Duluth proposes new rules for development agreements amid Lincoln Park apartment controversy

DULUTH — The Duluth City Council is moving to ensure future housing developers who receive public money can't change their business model, at least for a while.

Councilors will vote on a measure Monday in the wake of news that residents of two dozen apartments in a Lincoln Park building have been told to vacate to make way for a floor of hotel rooms as the city struggles through a housing crisis.

The resolution proposes that all future residential development agreements where public money is awarded should include language defining permitted uses and minimum time periods that those uses should be in effect.

"The intent is to make sure this doesn't happen again," said Council President Janet Kennedy.

The city has also flagged existing housing development agreements in which tax breaks or other public money was involved, in the event their developers seek a permit to turn housing into something else, said Noah Schuchman, Duluth's chief administrative officer, at a Thursday council meeting.

The city issued a permit for Lincoln Park Flats to convert apartments into hotel rooms last month. City spokeswoman Kelli Latuska said it was issued without extensive review because hotel land use is permitted within that zoning district.

"The permit is a very simple process due to significant overlap between regulations for a new apartment building and a hotel," she said.

The company behind Lincoln Park Flats — 74 rental housing units built with the help of a more than $2 million subsidy from the city of Duluth — gave residents of its second floor notice in March that they would need to move at the end of their yearlong rental agreement. That led the city to review its agreement with P&R Cos., the property manager and developer. The building has been open about 10 months. While P&R Cos. offered housing on other floors or in other properties it owns, the abrupt change surprised residents.

Developers receiving city tax breaks shouldn't be allowed to make changes to their projects for a set period of time, said Duluth resident Angel Dobrow, protesting the hotel conversion in front of the Flats building on Monday.

"Everybody knows there is a huge housing crunch in Duluth," she said. "This is like salt in the wound. They built this beautiful building and now, less than a year later, they are evicting every tenant on the second floor to turn it into a boutique hotel. It's just outrageous."

Protester Ryan Glenn said Lincoln Park, despite its addition of craft breweries, restaurants and coffee shops, remains an impoverished neighborhood that still lacks an amenity as basic as a grocery store.

A loss of housing, Glenn said, "is the last thing this neighborhood needs."

The complex was built during the pandemic when material costs grew, said Erin Makela, of P&R Cos.

That, combined with rising interest rates, has made their original business model unsustainable, she said.

Enough renters have declined to renew leases to make apartments on other floors available to everyone being displaced, Makela said, and mostly for apartments that cost about the same. The company will continue to offer at least 23 apartments at an affordable rate, per its agreement with the city.

Despite that, councilor Gary Anderson said Thursday, at least one resident who does not meet low income requirements has been asked to change apartments because his studio is needed to maintain the affordable rate requirement.

Anderson said the resolution should bring clarity to developers and security to tenants who live in buildings that benefited from subsidies.

Along with tax increment financing, P&R Cos. received a city variance to make the first floor of the building parking, and a grant from the Minnesota Department of Employment and Economic Development for cleanup.

Schuchman said the city continued to work with P&R Cos., but the outcome wasn't "entirely in our control."

Councilor Arik Forsman asked the others to be cognizant of the need for housing in Duluth at every level as they face future development decisions.

"There is a lot of anger in the community about this for good reason," he said. "What I don't want to see come from this project is the rekindling of discussion I saw a couple of years ago, which was affordability versus market rate. We need both of those in the city."