After St. Paul’s concessions on rent control, some developers bullish, others still balk

Frederick Melo, Pioneer Press
Updated ·7 min read

Shortly after St. Paul voters approved a 3 percent cap on annual residential rent increases, the developers behind a proposed six-story, $70 million housing development near Lexington Parkway and University Avenue announced the Lexington Station project was on hold. Minneapolis-based Alatus said the decision was out of its hands, as a major financing partner backed out in late November, just weeks after St. Paul approved rent control.

Then came a new movement in the investment market toward affordable housing and projects that deliver an environmental or social benefit. Even before recent amendments to the city’s rent control ordinance, a new limited partner — a national investor from outside the Twin Cities — chose to back the Alatus project, fully resurrecting it.

“In the last 12 months, it’s been eye-opening, frankly,” said Chris Osmundson, director of development with Alatus. “We’re generally seeing a shift in some of these large investors moving from just trying to achieve the best yield for their investment to some of these larger externalities. It’s a good thing.”

For Alatus, it’s now all systems go. On Sept. 19, contractors with the Anderson Companies were issued an $8 million construction permit for the foundation and footings of what will be a two-year building project at 411 Lexington Parkway — the 304-unit Lexington Station apartment building, half of which will be designated affordable housing. The construction site has been fenced and large yellow excavators have begun moving heaping piles of dirt.

“Obviously, we’re in the ground,” said Shawn Meschke, senior project manager at the Anderson Companies.

The restart of the Lexington Station apartments at the former Amherst H. Wilder Foundation site is a hopeful sign that some developers and their financial backers have once again taken interest in the capital city.

DEVELOPERS SPLIT ON AMENDMENTS TO RENT CONTROL

In light of the city’s recent concessions to developers around rent control, some companies are ready to revisit St. Paul housing projects that had laid fallow over the past year. Others, like Alatus, had restarted projects even before the city council restructured rent control last month.

Still other developers such as the Ryan Cos. — the master developer behind the 122-acre Highland Bridge site — have complained to the mayor’s office that the new rent control amendments don’t go far enough to lure them back to St. Paul. They’ve expressed little interest in restarting projects that were put on hold a year ago.

The slow start for new housing construction in St. Paul has been widely blamed on rent control. From January through July, the city issued building permits for 515 units of new housing, down 31 percent below the four-year average, according to the St. Paul Department of Planning and Economic Development. Those numbers include both single-family homes and multi-family buildings. They do not include simple remodels and additions like a new bathroom.

Then came a series of new amendments to rent control last month. Among the amendments, which take effect Jan. 1, new construction will be exempt from the city’s annual 3 percent cap for 20 years. Beyond that, landlords will be allowed to raise rents on vacant units by 8 percent, plus inflation.

Many developers had hoped instead for full “vacancy decontrol,” which would have allowed them to raise rents as much as they want once a unit goes vacant. Still, for some developers, it’s enough.

“We’re still interested in continuing to pursue projects in St. Paul,” said Osmundson, who noted the Lexington Station project was revived even before the amendments were approved. “The rent control discussion is a discussion we’ll continue to have to have with investors, but the direction the council and mayor have steered this provides some of the necessary tenant protections, and it makes it easier to do projects in St. Paul. On the whole, I feel really good.”

Half the units at Lexington Station will be market-rate, and the other half will be designated affordable, most of those priced at 60 percent of area median income, with about 20 units priced at 50 percent of area median income.

The project requires no federal subsidy, though it is enrolled in the city’s 4D tax incentive program, which offers some property tax relief over the 10-year enrollment period.

MARKET-RATE APARTMENTS AT HIGHLAND BRIDGE STILL ON HOLD

Still, not everyone appears to be on board.

John Wall, the developer behind the downtown Minneapolis-based Wall Companies, has 350 units of housing under construction by Malcolm Yards, a popular indoor food court he developed in Prospect Park, just over the Minneapolis border from St. Paul. Even after recent amendments to St. Paul’s rent control ordinance, he’s not keenly interested in building more housing in either city, given what he sees as the growing number of housing regulations.

“I’m looking outside of Minneapolis and St. Paul right now. That’s a change,” Wall said. “I like Minneapolis and St. Paul. I’ve officed here for 26 years, and all my development has been in Minneapolis and St. Paul.”

Another glaring exception remains the former Ford Motor Co. site in Highland Park, where the Minneapolis-based Ryan Cos. and a major partner, Weidner Homes, have shown little interest in restarting stalled projects. Weidner Apartment Homes planned as many as 13 buildings — upwards of 2,000 market-rate apartments — at Highland Bridge.

All the Weidner properties but The Collections, the 300 new market-rate units attached to the new Lunds and Byerlys grocery, are still on hold.

RENT CONTROL ADVOCATES

Pointing to the developers, some rent control advocates have raised accusations of acting in bad faith to further influence both the St. Paul ordinance and ongoing discussions about a potential rent control measure in Minneapolis.

“Ryan Companies appears to be using their loud exit from St. Paul as leverage in the Minneapolis rent stabilization process,” said Daniel Suitor, an attorney with the nonprofit Minnesota tenant advocacy organization Home Line. “Their continued posturing despite major concessions to their position gives the whole game away.”

Suitor, as well as a representative of the Ryan Cos., both sit on a 25-member Minneapolis working group that is expected to issue recommendations about a potential rent control policy to the Minneapolis City Council in early 2023. On the west side of the river, the company has been vocal in its opposition to the policy.

“I think Ryan Cos. is moving the goal posts,” Suitor said. “They”ll say, ‘we really need a 20-year exemption.’ And when they get a 20-year exemption, they say ‘we really need 30.’ Their goal is zero rent control. They want to kill it.”

HIGHLAND BRIDGE DEVELOPERS STILL SKITTISH

Efforts to reach Weidner for comment were unsuccessful.

In response to inquiries, Maureen Michalski, vice president of real estate development at the Minneapolis-based Ryan Cos., issued a written statement Wednesday noting developers have no power to force lenders and investors to direct their money into a particular city. And without adequate investment, the city will have less new housing, which would likely increase housing costs for everyone due to the laws of supply and demand.

“When the master plan for Highland Bridge was developed and approved, it did not account for a rent control ordinance,” Michalski wrote. “We appreciate the council’s approval of a new construction exemption but as stated in our public comments, we remain concerned that it is not enough to encourage investment in new housing production in St. Paul.”

To lower the cost of housing and spur growth, free-market advocates continue to call for less government regulation, which in theory would allow developers to build more units at a cheaper price. On the other hand, housing advocates have cautioned that without tenant protections such as rent control, property owners will continue to price their units at whatever price the market will support, regardless of cost savings.

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