Massive Duluth hilltop housing project in doubt after developer fails to meet deadlines
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A massive proposed housing development in Duluth that city officials have said would create a “transformational” new neighborhood now appears stalled, and may not move forward after all.
A New York-based family-owned real estate company headed by Luzy Ostreicher ceremonially broke ground on the $500 million project in December. It sits atop the hill overlooking downtown and Lake Superior, on the long-vacant former site of Duluth Central High School.
Dubbed “Incline Village,” it promised 1,200 market rate condos and apartments in several different buildings, built over the next decade, in a city in critical need of additional housing. The project’s plans also called for 80,000 square feet of retail space.
The first phase of construction would feature a 70-unit condo building located on what was the high school’s football field. It was initially scheduled to be completed by the summer of 2026.
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The city had pledged $75 million in a public subsidy known as tax-increment financing to help with development costs, including bringing infrastructure to the rocky site where it is challenging to build.
But this week, the Duluth Economic Development Authority, or DEDA, sent a letter to Ostreicher to notify the developer that he is in “material breach” of the development agreement signed with DEDA for the housing project.
In the letter, DEDA executive director Tricia Hobbs spells out eight obligations the developer has failed to meet. If it fails to address, or “cure” the issues in 45 days, the letter states that DEDA’s development agreement with Ostreicher will be terminated.
According to Hobbs, the developer failed to begin construction activities as required by Oct. 15, 2024. DEDA granted four waivers to the deadline, but says the developer has now ceased earth work at the site and is failing to maintain the property in “a neat, orderly condition.” DEDA is demanding that Ostreicher’s contractors stabilize the site to comply with permits.
DEDA also writes that the developer has failed to pay taxes for months. The authority sent the developer a notice of breach on April 1, but said Ostreicher has yet to pay. Hobbs also writes that the developer “is in default of its obligations under its construction contracts for the project.”
Ostreicher has also failed to provide copies of loan and financing commitments or other evidence that they have secured construction financing.
“The developers have an opportunity to cure and we’re hopeful that they will, and I know they have to resolve some issues with their prime contractor as well,” Duluth Mayor Roger Reinert told MPR News after an unrelated news conference Tuesday.
“It is representative of big projects,” Reinert added. “We have to do our due diligence. We have to have staff on top of it, and we have to be good stewards of the public dollars that are involved or might be involved.”
No public dollars have yet been spent on the project, stressed city council member and DEDA commissioner Arik Forsman. TIF subsidies are paid out only after work is completed.
“If there’s been no progress on the development, then there’s no public dollars that have been expended,” Forsman said, who added that he remains hopeful that the current developer can still complete the project. “We have to work with who owns the property.”
Ostreicher purchased the 53-acre site two years ago from the Duluth public school district for $8 million.
“But this property is too beautiful not to have progress here, and I’m still really optimistic that we’re going to see a great development up there sooner or later,” said Forsman.
Ostreicher has also run into troubles at some of his other Duluth investments. His family company has purchased two apartment buildings in Duluth for a combined price of about $77 million.
His company Endi Plaza LLC declared bankruptcy the day before the Incline Village groundbreaking, after its lender, Fannie Mae, said the company had defaulted on a nearly $52 million loan for a 142-unit apartment building it purchased in 2021.
Fannie Mae said Endi Plaza had submitted false information in at least one financial report.
At the groundbreaking ceremony for Incline Village late last year, Ostreicher presented Duluth Mayor Reinert with a Hanukkah candleholder — a symbol, he said, representing the years his family has been in Duluth.
“We see people who are community minded, who are really ingrained in their heritage, uniquely ingrained in their history,” Ostreicher said at the time.
Duluth City Council President Terese Tomanek said it was “really unfortunate” that it appears the developer is not carrying through with the project the city had planned on.
“We need housing at all levels in Duluth, and we were really excited to have more apartments and condos built up at that area where the view is just beautiful,” Tomanek said. “The good side of that is that that site is prepped and ready to go, and we’ll be ready for the next developer who wants to come in and really get going on housing for Duluth.”
