Feb. 19—MANKATO — The city's ownership of adjoining industrial properties on Mankato's north side in 1988 aimed to be a short-lived purchase to spur some economic development.

It didn't work out that way, but 35 years later, the properties are home to a fast-growing enterprise that's now looking to move from tenant to owner.

"We started with five employees 4 1/2 years ago on Industrial Road and have grown to over 16 employees and are in need of more space to in turn hire more people," Kato Manufacturing owner Tyler Wenner wrote in a Dec. 2 email to the city.

The properties at 480 Industrial Road, where Kato Manufacturing is the tenant, and the adjacent facilities at 500 Industrial Road where three other tenants are located, are large enough to meet Kato Manufacturing's ambitious growth plans, according to Wenner's purchase proposal.

Kato Manufacturing's website states the company specializes in metal fabrication, including hand railings, staircases, mezzanines, industrial ductwork, hoppers, generator bases and equipment used in food processing, grain handling, mining, dust collection and more.

The company wants to expand into producing modular houses or modular apartment units, according to the purchase proposal from Wenner, a real estate investor and graduate of South Central College's computer-integrated machining program.

"The reasoning for us to purchase the property is all centered around growth. We love this location, it fits our operations perfectly and we want to stay. However, we are out of room and are in need of expanding. We foresee this as a continued problem for years to come. Our expansion plans show we will need about 70,000 square feet of more manufacturing space in the next 3 or so years and add 40-50 more positions."

The combined properties on Industrial Road, which total 172,000 square feet over more than 16 acres, were appraised at $7.755 million 14 months ago.

Wenner offered the city $7 million, and the City Council accepted the amount after a closed-door meeting. During the later public meeting when the council authorized City Manager Susan Arntz to finalize the deal, there was no discussion.

Memos to the council, though, provided a summary of the staff's belief that the sale was appropriate for several reasons.

First, the city never intended to own the property indefinitely when former City Manager Bill Bassett asked the City Council to purchase and renovate the former Kayot Boat facility. The purpose was to create a manufacturing facility for Old Town Canoe Company, which would soon take ownership.

"Mr. Bassett stated that Old Town Canoe Company, which is a part of the Johnson Corporation, is interested in purchasing the building," according to the May 23, 1988, council minutes.

The canoe manufacturer instead ceased operations, and the city ended up working with Atlas Plastics, which owned nearby property, to put it to a new use. Over more than a decade, the city leased space to Atlas, sold parcels to Atlas for building expansions, and constructed additions that Atlas leased with an option to purchase, according to the memo to the council.

"Atlas, later Spartech, continued to operate in the buildings until 2009, when they ceased operations," the memo stated. "Their portion of the building and the City's portions were listed jointly for sale in 2009."

In November of that year, a group of investors proposed a startup plastics recycling business named Genesis Poly Recycling at the site. Under the proposal, the city would consolidate ownership of the property by purchasing the portion owned by Spartech, then lease the entire facility to Genesis Poly. After three years, Genesis Poly would have the option of purchasing the property with credit received for the rent it had paid.

"In early 2010, the City acquired the building owned by Spartech at a cost of $800,000," according to the memo.

Genesis Poly not only went bankrupt, it really never got started — failing even to obtain the manufacturing equipment required to fully begin operations. It was evicted from the property in October of 2010 after four months of not making its $20,000 monthly rent payments, according to a Free Press story at the time. Along with the city's assistance, the project had been supported by millions of dollars in loans, grants and loan guarantees from state and federal agencies.

Over the next dozen years, the properties remained in the city's hands and provided manufacturing and storage space for several tenants.

But it's difficult to justify continued ownership of the property, according to the memo to the council: "The properties were acquired by the City with an expectation of sale, but the sales have never occurred. Instead, the City continues to lease the properties in competition with the private market."

The memo indicates the council considered listing the properties for sale instead of selling directly to Kato Manufacturing, but the direct sale avoids the cost of paying a commission to a real estate agent.

And the 35-year ordeal might have a happy economic-development ending if Wenner's growth projections prove accurate.

The company wants to remain in Mankato, but it needs the Industrial Road property to ensure that happens, according to Wenner's email. That's because Kato Manufacturing isn't interested in constructing a new building, and other existing buildings in the city don't fit the firm's needs.

"This location does," wrote Wenner, who couldn't be reached for comment by The Free Press. "The only other options we've found are buildings in Waseca. We really don't want to have to move. ... But in the end, we feel that if we aren't growing we are dying so we have to take care of the business's growth as it needs it."

As part of the purchase agreement with the city, Kato Manufacturing will agree to honor the leases with other existing tenants — Northwest Packaging, Condux and the Mankato Event Center (which rents storage space) — until they expire.

The sale will mean an end to the lease payments that provided an ongoing revenue source for Mankato's Economic Development Authority, but the proceeds of the sale will provide a windfall for the same fund.

The $7 million could be used "for a purpose that furthers a strategic goal of the City, such as affordable housing," according to the memo. "The City and Blue Earth County are jointly working on several housing initiatives, including supportive housing and a year-around shelter, and the funds could be used to leverage those projects or other projects as approved by the Council."