City, developer reach agreement to resurrect Duluth's NorShor Theater

• Norshor Theater

Photo illustration by Gary Meader / gmeader@duluthnews.com

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• Memorandum of understanding

The city of Duluth and developer George Sherman have an agreement in place that could see up to $19 million spent to renovate the historic NorShor Theater and have it ready for use by 2014.

“The scope and quality of the project proposed is well beyond my expectations,” said Mayor Don Ness. “It’s going to be outstanding. It’ll be a real point of pride for our community.”

The deal would see the city hand over the theater and the Temple Opera building to Sherman sometime during the next year, as long as Sherman completes an agreement to restore the theater and meets other benchmarks, according to the memorandum of understanding that will be presented to the Duluth Economic Development Authority. DEDA could approve the proposal as early as Wednesday.

If Sherman fails to hold up his end of the bargain, he would have to pay the city $2.6 million for the buildings — the amount the city paid for the theater and Temple Opera building, both in the 200 block of East Superior Street, when it was purchased from developer Eric Ringsred in June 2010.

Sherman, a Twin Cities-based entrepreneur who is best known locally for opening the $40 million Sheraton Hotel at 301 E. Superior St. in 2007, said Friday he will start the renovations when the deal with the city has closed, with work expected to take 12 to 18 months.

Sherman will be required to hold onto the buildings for five years, because of the tax credits he’s seeking. After those five years, he will convey the NorShor to the Duluth Playhouse, an organization that already has been tapped to manage the facility, Hanson said. Sherman would retain ownership of the Temple Opera building.

Sherman and the Playhouse will take out a $3.5 million loan to finance the project.

The remaining $15.3 million for restorations will come from government-funded tax credits and private fundraising, the majority of which Sherman will be responsible for obtaining, Hanson said. As a private developer, Sherman has access to tax credits the city does not.

“We are working with the state historic preservation office to try and make sure that we are doing justice to the buildings as far as its historic significance,” Sherman said. “All of the work will have to be signed off by the state.”

The city also will commit to putting a skywalk through the NorShor and Temple Opera buildings connected to the Greysolon Plaza, costing the city an additional $1.3 million to $2.3 million, depending on the final design, Hanson said.

The skywalk component could bring the total project cost to about $21 million.

Plan draws critics

The NorShor, formerly known as the Orpheum Theatre, served as a vaudeville house in the early 1900s. With a series of renovations through the years, it became an opera house, a movie theater and, mostly recently, a venue for live events including a strip club known as the NorShor Experience.

Ness said Sherman’s plans for the NorShor go far beyond the initial $5 million renovation he and DEDA initially planned.

New plans call for the creation of a 700- to 800-seat performing arts theater, requiring the removal of a second-floor theater and restoring a balcony overlooking the main stage.

“That project would have saved the building, fixed it up and made it available for shows,” Ness said. “But this vision goes well beyond that by creating a world-class space, leveraging over $16 million in private investment.”

“It will be as nice as any of the historic theaters in downtown Minneapolis that have recently been done,” Sherman said. “And I think it will be Duluth’s top-performing performance center.”

Giving the NorShor and Temple Opera buildings to Sherman already is drawing critics.

“We can’t just hand (Sherman) a $2.6 million building, and as long as he fixes it up he gets to keep it,” said Jim Stauber, an At Large City Councilor. “There has to be protection for the taxpayers.”

Sherman stands to benefit from the annual $700,000 to $800,000 in rent on the Temple Opera Building, as well as earning about $750,000 in development fees. But Hanson is quick to note that equates to only about 4 percent of the cost for an ambitious project.

DEDA President Don Monaco said that while he hasn’t seen the final proposal, he supported a plan presented to him earlier this month.

“This is a good example of city and private partnership coming together to achieve a desirable set of objectives,” Monaco said.

Hanson said neither DEDA nor the city has much interest in owning and operating the theater because it would need a yearly subsidy, similar to the city’s payments to the Great Lakes Aquarium.

City involvement possible

Once the city sells the theater to Sherman, it will no longer have any financial obligations for it, Hanson said. However, a provision in the memorandum of understanding states that if the Playhouse is unable to achieve sufficient operating revenues for the NorShor, the Playhouse and the city will negotiate “to determine how any shortfalls in such revenue will be covered.”

Playhouse Executive Director Christine Seitz could not be reached for comment.

Before partnering with Sherman, DEDA initially sought developers who might be interested in the renovation project by issuing a request for qualifications. That request was posted with the League of Historic Theaters.

DEDA also contacted six to eight developers across the country who have been involved in historic theater projects to see if they might be interested.

Developers were given two weeks to respond, which Hanson said is standard for a request for qualifications. Sherman was singled out as the best fit for the project of the two developers who responded.

Hanson said Sherman not only is experienced but has a personal interest in seeing Duluth’s Old Downtown thrive, given the investments he already has in the area.

Having a strip club as a neighbor was not to Sherman’s liking, Hanson said.

“He has a personal self-interest in Duluth having a successful and thriving Old Downtown. I think he’d like us to see a different profile of person entering the theater than we did two years ago,” Hanson said.

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