The Minnesota Housing Finance Agency has opted not to award tax credits to redevelop the Freeborn National Bank and Jacobson Apartments in its fall grant round.

The announcement came Thursday in a press release by Albert Lea officials.

“This is obviously not the outcome we would have liked,” said Albert Lea City Manager Chad Adams. “I recognize that this is a highly competitive process and want to review the details of the tax credit awards to better understand why this decision was made.”

Plans by Kansas-based developer Cohen-Esrey call for turning the buildings — on the corner of Broadway and William Street — into 21 apartments on the upper floors, with the Albert Lea Art Center and The Interchange Wine & Coffee Bistro on the ground level. The community would also be able to rent out space for events.

Adams said Cohen-Esrey had asked for about $379,000 in housing tax credits and deferred loans in the amount of $457,000 from the Minnesota Housing Finance Agency. Cohen-Esrey would also apply for historic tax credits, and the whole project is estimated to cost over $4 million. The project proposal hinges on the awarding of the housing credits as they ease the financial burden of developing the building.

“We’re going to take some time and step back and review the ranking, and then we’ll go from there,” Adams said.

He hoped this would happen in the next few weeks.

“It’s hard to say what direction we’re going to take,” he said.

The city and the developer could decide they would like to pursue an additional application or they could decide to open the project up for proposals again.

A year ago after finding out the project was not awarded the first time, Cohen-Esrey and the city went back to the state and asked what they needed to do to improve their application, Adams said. They received good feedback on the project and found out about areas they could improve their application to receive a higher score.

Tom Anderson, managing director of Cohen-Esrey, said this time around the Minnesota Housing Finance Agency considered 78 multi-family proposals and recommended funding for only 23 — just under 30 percent of the projects submitted.

The city entered into a development agreement with Cohen-Esrey in January 2015. The agreement is contingent upon being awarded the tax credits.

Marty Shepard with the Albert Lea Art Center said she and other members were hopeful the project would be awarded this round.

“I think what we’re going to have to do is re-group with our management board and see what our plan B will be,” Shepard said. “I don’t think we’re done exploring and trying to grow.”

She said she thinks the board would support another application.

“I’m enthusiastic about still going for something,” she said. “I’m not going to give up.”

Built in 1922, the Freeborn National Bank was originally constructed as a bank on the first floor and medical and professional offices in the upper floors. The Jacobson’s first two floors were constructed in 1888, and the two upper floors were added in 1923. The buildings share a staircase and elevator.

In 2006, the city spent about $2 million to restore the exterior of the bank building, including tuckpointing, a new roof, a skylight and new water, sewer and electrical service to the buildings, among other improvements.

Under the preliminary agreement, a developer will need to replace electrical, plumbing and heating and air conditioning, among other improvements.

The city will be responsible for paving the parking lot to the east of the buildings, though Cohen-Esrey could apply for grants to cost-share the project. The city will also be able to review and approve tenants of the main floor of the bank building for the first five years.

The city presently  has an agreement with West End Architectural Salvage to use the main floor of the bank building through November.