by John Gessner
Thisweek Newspapers

The Chanhassen Dinner Theatres won't relocate to Burnsville, leaving the city to build a performing-arts center in the Heart of the City.

A city contract with Mortenson Development Inc. requires the developer to either build a new Chanhassen facility or manage construction of a city-owned center. Concurrent with that, the contract requires Mortenson to build a 155-room Sheraton Hotel on the 6.5-acre city-owned parcel west of Nicollet Commons Park.

Mortenson notified city officials Jan. 1 that the "private third-party theater group" had pulled out.

The Chanhassen is considering its home city, the Mall of America and other locations for a larger facility, said Tommy Scallen, vice president of International Theaters Corp., the Chanhassen's parent company.

Burnsville offered the company financial incentives through tax-increment financing and tax abatement.

"It was an excellent offer, and it was very difficult to turn down," Scallen said. "We just feel there are certain things and opportunities we need to pursue that weren't in the offer. There was nothing negative about the offer."

The contract, which the City Council approved in December, stipulates that a publicly owned center be built for no more than $25 million. Mortenson, the lone respondent to the city's 2005 request for development proposals, is the third developer to attempt an arts center/hotel project on the former AAA/Minnesota Iowa property.

The contract required Mortenson to continue negotiations with the Chanhassen, which would have brought an estimated 400 jobs to Burnsville. Failing that, the city would build the center.

The city gave Mortenson a Jan. 12 deadline to deliver a verdict.

City Council Member Dan Gustafson said a city-owned and -operated center has advantages, too.

"I'm just glad we know which direction we're going," said Gustafson, a vocal project backer. "Quite frankly, while the third-party dinner theater would have been great with the jobs and everything, this is going to offer us far more cultural events than the other one would have. I think we'll get a bigger variety of cultural events, anywhere from plays to music to comedians. We'll have it all there now, not to mention a place for corporate meetings and that sort of thing, which is huge for our city."

Mortenson wants to break ground on the hotel this spring and finish it in 14 to 16 months, said City Manager Craig Ebeling.

"The contract has language in it that sort of assures both parties that these are going to go together," he said. "The city would not want to have a performing-arts center not supported by the hotel. The folks that are going to own the hotel want that venue to be there."

The center, to be located at the west end of Nicollet Commons Park, will have a 1,000-seat main theater and 150-seat black-box theater.

The center may require an annual operating subsidy. Ebeling said the best estimates range from $150,000 to $250,000.

"I think there's a certain amount of fatalism attached to that," he said, adding that the city will try to turn a profit.

John Gessner is at burnsville.thisweek@ecm-inc.com.