Don't bet on bid from cityCity officials say Cottage Grove isn’t likely to bid in auction for vacant Home Depot building, but mayor said purchase of site should be considered
As if city leaders in Cottage Grove needed another indicator of the frail economy, there it is, emblazoned on a sign that sits in front of a huge, orange, vacant commercial building up for auction this week: $1.6 million.
That’s the starting bid on the Home Depot-owned property — a former home improvement center shuttered since mid-2008 — and it’s down half-a-million dollars from the original figure in the auction that ends Thursday.
At that price, the 114,000-square-foot parcel could sell for less than one-third of the property’s assessed value of roughly $7 million.
And yet, officials say, there’s been almost no interest in what Cottage Grove city leaders believe is one of the premier commercial properties in the city and an anchor in Cottage Grove’s redeveloped Gateway commercial district.
It’s a situation that led Mayor Myron Bailey to suggest a proposal that he admits is unlikely: the Cottage Grove Economic Development Authority would purchase the Home Depot site at its current bargain-basement price, then act as broker and sell the property off to a developer or end-user.
“I think it’s a long shot to be honest with you,” Bailey said in an interview. “I don’t know if we have to do it.”
When asked about Bailey's suggestion, both city administrator Ryan Schroeder and community development director Howard Blin said they believed the city would allow the online auction for the empty property off East Point Douglas Road to run its course.
Then, Schroeder said, if no developers or commercial end-users make a bid to purchase the property, city officials could discuss approaching Home Depot — which is desperate to sell off the property, real-estate agent Linda Zelm of Coldwell Banker Commercial Griffin Companies has said — about buying the site.
The city would “have to weigh the level of risk,” Schroeder said. But with the asking price for the Home Depot below $4 per square-foot, he said, “unless you’re just an absolute pessimist as to what the economy is going to do that seems like a number that will allow a developer to make the numbers work.”
Whether Cottage Grove needs to help broker the deal or a developer purchases the property this week, Bailey’s goal is the same.
“I just want it purchased and I want to work with someone to get a project going,” the mayor said.
Past city land buys
It wouldn’t be the first time Cottage Grove had purchased land to facilitate development. The city bought up 27 different parcels, including four homes and four commercial properties, to help put together a deal with department store chain Kohl’s in 2004.
And Cottage Grove has acted as broker for all the development in the city’s growing industrial park, acting as an intermediary between landowner WAG Farms and the companies that then construct a building on the land.
The public sector’s involvement in development projects limits risk, Schroeder said.
“If we’re involved, the private sector knows with relative certainty what their level of risk is — which means the project will happen,” he said. “If there’s a huge amount of uncertainty the private sector won’t do it.”
But major differences exist between the Kohl’s and industrial park deals the city was involved in and a possible Home Depot purchase.
For one, there’s the economy. Then, the city was rapidly redeveloping the Gateway area and commercial real estate boomed. Now, in the midst of a Great Recession, activity in the commercial real-estate market has stagnated and fewer companies are actively looking to expand.
And in the case of Kohl’s, the city and retailer had a purchase agreement already in place when the city bought the land necessary to package the site the department store sits on now.
“We could do a similar sort of thing here,” Schroeder said. “But if the private marketplace takes care of it, that would be our desire.”
Bailey said he understands the risks implied were the city to purchase the site. Namely, a precarious real estate market that could see the city stuck with a property for an indefinite period of time and roughly $100,000 in city taxes off the rolls.
But despite concerns Zelm expressed with the site in an interview last month — including ease-of-access issues and lack of visibility from Highway 61 — Bailey said he is confident the Home Depot property will be a lucrative locale.
“Whoever is going to buy the site is probably going to make some pretty good money on it,” Bailey said.