Studio Five3 (copy)

The Studio Five building planned for the 500 block of Riverfront Drive in Old Town — with commercial uses on the street level and apartments above — is set for a spring construction start.

MANKATO — The largest private investment in Mankato’s Old Town business district in a half-century has received approval from state and municipal officials and could be underway by early spring.

The $3.2 million Studio Five building will bring a pair of ground-floor commercial businesses and 17 apartments to the 500 block of North Riverfront Drive.

“It’s kind of cleared all the public hurdles,” said Mankato City Manager Pat Hentges, who estimates demolition and site-preparation work could begin in 60 to 90 days.

Late last week, the Minnesota Department of Employment and Economic Development approved a $242,000 grant to help the project developers cover the cost of cleaning up contaminants from a former dry-cleaning business on the site. This week, the City Council authorized $217,000 in tax subsidies for the project.

The redevelopment project will include demolishing the old Stephen Cleaners and Laundry building and a small convenience store. The new 13,690-square-foot three-story building will encompass those lots and all but the back of the parking lot next to the Wooden Spoon bakery and restaurant.

Costs for removing contaminated soils and ventilating vapors from the pollution, both of which are believed to have resulted from chemicals used at the former dry cleaner, are estimated at $381,541. The gap left after the $242,000 DEED grant will be the responsibility of the developers — David Schooff, Oliver Schugel and Josh Williams.

The tax-increment financing approved by the city will cover some of the extra costs associated with redeveloping the site, including demolition of the two buildings, replacement of substandard soils, improved utility connections to the mains beneath Riverfront Drive, and the addition of structural supports for an adjacent building during construction.

The subsidy involves the additional annual property taxes Studio Five will generate compared to the existing properties. For 15 years, that additional tax — totaling well over $300,000 but with a present value estimated at $217,000 — will be returned to the developers to offset those extra redevelopment costs.

While the Old Town area has undergone something of a renaissance in recent years, the Studio Five project is unusual. The last time the area saw major construction was the late 1960s when new buildings were added to the Hubbard Milling complex.