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.

Across the river the story isn't that much different. St. Anthony Main and Riverplace were built in the late '70s as "festival marketplaces," a trendy concept that involved upscale shopping behind historic facades. Today, after decades of financial problems, the projects have found a shaky footing with inexpensive offices surrounded by high-rise condos and townhouses. The clerks at any remaining retail stores blink suspiciously when a stranger approaches.

Like the Mill Quarter, St. Anthony Main didn't live up to the developers' promises. Shopping malls everywhere started hemorrhaging money in the late '80s, and the value of the buildings plummeted accordingly. According to MCDA records, Riverplace's construction cost a total of $182 million, almost half of it from public sources. The returns haven't exactly been gangbusters. The commercial buildings at Riverplace are currently assessed at $5 million--down $2 million in the past ten years. St. Anthony Main swallowed another $9 million each of city money and investment bonds. In 1991, a local investor picked up a sizable chunk of it for a dollar.

THE SHOPPING BOOM in the '70s. The office boom in the '80s. Next up: The housing boom, specifically upscale condos, loft-style apartments, and townhomes designed for downsizing boomers and downtown office professionals. In the past two years, almost as many housing units have been added on the riverfront as in the two decades before. But there's one difference. Most of the housing built during the '80s was midpriced apartments and condos like the high-rise RiverWest Apartments and Riverplace. The new trend is in "human-scale" structures, and the new market is wealth.

Rehabbed warehouses are especially popular; so are townhomes with quasi-historic styling. Rottlund Homes' Landings development on the east side of the Hennepin Avenue bridge has brought howls from preservationists, but buyers are happy to shell out $300,000 a pop. At Brighton's Northstar project, which will contain about 80 units, buyers are lining up before the cornerstones are even in place. "We have a list of over 100," Lucas says, "and some of them are very into it."

What Lucas, Brighton, and the city are selling those buyers is more than a condo: It's the latest trend in urban design, a promise of "community" along with pretty buildings. Features include "pedestrian-friendly" landscapes, parks, and, importantly, neighborhoods of mixed income and race. These, designers, architects, consultants, and planners have deemed, are the essential elements of the city. (They are also what cities and developers have joined hands to destroy in the last 30 years.)

But look closer, and the new boom doesn't look so different from the last. On Block E, the city's single biggest development project short of the riverfront, a multimillion-dollar mega-entertainment complex got the nod while a low-key proposal for a park was turned down. On the south end of Nicollet Mall enormous office towers are displacing successful small businesses in old buildings. Neighborhoods of mixed income and race? Citywide, the numbers are only getting worse.

But the riverfront, officials promise, will be different. Last year, the city opted to spend $100,000 to have a Pittsburgh firm called Urban Design Associates draw up a master plan for the riverfront. UDA's claim to fame--aside from Crawford Square, a new downtown Pittsburgh neighborhood built on the site of '50s slum clearance--is having been among the dozen "boutique architects" working on the Disney town Celebration.

Celebration is a sort of theme park of nostalgia. Its design mimics an idealized version of prewar small-town America--old-fashioned houses with small yards, picket fences, and screen porches. Wholesome, neighborly values are strictly enforced by the Imagineers: Celebration doesn't have a mayor or a City Council, but residents must sign on to copious Disney guidelines. (They can choose any of five shrubs to plant in their yards. They may not park pick-up trucks on the street.)

Ironically enough, it was UDA's "open planning process" that landed it the job of designing Minneapolis's riverfront. The firm has conducted a dozen public meetings with developers, planners, and neighborhood groups, explains Dick Victor, a riverfront project coordinator at the MCDA. "We're trying to keep it very public," he says. "We're trying to give everybody a piece of this up front."

And on the back end? Like Celebration, the riverfront that emerges from the UDA plan is likely to be a self-consciously quaint version of itself. If the forthcoming master plan follows the drafts, industrial plants and the jobs they brought will become "family entertainment venues" such as mill museums. In place of the thousands of working men who once lived downtown will be white-collar professionals sick of their big suburban houses.

It's this latter group that is driving the downtown market. "You have a whole generation of people who are staying healthier longer," explains Bill Morrish, head of the University of Minnesota's Urban Design Center. "People are downsizing out of the house as their children move out." But even boomers have to (gasp) die eventually. Who will buy up the mega-buck condos when they light out for assisted-living complexes in Florida? Who assumes the debt of mid-life borrowers? For that matter, who establishes families in the 4,000-square-foot homes they vacated on the edge of the city?

For now, no one is contemplating what happens if the boom ends--if condo owners default, building managers go Chapter 11, taxes remain unpaid, and the city gets burned on its investment. Sound too bleak? It's only what already happened in the last recession, when retail property, office space, and the value of riverfront real estate went down the toilet.

DEVELOPING THE RIVERFRONT is costing a lot of money. In the central riverfront--roughly what you can see from the Stone Arch Bridge--the direct public investment totals $47 million. Chalk up another $34 million to city-backed bonds. Another $42 million in direct public subsidies is on the table, but not spent, for projects already under way. Grand total: $123 million in public dollars so far, from city, state, and federal sources.

Back the camera up to include all of the downtown riverfront--say from 35W and Washington Avenue up to the warehouse district north of downtown. Now the numbers really soar: $136 million in direct public subsidies and another $99 million in city-backed bonds, bringing the grand total up to $358 million. The amount spent on actual public works (street paving, parks and bike trails along the river) consists of about $43 million--just 12 percent of the total. The remaining $315 million subsidized one corporate development or another.

But if those numbers sound large, the projects yet to come signal a new order of magnitude. Across the street from the twice-bankrupt Whitney Mill Quarter stand the North Star Woolen Mill and the General Mills Utility Building, where Brighton Development plans the most ambitious condo project thus far to take shape on the riverfront. The mill is a graying brick structure where once hundreds of teenage girls tended knitting machines for $6 a week. The General Mills building rises 11 stories and features huge windows overlooking the river. It is the birthplace of Betty Crocker and the former home of WCCO radio.

The land beneath the buildings, an old freight yard, is soaked with fuel oil. Inside, asbestos and lead paint are everywhere. Pipes are missing, floors moldy, windows broken, roofs leaky. "It was built so long ago," says Brighton's Lucas, "before there were building codes. Everything is atypical. Bringing them back to the standards of today will be tricky and expensive. Everything has to be done."

By the time everything is done, living here won't be cheap. Completed units will start at $120,000 and the most expensive will exceed $700,000 including customized features like floor tiles from Italy. In all, the project will cost about $30 million, or some $375,000 per unit.

Almost half of that total will be public money: If all goes as planned, Brighton's condos will be subsidized to the tune of $180,000 each. Until now, the average public subsidy for riverfront residential projects has been $83,000 per unit.

Meanwhile Brighton is contractually guaranteed a $3 million profit, plus 75 percent of any additional income. "This property has been on the market for years," one MCDA staffer says. "People haven't been pounding down our doors to develop it--unless we give them a lot of money."

Brighton is no stranger to the riverfront, or to asking the MCDA for money. They've worked on a half dozen high-profile properties in the district and many more around town since they first emerged from the "community-oriented development" scene of the 1970s. The firm's ties with the city are manifold.

One of the partners, Richard Brustad, once headed up the city's Housing and Redevelopment Authority, the MCDA's precursor. He is also chair of the Minneapolis Public Housing Authority. Brighton's lobbyist, former mayor Al Hofstede, is also a lobbyist for the city.

Peggy Lucas, another principal, is close to mayor Sharon Sayles Belton and sits on the Metropolitan Sports Facilities Commission. Her daughter, Amy Lucas, is a member of the city's Heritage Preservation Commission. "We like working in the city," Peggy Lucas says. "It would be unusual if we didn't know people in City Hall."

Nonetheless, accusations of favoritism and special treatment have followed Brighton around for some time now. One project, the Lourdes Square townhomes near Riverplace, was given the green light by the city in 1993 even though Brighton did not meet city guidelines for the site and MCDA staffers favored an alternative plan by another developer. The MCDA sold Brighton the $4.3 million property for $400,000; Lucas lives in one of the units.

"They're a juggernaut," says one developer who's been head to head with Brighton. "Dick Brustad owns this city. He's a very powerful man."

UNTIL RECENTLY, BRIGHTON'S business consisted largely of subsidized low- and moderate-income housing, such as the West Bank's Riverside Plaza. With the government tightening the spigot on such subsidies, the company has diversified into a more upscale market. But it has kept its ability to attract low-income housing funds: Most of the public subsidy to the Northstar project will come from federal programs designed to aid the poor. The current plan includes more than $600,000 in Community Development Block Grants and $5 million from the Department of Housing and Urban Development's "Section 108" loan fund.

Both programs, according to HUD documents, hold "the primary objective of benefiting low- and moderate-income persons." (They could use the help: Affordable housing has been disappearing in the Twin Cities at a rapid clip, and the rental market is one of the tightest in the nation.) But some of the funds may also be used to eliminate "slums or blight," or mitigate community problems that "present a serious and immediate threat to the health or welfare of the community." That, the logic goes, is what the Brighton condos will do.

In addition, the city plans to apply for $4 million from the Fannie Mae Housing Impact Fund--another program targeted at low-income housing. In its annual report, Fannie Mae touts the program as part of its "Trillion Dollar Commitment" to affordable housing. The Housing Impact Fund supposedly "invests in unique financing opportunities for affordable housing." But as it turns out, the opposite is true. "In urban areas," explains Fannie Mae's Gloria Bostrom, "we waive the income limits, because we recognize the need for cities to attract middle-income home owners to the urban core."

Minneapolis isn't the only city to consider "affordable housing" a concept malleable enough to include $700,000 condominiums. Tampa used Section 108 money to build an upscale shopping mall. Seattle was recently sued over a HUD application that exaggerated crime statistics and blight. According to American City & County, cities in New York and New Jersey are building hotels financed by Section 108. Detroit used the fund to build a sports arena. Boston is tapping it to build a World Trade Center.

For the moment, "mixed-income housing" remains a favorite phrase at press conferences touting the riverfront plan. But ask for specifics about what that will mean, and officials clam up. "It's not clear what their objective is," acknowledges the university's Morrish. "They have a general goal--'there should be a mix'--but no one has tried to create targets, which is what a lot of cities will do." Vancouver, for example, decreed that its riverfront would have one-third upscale, one-third midrange, and one-third low-cost housing.

In Minneapolis, there is no detectable movement in that direction. "It would be hard to make any goals," explains MCDA senior project coordinator Ann Calvert, "because price is dependent on the overall market and on the banks and financing. It's different for each project."

Even if the city did make commitments, they might not be worth the planning documents they're written on--witness the recent about-face on the Hollman project. In 1992 residents of several North Side housing projects successfully sued HUD and the city claiming that the projects were a ghetto. The lawsuit was settled for a promise to tear down the projects, relocate the tenants, and build a new, "mixed-income" neighborhood full of "community amenities" like parks and creeks.

Three years later, only 20 of the hundreds of affordable-housing units promised under Hollman have materialized. And at a meeting just before the holidays, the City Council quietly voted to drop most of the affordable housing from the plan for the new neighborhood.

A NUMBER OF factors make up the official explanation for the future riverfront's upscale tenor. Developers naturally go for the highest profit; the city, too, is anxious to recoup its investment, make up for the losses from past failures, and pay for future improvements. And there's the old trickle-down argument--that projects like this improve the tax base and create jobs.

For now, Minneapolis taxpayers shouldn't hold their breath for any windfall. The Brighton deal is structured as a "pay-as-you-go" tax-increment-financing project, not unlike the bankrupt office buildings across the street. Taxes paid by owners of the new condos will go not for maintaining city services, or for the schools, but to repay the multimillion-dollar public investment in the project. ("Spinoff development" may spring up around the area, but no one knows how much or when.) As for job creation, the MCDA estimates that riverfront development so far has spawned 489 new jobs, which translates to a total public cost of $732,106 each.

Thus far, the arguments are familiar, having been trotted out in just about every development debate since at least the early 1980s. With the riverfront, however, there's one new twist: These projects, it is argued, will preserve an invaluable historical resource. And in a city that has cheerfully bulldozed thousands of structures, many with national significance, that should be worth something.

In fact, it's worth good money. "We'd like to feel that good history could mean good recreation and good business," explains Betsy Doermann, St. Anthony Falls district site manager for the Minnesota Historical Society.

Considering how the public sector has tended the riverfront, it's no wonder preservationists welcome private investors with open arms. So far, the city has buried most of the west side milling district under gravel fill, and the Washburn Crosby complex would surely have joined the slag heap if it didn't have protected status. (It is one of only a handful of sites in the state--Fort Snelling is another--to be designated a National Historic Landmark.) Under the "stewardship" of the MCDA, the A Mill, once the largest flour mill in the world, was gutted by fire in 1991 along with the only complete set of preserved milling equipment in the country. The Humboldt Mill was badly damaged by fire in February of '97.

It's been only a few years since government agencies started taking steps toward actively preserving what was left of the district. In 1989, the Minnesota Legislature created the St. Anthony Falls Heritage Board, through which a variety of city and state agencies are supposed to guide development and create interpretive sites and trails.

The board's plans are ambitious. Almost $3 million in (mostly state) money were spent on reopening the Stone Arch Bridge and laying out a self-guided "heritage trail" around the falls. The Minneapolis Park Board is working on creating a Mill Ruins Park, carved out of the now-buried remnants of the old flour mills on First Street. The Historical Society will establish an interpretive center to replace its shop-front museum on the east side of the river. The new center will probably go inside the ruins of the Washburn Crosby A Mill. Add the old warehouses and mills restored by Brighton and others, preservationists say, and you'll have a historic district like few others.

One thing the new "amenity" won't have is the mystery that still lingers among the ruins. The Whitney is perhaps the best example of corporate-style preservation--spiffy, cute, and ultimately ahistorical. The unkempt riverfront's "detritus, broken concrete, old fencing" may be the "real stuff of civilization," as Bob Roscoe of the Heritage Preservation Commission insists; but it's not good business.

Nor will the milling district offer the same kind of access to historic resources you'd find at most national landmarks. "I just don't believe that there's enough interest in saving those buildings for a public purpose," the Historical Society's Doermann says. "There are a lot of them there, and the 'pure history' business would be taking on a lot. So to have Brighton or someone like that put in loft apartments would be a wonderful addition. The public can't understand history if there's nothing left to see."

And "see" is the key word: Roscoe calls it the public's "view easement. The job of historic preservation is that the public can enjoy the view of public structures." Look, don't touch.

Still, conflicts between the owners of $700,000 condominiums and Joe Public in the park seem inevitable. Similar disputes have been on the rise around the chain of lakes: After wealthy land-owners complained about (predominantly black) beach-goers at Lake Calhoun, the City Council stiffened the city noise ordinance. Neighborhood groups around Cedar Lake have hired cops to patrol Hidden Beach, a longtime hippie hangout. In both cases, park police have responded with increased surveillance of the areas.

"We owe it to ourselves to make sure the river doesn't become privatized," says Dan Cornejo, a city planner formerly from St. Paul and now in Robbinsdale who worked on riverfront development in Vancouver. "The amenities are truly everybody's. People who live far from the riverfront shouldn't feel like they're going into the rich people's property."

How can that be prevented? Fairly easily, as it turns out. The city owns significant acreage on the riverfront. All it has to do is mandate, for example, truly mixed-income housing. That would be social engineering, Cornejo argues, "but the MCDA selling land to any developer is already social engineering."

Based on the city's actions so far, chances for that sort of turn are slim. Minneapolis has always been an uptight city, and as it's begun to look more like the rest of urban America, the anxiety in City Hall has grown. The kind of "sensible development" Cornejo and other advocates talk about--messy, piecemeal, definitely not master-planned--generally means a loss of control for City Hall. "It's unpredictable," says Cornejo. "In the city you should feel like you can spit, or clean your shoes off on the curb. There's something there that's not programmed.

"But the current attitude of MCDA and a lot of city people is: Let's clean it up. Make it pretty. Make it special. On the riverfront there's this idea of: Let's do the big fix--so that someone can come down and see 'Our Riverfront,' capital R. But many people, even Midwesterners, would live in a scruffier and less predictable environment. One of the things I always marvel at is when you go to Georgetown in Washington, D.C. I'll point down and I'll say, 'Look at the sidewalk. It's broken. It's chipped. The tree roots are coming out. It's just a patchwork.' But the place is thriving. Yeah, you could spend a whole lot of money glitzing it up, and you'll get glitz. But there's kind of a deadness that goes with that."

In forgotten corners of the city, unpredictability has been allowed to thrive. Along Lake Street, the growing Latino population is carving out a vibrant neighborhood. On Nicollet Avenue south of downtown, Little Asia is booming (though it remains to be seen how small businesses survive the assessments levied for, what else, fancy decorative street lights). An upscale version of the same is on south Hennepin Avenue toward Uptown. But downtown, the Block E mentality prevails--call it anxiety planning. If the riverfront escapes the resulting "deadness" it will be a minor miracle.

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