DULUTH — Less than a year after opening with the help of more than a $2 million subsidy, the ownership of Lincoln Park Flats has announced plans to turn 24 of the building’s 74 units into a “boutique hotel" and force the existing second-floor tenants to move out.
The affected residents will be offered the opportunity to relocate to other parts of the four-story building or to move into other properties P&R Companies operates in the area, including the Acadia, a 120-unit apartment building going up at 2601 Bardon Ave. in Superior, marketing director Erin Makela said.
Some local politicians are upset, particularly in light of a $2.35 million tax-increment financing package they approved to support the project.
“I’m really concerned about the precedent this could set,” said 1st District City Councilor Gary Anderson. “I don’t know what language was not included in the development agreement.
"Housing has been a priority for this administration and this council, as long as I’ve been on it. So, I am extremely concerned about this situation," he said.
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Makela said she had no date certain for the launch of the hotel operation, but stressed that current tenants of the building’s second floor have been notified and will have 60 days before they must relocate.
Per the terms of the original development agreement, P&R will continue to operate 23 apartment units at rates considered affordable for tenants earning no more than 80% of the area median income. Another 27 apartments will be offered for rent at market rates.
Unanticipated construction costs during the pandemic put a financial strain on the project, prompting the development team to rethink its operating model, Makela explained.
“I think the misconception is out there that we had planned on this since the beginning of the project, and that is not the case. We did not plan on doing this type of conversion to that property when we began construction,” she said, adding that a new business model has subsequently been adopted to keep the project financially sound.
Makela described Lincoln Park Flats’ situation as unique, and said P&R is not contemplating further conversions to guest accommodations there or at any other properties it owns.
In a letter to the Duluth City Council on Tuesday afternoon, Mayor Emily Larson wrote of her initial support for Lincoln Park Flats, saying she welcomed the investment and the affordable housing component it brought to the neighborhood.
She said revised plans would reduce the developers’ commitment to boost local housing options, even though it would maintain the number of affordable units it originally pledged, calling that “a good thing.”
“However, this is not the project we signed up for when we issued TIF and it is now under legal review with our counsel,” Larson wrote.
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Regardless of the outcome of that legal review, Larson said she intends to work with the council on a policy “to prevent this from happening again.”
Anderson said he was "confident this is something that the council and the administration will address."
"Perhaps we can’t change the situation at Lincoln Park Flats, and if we can’t I will be very disappointed to see us going backwards," he said. "But going forward, we certainly should not be using TIF funding for apartments that are going to be used to house weekend guests.”
“I did not vote for this in order to see that any percent of these apartments would be built out as vacation dwelling units,” Anderson said. “This is an error, and I’ll take responsibility for my part of it. But I’m going to darn well make sure we don’t see this again.”
Councilor Hannah Alstead, who represents Duluth’s 4th District, including Lincoln Park, said regardless of whether converting part of the building to a hotel is permissible under development agreement, she's "frustrated for the people who have to go through this.”
“I just feel terrible for my constituents,” said Alstead, who was not on the council when the agreement was approved. “We need that housing, especially there.”
At large Councilor Azrin Awal lamented the loss of 24 new apartment units to the hospitality industry, explaining that Duluth needs more housing of all kinds.
“Even if they’re market-rate, units are units, and this is a loss of units,” she said.
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Makela said P&R has put considerable thought into making sure hotel guests and apartment residents will enjoy a compatible coexistence at Lincoln Park Flats.
“One of the things that we put a lot of consideration into was the safety and security of the building,” she said. That’s why she explained P&R settled on a plan to limit the hotel operations exclusively to the second floor. Security cards will allow guests access solely to the hotel, while tenants will have access to only the respective floors on which they reside.
“We want everyone, whether they’re a resident or someone coming to stay for a long weekend, we want them to be comfortable and to feel safe and secure,” Makela said.
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