ROCHESTER — A preliminary report shows private investment in Destination Medical Center has continued to drop ahead of Mayo Clinic’s plans for a $5 billion expansion.

“We have noticed a slowdown in non-Mayo private investment, so we started monitoring that a few years ago,” said Michael Flynn, the DMC Economic Development Agency’s senior director of economic development.

While the annual report on private investment isn’t due to the Minnesota Department of Employment and Economic Development until April 1, Flynn recently told the state DMC Corp. board that the 2023 reported private investment outside of Mayo Clinic projects appears to be “just under $13 million.”

“We haven’t published that yet, but that’s what we think it’s going to end up,” he said.

It’s down fromnearly $26.5 million reported in 2022, and a high of approximately $135 million in 2018.

While declining since 2019, the cumulative investment thus far by Mayo Clinic and other developers since 2013 remains on the low end of a range projected at the start of the initiative, with a combined $1.46 billion.

“The pandemic was also in that timeline, which was not anticipated at the beginning of the modeling for DMC,”

Rochester Mayor Kim Norton pointed out during the recent discussion.

Private investment in the DMC district, along with Mayo Clinic investment throughout the city, from year to year is used to guide the release of designated state funds.

The district includes Rochester’s downtown core, as well as areas extending west to surround the Saint Marys Hospital campus.

The legislation that created the DMC initiative sought to spur $5.6 billion in private investment in Rochester — $3.5 billion by Mayo Clinic and $2.1 billion in other private development — over a 20-year period.

With the anticipated report of $13 million in non-Mayo Clinic investment in 2023, the development of multifamily residential and commercial development in the DMC district is expected to reach approximately $539 million in the formal report to DEED.

Mayo Clinic’s proposed $5 billion “Bold. Forward.

Unbound. in Rochester” expansion of its downtown Rochester campus is expected to push the overall investment well beyond the overall private investment goal by 2030.

It is expected to make way for the eventual release of the full $585 million in designated DMC state funds. So far, nearly $127.6 million in DMC state infrastructure funds have been released, along with $7.5 million in related transit funds.

Citywide investment While private investment in downtown slowed in the wake of the pandemic, commercial investments citywide saw growth in 2021 and 2022, where building permits point to more than $130 million in investment each year. It’s up from $71 million in 2020.

The dollar amount dropped to $65.7 million in 2023, but the city reported a four-year high — 436 — last year in the number of commercial permits issued, pointing to an increase in the number of projects at lower costs.

While commercial building permit values waned last year, Rochester City Administrator Alison Zelms said all permits, including alterations and trade work, accounted for a record $600 million in 2023.

When it comes to residential building permits, citywide values grew through the pandemic, from nearly $100 million in 2020 to a high of $188.7 million in 2022. The number dropped slightly to $177.2 million last year.

Flynn said residential housing was an early driver in downtown private investment as DMC was launched and could be a source for spurring added investment.

While one large project — the Enclave Apartments at the site of the former Rochester Area Family YMCA — is moving forward with plans to open in 2025, Flynn said two others — CityWalk Apartments on Second Street Southwest and a planned development north of the Mayo Civic Center — are facing roadblocks amid higher interest rates and construction costs.

“Operating costs to develop and manage those buildings after they are constructed has also gone up,” he said, suggesting DMC support could help spur future efforts.

Housing support discussed The CityWalk project at the intersection of Second Street Southwest and Sixth Avenue has been approved for a $500,000 grant through the DMC EDA’s distribution of Main Street Economic Revitalization funds from Minnesota DEED, but a request for state tax credits to help fund housing north of the Civic Center was denied.

Members of the DMCC board have pointed to the potential for future funding support of housing options, including marketrate efforts, but some urged caution.

“I don’t think we can TIF our way out of the housing problem,” Olmsted County Commissioner Mark Thein said as a board member, referring to tax-increment financing as potential support.

Others suggested a cautious approach in an effort to spur development.

“Housing is what frightens me most,” said Doug Baker, Jr., a Mayo Clinic trustee who sits on the DMCC board. “We aren’t going to have a place for the workers, even if we can find them and train them.”

He said avoiding public support to spur housing could be problematic.

“A dollar too much in subsidy that triggers new housing is a lot smarter than a dollar too few in subsidy that triggers none,” he said.

Contact local government reporter Randy Petersen at rpetersen@postbulletin. com.