On Monday, the Duluth City Council will be asked to approve $75,000 in funding to assist with the demolition of the Esmond Building, formerly known as the Seaway Hotel, in Lincoln Park.
The building at the corner of Superior Street and North 20th Avenue West has been deemed structurally unsound and a blight on the neighborhood. An earlier plan to redevelop the building was explored by a previous prospective developer but it was abandoned when that would-be developer determined efforts to reuse the building were not financially feasible.
"It's my impression that their numbers just didn't add up, that the building is in such bad shape that the cost of renovation is significantly more than the cost of demolition and redevelopment," said 2nd District Councilor Joel Sipress, who explained the HRA's initial preference had been to go with a developer who wanted to restore the building.
He warned that if the building is not torn down before winter, the HRA will need to invest a significant sum of money to restore heat to the building and button it up to withstand the elements, with little chance of a new developer interested in rehabilitating the property emerging.
Adam Fulton, deputy director of Duluth's planning and economic development department, referred to the inability of the first developer to come up with a workable plan to renovate the building as "regrettable."
While the brick structure has character, he noted that it is not listed on the historic register. A second developer, Merge LLC, has put forward an alternate proposal to raze the Esmond and redevelop the property from scratch into a 45-unit apartment building offering rates affordable to households with incomes equivalent to 80% of the area median income or less.
The Seaway ran into problems in 2015 due to problems with leaks, mold, the heating system, fire sprinklers and a substandard elevator, said Duluth Fire Chief Shawn Krizaj.
When the 63-unit building was about to be condemned for habitation, the Duluth Housing and Redevelopment Authority intervened, purchasing the property and making improvements to ensure many of the building's low-income residents wouldn't be turned out onto the streets, Fulton recalled.
Many of those residents have since been relocated to the new Garfield Square development, which opened in 2019.
The HRA is prepared to cover about $200,000 of the demolition costs, compared with the $75,000 the city has been asked to provide. The developer would be expected to pick up the rest of the tab.
The new apartment building is expected to cost about $9.25 million. It also will include about 8,500 square feet of space at street level for a yet-to-be-determined tenant.
The Duluth Economic Development Authority is prepared to offer up to $1.085 million in tax-increment financing to help the project forward. Tax-increment financing is a form of subsidy that uses new property taxes generated from a project to fund certain qualified development costs for a period of time. After no less than 26 years, the full value of the property tax stream would flow to local city, county and school district taxing authorities under a development agreement.