An affordable housing project planned for the ambitious Upper Harbor development along the north Minneapolis riverfront has been delayed — and may need to be reimagined — after the project’s applications for critical state subsidies were rejected two years in a row.

The setback comes as other parts of the 48-acre redevelopment are moving forward. Streets have been constructed and utilities installed. Developer United Properties reports the centerpiece First Avenue amphitheater is on track for completion by next year’s concert season, plans are forming around a health and wellness hub proposed to be run by InnerCity Tennis, and the Park Board has broken ground on a 20-acre park that will reconnect north Minneapolis with the Mississippi River.

The first phase of construction, which started this spring, was also supposed to include a mixed-use affordable housing building with 170 rentals — two-thirds of them at 30-50% area median income — and 17 perpetually affordable townhomes. But the financing uncertainty has delayed construction to next spring at the earliest, with the possibility that its deep affordability levels may have to be re-evaluated.

Bill English, a past president of the Minneapolis Urban League who has been beating the drum for living wage jobs and affordable housing at Upper Harbor since he served on the project’s collaborative planning committee five years ago, has been urging Northsiders to pay attention to what’s going on. He said he’s worried about gentrification if affordable housing isn’t part of the project.

“This year the state gave more money to affordable housing than has ever been done in the history of the state,” he said. “Yet where’s that money going?”

Northside developer Devean George, whom United Properties tapped to lead the construction of over 500 units of affordable housing at Upper Harbor, said the project team may have to “tweak” the affordability levels, but promised that the building will not become luxury apartments.

“It’s still going to be an affordable project. It just may be a few extra things that add benefits may have to be taken out, that we just couldn’t afford,” George said. “Right now we have a deep mixed-income that’s really inclusive of everybody… We’re going to try to keep the project as consistent as we’ve been talking about, but we may shrink down the number [of units] or cut it in half.”

Public subsidies that the building has already received include $5 million in affordable housing trust funds from the city of Minneapolis, $2 million in Livable Communities Demonstration Account funds from the Metropolitan Council, and $1 million in affordable housing incentive funds from Hennepin County.

George’s company Building Blocks applied for $12 million more in deferred loans from Minnesota Housing, the state housing finance agency, in 2022 and 2023. The applications were both rejected despite leaping from a score of 76 to 130 from one year to the next. Last year, successful metro-area projects competing for funding in the “workforce housing” category scored between 133 and 145 points.

“We kind of retooled the project to be more competitive and really had hope that this summer we would be closing all of our financing and starting construction,” said Tom Strohm of United Properties. “It probably impacts the subsequent, second phase of affordable housing right? So that’s one of the questions that we’ve had to ask ourselves. We can’t start applying for the second phase of affordable housing before we get the first phase secured.”

The second phase of affordable housing construction, originally scheduled to begin next year, includes two more mixed-use housing developments.

Minnesota Housing scores multifamily projects higher when they include deeply affordable units, when they’re employing innovations, cost-efficiency and community involvement, and when they’re led by developers of color and women. The agency selected 28 projects out of 97 multifamily applications received last year, including in Minneapolis a new senior complex at 3246 Nicollet Ave., new permanent supportive housing by Aeon and preservation funds for buildings owned by Little Earth of United Tribes, RS Eden and Simpson Housing.

The Upper Harbor project scored higher than a few others that were chosen. Minnesota Housing Commissioner Jennifer Ho said hard decisions have to be made depending on how much money is left in the pot after the highest-scoring, most competitive projects are selected first. Upper Harbor’s $12 million ask was steeper than most, which presents a challenge for getting picked up, she said.

“Sometimes projects have been partially funded by others and they’ve got more leverage, they’re more ready to go,” Ho said. “It also depends on the size of the project — preservation per door tends to be less than a new construction deal… The Upper Harbor Terminal project is great, and it’s also a big project.”

George said he understands Northsiders are going to be disheartened about the prolonged wait for affordable housing at Upper Harbor, but that the development team is working on a yet more competitive application for state funds this year.

“This has taken some time,” he said. “The main thing would be to keep hope and understand that we’re still working to make this right.”