Apartment project breaks new ground before groundbreaking
Cold weather postponed plans for a groundbreaking Tuesday at the site of a planned 164-unit, mixed-income workforce housing complex.
However, the $19.7 million project is breaking ground by using a new financing option.
“We are very excited to be on the forefront of developing a modern workforce housing product that is not heavily reliant on government funding sources,” said Alexander Bisanz, director of acquisitions at Real Estate Equities.
The project, known at Technology Park Apartments, was first approved by the Rochester City Council in 2017 but failed to receive $1.1 million in tax-increment financing sought by Sioux Falls-based Stencil Group. Company CEO Nate Stencil said at the time the funding was needed to start the project.
Since then, Real Estate Equities has purchased the land at 3731 Technology Drive, assumed the development role in the project and has worked with Merchants Capital to secure a 10-year loan through a first-ever Freddie Mac program that doesn’t rely on tax credits.
Stencil Group remains the general contractor for construction.
The groundbreaking financing strategy is also supported by a $3.4 million commitment from the Greater Minnesota Housing Fund that is intended to keep rent prices down.
Warren Hanson, president and CEO of the Greater Minnesota Housing Fund, said the project is also groundbreaking for its effort to reduce construction costs.
“That’s an unheard of thing to be able to do that,” he said. “It’s very difficult.”
To make ends meet, he said most developers focus on obtaining tax credits or they build luxury apartments, but the Technology Park Apartment project will reduce the per-apartment cost to about $114,000.
“Granted these are smaller units and a lot of them are studios, but still that compares to a cost of over $200,000 per unit for most new construction,” Hanson said.
The reduced cost means 40 percent of the units will be priced affordably for individuals earning an annual income of $40,000, or 60 percent of the area’s annual median income. It puts anticipated rents at an estimated $1,150 a month for a two-bedroom apartment.
Another 35 percent will be rented at prices targeting residents earning 80 percent of the city’s median income, or about $55,000 a year. The remaining apartments are expected to be priced about $200 to $300 less than similar apartments in the area.
Hanson said the prices would likely have been lower if the city had approved the requested $1.1 million in tax increment financing requested by Stencil in late 2017. Under the TIF proposal, 10 percent of the apartments would have been priced for people earning half the area median income, while 30 percent would be slightly higher for people earning $40,000 per year. The rest would target residents earning about $55,000.
As it stands, Hanson said the project provides a needed price range that sits between subsidized apartments and luxury apartments.
Rochester City Council President Randy Staver, who was scheduled to speak at the planned groundbreaking, said it’s good to see the project move forward to provide needed housing alternatives.
“I’m glad to see they didn’t dismiss the project,” he said.
Council Member Nick Campion, who opposed the TIF request, along with plans to build in an industrial zone, said he hopes the project is successful, but remains wary of the plan.
When seeking approval of the plan in 2017, Stencil said the opportunity to build on the north side of Technology Drive West, between Valleyhigh Drive and West Circle Drive, is part of what made the project affordable without tax credits. He said land prices in an industrial zone are lower than traditional residential property.
At the same time, he pointed out uses in the area aren’t heavily industrial. The property sits west of Benchmark Electronics, 3535 Technology Drive NW, and north of Costco.
Hanson said land prices are only part of the equation. Cost-efficient, smart building design also played a part, and he said the Greater Minnesota Housing Fund worked with the developer and contractor to ensure quality was maintained in the plans.
Bisanz said it all merged with the financing option from Freddie Mac to bring the project to the point of breaking ground more than 18 months after the city council approved the plan.
“We’re incredibly excited for this project,” he said, noting the ground breaking will be rescheduled soon.