In the shadow of the CMHR, a gravel surface-parking lot sits in development limbo

City of Winnipeg property officials are grappling with another downtown land-development conundrum, this time involving a tiny surface-parking lot on a high-profile stretch of Main Street.

The gravel lot was sold to a firm who promised to develop a five-storey building on the site within two years.

That deadline has come and gone, but the gravel parking lot remains, caught in a polite but protracted impasse between the city and the land's newest owner, the restaurant chain Earls.

The saga of the parking lot dates back to 2012, when city councilors voted to dispose of 219 Main St., a 12,500-square-foot gravel parking lot opposite the east end of St. Mary Avenue. Council accepted $690,000 from OGGI Investments, a company owned by Winnipeg property developers Sabino Tummillo and John Garcea.

OGGI, which was already leasing the lot from the city for $10,000 a year, beat out five other potential buyers, including two offers that came in higher than the $690,000 list price.

The city chose to sell to OGGI because the firm planned to build a five-storey structure on the lot, with a financial institution serving as the anchor tenant, according to a 2012 report to council authored by Winnipeg real-estate manager John Zabudney. This offered the city the greatest potential to increase its haul of property-tax revenue from the site, Zabudney wrote at the time.

But the sale came with a catch: OGGI was given a deadline to build up on the land. The deal allowed the city to reclaim the land for $621,000 if the development is not "substantially complete" two years after OGGI took possession, according to a caveat placed on the title to 219 Main St.

The two-year deadline has come and gone, said John Kiernan, the director of Winnipeg's planning, property and development department.

"Since January of this year, we have the right and ability to retake that land for $690,000, less 10 per cent," Kiernan said earlier this week in an interview.

The catch is OGGI no longer owns the land. In 2013, the firm assigned its investment in the surface-parking lot to a Manitoba numbered company, which was in turn transferred to Vancouver firm Just For The Halibut Holdings in 2014.

The latter company is an investment vehicle run by Stan Fuller of the Earls restaurant chain, which owns a larger surface-parking lot and restaurant south of 219 Main St.

In 2015, Earls approached city hall with a plan to develop both parcels of land into a new restaurant. But city council's downtown committee quashed that proposal on the basis the proposed development was too suburban in quality for a high-profile stretch of downtown.

This has left the city in an odd situation where it has the right to retake the land — but has no desire to do so, considering the current owner actually wants to develop it in some manner but has so far not been able to meet the city's minimum demands for the size and scale of the development.

"There were a couple of things they weren't able to achieve under the downtown zoning bylaw," Kiernan said.

"It was a good, quality application, but part of our downtown zoning bylaw is buildings should be of 35-foot height, closer to the street and have screened parking."

But those are just the zoning minimums. Kiernan said the city also sees the entire Earls development as a key piece of a South Main-revitalization puzzle that also includes forthcoming mixed-use developments at Parcel Four north of The Forks, the Rail Side lands at The Forks itself and a redeveloped Union Station that could serve as a rapid-transit hub for both the existing Southwest Transitway and the forthcoming East Transitway.

Kiernan said the city is talking to Earls about precisely such a development, which he said could descend in tiers from CN Rail's mainline down to the sidewalk at Main Street.

"It would be great to see a private development integrated with the bus-rapid-transit line, or at least being able to accommodate it associated with the property or coming down from the CN highline at this spot," Kiernan said.

The city property manager said Winnipeg must act in good faith and should not try to seize 219 Main St. from Earls without trying to work out a solution to the land-development conundrum.

The restaurant chain confirmed it's trying to resolve the impasse and has received verbal assurances the city won't just try to retake the land.

"We are working with them," said Mark Hladik, Earls' vice-president of operations, speaking over the phone from his Chicago office. "The sticking point is we don't do vertical development. That's not our business model."

Hladik, a former Winnipegger, said the cost of a multi-storey development on Main Street could not be recovered from the rents at such a development. Other downtown Winnipeg development projects have been made possible by government tax-incentives or other partnerships, he said.

Kiernan hinted that could be possible, noting the potential for "multiple stakeholders" to be involved in the redevelopment of South Main.

"They have a great brand here," he said of Earls, praising the chain for its existing investment in downtown. "They would like to enhance that brand and would look to redevelop at that location. It's really a flagship restaurant for them."