Duluth gives tax breaks to massive hilltop housing development

DULUTH – The stage is set for what could be the city’s largest private housing development, with more than a thousand apartments and condos planned for a prime hilltop site with a sweeping view of Duluth and Lake Superior.

The project, with a potential investment of $500 million, cleared a major hurdle Monday with City Council approval of tax subsidies totaling $26 million for the first phase of the 1,200-1,300-unit development.

“The city of Duluth has been waiting for 13 years for something to happen here,” Councilor Arik Forsman said. “This is the right project.”

The developer is New York-based Luzy Ostreicher of Chester Creek View LLC and Incline Plaza Development LLC. He bought 53 acres of the former Central High School hillside property for $8 million last March from the Duluth school district. The 50-year-old school was demolished in 2022 after sitting empty since 2011. Developers have said the site is difficult with its rocky, marshy landscape, and two major development deals for the site already fell through.

Incline Village is expected to include market-rate housing to be built in three phases over seven to 10 years, using local builders and architects. It would also house 80,000 square feet of retail space and several public spaces, including a trailhead pavilion and potentially an amphitheater.

The first round of subsidies are intended to pay Ostreicher back for infrastructure such as utility connections. Subsequent tax increment financing (TIF) districts still need to be approved. Tax subsidies are expected to account for about one-third, or up to $50 million, of the developer’s financing gap. That gap is projected to be up to $130 million, according to the city.

One of Ostreicher’s previous projects includes 700 condos in Spring Valley, N.Y. He also owns Duluth’s Endi and Kenwood Village apartment and retail complexes, although he didn’t develop the properties. Those investments and others total $85 million spent in the city, evidence of Ostreicher’s financial credibility, said David Montgomery, Duluth’s chief administrative officer.

Some had questioned the developer’s financial capabilities, he wrote in a letter to councilors Monday.

The majority of councilors were enthusiastic about the project, but some wanted to delay their decision in hopes an affordability requirement could become part of the agreement, echoing concerns voiced by several residents at the meeting and in emails to the council. The city is using redevelopment tax increment financing, which doesn’t require any of the units to fit affordability guidelines.

“The challenging nature of the site and the consequent costs to construct on such a site makes low income/affordable housing economically difficult,” Montgomery wrote, noting at the meeting that the developer would entertain that type of housing in future phases.

Councilor Lynn Nephew, who is a real estate agent, said the development will help the city economically in a couple of ways: curb inflated housing prices, and provide options for high-income earners.

“I know nobody wants to talk about housing for rich people,” she said, but the city needs housing for people who want to open businesses here, “and this project is bringing that.”

The multi-building project is undergoing an Alternative Urban Areawide Review to study how different development scenarios will affect the environment. The project is contingent on approval of that review.

The planned public amenities are required by the agreement, but details, including financing and design, aren’t finalized. The trailhead will connect to the Duluth Traverse and other trails.

Construction on the first set of apartments and condos encompassing 340 units and 30,000 square feet of retail is set to begin this summer. Demand will indicate how soon the remaining phases are built. The school district recently developed a back portion of the property for an administrative building, so will share space with the development.