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Reprint It! David Montgomery's note to city councilors

Submitted / City of Duluth

City of Duluth CAO David Montgomery sent the following memo to Duluth city councilors regarding the proposed Incline Plaza Project on the former Duluth Central High School campus:

"I’ve received several questions and comments regarding the development agreement for the Central School site on the Council agenda Monday night. The details of the Incline Plaza Project were presented to Council at Thursday’s agenda session.

The project envisions approximately 1,200 units of mixed rental and owned housing, 80,000 sq. ft. of retail space supporting this housing as well as surrounding neighborhoods and public amenities including trailheads and a pavilion. Incline Plaza will be an entirely new neighborhood for Duluth. Additionally, it is expected this development, along with other housing projects currently under construction along Central Entrance below the hill, will stimulate additional retail development along the Central Entrance corridor between the Copper Top and Anderson Road.

The Incline Plaza Project currently is targeted to include market rate apartment units focusing on mid-range workforce housing as well as condominium units held out for ownership and rental. The challenging nature of the site and the consequent costs to construct on such a site makes low-income/affordable housing economically difficult.  

The proposed developer of this site is Chester Creek View LLC and Incline Plaza Development LLC, private entities established by Mr. Lazar Ostreicher and his family. Questions have been raised concerning the developer’s financial capabilities. The developer presented four other sizable housing projects developed by his firms in recent years. One of those projects was similar to the proposed Incline Plaza Project. The Bluefield project in Spring Valley, NY is a 700-unit project built on an old school district site. Additionally, the developer’s financial credibility is evidenced by its local acquisitions of the Endi and Kenwood apartment projects and the Lighthouse for the Blind building for a combined reported price of nearly $77 million as well as its acquisition of the school site property for $8 million. This developer has already invested $85 million locally in Duluth along with significant amounts for planning, design and pre-engineering work. The developer has indicated its desire to be a long-term investor/holder of the Incline project. The purchase of Endi and Kenwood supports this assertion.

The developer is using local firms for much of the work on the project, including design, engineering, construction and construction financing. We expect and the developer acknowledges PLAs will be used on the development. This project will have significant local economic impacts during the planning and build-out phases.

The Central School site has been dormant for thirteen (13) years before which it was the site of the new Central High School since it was built in 1971.  Consequently, this property has been in a tax-exempt status for at least the past 50 years, if not longer, generating little to no property taxes for the City. This is a difficult development site. 

The City has entered into scores of tax increment financing (TIF) arrangements over the years with a wide array of developers, some with a less fulsome track record of projects or financial strength than this developer. TIF is not a developer gift. It is a means for the City to provide shovel ready development sites by financing the construction of basic infrastructure and foundational costs. Alternatively, the City could utilize funds to pay the costs for infrastructure outright and up front. The type of TIF being utilized is a paygo TIF, meaning the risk is primarily on the developer, not the City. The developer must incur the costs and build the infrastructure before being reimbursed by the collection of future property taxes through the issuance of TIF notes. All other development costs for the project itself are fully the responsibility of the developer. This project may have up to three TIF districts over the phases, each of which requires Council approval. Therefor you will have the opportunity for ongoing oversight of the project as it progresses.

City planning and economic development staff have been working with the developer for over a year. This developer’s development plan, evidenced financial capabilities here in Duluth, willingness to work with local partners and with our planning and economic development teams, and its signing to a paygo TIF agreement all mitigates the financial risk to the City attendant to any development project, especially when weighed against the potential benefits to the City.

Please feel free to contact me, Ryan Pervenanze or Chad Ronchetti if you have further questions."