Second Downtown Apartment Project Seeking Municipal Grants | Local News
MANKATO — Developers of a 44-unit apartment building in downtown Mankato are seeking $776,000 in tax subsidies over 15 years for their planned $13.1 million project at the northwest end of Jackson Street.
“I think this will be a transformational project for Mankato facing Jackson Park,” said Gordon Awsumb, the former owner of the Mankato Place property where the new building is to be located.
The five-story building would replace the corner of Mankato Place that last housed the Red Rocks nightclub. A ground-floor parking garage would be topped by four stories of one- and two-bedroom apartments with rents of $1,000 to $1,500 per month. In their June 1 application, the development group – Wayzata’s Downtown Mankato Properties LLC – listed June as the expected start of construction on the Jackson Park Apartments with work completed by August 2023.
However, the requested assistance was only forwarded to the Mankato Economic Development Authority last week and the EDA authorized city staff to prepare for a public hearing before the city council on September 26. The project will therefore be at least four months behind schedule. even if council’s approval of the tax increase funding comes immediately after the public hearing.
The redevelopment proposal was originally presented to the city nearly two years ago as a 56-unit apartment building with on-site parking for 64 cars and projected construction costs of $7 million.
“Since we first introduced this in the fall of 2020, we’ve struggled with costs,” Awsumb said, referring to high inflation in the construction industry and unforeseen costs on site. .
The current plan eliminates 16 efficient apartments, reduces parking garage capacity to 25 vehicles (with remaining tenant parking being provided by leased spaces in municipal ramps), and still has a construction cost of over $10 million. With financing, architecture, property acquisition and other costs included, the total comes to $13.14 million.
According to Awsumb, the project will only go ahead with the approval of the tax grants, which take the additional property taxes generated by the construction of the apartment complex and return them to the developer to cover eligible development expenses during 15 years old. The city’s TIF consultant has verified that the project only seems feasible with tax subsidies.
Tom Denaway of Baker Tilly Municipal Advisors told the EDA that the Jackson Street Apartments project would have an internal rate of return of 4.51% per year without TIF assistance, lower than the 5-10% return sought by the investors in similar projects. With the tax subsidies, the project’s rate of return climbs to 5.03%. Denaway found a similar result when looking at debt service requirements – that without grants, the project falls below what lenders typically require, slightly exceeding the threshold when aid is taken into account.
State law requires that the TIF be reserved for projects that would not occur without public assistance approval.
“Also, these two tests give us confidence that the project is not over-incentivized,” Denaway said. “The returns with the incentives are reasonable but not excessive.”
The grants only apply to new taxes that would be levied on the apartment building, which is expected to have a taxable market value of $4.45 million when built and operated, nearly 22 times more. than the $205,000 assessed value of the existing old nightclub building. . After 15 years, additional property taxes would no longer be returned to the developer, but to their traditional recipients – the city, county and school district.
Minnesota law allows TIF grants for affordable housing projects and for projects that redevelop aging or dilapidated properties. While the Jackson Park Apartments proposal is a redevelopment project, Council Chairman Mike Laven asked Awsumb what he would say to Mankatoans who criticize municipal tax subsidies for apartments that are above the price range of many residents.
“The impression people have is that all we do is build a gentrified community…” Laven said.
Awsumb argued that high rents are the result of demand for apartments exceeding supply.
“The ultimate solution to apartment rents is to have a lot more apartments,” he said. “And it won’t be the cheapest in town; they won’t be the most expensive in town. These will be labor housing for people working in the city center, mainly.
Whether more apartments are the solution or not, downtown Mankato seems to be headed quickly in that direction. In March, the council approved $1.15 million in TIF grants over 15 years for the redevelopment of Landmark Apartments three blocks from Jackson Park’s Second Street. This project brings 33 high-end apartments to the century-old Landmark building, with expected rents ranging from $1,600 to $3,100 per month.
And Kitten’s Corner at Landmark Apartments, the largest apartment complex in the city center, is set to begin construction soon. Known as The Burton, the $38 million proposal would build a two-building, six-story complex totaling 108 apartments and condos stretching along Second Street from Mulberry to Main streets. No TIF request for The Burton has yet reached the EDA, but city officials are anticipating a possible request.
Proposed rents for The Burton have not been disclosed. A banner on the site promoting the apartments promises “unprecedented downtown living in 2023”.