Duluth council backs massive new hilltop housing development

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A rendering of an aerial view of the proposed $500 million Incline Village housing development in Duluth.
Rendering courtesy of DSGW in Duluth

The Duluth City Council has approved an agreement with a New York developer to build what advocates are calling a “transformational” neighborhood atop the hillside overlooking the city’s downtown, on the long-vacant site of a former high school.

The proposed development, called Incline Village, could eventually cost $500 million to build, and would include up to 1,300 housing units, a combination of rental apartments and condominiums that would be for sale.

Council members approved the agreement with an 8-1 vote, including a $25.8 million subsidy for the first phase of development to help bring infrastructure to the site, which has sat dormant for over a decade, after Duluth Central High School closed in 2011.

The proposed development is named after an incline railway that ferried passengers up and down Duluth’s steep hillside from 1891 until 1939.

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The first phase calls for two interconnected buildings each offering 60 condos for sale, and a third building featuring 220 market rate apartments for rent.

Future plans include four additional 220-unit buildings, five to seven stories high, oriented to offer commanding views of Lake Superior.

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A rendering of shared public space at the proposed Incline Village housing development in Duluth, including a possible amphitheater.
Rendering courtesy of DSGW in Duluth

The project also envisions 80,000 square feet of retail, and public amenities including a public pavilion and a trailhead to connect to local hiking and biking trails.

“We’re building a brand new neighborhood in our community,” Jeff Schiltz, a local representative for the development company, told the city’s economic development authority last month.

“Duluth needs growth. Since I’ve been here, the sign for the population’s been 85,000, and we haven't changed it.”

According to Schiltz, a principal in the Duluth firm ICS, if the entire project is built out, it would add more units of housing in Duluth than the last 30 development projects in the city combined.

The project developer is Chester Creek View LLC and Incline Plaza Development LLC, two entities established by a new York-based family-owned real estate company led by Lazar Ostreicher, who purchased the former Central High School site last year for $8 million.

Ostreicher has invested heavily in Duluth in recent years. He’s purchased two apartment buildings since 2018 for a combined price of about $77 million.

Initial plans for Incline Village envisioned only market-rate units. At Monday night’s council meeting, city administrator David Montgomery said Ostreicher first wants to ensure that the first phase of the project is economically feasible.

“If this first phase proves economically viable, such that there will be subsequent phases…he has indicated his willingness to look at affordability in the subsequent phases,” Montgomery said.

Affordable housing debate

Several Duluth residents asked the council to require developers include affordable housing in any proposal that receives public subsidies.

“It’s not enough to think that they’re nice guys, I don’t care,” said Mary Owen. “We have to insist that they include affordable housing given the crisis here, given the housing shortages in this city and how this most impacts lower income people in our community.”

City officials say a large subsidy known as tax increment financing, or a TIF, is needed to develop Incline Village because of the difficulties of extending infrastructure to it. Without it, they argue, a developer wouldn’t agree to build badly needed housing on the site.

“TIF is not a developer gift,” Montgomery wrote to council members. “It is a means for the City to provide shovel ready development sites by financing the construction of basic infrastructure and foundational costs.”

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A rendering of condominiums in the envisioned as part of the 1,300-unit Incline Village housing development in Duluth, proposed on the former site of Duluth Central High School on the hillside overlooking downtown.
Rendering courtesy of DSGW in Duluth

Montgomery estimates that smaller TIF subsidies will be required for second and third project phases, totaling in the range of $40 to $50 million. “We expect a heavier TIF up front as we put in primary infrastructure,” he told councilors.

The proposal is currently undergoing an environmental review process known as an Alternative Urban Areawide Review that is expected to be completed in May.

Construction could begin this summer, said Brian Mortemore, an architect with DSGW in Duluth who’s designing the project.

“This developer is really anxious to get into the ground this summer, wants to get into construction, wants to keep things moving,” Mortemore said last month. “As interest rates continue to go up, as well as worry about construction costs continuing to go up.”

While some council members supported tabling a decision on the development agreement to give the public more time to weigh in on the proposal, City Council President Roz Randorf said she’s excited about its potential to address the city’s critical housing shortage.

“A half a billion dollars of private investment. This is our largest investment, This is our largest housing project.”