Sold Down The River

Minneapolis's brave new riverfront will have parks, museums, and upscale condos. Who said subsidized housing was just for the poor?

THE BEST PLACE to see the old milling district of Minneapolis is from the center of the Stone Arch Bridge, an old railway trestle that spans the Mississippi just below St. Anthony Falls. With your back to the falls you face a set of blighted ruins, an industrial hulk marooned in a parking-lot backwater.

You're also looking at one of the most expensive investment zones in the city. If you add up the public cash that's been spent in the past decade on this stretch of riverfront, it totals $123 million more than the public cost of the Metrodome, more than the convention center, and more than the St. Paul Lawson Software giveaway. And actually developing the land has hardly begun.

Later this month the City Council will approve a master plan for riverfront development, a blueprint for the future of the urban Mississippi. For the developers scrambling to get a piece of the action it's a dream come true; ditto for the future owners of luxury condos surrounded by parks and museums.

For taxpayers, the new waterfront could be a mildly pleasant addition to the cityscape--or an expensive nightmare. Depending on how you crunch the numbers, the planners' vision could end up costing the city more than $300 million. And that's not counting any stadium deal that might yet evolve.

Some of the public money will go toward developing new parks and historic and recreational areas. The river is, after all, a "community resource," and so are the historic buildings in the old milling district. In planning documents and conversations, officials wax elegant on the "cradle of Minneapolis," on the river's "majesty and allure," its "magical" properties as the "crown jewel" of the city.

Developers take a more utilitarian view: "We know that [the area is] high end, high amenity," says Peggy Lucas of Brighton Development, one of the first firms on the riverfront bandwagon. Brighton is turning a pair of old factories in the district into high-buck condominium lofts, with a public price tag around $15 million. "We are trying to make the units as high-priced as we can within the market."

THE WALK ALONG the river from Washington Avenue to St. Anthony Falls is a lonely one through fields of scrub grass and gravel. The Salvation Army truck swings through every afternoon and attracts a crowd of ragged river dwellers. The General Mills grain elevators, long abandoned and the scene of a recent murder, rise against the sky. Behind them, jammed parking lots stretch for blocks to the base of the city skyline.

Further upstream stands what is left of the Washburn Crosby Company milling complex, a remnant of the days when this area was the Midwest's industrial hub, and the center of gravity for the future neighborhood planned here. Another empty factory, the Northstar Blanket building, completes the picture. Since General Mills (née Washburn Crosby) closed its doors in the mid '60s, the west side milling district has slowly collapsed. The buildings are burned out and crumbling, handsome in their neglect.

Past Portland Avenue, the landscape changes dramatically. Anemic little trees grace an over-designed plaza. Behind it stand a pair of scrubbed-down flour mills with jazzy teal and mauve window frames, backed by a rehabbed grain elevator. Together the buildings are called the Whitney Mill Quarter. One contains a luxury hotel (now operated by Hyatt); the others offer office suites to match. Oak paneling, marble staircases, and waterfalls grace the interiors. A few vagrants wander past the Portland divider, but in general the denizens of the Quarter are creamy, plump, and well-dressed.

The Whitney Mill Quarter is one of the riverfront's colossal failures, a living reminder of the last development boom. When it was built in the mid-'80s, credit was cheap, and money-sink properties were tax shelters. Barely checked by regulation, banks and S&Ls released a flood of risky loans that subsided only when new laws tightened the tax write-offs in 1986. Meanwhile cities, giddy with visions of office towers and swank hotels, provided guarantees for projects the banks wouldn't finance by themselves. In 1985 Minneapolis sunk more than $6.5 million in direct subsidies into the Mill Quarter. Another $29 million came from city-backed investment bonds.

But it didn't take long for the castles to come down. By 1988, nearly 40 percent of bonds issued in Minnesota during 1985 had defaulted and the commercial real-estate market was headed for the doldrums. In 1991, office vacancies in Minneapolis reached a record 17 percent.

The palatial riverfront offices, isolated from the downtown core and cut off from the skyways, were among the worst hit. By 1990 the partnerships controlling the buildings filed for bankruptcy to restructure more than $30 million in debt including some $5 million in unpaid taxes.

And the problems didn't end there. Last year the Whitney Hotel owners filed for bankruptcy again. So did the owners of the office buildings, despite gains in occupancy and the efforts of the Minneapolis Community Development Agency, which leases two floors for office space. To this day the public has failed to recoup its investment in the complex; collectively, the owners owe the county some $7 million in back taxes.

The investors who bought the bonds didn't fare so well either. According to Larry Wertheim, an attorney for the bond managers, they took "a significant hit." In fact, the owners of some of the bonds have advanced even more cash to cover taxes and stave off outright foreclosure. "Their total debt has increased," Wertheim reports. Bondholders in the Ceresota and the Crown Roller office buildings are supposed to be paid out of whatever money is left after the buildings' upkeep. Trouble is, says Wertheim, there hasn't been any positive cash flow.

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