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As Weidner Apartment Homes, a Seattle-based developer of market-rate housing, pauses future construction at St. Paul\u2019s Highland Bridge, some affordable housing developers are weighing how they\u2019ll structure financing for future projects at the same site. One type of real estate was expected to feed the other using a tax transfer known as tax increment financing, or TIF.<\/p>\n
As market-rate apartment construction goes on hold<\/a>, TIF subsidies for affordable housing could follow.<\/p>\n \u201cIt definitely might slow us down,\u201d said Chris Wilson, director of real estate development for Project for Pride in Living, a Minneapolis nonprofit that soon plans to break ground on the Emma Norton Residence, 60 units of supportive housing, and Nellie Francis Court, which will span 75 units of workforce housing.<\/p>\n \u201cI\u2019m not worried about these projects, but things that are a couple years away,\u201d Wilson said. \u201cA quarter or a third of the money would be missing out of those. That\u2019s how we planned to finance some of the housing \u2014 a reasonably good percentage of it.\u201d<\/p>\n Financing for real estate development at the sprawling acreage that was once home to the Ford Motor Co. manufacturing campus is structured so the market-rate units subsidize affordable housing on the same streets, using on-site property taxes.<\/p>\n Overall, 20 percent of the site\u2019s 3,800 housing units are expected to be affordable.<\/p>\n Overlooking the Mississippi River in Highland Park, nonprofit developers like Project for Pride in Living, CommonBond Communities and Habitat for Humanity still plan some 760 affordable apartments over the coming decade. Half of these will be geared toward residents toward the bottom of the income ladder.<\/p>\n Most housing advocates call their vision for the Highland Bridge development ambitious by any standard, as new construction targeted to residents earning no more than 30 percent of area median income \u2014 or less than $32,000 for a family of four \u2014 has become something of a rarity, even within charitable circles.<\/p>\n Two fresh challenges could further complicate those plans.<\/p>\n Construction costs have risen, forcing nonprofit developers to dig deeper and negotiate harder as they layer loans, grants and other financing into a complicated financial layer cake, or what\u2019s known in real estate circles as their \u201ccapital stack.\u201d<\/p>\n Looking further out, looming over long-term financing questions is how the private sector\u2019s reaction to St. Paul\u2019s new rent control ordinance may impact funding for affordable housing at Highland Bridge. Tax increment financing \u2014 or revenue generated by market-rate construction for on-site infrastructure in lieu of property taxes<\/a> \u2014 was expected to fund as much as a third or more of the affordable units.<\/p>\n The rent control ordinance does not officially cap rents until May 1. Nevertheless, much of those TIF funds are now up in the air.<\/p>\n In light of the ordinance, which was approved by St. Paul voters at the ballot last November, Weidner Apartment Homes has put all but the first 10 percent or so of its up to 2,000 planned market-rate apartments on pause.<\/p>\n Construction of The Collections \u2014 spanning a new Lunds & Byerlys store connected to 230 future market-rate apartments off Cretin Avenue \u2014 will move forward and is already roughly 80 percent complete, but Weidner\u2019s remaining Highland Bridge projects are on hold, at least until the city establishes possible rent control amendments<\/a> and exemptions.<\/p>\n \u201cIt\u2019s a math problem,\u201d said Greg Cerbana, a vice president of government affairs with Weidner, who noted the voter-approved ordinance does not include adjustments for inflation. \u201cA 3 percent (rent control cap) on a $1,000 unit gives you a monthly increase of $30 per month. Look at your own home and the cost to replace a dryer or washer or roof.\u201d<\/p>\n While other developers have said they\u2019ve lost lenders willing to finance their projects in St. Paul as a result of the ordinance, Cerbana said that Weidner \u2014 which develops, owns and manages properties in at least 13 U.S. states and several Canadian provinces \u2014 has no such restrictions.<\/p>\n \u201cWe have access to capital more so than other companies would,\u201d Cerbana said. \u201cOur decision is fully ours.\u201d<\/p>\n Greg Cerbana, VP of PR, Weidner Seattle: \u201cIt\u2019s a math problem. 3% (rent control cap) on a $1000 unit gives you a monthly increase of $30 per month. Look at your own home and the cost to replace a dryer or washer or roof.\u201d They\u2019ll wait, and see what rent control amendments come in pic.twitter.com\/EyNZclqSlj<\/a><\/p>\n \u2014 Frederick Melo, Reporter (@FrederickMelo) March 2, 2022<\/a><\/p>\n<\/blockquote>\n Highland Bridge\u2019s TIF districts have been organized somewhat like Russian nesting dolls, with one large redevelopment district spanning the entirety of the 135-acre site. Within it, a series of smaller affordable housing sub-districts are expected to provide tax subsidy for affordable housing projects both within Highland Bridge and elsewhere in the city.<\/p>\n Some of that initial \u201cpairing\u201d is already underway, and Weidner and Ryan will continue to pay holding costs on land parcels set aside for future affordable housing projects at Highland Bridge.<\/p>\n Marvella, a market-rate senior housing complex being developed by Presbyterian Homes<\/a>, will generate enough TIF to fund $5 million of the $22 million Emma Norton Place project, and $8 million of the $24 million Nellie Francis Court building. Additional TIF funds will subsidize Lumin at Highland Bridge, a 60-unit senior housing building being developed by CommonBond Communities for households earning no more than 30 percent median income.<\/p>\n \u201cThis is the most affordable you can get in terms of developing affordable housing,\u201d said Cecile Bedor, executive vice president of real estate for CommonBond. \u201cIt\u2019s really difficult for low-income seniors to be able to remain in Highland. Somebody will live in their house for 40 or 50 years, it\u2019s paid off, but to turn around and go rent somewhere? This property offers opportunities to be able to stay in the neighborhood.\u201d<\/p>\n The two nonprofit developers still plan to break ground this summer, and then take turns staggering one affordable housing development apiece each year thereafter. Without market-rate units generating TIF, real estate officials in both nonprofits acknowledge that will get harder.<\/p>\n Some housing advocates have predicted that real estate lenders will warm back up to St. Paul, given high housing demand and the appeal of neighborhoods like Highland Park. In January, a series of Pulte Homes rowhomes at Highland Bridge went on the market in a two-day bidding war, with starting prices around $600,000<\/a>.<\/p>\n Even if that were the case, said Cerbana, even a one- or two-year pause in housing construction could cost St. Paul thousands of units down the line at a time of near-zero vacancy in the rental market. Alarmed by that prospect, the mayor\u2019s office has assembled a 41-member stakeholder group to consider potential changes to the ordinance, including increasing the 3 percent cap on annual rent increases or automatically adjusting for inflation.<\/p>\n Tony Barranco, a vice president with the Ryan Cos., the master developer behind Highland Bridge, said the housing ecosystem is heavily interconnected, and voters who went to the polls thinking they were sending a strong message to wealthy developers may not have understood the potential impacts.<\/p>\n \u201cI think it\u2019s one of the unintended consequence of the rent control ordinance,\u201d Barranco said. \u201cIt\u2019s been a struggle to do deeply affordable units. Highland Bridge had this moment where all those market-rate projects coming at once could be paired with the deeply affordable.\u201d<\/p>\n Barranco added:\u00a0\u201cWe\u2019re a union builder. We want to be putting our men and women to work building, but when the capital sources are on pause, we just can\u2019t finance it without construction loans and equity partners like Weidner.\u201d<\/p>\n\n<\/div>\n20 PERCENT OF UNITS EXPECTED TO BE AFFORDABLE<\/h4>\n
CHALLENGES<\/h4>\n
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\u2018OPPORTUNITIES TO BE ABLE TO STAY IN THE NEIGHBORHOOD\u2019<\/h4>\n
STAKEHOLDER GROUP TO CONSIDER CHANGES<\/h4>\n