It’s 2016 and everywhere you go there are hot takes to be had. Twitter. Comment sections. Planning Commission meetings. You get the picture. Sometimes, serious topics really do deserve these flaming hot takes to call attention to the magnitude of problems. I’m inclined to agree that the recent renovation of over 700 apartments in Richfield, along with a swanky name change from Crossroads to Concierge, falls into this category. If you’re not aware, here are some legitimate news stories to get you up to speed. One could make the case that this high-profile renovation was the impetus for Hennepin County’s new $3 million fund to keep more housing complexes from seeing the same fate. I’d like this post to be a bit more mellow – a lukewarm-take on the situation – even if it is a very serious one.
At its core is your typical tale of gentrification (or, at least what I understand to be the most commonly-held definition): an existing housing complex is bought, tenants relocated or evicted to allow for renovation to upscale amenities, rents are raised, and temporarily displaced tenants become permanently displaced ones.
In the case of the Concierge, many (though not all) former tenants were low-income, with a portion of their rent coming from Social Security and/or Section 8 vouchers. This is especially sad since the complex was filled with not only single adults, but families. As the Star Tribune reported, despite there being only two 2-bedroom units out of 700, Crossroads housed over 2,000 people. This means there were many families of two to four people averaging out the singles living alone. Being evicted or simply displaced by price, even short term, can have real consequences for people, especially families.
Who’s to Blame?
This is where things get tricky. The easy hot take is to blame greedy developers or landlords. And I’m not going to lie, that’s definitely a part of it. The new owner, Jim Soderberg, made many public claims about his investments. Here’s what we know:
- The entire complex sold for a cool $41 million, or about $58,500 per unit.
- The new owner estimated permit-required updates at about $1.8 million, or $2,500 per unit.
This was obtained by searching the City of Richfield’s permit database for the six addresses of the complex. The bulk of the upgrades were in the common space – pool updates, remodeling spaces, etc. But there is definitely a non-zero amount of this cost that was health and safety type stuff. Things like updated electrical, fire code compliance, and new mechanicals. You can read through the permit information post-sale here. But, any way you slice it, $2,500 a unit isn’t much.
- The property may have been a bit run-down, but any claims that maintenance and upkeep weren’t being done aren’t 100% true. You can surf the pulled permits for the apartment buildings prior to late-2015 and see the type of work that had been done.
- There was additional investment beyond the things listed in the permits. New flooring, counter-tops, and new appliances are some examples of things that don’t need a permit and can be installed, but cost money. We know they exist, and they’re a big part of the reason people are willing to spend a bit more to live there (images taken from Concierge listing on ApartmentGuide.com):
If I’m being generous, I’d estimate those updates at maybe $10,000 per unit. So, we’re talking a cost to the new owner of maybe $70,000 per unit. This is way below construction costs for new development – even the parking- and amenity-lite Motiv came in at just over $100,000 per unit per Minneapolis permit data (see page 20), which likely doesn’t include the purchase price for the land or demolition costs of the two homes on that site. Not a stretch to say traditional 1 bedroom units can’t be built for under $100k a unit in 2016 America. Maybe I’m wrong.
- We know from multiple sources that a 1 bedroom unit at Crossroads rented for roughly $750/month
- Soderberg claimed post-renovation rents would be “around $900.”
- Listings online show 1-bedroom units are actually more in the $1,000-1,200/month range
So, the rents are higher than they were, higher than projected by Soderberg, but certainly much lower than the rents people complain about at other #luxury developments going up, where a 1-bedroom can easily run $2,000 a month for similar square footage.
It’s easy to see the math here: purchase old apartments, spend another 20% to give it some new shine, and charge rents 30-60% higher than they used to be to cover your financing and renovation costs plus any added operating costs compared to the old owners due to new amenities. Sounds greedy. But, there are other factors at play that make this transaction possible. Among them…
Even for a person who zooms around Google Satellite View quite often, I was surprised how these apartments under-utilize the land they sit on.
This complex is in Richfield’s highest residential density zone, MR-3. The parcel is about 936,000 square feet in size, and there are already 700 units and about 860 parking spaces on-site. Here are some requirement highlights:
- Maximum lot coverage for principal structures: 30%
- Minimum outdoor open space per unit: 300 square feet for each 1-2 BR (minimum 210,000 square feet)
- Minimum parking for structures with >10 units (at city council’s discretion): 1.25 per unit (875 required).
- Setbacks of 30-40 feet
Let’s say this investor wanted to add a couple hundred units to the site. Maybe these new units could be the luxury ones while keeping a steady cash-flow from the existing ones. Problem is, there’s no practical way to do it. Any new units would trigger site plan reviews that would scrutinize lot coverage, outdoor open space, parking ratios, all of which are basically maxed out right now. Even if a plan was workable with the city, it would likely draw the ire of neighbors.
I won’t say that Soderberg, or any other investor, would absolutely have squeezed more units onto that site. Or that they’d have even kept some existing units at a cheaper rent as a result. But we’re not even giving them that option! Given market demands for housing, moving units up the scale is the easiest option because it faces no regulatory hurdles. That is, as long as you don’t have competition from….
Richfield is pretty small. Basically every corner of it is in the same school district, has equal access to three regional highways, has pretty decent local and express bus service, and one could even access jobs and shopping by foot or bike relatively easily. This particular site is right near the planned Orange Line as well as thousands of jobs at the greater Southdale area, the Best Buy headquarters, and offices across I-494.
If you were to pick an area that could have grown more intense over the last 40-50 years, the area bound by Xerxes Ave, I-35W, I-494, and MN-62 would definitely be it. Problem is, zoning doesn’t allow for it:
That brown blob in the bottom left is the Concierge site. I’m not picking on Richfield – it’s got a lot going for it in terms of dense nodes full of apartments and condos. But, it’s still easily 90% zoned for single family homes (shown in white on the map). We can argue whether or not the areas zoned for density matched the market for it over the last few decades. You can probably guess which side of that I’d be on.
I can’t tell you for sure exactly where, or when, or the size, but I am fairly confident that if more of the land west of 35W were zoned multi-family, we’d have seen random apartment buildings built over the past few decades. Apartments that would have become less desirable and less expensive over time (just like Crossroads did!), maybe by a couple percentage points a year. I won’t say with certainty how many total units would have been built, or how many vacant ones would be available right now, but there would be more apartments in the $900-1,200 range soaking up demand that drove the renovations, as well as maybe more units in the $750 range in the same neighborhood as anyone displaced. With more competition, maybe the old Crossroads owner could have foregone the pool renovation, golf simulator, and granite countertops and spent a couple hundred grand updating the units at a modest bump in rent to tenants.
This is not an argument that new apartment construction today would have prevented every single displacement that followed the Crossroads renovations. As I outlined earlier, at best, new apartments in place of Richfield single family homes (which go for low-$200,000s near this site) would cost over $120,000 per unit, and rent for $1,500 per 1-bedroom. To be sure, some of the new Concierge tenants may be people with a housing budget well in excess of their $1,200 rent – people who may have been willing to spend $1,500 at an actually brand-new apartment building just up the street if it were built tomorrow.
This is an argument that we mucked up the housing market to protect single family home owners for so long, and it’s partially to blame for these problems that keep cropping up. We could be allowing more today, and should have been allowing it for decades. We wouldn’t have solved the problem outright, but likely greatly mitigated it. But we’d still be faced with….
Landlords Not Accepting Section 8 Vouchers
There are obviously many issues in housing discrimination. While much of it is illegal on paper, it still happens. A lot. But as that Star Tribune article discusses, it’s not a requirement that landlords accept Section 8 voucher tenants:
“I’ve been in the business a long time,” Soderberg said. “People will find new places to live easier than everyone realizes.” He said when he started in the apartment business more than 30 years ago, he specialized in taking Section 8 tenants.
“At first, that’s all I took,” he said. “For various reasons I don’t really want to get into, I’m not really thrilled with the program. It’s a voluntary program and we’ve decided not to volunteer.” In fact, a 2010 decision by the Minnesota Court of Appeals explicitly upheld landlords’ rights to decline participation in Section 8 housing.
Not every Crossroads tenant could have afforded to stay post-renovation if Soderberg had allowed Section 8 vouchers. But I’m willing to bet some of them would have found a way, even if it were just long enough to find a new place nearby more in their price range.
I’ve never managed a large rental property, and I’m not going to discount Soderberg’s (or any other landlord’s) perception of Section 8 vouchers out of hand. But allowing this type of discrimination has real impacts. It’s the type of thing where the costs to low income, minorities, and historically disadvantaged populations justify regulating landlords a bit more.
Suggestions Moving Forward
It’s a little sad that we’re demonizing singles or couples making $40-50,000 a year (people spending ~30% of their gross income on rent at Concierge) against people with slightly lower incomes or retirees. These are all solidly middle-or-lower class people here – not landed gentry building million dollar condos or anything. We need a range of policies and funding streams (at all levels of government) to help mitigate these situations so that everyone can afford a place to live. Among them:
- Upzone single family home zones in core cities and first-ring suburbs. These places have transit, decent walkability, and are in high-demand. Nobody’s talking about high-rises here, just 4ish-story apartments.
- Remove unnecessary requirements in those zoning codes. Parking minimums need not be so high, setbacks can be reduced, etc. Make it easier to build more per parcel. Especially apartments with acres of asphalt parking lots.
- Continue expanding the funds that help non-profits and government agencies purchase low-rent properties at a fraction of the price of building new.
- Expand funding sources for landlords to maintain their units to building code, with caps on subsequent rent increases. This should make keeping a property more attractive than cashing out with a lump sum.
- State or federal legislation making it easier for people with vouchers to find housing. This will likely look like restrictions on landlords’ ability to turn away applicants.
- Require investors upgrading properties to provide more assistance or options to current tenants. Minimum extension of leases, on-site relocation, or a sum of money if they’re forced out. Evictions are bad.
What other suggestions do readers have to help mitigate these issues across the Twin Cities?
(Member of the Richfield Planning Commission, but not speaking on its behalf.)
Thanks for this great article, Alex. I wanted to respond to a couple of specific points.
My first thought is that basically anything of this scale build today would be a planned unit development. In fact, pretty much every really high-quality urban development in Richfield is a PUD: City Bella, VIllage Shores/Market Plaza, Kensington Park, Lyndale Plaza, etc. And those well exceed 30% lot coverage. So: on the one hand, does it really matter that those specific developments aren’t allowed as a matter of right, when PUD provides the flexibility for better outcomes for both the developer and the city anyway? On the other hand, we’ve clearly demonstrated through those PUD projects that such density is acceptable — even desirable. So why not change the code?
My second thought is that I think across-the-board upzoning of single-family neighborhoods creates more upheaval than it does value. In Richfield — and any actively redeveloping city — there is a lot of uncertainty for homeowners. Houses get bought out for airport noise, street widening, by a new developer, etc — and many people worry about their future in their home. Simply zoning to allow multi-family across the board makes that uncertainty worse. A “4-ish story” apartment is a pretty big deal to most people on a residential street of mostly one-and-a-half story houses.
In my opinion, it might make more sense to consider such flexibility along high-traffic transit corridors, where single-family homes are less well-suited anyway, and where it’s already more “regional” in nature. The process for doing duplexes or row houses could also potentially be easier — it currently requires a conditional use permit, and the only row house development that has been approved since I’ve been on the Planning Commission has been roughly the density of single-family homes on 50 ft lots.
Thanks for the thoughts, Sean.
On PUDs.. I wanted to include a discussion about them, but felt the post was already too long. They certainly have their place, but if we’re being honest, they represent a huge process and barrier to many would-be projects. Particularly for developers at the lower end of the scale. While there’s something to be said for a zoning code that allows a lot of stuff with conditions (through conditional use permits, PUD process, etc), there’s a lot of uncertainty there. Knowing the slim profit margins on new development, it’s not something I’d do if I were a small/young developer, and when the market isn’t as hot as it is right now there’d be far safer ways to invest money.
I know I’m in the minority here, but I could not care less about uncertainty for single family home owners (I say this as one). We already get all the benefits in the world from the government. Mortgage interest tax deduction, property tax deductions (at higher rates and for broader income levels than renters), capital gains tax exclusion, etc. It’s not the city’s job to provide any more certainty for us any more than it would be to ban a new fast food joint from setting up shop near an existing one (I’m assuming you’re referring mostly to home values when discussing uncertainty). Especially since that certainty comes at the expense of more people living in our neighborhood, and even more since new apartments don’t generally lower neighboring property values anyway.
I’m also hoping someone will write a full post on the really crappy policy we have in this country putting density on high-traffic corridors. People who want to or have no option but to live in apartments deserve the option to live on a quiet side-street, too. There is nothing about single family homes that make them objectively more suited to transit/traffic-less streets. Plenty of apartment buildings on the interior of CARAG (Minneapolis) fit in just fine.
Except that once you line a quiet street with 4-story apartment buildings, it no longer becomes a quiet street so you have streets full of cars that were not designed for that many cars. Of course not everyone living in them will have a car, but probably substantially more than if it remained a single family house.
And it’s not just property valued. I know I’m odd because I want my property values to go down (within reason) so my property taxes do likewise and I never plan on selling my house. But I think it’s just as valid to now want apartment building next to you due to the light and privacy issues.
Maybe the author can chime in if his very own SFH, which is on a block lined with Missing Middle apartment buildings, is oppressive in terms of traffic and parking.
Monte, you should come visit my neighborhood some time. I’ll buy a 6-pack of your choice and we can sit on my back deck facing a row of 2.5 story apartment/condo buildings and see how quiet it is. Or we can take a walk around the block with a sound level meter and see the difference between streets almost entirely SFHs vs ones with almost all apartments. Residential areas just aren’t loud, regardless of density. I stayed in this apartment building (https://goo.gl/maps/QNgvjvRLkmE2) for a week a decade ago, and at the time I remember being absolutely floored at how quiet the street felt, even with some commercial uses at the corners.
A general comment, it’ pretty weird that people in suburbs who really like cars (including their aesthetics), hate the idea of them being parked with relative frequency on their block. Like, at some point it does cross over into a “I can’t park here at all hours of the day anymore,” but most of the objection is the aesthetics of cars parked out front all the time.
“People who want to or have no option but to live in apartments deserve the option to live on a quiet side-street, too.”
I agree on this point. It’s hard, for the reasons Monte note below. Kensington Park provides at least one good example, of townhomes and one apartment building on Aldrich, while automotive access was only via 76th, 77th, and Lyndale. Even then, some homeowners on Aldrich disliked the amount of on-street parking utilized on their street. (What importance you put on that particular objection is up to you, I guess.)
“There is nothing about single family homes that make them objectively more suited to transit/traffic-less streets.”
I disagree on this point. Single-family homes nearly always have living quarters on the first floor, and the construction is such that they are more affected by noise. For areas without alleys — which includes about 2/3 of Richfield — single-family homes mean a driveway cut for every house, while an apartment building can have a single driveway cut that provides access for 50, or 100, or 200 housing units.
But yeah, you’re right that that shouldn’t be the sole option. I cringe when I see this trend so obviously in newer subdivisions in Lakeville and the like — townhomes thrown up like a defensive wall to protect the single-family homes from traffic noise of major arterials.
Do apartments not have ground level living, or garden level living that face the street? Obviously, mixed-use apartments typically place commercial spaces, front desks, and community spaces along the busy street. but not every apartment building on a busy street is set up that way. And in any case, it speaks to the undesirability of living along that street in the first place. I’m not saying *don’t* build apartments along Lyndale or Lake St, and I’m also not saying *only* build single family homes there. And certainly, we should make our major streets less terrible to live (or walk or bike) along as possible, too. I’m just saying the current privilege of avoiding the noise/hustle/bustle shouldn’t only be afforded to people who can afford detached homes (or even row homes and duplexes). Also, consolidating curb cuts on side-streets without alleys seems like a good idea, too.
I can’t think of any apartment buildings from the last twenty years that have garden-level units — except for a handful of tiny infill projects. For single-use buildings, the prevailing model seems to be that the basement is used for parking, and the first floor is 4-6 feet off the ground. Additionally, the lawn (if any) doesn’t feel personally attached to the dwelling unit in the same way an SFH owner’s lawn is — being common space of the building.
Again, I agree it’s nice to provide people options. But I do really believe that apartment buildings are more practical for their occupants on busier streets than single-family homes are.
I see few SFHs without a stoop… Most of these groundfloors are also 4+ feet off the ground (especially with slopes down to the sidewalk… my parent’s basement is likely 3 feet above the street!)
Is this an issue of zoning that they are no longer built? That we do not allow apartments to be built in these areas?
I would counter the sentiment here that SFH are more suited to quiet streets than apartments, especially of the design I see Alex proposing (and cities actually allowing).
I would see a 2 floor, 5-10 unit building being built in most residential areas without incident. But lot coverage, excessive parking minimums, and large setbacks make this impossible. So let’s not say the Motiv should be built in Richfield, let’s not say the Walkway should be built in the middle of Bloomington, but why not my 5 unit 2.5 level building? There’s no lobby, no retail, and lots of kids (actually in the next building is where the kids are). Why should my neighbors, and specifically the ones who I feel make the neighborhood a community (kids are ALWAYS playing outside), not be allowed to live on a quiet street? Why should these girls be having to walk their bikes to the park because learning to ride on a busy street sidewalk is terrifying?
There is nothing about a family that can afford a SFH that makes them more deserving of a quiet street, a safe place for their kids to play in the yard, or the ability to have a block party, than a family that cannot. Maybe 4 floors is excessive, but is 3, or 2? Everyone deserves a quality public space, and if it must be that protected, if it is that impossible to attain that a lower income family cannot be a part of it, then it should no longer be public.
In general, poorer people live in apartments. Just because you have a lower income does not mean you are a soundwall, or shouldn’t be able to ride your bikes, or play hide and seek in the front yard. That is the discussion. If we want to move on to if it can work or not, then let’s say what aspects cause trouble and move forward instead of sticking our fingers in our ears.
1 – Height and privacy concerns – A lot of apartment buildings are 2.5 floors or 2 floors or 1.5 floors. Let’s set a limit based on what height people are uncomfortable with.
2 – Parking and traffic concerns – Let’s work together to find how many cars per unit are reasonable, and actually work off of that. ITE’s recommendations are exceeded by most cities minimums, so maybe a reset to those wouldn’t be the worst. Traffic usually goes slower when there is more street parking, and the most common complaints I hear are people are driving too fast, not that too many people have places to be… I know some people want to be able to drive fast, but is your daily enjoyment worth more than those who do not have the means to buy your house?
2a – We seem to be noting that major thoroughfares have transit allowing less parking usually bus stops are at corners though, so let’s allow 1/2 a long block length walking distance to be upzoned. This allows for quieter streets are available for renters, while ensuring they are no further a walk from transit.
I remember looking at these apartments 8 years ago when I was looking for a place to live. And they were in desperate need of some work then….
You can’t win if you run an older cheaper apartment building, keep the building the way it is and your called a slum lord. Fix it up and raise the rent a little, and people say you’re exploiting the tenants.
And you can’t realistically upgrade a building without raising the rent. Because any business needs at least the possibility that there will be a return on the investment.
It also seems that “greedy” is a bit of an extreme term for what is fundamentally how capitalism works. You see an opportunity to make some money in exchange for an investment and take it. If it’s important to provide these apartments at the current rents and condition that’s charity, not capitalism, and the government or a church or some other nonprofit should buy them.
I agree, its not necessarily greed, its business serving a market need. And unfortunately there is very little to no money to be made in low priced apartments.
None of the suggestions will work unless it is adopted/forced on all suburbs. Upzoning, providing money to convert older apartments into Affordable Housing, Removing unnecessary requirements in zoning codes, etc. will not work and will only contribute to the continued segregation of the poor into areas of poverty and color unless it is applied equally to all communities.
I am very skeptical of Hennepin Counties plan to provide $3 million dollars to purchase and convert older apartment into Affordable Housing. I suspect prices will be too high to buy apartments buildings in Mendota Heights, Edina, Wayzata and other wealthy cities with little affordable housing but instead the program will be used to continue the process of segregating poor and people of color into low income communities. Apartments in wealthy cities will continue the process of being converted into condos with little outrage. This would explain why the program passed unanimously but the still cannot muster enough votes to pass a program to build Affordable Housing in wealthy cities.