Diamond in Disguise: Dominium Converts Industrial Building in Hip Minneapolis Neighborhood into Apartments
By Glenn Petherick
6 min read
Where some see junk others see a diamond.
That’s the tale behind Buzza Lofts, a new affordable apartment development in Minneapolis created by local developer Dominium from the renovation and adaptive re-use of a 136,000-square-foot historic building.
Located in the hip Uptown neighborhood, where young professionals and young couples live amidst trendy restaurants and shops, the vacant “Buzza Company Building” was viewed by many as an eyesore rather than an opportunity when Dominium bid to buy it from the city school district.
“There’s a lot of high-end development going on in the area,” says Dominium executive Chris Barnes. “So it’s a very competitive site. A lot of people looked at it as a teardown because of the opportunity to get to the dirt at this location.”
Dominium bought the former industrial building in late 2011, got it listed on the National Register of Historic Places, and rehabilitated the structure using federal historic and low-income housing tax credits, state historic tax credits, and other sources.
In November 2012, the company completed the project, offering 136 new apartments – one studio unit, 100 one bedrooms, and 35 two bedrooms – that were an instant hit.
“It was fully leased within the first 30 days,” says Barnes, “and has stayed full since with a waiting list. The other day the property manager said they have 520 people on the waiting list.”
The apartments, with gross monthly rents ranging from $870 to $1,115, are restricted to households making no more than 60% of the area median income – or $34.620, $39,540, and $44,460, respectively, for one-, two-, and four-person households.
Long, Colorful History
Constructed in three phases, the U-shaped Buzza Company Building has a rich and colorful history.
The initial four-story factory building was constructed in 1907 by the Self-Threading Needle Company, which manufactured innovative sewing needles. The Buzza Company, headed by George Buzza, bought the building in the early 1920s; the firm designed and produced greeting cards under a line called Craftacres. Buzza said, “No sooner had we acquired our new building than we promptly outgrew it.”
Buzza Company expanded the building between 1924 and 1927 with two seamless additions: one five stories in height and the second seven stories. The latter is capped by a tower with the letters BUZZA brandished across the top.
The company flourished for years. “At the time they were about the size of Hallmark,” says Barnes. “But then the Great Depression hit and they ultimately went out of business.”
The Buzza Company produced greeting cards until the early 1940s, when the property was acquired by the federal government. During World War II, the U.S. War Department leased the building to the Minneapolis-Honeywell Regulator Company, which manufactured military optics at the plant such as submarine periscope lenses. After the war the federal government used the property mostly for military administrative purposes.
In the early 1970s, the Minneapolis Public School District purchased the building, constructing classrooms and operating it as an adult education center. Decades later the school district tagged it as surplus property, and in 2010 put it up for sale and solicited bids.
Features of Building
Buzza Lofts, which had rehab costs of about $125,000 per unit, is in a prime location and has some interesting features.
A 1,100- square-foot space on the seventh floor of the tower, surrounded on all sides by glass, is a lounge area for residents, complete with Wi-Fi. Dominium also preserved some intricate concrete work at the south entrance, created off-street parking and a bike storage area (“It’s a very bike-friendly area,” says Barnes) and erected a rooftop deck.
The development has multiple green features, including a solar photovoltaic system that generates power for the building’s common areas. Dominium is pursuing LEED Silver certification for the building.
According to Barnes, Dominium did not have difficulty getting its rehabilitation plans approved by the National Park Service and state historic preservation office – needed to qualify for federal and state historic tax credits. One requirement, though, was to install replicas of the building’s original windows in places where workers expanded, re-opened, or created window openings. This even though the school district had previously replaced all the original windows.
Buzza Lofts is also a pioneer – one of the first projects to utilize Minnesota’s state historic tax credit. Established in April 2010, Minnesota’s incentive is a one-time tax credit equal to 20% of the amount of qualified rehabilitation expenditures. It is issued as a certificate that recipients may redeem for a refund if they don’t have sufficient state tax liability to use the tax credits.
Funding Sources
The $34.9 million Buzza Lofts project utilized several funding sources:
The largest piece was $15.4 million in tax credit equity from RBC Capital Markets’ Tax Credit Equity Group, which syndicated the 4% federal housing tax credits and federal historic tax credits. Eric Klipfer, Vice President of RBC Capital Markets’ Tax Credit Equity Group, said RBC, which syndicated tax credits for two or three previous Dominium projects, liked the Buzza Lofts project for several reasons. “Dominium is a top-tier developer, the Uptown neighborhood of Minneapolis is a very strong market, and it just seemed like a great adaptive re-use of an old building,” he said.
Other funding sources included a $4.8 million loan capitalized by equity from Enhanced Historic Credit Partners, the state historic tax credit investor; an environmental clean-up grant; deferred developer and construction management fees; and a $9.8 million first mortgage from U.S. Bank. The mortgage was funded by tax-exempt, 35-year variable-rate bonds purchased by the bank.
Barnes said the pay rate on the variable-rate bonds – which reset weekly and are hedged by a rate cap – is currently about 3%. Nonetheless, Dominium hopes to secure a federally insured Section 223(f) permanent mortgage to refinance the current debt and redeem the bonds, and is seeking approval for this from the U.S. Department of Housing and Urban Development (HUD).
Buzza Lofts – overlooked by many others as a development opportunity – has turned out to be one of Dominium’s crown jewels, according to Barnes. “It’s the best location we’ve ever had in our portfolio of 41 years,” he says.
