New developer breathes life into Purina Mills project

A stalled plan to turn the old Purina Mills site on Hiawatha Avenue into housing is back on track.

Minneapolis city planners Monday night gave the green light to a reworked plan for Longfellow Station -- now a $36 million apartment and retail complex on Hiawatha Avenue S.

Veteran apartment developer George Sherman is buying the Longfellow Station site from Dale Joel of Capital Growth Real Estate in St. Paul. Joel, who has worked on the project since 2005, said in an interview that he blamed the recession and the credit freeze for derailing his plans there. He was behind on payments and the project wasn't financially viable for him, he said. Selling the land to someone who could rework the project's financials made sense, he said.

"I'm certainly not getting all my money back out," Joel said of the sale.

Sherman, president of Minneapolis-based Sherman Associates Inc., is still nailing down his financing, including a nearly $15 million government-backed mortgage. But his approved plan now calls for 180 apartments and 10,000 square feet of retail space -- a trimmed version of earlier plans. Sherman also added more parking and separated the commercial and residential buildings. He said he lowered rents because of the location. Longfellow Station will be at 3815 Hiawatha Av. S., an industrial area across the street from the light-rail station at E. 38th Street.

"Our challenge will be to ramp up the rest of the financing in the next 90 to 120 days," Sherman said.

Sherman said he's putting $4 million into the deal. The remaining $31.5 million is coming from 17 sources, including about $2.6 million in tax increment financing from the city, according to city documents.

The old mill site has a long history in Minneapolis. According to a study by Hess, Roise & Co. in Minneapolis, the Purina site was first built as a wheat mill around 1917, and Ralston Purina, with its red-and-white checkerboard logo, bought it in the 1920s and made livestock and pet chow there for decades. When the company spun off its Purina Mills feed business, Purina Mills continued to run the site. Land O' Lakes eventually bought it and closed the aging mill in 2003.

Hennepin County and the Metropolitan Council have footed the nearly $2 million bill for cleaning up pollution at the site and demolishing the old Purina grain elevator and its structures. The last Purina building is slated to come down Wednesday, and construction of a plaza in front of the proposed retail area is expected to start this week. Hopkins-based Frana Cos. Inc. plans to begin major construction in the spring. Construction will take about a year.

"The idea is it will be a catalyst for development on the east side of Hiawatha," said Wesley Butler, manager of multifamily housing for Minneapolis.

Meanwhile, Joel's group is now transferring the property, mortgages and development rights to a Sherman entity, said John Herman, the project's lawyer at Faegre & Benson. The Minneapolis City Council approved that move last Friday.

Herman called the resurrected project "a miracle."

Joel first marketed the development as condos in 2005 but switched to apartments as interest in condos dropped. As the economy worsened, the project stalled. Joel said he was disappointed, but was pleased to have Sherman take it across the finish line.

Some lower-income units

About 98 of the 180 apartments at Longfellow Station will now be market rate. The rest will be affordable for lower-income renters -- 38 units, for instance, will be affordable for households with incomes at or below 50 percent of the metro median income, which currently means at or below $33,550 for a household of two, according to Butler.

The key piece of funding is a $14.6 million mortgage backed by the U.S. Housing and Urban Development (HUD) agency. Sherman needs to get certain waivers from HUD to get that loan because Longfellow Station would be located near a highway, power lines and railroad tracks.

Sherman said he expects to close on the HUD mortgage by May.