Renters forced out of affordable downtown Minneapolis gem

Unit 302 is more than just an apartment to Darla Butler.

The modest, affordable one-bedroom near Hennepin Avenue downtown was where the 55-year-old struck out on her own after her kids had grown and she left her husband. It is a "little gem" decorated just to her liking, and still an annual gathering place for Thanksgiving dinner.

So the sudden news that she had 60 days to leave — after living there for nearly eight years — brought her to tears. "I love my home," Butler said.

The city spent more than two decades using tax subsidies to ensure that the Alden, an 87-year-old former hotel tucked between the Laurel Village complex and Interstate 394, remained a low-rent option amid downtown high-rises. But that's all about to change after a recent sale of the building outside of the city's control, which will bring higher rents along with quartz countertops and stainless steel fixtures.

The conversion of the 68-unit building illustrates the pressure to renovate older, more affordable apartments and charge whatever the market will bear. Alan Arthur, CEO of nonprofit developer Aeon, said such upgrades have been a major hindrance to the net growth of affordable units in the city.

Federal data compiled by the Metropolitan Council show the number of rental units in the city considered affordable to households making 50 percent or less of the area median income dropped over a 10-year period starting in 2000 — the oldest data available. That 13 percent decline came as the total number of rental units in the city climbed by 7 percent.

"I feel like we're bleeding over here," said Council Member Lisa Goodman, who represents the Alden's residents and chairs the committee that will steer about $10 million this year in affordable housing funds. "I don't know how much more money the city can put into building affordable housing if we're losing as many units through affordable housing units being marked up to market rate."

About half of the Alden's tenants, who were on month-to-month leases, must leave by the end of February. The others must vacate when their leases expire.

"I'm really struggling with this," said 25-year Alden tenant Karl Hassel, who worries about covering the rent on a unit he secured nearby. Hassel, who makes about $1,800 a month manufacturing cabinets, will be paying about $160 more — $890 — for a significantly smaller apartment of just over 420 square feet.

Goodman is particularly bothered by the Alden transaction since seller Community Housing Development Corp. (CHDC) is a nonprofit affordable housing developer that has benefited from public subsidies. She believes the $5.8 million sale to a for-profit company, Maven Real Estate Partners, is inconsistent with CHDC's mission to create and maintain affordable housing.

"Usually, these nonprofit housing developers … their biggest mission is about housing people," Goodman said. "Here it seems to be about doing more projects to create more fees to keep the nonprofit going."

The situation is also unusual, however. CHDC President Elizabeth Flannery said they were legally forced to sell by investors in the partnership that owned the building, who were weary after losing money for many years. She noted that CHDC stepped into the deal as the general partner at the city's request in 1995, after another entity bailed amid persistent deficits. The arrangement with investors is a vestige of a long-abandoned 1980s strategy to draw private investment to affordable housing, she said.

"We're in a situation that we're not in on any of our other 4,000-plus units," Flannery said, "where we have these individual investors and we just don't have a choice in the matter."

The city has redirected $2.5 million in taxes to help pay off the Alden's debt since 1995. That aid came with rent restrictions that expired Dec. 1, requiring the units to be affordable to people making 50 percent of the area median income. In 2015, that meant a maximum rent of $812 for a one-bedroom unit.

There was no restriction on the income of tenants, unlike many newer subsidized properties.

Butler was paying $780 a month for her apartment, but will be paying about $400 more for a new place at nearby Laurel Village. A production manager at a day program for handicapped people, Butler said she will have to work extra hours at her second job waitressing at the Vegas Lounge in northeast Minneapolis to help cover the difference.

"[It] is not going to be easy, but I'll be able to do it," Butler said. "I worry about the people in this building that can't do it. I don't know what they're going to do."

Walking up the stairs one recent evening, Alden tenant J. "Avi" Economos had a similar concern. "Every time one of these buildings goes this way, somebody here — it may even be me, who knows — is going to be homeless for a period of time," Economos said.

The deal has drawn consternation at City Hall in part because CHDC would not disclose its profit from the sale, and did not use the revenue to keep the units affordable. "It is more typical for a nonprofit to try to seek out either another nonprofit or some way to keep a property affordable," said Tom Nordyke, an affordable housing consultant aiding the city on a pro bono basis.

Flannery said profits will be between $500,000 and $2 million, but didn't know the exact amount because it would require knowing and disclosing confidential investor tax information. "Anything that we would realize off a sale we reinvest into our existing portfolio and existing projects," Flannery said.

While the Alden's sale is unique, Goodman said she has dealt with nearly a dozen such conversions in her ward during her tenure on the council.

"We want our downtown area to have incredible economic integration," Goodman said. "Downtown can't just be for people who can afford high rents."

Eric Roper • 612-673-1732

Twitter: @StribRoper