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Developer pulls out of $3.6M Lakeland Hotel in Willmar, Minn.

Rick Goodemann, executive director of Southwest Minnesota Housing Partnership of Slayton, said Tuesday that a $3.6 million project to redevelop the Lakeland Hotel in downtown Willmar is not feasible because the housing partnership was unable to obtain low-income housing tax credits allocated by the Minnesota Housing Finance Agency. Tribune photo by Gary Miller

WILLMAR -- Funding difficulties have sunk the proposed $3.6 million redevelopment and rehabilitation of the historic Lakeland Hotel in downtown Willmar.

Rick Goodemann, executive director of Southwest Minnesota Housing Partnership of Slayton, the project's developer, said Tuesday afternoon that the project is not feasible because the housing partnership was unable to obtain low-income housing tax credits allocated by the Minnesota Housing Finance Agency.

Under the project's complicated financing plan, the tax credits would have funded more than 50 percent of the cost of converting the 30-studio residential units on the second and third floors of the hotel building into 10 workforce apartments and creation of three retail business spaces on the main floor.

Many of the small, one-room studio units are rented for residential use currently, and the main floor commercial space is 100 percent occupied.

The 87-year-old former hotel was recently named to the National Register of Historic Places.

The Willmar Design Center earlier this year had requested assistance from Goodeman and the Southwest Minnesota Housing Partnership, a nonprofit community development corporation, in preserving the Lakeland.

The proposed rehabilitation project would have fit into the downtown plan approved recently by the City Council that calls, among other things, for increasing and improving housing and encouraging preservation and restoration in the city's central business district.

Last week, the project took a significant step forward when Goodemann received approval from both the City Council and Kandiyohi County Board of Commissioners for a 15-year property tax abatement, which would have been used to fund an operating reserve for the project.

The loss of the housing tax credits, however, was insurmountable.

Low-income housing tax credits are authorized by the IRS and are purchased by investors. Proceeds from the sale of the credits are treated as capital to develop a project and investors use the credits to offset their corporate or personal income tax liability for 15 years.

The Minnesota Housing Finance Agency allocates the credits to various projects. Goodemann said he was unable to obtain the credits because the financing plan also had relied on the use of a $162,500 federal Small Cities Development Grant.

Those grants help cities and counties with funding for housing, infrastructure and commercial rehabilitation projects that benefit people of low and moderate incomes.

Under its rules, the Minnesota Housing Finance Agency said if the grant were used, the Lakeland project's ranking among other projects for receiving the housing tax credits would drop 20 points on the 87-point scale to 67 points.

"If I can't claim the 20 points, the project is not competitive, I don't get the tax credits, the whole thing collapses,'' Goodemann said.

The deadline for applying for the allocation of tax credits was Tuesday.

Goodemann said that he did not know that the Minnesota Housing Finance Agency would treat the Small Cities grant funds in this manner when he became involved in the project earlier this year.

"I had no idea it would, so I was making some assumptions that these Small Cities funds were actually a benefit,'' he said Tuesday.

But when Goodemann asked how Minnesota Housing Finance would treat these funds, the agency said the funds would count against the points in the ranking system for the tax credits.

"So I've been fighting with them for two weeks,'' he said. "I've never run into the problem before.''

Besides not receiving the credits, the Southwest Minnesota Housing Partnership had difficulty receiving an investment commitment and was denied by two of the three investor groups that the partnership commonly works with.

The investor who had agreed to acquire the tax credits offered a price that was less than the amount Goodemann had calculated, resulting in a significant $238,700 shortfall.

Goodemann said he tried to figure out how to fund the project in light of the setbacks but was unsuccessful. He asked Bremer Bank, which obtained the property in a foreclosure, to reduce the selling price, but the reduction was insufficient.

Goodemann said he is disappointed the project will not proceed.

"We did work hard on it,'' he said. "We had a lot of help, a lot of support from a lot of people and we rarely lose a project and we weren't going to lose it because we weren't trying.''

Bruce Peterson, director of planning and development services for the city, also expressed disappointment.

"It's sad, but we'll just move forward and keep trying to do what we can to move the downtown along,'' he said. "I hope we have another opportunity to do something on that corner as good as that project would have been. Too bad, but we don't control that. We did what we could locally.''

David Little
David Little covers the Willmar City Council, Willmar Municipal Utilities and other city news.
(320) 235-1150