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Even casual followers of the news are aware that the NorShor Theatre redevelopment project seems to be taking a long time to begin; to me, a person who follows city business closely, the situation is farcical. Ever since the city purchased the old theater in 2010, city officials have repeatedly announced that a development agreement was imminent—but each time, when the magic moment arrived, additional time was requested.
I’ve written about this before, but I never actually sat down and counted the delays. The logical place to start is February 22, 2012. Although the city floated various plans for the building a few times prior to that, it was only when developer George Sherman got involved, in 2012, that the project seemed poised for realization.
February 22, 2012
At the regular meeting of the Duluth Economic Development Authority, DEDA commissioners approved a Memorandum of Understanding with Sherman Associates to redevelop the NorShor. Under the agreement (which was non-binding, but which everyone hailed as a huge step), DEDA would give the NorShor to Sherman, who would partner with the Duluth Playhouse to secure tax credits and other financing to refurbish the building to historic standards. The Playhouse would manage the NorShor. After a certain number of years (various types of tax credits had various requirements), Sherman would turn ownership of the theater over to the Playhouse. For his troubles, Sherman would get a nice new skywalk connection to his Greysolon Plaza building next door; he would also collect a development fee. The Playhouse would have a spiffy refurbished theater, and Duluth’s Old Downtown would have a vibrant arts hub to spur more development.
Brian Hanson, the city’s director of business development, told DEDA commissioners, “It’s going to take about a year [after the development agreement is signed] to do this kind of construction. It’s a big project. We could be spending up to $10.7 million on construction alone. That’s not going to happen overnight.…When can we open? It’s going to be spring or summer of 2014. That’s our best estimate today.”
• September 26, 2012
The first delay occurred seven months later, on September 26, 2012, when Sherman executive Brian Gorecki appeared before DEDA to let them know that, although Sherman had been able to secure $10 million in historic preservation tax credits, they still needed $10 million of new market tax credits, which they were in the process of pursuing. Apparently the project was now a $20 million undertaking.
“We’re going to see a three-month pushback on when we’ll be closing due to that timeline on the new market tax credits,” said Gorecki. “The closing date [will] more than likely [be] in May or June of next year.” DEDA commissioners were agreeable.
• April 24, 2013
Seven months later, Gorecki returned to DEDA with good news: Sherman Associates had secured a $750,000 predevelopment loan from the nonprofit Local Initiatives Support Corporation and a $150,000 grant from the Minnesota Historical Society. The governor’s bonding bill also included $5 million for the project, which they thought had a good chance of being approved. Nevertheless, the closing date had been pushed back a bit.
“If everything continues to go as we’re anticipating, we’ll see a closing that’ll take place probably September-ish of 2013, and then we’d be in the ground shortly thereafter, with a construction schedule somewhere in the 12- to 14-month range,” said Gorecki. Commissioners were agreeable.
• May 28, 2014
Thirteen months passed. The NorShor didn’t receive bonding money in 2013, but the governor included $6.9 million for the project in his 2014 bonding bill, which they did get. This made everyone very happy. On May 28, 2014, director of business development Chris Eng told DEDA commissioners, “The $6.9 million in state bond assistance is in the form of cash, so it comes without any bond strings.…My hope would be to bring you a development agreement to approve in July, and construction could begin shortly thereafter. The goal would be to have construction complete by the end of 2015.” Commissioners were delighted.
• June 25, 2014
A month later, Eng advised commissioners that the project would be delayed just a bit longer. “We are working very hard with Sherman and Associates and the Duluth Playhouse to work out the terms of the development agreement….The goal would be to bring that to the DEDA board in August, and then to the council for approval in August as well, so we can begin construction this fall, hopefully September/October construction. So we’re making good progress on that. We’re moving at a pretty fast pace.”
• August 27, 2014
Two months later, Eng advised commissioners of another delay. “We’re very much still in the negotiating stage and the details being worked out on both the state grant agreement with DEDA and with the development agreement with Sherman Associates….What I’d like to do is bring the development agreement to the DEDA board in October for consideration and approval, and then to the city council for final approval in November.”
• September 24, 2014
A month later, George Sherman himself showed up at the DEDA meeting to say that the project would be delayed a tiny bit longer. “We hope to be in front of the DEDA board at the end of November for final contract approval, with the goal of starting construction at the very end of December,” he said. “There is a slight possibility that it could go into January, but everybody [is] trying to get this project closed by the end of December.”
• January 28, 2015
Four more months passed. Eng told commissioners, “We are getting very close to having the terms worked out with Sherman Associates for the development of the NorShor….I think we’re really close to striking a deal, so our anticipation would be that we will close within the next 60 days or so, and construction will start shortly thereafter, so we’re making good progress.”
• February 24, 2015
The following month, Eng said, “We’re in continued negotiations with Sherman Associates and the Playhouse. My hope would be that we would be ready for a development agreement in March or April for consideration for DEDA, and then the council as well. We are continuing to work through the details and hope to close sometime in June and construction should start shortly thereafter.”
• July 22, 2015
Five months after that, Eng said, “We’re getting very close to seeing the funding package be complete, with Sherman Associates raising additional money through the new market tax credits, and the intent is to publish a public hearing notice on August 14th for the DEDA board’s consideration and approval of the development agreement on August 26th. So it’s coming up at the next DEDA board meeting, and then for final council approval on August 31st.”
• August 26, 2015
The next month, Eng left his job to pursue other opportunities. Dave Montgomery, the city’s chief administrative officer, took over as interim director of business development. He told the DEDA board, “There are a lot of documents that need to be prepared, development agreements, credit agreements, all that stuff. We’re going to be doing those between now and September 28th, which is when we would expect this package to come forward. It would first come forward to DEDA at their meeting on the 23rd of September, and then to council on the 28th.”
The city issued a press release trumpeting the imminent closing of the deal. The Duluth News Tribune and all the TV stations jumped up and down and clapped their hands. The News Tribune wrote a giddy editorial praising everybody involved.
• September 23, 2015
Sadly, a month later, Montgomery told commissioners, “We will be bringing this to the DEDA board in October, and then to the city council also in October.”
• October 23, 2015
A month later, Montgomery said, “We anticipate having everything ready…in November, where we’ll be able to walk commissioners through the packet of things and the approvals….Then we’ll present it to the city council the following Monday. Anticipation of a full closing mid-December, and then construction getting underway shortly thereafter.”
• November 18, 2015
A month later, assistant city attorney Bob Asleson told commissioners, “We had previously [hoped] that we would have all of the documents ready for you tonight. Obviously…we don’t, so [we will] postpone the actual action on the development agreement involving the sale and the easements until the special meeting on [December] 2nd.”
• December 16, 2015
A month later, DEDA president Nancy Norr told her fellow commissioners, “We do anticipate that the NorShor Theatre project will come back to us in our normal meeting cycle in January of 2016….Progress [is] being made in a highly complex project.”
• January 25, 2016
A month later, newly hired director of business development Heather Rand told DEDA, “The February 24th meeting is our date that we are very hopeful that we will have the NorShor various series of agreements related to that redevelopment project….So I just wanted to give you a heads-up [that you can] expect that on your agenda.”
• February 24, 2016
A month later, Rand told commissioners, “At our March meeting…we do expect, and I’m kind of tired of saying this, that hopefully there will be some kind of NorShor agreements that we will be processing. So let’s see how that goes.”
Which brings us to today. Since 2012, the NorShor project has been postponed 16 times, 9 times in the last year alone.
In the early days, the delays were attributed to funding gaps. Today, however, all of the public financing is in place, and has been for six months. So what’s the holdup?
When I spoke with Heather Rand on February 29, she admitted that she wasn’t closely involved with the NorShor negotiations, which long predated her hiring. “As I understand it, there are just some additional financial considerations,” she said. “These are negotiations between the parties, i.e., Sherman, DEDA and the Playhouse, in terms of, you know, negotiating who’s going to pay for what, and to what extent the renovations will occur, or what will be deferred. It’s just a complicated deal.” (As of press time, my phone call to Dave Montgomery’s office had not been returned.)
Today, the price tag for the NorShor project has grown to $30 million. So far, no money has come from the city’s general fund. DEDA’s contribution consists of the building ($2.3 million), tax increment financing ($1.6 million), a loan to the Playhouse ($3.5 million), and $300,000 that was granted to Sherman to help with predevelopment costs (despite the fact that no agreement has yet been signed). This $7.7 million certainly has an effect on the city’s bottom line, but it does not, at this point, directly impact city taxpayers. The city has stressed this fact repeatedly.
In addition to his development expertise, George Sherman has contributed a significant portion of his own capital to the project, filling gaps when hoped-for tax credits failed to materialize. The value of such bridge financing should not be minimized; it may well have kept the project alive during the leaner years. Sherman has promised on several occasions that he intends to see the project through to completion.
Nevertheless, the city’s deep commitment to a refurbished NorShor does carry risk. The endless postponements, the perpetually growing price tag, and the fact that the parties are still wrangling over details after four years of planning raise a red flag, at least for me. After all that has been done, what if the money still comes up short? Who will cover the gap?
As someone who has watched many big projects develop over the years, I think I can guess.