Eight years ago, a Twin Cities developer proposed building a 40-story luxury condo tower on a prime corner just across the river from downtown Minneapolis.
Today, a slightly shorter tower is finally in the works, but this time it'll be for renters across the income spectrum.
The project, called 200 Central from developer Alatus, is now moving forward after recently receiving approval for more than $16 million in tax-increment financing from the city.
That 27-story apartment tower will have 359 rentals at 2nd Street and SE. Central Avenue. About half the apartments will be income-restricted, meaning residents will have to meet guidelines to rent them. Though rents aren't yet set, 108 units will be for those who earn 80% of the area median income (AMI) and another 72 at half of the AMI, making it a rarity among such projects.
"We've never seen anything like this in a luxury tower," Mary Bujold, president of Maxfield Research said. "And the location is wonderful."
Alatus first presented preliminary plans for the 40-story condo tower to the Marcy-Holmes Neighborhood Association in 2014, but not everyone who lived in the area thought it was a good fit.
The sleek tower would have replaced a 1929 Tudor-style building that was most recently a funeral home. Alatus tried to give the building away, but demolished it when no one wanted it. Many opponents thought a high-density tower wasn't consistent with the low-rise scale of the neighborhood, and a series of lawsuits and appeals delayed the project until market conditions made it too risky.
As demand for apartments increased and investor interest in Twin Cities rental projects grew, Alatus recast the project about three years ago as a shorter rental tower with fewer parking spaces than it was planning to include with its condo proposal.
The site is just across the 3rd Avenue Bridge from downtown, by St. Anthony Main.
Neighborhoods on both sides of the Mississippi River have been hotbeds of housing development for several years, but developers are proceeding more cautiously now as supply and demand rebalance.
Thousands of market-rate rentals have cropped up on both shores. Though the rental vacancy rate across the metro remains well below 5% — meaning the market is evenly balanced between renters and building owners — the average vacancy rate in downtown Minneapolis at the end of last year was about 8%, according to a year-end report from Marquette Advisors.
While demand for additional market-rate rentals has softened somewhat, given the abundance of new supply, Bujold said, there's an insatiable appetite for more affordable rentals.
That's one reason Alatus decided to include the most affordable units, helping the developer to qualify for more than $16 million in tax-increment financing through the city's Inclusionary zoning policy requirements and revenue loss offset policy.
Chris Osmundson, chief operating officer for Alatus, said without tax-increment financing, the project wouldn't have been feasible in its current incarnation given shifting market conditions.
He said after an investor backed away from the project and the city began focusing more on finding innovative ways of encouraging more affordable housing, he began to research the city's inclusionary zoning policy.
"As we approached different investment partners, there was clearly a niche that was targeting mixed-income projects," Osmundson said. "We felt that it was a good fit."
As the rental market has softened and economic conditions have changed, the debt and equity markets have shifted away from the kinds of traditional market-rate projects that have dominated in recent years.
Osmundson said the building will be LEED-certified and will have a heat-pump heating and cooling system. It also will house about 3,600 square feet of retail on the first floor, giving pedestrians a reason to cross Central Avenue from the E. Hennepin shopping area into Marcy-Holmes, where there's new retail space looking for tenants.
Chris Lautenschlager, executive director of the Marcy-Holmes Neighborhood Association, said the group has always been in favor of the project despite some residents' opposition and thinks the building will be a fitting gateway to the neighborhood.
"We want there to be a prominent building at that location," he said. "There will be some people in the neighborhood who will object to it ... but the board has expressed its support for it because of its inclusion of affordable housing."