Alatus: Lexington Parkway apartment project in St. Paul has lost financing, is on hold

Dec. 6—A Minneapolis developer that had drawn criticism from Frogtown advocates over a proposed Lexington Parkway apartment building said the project plan has added deeper affordability, as housing advocates had asked for, but lost its major financing partner last week.

It's unclear if that means the 304-unit Alatus project will fall off the table entirely, but a "for sale" sign remains on the Wilder Foundation's long-vacant lot at the southwest corner of Lexington Parkway and University Avenue, a major transit corridor, after three years of planning.

The two acres of land have been on the market since at least 2012.

"We're pausing and assessing," said Alatus principal Bob Lux, on Monday. "We're not saying it's dead by any means. ... We were ready to close last week."

Lux and Chris Osmundson, the director of development for Alatus, said the city's new rent control ordinance — approved by voters in November — has made investors skittish on the six-story, $70 million project, and the same holds true for other multi-family projects across the city. A major backer and two prospective funders have pulled out.

"Right now, our previously firmly committed equity partner has put their funding on hold indefinitely — $23 million — and two other groups have passed that had previously given term sheets on the project prior to the rent control ordinance," Osmundson said. "Barring a substantive change to the ordinance, I would estimate the likelihood of the project moving forward (with that level of affordability) at less than 10 percent."

MORE AFFORDABILITY ADDED — AND ON HOLD

Alatus officials promised last year that half of the 288 housing units proposed at the time would be affordable to households earning no more than 60 percent of the area median income for the 13-country metro, or about $60,000 for a family of four. The rest of the units would be market-rate.

Critics quickly noted that under that standard, the monthly lease for an "affordable" studio or one-bedroom would still cost $1,100 to $1,180. Alatus officials said the then-$57 million project had not sought public subsidy.

Lux on Monday said the plan has since grown to span 304 units, half of them affordable, with 20 apartments priced at 50 percent of area median income, most of them one-bedroom and two-bedroom units.

In addition, Alatus applied in July to the Minnesota Housing Finance Agency for federal project-based housing vouchers that would keep rents at up to 26 of those units below 30 percent of area median income, for a total of up to 158 affordable units. That work was done hand-in-hand with the Frogtown Neighborhood Association, he said.

"We were thinking that Section 8 vouchers would open it up for even deeper affordability," said Danielle Swift, anti-displacement community organizer with the Frogtown Neighborhood Association.

The Minnesota Housing Finance Agency is likely to issue its decision on the project-based housing vouchers on Dec. 16, and from there the St. Paul Public Housing Agency would make the final call.

CONTROVERSIAL PROJECT

The Alatus project has been controversial.

Expressing concern about gentrification in the historically-black Summit University neighborhood and racially diverse Frogtown neighborhood, a coalition of neighborhood and social justice advocates rallied to block the project last year, prior to Alatus adding plans for "deeply affordable" units.

The St. Paul Planning Commission voted 8-7 against the site plan in January, and the City Council voted 4-3 in April to deny an appeal filed by Alatus.

St. Paul Mayor Melvin Carter then vetoed the council decision, running out the city's statutory 60-day deadline for deciding appeals. Carter's veto effectively kept the project alive, though the mayor asked Alatus and Wilder to work toward finding ways to create deeper affordability at the location.

Negotiations between Alatus and Wilder continued for months, and expanded to include the leadership of the Frogtown Neighborhood Association, Lux said.

RENT CONTROL AMENDMENT COULD CALM MARKET — AND INVITE LAWSUITS

Armando Camacho, president and chief executive officer of the Wilder Foundation, said his board was eager to sell the vacant acreage and put those funds back into Wilder's many community services.

"When it comes to rent control, Wilder doesn't have a position," Camacho said. "We met with our board of directors. We're waiting to hear more from Alatus to determine how we move forward as an organization and as a board. We've been trying to sell this property for over 12 years, and it's a challenge to get any takers. Our community is hurting, and this is an asset that would help us reinvest more resources into the community."

St. Paul's new rent control ordinance, approved by voters last month 53-47 percent, goes into effect in May.

The ordinance caps annual rent increases at 3 percent, with no exemptions for small landlords or new construction. Multiple developers have come forward over the past month to say they've had to put projects on hold because investors are nervous.

"Institutional investors, one thing that they don't like is uncertainty," Lux said.

Lux on Monday called upon the St. Paul City Council to pass an exemption for new construction, a prospect that St. Paul Mayor Melvin Carter has said he supports. Under the city charter, the city council cannot repeal the voter-driven ballot initiative for a year, but Lux noted they could word the amendment so the exemption takes effect a year from now, which would calm market jitters.

Swift on Monday questioned the legality of that move, and noted that the ordinance does not dictate the base rent for new housing.

In other words, "there's no limit for what you can set your rents at on a new building," Swift said. "It's just a limit on how much you can raise your rents after that. ... I wonder about the threat of investors pulling out of development being smoke and mirrors and fear-mongering. I think they're bluffing."

After conferring with the city attorney's office, the St. Paul City Council has also questioned the legality of immediately amending an ordinance they had no role in writing or approving.

"It's highly likely that no matter what happens, there's going to be litigation," Lux said.