Construction boom sweeps away worries about Rochester's DMC project

ROCHESTER

It was just a year and a half ago that city leaders here wondered aloud about their downtown's future, with a $5.6 billion Mayo Clinic expansion project seemingly bogged down in meetings and endless public comment.

What a difference a crane makes.

A construction boom in recent months has swept away worries that work on the ambitious Destination Medical Center project might never begin, with hard-hatted crews, "Help Wanted" signs and a pair of towering steel cranes filling the streets and instilling leaders with a new sense of optimism about the development's next phase.

"I think some people are relieved," said Steve Borchardt, director of the housing initiative at the Rochester Area Foundation.

Some 14 construction projects worth an estimated $736.8 million are either planned or in the works or have recently been completed in the roughly 550-acre zone delineated for renovations and new construction. Four more projects — including the renovation of the historic and now city-owned Chateau Theatre — are just getting underway.

City leaders have been told to expect more announcements this summer as developers come bearing plans to add to the mix of housing, office, retail and research space already rising from downtown streets.

After several delays, a $125 million Hilton hotel and residential project on Broadway, one of the city's busiest streets, broke ground in December.

In February, a $7.5 million, four-story, 29-unit housing development opened overlooking the Zumbro River. A month later, the developer behind a $115 million, 347-unit apartment building and retail complex near Mayo's St. Mary's Hospital campus made its first property purchase for the project.

By late April, Mortenson Construction unveiled the first drawings of a building expected to anchor the highly touted "Discovery Square" zone, where private companies are projected to spin off Mayo innovations into new business.

The DMC project blends private investment with public money to fuel growth over 20 years, a needed step to keep Mayo competitive with other world-class medical centers. The project won public support when the Legislature voted in 2013 to provide state tax dollars for Mayo's expansion, with Olmsted County and the city of Rochester kicking in their own money for a total of $585 million in taxpayer funds.

The first bit of that public money will arrive at Rochester City Hall this fall — approximately $2.7 million for public infrastructure.

If Bilderback could point to a single moment when it felt like the DMC project actually got down to work, it might be the December announcement that crews would begin construction on the long-delayed Hilton hotel project from Titan Development & Investments, a local firm.

Initially unveiled three years ago, the hotel was the first privately funded project approved by the Destination Medical Center Corp. Board. It's slated to receive $6.5 million in DMC funding.

DMC officials say the projects already underway or in discussion could bring as many as 1,573 new apartments to the development district, providing some of the housing needed for the tens of thousands of new residents projected to move to the city.

And that likely won't be the last of it. The DMC's master plan calls for 2,200 to 3,100 new for-sale and for-rent housing units in the development district.

"The market is incredibly hot," said Warren Hanson, president and CEO of the Greater Minnesota Housing Fund. "It's as hot near the downtown and the core neighborhoods [as] anywhere in the state."

That growth rate makes Rochester the state's 13th fastest growing city, according to state demographer Susan Brower. Measured by the sheer number of people who've moved in, however, it is the second-fastest growing city in Minnesota behind Minneapolis, which added 29,899 new residents between 2000 and 2015.

Amid the excitement over the building boom, however, there are concerns.

In the Slattery Park neighborhood, just across the river from downtown, residents fear that a rush of new employees heading downtown will clog streets already crowded with parked cars.

A City Council plan to use a neighborhood church parking lot as a commuter lot was widely panned by neighbors, and it was eventually pulled from City Council agendas.

"People did get upset about it," said Randy Schubring, the vice president of the Slattery Park neighborhood association.

"This is all kind of new for our neighborhoods," said René Lafflam, executive director of RNeighbors, the city's neighborhood association.

The construction spurt also threatens to exacerbate pressures on affordable housing in the city, which already has a shortage of safe, affordable homes for lower-income households, according to recent county and federal studies.

Rochester had a vacancy rate for affordable and subsidized apartments of just 0.8 percent, according to a 2014 study by Maxfield Research and Consulting Inc., a real estate research firm. Anything below 5 percent is considered a sign of market imbalance, said a city-contracted report released last month by Grounded Solutions Network, a Portland, Ore., research firm.

Home values have climbed sharply here in recent years with the median listing price per square foot rising from $79 in April 2013 to $105 today, according to the website Realtor.com. Over the same period, the median listing price rose from $157,900 to $236,000.

Along with rising home values, the city has seen more indications of a thriving local economy in the unemployment rate. With one of the strongest job markets in the state, Rochester employers are scrambling to find workers.

During the height of the recession in 2009, the city had 9.3 job seekers for every job. Today it's just 1.1.

"It doesn't surprise me at all to hear that employers are struggling to find workers," said Macht.

The city's growing pains will eventually work out, Borchardt predicted, adding that the slow buildup to this spring's construction frenzy downtown was a necessary part of the process.

"There's some fear and trepidation [about DMC]," Borchardt said. "It's going to bring a lot of change and a lot of people to the community. Some longtimers like myself are concerned that it be done well.

"That said, our community in general and Mayo specifically has an outstanding track record of managing growth well, so there's every reason to be optimistic."