As Weidner Apartment Homes, a Seattle-based developer of market-rate housing, pauses future construction at St. Paul’s Highland Bridge, some affordable housing developers are weighing how they’ll 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.
As market-rate apartment construction goes on hold, TIF subsidies for affordable housing could follow.
“It definitely might slow us down,” 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.
“I’m not worried about these projects, but things that are a couple years away,” Wilson said. “A quarter or a third of the money would be missing out of those. That’s how we planned to finance some of the housing — a reasonably good percentage of it.”
20 PERCENT OF UNITS EXPECTED TO BE AFFORDABLE
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.
Overall, 20 percent of the site’s 3,800 housing units are expected to be affordable.
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.
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 — or less than $32,000 for a family of four — has become something of a rarity, even within charitable circles.
CHALLENGES
Two fresh challenges could further complicate those plans.
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’s known in real estate circles as their “capital stack.”
Looking further out, looming over long-term financing questions is how the private sector’s reaction to St. Paul’s new rent control ordinance may impact funding for affordable housing at Highland Bridge. Tax increment financing — or revenue generated by market-rate construction for on-site infrastructure in lieu of property taxes — was expected to fund as much as a third or more of the affordable units.
The rent control ordinance does not officially cap rents until May 1. Nevertheless, much of those TIF funds are now up in the air.
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.
Construction of The Collections — spanning a new Lunds & Byerlys store connected to 230 future market-rate apartments off Cretin Avenue — will move forward and is already roughly 80 percent complete, but Weidner’s remaining Highland Bridge projects are on hold, at least until the city establishes possible rent control amendments and exemptions.
“It’s a math problem,” said Greg Cerbana, a vice president of government affairs with Weidner, who noted the voter-approved ordinance does not include adjustments for inflation. “A 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.”
While other developers have said they’ve lost lenders willing to finance their projects in St. Paul as a result of the ordinance, Cerbana said that Weidner — which develops, owns and manages properties in at least 13 U.S. states and several Canadian provinces — has no such restrictions.
“We have access to capital more so than other companies would,” Cerbana said. “Our decision is fully ours.”
CORRECTED: Do you see letter C? The building off Cretin Ave (one not in orange) is a go, and 80% complete. It will be a Lunds connected to 230 market-rate Weidner apartments. Buildings in orange are on hold. Weidner’s market-rate apartments subsidize neighboring affordable units. pic.twitter.com/5jKNb3Ll8Q
— Frederick Melo, Reporter (@FrederickMelo) March 5, 2022
Highland Bridge’s 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.
Some of that initial “pairing” 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.
‘OPPORTUNITIES TO BE ABLE TO STAY IN THE NEIGHBORHOOD’
Marvella, a market-rate senior housing complex being developed by Presbyterian Homes, 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.
“This is the most affordable you can get in terms of developing affordable housing,” said Cecile Bedor, executive vice president of real estate for CommonBond. “It’s 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’s paid off, but to turn around and go rent somewhere? This property offers opportunities to be able to stay in the neighborhood.”
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.
“If there’s no (market-rate) development, there’s no TIF, and there’s a gap,” Bedor said. “It doesn’t necessarily mean the affordable housing won’t happen.”
”It means we’re going to have to figure out a different source for the gap,” she added. “TIF was never guaranteed anyway. It’s an expectation that that’s a reasonable source for the city to utilize to realize the affordable housing goals for the city.”
STAKEHOLDER GROUP TO CONSIDER CHANGES
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.
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 low vacancy in the rental market. Alarmed by that prospect, the mayor’s 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.
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.
“I think it’s one of the unintended consequence of the rent control ordinance,” Barranco said. “It’s 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.”
Barranco added: “We’re 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’t finance it without construction loans and equity partners like Weidner.”
