Asked to forgive $5M loan for apartments, Brooklyn Park weighs rent hikes, tenant displacement

The owners of the massive affordable housing complex Huntington Place are likely to default on a $5 million loan from the city of Brooklyn Park after failing to make a substantial payment.

City officials worry about a looming threat that the financially struggling complex could face possible foreclosure, which would endanger housing for 2,500 low-income residents. The alternative, nonprofit property owner Aeon says, is for city officials to forgive the loan and clear the path for them to sell to the real estate investment firm MAS Capital.

The prospective buyer has shared plans to renovate the 834 units across six buildings and bring the aging complex up to modern standards. The buyers and Aeon have said they would keep the property's affordable housing covenants for 30 years.

Eric Anthony Johnson, CEO of Aeon, said the potential sale would be "positive for the community and the many residents that call Huntington Place home.

"The transaction will allow for the investment of additional capital into the project and further the vision that Aeon had for Huntington Place in preserving affordability," he said.

But City Council members have stalled on deciding whether to forgive the loan.

Moshe Mermelstein, principal with MAS Capital, recently told city officials that rents would increase after the sale. The firm would not extend leases when they expire but would allow tenants to enter into new leases for renovated units. City officials worry this would displace some residents.

Here's where the talks are at:

How did we get here?

Huntington Place, built in 1969, is Minnesota's second-largest apartment complex of its kind, for years providing needed affordable housing in the Twin Cities.

Nonprofit housing provider Aeon bought the complex in 2020 for $76.6 million, with financing from National Equity Fund and the Twin Cities Local Initiatives Support.

Aeon's struggles began right away when the COVID-19 pandemic hit and an eviction moratorium resulted in some tenants not paying rent. The complex also saw heightened security issues, drugs and gang activity.

Aeon, the city and tenant advocacy groups started working together to turn the complex around, including ramping up security, dealing with crime and repairing water damage and other issues. Violent crime and calls to police at the complex have since dropped significantly.

But financial woes have persisted. Huntington Place is only 75% full. Johnson said the nonprofit has been unable to pay lenders as some tenants miss rent, along with rising insurance and maintenance costs.

How much does Aeon owe the city?

Brooklyn Park loaned Aeon $5 million, of which about $3.8 million is due.

A $1 million payment, plus interest, was due at the end of January. City spokeswoman Risikat Adesaogun said city officials are expected to discuss issuing a notice of default later in February.

Brooklyn Park provided another $1 million to the complex in recent years, half coming from federal COVID-19 funds.

Huntington Place also has received $10 million from the state, $3.5 million from Hennepin County, plus a $4 million federal grant that hasn't been used yet.

Would apartments be renovated?

Yes. MAS Capital, the out-of-state investment firm, is proposing buying the complex and fully remodeling each apartment, spending up to $24,000 per unit.

Mermelstein also proposed repairs throughout the complex, including replacing windows, updating the clubhouse and fixing the pool.

What about rents?

Mermelstein told city officials rents would go up, though MAS has committed to maintaining the city's affordable housing covenants.

Current rents range from $900 to $1,000, according to city documents, but could be raised to as high as $1,165 to $1,398 under the agreement.

Mermelstein said rents would be less than the maximum allowed. He has been negotiating with the city on allowing some of the units to be market-rate.

What happens if the city doesn't forgive the loan?

Property owners say Huntington Place would likely face foreclosure.

Katherine Johnson, an attorney representing Aeon, told city officials the owners would not be able to release the lien on the mortgage. She said the lender has given a "short leash" to get the deal done in the first quarter of 2025.

Mermelstein said the property is worth less than what is owed. The affordable housing covenants would be terminated by foreclosure, and it is unknown who might buy the property if a judge orders a sale.

What's next?

The city's Economic Development Authority, which is made up of City Council members, is expected to discuss issuing a potential notice of default at a Feb. 18 meeting.

City staff have been negotiating with Aeon and MAS on conditions ahead of the potential sale, such as assurances on affordability and renovations being completed. The Economic Development Authority could make a decision as early as March.

Susan Du of the Minnesota Star Tribune contributed to this story.