St. Paul, Minn – In 1978 the Great Northern Hotel in Devil’s Lake. N.D, looked as though it would suffer the fate of the many grand historic hotels that dot the landscape of rural midwestern towns. The vintage 1911 building that once housed weary railway travelers had remained vacant for a few years after the owner failed to pay property taxes. The town’s residents feared the hotel might end up as had so many other historic buildings - as a parking lot.
Meanwhile, one of the town’s former residents, Gary Stenson, had tired of practicing real estate law in Minneapolis and set his sights on buying some property to renovate into affordable housing. He heard that Devils Lake officials were searching for someone to renovate the Great Northern into badly needed senior-citizen housing for their city’s aging population. By helping save the Great Northern, Stenson could offer senior citizens affordable housing in a building that had played a big part in their own, and his, history. "I remember teen canteens in the basement of the hotel, going to the dentist who had an office there, and my parents taking [us] to eat in a cafe there," he recalls.
Stenson had spent three and a half years in Washington. D.C. as a housing and community-development advisor in the early 1970s to then Senator Walter Mondale, so he understood how to obtain federal money for projects that involve loans and rent subsidies. After buying the Great Northern for $30,000 from the Ramsey County government, he secured a 50-year Farmer’s Home Administration (FmHA) Section 515 mortgage loan for $1.2 million to restore the hotel, creating 38 units for senior-citizen housing and 5,000 square feet of commercial space. The FmHA charges one percent a year on such loans.
Stenson raised equity through the historic rehab tax credits, a tool that Congress weakened dramatically with the 1986 Tax Reform Act. Stenson also made certain that tenants secured Section 8 rental assistance through the U.S. Department of Housing and Urban Development (HUD).
"We needed a senior citizens’ center and we needed a health-care facility" says Bill Bergstrom, a Devils Lake car dealer who served on a committee in the early 1980s that studied the town’s central business district. The county was about to have the hotel razed but we recognized its architectural character and asked that it be preserved. When Gary came in we facilitated what he wanted to do. In a sense he helped us and we helped him."
The Great Northern proved to be just the beginning for Stenson. Over the course of the past 14 years, he has cut deals in 19 towns sprinkled throughout North and South Dakota, Minnesota, Kansas, and Wisconsin to renovate hotels, post offices, schools, courthouses, a firehouse, an opera house, and a bank for use as senior-citizen and low-income housing. All told, the 49-year-old developer has completed 30 projects—the majority of them involving the renovation of historic structures - and has another 21
projects in the works.
After raising money and managing several projects on his own, Stenson formed MetroPlains Development in 1986 and now works out of an office located, appropriately enough, in the former International Harvester factory in St. Paul. Stenson and MetroPlains treasurer Lawrence Olson add to the investment mix a wide range of financial ingredients among them, property tax freezes, the historic rehab tax credits, tax increment financing the low-income housing tax credits, sales tax exemptions, and tax abatements. There’s probably not a loan program or a tax credit that has escaped their scrutiny.
"He’s been incredibly creative in getting financing for his program," says Anna Moser, the executive director of the Council for Rural Housing and Development, a Washington, D.C.-based trade association for those involved in rural housing. "There are not many people as dedicated to doing this as Gary is. His work is one of the most exciting things I have seen."
After listening to Stenson explain just a couple of his deals, a description of particle physics or a basic leveraged buyout looks easily comprehensible. This kind of work is not for amateurs. "It’s very complicated," concedes Stenson. "the way we have provided affordable housing in this country has been very complex, partly because we attempt to accomplish it through tax policy. If you’re going to be in this business you had better be in it a long time and really get to know it."
A new investment approach MetroPlains plans to use involves raising money for affordable-housing projects from utilities, insurance companies, and banks in search of tax credits. Minnesota Power and Light is working with MetroPlains on the restoration of the Buckman Hotel in Little Falls, Minn., and a consortium of 10 corporations-among them, Citibank- are reviewing projects from developers in South Dakota, according to Stenson.
However noble or altruistic his efforts may be, Stenson remains a businessman. His firm does $4 million in development a year and collects $1 million in rents and management fees from 2,000 units, half of them located in buildings listed in the National Register. Projects deliver a 16-to-17 percent annual rate of return to investors, and MetroPlains picks up a 10-to-12 percent profit on each project.
Among the landmarks rehabbed by Stenson are, clockwise from top right, the Great Northern Hotel and a firehouse In Devils Lake, N.D. the Jamestown, ND., Post Office; and the Gillmore Hotel In Deadwood, S. D.
LaVerne Hanson, MetroPlains staff architect and partner, describes the process of locating and buying buildings. The firm hears about empty historic buildings from a variety of sources, ranging from state and local historic preservation commissions to town residents. Once MetroPlains decides whether a project is viable, the staff nominates the building for listing in the National Register and offers to buy it for no more than one dollar. With the listing. says Hanson, comes the opportunity for MetroPlains investors to use potential tax credits on the project. After arriving at a concept plan, Hanson designs the apartments without disrupting the structure’s major defining historical characteristics. Cheery colors cover the walls of many of the senior-citizen housing complexes, often chosen to match a buildings historical epoch. All millwork is removed and cleaned, and decorative lighting and other architectural elements in hallways and entrances replaced when necessary with re-creations.
None of this comes cheaply. "We figure it costs us forty-two dollars a square loot on the average says Hanson. "But you are saving solid brick and stone buildings I don’t think you could re-create the shells of these buildings unless you had an unlimited budget.
MetroPlains developments cater to the elderly not only because many of these people require subsidized housing to survive, but also because of the limitations historic buildings often impose on reuse. The lifestyle and small family size of senior citizens fit well into the renovation, he says since many can he redesigned only for apartments providing one or two bedrooms.
"The People in these communities these commutes really develop a relationship with these buildings."
Although Stenson’s firm has expanded rapidly during the past few years, the greatest number of projects he has completed are in Devils Lake, a town of approximately 7,800 people located 90 miles west of the Minnesota border and an hour’s drive south from Canada. Stenson helped renovate an opera house, a school, and two apartment buildings. His work prompted the town to create a historic district and a historic preservation commission and to offer brochures for self-guided walking tours.
‘Some of these buildings would have been left to the wrecking ball and two or three would have been parking lots," says Joan Galleger, a National Trust advisor and the vice president of Garsten Management a subsidiary of MetroPlains that manages housing developed by MetroPlains and by other companies.
People around here are very aware of Gary and very supportive of what he’s done. There’s a lot of commitment to preservation that we didn’t have before."
The work of MetroPlains helps Devils Lake in two ways. "It makes it possible for people to have affordable housing— particularly the elderly-who could not find such housing here." says Devils Lake Mayor Fred Bott. – "They don’t want a house and can’t afford one-now they have an opportunity to live in something smaller and less costly." The restorations have also bolstered local pride. "I think it’s been a great thing for the town," says Kristin Kenner, a dentist who serves on the city’s historic preservation commission - A lot of those buildings would have been left abandoned if anything had been done to them, [the work] at best would have been done piecemeal. MetroPlains has done a great job of restoring them. Most of the people living in the buildings are delighted with them-and they’re proud of where they live."
The cities and towns in which MetroPlains works rarely exceed populations of 20,000 although the company once renovated a former bank in Omaha. The towns have names such as Sturgis, Winfield, Marysville, Lead, Spearfish, and Yankton- places that appear in small type in atlases.
Stenson prefers to work in small towns. "Throughout the years, we’ve had a tough time finding buildings reasonably priced in the Twin Cities, and there are more people there bidding them up." says Stenson. "In smaller communities we are the only ones who have a track record out there, and we’re often the only option they have"
Although many Americans retain an idyllic vision of small town midwestern life, the reality is much different. Young people have drifted away for lack of work to larger cities, and those who remain have trouble making ends meet especially when it comes to finding affordable housing.
Nearly one third of the 1.4 million renters nationally who are classified as "poor" and who live outside metropolitan areas pay an astonishing 70 percent or more of their income for their housing, according to a 1989 study published by HUD and the U.S. Bureau of the Census. (The figures, based on 1985 statistics, define "poor" as those earning less than $5.000 in annual income.) The figures are no less grim for rural homeowners 35 percent of whom pay at least 50 percent or more of their income for housing. The government defines affordable housing as that which costs one-third or less of a person’s income, yet the study found 65 percent-or 1.2 million people-of those classified as "poor homeowners" pay more than that for housing in rural America.
The need runs deep for affordable housing in rural America and Stenson, unfortunately has few peers. He mentions only two others he knows of who deal with creating affordable rural housing, and the Council for Rural Housing and Development’s Moser says she knows of virtually no one who has as great a track record nationally of combining preservation and affordable housing.
Negotiating the bureaucratic maze seems to have left Stenson remarkably optimistic. The people in these communities really develop a relationship with these buildings," he says. "They’re proud of them and they feel a sense of community. When people see them rehabbed they feel rejuvenated themselves."
Reprinted with permission from The National Trust for Historic Preservation, Washington DC and Galloway Photography, Oakdale, MN. |
