Proposed apartments set up clash over gentrification in St. Paul's Frogtown

The pending sale of a long-vacant 2-acre parcel by the Amherst H. Wilder Foundation to a developer known for building luxury housing is sparking fears of gentrification and displacement in one of St. Paul's poorest neighborhoods.

Wilder, a St. Paul-based philanthropic organization that combats the effects of poverty, plans to sell the property to Alatus, which has proposed building predominantly market-rate apartments.

But in letters and at meetings over the past few months, local officials and Frogtown residents have prodded Alatus and Wilder to keep working to make more of the proposed building's 226 units affordable to neighborhood residents. They point out that Wilder cites providing housing and social services as part of its mission.

The purchase agreement between Wilder and Minneapolis-based Alatus, which was set to expire March 10, has been extended through May 9.

Caty Royce, co-director of the Frogtown Neighborhood Association, said Wilder should renegotiate its deal with Alatus to demand that at least half the building is "truly affordable."

"Really, it's on Wilder," she said. "They could have required this as a condition of the sale. They didn't."

Wilder spokesman Andrew Brown said the organization granted Alatus an extension "with the understanding that they will use this time to re-evaluate the project to address concerns about rent prices." Brown wouldn't say what Alatus has agreed to pay for the property.

The closing date on the property will be on or before June 23.

The lots at 411 and 417 N. Lexington Parkway are a block south of the Green Line and near Wilder's headquarters at the northeastern edge of St. Paul's Union Park neighborhood. They have sat vacant for more than a decade.

The August announcement that Alatus hoped to begin construction by the first quarter of 2020 was welcome news to many. But, almost immediately, people raised concerns that no one from the neighborhood could afford to live in the units, and that those who are already living nearby might be forced out.

Royce said building an upscale project so close to adjoining low-income neighborhoods will incite other landlords to jack up their rents. She pointed to a recent study by the Center for Urban and Regional Affairs at the University of Minnesota that found as new market-rate apartments were built in Minneapolis, rents for "lower-tier" properties nearby increased 6 to 14%.

Such projects also drive up property taxes, she said, which can displace low-income homeowners.

Alatus has presented two options for what it wants to build: One is strictly market-rate apartments with no rent subsidies, which would help subsidize a community-based commercial tenant occupying 4,500 square feet. The other option would include six to 12 apartments that would be affordable for families earning 40% or 60% of the area median income, with a commercial tenant paying market rates.

Area district council officials quickly weighed in, saying those proposals are inadequate.

According to a report by the Minnesota Housing Partnership, Twin Cities-area median income in 2016 was more than $85,000 for a family of four. In St. Paul, it was just over $64,000. And in Frogtown, according to Minnesota Compass, median income is less than $40,000.

All of which means that even a handful of "affordable" units aren't really affordable for many families who live nearby, said Brandon Long, executive director of the Union Park District Council. To be truly affordable, he said, rents should be geared to families earning 30% of area median income.

"We expect rents to be affordable," Long said. "But at 60% AMI, it may as well be at full price as far as that neighborhood is concerned."

Chris Osmundson, Alatus director of development, said that is unlikely to happen. Without outside funding to lower construction costs or subsidize rents, there is no way for developers to do that and still make money.

"As far as we can tell, there is not going to be any subsidy coming our way that will allow us to achieve anything close to that," he said.

He also said he doesn't agree with Royce's assertion that a single 226-unit building in an area with 10,000 units of housing will drive up rents and taxes and lead to gentrification.

"It's a bit more nuanced than that," he said.

Housing costs in the area have been climbing for years — in large part because of the Green Line light rail and its associated development along University Avenue. As a result, average rents along the Green Line have reached more than $1,700 a month. The Alatus project's rents will be about $200 a month less, he said. Alatus continues to work with city officials to find funding to help subsidize the project — such as obtaining a $1.25 million grant from the Metropolitan Council to encourage transit-oriented development.

The $60 million project would increase taxes for the property from about $100,000 a year now to about $900,000, he said.

"It's hard to satisfy everyone here," he said. "But there are plenty of residents who have come to our community meetings who just don't want to see a snow pile there anymore."

St. Paul City Council Member Dai Thao, who represents the area, called for the Wilder Foundation to press Alatus for more affordable housing.

"If you do [only] market-rate there, it will have a negative impact. I would support more of a mixed use there," he said. "Wilder has a responsibility. Their vision is to help people who are vulnerable, but Wilder has said that whoever the developer is, affordable housing is up to them. That's very disappointing."