With little to no new market-rate apartment construction on the horizon, it's been a bleak summer and fall for builders whose expertise is in multifamily development. Obtaining affordable bank financing mostly remains a dream for all but the most experienced and well-heeled of would-be apartment developers, even though demographic trends and tenant demand are in their favor.
One of the few oases in these lean times has been the construction of affordable "workforce" multifamily housing whose funding gaps have been filled by the American Recovery and Reinvestment Act of 2009, otherwise known as the federal stimulus. The city of St. Paul was particularly adept at snagging stimulus dollars for a series of "adaptive reuse" projects that are currently providing employment for scores of construction workers, engineers and architects.
Three such projects involving the conversion of vacant commercial buildings are either ongoing or will be soon in the city's downtown, involving a total of 250 units of affordable housing. Two of them -- the Minnesota Building and the Renaissance Box projects -- are directly attributable to stimulus dollars, city officials say.
The largest of the three is the Minnesota Building at 46 E. 4th St., where Sand Cos., a Waite Park, Minn.-based developer, is finishing up a massive interior remodeling of the 1928 office tower into 137 units of mixed-income housing.
The project, which has been four years in the making, is now fully under construction. Interior demolition began at the end of last year and full-scale rehabbing of the 13-story, 101,000-square-foot art deco landmark started in May. Completion is scheduled for the end of this year -- a highly ambitious schedule made possible by a vast supply of available construction labor, according to CEO Jamie Thelen.
Thelen said the project is also an illustration of the hard time the industry has had obtaining financing for projects with banks scared off by the financial crisis.
"We purchased the building in May 2006, and we initially looked at converting it into condominiums," he said. "But the condo market began turning quickly thereafter. Since we'd also done quite a bit of affordable housing, that was our next step.
"In 2007 we had the effort fully funded by using low-income tax credits, but when the market for them crashed, their pricing went way down and no investors were buying them."
With the effort again at a financing dead end, its salvation came in the form of $8 million in stimulus funding, arranged by the Minnesota Housing Finance Agency and the St. Paul Housing and Redevelopment Authority.
"I highly doubt the project would have went forward without the stimulus funds from the MHFA and the city of St. Paul," Thelen said.
Nonprofit developer Aeon is also tapping stimulus funds in rehabbing the Renaissance Box, an historic, mostly vacant former shoe factory nestled into an out-of-way corner downtown at 10th and Sibley streets. The area has seen new condo and senior apartment construction in recent years.
Gina Ciganik, Aeon's vice president of housing development, said the $16 million renovation project will produce 70 units of efficiencies, one-bedroom and two-bedroom units geared toward low- and moderate-income workers.
"It's addressing construction jobs now and will support people who are working downtown, such as employees at area hospitals," she said. "It's exciting to be part of the community downtown, but we have still a long way to go to get to the 20,000 residents we need make up a 'critical mass' necessary to spur new jobs and businesses here." She noted about 8,000 people are living in downtown St. Paul now.
As with the Minnesota Building, Ciganik said the complicated and costly Renaissance Box restoration would likely still be on the drawing boards if it weren't for the availability of federal stimulus funds.
It came as part of an effort launched last year by St. Paul Mayor Chris Coleman to pool federal stimulus dollars with state resources to kick-start $71 million in housing construction citywide, creating 250 to 300 construction jobs, said Diane Nordquist, a project manager with the St. Paul Department of Planning and Economic Development.
"It's a goal of ours to get more people living downtown," she said. "It's been laid out as part of our comprehensive and housing action plans. Getting a variety of housing opportunities for different incomes is an important part of it."
Nordquist said downtown's third major "adaptive reuse" affordable housing project -- second phase of the renovation of the Commerce Building at the corner of Wabasha and Fourth streets -- is going forward by nonprofit developer CommonBond Communities without the use of stimulus dollars.
Instead, she said, the effort to renovate the second through fifth floors of the 99-year-old former office building into 45 housing units is taking advantage of a recovery in the low-income housing tax credit market -- good news, since this month's election results make it highly unlikely another economic stimulus will be forthcoming from Washington anytime soon.
"The market for the tax credits is a bit better," Nordquist said, echoing the observation of Sand Cos.' Thelen.
"Pricing is up significantly," Thelen added, "and there seems to be some pretty good demand for credits. I think things have really come around for tax-credit projects."
Don Jacobson is a St. Paul-based freelance writer.