One of the most distinctive structures in the Twin Cities is headed for a two-year, $90 million renovation, partly funded by taxpayers.

The plan is to make the Riverside Plaza apartment complex -- the cluster of 1970s towers in Minneapolis with the multicolored panels -- more energy-efficient. Sherman Associates Inc., which bought Riverside Plaza from the government in 1989 for about $17 million, said it expects to have the $90 million package of tax credits finalized in September. Construction is to start this fall.

It's a noteworthy overhaul, particularly given the current lack of financing for commercial projects.

Built in 1973 and first called Cedar Square West, Riverside Plaza includes five towers in 11 buildings with 1,303 apartments, about half of them subsidized Section 8 units, according to Elizabeth Flannery, vice president of development at Sherman Associates.

George Sherman is known for what one local construction pro described as "his uncanny ability" to engineer financing packages that tap a variety of public subsidies. He's one of the largest apartment developers in the Twin Cities but also owns hotels and condos. Among Sherman's many holdings is the residential part of the Midtown Exchange in the old Sears building on Lake Street in Minneapolis.

Riverside Plaza hasn't been generating profits for Sherman, in part because it wastes so much energy, Flannery said. The pipes, which were never insulated, are disintegrating, and tenants higher up in the buildings sometimes have to run water for 20 minutes before it gets hot. Because there is no system for monitoring energy, it's impossible to regulate temperatures in the buildings or meter individual units.

Sherman spends about $2.7 million a year on gas, water and electricity at Riverside Plaza. Hefty utility costs make up about 30 percent of Riverside's total operating costs -- about three times what's typical for Minneapolis, per unit, the company said.

The renovation includes replacing windows and water pipes, overhauling a huge old boiler, installing an energy monitoring system and repainting the peeling, faded panels on the facade. Flannery said Sherman intends to return the panels to the colors that the architect originally specified, focusing on primary colors and gray.

To get the $90 million, Sherman plans to refinance its existing $25 million mortgage with the U.S. Housing and Urban Development (HUD) into a $50 million low-interest HUD mortgage using tax-exempt housing revenue bonds issued by the city of Minneapolis. Another $20 million will come from investors buying low-income tax credits. It hopes to get the final $20 million via a federal historic tax credit and a new state historic tax credit. To qualify, it must get Riverside listed as a certified historic structure, a designation made by the National Park Service. That's still in process.

The Minnesota Housing Finance Agency also has committed $5 million to the project to preserve housing units, Flannery said.

Sherman has hired Knutson Construction Services of Golden Valley as the general contractor.

Cedar Square West, as Riverside was first called, was developed by Keith Heller and designed by the late Modernist architect Ralph Rapson. It was the first development in HUD's utopian "New Town In Town" campaign to build large mixed-income urban neighborhoods, Flannery said.

When Heller's group defaulted on the loans and the project slid into foreclosure in the 1980s before Sherman bought it, it was one of the biggest defaults in HUD history.

Original plans for the "New Town in Town" called for five more phases -- 12,000 units altogether -- but the rest was never built because the neighborhood objected to the density, Flannery said. The half a skyway over Palmer's Bar, a popular music spot on Cedar Avenue S., is a lingering sign of the ill-fated expansion.

"We call it the bridge to nowhere," Flannery said.

The complex has always attracted immigrants and is home to many people from East Africa and Somalia. It's about 97 percent full, Flannery said.

Fredda Scobey, executive director the Riverside Plaza Tenants' Association, said she's heard few complaints about the renovation. Tenants are excited about details such as new laundry machines, she said.

The towers have had their detractors, but Scobey called them "a great place to start your life in the United States."

"I always think of it as villages in the city," she said. "People know about Riverside Plaza on the streets of Mogadishu."

Jennifer Bjorhus • 612-673-4683