Minneapolis sustainable community developer PLACE is struggling to secure financing for a $120 million mixed-used development in St. Louis Park, Minnesota.
A $120 million, mixed-used project proposed for public land in the Minneapolis suburb of St. Louis Park is foundering after a nonprofit developer failed to secure financing.
If PLACE, a Minneapolis-based developer of sustainable communities, cannot locate funds in the next 30 to 60 days for its proposed project, the city of St. Louis Park will likely put the 5.2-acre site back on the open market. PLACE intended to fund the project through the sale of tax-exempt bonds and low-income housing tax credits but says that these sources were impacted by the Republican tax bill passed in December 2017.
The Low-Income Housing Tax Credit program is less attractive now that tax rates have been reduced, which has led to less demand for the credits. Low demand has led to lower pricing, which is a major financing hurdle for developers of affordable housing across the United States.
Last week in St. Louis Park, the City Council’s patience and generosity appeared to be wearing thin.
“At this point I have no confidence in this,” said Council Member Steve Hallfin during a public discussion of the PLACE project, known in planning stages as Via Sol and Via Luna.
Hallfin’s fellow council members voiced similar reservations, lamenting the time and opportunity already lost to build on the land, which was frequently described as “prime” real estate. Council Member Rachel Harris said that if a request for proposal were to be issued, it would likely attract interest from developers in Minneapolis and perhaps national players.
Nevertheless, the council decided to grant PLACE a brief reprieve and put the matter to a final test at a Nov. 5 meeting of St. Louis Park’s Economic Development Authority.
It has been a long and winding journey already. The city granted PLACE a purchase and redevelopment contract in May 2017, though the project has been in the works in some form for five years. The developer’s original plans call for a sweeping, multipart complex on the property.
The L-shaped collection of parcels is situated just southwest of the junction between Highways 7 and 100. The development would be on either side of the Wooddale light rail station, a stop on the Southwest Light Rail, which will connect downtown Minneapolis to Eden Prairie once operational in 2023.
PLACE’s vision for the north part of the development is called Via Sol, and includes a five-story building with 217 apartments and 5,200 square feet of retail, and a one-acre urban forest with a playground and public art. The pièce de résistance is a 10,200-square-foot greenhouse with a custom-made anaerobic digester that converts organic waste into renewable energy in the form of biogas.
Via Sol would be complemented by Via Luna on the south side of the complex, consisting of a six-story apartment building with 81 units, a 4,000-square-foot coworking space and a six-story, 100-key Marriott Fairfield hotel.
According to the plans approved in May 2017, about two-thirds of the apartments were to be classified as affordable, a high number for new multifamily projects in Minneapolis-St. Paul. As one council member noted, most apartment developers pitch projects where only a small portion of the units are affordable, say 10 percent, and the other 90 are market rate.
Cost estimates for Via Sol came in at $64.6 million, while Via Luna would need about $55 million to construct.
PLACE was supposed to close on the site by the end of April 2018, paying a purchase price of almost $6.43 million for the land, offset by a $1.5 million loan from the city to aid the acquisition. Construction was set to begin in May.
That deadline came and went, but the council agreed to split the deal in two and push the new closing dates back, to June 15 for the northern portion of the site and Nov. 21 for its counterpart to the south.
PLACE chief executive Chris Velasco clarified that earlier versions of the tax bill would have eliminated the Low-Income Affordable Housing Tax Credit program and the private activity bonds that PLACE was depending on. Ultimately, those provisions were taken out and the financing vehicles were preserved. Nevertheless, the whole episode had a chilling effect that was hard to shake, Velasco said.
“Purchasers of bond and tax credits simply walked away from projects by the hundreds,” Velasco wrote in an email.
PLACE tried and failed to secure conventional financing, and now is asking the council to amend the contract for a fourth time, which would delay closing for the north half to November or December. The southern half would then be purchased at a later time, possibly June 2019.
The nonprofit also asked the city to consider approving $50 million in conduit bonds for parts of Via Sol, and reissue the $27.2 million in housing bonds for the Via Luna apartment building.
While the bond request would not put the city on the hook nor reduce its own bonding capacity, the council did not appear inclined to do so unless PLACE could provide proof that it could pull the development off, preferably in full.
PLACE has gotten ample public assistance in its bid to build at the site. All told, the project was to benefit from about $14.7 million in grants, loans and other kinds of financial assistance from various entities including the city of St. Louis Park, Hennepin County, the Metropolitan Council, and the Minnesota Department of Employment and Economic Development.
Velasco said that PLACE can make the project work by tweaking the number and nature of the affordable units. Some will be slightly more affordable than initially planned, with rents calibrated to those earning not 60 percent, but 50 percent of the area’s median income – which stood at $90,400 in 2018. Other units will be more expensive though still affordable, aimed at tenants making 80 percent of the area’s median income. With these changes, the development will have enough income to sustain a tax-exempt bond, he said.
If PLACE is able to secure financing, the nonprofit says it would begin construction in December, with completion of Via Sol in January 2020 and Via Luna later that year, said St. Louis Park Community Development Director Karen Barton.
Velasco assured the council that a Hail Mary was possible.
He noted PLACE’s flagship development in Ventura, California, was plagued with almost insurmountable challenges. WAV, called the “country’s first sustainable arts community” on PLACE’s website, features market-rate penthouses that support live/work suites for low-income artists. Green building technology is used throughout, including recycled building materials and solar panels to harness the sun’s energy.
PLACE’s lender went bankrupt during construction, Velasco told the council. The project’s first and second title companies also went bankrupt, as did a number of subcontractors, leaving WAV without doors and windows. Nevertheless, the community was completed in 2009.
“We’ve done it before under impossible circumstances, and we can do it again,” Velasco said.
