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Financial snag hits Fort Snelling Upper Post affordable housing project

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Some of the 26 buildings slated to be redeveloped sit abandoned.
Some of the 26 buildings slated to be redeveloped sit abandoned on Fort Snelling's Upper Post site in November 2018.
Evan Frost | MPR News 2018

A plan to turn 26 long-abandoned historic buildings at Fort Snelling's Upper Post into 200 affordable apartments has hit a financing snag that could scuttle the project.

About a year ago, the Minnesota Department of Natural Resources struck a deal with Plymouth-based Dominium to revive the 41-acre Upper Post site. Construction has not started. Now Dominium said it's worried it may not get essential financing through bonds authorized by the federal government and distributed by the state.

There's intense competition for what’s known as private activity bonds.

"Our understanding, from discussion with Dominium, is with the current level of bonds that are allocated, it would reduce the scope of the project too much and it just wouldn't be feasible anymore,” said Larry Peterson, the Fort Snelling Upper Post project manager with the DNR.

In an email, Dominium vice president and project partner Owen Metz said the Fort Snelling project is significantly more complicated and costly than initially expected.

"The construction market is so busy it has significantly inflated construction costs compared to original estimates," Metz wrote. "These types of complex redevelopments aren’t done until the financing is closed and the task at hand has proven more difficult than anyone anticipated."

Metz said he expects intense competition for the bonds Dominium needs for the project. He anticipates the bonds will be distributed by lottery to qualified applicants. And Metz said the odds of Dominium getting all the bonds it needs for the project are 1 in 5, at best.

“The main holdup at this time is getting sufficient tax-exempt private activity bonds in order to allow the development to proceed," Metz wrote. "Without additional bonds, which will be significantly oversubscribed when they next become available in January of 2020, this redevelopment can’t proceed.”

Minnesota Housing, the state’s housing finance agency, expects requests for the bonds will exceed the supply.

“We're talking about scarce federal resources that are critical to creating new housing and preserving the existing affordable housing that we have,” said Ryan Baumtrog, assistant commissioner for policy and community development with Minnesota Housing. “There is $140 million that will be available in 2020. And based on previous years, we anticipate there will be significantly more than that in requests.”

If Dominium does not get the private activity bonds it needs, it will not qualify for crucial federal low-income housing credits. Those credits are sold to investors to raise money for a project.

“A certain amount of bonds are needed in order to get the federal tax credits,” said Baumtrog. “If a project doesn't receive enough bonds, then they don't get the tax credits. And it's really the equity they get from those tax credits that makes the projects work.”

Fort Snelling's Upper Post buildings date as far back as the late 1800s and were constructed on land spiritually and historically important to the Dakota people. It also housed U.S. armed forces from the Spanish-American War until the end of World War II.

As many as 300 troops were stationed at the post at one time. The National Trust for Historic Preservation considered the Upper Post one of the most endangered American historic sites in 2006.

The DNR has been trying to redevelop the site since the 1970s. Peterson said that the state promised to preserve the buildings and keep them standing when the federal government transferred ownership in 1971. He estimated it would cost several million dollars to stabilize and preserve the buildings if the Dominium project falls through.

"There are no provisions to allow demolition," Peterson said. "The federal government, National Park Service and state historic preservation office would have to concur with any kind of demolition request. Generally, that's not granted in a national historic landmark like this. Both the federal government and the state have an obligation to try to preserve the history here."

From the start, the proposed Dominium project was expected to be expensive, at a cost of nearly $600,000 per unit for the whole development, including landscaping and utility work. The initial price tag for the project was $100 million.

Rents have been expected to range from around $1,050 to $1,500 for two-, three- and four-bedroom apartments.

The project was the source of political debate at the State Capitol, where lawmakers passed a last-minute bonding measure that has the Minnesota Housing using $29 million of its bonding authority to help finance the rehab work.