EDA

recommends

support for

St. Mary's apartments

Benefits

outweigh risks, EDA says

By KREMENA TODOROVA

Journal Staff Writer

NEW ULM -- The New Ulm Economic Development Authority (EDA) on Tuesday recommended $275,000 in public assistance to help convert the former St. Mary's school building into apartments, despite what EDA members perceived as a relatively high risk on the loan portion of the package.

St. Mary's Catholic Church is proposing to convert the building into 26 general occupancy apartments, including16 two-bedroom and ten one-bedroom units.

The church has agreed to essentially donate the property to a developer, Metro Plains Properties, Inc., which would "rehabilitate" the deteriorating structures. St. Mary's would get $7,000 to cover expenses associated with the donation.

The project has an estimated value of $3 million, including approximately $1.8 million from investors and a $370,000 mortgage.

In addition, the project is seeking some $500,000 in tax credit financing from the Minnesota Housing Finance Agency (MHFA).

The local match of $275,000 is intended to bridge the resulting funding gap, and also increase the project's chances for obtaining the MHFA funds.

According to the proposal, which needs both EDA and City Council approval, the local match would include $200,000 in tax increment financing (TIF) and $75,000 in a low- interest loan (typically granted at 6 to 6.5 percent).

While EDA members agreed that the TIF portion of the city funds would be recovered through future real estate tax collections and, because of that, does not pose a big risk to the city, they emphasized that the loan portion may present a "serious" risk.

Calculations for the project are based on reaching a 95 percent occupancy within a year, said EDA members. If these calculations prove inaccurate, the city may be faced with repayment delays or loss of its $75,000 investment.

These concerns stemmed, in part, from income limits tied to the MHFA funding, which may make the apartments difficult to fill in a strong economy.

To get the MHFA funds, the apartments would have to be rented to people with income ranging between 30 and 80 percent of the median income for Brown County, now approximately $30,000 for a family of one.

But EDA officials agreed that the project should be weighed on the basis of merits other than profitability.

They said it would expand the community's housing stock by freeing up single-family homes, and would help preserve an otherwise doomed historic structure.

"Let's decide this on the basis that we are not going to get our money back," said EDA member Daniel Gislason. "We may wish to do it anyway."

Officials also stressed that market economics does not necessarily apply to projects of this kind.

"Typically, when someone tries to convert an old building of this kind into a new use, the economics of a normal market situation does not prevail," said City Manager Richard Salvati.

"Otherwise these projects would simply not happen."

While the funding is contingent on council approval and no details can be finalized at this time, Salvati said that the loan can potentially come from a $150,000 EDA reserve or a combination of city and EDA funds.