$1 million in direct grants planned for “The Neighborhood” | Local News

ByRichard C. Sloan

Apr 12, 2022

MANKATO — Rising construction costs for the planned 121-unit rental housing complex near Cub Foods West have prompted the developer to seek additional assistance from the City of Mankato.

‘The Neighborhood’ redevelopment project, now a mix of $28.1 million apartments earmarked primarily for low-income tenants, is set to begin construction this year but has a funding shortfall that needs to be filled, according to Brian Sweeney of Cohen-Esrey Grouper Development.

Because 102 of the 121 units will be reserved for residents whose income does not exceed 60% of Blue Earth County’s average income, the project was already expected to receive a wide and varied mix of federal, state and local grants. But with initial work on the site due to begin no later than June, the project’s budget remains unbalanced.

“An additional $500,000 from the City of Mankato would close this gap,” Sweeney wrote to city officials last week.

The City Council, acting as Mankato’s economic development authority, unanimously asked staff to finalize this additional contribution and had previously pledged grants for early approval following a public hearing at its meeting. of May 23. The council also authorized preparations for the sale of the 5.1-acre land that once housed the municipal public works department in Cohen-Esrey for $250,000.

The series of actions, if approved next month, would be the final step in a decades-long process to redevelop the site.

Courtney Kramlinger, economic development specialist for the city, and Tom Denaway of Baker Tilley Municipal Advisors, the city’s consultant on tax-raised financing, presented the financial package for the Sinclair Lewis-themed project. When completed after construction in 2022 and 2023, the 48-unit Sinclair Flats apartment building will provide 38 apartments for low-income residents, the 64-unit Lewis Lofts would be entirely for low-income tenants, and nine townhouses of Main Street would be leased. at market rates.

The estimated cost of the two main components – $16.77 million for Sinclair Flats and $11.34 million for Lewis Lofts – now exceeds $28.1 million.

During its multi-year efforts to secure federal and state funding, Cohen-Esrey has seen both reductions in some funding and increases in costs.

When Sinclair Flats was approved for federal tax credits for affordable housing projects in 2020, the total provided by the Minnesota Housing Finance Agency was $1.1 million less than Cohen-Esrey requested. Sinclair Flats’ construction price has also increased by $941,000 since July 2020, largely because soft soils at the site will require Geopiers to support the building’s foundation.

The Kansas-based developer secured a private loan to bridge some of the chasm between costs and revenue, according to Sweeney, and also cut expenses.

“We believe we can ‘value the engineer’ at around $350,000 of the construction budget without compromising quality,” Sweeney wrote in his letter. “In addition, Cohen-Esrey Development Group has agreed to help further close the gap by reducing its developer fee by $393,904, which is the maximum allowed by the MHFA. However, a funding gap still exists.

The council previously pledged a $100,000 grant and a $400,000 forgivable loan from its revolving economic development loan fund. The council now appears ready to contribute an additional $500,000 from federal pandemic relief funds provided to Mankato.

This would bring the city’s direct contributions to $1 million. In addition, council is expected to approve tax increase funding for the neighborhood that would help both Cohen-Esrey and the city recoup some of their costs. The TIF captures incremental property tax revenue generated by a development over a number of years and – rather than sending it to the city, county and school district – allows the money to be used to repay certain eligible project costs.

For the development of affordable housing, $1.76 million in property taxes would be levied over 16 years. Of this amount, $400,000 would go to the city to replenish the revolving loan fund, $226,000 would go to the city for construction costs of a new street serving the development and up to $1.045 million would go to Cohen -Esrey.

The largest portion of project funding remains the federal tax credit, which will provide equity of $14.6 million. State Housing Infrastructure Bonds will add an additional $5.5 million. Cohen-Esrey’s private mortgage will bring in more than $2.4 million. State economic development grants are expected to total nearly $585,000.

Federal and state dollars were awarded to Project Mankato following a competitive process involving proposals from across Minnesota. And Denaway, the tax raise finance consultant, said The Neighborhood also passed the TIF test.

The TIF can be provided for housing projects where only 40% of the apartments are reserved for people whose income does not exceed 60% of the median income of the district.

“This project will far exceed that standard,” Denaway said.

For Lewis Lofts, 64 of 64 apartments will house people earning no more than 60% of the median, and 38 of 48 at Sinclair Flats meet the requirement. Additionally, some of the units will be reserved for people earning only 30% or less of the region’s median.

That will mean rents ranging from $367 to $820 per month for one-bedroom apartments at Lewis Lofts, which should be targeted at renters 55 and older. For two-bedroom units, rents will range from $428 to $850 per month.

At Sinclair Flats, rents for the 38 affordable apartments will be as low as $635 for one bedroom, $629 for two bedrooms and $948 for three. The high end of the range for these apartments will be $850, $975, and $1,135, respectively.