Developer starts work on Mill District housing

A Michigan developer broke ground last week on a $25 million, 175-unit apartment complex that fills the last hole in the city's historic Mill District near the Mississippi River. The parcel had gone unfilled since another developer abandoned it amid the real estate implosion of 2006-07.

"If you believe the economy will never improve, then by all means, don't build," said Jonathan Holtzman, CEO of Farmington Hills, Mich.-based Village Green. "People forget, it's just the business cycle. Eighteen months from now, when this is finished, things may be completely different. You build in a recession."

At the corner of Portland and Washington Avenues and in a downtown still trying to absorb a glut of condominiums, "Mill District City Apartments" adds rental housing in the Washington Avenue corridor that will attract 250 new residents and contribute $350,000 annually in real estate taxes, city officials said.

Village Green was to be the Portland Avenue site of an upscale condominium project canceled by Brighton Development amid waning buyer interest.

Village Green, which developed and built four other rental projects in Minneapolis, including the Eitel Building City Apartments and the Loring Park City Apartments, as well as several suburban complexes, got interested in the Mill District land last year. However, Village Green was unable to secure financing from its lender, J.P. Morgan Chase & Co., after last-year's credit crisis and the ensuing recession.

But last month, U.S. Bank, Western Bank and Metropolitan Bank committed to providing construction financing for the Village Green project.

"Under some of the most challenging economic circumstances, many people came together and put the extra effort in to make this project a reality," said Minneapolis Mayor R.T. Rybak.

Elliot Jaffe, president of the Twin Cities market for Minneapolis-based U.S. Bank, said: "Some projects still make sense in this environment, and this one has community support and the city behind it. We still have the capacity and flexibility to do things like this. There is demand for rental housing. And there's a strong partner in Village Green. And we absolutely committed to this because it's our hometown. We've recommitted resources to all of our businesses in this community ... with more energy and activity than anytime in the last five years."

The apartments, which will range from $500 a month for a studio to $2,000 a month for a three-bedroom unit, will be marketed to urban professionals, some moving to Minneapolis to work for companies or professional-services firms.

The city, in its concession to get things going, is requiring Village Green only to pay interest on the $1.5 million land price for two years or upon completion of the project, said Chuck Lutz, deputy director of the Community Planning and Economic Development Department.

The downtown condominium market collapsed in 2007-08 with the inglorious flops of a couple of the last projects through the chute.

The lenders for the Ivy Hotel + Residences are suing the developers of the project, claiming the developers are in default for $69 million in loans. A receiver has been appointed for the property. The $88 million project also included renovating the historic Ivy Tower at 11th Street and 2nd Avenue S.

And the Sexton Building on Sixth Street and Portland Avenue, refurbished into 123 condominiums in 2006, has been hampered by few buyers and a mortgage-fraud scheme.

Meanwhile, Minneapolis inspections department statistics indicate that residential construction has picked up this year, after a three-year decline. Much of the activity involves renovation of single-family homes rather than new construction of single-family and multi-family units.

Still, through Sept. 30, 21,345 permits have been pulled by contractors or homeowners, compared with about 20,000 during the first three quarters of 2008, said Henry Reimer, director of inspections and regulatory review. The number has declined since the first nine months of 2005, when 23,000 permits were pulled.

Most multifamily housing activity also has moved to the neighborhoods, said Tom Streitz, city housing director.

Contractors are building or refurbishing 11 buildings targeted at working-class renters and valued at $57 million, including several million in city, county and federal subsidies designed to keep rents down. Most of those units will be managed by nonprofit owners. Streitz said more than 900 construction workers will be busy on the jobs over the next several months.

Staff writer Chris Serres contributed to this report.

Neal St. Anthony • 612-673-7144 • nstanthony@startribune.com