New Central Hillside apartments move forward

by Richard Thomas

Image Source: MBJ Development
Image Source: MBJ Development

At its June 5 meeting, the St. Louis County Board authorized up to $400,000 in tax abatements for a new apartment building in Duluth’s Central Hillside. The $20 million CityView Flats will be 106 units of rental housing at 333 N. First Ave. W. Construction is expected to begin this summer.

At least 10 of the units will be rent-restricted at $835 to $1,045 per month. Twelve of the units will be $1,145 per month and the rest range up to $1,835. The smaller market rate units are targeted at people with annual incomes starting at $45,800, according to the resolution.

The rent-restricted units are targeted at people with incomes around $40,000. However, “There’s not an income-restriction requirement, so that allows anybody to access those rent-restricted units,” Keith Hamre, Planning & Construction Services director for the City of Duluth, told the county board.

“The Hillside and the center of the city has long been a magnet for housing for low-income people, of whom there are many, and we should provide housing for them, but we need to be a magnet for other kinds of housing as well. People do want to live downtown,” said Commissioner Frank Jewell. “I’m particularly excited by the rents, which I know from experience are right in the sweet spot for people who want to live downtown. Many of these young people coming to work here are coming for good jobs but they have lots of college debt and they really can’t afford $1,800, but they can afford $1,100.”

The City of Duluth has committed $400,000 in tax abatement financing as well. The original plan, proposed in January, was that the county and the city each would provide $300,000 in tax abatements. Hamre said that the city applied for an $800,000 Workforce Housing Development Grant from the Minnesota Housing Finance Agency, but received only $180,000.

In 2016 the city was successful in getting a $1 million state grant for another apartment project, District Flats on Miller Hill. Tax abatement is a temporary reduction or elimination of property taxes to create property with a higher tax value after the abatement expires. The county will pay for its share of financing over 7-10 years, beginning the first tax year after project’s completion.

County Board Chair Keith Nelson said, “It’s important to me that it be of a very short duration. Doesn’t sound short at 7-10 years, but it’s a whole lot shorter than 25-50.”

County Administrator Kevin Gray said the county’s $400,000 comes out of an economic development fund for abatements and is financed in part by proceeds from Land & Minerals revenues. He said the county’s commitments in abatements total over $1 million over the next 10 years, most in the 4-7 year range.

County Auditor/Treasurer Don Dicklich explained the values of abatements: “If you have a $100 million levy one year with 100 people having to pay it … after the tax abatement is through, now you got 102 people spreading that same $100 million levy … Each taxpayer plays less. In essence you really are reducing the tax on everybody and providing more services.”

CityView Flats will be located across Fourth Street from the low-income Steve O’Neil Apartments. The developer purchased two tax forfeited parcels at the location.

The county will waive application fees, annual abatement limits, total abatement limits, number of affordable units and limitation on affordable housing. The City of Duluth has paid for all financial reviews and drafted legal documents. The city will require an agreement to use union labor and pay prevailing wage rates.

A public hearing took place before the board’s decision but no one spoke against the project.

The developer is Minneapolis-based MBJ Development, which stands for Marshall B. Jackson. MBJ also owns Cascade Springs apartments in Duluth and Woodgate Apartments in Cloquet, as well as apartments in Minneapolis and St. Paul. It also owns the closed Mike Western Cafe building at 2803 W. Superior St., which is up for lease.

The county resolution cited Duluth’s rental market at a vacancy rate of 3.6 percent, compared to the national average of 7 percent.