At the Highland Bridge development in St. Paul’s Highland Park, the Ryan Cos. said they’ve put three projects on hold. Elsewhere in the city, developer Jim Stolpestad lost a major investor on Tuesday behind an apartment building he’s trying to get off the ground.
Their concern? Rent control.
As investors cry foul, St. Paul Mayor Melvin Carter has asked the city council to work with him on exempting new real estate construction from the “rent stabilization” mandate approved at the polls on Nov. 2.
The mayor’s administration has called the requested change a “clarifying amendment.” But members of the city council have already begun to question the legality of altering a central tenet of a voter-driven ballot initiative they had no hand in writing.
“The opposition was concerned about this very detail. Now that it’s passed, our understanding is the language stands,” said City Council President Amy Brendmoen, in an interview Tuesday. “We can’t make changes that are substantive, and I think this would qualify as substantive. Until we see legal analysis and stakeholder engagement, the council is not going to take this up.”
MAYOR REJECTS ARGUMENTS INITIATIVE CAN’T BE AMENDED
The mayor said he rejected arguments that the ballot initiative was set in stone.
“I’ve heard this notion we can’t make any changes because it’s been passed by voters. The Constitution of the United States was written to be amended,” said Carter, in an interview Tuesday. “The ordinance as it currently stands is silent on new housing construction. It does allow an exemption (for property owners) to be able to receive ‘a reasonable rate of return.’ … This ordinance that we passed may not offer a reasonable rate of return to achieve the level of new construction we need in our city.”
He added: “I think in the end, our tenants, our city council, our developers and landlords, we want the same thing. We want there to be stability in our rental market.”
MOST CITIES HAVE EXEMPTED NEW CONSTRUCTION
The rent-control ordinance, which was approved by voters 53 percent to 47 percent, caps residential rent increases at 3 percent annually across the board for small and large landlords alike, and for old and new properties, with no exceptions once tenants move out of an apartment.
Most cities that have enacted rent control exempt new buildings for 15 to 20 years to help attract investors, offer developers an incentive to keep building and give landlords time to fill up a property and pay off debt. St. Paul’s ballot initiative does not.
Stolpestad, founder of the Exeter Group, said that in reaction, investors have already begun to pull out of real estate projects in St. Paul, including his own.
“I can tell you firsthand it happened to us today,” said Stolpestad on Tuesday, noting that an insurance company backing one of his company’s proposed apartment buildings withdrew its support in light of the ordinance. “A lender pulled out of a new project.”
“This is rippling across the local landscape,” he added. “The only encouraging note is that Mayor Carter is suggesting he might try to modify the measure to exclude new construction. I’m not sure how that would get done.”
LETTER TO THE CITY COUNCIL SEEKS AMENDMENT
In a letter to the city council on Monday, St. Paul Deputy Mayor Jaime Tincher said the city is working on a webpage that will answer key questions around the new ordinance, and will assemble stakeholders such as renters and property owners to help guide implementation and assessment.
In the meantime, she said, exempting new construction remains a mayoral priority that needs the council’s backing.
“The mayor voiced his support for rent stabilization not because the ordinance as written is flawless, but because leveraging every available tool to address our housing crisis cannot wait,” Tincher wrote. “Allowing for a reasonable return on investment is why virtually every other rent control ordinance in effect today exempts new construction. The mayor requests you consider an amendment to exempt new housing construction, which he will sign once it reaches his desk.”
Tincher added that Melanie McMahon, the mayor’s executive project lead for redevelopment, will be the council’s point of contact “as we work together to bring an amendment through the (city approval) process.”
CITY COUNCIL MEMBERS FRUSTRATED
Brendmoen and other members of the city council have continued to express frustration that the Carter administration hasn’t been more out front around the voter-driven ordinance.
A city website addressing key questions was taken down last week for fine-tuning, hours after it went up.
“We pulled the website down because the city council members thought it was confusing,” said Carter on Tuesday.
In a presentation to the council shortly before the Nov. 2 election, the city attorney’s office explained that ballot initiatives become law as soon as they’re approved, and that amendments that go beyond simple clarification could open the city to litigation.
The city council, in other words, can repeal the law after a year under the city charter, but until then, it may have limited authority to fundamentally alter a law it did not write.
“The thing I would say about making sweeping changes — we live in a city where six out of seven wards voted in favor (of rent stabilization),” said Margaret Kaplan, president of the Housing Justice Center in St. Paul, a key proponent of the ballot initiative. “There are some limits on what they can do now, and on what they can do in the future. They can make changes to the ordinance today that are not really substantive changes, like clarifications.”
MAY 1 START DATE
Confusion over the small print has fed into debate over whether the 3 percent cap on rent increases takes effect immediately. Most members of the council believe while the ordinance is now law, its requirements kick in on the date outlined in the ballot question. In other words, rent control begins May 1.
“What’s effective immediately is that on May 1, 2022, this law will take place,” Carter said on Tuesday. “That’s what’s explicitly in the ordinance.”
Brendmoen agreed.
“That’s our understanding,” she said. “The fact that we aren’t being clear about when we think the ordinance goes into effect is pretty frustrating. … We believe that it is May 1, but it would be helpful if the city attorney’s office came out with a clear interpretation of that, and we’ve asked them for that.”
DEVELOPERS SOUND ALARM
Even before voters approved the ordinance, developers began sounding a proverbial alarm, saying the investors that back their projects were already putting those agreements on hold.
“The banks and other investors just will not be investing in the city if this is enacted,” said Tony Barranco, a vice president with the Ryan Cos., the master developer behind Highland Bridge at the former Twin Cities Ford campus in Highland Park, shortly before the Nov. 2 election.
On Tuesday, Barranco confirmed in a written statement that the Ryan Cos. have “already pulled applications for three buildings as we try to understand and navigate all of this.”
He said the city and Ryan worked closely on finding ways to capture the property tax from market-rate buildings at Highland Bridge to fund affordable housing, which will make up 20 percent of the site’s 3,800 housing units. That framework is now up in the air.
“The rent control policy threatens the funding sources for market-rate projects and therefore the overall finance plan for the development,” he said. “We’re aware that Mayor Carter has asked the St. Paul City Council to pass a clarifying ordinance that allows exemption for new housing construction. We support that position and hope to learn more about those clarifications as soon as possible.”
