Rent-control appeal hearing of Dominium’s 8 percent rent hikes at two properties yields more questions than answers

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Hannah Gray arrived at St. Paul City Hall on Tuesday ready to plead her case against an across-the-board 8 percent rent hike impacting all 217 units at the Union Flats apartments on St. Paul’s Hampden Avenue. She left her appeal hearing more frustrated than optimistic.

“I feel like we’re being taken advantage of,” said Gray, an artist and baker who has lived at the complex at 787 Hampden Ave. since it opened around the summer of 2019.

About three-fourths of her building is occupied by Somali immigrants, she said, and due to language barriers, few understand the appeals process she’s undertaken. Or that their rent is poised to increase some $80. Or that Dominium, a Plymouth-based for-profit provider of affordable housing, receives $2.5 million in federal low-income housing tax credits annually for Union Flats alone.

“I feel more angry,” Gray said.

The appeal hearing on two Dominium properties — Union Flats and the Cambric on East Seventh Street — lasted more than 90 minutes. And during that time, a crowded hearing room heard arguments about whether Dominium used the appropriate base rents from 2019 to calculate what should constitute a reasonable rate of return, a key argument in the company’s request for an exemption to St. Paul’s 3 percent rent-control cap.

In short, there was a lot of math. Following rounds of dueling testimony from attorneys representing Dominium and the Housing Justice Center, legislative hearing officer Marcia Moermond asked the parties to submit more materials to the city and then return Sept. 1 for further discussion.

Moermond will then make a recommendation on appeal requests from Gray and another tenant, Katherine Banbury, which will be forwarded to the St. Paul City Council for final determination. She noted the Cambric and Union Flats constituted only the second and third rent-control appeals to be heard by city hearing officers, and the process was still in its infancy.

“That meeting couldn’t have been more unwelcoming and more unresponsive,” said a visibly disgusted Debra Muse, another resident of Union Flats, after leaving the hearing room.

Muse said both she and her husband put careers on hold during the early days of the pandemic — she had to dissolve her skyway massage business in downtown Minneapolis virtually overnight — and he’s since gone back to school to switch careers. The couple survive on her income as a customer service attendant at a YMCA.

“If I have to pull myself up by the boot straps, why can’t they suck it up a little?” Muse said, referring to Dominium. “When do we do the Jesus thing and give a damn about each other?”

2019 ‘BASE YEAR’ MATH AT ISSUE

Dominium officials said Tuesday that their rent increases are set between 50 percent and 60 percent of area median income, as determined by U.S. Housing and Urban Development. Those increases are further regulated by a 30-year “Land Use Restrictive Agreement” between the developer and the city, as well as a separate agreement between the developer and the city’s Housing and Redevelopment Authority.

The agreements already keep rents well below what market-rate rents would be for comparable properties.

“We’re not asking for enormous cash flow,” said Owen Metz, a senior vice president with Dominium, noting operating expenses — including uncollected rents — have grown with inflation.

Jack Cann, an attorney with the Housing Justice Center, informed city officials that Dominium will receive $2.5 million in tax credits each year for 10 years for Union Flats alone, a benefit the company has already resold on the open market for nearly $23 million.

Cann said the company had been less than forthcoming about its cash flows in a worksheet submitted to the city alongside its exemption request. To calculate a reasonable rate of return, the city asks property owners to use 2019 as a base year for comparison’s sake.

Union Flats opened in May 2019, so Dominium used 2020 figures instead, but failed to note the substitution on its worksheet or in an accompanying written narrative, Cann noted. And by using the wrong base year, other calculations are thrown off, including inflation adjustments.

“There was only a partial operating year, yet they represented a full year of operating expenses,” Cann said.

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