Fort Snelling housing developer says project’s prospects looking up

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. Dominium has struck a deal with the Minnesota DNR to redevelop the buildings into affordable housing.
Evan Frost | MPR News 2018

A plan to turn 26 long-abandoned historic buildings at Fort Snelling’s Upper Post into affordable apartments could be closer to reality, the project’s developer said this week.

Plymouth-based Dominium is now confident financing will fall into place for the 200-unit development, though estimated project costs are soaring.

Dominium vice president Owen Metz said the project did well in a recent lottery for the distribution of federal housing bonds and should get them later this year.

“We're more optimistic the development will have the sufficient financing in place,” he said.

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That contrasts with what Dominium was saying about a month ago. At that point, the company said it was unlikely to get government housing bonds needed to qualify for crucial federal housing tax credits.

Metz said federal bonds — and tax credits sold to investors — will cover most of the project's cost. But the expected price tag — once pegged at about $100 million — could top $150 million.

Metz said buildings at the former military post are in much worse condition than anticipated.

"Every month that goes by, it gets more expensive," he said. "There was a portion of one of the barrack's buildings that collapsed last winter. And it had a roof failure and some structural wall failures that risk further deterioration of that building. A building, about five years ago, collapsed entirely. And that building is lost forever."

Metz said there is no other financially viable private redevelopment alternative for the buildings. Meanwhile, the state is barred from demolishing the historic buildings.

Dominium and the Minnesota Department of Natural Resources struck a deal to revive the 41-acre Upper Post site a little more than a year ago. DNR officials were glad to hear the latest from Dominium.

"We understand there's been some recent developments that make additional housing bond funding more likely for this project. It's good news," said Chris Niskanen, who oversees communications for the DNR. "We're working with Dominium to understand what that might ultimately mean for the project.

Dominium expects the project will get about $140 million in state and federal tax credits. Other than about $1 million in environmental cleanup funds from the state and Hennepin County, Metz said all the remaining investment in the project will be privately funded and there will be no state or federal obligations or risks. The DNR will provide a 100-year lease for the site and the state will also provide historic tax credits to be sold to investors to raise funds.

But the project will cost taxpayers. Federal and state tax credits essentially subsidize housing projects like this.

"There is a real cost to running tax credit programs. It's foregone revenue," said Brett Theodos, a senior fellow with the Urban Institute, a Washington, D.C.,-based think tank.

The Upper Post project was expected to cost about $650,000 per apartment, on average. Metz said it's now closer to $800,000. But he said that's not as bad as it sounds. For one thing, about three-quarters of the apartments will have two to five bedrooms.

He said historic preservation costs account for about half the project's costs, but the sale of federal and state historic tax credits will cover that expense.

Metz said the development's cost per square foot is actually lower than two other prominent Dominium projects that combined historic preservation with affordable housing: the Schmidt Brewery in St. Paul and A-Mill Artist Lofts in Minneapolis.

Historic preservation costs aside, Metz said the Fort Snelling project's cost is not excessive.

“The cost of the affordable housing component is in line with new construction in Minneapolis and St. Paul that's getting done,” he said. “That's in the $300,000-a-unit total development cost range.”

The Fort Snelling project has drawn criticism for its cost but also won broad political support. Metz said the political consensus was the Fort Snelling buildings are worth preserving.

"This project did get bipartisan support at the Legislature," he said. "We've had two different legislative bills passed and signed by the previous governor that allowed this development to get to where it is today.”

The DNR has been trying to redevelop the site since the 1970s. It must keep a promise to the federal government that the historic buildings will be preserved. Demolition is not a plausible option, because the post is designated as a national historic landmark.

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. The post 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. In 2006, the National Trust for Historic Preservation designated the Upper Post as one of the most endangered American historic sites.

Rents for the Upper Post development are expected to range from $1,000 to $1,600 a month. According to the project’s most recent plan, tenants could make no more than 60 percent of the area median income — about $60,000 a year for a family of four. Veterans and their families would get preference for the housing.

Dominium plans to sign a long-term lease with the DNR and start construction in late 2020. The first tenants could move in by early 2022.