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Duluth to be asked for $6.2 million in aid for new downtown residential tower

The city of Duluth will be asked to help lift in the effort to get a new 15-story downtown residential high-rise off the ground. The proposed $70.4 million development would provide 204 units of housing plus about 20,000 square feet of commercial...

A rendering of the proposed 15-story apartment building at 333 E. Superior St., which would replace the Voyageur Lakewalk Inn. Developers hope to attract a grocery store to the ground level of the 204-unit complex. Courtesy Landmark
A rendering of the proposed 15-story apartment building at 333 E. Superior St., which would replace the Voyageur Lakewalk Inn. Developers hope to attract a grocery store to the ground level of the 204-unit complex. Courtesy Landmark

The city of Duluth will be asked to help lift in the effort to get a new 15-story downtown residential high-rise off the ground.

The proposed $70.4 million development would provide 204 units of housing plus about 20,000 square feet of commercial space on the ground floor. But a financial analysis of the project by Ehlers & Associates has revealed a $6.4 million funding gap, said Keith Hamre, Duluth's director of business and economic development.

The Duluth Economic Development Authority will be asked Wednesday night to help fill that void with a $6.2 million tax-increment financing package, Hamre said. Tax-increment financing - often called TIF for short - is a form of subsidy that captures new taxes generated by a project and uses them to cover certain development costs, such as those incurred while preparing a site for construction or installing critical public infrastructure.

The proposed duration of the TIF district for the apartment building would be 25 years, and after that time, all city tax collections from the development would flow directly into municipal coffers. The annual tax capacity of the completed building is expected to exceed $394,000.

On Tuesday evening, by a 7-0 vote, members of the Duluth Planning Commission passed a resolution in support of creating a new TIF district for the project in the 300 Block of East Superior Street.

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The Duluth Economic Development Authority will take up a proposed development agreement at a special meeting tonight, but the tax-increment finance package will still need to go to the Duluth City Council for final action on Monday, Dec. 17.

Hamre said the project is complicated in part because it will necessitate the removal of three existing buildings, including the Voyageur Lakewalk Inn, the former Hacienda Del Sol restaurant and the former First Oriental Grocery store.

Because of the urban setting the project confronts and its access challenges, the cost of the building will be much greater than it would have been to erect in a less-constrained area, said Rob Robinson, one of the development partners with Landmark Co. of Madison.

"As we went through it, we figured there's probably a cost premium of about $10 million to $12 million for building on a site like that," he said.

"You have to build a high-rise to get more units, rather than spreading out horizontally. That changes the construction type, and it's certainly more complicated," Robinson said.

He said the project is being designed to fit into Duluth's downtown landscape.

"We're proposing to build a bridge connection to the skywalk to make it more pedestrian-friendly. We're trying to do more retail on the ground level to fit with the character of Superior Street. So there are a lot of differences, as compared to just building an apartment building that might be on a greenfield site," Robinson said.

In addition to seeking TIF support, the development also will be eligible for benefits through the Opportunity Zone Program - a federal initiative that encourages development in economically challenged areas by allowing investors to defer capital gains taxes when they reinvest those profits in a prescribed fashion.

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In order to reap the benefit of the program, a developer needs to hold onto a property for at least 10 years, and that's a positive thing in the eyes of Adam Fulton, manager of Duluth's community planning division.

"I'd say an exciting consequence of Opportunity Zones that we will experience here is that it provides continuity of ownership, and we like developers who invest in our community and stay," he said.

"You have to be in it for the long haul, and we are," Robinson said.

Robinson's Landmark Co. intends to join forces with Brian Forcier of Duluth's Titanium Partners LLC, Chicago developer Gerald Fogelson and local investors to form Northstar Development Interests LLC - the entity that will serve as the development group for the project.

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Related Topics: HOUSING
Peter Passi covers city government for the Duluth News Tribune. He joined the paper in April 2000, initially as a business reporter but has worked a number of beats through the years.
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