Colonial Square

Mankato's Colonial Square Apartments, home to low-income tenants including 65% with disabilities, is in danger of switching to market-rate rents next year. Photo by Pat Christman

MANKATO — More than 200 units of affordable housing would be constructed or preserved under three proposals competing for a share of federal tax credits to be awarded by a state agency later this year.

New construction is proposed near Cub Foods West and adjacent to Rosa Parks Elementary, totaling 131 apartments reserved for lower-middle-class and low-income renters. And the prospective buyers of Colonial Square Apartments — an historic building originally built as a dormitory for the Mankato Normal School — are looking to do a major renovation that will maintain the 77-unit building as affordable housing into the foreseeable future.

The tax credits, awarded each fall by the Minnesota Housing Finance Agency, are highly coveted and only a fraction of applicants statewide are chosen each year. Mankato has never seen more than one local project in the winners' circle in a given year, and there has been a longstanding belief that the agency tries to spread the projects across regions rather than giving a single out-state community multiple winners.

The City Council Monday night unanimously endorsed all three projects after city staff earlier wondered if the council might want to consider focusing its support on the Gateway West project near Cub Foods West. That nearly $26 million project is on a city-owned vacant lot once home to Mankato's Public Works Department, and it includes the most affordable housing units of any of the three projects.

A previous version of Gateway West, being developed by the Southwest Minnesota Housing Partnership, stalled when it failed to win tax credits in the 2018 competition — a year when the 45-unit Dublin Heights apartment building near Madison East Center was the only local winner. The Gateway development is counting on $20 million in equity from the tax credits as the major financing source for the $25.93 million project, and the city has warned that it will start from scratch on redeveloping the vacant lot if SWMHP is unsuccessful in this year's competition.

City staff checked with state officials about whether municipal support could tilt the competition in favor of one of the three projects.

"... Staff has received feedback from Minnesota Housing indicating the projects are scored based on a long list of factors and criteria, and only a certain number of points are based on local government support," a memo to the council stated. "If there is any competition, it is on a statewide level, not a local level."

Each of the projects has advantages for the city. Gateway, along with being the largest, addresses the local shortage of child care slots by including a day care center/preschool in the development. It also is includes supportive housing services for 30 of the 80 units, targeting those units at families at risk of homelessness. But that project involves the most city assistance, as well, including a $100,000 grant and $809,000 in tax-increment financing — meaning a portion of future property taxes will be diverted back to cover development costs. Blue Earth County is also contributing a $50,000 grant.

The Colonial Square Apartments project would preserve nearly as many apartment units as Gateway West would create, all 77 aimed at low-income renters earning 50 percent or less than the area median income. Tapestry Companies intends to use the tax credits to help cover the costs of the purchase and renovations, a financing source which will require that it continue to be reserved for low-income tenants.

Without the purchase and renovations, the property at 300 Ramsey St. is in danger of being converted to market-rate apartments next April, leaving its tenants — 65 percent of whom have physical or mental disabilities — looking for alternative housing, Tapestry development associate Nicholas Brandt warned in a letter to the council.

"Tapestry Companies is requesting an investment of public funds to assist in the rehabilitation of the project to preserve and maintain this vital affordable housing for the city of Mankato and the County of Blue Earth," Brandt wrote.

The project, if it is successful in the tax-credit competition, is also tentatively set to receive $100,000 in grants from the city over the next two years. Colonial Square Apartments came into existence in 1979 through the conversion of a former women's dormitory, portions of which date to 1875 with other wings added in the 1920s and 1950s.

The third contender — Rosa Place II — has the advantage of seeking no municipal assistance beyond a resolution of support that will be forwarded to the Minnesota Housing Finance Agency. The 51-unit apartment building would be at the corner of Timberwolf Drive and Heron Drive, joining a similar-sized affordable housing building also developed by Rochester-based Joseph Development that is opening to tenants this summer.

The MHFA is expected to announce tax-credit winners by the end of October.

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