Kozy, old jail backers seek city cash for housingFormer Duluth city planning director Mike Conlan hasn’t given up his quest to save the fire-damaged Kozy Bar property from destruction.
By: Peter Passi, Duluth News Tribune
Former Duluth city planning director Mike Conlan hasn’t given up his quest to save the fire-damaged Kozy Bar property from destruction. And his latest plan to resurrect the building, once known as Pastoret Terrace, involves teaming up with another preservationist, Grant Carlson, a principal partner in a separate partnership that owns the former county jail located just below Mesaba Avenue on West Second Street.
Together, they hope to bring more affordable work-force housing to Duluth, and breathe new life into a couple of old buildings. They unveiled their plans to the public during a news conference in the Technology Village building Wednesday.
“We’ve both been working our separate paths. But we’re here today to announce a strategic alliance between these two projects because we think there are some real economies of scale that we can achieve and some synergy that we can develop that will move both projects along,” said Conlan, now a development consultant and partner in Pastoret LLC.
He said the two projects combined would inject about $12.8 million into Duluth’s economy.
“We’ve got about 90 percent of our funding, but as you know this is a tough environment to get financing in, and we need to fill a gap of about $1 million to $1.5 million,” Conlan said.
“It has been difficult to get financiers’ attention when you’re talking about a small project of 40 units of housing for the Kozy and about the same number for the jail. But if you combine those two projects, all a sudden you’re talking about 80 units of downtown affordable work-force housing, which meets all the city’s main priorities,” he said.
Conlan suggested Duluth’s Housing and Redevelopment Authority could fill the remaining funding gap by issuing general obligation bonds. He recommended the HRA consider issuing bonds for up to $5 million, creating a pot of money that could be used to help fund not only the redevelopment of the Kozy and the jail but to jumpstart other affordable housing projects throughout the community.
When contacted by the Duluth News Tribune Wednesday afternoon, Rick Ball, executive director of the Duluth HRA, said he had discussed the Kozy/Pastoret project with Conlan, but his idea of issuing $5 million in general obligation bonds was a new wrinkle.
While Ball said he remains open to exploring Conlan’s proposal, he explained that any funding deal would need to pass financial muster.
“Bonding is debt. And there needs to be an adequate funding source to service that debt. They would need to show there will be sufficient cash flow to service the debt,” Ball said.
But Conlan doesn’t envision receiving a traditional loan from the HRA. Instead, he proposes the authority make an equity investment in the properties that could build over time and eventually result in public ownership.
Ball said that sounded like an unprecedented idea that has not previously been discussed.
“It does sound a little outside the box,” he said.
Still, without more details, Ball said it would be premature to comment further.
The HRA has the authority to issue bonds, but it would require the Duluth City Council’s blessing to proceed down that road.
Fifth District Councilor Sharla Gardner, who represents downtown Duluth, said she’s still getting up to speed on the proposal but hopes it will receive a fair hearing.
“I really like this idea, and I want it to move forward,” she said.
Ball said he has heard that the vacancy rate for local rental housing units has been sitting at about 1 to 2 percent.
“In a healthy rental market, the vacancy rate would be more in the 5 to 6 percent range. So we have a very tight market right now,” he said.
Gardner said the projects also would preserve a couple of historic buildings that contribute to the local architectural scene.
“This is part of what Duluth is and who we are as a city,” she said.
But time could be running out for Conlan and his business partner, Eric Ringsred, to save the Kozy/Pastoret building. He said that unless something is done to better weatherproof the building, it could reach the point of no return this winter.
To keep that from happening, Conlan said he is working with the city to seek a $400,000 state Legacy Grant that could be used to button up the building and shelter it from the damage winter can inflict on an unprotected structure.
Carlson received a similar Legacy Grant a few years ago that was used to help tuckpoint and install a new roof on the county jail building.
Conlan stressed the mutual benefits of cooperating with Carlson’s investment group dubbed Blue Limit LLC.
“Usually projects like ours end up in competition with each other for pretty scarce financial resources,” Conlan said, claiming that they can make a stronger case together than alone.
Carlson agreed that financing a single 30- or 40-unit rental property is no simple task these days.
“It’s a difficult scale. So it makes a lot of sense to really team up with another project of similar size. And then combining that on the historical piece… As a board member for the Preservation Alliance of Minnesota, it’s great to see not one but two historic properties being reused and given a new life, particularly in a downtown environment,” he said.
Conlan has pledged that any future for the redeveloped Pastoret Building, located in the 200 block of East First Street, will be without a bar as part of the mix.