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Purchase agreement for Duluth Central High School site falls through

The Duluth Central High School development project agreement -- touted as a much needed antidote to housing woes and key to removing a heavy financial burden for the Duluth school district -- has fallen through.

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Duluth Central High School (2014 file / News Tribune)

The Duluth Central High School development project agreement - touted as a much needed antidote to housing woes and key to removing a heavy financial burden for the Duluth school district - has fallen through.

Harbor Bay Real Estate Advisors informed the school district this week that it would terminate its $10 million purchase agreement for the 77-acre site.

Development costs for the site, including utilities, demolition and new roads are “extraordinary,” Harbor Bay owners Tom Lund and Mark Bell wrote in a letter to the district. “The pre-development timeline is fairly extensive and very costly. We estimate 18-24 months to complete necessary design, civil engineering, cost estimating and entitlements.”

Demolition work for the developers' other Duluth housing project on London Road was underway Tuesday. The 148-unit apartment complex that includes commercial space will cost about $36 million to build. It was earlier said to have delayed the sale closing of the Central project.

“It’s disappointing,” Superintendent Bill Gronseth said at the Tuesday School Board meeting where the news was announced. “It took us a while to get to this point, but the work that we’ve done to get to this point isn’t lost. It will help us to work with other developers that might be interested in the site.”

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The property will return to the market, which district officials said Tuesday had improved in recent months. Sale of the site had long ago been figured into the debt repayment plan for the district’s $315 million long-range facilities plan, which included closing the school. Because it didn’t sell when expected, school property taxes were raised significantly.

The district did not figure a sale into next year’s budget because the closing date wasn’t yet set in stone. Money would have gone to continue rebuilding the district’s reserves, and there was also talk of reducing the property tax levy and using some for classroom expenses. The board will decide what to do with proceeds upon an eventual sale.

“It is disappointing, but it’s good we didn’t include it in our budget,” said board chairwoman Judy Seliga-Punyko. “And selling it in parcels might end up being better.”

The district had struggled to rezone the property - largely unused since 2011 - doing so twice via a lengthy process in an attempt to attract buyers. The most recent rezoning meant it can be sold in parcels, although that could cost the district more time and money. Mayor Don Ness said this winter that the sale to a single buyer would make for a “cohesive whole” as opposed to possibly competing visions.

Tuesday night he said developing the site proved to be “a very complicated deal.” Due diligence was taking longer than a June 29 deadline allowed, he said.

“It was more a question of timing and not having the comfort to make a commitment by the end of June,” Ness said he was told by the Harbor Bay owners.

District property and risk manager Kerry Leider said the developers had until the end of June to terminate the purchase agreement for any reason, or would risk its $200,000 in earnest money following that. But, he said, Harbor Bay could have asked for an extension, as other developers have done with the district. Sherman Associates, for example, has done so regarding the Nettleton Elementary School property.

Housing was initially planned for the site. In December, Lund said the developers were “extremely enthusiastic about the development potential at such a large and iconic site.”

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Since the purchase agreement was made, Harbor Bay has worked with architects and engineers to assess development of the site, and met with city, county and community stakeholders, the letter reads. It also noted the community is “eager” to see the site - which allows for a mixed-use project that could include housing, retail, office space, senior housing and a hotel - redeveloped. It says city and county money was necessary.

Ness said the city was committed to helping with site infrastructure and improvements, but a “significant” amount was needed.

“They’ve invested a lot of time and energy into that site,” he said.

Harbor Bay - which has offices in Minneapolis and Chicago - deals in development, investment and advising. Co-founders Bell and Lund could not immediately be reached Tuesday night.

Going forward, strategies to market it as parcels will be studied, Gronseth said, noting the site “has a lot of potential,” and has garnered a lot of interest.

“We’ll continue to work to find another prospect,” he said. “We need to have more discussions about what this means for the future.”

Related Topics: SCHOOL BOARD
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