st. paul

St. Paul is going into the rental business.

The city's Housing and Redevelopment Authority Board on Wednesday voted unanimously to take over two lagging downtown apartment projects expected to cost a combined $67 million to build.

It's an unusual step for the city, but officials say there's demand for the housing and the projects couldn't get done without government help.

"This is new to us," said Cecile Bedor, director of the city's department of Planning and Economic Development.

Both projects are part of Mayor Chris Coleman's recently announced Rebuild St. Paul initiative, which aims to use public and private money to spur development.

The most high-profile of the projects is the $54 million Penfield, which will have 250 market-rate rental units and bring a Lunds grocery store downtown. The HRA will own the building, but a private firm, Alatus, will operate it.

The other project is the Loft at Farmers Market, a 58-unit building that the HRA will own and operate. Alatus is coordinating the project plans.

A big part of the financing will come from federal bonds that are discounted through the economic stimulus program and backed by the U.S. Department of Housing and Urban Development (HUD). City tax-increment-finance money also is being used.

Neither site will produce tax revenue because of the public ownership, although Lunds will pay taxes.

Some HRA commissioners, who also sit as City Council members, had been concerned about taxpayers being at risk if something falls through.

Commissioner Pat Harris said he recognized that, but that he was comforted by various steps Bedor outlined in a presentation to minimize risk, such as having millions of dollars in reserves.

The Penfield, at 10th and Minnesota Streets, was originally proposed in 2005 as a 33-story, $88 million condo and hotel project. Then the market died.

Now, it will be an apartment building with rents ranging from $1,105 to $1,778.

Lunds will occupy about 30,000 square feet on the first floor. The store is expected to create about 75 jobs.

HRA commissioners authorized the execution of a 10-year lease with Lunds. The company will pay $8.50 per square foot in rent.

The HRA intends to issue $44 million in Build America Bonds to be backed by HUD. The bond program is set to expire at year's end, but city officials are banking that it will be extended. The bonds would be payable over 40 years.

HUD is reviewing the city's Penfield pre-application now and is expected to make a decision on whether to approve funding next year.

Officials estimate the construction part of the project will create 200 jobs.

Lofts at Farmers Market

A cavity at the corner of 5th and Wall Streets, across from the St. Paul Farmers Market, has sat there since 2007. That's when construction stopped and a legal tangle began among the contractor, the former developer and HRA. Ultimately, the contractor, Flannery Construction, and the HRA entered mediation and came to an agreement that requires a construction contract to be complete by Nov. 15.

The original idea for the project included condos and an indoor farmers market. The new plans call for 58 market-rate apartments, 56 parking spots and 2,500 square feet of commercial space on the first floor. It will be five stories high with a brick-and-glass exterior.

The project's total cost is about $13 million, about $8 million of which will come from the stimulus program bonds. Those bonds won't be backed by HUD. The city will also use a $3 million tax-increment-financing loan and a state grant.

Chris Havens • 612-673-4148