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Harbor Highlands development takes another step

After about two years on hold, the Harbor Highlands housing project is back on track, thanks to $3.3 million in federal stimulus money. Crews have started site work for the construction of an additional 38 units of mixed-income rental housing, co...

Harbor Highlands
The existing portion of Harbor Highlands includes an outdoor amphitheater and community center. File / News Tribune
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After about two years on hold, the Harbor Highlands housing project is back on track, thanks to $3.3 million in federal stimulus money.

Crews have started site work for the construction of an additional 38 units of mixed-income rental housing, consisting of duplex and fourplex townhomes. The project will increase the size of the Harbor Highlands development to 165 units.

The neighborhood-based development includes a child care center, a community center and a village green. Harbor Highlands contains a mix of owner-occupied homes and rentals, both at subsidized and market rates.

About 40 percent of the townhomes being built near Central Entrance and Mesaba Avenue will be dedicated for people on rental assistance. For some of the larger market-rate units, rents will top out at about $1,000 per month, said Rick Ball, executive director of the Housing & Redevelopment Authority of Duluth.

The development has been well received so far, said Ball.

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"We're virtually at full occupancy right now," he said, noting that the current vacancy rate of between 2 and 3 percent at Harbor Highlands can basically be chalked up to churn.

The current phase of the project is expected to cost $10.1 million, and it looked to be a go until 2008, when the national recession shook up the market for tax credits. Ball said the project was to be financed in large part by the sale of federal tax credits that had been going for around 92 cents on the dollar. When the economy stumbled in 2008, however, the market for tax credits dried up, and those that were sold went for about 65 cents on the dollar.

In such a market, the project was no longer feasible.

Since then, however, state housing finance agencies working in conjunction with the federal government have set up an exchange program offering to buy credits for 85 cents on the dollar. This program, plus recently awarded gap-finance funding from the American Recovery and Reinvestment Act, revived Harbor Highlands.

The construction of the new townhomes is expected to provide a year's employment for about

250 people, as well as work for 29 subcontractors and suppliers.

"We welcome this new HRA development," said Mark Melhus, owner of Melhus Management Co., which oversees about 500 rental units in the area. "Our community can always use more rental inventory, and competition makes us all better.

"Competition from the government is not really my preference, but I wish them well."

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Mike Peller, owner of Gables & Ivy Real Estate, predicts the new rentals will be readily absorbed by the local market.

"I think there is a bit of demand right now for that townhouse-style of development," he said.

Susie Lannon, owner of Apartment Associates, also suspects Harbor Highlands will have little difficulty finding tenants.

"I think the market will support it if the rents are reasonable. There are not a lot of options with anything newer out there," she said.

The townhomes are the fourth phase of what is envisioned to be a six-phase development with a price tag of more than $150 million. When completed, Harbor Highlands is expected to boast 269 housing units.

The completion date of the entire project will be market-driven, Ball said.

"We don't want to flood the market and create vacancy problems in the rest of the community," he said.

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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