After 40 years of successful affordable housing development, Dominium’s growth is stronger than ever. With 15,000 units owned in 21 states, the Plymouth-based company is not only committed to affordable housing, but it is also raising the bar for transformational historic projects in the Twin Cities and beyond.
Mark Moorhouse, Senior Vice President and Project Partner, revealed Dominium’s elaborate plans for its upcoming projects at the Buzza building in Uptown Minneapolis, the iconic Pillsbury A-Mill site on the riverfront in downtown Minneapolis, and the Schmidt Brewery in St. Paul.
Schaefer Richardson worked on a redevelopment plan for the site for nearly a decade but ultimately the project wasn’t feasible, especially for the proposed use of 1500 units, mostly condos. Dominium is taking a more conservative approach by developing less units initially (250) and designating them as affordable artist lofts. Moorhouse explains that neighborhood groups are more receptive to affordable artist housing than typical affordable housing, since artists are a special asset to the community.
While Dominium is purchasing the entire site from Warehouse 2 to the Machine Shop and the red building to A-Mill south, much of the site will remain as is. This is due to regulations based on the use of historic tax credits (both state and federal), requiring that historic elements of the site, such as the former silos, be maintained in their current state for the next 15 years. While historic status poses restrictions, Moorhouse reminds us that redevelopment of this site was not feasible until Minnesota passed legislation for state historic tax credits.
Unique to the site is an underground canal that allows water from the Mississippi river to flow through the site. This was originally used to power the flour mill and in its next life will be harnessed for geothermal (hydrothermal) energy for heating and cooling the building. Next door to the A-Mill site, developer Kelly Doran is planning a two-phase project, with 175 market-rate units to start.
The rehabilitation of the Schmidt Brewery in St. Paul (recognizable by the large “Landmark” sign) is the sister project of the Pillsbury
A-Mill site and mirrors that development in many ways. Construction costs for the site are estimated at $235,000 per unit, compared to $270,000 per unit at the A-Mill. Without historic tax credits and affordable housing, redevelopment of this site would not be feasible. “These redevelopment projects are an economic development tool,” explains Moorhouse, “without which, further development around the site would not be possible.”
The interior of the former brewery, which currently resembles the setting of a horror movie, according to Moorhouse, due to its lopsided and missing floors and other structural components, will be transformed into 250 one and two-bedroom artist lofts with rents projected at $900-1050. At 94 million dollars in total development costs, it is one of the largest affordable housing projects yet and an aggressive move for Dominium, considering it is in the process of transferring ownership from its original senior partners to the next generation of leadership.
Formerly home to a needle manufacturer then purchased by the Minneapolis Public School District, the new Buzza will offer 136 affordable housing units off Lake Street between Hennepin and Lyndale. A mix of one and two bedroom units will capture rents of $850-1,000. There is a construction cost premium of approximately 40% to redevelop this site, which currently has an inefficient floor plate for housing. The Buzza project, like A-Mill and Schmidt will require environmental remediation and careful planning to preserve the historic integrity of the site. Dominium also plans to pursue LEED certification. The design process is much longer for a rehab site like Buzza. The $34 Million project will require up to 12 months for design, compared to 4 months for new construction.
While all three projects are unusually complex, investors have been enthusiastic, especially large financial institutions that participate to meet their Community Reinvestment Act goals. Once development is complete, “affordable housing projects are very low risk,” explains Moorhouse. “Dominium’s strategy is to be patient and take a long-term view.”
As for the multifamily market which is currently experiencing unprecedented growth, Moorhouse believes that the boom over the next 2-3 years is simply making up for the past 10, what he calls “the lost decade.” Since rents did not increase for several years in the 2000’s, it’s not surprising, according to Moorhouse, that rents are projected to increase 4% annually through 2013 or 2014. After that time, Moorhouse expects the market to stabilize and rent growth to remain flat.
Thank you for attending UST’s 2011 Real Estate Executive Insight Series. Please check back in January for our 2012 event schedule! Also, consider attending UST’s upcoming 2012 Real Estate Outlook Event on January 11th.