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HRA offers support for apartment development

A developer's plan to construct a new 114-unit apartment building next to Duluth's Point of Rocks formation looks likely to receive a financial leg up from the city's Housing and Redevelopment Authority.

Members of the authority unanimously voted in support of proposing a $1.13 million tax-increment financing package for the project Tuesday afternoon. Tax-increment financing is a form of subsidy that uses new taxes generated by a development to cover certain project costs.

The assistance still must be authorized by the Duluth City Council before the HRA can move ahead and offer a financial boost to what's expected to be a $16.9 million project.

Developer Aaron Schweiger hopes to begin construction on the site in late June or early July. He aims to welcome the first tenants into the six-story building by May of 2016.

The project, as designed, would feature 50 indoor parking spots tucked under the apartment units, as well as 118 outside stalls.

Schweiger said the rocky site will complicate the project and drive up construction costs, making the aid essential to the feasibility of the endeavor.

"We're willing to make an investment in Duluth, but Duluth is a tricky place to build," he said, describing the geologic obstacles of many of the city's heretofore undeveloped areas.

"But for the investment of this tax-increment financing, this project would not be able to proceed," Rick Ball, executive director of the Duluth HRA, told commissioners.

Under the terms of a development agreement, 40 percent of the units in the new building would be designated as "affordable" housing, and the remaining 68 units would be offered at market rates.

To be qualify as affordable apartments, the units must be within the financial reach of households earning no more than 60 percent of the local median income.

Some of the larger two-bedroom apartments on the upper floors of the building are expected to boast impressive views of the harbor. Rents in the diverse apartment complex are expected to range from $625 for an "affordable" efficiency unit to as much as $2,000 per month for a high-end market-rate unit.

HRA Commissioner Ronald Boshey lamented that often "affordable" rents were still often beyond the reach of many low-income residents of the city.

Schweiger said he asked his architects to fashion something in the vein of developer Mark Lambert's recent upscale Bluestone project for the site, noting: "Imitation is the sincerest form of flattery." Yet he also said he wanted the development to be accessible to people with a wide range of financial means.

One local landlord questioned the wisdom of providing a public subsidy for an apartment complex that would compete against "mom-and-pop" landlords in the surrounding area.

HRA Commissioner Tony Cuneo called the concern "a valid point" but also said: "I think we have some responsibility to think about the information in front of us as a community, keeping in mind the amount of housing that's going to be needed in the future."

A recent analysis by Maxfield Research Inc. projected that Duluth will need to bring on line another 4,470 units of additional housing by 2020 if it wants to keep pace with demand.

HRA Commissioner Phil Rolle observed that Duluth does not appear to have leaned too heavily on tax-increment financing to support development. He noted that in 2014, about 3.4 percent of the local tax base was located within an active tax-increment financing district, compared with the 2.5 percent anticipated in 2016. He also took solace in the reliance of other similarly sized cities in the state on TIF.

If Duluth becomes too dependent on tax-increment financing, Rolle warned that it could jeopardize the city's bond rating. But he said: "It appears that we're in a reasonable position, and I don't believe we'd be putting our bond rating at any risk at all."

Ball noted that any action by the HRA Tuesday would still be subject to city council review and yet another vote by commissioners.

In light of that fact, Rolle motioned to approve a resolution of intent to support the creation of a 15-year tax-increment financing district to assist the Point of Rocks development.

Cuneo seconded the motion, and the board voted unanimously in the affirmative.

Schweiger Development, Holdings & Management LLC already owns a 68-unit apartment building called Glen Place next door to the proposed Point of Rocks development.

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