St. Paul commits nearly $32 million in first phase of tax subsidies for affordable housing in ‘the Heights’

The city of St. Paul has committed nearly $32 million to subsidize affordable housing at the Heights, St. Paul’s new mixed-use development transforming the former Hillcrest Golf Course on the city’s East Side.

Hundreds of the Heights’ planned 1,050 units of housing — from studio apartments to owner-occupied homes — will be made available to lower income families, officials said, thanks to a combination of city tax subsidies and county, state and federal grants and credits. Construction is expected to start this summer.

The city’s subsidy comes from tax increment financing (TIF). Normally, when a property’s value grows after development, the increased property tax revenue goes into the city’s general fund. With TIF, that increased revenue goes back to the developers to help pay for construction. The city’s contribution ensures the development’s housing is available to all income levels, said Nicolle Goodman, St. Paul’s director of Planning and Economic Development.

Three housing developers — Sherman Associates, Twin Cities Habitat for Humanity and JO Cos. — will benefit from the subsidy.

Former St. Paul Mayor Chris Coleman, now president and CEO of Twin Cities Habitat for Humanity, said Habitat plans to build more than 145 homes at the Heights. The first phase of the project will begin this summer with the construction of 73 homes. Nearly $20.7 million in TIF funds has been budgeted for Phase 1.

“The cost of building affordable housing, for all housing, is astronomical right now,” Coleman said. “Affordable housing is so critical. Without TIF, we couldn’t do it.”

A quarter of the Habitat homes will be affordable for families earning less than 60% area median income, Goodman said. Half will be for families earning between 60% and 80% AMI.

“Developers need a range of resources,” said Johnny Opara, president and CEO of JO Cos., which is building 199 affordable rental units near Larpenteur Avenue and McKnight Road. JO’s TIF district has a budget of more than $1.9 million to build affordable housing.

Chris Sherman, the president of Sherman Associates, said about 10% of the units that Sherman will build will be affordable to families making 30% of area median income. In its first phase of affordable housing, Sherman is building 230 units with $8.9 million committed in the city tax subsidy for the project’s first phase.

According to the U.S. Census Bureau, St. Paul median household income in 2022 was about $69,900.

Sherman said his project will need more public subsidies. “The city is the first group at the table,” he said. “We’re asking the state and the county to consider something similar.”

Hillcrest opened as a municipal golf course in 1921 and in 1945 became a private club for Jewish golfers, who were barred from other clubs. Steamfitters Pipefitters Local 455 bought Hillcrest in 2011 for about $4 million and closed the golf club six years later.

The St. Paul Port Authority bought it in June 2019 with the intention of building mainly an industrial park, but since then the community and its elected representatives persuaded the city to add a large component of housing.

Council Member Nelsie Yang said she and area residents are excited about the Heights’ combination of good-paying, light-industrial jobs and quality housing — all in a walkable, bikeable neighborhood.

Yang said the development is changing the longstanding narrative that the East Side doesn’t get the same quality of development opportunities as other parts of St. Paul.

“That’s been true. We also have the highest income disparities and the highest diversity of any area of the city,” she said. “I, along with so many of the people here on the East Side are determined to build a different future.”

The Port Authority raised more than $50 million for preparing the site, including cleaning up pollution. Nearly half of that came from land sales to commercial and housing developers.

Cleanup has been completed, said Todd Hurley, Port Authority president. Sixty percent of the site has been graded and bids are being requested for roads and utilities, he said.

“We are on target right now,” he said about construction beginning this year.

Besides homes and workplaces, the Heights will have a 5-acre park and another 15 acres of open green space. When fully developed, the authority estimates, the development could generate $5 million a year in property tax revenue.

By comparison, Highland Park’s former Ford Motor Co. plant site — now called Highland Bridge — is expected to generate $18 million per year in new tax revenue. In 2021, the City Council approved $46.9 million in TIF funds for affordable housing there.