L.A. developer now envisions lower-priced condos for Mill District project

Developers want to build something rare in downtown Minneapolis: Condominiums that will be affordable to low-income buyers.

A team that includes Los Angeles-based AECOM is finalizing plans for a 7-story building with about 140 for-sale condos, half of which would be sold at below market-rate prices through an unusual partnership with the City of Lakes Community Land Trust (CLCLT).

That plan, which is a pared-down version of an earlier plan to build more expensive units, is moving forward in the midst of a recent announcement by Target that it will abandon about a third of its downtown office space, siphoning several thousand workers out of the area.

Though the news has yet to have a discernible impact on the downtown housing market, the move rattled downtown boosters who worry that other major employers will follow suit, creating a ripple effect that could impact shops, restaurants and other businesses already squeezed by the pandemic.

"We wanted to put together a project that could get done at a time when things were uncertain at best," said Nazar Khan, executive vice president of Beowulf, an investor/partner in the project.

While AECOM's decision was made long before the Target announcement, there's speculation that some housing developers might alter their plans. However, Brian Dusek, managing principal of real estate development for the Minneapolis office of AECOM, said the changes to the Washington Avenue project were motivated by the pandemic, which made building a sales center and marketing unbuilt units a challenge not worth taking.

"That's a very hands-on process," he said. "It's not something that's [easy to do] virtually."

The project is being pitched for what's likely the last undeveloped parcel in the Mill District, a mostly residential neighborhood tucked between Washington Avenue and the Mississippi River. The long, narrow half-acre parcel at 800 Washington Avenue South is known as the Guthrie Liner Parcel and is adjacent to the River Ramp parking structure, which serves the Guthrie Theater and surrounding businesses.

The latest proposal, one of several attempts at redeveloping the site, comes about a decade after the city first offered the site to developers. In 2011 the nonprofit Artspace said it would build a new six-story headquarters building with income-restricted apartments above. Four years later, after that plan was scrapped, M.A. Mortenson got control of the site and planned to build a hotel. After the financing for that project fell through a couple of years later, four developers pitched ideas ranging from a mixed-use apartment building to offices.

The city selected AECOM's proposal to build a distinct, nine-story building with 76 condos with several "pocket parks" scattered among what appeared to be offset rectangular blocks. AECOM later added several floors to the building to accommodate more units, and brought in a new investor: Washington D.C.-based Beowulf Energy, which brought in Direct Invest Development of New York, a firm that has more experience with affordable, for-sale multifamily development in other markets.

Both proposals included a much-smaller share of income-restricted units.

To make the condos more affordable, Dusek is considering several options including a reduction in the cost of the site. The developer will also achieve savings by building a shorter, less-expensive building that will consist of a two-story concrete podium beneath five levels of wood-framed construction. Underground parking was also eliminated.

CLCLT's role in the project is unusual. The Minneapolis-based nonprofit makes for-sale housing — typically single-family homes — more affordable to lower-income buyers by retaining ownership of the land and putting a cap on the resale price of the home to help maintain its long-term affordability. CLCLT will also manage the application and qualification process.

Dusek said the market-rate units will also be far more affordable than most of the condos in the area, which is peppered with seven-figure condos. Just a couple blocks from the Liner Parcel, the 42-story Eleven on the River condo tower is under construction. The vast majority of the 118 units in that building are priced at well over $1 million.

"This works as a more moderately priced project," said Dusek.

In the proposed 800 Washington building the market-rate units will sell for on average about $200 per square-foot less than the previous iteration. Dusek expects the affordable units, which are targeted at people who earn 60 to 80% of the area median income, to range from the mid $100,000s up to about $200,00 per unit. All of the units, he said, will sell for less than $500,000.

Dusek said he hopes to present final plans to the city this summer and launch presales in early fall. Construction won't begin until a certain presale threshold has been met.

Emily Stern, a senior project coordinator with the City of Minneapolis, said negotiations with AECOM are still active, but that city has had preliminary discussions with AECOM about a potential credit per affordable unit called a "performance guarantee escrow" rather than an outright reduction in the cost of the land.

She said AECOM has an exclusive development rights/due diligence period with the city through June 2021 with an option to extend through the end of 2021.

Staci Horwitz, City of Lakes Community Land Trust's operations director, said if the current proposal gets built, it could become a model for other sites.

"This is an opportunity to create affordability in an area where we would not have been able to in the past," she said. "If AECOM can figure out to do the project and create affordability without subsidy on the front end, that becomes an opportunity to think differently about how to create affordable units with other developers."

Jim Buchta • 612-673-7376