City Council backs loan to purchase Seaway Hotel

The Duluth City Council came down solidly in support of plans to save the Seaway Hotel on Monday night, preserving low-rent housing for some of the city's hardest-to-house tenants, but only after a bit of hand wringing.

By an 8-1 vote, the council backed the Duluth Economic Development Authority's decision to offer a $230,000 loan to the Duluth Housing and Redevelopment Authority to finance its purchase of the Lincoln Park building, which now is home to more than 60 tenants.

Councilor Jay Fosle, representing Duluth's 5th District, cast the sole dissenting vote. He said it has been clear since 2012 that some form of intervention by the HRA would be necessary to address building code and management issues at the Seaway Hotel.

"Where I have an issue is the HRA should have planned in advance to purchase this building on its own with its own dollars," Fosle said, noting that the authority oversees an annual budget of between $14 million and $15 million.

Although HRA Director Rick Ball was not present at Monday's meeting, he has noted on prior occasions that the authority's sizable budget is already committed and obligated to fund other projects.

Plans call for the three-year, no-interest loan to be paid off through a combination of operating revenue and proceeds from the future sale of the property. Ball has said the HRA aims to improve and stabilize the apartment building in hopes of selling it to another party within the next three to five years.

The HRA has pledged essentially to hold the line on rents for existing tenants while simultaneously hiring a property management firm to deal with problem behavior and improve security in the building. But Ball acknowledged the building likely will operate at a loss, requiring a public subsidy to survive. The HRA intends to seek nearly $1 million in assistance from the Minnesota Housing Finance Agency to help cover the cost of needed improvements and any ongoing operating losses.

"Why should the city lend $230,000 to an entity with a $14 million budget to purchase a property that will never run in the black?" Fosle asked.

Councilor Howie Hanson, who represents Duluth's 4th District, home to the Seaway, noted that it was quite possible that the HRA would be in no position to repay the full value of the loan even if it sells the building in the future.

Plans call for the HRA to split the proceeds of any future sale of the building with DEDA on a dollar-for-dollar basis.

Hanson said that while he supports efforts to preserve the Seaway Hotel and the affordable rental housing it provides, he, too, questioned why the HRA would turn to DEDA for financing.

The state's financial involvement in the project should significantly improve the odds of the HRA being able to pay off the loan it seeks from DEDA, according to David Montgomery, Duluth's chief administrative officer.

"This is an extremely difficult project," Montgomery acknowledged, stressing the critical need for public support. "If it was an easy deal and there was an easy answer, this building would have been sold a long time ago."

Dale Lewis, president of Park State Bank, urged the council to back the loan, saying: "This building is in desperate need of rehabilitation."

She predicted the city's involvement will spur additional investment in Lincoln Park.

"The city is acting as a catalyst to bring much-needed change to the whole neighborhood," Lewis said.

At Large City Councilor Emily Larson contends the project offers the city an excellent return on its investment.

"I'm really pleased to support this initiative," she said. "This building and its transformation will bring 70 units of housing to the community. At a little over $3,000 per unit, that's a really good ratio for a project like this."

Hanson ultimately voted to support DEDA's financing of the Seaway Hotel, saying the project helps meet the city's critical need for affordable housing, but he said Lincoln Park's issues are more complicated.

"Housing certainly is a concern, but we're not getting to the heart of another large issue, which is the liquor establishments that continue to erode the Lincoln Park business district," he said.

Hanson called on local bar owners to improve their operations and take steps to reduce the need for police calls to the neighborhood.

Comparing Lincoln Park's drinking issues to a cancer, Hanson said: "We had our first surgical procedure tonight, but we're really going to need to get back to the operating table."