Proposed 25-story apartment tower renews debate over Dinkytown's future

Ryan Sadowy, a Chicago developer who is used to putting together challenging real estate deals, was astonished that after several years of back-and-forth negotiations with five property owners on an entire block in Dinkytown near the University of Minnesota, all of them agreed to sell.

"Even to our surprise, we've got everyone on the same page," he said recently.

Sadowy is a project manager for CA Ventures, which wants to demolish a two-story, 1970s-era McDonald's, a Five Guys restaurant and every other building on the block to build a 25-story apartment tower in an area where the maximum height limit is much lower.

His next big challenge: Convincing the neighbors — and the city — to agree to the project, which would occupy a block that fronts SE. 15th Avenue between SE. 4th and 5th streets.

The project is in a neighborhood where a fierce battle over building height, density and historic preservation has played out in recent years.

Not long before Sadowy began negotiating with landowners on the McDonald's block, a large mixed-use redevelopment project was built in the area. That project raised concerns about the fate of Dinkytown, a small commercial zone within the Marcy-Holmes neighborhood.

So when another Twin Cities developer announced plans to replace several storefront buildings on a nearby block with a hotel, apartments and retail space, it sparked more debate and the city slapped a moratorium on new development. In 2015, a four-block area became a designated historic district and the developer pitching the proposed project backed away.

Sadowy, however, hasn't given up on his proposal, which is adjacent to the historic area, despite other ambitious projects in Minneapolis including a 114-unit apartment building nearby and a 20-story apartment tower near the intersection of Hennepin and Washington avenues.

East of Dinkytown, in the Prospect Park neighborhood, Sadowy's company developed the Link, a nearly 440-apartment project that includes a Fresh Thyme grocery store.

Chris Lautenschlager, executive director of the Marcy-Holmes Neighborhood Association (MHNA), said the response to the 25-story Dinkytown project has been mixed with "what feels like four or five different sides to this."

Since preliminary plans were first shared with MHNA in early August, some students have lobbied around the idea that while the area needs more housing, it needs to be more affordable than the hundreds of units that have recently been built. A month after that first meeting, the developer presented the association's land use committee with more details and two more meetings have been held.

In a letter to the Minneapolis Planning Commission's committee of the whole in early August, Marcy-Holmes resident and MHNA President Vic Thorstenson stressed the need for a more diverse mix of rentals.

"Our board insists that significant steps are taken by the developer to provide rental price points that are affordable to the students this project will inevitably be marketed to," he wrote.

Lautenschlager said the prospect of more affordable units is still on the table, but it's unclear how that will be achieved.

In east Minneapolis, a metro-area submarket that includes the University of Minnesota and several adjacent neighborhoods, the average vacancy rate at the end of June was 2% compared with 0.9% the year before, according to a second-quarter report from Marquette Advisors. The average rent was $1,136 for all unit types, a 20% annual increase.

There's also a contingent of residents willing to support a tower as long as it's accompanied by retail space that fills other neighborhood needs, such as a grocery store.

At Minneapolis City Hall, the developer will likely face a new set of challenges when the project is presented at a yet to be scheduled committee of the whole meeting.

The primary issue will be the project's proposed height. Under current rules the developer is asking to rezone the property and will also seek a conditional use permit to build the towers on a portion of the site where the maximum height is currently four stories. Though an upcoming update to the city's comprehensive plan would allow more density, the developer would need to seek an immediate amendment to that plan, which increases the maximum permitted height to six stories.

In a staff report submitted to the Planning Commission in late August, the developer also proposed a smaller option: A 16-story tower. Both proposals would include 350 to 370 units, likely geared toward students, along with a variety of amenities including integrated transit shelters, pedestrian upgrades, bicycle amenities, public art, potentially affordable housing, reduced-rate commercial space and parking.

Despite the challenges, Sadowy said he's come too far to give up on the project, and he's encouraged by the support of some neighbors.

"That's what's giving us the confidence to keep moving on. Height is still an issue, but they [proponents] see what the development can be with all the other benefits that offset that," he said. "This has been a prime focus, but I know it might not happen."

Jim Buchta • 612-673-7376