Oct. 30—The kennels are gone from the former Mankato Pet Hospital on South Riverfront Drive and the human beds are coming as the owner of the 116-year-old building plans to transform it into a six-unit apartment house.
On a triangular two-acre lot on Mankato's Timberwolf Drive, a developer has come up with a strategy for wedging in three buildings totaling 19 apartments.
And on a farm field at the intersection of two of the city's busiest roads — a spot once considered the prime remaining undeveloped spot for a big-box retail project — there's a new and ambitious plan. Much of the lot is being converted from a commercial designation to a residential one in advance of the proposed construction of five three-story apartment buildings, dozens of townhouses, and a shared swimming pool and clubhouse for the 1,000 or so people who would live there.
Both in volume and variety, real estate developers have been bringing new housing projects to the city of Mankato at a remarkable rate in 2022.
"The Planning Commission agendas have been full," said Mankato Community Development Director Paul Vogel, describing the mix of proposed developments. "We're just seeing a lot of projects coming through the Planning Commission."
In the past 10 months, more than 20 housing projects have come to the commission and the City Council. They range from a pair of massive apartment complexes offering a combined total of nearly 700 units to smaller projects adding apartments above bars and restaurants.
Add them all up, as The Free Press did, and it totals 1,383 apartments, townhouses and residential lots for detached single-family homes.
"Can I just interrupt to say, 'Holy cow!'?" longtime local housing developer Mike Drummer said.
Drummer — who has a single-family subdivision, townhouses and an apartment building on the list — knew that proposed housing construction was soaring. The number, though, is far above what he's seen previously.
"I don't think there's a better place in Minnesota to build stuff than Mankato," he said, adding that local developers have shared that opinion for a while and now others seem to have come to the same conclusion. "How'd we keep our secret so long?"
He doubts that all of the proposed projects will make it to the construction phase.
But even if several are canceled, delayed or done in bite-sized phases, the wave of new rental options has the potential to change the nature of the marketplace in a way that tenants might enjoy.
"I think we're going to create a positive place for people looking for apartments rather than people speculating and building apartments," he said.
Housing by the hundreds
The nearly 1,400 proposed housing units include a couple of projects, such as the affordable-housing apartment complex north of Cub Foods West, that have been in the planning process for several years and received the final approvals this year. Many, however, involve plans city officials were seeing for the first time in 2022.
The list doesn't factor in numerous previously approved projects, including some already under construction east of Highway 22, north of Highway 14, behind the Madison East Center and elsewhere. It doesn't take into account the redevelopment of 55 acres of the former Good Counsel campus, which is being sold by the School Sisters of Notre Dame and is expected to be focused on market-rate residential units. And it doesn't include the hundreds of units that are likely to be built in a still-evolving plan for the next use of a 54-acre former quarry in the heart of Mankato.
The number is driven almost entirely by apartment units and townhouses. Just 96 of the 1,383 potential new homes are lots for traditional detached owner-occupied homes.
Nearly 1,100 units are in proposed apartment buildings of eight units or more. If all were built, it would be nearly a 10% increase in the total number of rental units in Mankato, North Mankato and Eagle Lake, based on an inventory of existing units in a 2020 housing study commissioned by the city of Mankato. In the 20 previous years, the Mankato area constructed more than 300 units in single year only twice and has never hit the 500 mark.
The prospect of a dramatic jump in available housing is welcome news for the local economy, where employers are struggling to attract workers, partly because of a shortage of places to live, said Jessica Beyer, president of Greater Mankato Growth.
"Housing is a key workforce recruitment issue," Beyer said.
While the need for lower-cost apartments and starter homes often gets the most attention, there's a shortage of options in virtually all categories as employers attempt to recruit and retain high-demand employees.
"That ranges from doctors to machinists," she said. "... It's been difficult because people have been trying to locate to the area, but there's only so much inventory."
From commercial to residential
For more than a decade, the 73 acres of corn and soybean fields north of the Highway 14-Victory Drive interchange were marketed for commercial use. With plenty of space, lots of traffic, good roads and great visibility, it was the sort of spot that a retailer like Costco was expected to jump on if the company ever decided to come to Mankato.
The portion of the lot nearest to Victory Drive will continue to be targeted at commercial purposes, at least for now, but developer Brett Skilbred is asking the city to amend its land-use plan to make the northern and northeastern 33 acres residential.
"No commercial uses have pursued development at this site over the years, and the market conditions support a need for more housing options," a city memo attached to Skilbred's request summarized. "... The housing will be for all age groups and demographics."
Skilbred's plan includes five three-story apartment buildings with covered parking and surface lots sufficient for 974 vehicles. The number of apartments per building would range from 54 to 101, totaling 374. Forty townhouses would provide a buffer between the apartment complex and the existing $300,000 single-family homes on Torrey Pines Drive.
Preliminary plans filed with the city show a clubhouse, pool and playground between the apartment buildings and the rows of townhouses.
About a mile to the east at the intersection of North Victory Drive and Power Drive, a 47-acre parcel formerly zoned for commercial uses is now to become Wolf Pointe Townhomes — 116 twin homes in 58 structures being developed by DeMars Construction. The basem*ntless homes will be adjacent to the Picklebarn, a large new indoor pickleball club, making the development a potentially attractive option for certain retiring baby boomers.
Similar conversions from commercial to residential have occurred elsewhere on Mankato's east side.
"In the age of online retail and some of the headwinds retail has experienced in the past 20 years, there needs to be some repositioning of that land," Vogel said, noting that the land uses were typically set in the 1990s when Mankato was becoming a hot regional shopping hub. "Those expectations probably need to be adjusted to the current markets."
Projects big and small
The second-largest new project coming to the city is along another high-traffic road — Augusta Park Estates on the west side of Highway 22.
Plans show four large apartment buildings adjacent to the highway just south of the Wickersham Health Campus and a fifth along Augusta Drive. A total of 270 apartments are planned, along with parking lots and garages and "amenity areas."
The action isn't just on Mankato's hilltop anymore. The other developments topping 100 units are in the older portion of the city within the Minnesota River Valley.
The Neighborhood, located on the former city Public Works site near Cub Foods, has broken ground on 112 units of apartments and nine townhouses, nearly all of them to be reserved for lower-income residents. The project received federal, state and municipal subsidies as part of Mankato's ongoing effort to boost the amount of affordable housing.
"We're still clipping along with 50 to 60 units of affordable multi-family dwelling units per year," Vogel said.
And downtown Mankato's largest apartment complex — a two-building $38 million project totaling 108 units — appears to be nearing construction. Developers of The Burton are obtaining city approvals vacating easem*nts and allowing awnings to encroach over sidewalks as they prepare to break ground on the block-long project along Second Street between Main and Mulberry streets.
Other planned projects along Second Street would bring the total number of new downtown apartments to more than 200.
Elsewhere in the Minnesota River Valley, a requested conditional-use permit came to the city this month to build a 69-unit four-story apartment building on the northwest side of a parcel now dominated by the vacant Dutler's Bowl along Highway 169. The project is the first of a two-part phased project that would later bring an identical building to the southeast side of the lot where a closed carwash sits.
Both buildings would have commercial space on the ground floors, and the Phase 1 building includes a rooftop lounge with gas grills and a fire table overlooking Hiniker Pond Park.
People looking for a townhouse near a bike trail and Mankato's premier park may soon be in luck. River Bluff Townhomes is a 24-townhouse development planned for 4.5 acres between the Minnesota River and Sibley Parkway, just east of Sibley Park. The concept came to the Planning Commission a month ago with city staff recommending a direct connection from the property to the Minnesota River Trail.
In addition to the large projects, owners of small properties are also trending toward residential. The owner of the Old Town building housing The Wooden Spoon bakery received a conditional-use permit to convert vacant space into four apartments. The owner of one of Mankato's skinniest buildings — the 157-foot-long, 22-foot-wide LaSalle Building on Walnut Street — has received a permit to transform empty offices above The Flask bar and restaurant into three apartments.
And the former Mankato Pet Hospital and veterinary clinic at 1606 S. Riverfront Drive is set to have a basem*nt apartment, four more on the ground floor and a four-bedroom apartment on the second story.
For those looking to be a bit farther away from the city center, Drummer's Groh Farm subdivision is already seeking approval for Phase 2 even as Phase 1 breaks ground along Madison Avenue just west of Eagle Lake. The first phase, approved in the summer of 2021, offered more than 80 lots, mostly for single-family homes. The second phase will bring 73 more, plus room for possible townhouses and multi-unit buildings.
High interest despite high rates
Drummer wonders about the timing of the local housing boom. It's a very challenging time to construct almost anything because of supply chain problems and inflation.
"We've had lumber that's decreased a little bit, but everything else has gone up," he said, pointing to price spikes spanning girders to pipe to dishwashers. "Everything is coming in dramatically higher."
As the Federal Reserve tries to tame inflation with interest rate hikes, the risk of a recession increases.
"This will be the fifth or sixth recession I've been through. I've never seen one like this .... This one's got high inflation and high interest rates."
While interest rates are still reasonable by historic standards, they've jumped at a much faster pace than normal, Drummer said
The impact is already being felt in single-family home construction, where some people are canceling projects because the jump in mortgage rates has made house payments unaffordable.
But the multi-family developments just keep coming, even attracting outside money.
Augusta Park Estates is a prime example. The developer there is Steve Kuepers of Brainerd, who has built apartment complexes from Duluth to Grand Rapids to Hutchinson to St. Cloud. Based on the 17 projects featured on his website, the Mankato development would be his largest.
Drummer said he's never seen so many outside investors proposing Mankato housing projects.
And he wonders about the practicality of some of the big projects being proposed when the developer didn't previously own the land, particularly now that interest rates have doubled, pushing up the cost of financing the purchase of the parcel and the building construction.
"I wonder how the pro formas on those work," he said, guessing that the financial projections must assume that rents will continue to rise.
Drummer, by contrast, expects all the new projects to push up Mankato's extremely low apartment vacancy rate, boosting the supply of available units: "What is it going to do to the market if we end up with vacancy rates in the normal range rather than what we've seen? In theory, they should maintain rents and even lower rents."
Even with his doubts, he concedes that — so far — new apartment buildings always seem to find tenants. He saw it firsthand with the opening last year of a 66-unit apartment building he was involved with on Adams Street east of the hilltop Hy-Vee.
"We were 100% full when we opened," he said.
And Drummer has no trouble explaining why Mankato might be an attractive investment target in uncertain times. When storm clouds are forming, a city with a diverse economy looks like a safe harbor.
Spokes on a wheel
Drummer describes the local economy as a wheel with various industries serving as spokes, each contributing strength. If a recession damages one, Mankato — unlike single-industry towns — has numerous others to absorb the added load.
As a county seat and the home of regional offices of state agencies, Mankato has a large number of government jobs. It's a major retail hub. It has five colleges within city limits or nearby. There's a robust industrial sector. Farming and agricultural processing are strong in and around the city. And it's a regional center for health care.
"How lucky can we be?" he said. "We have these six bases of industry. If one of them shrinks, we always have something else that can sustain."
Vogel, too, said he's watching to see if higher borrowing costs have an impact on the pace of proposed development.
"So far, we're not seeing a slowdown," said Vogel, whose department is busy enough that it's asking the City Council to budget for an additional building inspector.
To see so much investment in the face of a threatened recession is heartening to a chamber of commerce executive like Beyer.
"It's incredibly encouraging," Beyer said. "... Not just the potential but what's currently happening. There's a lot to be excited about."
For Drummer, it's fascinating — even with the uncertainty ahead.
"It's a super-interesting time to be involved with what's going to happen in Mankato," he said. "Dramatic unknowns."
