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AGENDA RECOMMENDATION |
Item No: 4.A.
Economic Development Authority
- Meeting Date:
- 06/08/2026
Agenda Item:
Resolution amending Commercial Rehabilitation Program Guidelines and Policies to increase the maximum loan amount to $50,000.
Recommendation/Action(s):
Adoption of the attached resolution.
Summary:
The City’s Commercial Rehabilitation Guidelines and Policies were originally adopted in 2009. In 2013, an amendment was approved to reflect the City’s change in status to a Metropolitan Statistical Area and for general improvements to the program. Changes included adjusting the repayment requirement to a prorated amount based on when the property is sold to reflect the depreciating value of the rehabilitation work and to reflect the change in funding source from Small Cities Development Program (SCDP) to Community Development Block Grant (CDBG). The maximum loan amount has been $25,000 since 2009. Revisions to the current guidelines and policies are recommended to allow for an increased maximum loan amount from $25,000 to $50,000.
Staff have seen an increase in project costs such that $25,000 is often insufficient to complete a project. According to the Mortenson Construction Cost Index, in 2009 the Minneapolis construction cost index was 92.2. The Minneapolis construction cost index for 2025 was 189, or a 104% increase since 2009 when the guidelines were developed with a maximum loan amount of $25,000. The construction cost index is a weighted average for changes in the cost of building materials and services. A redlined version of the guidelines and policies is attached which show the proposed changes reflected in Section B.4 and J.1.
Eligibility criteria for a Commercial Rehabilitation Loan include that properties must be located within one of the City’s targeted areas, which consist primarily of established commercial areas containing the City’s older commercial building stock. The average construction year of the commercial buildings within the targeted areas is 1907.
Over the past five years, staff have noticed the cost of materials and labor have increased. The City contracts with Minnesota Valley Action Council (MVAC) to carry out rehabilitation projects once they’re determined eligible. MVAC made a recommendation to staff to increase the maximum loan amount up to $50,000. Staff found other Minnesota cities with similar commercial rehabilitation deferred loan programs that had loan maximums ranging from $40,000 to $50,000.
The table below provides a comparison of some of the project costs with the corresponding loan amount since 2014.
The loans are provided as a 0% interest deferred loan for eligible rehabilitation costs. The loans are deferred for 10 years with a due-on-sale or transfer clause, and then forgiven at the end of the 10th year. Should a sale occur or the use of the property change within the term of the deferred loan, the property owner would be required to repay a prorated portion of the principal amount. The loan requires a 1:1 match.
EDA approval is required because the Commercial Rehabilitation Program utilizes EDA Levy funds. City Council approval will also be required at a future Council meeting because the guidelines also apply to CDBG funding, for which the Council is designated by HUD as the responsible governmental unit.
Staff have seen an increase in project costs such that $25,000 is often insufficient to complete a project. According to the Mortenson Construction Cost Index, in 2009 the Minneapolis construction cost index was 92.2. The Minneapolis construction cost index for 2025 was 189, or a 104% increase since 2009 when the guidelines were developed with a maximum loan amount of $25,000. The construction cost index is a weighted average for changes in the cost of building materials and services. A redlined version of the guidelines and policies is attached which show the proposed changes reflected in Section B.4 and J.1.
Eligibility criteria for a Commercial Rehabilitation Loan include that properties must be located within one of the City’s targeted areas, which consist primarily of established commercial areas containing the City’s older commercial building stock. The average construction year of the commercial buildings within the targeted areas is 1907.
Over the past five years, staff have noticed the cost of materials and labor have increased. The City contracts with Minnesota Valley Action Council (MVAC) to carry out rehabilitation projects once they’re determined eligible. MVAC made a recommendation to staff to increase the maximum loan amount up to $50,000. Staff found other Minnesota cities with similar commercial rehabilitation deferred loan programs that had loan maximums ranging from $40,000 to $50,000.
The table below provides a comparison of some of the project costs with the corresponding loan amount since 2014.
| YEAR | LOAN AMOUNT | IMPROVEMENTS |
| 2014 | $25,000 | Structural beams, energy efficiency improvements, electrical repairs, plumbing. |
| $25,000 | Stucco, structural repairs to stone piers, tuckpointing | |
| $25,000 | Exterior masonry improvements, waterproofing to foundation. | |
| 2017 | $24,990 | Repair/replace rotted and damaged soffit/fascia/crown molding, replace storefront door and windows, replace side and rear entry doors, replace front entry porch columns and railing, repair built-in gutters, repainting. |
| 2018 | $17,553 | Accessibility improvements (ramp, exterior access), roof repair/replacement, replace doors, install handrail. |
| 2024 | $20,000 | Tuckpointing |
| $25,000 | Replace windows, new exterior finishes, energy efficiency improvements. | |
| $25,000 | Tuckpointing | |
| 2025 | $25,000 | Replace storefront windows and storefront door. |
| $25,000 | Masonry repairs, tuckpointing. | |
| 2026 | $24,923 | Replace storefront window, replace storefront door, repainting. |
The loans are provided as a 0% interest deferred loan for eligible rehabilitation costs. The loans are deferred for 10 years with a due-on-sale or transfer clause, and then forgiven at the end of the 10th year. Should a sale occur or the use of the property change within the term of the deferred loan, the property owner would be required to repay a prorated portion of the principal amount. The loan requires a 1:1 match.
EDA approval is required because the Commercial Rehabilitation Program utilizes EDA Levy funds. City Council approval will also be required at a future Council meeting because the guidelines also apply to CDBG funding, for which the Council is designated by HUD as the responsible governmental unit.