REGIONAL REPORT

MIDWEST

Turning a Corner

AFFORDABLE HOUSING FINANCE • May 2008

BY GENEVIEVE RAJEWSKI

MINNEAPOLIS -- After two freeways cut off the Phillips neighborhood from Minneapolis’ central business district in the 1960s, businesses there either failed or left—and the area turned into a hotbed for drug trafficking and prostitution. Now, two nonprofit developers are redeveloping four prominent corner lots to help stitch the fringe neighborhood back into the rest of the city.

The Wellstone, a $13.3 million mixed-income and mixeduse development, marks the third phase of the Franklin Portland Gateway project—a long-range redevelopment plan undertaken by Hope Community, Inc., and Aeon. Construction on the 49- unit mixed-income and mixed-use property began in December. When completed at year-end, it will offer five studio apartments, six one-bedroom units, 25 two-bedroom units, and 13 three-bedroom units over street-level restaurant and community space. Thirty-seven units are reserved for families earning no more than 50 percent of the area median income (AMI), and the balance will be rented at market rates.

“We have been in the neighborhood for 30 years,” said Marcia Cartwright, real estate development manager for Hope. “It’s 10 blocks from the central Minneapolis business district, so the neighborhood is very well-situated in terms of being close to the downtown, jobs, and recreation. But the area has had a lot of challenges over the years, including disinvestment, drugs, and violence.”

Although Hope began as an emergency shelter for women and children, the organization eventually sought to improve its surroundings to better ensure its residents’ safety.

“We started buying up properties on our block just to get them out of other people's hands" and keep them from being torn down, said Cartwright of Hope's entry into the redeveloment arena in the mid-1990s. "We didn't intend to become developers; it just sort of happened as a result of the location of our outpost."

It wasn't until properties on the four corners of Franklin and Portland avenues -- three abandoned gas stations and a largely vacant lot -- became available in 2000 that Hope saw the opportunity to create a tipping point for neighborhood change.

"This corner was strategic," said Cartwright. "It's a very highly visible intersection. Many travel through it to the southern sub urbs from the city, so it gets a lot of traffic.

It was important to buy this land as quickly as we could. We knew that highend housing was going to move in this direction, and it has—today, we’re about five blocks from some million-dollar condos.”

Lacking the capacity and expertise needed for large-scale redevelopment, Hope turned to neighboring nonprofit Aeon, formerly Central Community Housing Trust.

“They were looking for a partner that had the know-how to pull together the complexity of a larger tax credit deal, so they approached us to see if we’d help turn their vision into a reality,” said Gina Ciganik, vice president of housing development for Aeon. “We’ve developed more than 1,500 units of housing, and they knew we had the relationships and experience to pull this plan off.”

The first phase of the Franklin Portland Gateway project, Children’s Village Center, was built in 2003 and includes 40 affordable rental units, community space, and Hope’s new headquarters. The second phase, The Jourdain, was completed in 2006 and offers 24 affordable and 17 market-rate apartments above a grocery store. The Wellstone will be followed by a fourth phase featuring mixed-income housing and additional community space; it is expected to be completed by 2010.

“We have gone from phase to phase raising the money to build this housing,” said Cartwright. “The first phase was all affordable, but we promised the city that we would introduce mixed-income housing. The second phase included 17 market- rate units and—although we were a little nervous about introducing the first market-rate units in this North Phillips neighborhood in a long time—we managed to rent them all.”

The Wellstone development costs were met by a Minnesota Housing Finance Agency low-income housing tax credit allocation, which generated approximately $6.5 million in equity by MMA Financial. MMA Realty Capital underwrote a Department of Housing and Urban Development mortgage for $4.1 million, which included $650,000 in tax-increment financing proceeds from the city of Minneapolis. Additional funding to the project included a $1.2 million grant from the city of Minneapolis; $185,000 from the state of Minnesota, which funded four units for long-term homeless individuals; $250,000 from Metropolitan Council; $255,000 in deferred developer fees; a $220,000 grant from Hennepin County from environmental- cleanup and transit-oriented development funds; and $100,000 from the Family Housing Fund.

In addition, $450,000 in private funds, which includes a grant from the Minnesota Green Communities program, allowed the developers to add significant green features to The Wellstone, including a solar thermal domestic hot-water system and rain gardens for water remediation on the site. The developers also plan to create an environmental literacy program for tenants.

“Hope and Aeon have a very similar vision, and one of our core values is sustainability,” said Ciganik. “On projects, we look to not only foster green building but also to create developments that are socially and functionally created so they are good places to live long term.”

Although the prospect of renting to commercial tenants was daunting, Hope and Aeon included that in their plans to satisfy their neighbors.

“Over 10 years, we have talked to about 1,500 people from the neighborhood in small groups,” said Mary Keefe, Hope’s executive director. “They told us they wanted a grocery store. Sixty percent of them do not have cars, yet the nearest grocery store was at least a couple of miles away. Likewise, they wanted a restaurant that was within walking distance.”

Meeting the community’s long-term needs is the ultimate mission of the co-developers and co-owners, said Keefe, and that includes guarding against gentrification.

According to a Minneapolis Star Tribune article, the Phillips neighborhood had the largest percentage increase in median single-family home prices between 1996 and 2001 in the metro area—a 134 percent increase.

“When I first came here 14 years ago, I talked with a group of folks who lived here. At the time there were five crack houses on our block where our original shelter was located, and the police would come daily,” recalled Keefe. “I asked residents if they thought the neighborhood would ever get better, and they said, ‘Yes, we think it will get better, but we’ll be gone because we won’t be able to afford to live here.’ People said that to us over and over again, even as recently as a few years ago.”

“The Gateway project is really about reaching the critical mass by doing a project that is large enough to make a real difference in a neighborhood that was pretty devastated,” Keefe continued. “But our ultimate concern is to do it in a way that has significant affordability and really acts on our commitment to the diverse people in our neighborhood.”