Duluth waits to see if critical historic tax credit program will be extended, and for how long

If not for Minnesota’s historic tax credit program, Saturday Properties would never have proceeded with its pending plans to redevelop Duluth’s Historic Old Central High School into a 121-unit apartment building, said Mark Laverty, the firm’s director of development.

“Without federal and state historic tax credits, it just wouldn’t be possible,” he said. “This project only happens with both.”

Saturday Properties anticipates the Central project will cost about $43 million to complete, with $6.8 million in funding coming from the state of Minnesota’s tax credit program plus an equal sum coming from the coffers of its federal counterpart.

State tax credits have been used to bring forward at least 10 other projects in Duluth, to date, with others still in the pipeline.

Yet, Minnesota’s ability to issue historical tax credits is set to expire at the end of June.

Rethos, a St. Paul-based organization dedicated to promoting the reuse of old buildings, has been lobbying for an extension. And it’s likely to succeed in at least some measure.

A House tax omnibus bill calls for an eight-year extension. But the Senate version of the same bill provides for the sunset to be pushed out just one additional year — to June 30, 2022. The differences in those bills soon are to be ironed out in conference committee as the legislative session draws to a close.

“We’re happy to have a position in both bills,” said Heidi Swank, Rethos’ executive director.

However, she clearly voiced a preference for more than a 1-year extension, saying: “It wouldn’t make for a super functional program next year. But it does buy us time.”

PREVIOUSLY:

• Public invited to learn about developer's plans for Historic Old Central High School The meeting April 14 will include a presentation from developer Saturday Properties and its architect about plans for the building, including 121 apartment units.
  
• Developers plan to turn Historic Old Central High School into apartments Should the sale go through, the developers plan to turn the historic building into mixed-income housing.
  
• Duluth School Board approves moving forward with sale of Historic Old Central High School This decision was made after the Duluth School Board held a closed-door discussion on the matter for an hour Tuesday night. 
  

Swank explained that such a brief extension could discourage participation on the part of developers. “It introduces a lot of uncertainty,” she said.
Laverty said the prospect of the tax credit program expiring in June of this year forced his firm to “fast-track” the Central project, and it wasn’t an easy timeline to meet.

“It was all hands on deck to get all our applications submitted on time,” he said.

Laverty pointed out that it’s not unusual for a project of similar magnitude and complexity to take a couple of years of advance planning. Compressing that work can be an obvious challenge.

Andy Bollig, a developer for Roers Cos., said his firm has used state credits to advance a couple of projects in Duluth and is laying plans for more, if the program survives.

Roers invested about $10 million in the former Hockin Furniture Store building at 5 W. First St., converting its upper floors to 38 apartment units, with commercial space at street level.

“Without state credits, that would not have been possible,” Bollig said, explaining that state historic tax credits covered 10 to 15% of the project costs.

Roers has a couple more projects in the works that also depend on the credits, including another $12 million conversion of a building at 131 W. First St. to apartments. All told, Bollig said his firm hopes to have brought about 100 to 120 units of housing to Duluth by the time all three projects are completed.

With the help of tax credits, and working with county and city officials, Bollig said Roers has been able to keep costs low enough to offer up apartments that are generally a bit below the prevailing market rents in Duluth, as well as a percentage of reduced-rent units designated as affordable housing.

He said that would be more difficult to do with new construction.

Additionally, Bollig said many of the buildings Roers has been looking at in the same historic district are densely neighbored.

“You couldn’t really tear one of those buildings down and put up something new in its place. And, of course, you don’t want to tear structures like that down. They deserve to be historically renovated,” he said.

Swank said Duluth is blessed with a rich stock of historically significant buildings that would qualify for historic tax credits. She noted that outside of the Twin Cities, Duluth has made more extensive use of the program than any other community.

She pointed to the Historic Old Central High School project as an excellent example of the types of valuable work the state tax credits have been able to spur.

“That’s an important building not only for Duluth. It’s one of the most important buildings in the state,” Swank said, noting that the project will put the underutilized building back to productive use as sorely needed market-rate and affordable housing.

All told, Swank said Minnesota’s historic tax credit program has helped inject $3.5 billion into Minnesota’s economy and has led to the creation of more than 18,000 construction jobs.

Swank encourages people to reach out to their legislators to advocate for an eight-year extension of the credit. More information about how to do that can be found at rethos.org/revitalizemn .