Apartments pitched in ‘high fee’ area of Inver Grove Heights

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A local developer wants to build a 242-unit, market-rate apartment building in the northwest part of Inver Grove Heights — an area that’s wanting for development because of high utility connection fees.

The project hinges in part on the city’s willingness to reduce those fees.

This week, Yellow Tree Development received land use approvals from the City Council for the estimated $66.4 million project, which would rise on a vacant 4.5-acre site at the southwest quadrant of 70th Street and Agate Trail.

But the council punted on Yellow Tree’s request for a roughly $2.5 million fee reduction. Though council members were open to the request, they asked city staff for more information and agreed to revisit the matter on April 22.

The request sparked a broader discussion about how the city could stimulate development in the northwest area by reducing fees to levels more in line with neighboring communities and the rest of Inver Grove Heights.

Utility connection fees are more expensive in the northwest area because the city extended utility service there years ago without levying an assessment on the benefiting properties, City Administrator Kris Wilson said.

“The idea at the time was that the city would sort of cashflow the project and then recuperate those costs through higher development fees in the northwest area,” Wilson said at the April 8 City Council meeting.

But it hasn’t worked out as planned. Instead, the higher fees have been an impediment to development. Wilson said the fees are a “particular issue for multifamily development,” because the fee structure escalates with density.

Also impeding apartment construction is that multifamily developers have less ability to “pass any increased cost on to renters as might be passed on to the purchaser of a single-family home,” Wilson said.

With those hurdles in mind, Yellow Tree requested a fee reduction, tax abatement or both for its project. Council members generally frowned on the tax abatement request, but were receptive to the fee reduction.

An analysis from Ehlers, the city’s financial consulting firm, shows that a roughly $2.5 million reduction in utility connection fees would bring the project in line with fees for an equivalent project elsewhere in the city.

Robb Lubenow, owner of Yellow Tree Development, told the council that he came in with “eyes wide open” and full knowledge of the high connection fees, and anticipated “some levels of assistance” from the city.

Other cities, he said, are offering tax abatement and other assistance in addition to having lower connection fees.

“Quite honestly, that is the headwind that you guys have as a city,” Lubenow said, adding that he’s “hopeful that the $2.5 million reduction is enough to allow this project to move forward.”

Alluding to the lack of development in the northwest area, Council Member Tony Scales said “fees on nothing are still nothing. And that is what we have been getting.”

“We can talk about repaying that infrastructure as long as we want, but we’re still not going to repay it with no development,” Scales added.

“I like an even playing. Let’s get over what we got ourselves into in the past, move on and just level this thing out and get things moving — and then we can decide what development we want, not whether they will come in or not.”

Yellow Tree came in with a proposal that includes a $43.2 million mortgage and $23.2 million in equity, according to the Ehlers report. The $66.4 million cost works out to just north of $274,000 per unit.

Monthly rents would range from about $1,125 for a studio apartment to $3,800 for a three-bedroom unit, the report notes.

In a narrative, Yellow Tree says the four-story building would include 242 market-rate apartments ranging from studios to three-bedroom units, and amenities such as a sky lounge with a roof deck, fitness center, yoga studio, work-from-home stations and a pool.

Elsewhere in Inver Grove Heights, several other multifamily projects are under construction or up for approvals.

St. Cloud-based Trident Development is building its 244-unit Avalon Apartments and Townhomes at the Diffley Court and South Robert Trail. The project includes 190 apartments and 54 rental townhomes.

In addition, Stuart Development is proposing a 157-unit townhome development with space for approximately 15,000 square feet of commercial uses, Wilson said in an email. That developer is making a similar request for fee reductions.

Also in the northwest area, Rise Capital is pitching a multifamily development on land currently guided and zoned for commercial use. The developer, which is seeking a rezoning request, is proposing a 200-unit apartment building and 24 townhomes.

Wilson said the council considered the Rise Capital project on April 8, but continued it to April 22 with a request for additional information.

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