St. Paul considers $68 million sale of Penfield Apartments

St. Paul took an unusual and controversial step four years ago when it took over redevelopment of a deteriorating former public safety building downtown and turned it into a high-end apartment complex.

But old critiques about the city competing with private developers and putting too much money toward one project have faded. This week city officials are patting themselves on the back as they consider the sale of Penfield Apartments for $68 million — which would net the city a $7.7 million profit.

"We had this hole in our downtown," Mayor Chris Coleman said, and if the city let the recession pass without moving forward on critical projects like the Penfield, downtown would not be seeing the growth that's occurring now.

"We took a very calculated risk," Coleman said. "And it paid off."

The City Council, acting as Housing and Redevelopment Authority (HRA), will vote Wednesday on whether to sell the building to the international real estate firm LaSalle Investment Management Inc.

The building, which includes 254 market-rate apartments and a Lunds & Byerlys grocery store, is credited with helping spur high-end development downtown.

Developers have invested $240 million in residential buildings downtown since the Penfield project, Planning and Economic Development Director Jonathan Sage-Martinson said.

Laura Lindall is part of that market. She moved from Woodbury into the Penfield in August 2014. She likes the "city vibe" and said the location of the apartments, at 10th and Robert streets, is unbeatable — she can walk around downtown or easily access Interstate 94.

The building is beautiful and well-maintained, Lindall said, and she hopes that doesn't change if it is sold. She pays $2,100 a month for her two-bedroom unit with a patio that looks out on the complex's lush courtyard.

"This was new, classy high-end apartments — from that standpoint it really was a different product," said Joe Spartz, president of the Greater St. Paul Building Owners and Managers Association. "It really did help move the needle, I think, in the downtown area."

It also brought in a significant grocery operation, which previously didn't exist downtown, Spartz said.

Lindall said the ground-floor Lunds & Byerlys is a big draw and buzzes with people during lunch time.

The city decided to step in and take over the project after previous plans for a private development failed and the housing market crashed.

Some community members were skeptical of the decision in the wake of past public-private development partnerships like Cray Plaza, formerly Galtier Plaza, which opened unfinished and more than half empty in the 1980s, and ended up costing the city $9 million.

The Penfield complex cost $62 million to build, with most of the funding coming from a U.S. Department of Housing and Urban Development (HUD) loan, the city's HRA and a tax-increment financing district.

After the property is sold to LaSalle, the Penfield tax-increment financing district, which captures property tax revenue to fund development, would be decertified so the revenue would flow to the city, county and school district, according to city documents.

The income from the sale would repay the HUD loan and the HRA, and return money to other tax-increment financing district balances, Sage-Martinson said.