Can a buyer be found? School district working with city, county to sell long-vacant former Central HS
The valuable 77-acre former Duluth Central High School property has been for sale for more than six years — but these days, it's hard to tell.
The Duluth school district is no longer paying a real estate agency to advertise Central or other surplus properties remaining post-Red Plan, and the site isn't listed anywhere one might look if they are in the market for a multimillion-dollar commercial property.
What the district has done to sell the property — once listed at $13.7 million — is in recent months begun working with the city of Duluth, St. Louis County and local lawmakers. Conversations have focused on overcoming the problems involved with selling what is renowned for having one of the best views in the city, but has also proven to be costly to develop.
"The Central site has been on the market for a very long time, and there are a lot of challenges within the site," said school superintendent Bill Gronseth. "The location, buildings on the property, infrastructure, the need for a public road through the property — it will take a lot of cooperation between the city, county, state and a developer to move forward."
He said that while $13.7 million was the last published price, the board did once accept a $10 million offer, and is likely to consider any "reasonable offer" from a developer willing to work with the city, county and state.
'We've been really close'
Central's last class graduated in 2011 and the building was closed, a casualty of the Red Plan, the district's $315 million building consolidation and construction plan. The top half of the former Secondary Technical Center — also a part of the property — has remained in use by facilities management staff.
A $10 million offer in 2015 from Harbor Bay Real Estate Advisors, which intended to use the property for housing, fell through because of the costs involved with preparing the site. In 2016, Tischer Creek Building Co. offered $14.2 million to turn Central into a high school for Duluth Edison Charter Schools. The Duluth School Board nixed the offer when it voted against changing a long-held policy that prohibits it from selling school buildings to schools that serve the same age ranges.
District facilities manager Dave Spooner said he's given about 10 tours in the last couple of years, and he knows Gronseth has given some, too, although the number is not tracked.
While the property sits awaiting the right deep-pocketed buyer with the right plans, district taxpayers have so far paid at least $675,000 for utilities since the school closed. Spooner said those costs each year for the parts of the property not still in use — Central and the lower half of the Secondary Technical Center building — have been about $104,000. That doesn't include maintenance costs, which Spooner described as minimal.
Heather Rand, the city of Duluth's director of business and economic development, said she and the four other development team members market the Central property — along with other available properties — on a shortlist of prime sites.
A couple of times a year they travel to the Twin Cities and meet with prospective developers, and offer Central as a prospective site when developers approach the city. The city lists its own properties on loopnet.com, a major commercial real estate site. Central has not been listed there because the city doesn't own it, Rand said.
The school district used to work with local firm F.I. Salter, but hasn't since 2014. Greg Follmer, a commercial broker in Duluth, has asked for the listing but did not get it, he said.
Whether it's him or someone else, he said, the property needs a professional broker.
"Nobody in the world knows about it," he said.
School Board member Nora Sandstad said the property should be listed, but noted that anyone in the area with the means and ability to develop the property has likely been identified.
"It's not like putting this on the MLS. ... The public isn't the audience for this, it's large developers," she said.
Sandstad also noted that she would entertain "a very low offer" if it came with property tax revenue.
"That's much more beneficial than a one-time $15 or even $20 million payment," she said, referring to Edison's offer. Public schools don't pay property taxes.
Rand said price hasn't been discussed in any of the meetings with the school district, but a new appraisal has been mentioned. The last formal appraisal was done in 2006 in preparation for the Red Plan. The assessment done by Duluth appraisal firm Ramsland and Vigen valued the property at $30.3 million, if used as a school. The school was eventually listed at $13.7 million for non-school use, because of the costs involved in demolition, major renovations or site development.
The value of the property is one factor in setting the price, Gronseth said, but it's more complicated than that. When the district has worked with potential developers, the expense of preparing the property for development is a factor, because demolition is probable and the cost of upgrading utilities is expected to be high, he said.
"It's something I have been working on for a long time," Gronseth said. "We've been really close."
He said he agrees that the property needs more visibility and has recently been talking with commercial Realtors.
The right partnerships
The School Board is likely to ask local lawmakers for legislation that would offer tax incentives to would-be developers of the site. Sen. Erik Simonson, DFL-Duluth, said he's willing to re-introduce something similar to the legislation he did in 2016, which said that materials and supplies used in a redevelopment project on the Central site would be exempt from state sales tax, as long as the development is subject to property taxes.
What kind of help the city can offer depends on the project, said Keith Hamre, the city's director of planning and construction services.
It could include tax abatement or requesting state grants for demolition or redevelopment.
Barbara Hayden, who works in planning and community development for St. Louis County, said the county has been involved in a few meetings at the request of the school district — but she said it was too early to define how it could help.
The Central site is zoned as mixed-use planned, which means it can include residential, retail and other commercial property, similar to the Bluestone project in Woodland.
Along with demolition, the need for a public road and increased utility capacity, the large amount of bedrock, the size of the site and the fact that it's located off of a main corridor are all obstacles.
"Most developers look at it and say, 'I've got to have partners to come to the table for this,' " Hamre said. "The challenge has been getting the right partnerships together."
Rand said the likely candidate would act as a master developer, building in phases.
She said many have "kicked the tires" and still have interest, but are held back by large upfront costs. So will the city help?
Rand said it was fair to say that the city has "prime interest" in wanting to support redevelopment of a large chunk of land with "great views and trails connected to it."
Follmer, the commercial real estate broker, said it's not unusual for a property like Central to remain unsold as long as it has.
"It's going to take a unique user," he said, with a vision and a method for spending millions on the site, much like Mark Lambert did with Bluestone. "They are just not out there every day. And the type of money a person will have to put into that — there are just a few of them."