Excellence in Historic Preservation

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What cost more than $190 million and rests on three square blocks in the inner city of Minneapolis, Minnesota? According to various accounts in the Minneapolis Star Tribune, it might be a “drab behemoth turned urban dynamo” or a “retail white elephant turned city blockbuster.” In fact, it’s the Midtown Exchange, a recent winner of the prestigious National Trust/Housing and Urban Development Secretary’s Award for Excellence in Historic Preservation. The award recognizes projects that advance the goals of historic preservation while providing affordable housing and expanded economic opportunity for low- and moderate-income families and individuals, particularly in areas that are part of a community revitalization plan.

The redeveloped Midtown Exchange offers housing, office and retail space, as well as a bank, hotel, and county service center. Courtesy of the National Trust for Historic Preservation.

This year, Ryan Companies US, Inc. received the Award for Excellence in Historic Preservation for successfully redeveloping the long-vacant and deteriorating Sears Tower, built in 1928 in downtown Minneapolis, as a thriving, mixed-use historic landmark. The Midtown Exchange consists of seven floors of apartments, eight floors of condominiums, nine floors of office space, a county service center, and a global market bustling with restaurants and vendors of fresh foods and crafts. Taken as a whole, the project reflects the ethnic diversity of the neighborhood. The complex also hosts a branch bank, a hotel, additional retail space, parking, and a Metro Transit facility. Two nearby parks offer playgrounds, biking, hiking, tennis and basketball courts, softball and soccer fields, and winter ice skating.

The developers maintained the historic integrity of the structure, which is listed in the National Register of Historic Places, with original materials and design elements such as mushroom columns, high concrete ceilings, and the 16-story art deco tower. The redevelopment also features several choices in mixed-income housing. Of the 219 rental units, 57 for-sale condominiums, and 88 for-sale historic lofts, more than 60 percent are affordable to low-, very low-, and moderate-income families.

The Minneapolis City Council reached a final development agreement with Ryan on May 4, 2004 that outlines the financial, employment, and community development goals for the old Sears property. Each component of the project was to be developed by Ryan or a co-developer designated by Ryan and approved by the director of the city’s Community Planning and Economic Development Department. Approval depended on a review of the performance contract, construction plans, qualifications, and financial capacity of the assigned co-developer. Ryan secured Allina Health Systems as its anchor office tenant and elicited assistance from real estate agents, nonprofits, and public agencies to develop rental and housing sales, the county service center, the transit center, and the global market. Ryan developed the commercial office space, parking ramp, and hotel components.

Financing for the project was complex. The Midtown Exchange News, an online interactive public forum on key issues concerning the redevelopment project (www.ci.minneapolis.mn.us/cped/midtown_exchange.asp), outlines the financing sources for the total project cost of $192.2 million. HUD estimates that a total of $16.1 million was funneled through its programs into the project. This figure includes $6.5 million from the Section 108 Loan Guarantee program, $2 million in Economic Development Initiative (EDI) grants, $2.6 million from the Community Renewal Initiative for empowerment zone tax incentives, $3.2 million in Community Development Block Grant (CDBG) program funds, and $1.8 million from the HOME Investment Partnerships program.

Such a large, multifaceted project required significant cooperation and coordination from many participants. One example illustrates the complex web of funding sources for the condominiums. Project for Pride in Living, a nonprofit co-developer, developed the 57-unit condominium project with the help of the following contributions from public and private sources:

• Wells Fargo’s Housing Foundation approved a $20,000 grant;
• Ryan donated land to the project;
• The Minnesota Housing Department made $500,000 available, $100,000 of which came from the Family Housing Fund;
• Hennepin County brought $60,000 in Affordable Housing Incentive Funds and $140,000 for transit-oriented development to the project;
• The Minneapolis Community Planning and Economic Development Department gave $740,000 through its Affordable Homeownership Program;
• The Metropolitan Council provided $600,000 in Livable Community Demonstration Accounts for the project; and
• The city added $133,000 from its Empowerment Zone monies.

When asked on the Midtown Exchange News about the kinds of money being spent on the project, a Ryan spokesperson acknowledged that considerable cost and investment challenges were involved in trying to achieve three objectives at once: historic preservation, the development of affordable housing, and inner-city redevelopment.

Funding sources, such as historic rehabilitation tax credits, low-income housing tax credits, and tax increment financing, also played a significant role in shaping the financial package for this redevelopment project. In particular, a new U.S. Treasury Department program called the New Markets Tax Credit (NMTC) program proved to be extremely valuable. In a recent interview, the chief financial officer at Ryan, Tim Gray, described a “long, arduous search” for available NMTCs that resulted in the company’s securing “almost $65 million in credits that leveraged more than $12 million in equity investments.” ¹

For additional information about the Midtown Exchange, go to http://www.ryancompanies.com/projects/midtown-exchange/. To read about rehabilitation for affordable housing and how tax credits can be an important component in its financing, see the two-volume Best Practices for Effecting the Rehabilitation of Affordable Housing at www.huduser.org/publications/affhsg/bestpractices.html or order it for a nominal fee from HUD USER by calling 800.245.2691 and selecting option 1.

1. Mark Anderson, “Federal Tax Credit Program Bears Fruit, but Will It Survive?” Finance & Commerce, 15 February 2007.