A new upscale rental market in downtown Minneapolis? Maybe

Mill District Apartments
MinnPost photo by Steve Berg
Mill District is a five-story, L-shaped building at the corner of Washington and Portland avenues, near restaurants, the Guthrie and the riverfront.

Ordinarily, Cityscape would not cover the opening of an apartment complex, but neither Mill District City Apartments nor its developer, Jonathan Holtzman, qualifies as ordinary. With residential development at a sad standstill in Minneapolis and St. Paul, Mill District stands out as one of a tiny number of urban projects actually moving forward. And Holtzman, for his part, may have discovered a niche — upscale rental — that fits the narrow emerging market.

Let’s start with the project itself. Mill District is a five-story, L-shaped building at the corner of Washington and Portland avenues in downtown Minneapolis, a short walk from the riverfront and the Guthrie Theater. Its 175 rental units curve around a lush outdoor courtyard (with pool) that sits atop an underground parking garage. Units range in size from 500 to 1,400 square feet and feature a loft-style design — big windows that actually open, high ceilings, sliding doors, balconies, fireplaces and upscale finishes. They are, in other words, the kind of downtown apartments that a few years ago would have been sold as condos but now, post crash, work only as upscale or mid-priced rentals.

As downtown employers begin to hire again, many young workers are looking for an urban live/work experience. Mom and Dad no longer have the money to provide the down payment on a condo, so renting becomes the answer. The same holds true for empty nesters who can’t sell their suburban or outstate houses but still want to try urban living. Renting, long an upscale or mid-priced option in cities like New York, Chicago and San Francisco, is quickly overcoming its stigma here and becoming a smart alternative.

A kick-start for downtown?
Minneapolis officials are excited about the trend because it could potentially restart the downtown housing boom that fizzled so abruptly in 2007, leaving 50 or more condo buildings unbuilt. It’s gratifying also that Holtzman’s project went up without public subsidy, a crutch that St. Paul has begun to offer on a limited basis but that Minneapolis is trying to avoid.

In helping to cut the ribbon on Mill District last week, Minneapolis Mayor R.T. Rybak repeatedly praised U.S. Bank for stepping forward to finance Holtzman’s project. “At one of the darkest points in this economic downturn we knew we had to find a project to get going, and our hometown bank stepped forward to do that.” Turning to Holtzman, the mayor said, “This is the beginning of a new future. We love what you’ve done and we want you to do more.”

Holtzman said he would rather be part of the recovery than wait until the recession ends. “Most builders are waiting for the recovery so they can come back into the market with the same old products as before,” he said. “We’re offering something different.”

The apartments feature high ceilings and upscale finishes.
Photo by Matt Johnson, Village Green
The apartments feature high ceilings and upscale finishes.

He compared his niche to the boutique hotel, an idea that’s outperforming the rest of the hospitality market. His target is a younger-attitude audience that prefers active, urban living. Apartments are based on the European model, he said: Units that are a bit smaller but that have high-quality amenities and an array of urban attractions on their doorsteps — in this case, the Mississippi River, hiking and biking trails, parks, theater, sports, dining, entertainment, rail transit and walking or biking to work.

“We believe that this is what the current customer wants and we’re puzzled that our competitors don’t see it,” he said.

A trend toward rentals
Holtzman’s company, Detroit-based Village Green, is a developer and manager of rental properties. It manages 140 complexes in 15 states. It has put up five projects in Uptown and downtown Minneapolis, including Eitel Building City Apartments on Loring Park.

Workers put finishing touches on Mill District City Apartments last week.
MinnPost photo by Steve Berg
Workers put finishing touches on Mill District City Apartments last week.

A recent survey found that three-quarters of Americans consider renting a smarter option in today’s housing market — and that nearly 80 percent of the respondents were homeowners. Cities hope that rental projects will be increasingly attractive to young professionals and help fill the gap while the condo market recovers.

“It’s important to get a project in the ground,” said Mike Christenson, Minneapolis’ director of planning and economic development. “When other developers and lenders see a successful project they’re more likely to get back into the game.”

Comments (2)

  1. Submitted by Ray Schoch on 11/15/2010 - 10:26 am.

    This newbie is happy to see subsidy-free downtown residential development. I’m less pleased about the price point, though I’m well aware of the constraints. Before I became a resident, and was only visiting the Twin Cities, relatives who WERE residents of Minneapolis referred to “high-end condos” as among the few economic activities that seemed to be prospering. It wasn’t intended to be a compliment. Their point was that all the housing being built seemed to be for the affluent and “stylish,” a phase of life that, if it occurs at all, is likely to affect a fairly small number.

    Cities absolutely must have viable residential development and redevelopment to accompany the brain-and-muscle economic activity required to survive and prosper in the new economy, and renting – even to this homeowner – may well be the only way for that to happen. Unfortunately, the same issues that make affordable housing so problematical in an ownership model raise their less-than-attractive heads in the rental model as well. Land costs, construction costs, development costs for planning, ADA compliance, etc., all seem to increase exponentially, and all of them add substantially to the cost of the finished product.

    That said, while I’m happy to see new downtown housing, and like the “European” model of smaller and more efficient space, among the relevant questions are just how the terms “upscale” and “midprice” are being defined. Since most of the Twin Cities workforce will likely never be in the “upscale” market, it’s the “midprice” market and price point that seems more important.

    Young workers – at least the ones I know who are 40 and under – are not, for the most part, beginning their careers with six-figure salaries, so a “midprice” unit renting for $2 a square foot will be at – or beyond – the edge of what most young workers can afford. Beyond that, it almost goes without saying that these units don’t seem family-friendly, which will increasingly be a problem in the new economy in decades to come. Cities and developers have to find a way to make cities places where families can exist and even prosper – beyond trails and riverfront parks, families need nearby schools, food stores, and other things that we’ve gotten accustomed to in the suburbs, but that are often lacking in urban environments.

    Because I’m new, not native, and live in a different part of the city, I claim no expertise regarding downtown Minneapolis or this specific area in a residential context, so I don’t know the extent to which schools, groceries, children’s playgrounds, etc., are available in close proximity to this – or any – downtown/riverfront development. That said, I hope Holtzman can make the Mill City Apartments work for enough people that the project is a success, and for the long term.

  2. Submitted by Richard Schulze on 11/15/2010 - 01:27 pm.

    It appears apartment rents have at least stabilized and are probably increasing in many areas – and the vacancy rates are falling. This means we will probably see a slight pickup in multi-family construction in 2011 (from record lows).

    Before the housing market can recovery, a large portion of the excess vacant housing supply has to be absorbed. The excess supply includes both rental and owner occupied homes, and the falling apartment vacancy rate is an indicator the excess supply is starting to decline.

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