Duluth apartment-to-hotel conversion rankles residents, city officials

People hold picket signs
“This isn't what we signed up for,” City Council Vice President Roz Randorf said about the creation of a hotel on the first floor of the building.
Dan Kraker | MPR News

A Duluth developer’s plans to convert the second floor of an apartment building in the Lincoln Park Craft District into a boutique hotel has prompted a public outcry. Residents and city officials say it will cause the loss of badly needed housing units in a complex that was built with the help of a public subsidy.

Protesters rallied outside the 74-unit Lincoln Park Flats Monday afternoon, waving signs that read “Homes not hotels” and “Honk for affordable housing.”

Last week P&R Companies, which manages the building, informed tenants of two dozen second floor apartments they would have to move in a little over 60 days to make way for the new hotel.

“It was stressful. It was extremely scary,” said Lexi Metcalfe, who spoke from her second floor balcony on Superior Street during the protest. “We just put all of our stuff up on the walls, we had finally settled in, and we were told last week that we had to move out.”

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Metcalfe moved to Duluth from Texas three years ago with her partner. They moved into Lincoln Park Flats last June when the building opened, and love their apartment.

For about a week and a half, she said they were in limbo, waiting to see if they would qualify for another apartment in the building. She said she’s extremely grateful they have found a unit on the fourth floor, and that they still qualify for an affordable unit. She said her rent will only rise $30 per month.

“But there are people getting displaced who don’t deserve this. I’ve been pretty emotional about it,” she said, adding she’s worried she could have to go through this again next year. “It’s not fair for anyone involved.”

People hold picket signs
Tenants of two dozen second-floor apartments in this building in Duluth have been told they have to move to make way for a boutique hotel. Picketers protest the conversion of a floor of this apartment building in Duluth's Lincoln Park Craft District into a boutique hotel on Monday.
Dan Kraker | MPR News

Developer got subsidy

The building opened in June 2022 in the heart of Lincoln Park, a neighborhood that has been transformed over the past decade into a trendy destination replete with brewpubs, shops and restaurants.

The 74 unit building was constructed on the site of a vacant furniture store with the help of a $2.35 million tax increment financing — or TIF — subsidy approved by the Duluth City Council.

TIF uses the additional property taxes generated by the new project to pay for part of the development costs. 

In exchange, the developer agreed to make 23 of the units affordable for households making up to 80 percent of the area median income.

A spokesperson for P&R Companies, Erin Makela, said all those affordable units remain, in accordance with its development agreement with the city of Duluth.

Makela said in a statement: “As of last week, we are able to confirm that all residents wishing to renew leases at Lincoln Park Flats are able to do so.”

She said the plan to add a hotel floor “is to financially stabilize the building,” during challenging economic times resulting from high interest rates and rising building costs accrued from completing the project during the pandemic.

“This addition of a Boutique Hotel offers us some financial flexibility and stability at this property,” said P&R Companies co-owner Ryan Nelson.

People hold picket signs
“It’s not fair for anyone involved,” Lexi Metcalfe said.
Dan Kraker | MPR News

Housing or hotel?

Officials from Duluth Mayor Emily Larson’s administration, along with staff from the Duluth Economic Development Authority and the city attorney’s office, had “productive discussions” with the developer Friday, said Duluth chief administrative officer Noah Schuchman.

Talks are ongoing this week.

“Our efforts are focused on working with local developer P&R, who has invested across  the community in important and meaningful ways, to keep this building open as a residential  apartment  building,” said Larson in a statement. “We need to protect the public investment we’ve already made. We have been working tirelessly for years to add units across Duluth. The possibility of losing units is  slippage we really can’t afford as a community.”

Nevertheless, the city issued a hotel permit to P&R on March 8. Schuchman told the Council the permit was issued without extensive review because it’s already a use that’s permitted by the area’s zoning.

But City Council Vice President Roz Randorf said she doesn’t believe the creation of a hotel on one floor of the building complies with the company’s development agreement with the city.

“This isn't what we signed up for,” Randorf said, echoing an earlier statement of the mayor.

Randorf said the city agreed to provide a public subsidy in exchange for 23 units of affordable housing, and 74 total units of permanent housing.

“That doesn't mean it's a one day stay at a hotel. It isn't a short term rental. It is permanent housing [for] permanent resident,” he said.

Meanwhile City Council President Janet Kennedy is focused on making sure situations similar to this don’t happen in the future.

She said there are plans to introduce an “action item” on Thursday aimed at future development agreements, so that “Whenever there is use for TIF money or any other public funding, that we're really understanding, when it comes to building apartments and places for people to live, that this won't happen again.”