Kansas-based developer Cohen-Esrey’s project to rehabilitate the Freeborn National Bank and Jacobson Apartments hit a roadblock this week.

The developer and Albert Lea officials found out the project was not awarded state housing tax credits in the fall grant round, according to a news release. The project hinges on the receipt of both housing and historic credits.

“While we’re disappointed, we’re not yet defeated,” said Clint Jayne with Cohen-Esrey. “We will continue to work on this together.”

A news release sent out Friday said Jayne plans to reapply with the help of the city in the next application round in January. The housing tax credits are for $438,347.

Jayne said he has had several positive conversations with the Minnesota Housing Finance Agency, and he is optimistic about another application for renovations.

Cohen-Esrey hopes to turn the buildings — on the corner of Broadway and William Street — into 21 apartments on the upper floors, with the Albert Lea Art Center and Prairie Wind Coffee on the ground level. The community will also be able to rent out space for events.

The apartments would not be subsidized housing but would be income-limited — meaning only residents who make up to a certain amount of income would be allowed to live there. Rent would be $540 for a two-bedroom apartment and $460 for a one-bedroom apartment.

Marty Shepherd with the Art Center said though she was disappointed in the news, she hopes the organization’s patrons will continue to support them.

“We’re still in the game,” she said. “We’re still working on it.”

City Manager Chad Adams said the majority of project awards from the fall grant round appeared to be geared more toward the preservation of existing affordable housing structures or projects benefiting homelessness and special needs populations.

He said the city knew it might take a few application rounds to be awarded funding, and city leaders will work with Jayne and the Minnesota Housing Finance Agency to find ways to make their application stronger, including asking for more support from local legislators.

“We realize that this is a very competitive process, and we are ready to move forward with another application,” Adams said.

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.