Yes you do! As someone whose family lived in the Northside (as well as myself for a summer or two) and worked for a developer whose niche was small urban infill with 3 to 6 story luxury apartments/condos, I can tell you that there were lots of blocks with housing as short as 2 floors and as tall as 6-10 floors on the blocks AWAY from the major arterial streets. A 10-story building CAN blend in with 2-3 story townhomes/rowhomes (SF detaches homes don't really exist as much in the urban Chicago core like Lincoln Park, but they do exist in some areas). The most beautiful architecture in Chicago, IMO, are the 3-5 floor shotgun-style urban rowhomes that Chicago does 2nd to none (or maybe NYC). That could be an apppropriate urban form for this block in question in Minneapolis. Have 1 "unit" per floor and build 5-10 rowhomes (preferably detached). This is what my parents home was like and aside from the noisy neighbors it was ideal urban living. All of the units would be on the higher end of the market rent. That's the way I'd like to see Minneapolis densify, and it doesn't always have to be on such a large scale -- 3, 2, or even 1 rowhome like this could fill in almost any site on any block in the city (save perhaps the Bungalow Belt).Even in Chicago, you don't really find them building 5 story boxes on the quiet residential side streets of the north side(which is what I would say this area compares to most, roughly), why do we need to?
My only suggestion would be to keep the architecture somewhat consistent with what you are tearing down or what currently exists on the block.