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Council approves NorShor project; vacation rental debate continues

The Duluth City Council approved a plan to restore Norshor Theatre on Superior Street. (File photo / News Tribune)

The Duluth City Council tackled what was likely its most weighty agenda of the year Monday, approving a complicated $30.5 million deal to renovate the NorShor Theatre and continuing its efforts to shape a new ordinance to govern vacation rental properties.

NorShor nod

By an 8-1 vote, with 5th District City Councilor Jay Fosle dissenting, the council voted to approve a plan to restore the historic NorShor Theatre.

The complicated deal will involve multiple partners, including developer George Sherman, the Duluth Playhouse and the Duluth Economic Development Authority, as well as federal and state tax credits and additional state funding.

At more than 250 pages, the agreement and supporting documents proved a formidable document to navigate. But David Montgomery, chief administrative officer for the city of Duluth, said there would be no room for the council to pick away at the package.

"This will be either a vote for all the documents or it will be a vote against all the documents," he said.

Mayor Emily Larson touted the agreement, which was several years in the making, since DEDA acquired the property in 2010.

"Together, we get to be a part of something transformational tonight," she said.

The deal involves DEDA handing over ownership of the $2.3 million property to NorShor Theatre LLC — an entity led by Sherman — at no cost and then providing $2.2 million in tax-increment financing for the project. But Larson said the economic development funds would be used as a catalyst for continued development in Duluth's Historic Arts and Theater District.

Sherman aims to close on the property by the end of this month, and work is expected to begin almost immediately thereafter.

NorShor Theatre LLC will own and operate the project for seven years after its completion in order to fully tap all available tax credits. After that time, with the financial benefit of the credits exhausted, the ownership will be handed over to the Duluth Playhouse, a nonprofit organization that will be the primary tenant of the theater.

At Large City Councilor Noah Hobbs questioned Montgomery about who would bear responsibility if any cost overruns occurred during the renovation and received assurances that Sherman had provided a guarantee pledging to pick up the tab if the project comes in above budget.

Larson said the project would not involve any of the city's general fund reserves but agreed some DEDA investments would ride on the success of the project. She acknowledged risk would be part of the equation but said: "It's measured risk. It's calculated risk.

In voting against the project, Fosle expressed concern that with anticipated seating for just 625 people, the theater was undersized, and also suggested parking could be an issue.

But many spoke in favor of the project, including David Ross, president and CEO of the Duluth Area Chamber of Commerce.

"The majestic NorShor Theatre has been empty, cold and dark for too long. With your support the NorShor will soon be occupied, warm and bright," he told the council. "We believe that a restored NorShor is essential to our beloved downtown's continued growth and prosperity."

Ross also voiced approval for the chosen developer.

"George Sherman is the ideal person to lead this restoration," he said. "We place our full faith in this talented and conscientious leader. He has invested his time and treasure in Duluth for many years."

Sherman credited many local players for putting together the NorShor plan.

"This is a case where it took a village to build a theater," he said.

Vacation Rentals

While the City Council approved new rules governing owner-occupied home-share rental properties in Duluth Monday night, it continues to tinker with how to handle another type of tourist housing.

An ordinance regulating vacation rental dwellings that are operated in the absence of the homeowner was amended Monday, meaning that it will require a second read before it will be ready for council action.

Council President Zack Filipovich and At Large City Councilor Noah Hobbs introduced language that would cap the number of such vacation rental dwellings allowed in the city at 60. That limit would then be re-examined in two years' time.

Duluth currently is home to 22 vacation rental dwellings, and Filipovich said the cap "will help preserve the city's housing stock."

At Large Councilor Barb Russ said that was a worthy goal and noted: "We have a housing shortage at every price point in this city." She said homes converted to short-term vacation rental units deprive the Duluth of badly needed housing for residents.

For his part, 2nd District Councilor Joel Sipress supported the cap and withdrew two amendments he had earlier proposed: one to require that no new vacation rental licenses be issued to properties within 200 feet of another such property, and a proposed requirement that an off-street parking spot be provided for every bedroom offered to guests. Sipress reserved the right to offer additional restrictions to limit density, however.

Hobbs' and Filipovich's amendment passed on an 8-1 vote, with 3rd District Councilor Em Westerlund dissenting.

She questioned why the cap was being set arbitrarily at 60 and noted that it did little to keep vacation rental properties from proliferating in close proximity to one another in neighborhoods, such as Park Point, that are popular tourist destinations.

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