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Great Plains Success Story

Affordable Housing Finance

Tenacity pays off for Developer of Small-town Landmarks

Affordable Housing Finance Magazine, 2000 (Reprinted with permission. For subscription information call 800-989-7255. www.housingfinance.com

St. Paul, Minn. – Developing affordable housing in America’s small towns poses huge challenges. One developer based here has combined patience, persistence, and unusual resourcefulness in raising financing for dozens of projects from Oklahoma to North Dakota.

Over 23 years in business, MetroPlains Development, a for-profit property developer, owner and manager, has turned old hotels, hospitals, post offices, fire and police stations, and even schools into housing developments, about half of them for seniors. In recent years, as funds for Section 515 Rural Rental Housing have dried up, developments have relied more and more on conventional mortgages, federal HOME funds, and tax-increment financing.

Starting sometimes with derelict 100-year old buildings, MetroPlains’ projects have included the Will Rogers Hotel in Claremore, Okla.; Rehwinkel Hall at Winfield, Kan.; the Ryan Hotel in Grand Forks, N.D.; and the Union School in Black River Falls, Wis. The slogan of St. Paul, Minnesota based MetroPlains is “housing the heartland”.

“All things come to age and lose the luster of their day,” the company says. “When we remember with pride the beauty of our hometown, the old can become new, the existing can become refreshed”.

MetroPlains, its principals, and affiliated companies act as managing general partner for about 60 real estate limited partnerships, including some market-rate apartments and office buildings, but the company is committed to affordable housing. An affiliate, Garsten/Perennial Management, operates more than 3,000 multifamily housing units.

Gary Stenson, president of MetroPlains, started the company in 1978. An attorney, he had worked on housing and community development issues as an aide to then Senator Walter Mondale. Hometown pride spurred him to take on his first rehab project. A native of Devils Lake, N.D., he learned of plans to tear down the vacant Great Northern Hotel there, built in 1911, for a parking lot.

Instead, MetroPlains secured a low-interest Farmers Home Administration loan and qualified the building for Section 8 rental subsidies. (The Farmers Home Administration is now known as the U.S. Department of Agriculture Rural Housing Service. Its Rural Rental Housing loan program, Section 515, is intended to help finance affordable housing in towns of less than 20,000.)

Today, the Great Northern is a 38-unit senior housing apartment, with 5,000 square feet of commercial space. MetroPlains has gone on to develop 200 more rentals in Devils Lake, population 7,800, helping stem the migration of its population to larger cities.

Besides Stenson, other MetroPlains principals are Lawrence Olson, a CPA, and architect LaVerne Hanson. Hanson has designed almost all the projects developed by MetroPlains, dating back even before he joined the company. MetroPlains has a professional staff of about 20. The average annual development volume is about $4 million; annual rents and fees are about $1 million, and the company manages 2,000 housing units, half of them for other owners.

An unusual aspect of MetroPlains projects is that many of them are former commercial sites in small-town downtowns that continue to incorporate commercial uses. “One of the advantages of converting historic buildings into affordable housing is that…many of these properties are close to central business districts, shopping, senior centers,” and other sites frequented by seniors, Olson notes. “We enjoy strong community support,” he says, partly because senior tenants appreciate the historic significance of the rehabbed buildings.

“It would be a lot easier to go along with some of those state directors and build new housing,” says Olson. “Rehabbing a historic building is al lot more complicated, because you have to deal with so many agencies. But if you’re willing to invest the time and effort, it’s a whole lot more rewarding, both personally and financially.”

An example of how difficult MetroPlains projects can be is the Burlington Apartments in Burlington, Iowa, the $7.3 million restoration of the 1911 Hotel Burlington. Once considered one of the premiere hotels in the Midwest, the Burlington has become a 75-unit senior housing complex, with a ballroom and two-story lobby.

For a long time, though, such a happy ending to the Burlington story seemed unlikely. Like many other old, elegant small-town hotels, over time the Burlington became a white elephant.

The hotel was built for $350,000 supplied by 130 local investors, and expanded in the 1920s and 1930s to nine floors, the tallest building in town. A chain acquired the Burlington upon the longtime proprietor’s death in 1954. By 1980, the hotel was determined to be unsafe, and closed.

Efforts to rehab the hotel began soon after it closed, but went nowhere for years. In 1981, two partners acquired the Burlington for just $283,000 in back taxes, and the city agreed to issue $6 million in industrial revenue bonds for renovation. An Illinois developer soon opened only the dining room and lounge, but withdrew the next year. The city began working in 1986 with a Des Moines firm to create senior housing, but that developer, too, soon pulled out.

Listing the hotel on the National Register of Historic Places in 1988 was an important boost. That made it eligible for historic rehabilitation tax credits. Soon, the city won an option from the owners to buy the hotel for $1.

However, voters nixed a proposed $5 million general obligation bond sale intended to finance restoration in a 1990 referendum, and the city’s purchase option expired. Various other deals fell through in the 1990s. As recently as 1994, it was scheduled for demolition.

The turning point came in 1996, when the city requested proposals from developers, pledging $1.5 million in incentives, and $200,000 more in back taxes was forgiven. MetroPlains won the competition and eventually obtained $1.9 million in affordable housing tax credits; a $700,000 HOME deferred loan; and $1.2 million in historic tax credits.

Construction began in December 1998, and the first tenant moved in the following February. The Burlington includes 37 one-bedroom, 31 two-bedroom, and seven three-bedroom apartments, many with Mississippi River views. Rents range from $300 to $900; 43% of the units are reserved for those with income below 60% of the Des Moines area median.

“The false starts prior to 1996…are very common,” says Jean Eide, who oversees developments for MetroPlains. “Often a person in the community with good intentions takes over the building with a plan for redevelopment, and it is unsuccessful. The reuse of historic buildings is complicated, and the programs available to make the development a reality are difficult to decipher and combine. MetroPlains has made this its specialty.”

She credits the city’s commitment of funds with helping obtain housing tax credits and HOME funds. “States are more willing to commit to a development where the local government has made the project a priority,” she says.

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