribution center once stood, crews are building 365 housing units and an indoor public market with 55 shops and restaurants. A 136-room Sheraton hotel opened last month on the site of a dilapidated train shed near Lake and Chicago Avenue.

Drive east on Lake Street and the changes are even more striking. In brick buildings that once housed topless massage parlors are Hispanic flower shops, bakeries, jewelry stores and restaurants. La Poblanita, a Mexican restaurant and grocery, is adding a second location at 17th and Lake, a corner where a police officer was once shot and killed.

The remarkable transformation of E. Lake Street means higher property values for landowners and investors. But it also means property taxes and rental rates along much of this commercial strip have skyrocketed. On some lots, tax assessments have tripled over the past year.

The steep increases have been difficult to swallow for self-made merchants such as Ernesto Reyes, who opened Me Gusta Mexican Cuisine at E. Lake Street and 15th Avenue at a time when people were still afraid to walk the streets after dusk.

Reyes, who bought the building three years ago that houses Me Gusta, recently learned that his 2005 property tax bill totals $25,000 -- up from $9,000 a year ago.

Reyes said he may have to sell his building if he can't negotiate a lower tax bill with Hennepin County. "We took a big risk coming here," he said. "There was prostitution, drug dealing, everything. I had a gun put to my face. ... This doesn't seem like a fair reward."

Ramiro Hernandez is unsure why property taxes rose 74 percent this year on the building he owns at 511 E. Lake St. Hernandez has launched four small businesses on the street, including La Joyeria jewelry store, since venturing into the area 12 years ago. He's now tapping revenue from those businesses to pay his property tax bill.

"It's probably the right time to sell," he said.

But Hernandez and Reyes, as building owners, are more fortunate than many entrepreneurs on this strip.

Renters have been forced to absorb the property-tax increases through higher lease rates. In some buildings on Lake Street, landlords who once charged $5 per square foot in the early 1990s are now asking as much as $50 -- on a par with some regional shopping malls, said Ramon Leon, executive director of the Latino Economic Development Center.

"Rent here is slightly on the high side, more in line with a Southdale [Mall] or a France Avenue [in Edina]" than a street-front property, said Doug Imholte, owner of Wireless Toyz, a cellular phone store at Lake and Chicago.

Road construction woes

The higher rents could not have come at a worse time for many Lake Street businesses. Last year, Hennepin County and the city of Minneapolis began an ambitious project that involves reconstructing nearly all of Lake Street, from Dupont Avenue near Uptown all the way to the Mississippi River.

For much of last spring and summer, a 12-block stretch of Lake Street was torn up and had limited access. The streets were so crammed with trucks and construction equipment that the area's lunch and dinner traffic slowed to a crawl.

Chicago Lake Florist was virtually unreachable for six months last year -- costing the tiny flower shop about 70 percent of its sales. To cut costs, owner Ernie Krasselt said he had to dismiss three workers and switch two full-time staff to part-time. Even with those cuts, Krasselt's florist shop borrowed $70,000 to meet operating expenses.

Krasselt said he is so deep in debt that he can't afford to replace the front awning at his store. "It was a great thing they did, improving that road," he said. "It just took too long."

But while business owners on Lake Street may grumble about rising taxes and rents, very few have left. This could have something to do with the unusual character of the area's merchants who, having witnessed assaults, robberies and much worse, are more resilient than retailers in the suburbs, Leon said.

It's a place where business owners are accustomed to taking local problems into their own hands. Dave Johnson, a dentist who owns a clinic near Chicago and Lake, cleans up the Chicago-Lake intersection each Thursday during the summer with a street sweeper he bought with $25,000 of his own money. Twice a week, Chicago Lake Liquors sends staff out on E. Lake Street to pick up trash.

"Businesses here tackle risks that others don't," Leon said. "We're persistent. We don't close until we absolutely hit the floor."

And while gentrification may be painful now, merchants on E. Lake Street generally agree that development should lead to more sales and profits. By May, the Neighborhood Development Center and its partners will complete construction of a year-round public market, the Midtown Global Market, that will house a multitude of ethnic shops and restaurants in a 58,000-square-foot building -- about half the size of a Wal-Mart store. The NDC estimates the project will attract about 2,500 shoppers a day.

What's more, Allina Hospitals & Clinics in November began moving into its new headquarters in the old Sears tower at E. Lake Street and Chicago Avenue, a building that will eventually house 1,800 Allina employees. Between 750 and 1,000 people have moved into the building, said Mike Temali, executive director of the NDC.

Nearby businesses already are benefitting. Kamal Omar, owner of Hamdi Restaurant near Chicago and Lake, estimates that at least 10 Allina employees visit his restaurant each day for lunch or dinner. To reach out to the new arrivals, Omar plans to add some American food, such as spaghetti and hamburgers, to his Somali menu. "I'm trying to get ready for them," he said.

With so much happening, many business owners said they couldn't imagine leaving.

Manuela Barraza, owner of Jennifer's Boutique at 1508 E. Lake St., a women's dress store, said she "never felt safe" when she opened her store a decade ago. While waiting each day for a bus at Lake and Chicago, she would stare at her feet to avoid making eye contact with the drug dealers, prostitutes and petty thieves who loitered nearby.

Now, as she stared out the front window of her store, she said E. Lake Street has begun to remind her of Mexico City, where she was born. "The streets are wide, there is lots of traffic and lots of cars," she said. "I feel at home here."

Chris Serres • 612-673-4308