As the apartment-vacancy rate in downtown Minneapolis rises and developers struggle with market uncertainties and development challenges, plans to build two high-end towers with a combined 678 rentals near the Mississippi River are moving forward.

The projects include a 28-story tower just across the river from downtown Minneapolis at the corner of SE. Central Avenue and SE. 2nd Street and a mixed-use project with a 21-story tower on a three-quarter block site that will include a new fire station at the corner of Washington and Portland avenues in the Downtown West area.

The developers of those mixed-use projects, which are on key redevelopment sites, said that after a review by the Minneapolis Planning Commission Monday they plan to move forward with construction later this year.

The 28-story tower, which is being called 200 Central Avenue, is slated to have 360 apartments and 3,800 square feet of commercial space project. It is being developed by Twin Cities-based Alatus and J.J. Smith, managing partner of CRG of Chicago. Smith has been involved with several high-profile projects near the University of Minnesota including the Link at Prospect Park, Uncommon Dinkytown and HERE Minneapolis in his previous role at another Chicago-based firm, CA Ventures.

Alatus founder, Bob Lux, and other developers with projects in the pipeline said they are optimistic that by the time the projects are completed, market conditions will have improved.

“Alatus and CRG believe in the downtown core and nearby neighborhoods for future growth and at a time when many paused or pivoted to suburban locations,” said Lux.

The tower is Lux’s latest attempt to redevelop the site, which he acquired several years earlier and guided through a complex series of legal challenges. When he acquired the site it had been occupied by the Washburn-McReavy funeral chapel and St. Anthony Athletic Club. Both were demolished in 2016 after an effort by some to block demolition of the funeral home.

A few years ago the Minneapolis City Planning Commission approved several applications for a 42-story tower with 214 for-sale condos, but the project was delayed by protracted legal challenges over the height of the project, which is in the St. Anthony Falls Historic District.

Though Lux prevailed, he later pulled the plug on the concept, citing changing market conditions. The team is now asking the city to amend previous approvals and approve several variances including slightly reducing the minimum vehicle and bicycle parking requirement.

The new proposal is similar in design to one that was previously approved but will be shorter and have a five-story parking podium, which is one story taller than previously approved.

Lux said he expects the project to break ground around the latter part of 2021. “Our team likes our position when this project would open its doors in late 2023,” said Lux.

The projects come at a challenging time for the downtown rental market, which has been beset by the global pandemic and rising crime in some areas.

The latest data from Marquette Advisors show that at the end of September the average vacancy rate in the downtown Minneapolis submarket was 11.1%, including new projects that are still in the lease-up phase. That is slightly higher than in 2009 and in 2014, years with similar surges in construction.

Though some developers have delayed their projects or scaled them back, there are several already under construction or in the pipeline in downtown.

The second major project to be reviewed by the Planning Commission Monday is Sherman Associates’ 21-story tower with 228 market-rate rentals, 5,400 square feet of commercial space, a six-story building with 90 income-restricted rentals and a fire station that would replace an existing one.

The project, which is at 240 Portland Av., was first reviewed by the Planning Commission’s committee of the whole in 2018, but after several changes the latest iteration no longer has a parking structure and the tower is slightly shorter with fewer rentals.

Developer George Sherman said that while his existing apartment buildings in the area are faring relatively well — occupancy rates are in the mid-90% range — he is more concerned about hotels and restaurants in the area.

The 240 Portland Av. project hasn’t been unscathed by the pandemic and other headwinds that face the commercial real estate sector.

Sherman nixed a planned parking structure with more than 300 parking stalls because there is an expectation that demand for downtown parking won’t be robust in the future.

“There will be long-term change in need for parking because of COVID and more people working at home,” he said. “There will be substantially less demand for commuter parking downtown going forward.”

He said nixing the parking garage aligns with the city’s goal of reducing the amount of parking — and reliance on cars — in the city.

The change will also eliminate an additional curb cut that was required to build the parking structure, but not embraced by the city.

Sherman said that he is still proceeding with plans for an April start date on a nearby 220-unit rental building on what is known as the Thrivent block, but he has adjusted his expectations on rents and has adjusted the unit mix to better meet changing market conditions.

“This part of downtown is still doing OK,” he said. “We’re still bullish about the market.”

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