St. Paul gives final OK to downtown Penfield project and its Lunds grocery store

The Penfield, a proposed $62 million, 254-unit luxury apartment building at 10th and Minnesota streets in downtown St. Paul, received its final funding approval Wednesday from a divided city council. Construction could begin in June.

The council voted 4-3 to approve a tax-increment financing district for the building, which will effectively recycle $15 million - 25 years of property taxes generated by the site - back into project development. The city's loan agreement with Dougherty Mortgage is expected to close July 15.

The city will act as developer on the six-story apartment building, which will be bounded by 10th, 11th, Robert and Minnesota streets. A Lunds grocery has signed a long-term lease for the Penfield's ground level, but it will not receive any TIF money or city subsidy. Lunds would be downtown St. Paul's first upscale supermarket.

A Central Corridor light-rail transit station will be situated within two blocks of the site, which once housed the city's downtown law enforcement center.

"This is the last hurdle on the Penfield that requires (city council) action," said council member Dave Thune, chairman of the St. Paul Housing and Redevelopment Authority. "It's real this time. This is probably one of the biggest changes for the whole face of downtown."

Thune hailed the Penfield as a "spectacular" addition, but others were critical.

Using anticipated property-tax money to build projects that are more typical of the private sector is

controversial enough, but the prospect of putting public money toward high-end housing struck some members of the council as a poor idea.

Council President Kathy Lantry had previously expressed concern about exposing the city to financial risk and questioned why the city was concentrating so many resources on a single project, rather than building more affordable housing. On Wednesday, she joined council members Melvin Carter and Russ Stark in voting against the TIF district.

Before the vote, James White, a resident of Fairmount Avenue in St. Paul, told the council he had serious concerns about the Penfield, which has gone through various designs since 2005. Previous plans called for a 40-story tower, a hotel and condominiums. A development partnership, Alatus and Sherman Rutzick & Associates, backed out when the housing market collapsed during the recession.

"If two private developers rejected this project, why are you putting taxpayers on the line?" White said.

Thune said federal mortgage insurance from HUD will back up the deal, and he noted that 46 percent of the housing in downtown St. Paul is already considered affordable or below market rate, much of it aimed at low- to middle-income workers. The Penfield will add more market-rate housing to the mix.

"We need both to have a healthy downtown," he said. In Lowertown, the city also is developing the Lofts at Farmers Market, a five-story, 56-unit luxury rental building at Fifth and Wall streets. He said about half those units have been pre-leased.

Thune's support for the Penfield was echoed by downtown activist Larry Englund, who said adding an upscale grocer and market-rate housing will draw young professionals and spur private development.

Council member Dan Bostrom voted for the project but said his biggest reservation is that the Penfield will not be connected to the skyway system, leaving the redeveloped law enforcement building effectively isolated from the rest of downtown's commercial sector.

"I spent a lot of time at that old building," said Bostrom, a former police sergeant, in an interview after the vote. "That was my home for 26-1/2 years."

The project, which will be managed and marketed by Village Green Residential Properties, is expected to be complete by the end of July 2014.

In other council action Wednesday, council members approved a TIF district for the old Schmidt Brewery on West Seventh Street. A developer, Dominium, plans to turn part of the brewery into 260 units of affordable housing for artists. Thune said the developer hopes to close on the project in May.

Acting as the Housing and Redevelopment Authority, the city council also approved low-income housing tax credits for rehab work at St. Alban's Park, a series of affordable housing units along Selby and Dayton avenues. A rehab loan went to the St. Philip's Gardens low-income housing project on Concordia Avenue at Avon Street.

Frederick Melo can be reached at 651-228-2172. Follow him at twitter.com/FrederickMelo.

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St. Paul gives final OK to downtown Penfield project and its Lunds grocery store