PROSPECT PARK nrp phase I HOUSING EXAMPLE

Brief Background of PPERRIA NRP Housing Development Projects
- Susan Gottlieb & Andy Mickel, 1999-06-02, revised 06-07; 06-16.

Summary of Key Points

1. Our neighborhood is unique in the city with the opportunity to build new housing. During the NRP grassroots opinion phase, housing issues ranked first in importance–35% of our NRP money is designated for housing. Three projects are proposed to meet all the housing goals expressed by neighborhood residents in 1994-95.

2. The 4th Street and Unocal projects were predicted to need additional money over the $1.242M allocated in the NRP Plan; this motivated the PPERRIA NRP housing committees to find other sources of money: MCDA funding and tax-increment financing. A scaled-back 4th Street project left enough money to do the Unocal project.

3. The Unocal project is mired in waiting for completion of pollution cleanup (superfund project by Union Oil of California). In meeting with various parties (MN Pollution Control Agency, Councilmember Joan Campbell, Unocal and the MCDA, we learn that we need to choose a developer for the project if we want to see a development done to our liking.

4. Having already made the choice of Brighton Development in 1997 to do 4th Street, we approached them with the idea of also doing Unocal by tying these projects together so that we a) get the zoning we want on Unocal, b) get some movement by Unocal, c) leverage our money used on 4th Street as conditional on completing the project on Unocal thus saving our total money at risk, etc.

5. The time limits on assembling all the properties necessary to do 4th Street has been extended from last fall to June 30 when all the renegotiated purchase agreements expire. The project is moving ahead because PPERRIA approved the expenditure of the NRP Housing money ($600K) to do 4th Street, and having previously released $100K now needs to complete the work by releasing the remaining $500K.

6. MCDA was authorized by the City Council Community Development committee on Monday, June 14 to proceed with the project given the strong neighborhood support expressed over the last 4 years; otherwise MCDA would not be involved and no residential development would be taking place. No TIF money from Hubbard will be available to return to PPERRIA NRP housing because of infrastructure needs in the Industrial Area to the north, as well as the City Council not wanting to open dozens of potential NRP/TIF disputes around the city.

History: NRP Input Process, 1994-1995.

Throughout the process to develop and NRP plan for the PPERR neighborhood, residents consistently supported not only new housing development, but also improvement of existing housing. Because our neighborhood is categorized by NRP as "protection" (30 neighborhoods @~$3M) [and not "revitalization" (37 neighborhoods @~$5M) nor "redirection" (13 neighborhoods @~$10M)] we only received $3.2M for our entire NRP plan. In our process to hammer out a budget through numerous and lengthy meetings among 14-24 active volunteers to prioritize among the 7 major areas (Jobs, Parks, Education, Environment, Transportation, Safety, Housing), the projects that Housing claimed that would consume $2.2M was reduced by compromise to $1.242M. This is a lower percentage than other neighborhoods' NRP plans. The budget earmarked about $880K for an ambitious 4th Street area development including the Watkins Trucking site and its annex behind 4th Street, part of the Snitzer site to the east and "Kampa corner" on the southwest. The Unocal site was slated for $300K to cover the right-of-first-refusal to buy the site so that we guarantee how the site was to be developed. Any money returned to the Housing section after the development projects were completed would then be used for housing improvement.

For nearly 30 years on 4th Street and 85 years for Unocal, the goal of our neighborhood has been to create low-density housing on the three major sites addressed in our NRP Action Plan: the Kampa/4th Street site, the Watkins Trucking site, and the Unocal Oil (Gopher Oil/Barber Oil) site. The neighborhood's commitment to the Unocal site is legendary! Our commitment to 4th Street is to ensure the current residents a future: to sustain it as a viable residential area with a critical mass of housing, instead of being picked off one house at a time because of that intermittent industrial zoning mistake of city planning. From the grassroots input received during the development of the NRP plan, the urban-village townhome and life-cycle housing concepts were derived which people said would meet the needs of a wider range of people than we have now: single, detached houses, 2-1/2 story walkup apartments and public housing. Other housing goals from the grassroots input are: increase the % of homeowner-occupied housing, reinforce the housing at the "edges" of the neighborhood where there is noticeable decline, and be mindful of creating housing for working parents with kids who can live in proximity to the largest employer in the state: the U of M as well as the numerous new businesses in the St. Paul Westgate commercial/industrial park.

History: Housing Committee Work, 1995, 1996, 1997

Two PPERRIA NRP Housing development committees met monthly (or more frequently) to carry out the plans for both 4th Street and Unocal. The passionate commitment to 4th Street was led by Karen DeWitt, who not only lived there, but whose grandparents-in-law had been long time residents. The committee of Karen, Vera Marshall, Dean Lund, Florence Littman, Dan Copher and Mary Alice Kopf (who went on record disqualifying herself from representing any of the resulting properties to avoid conflict of interest) looked at early proposals to build 30-40 townhomes in the area, restoring the residences torn down around the decade of the 60's when the zoning was changed. The Unocal committee (taking over from a PPERRIA committee dating from the late 1980's) monitored the superfund cleanup being done by Unocal, and were advised that the date the property would be ready for development could not be definitely determined.

At issue on both the Unocal and 4th Street sites has always been the industrial / commercial zoning designations on these sites, in addition to other obstacles such as pollution and vacillating owners. The Kampa/4th Street site goals for development in the NRP Plan include: strengthening the connection between 4th Street and the rest of Prospect Park, creating affordable housing choices, creating an attractive gateway to the neighborhood, providing housing opportunity for workers in the new St. Paul Westgate area/Hubbard Broadcasting Complex and eliminating the negative commercial/industrial impact on that part of the neighborhood. Site issues have included possible pollution on site and assembly of multiple properties. The Watkins Trucking site goals include providing infill housing, elimination of noise pollution from trucking firm, creation of a distinct boundary between residential and industrial land use, and elimination of future threats of incompatible use.

A major event eliminating the plan for a large development on the combined Watkins Trucking & 4th Street sites was the purchase by Hubbard Broadcasting of the Snitzer and Watkins properties to build a campus for expansion and its US Satellite Broadcasting subsidiary. (Hubbard sold USSB in late 98 so future development plans remain uncertain.) A scaled-back plan simply for properties near "Kampa Corner" (4th Street) was then developed.

The Unocal Oil site goals include realizing plans for housing development on the site as envisioned since 1910, converting an industrial enclave deep inside a residential area to housing, and creating opportunities for housing for a variety of people of all ages and lifestyles.The site is currently zoned for industrial/commercial use.

The goal as stated in the NRP Plan has always been for the neighborhood to work with a developer and the MCDA and city to meet the goals for these sites as fully as possible. The neighborhood has neither the human resources or expertise to act as an agent overseeing these two projects. We approached these developers: the Ackerburg Group, Brighton Development, Seward Redesign, and Wellington Development. We spent the most time with Brighton which had the best reputation for doing urban (not suburban) development in the city of Minneapolis: low-density housing. We looked at existing Brighton work in Southeast: Dartmouth Place in the Motley District, Augsburg Commons on Riverside Ave., Rollins Court on SE 7th St., Van Cleve (SE 15th Ave. & Como Ave. 2 infill, 2 rehab) and Marquette Townhomes in Lourdes Sq. just off SE University &. Hennepin.

Through another public (non-PPERRIA) neighborhood meetings at Luxton Park held for NRP review and to determine priorities, residents reffirmed housing development on both 4th Street and Unocal as top priorities.

The selection of Brighton in late 1997 for the 4th Street site was a deliberate, subjective choice. Brighton has worked with the MCDA, city, MPCA and other interests and now proposes to work with the NRP in its first project partially funded by NRP. They were willing to work on this very small project when other developers showed no interest; they work on polluted sites with the MPCA to streamline development (Ex: Marquette Townhomes); they listen to neighborhood concerns and are responsive; their good reputation as a developer is at stake when working with such an vocal neighborhood as ours. PPERRIA voted to release $100K to secure the purchase rights of the two houses at 10 & 14 Bedford St. Brighton began assembling the land by signing purchase agreements on these properties, Kampa Tire, and by attempting to negotiate with Gopher Machine to acquire the two parking lots on 4th Street to the west

History: Housing Committee Work, 1998

In 1997 after losing an 18-month process to the University to convert rental 15 houses in Motley to home-owner occupancy, PPERRIA NRP designated $100K to subsidize home-owner occupant purchasers of any house in that district. Also the Education committee saw an opportunity to pressure the School Board to reopen Pratt as a school, and made the case for reallocating $300K for a limited time from Housing. With an opportunity to acquire properties on Kampa Corner in late spring, 1998 PPERRIA was faced with a dilemma: only $840K was left to do both development projects (at the time we estimated that at least $600K would now be required to acquire the first right of refusal on the Unocal site from Unocal). Further, the time period that Brighton had to close on the properties was set for fall. Instead of pitting one project against the other (4th Street versus Unocal) a Joint Housing Committee (composed of all 3 PPERRIA NRP Housing committees and consisting primarily of Dean Lund, Alison Savin, Andy Mickel and Susan Gottlieb; later Florence Littman, Sally Bell, & Mary Alice Kopf) was formed in the summer to find a solution. A further challenge was presented: the new city code proposed to designate the Unocal site as OR-2 (office residential) rather than simply low density residential. After exploring

We were frustrated in our communications with the MCDA. We were frustrated with Joan's position on the zoning. Joan insisted that we pick a developer who would in turn deal with the MCDA. So we did that, and queried Brighton Development Corporation and discovered that they were very interested in creating for-sale townhomes of the kind proposed by Alison Savin and Dean Lund (upscale, architecturally esthetic units in keeping with the existing neighborhood) on the Unocal site. During our meetings in the fall, not only did we discover that Unocal Corp. was not moving at all on the site cleanup or following our interest in the project, but also they were not at all interested in our acquiring the right of first refusal for the site. We discovered that they would be much more comfortable dealing directly with a developer for the site. We discovered that the developer could very easily request the zoning for the site through purchase. By combining the two projects, we could meet the overall goal of providing a range of ho

In our discussions with Brighton we have made clear that we must have a guarantee of how the Unocal site is developed and that the two projects are tied together. Our subsidy therefore is not to be construed to develop merely the (now) small project on 4th Street, but is underwriting our investment to insure that both projects are done to the neighborhood's desires. Brighton has agreed in principle to this.

History: Housing Committee Work, 1999

With PPERRIA's blessing, the PPERRIA Housing Committee sent a letter of intent (a non-legally-binding document) to Brighton Corporation in February, 1999, detailing expectations for the two housing sites, the terms of which Brighton has agreed to. Brighton Corporation has worked to resolve site issues for both sites. Their results to date are the following:

* They are very close to the negotiation of a purchase agreement with Unocal Oil Corporation. It is fully expected by both parties that the purchase agreement can be mutually approved in the near future. Unocal is only interested in working with a developer which is working with the neighborhood–i.e., Unocal wants the neighborhood to approve of whatever development eventually goes in on that site.

* Brighton sees the Unocal site at present the more desirable one–more housing units can be built on it–and Brighton has indicated a strong interest in developing that site. For example, at Brighton's request the city has agreed to rezone both areas to accommodate low-density residential development (R-3, instead of the current industrial zoning).

* Brighton has hired an independent environmental consultant to work out details for cleanup and development in a streamlined manner with the MPCA and determine the actual level of contamination.

* Brighton has successfully assembled the adjacent properties for the 4th Stree project (now called Bedford Street Townhomes) by paying fair market value.

Financing Overview (from June 10 MCDA Report to Development Finance Committee

Based on preliminary estimates, the total public cost of land assembled for the 4th Street project is between $850-950K which includes acquisition, relocation, demolition, and pollution cleanup costs that Brighton has under purchase agreements and the fourth property that will probably have to be acquired through eminent domain. MCDA expects to receive $30K from the state for pollution cleanup; tax-increment financing will also support between $200-250K in project costs:

We could conclude that putting up $600K in NRP funds for this one project will not likely affect the Unocal project, the more desirable site. There is always a risk that Brighton could "walk away" after finishing Bedford Street Townhomes (not likely), and we would still have $538K (not counting the $67K remaining in the Motley homebuyer assistance program) to use toward Unocal site development and in Housing Improvement funds after that project is completed.

Finally we are committed to getting contract language and detailed specifications before our release of the funds necessary to begin these two projects. Assuming PPERRIA approval, Brighton will enter into an NRP contract that will allow it to use the $600K for acquisition, relocation & demolition and specify a timeframe for finalizing a project finance plan and an MCDA redevelopment contract. At the time of this writing, Brighton and the MCDA are expected to finalize contract language before the June 28 PPERRIA meeting. Attorneys will review the release and execution of the contract between MCDA and Brighton. By working with the MCDA, the Gopher Machine parking lots (which were houses bought and razed and have always been zoned residential, and never allowable for use as parking) will go through condemnation proceedings. Existing housing on 4th Street has always been perceived as affordable housing in the neighborhood. However, city planning has never considered Prospect Park a high priority area for low-income housing (aside from Glendale) in its plans. Because the housing market is strong this year, we have to look at our project as providing low-moderately priced housing which would relieve supply-demand pressure on existing older housing in other locations for "affordable" housing. We expect that the 4th Street project will likely become a catalyst leading to more housing development in that the area without our involvement. What's at stake now is the loss of our control in determining what will be built on the 4th Street site.

Questions and Answers About These Projects: (1999-06-02, Susan Gottlieb)

Here are some answers to some questions raised at the May PPERRIA meeting regarding housing proposals on both remaining sites.

1. Why did the neighborhood choose Brighton? Were other developers interviewed? Brighton is a uniquely situated firm, specializing in urban residential land development, even on polluted sites. There are other urban developers, other residential developers, and even others who may specialize in developing polluted sites. However, Brighton is unique in its qualifications in all areas. Many land developers prefer larger tracts in the suburbs, without all the constraints of a city lot, or if they build in the city, most prefer the more profitable commercial or industrial development or certainly denser residential development (high-rises). Even Dinnaken Properties, which has built quality residential properties in the city, has never had experience on a polluted site. The Unocal property, in particular, had only attracted industrial development proposals in all the years prior to 1998. The Housing Committee even attempted to accomplish several goals (e.g., rezoning to low-density residential, establishment of a TIF district and negotiation of Right of First Refusal/Offer with Unocal) on our own. We were largely unsuccessful. It became clear that, to meet the NRP housing goals, the neighborhood needed the expertise of a qualified residential housing developer who would redevelop both sites in line with the neighborhoods vision. Brighton had already established a good working relationship with the city with a reputation for listening to neighborhoods and their concerns on prior projects. Their desire to work with the neighborhood and other entities on both projects dovetailed with the neighborhoods needs, and their qualifications were unparalleled. It became clear to the Housing Committee that Brighton could address issues at both sites in an effective and efficient manner; they became the logical choice for developer of both projects.

2. What is the financing arrangement (who pays for what)? These two projects are moving at different speeds, with Bedford/Kampa project ready to proceed and Unocal project still working out details. The MCDA has prepared a complete financial report for the Kampa project, but there are unknowns to date about Unocal. For the Kampa project, financing will be a combination of NRP funds (from our NRP Plan), tax-increment financing funds on a pay-as-you-go basis (from the MCDA), and private loans for construction (sought by Brighton). The NRP funds provide up-front cash for demolition and project assembly costs, while the rest of funds provide for the construction of the project, including any site cleanup as needed.

3. Why can't Brighton pay for this themselves? Why doesn't the city develop the land instead of a private developer? Brighton is a developer, not a bank, and is in the business of land assembly and development, not lending or investing. Years ago, the city was in the business of development of smaller urban properties often in the context of "urban renewal" which was often done in a destructive manner. With the growth of city sites available for redevelopment, it has become more efficient for private developers to pursue land reuse and redevelopment, especially on relatively smaller projects such as the Kampa project. It is simply not an economic advantage nor is it a priority to the city to redevelop sites such as Kampa, given the complications (e.g., pollution, ownership issues, etc.) and other urgent redevelopment needs within the city.

4. Why are we devoting so much of our NRP funds to a developer for these sites rather than to individuals for home rehabilitation/restoration? The NRP Plan directly addresses this question. The answer is: the intent is to do both. Funds invested in addressing the three problem sites identified in the plan are expected to provide future income for home improvement loans and other programs for individual property owners. In fact, the economy of our using one developer to address both problem sites may work to our advantage in achieving many goals for less NRP cost than originally predicted. Already, we have seen funds being used in the Motley area for home improvement loans, and we expect more home improvement funds will be available as planned in the future for the neighborhood as a whole.