MOORHEAD – A larger-than-expected grant from the state of Minnesota is a giant step for a major development project planned for First Avenue North, a city official said Thursday.

Moorhead applied to the state late last year for a grant to clean up property the city owns along First Avenue North between 15th and 18th streets, said Scott Hutchins, deputy city manager.

The projected cost of removing what has been called a "chlorinated solvent hot spot" is $1.8 million and the city was looking for at least $600,000 from the state.

Instead, it will receive about $900,000 from the Department of Employment and Economic Development, said Hutchins, who added that tax increment financing will cover the remaining cost of cleaning up the land the city is poised to sell to developer Mark Buchholz.

Buchholz is looking to initially build two 42-unit apartment buildings, and later a third apartment complex or a commercial/residential building that would accommodate mixed uses.

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The total value of the project is estimated at $12.4 million.

"Our next steps will be to work with the developer to get that land to them," Hutchins said.

He said the cleanup work will likely begin this spring, with construction on the project starting this summer.

Under the project's tax increment financing arrangement, the developer will pay a share of the cost of the cleanup and later recoup that expense by forgoing, for a time, paying taxes on the dollar amount the property will increase in value as a result of the improvements made to the land.

"I fully expect this (development) to proceed with this commitment from the state," Hutchins said.

Moorhead bought the land, formerly home to Aggregate Industries and Hedgemasters, in 2010 for about $300,000 and paid about $150,000 to demolish existing structures. The city is selling the land to Buchholz for about $360,000.

Buchholz said he is looking forward to starting work on a project that will provide people with great living space options in downtown Moorhead and, more importantly, "get a polluted site that could never be developed cleaned up and developed."