Facing financial uncertainty, Upper Harbor affordable housing project may be less affordable

An affordable housing project planned for the ambitious Upper Harbor development along the north Minneapolis riverfront has been delayed — and may need to be reimagined — after two straight years of rejections of the project’s applications for critical state subsidies.

The setback comes as other parts of the 48-acre redevelopment move forward. Streets have been constructed and utilities installed. Developer United Properties said the centerpiece First Avenue amphitheater is on track for completion by next year’s concert season and plans are forming around a health and wellness hub proposed to be run by InnerCity Tennis.

United Properties also said the Minneapolis Park and Recreation Board has broken ground on a 20-acre park that will reconnect the North Side with the Mississippi River.

But Building Blocks, the company tapped by United Properties to lead construction of more than 500 units of affordable housing at Upper Harbor, has seen its applications in 2022 and 2023 rejected for $12 million in deferred loans from Minnesota Housing, the state housing finance agency.

“We kind of retooled the project to be more competitive and really had hope that this summer we would be closing all of our financing and starting construction,” said Tom Strohm of United Properties.

“It probably impacts the subsequent, second phase of affordable housing, right? So that’s one of the questions that we’ve had to ask ourselves. We can’t start applying for the second phase of affordable housing before we get the first phase secured.”

The first phase of construction, which started this spring, was supposed to include a mixed-use affordable housing complex with 170 rentals — two-thirds of them available to families earning 30% to 50% of the area median income — and 17 perpetually affordable townhouses.

But financing uncertainties have delayed construction until next spring at the earliest. As a result, the project’s deep affordability levels may have to be re-evaluated.

Bill English, past president of the Minneapolis Urban League, has urged North Side residents to pay attention to what’s going on with the Upper Harbor development.

He has lobbied for living-wage jobs and affordable housing at the project since serving on its collaborative planning committee five years ago and said he worries about gentrification if affordable housing isn’t included.

“This year the state gave more money to affordable housing than has ever been done in the history of the state,” English said. “Yet, where’s that money going?”

Building Blocks developer Devean George said the project team may have to “tweak” the affordability levels, but he promised that the building will not turn into luxury apartments. The project will remain affordable, George said.

“Right now, we have a deep mixed-income that’s really inclusive of everybody,” he said. “We’re going to try to keep the project as consistent as we’ve been talking about, but we may shrink down the number [of units] or cut it in half.”

Upper Harbor has received $5 million in affordable housing trust funds from the city, $2 million in Livable Communities Demonstration Account funds from the Metropolitan Council and $1 million in affordable housing incentive funds from Hennepin County.

The second phase of affordable housing construction, originally scheduled to begin next year, includes two more mixed-use housing developments.

Minnesota Housing scores multifamily projects higher when they include deeply affordable units; employ innovations, cost-efficiency and community involvement; and when they’re led by developers of color and women. The agency selected 28 projects from 97 multifamily applications it received last year, including a senior complex on Nicollet Avenue in south Minneapolis, permanent supportive housing by Aeon and preservation funds for buildings owned by Little Earth of United Tribes, RS Eden and Simpson Housing.

The Upper Harbor project scored higher than a few others that were chosen, but Minnesota Housing Commissioner Jennifer Ho said hard decisions have to be made depending on how much money is available after the highest-scoring, most-competitive projects are selected. She said Upper Harbor’s $12 million request was steeper than most.

“Sometimes projects have been partially funded by others, and they’ve got more leverage; they’re more ready to go,” Ho said. “It also depends on the size of the project. … The Upper Harbor Terminal project is great, and it’s also a big project.”

George said he understands North Side residents will be disheartened by the prolonged wait for affordable housing at Upper Harbor. But he said the development team is working on a more competitive application for state funds this year.

“This has taken some time,” he said. “The main thing would be to keep hope and understand that we’re still working to make this right.”