Feb. 27--The Duluth Housing and Redevelopment Authority took an important step Wednesday evening toward acquiring the beleaguered Seaway Hotel by securing support for a $230,000 loan.
By a 5-1 vote, the Duluth Economic Development Authority resolved to authorize a zero-interest, three-year loan to fund the purchase of the property and to preserve about 70 units of low-cost rental housing in Duluth's Lincoln Park neighborhood.
Rick Ball, executive director of the Duluth HRA, said that after the June 2012 flood, significant water damage at the Seaway prompted the city to condemn the building. He said the private owner of the apartment building, Rick Caya, was unable to bring the property up to code and also address public safety issues related to excessive calls for service to the address. He explained that the HRA intervened to keep
70 vulnerable tenants from being placed on the street at a time when few comparably affordable housing alternatives were available in Duluth.
Ball pledged that in addition to making repairs, the HRA would bring in professional property management to reduce problem behaviors in and around the Seaway.
But not all DEDA commissioners were sold on the idea.
"I'm having a problem with the idea of taxpayer money being used to buy a building we can't see operating in the black for at least three years and possibly never. Would you invest your own money in something like that?" asked Jay Fosle, who also represents the 5th District on the Duluth City Council.
Ball pledged to try to hold the line on rents but previously acknowledged that a subsidy will likely be needed to cover the Seaway's operating costs, as a result.
DEDA Commissioner John Heino acknowledged it was a difficult situation but suggested the authority still had a role to play.
"I don't think I would invest my own money in a project like this, but it seems to me that the market has failed here, and we're looking to step in and turn things around," he said.
Keith Hamre, Duluth's director of planning and construction services, agreed, saying: "One of the reasons you get involved in these kinds of deals is because there is an element of risk that is not acceptable for the private market."
In conjunction with the pending change of ownership at the Seaway, the city also has announced plans to develop a small area plan for the surrounding Lincoln Park neighborhood. Hamre said the potential for revitalization in Lincoln Park is arguably the greatest in the city and suggested the Seaway could be a catalyst for positive redevelopment in the area. He said the small area plan will likely take 15-18 months to develop and that will seek to build on the investments recently made in the Clyde Iron complex.
"I want to speak in full support of the Seaway project," said DEDA Commissioner and City Council President Linda Krug. "It has been clear to me since I've been on the council that this has been a problem for surrounding businesses and for the people who live in the Seaway as well. I'm very optimistic this is a definite step in the right direction and that coupled with the small area plan it will make a difference."
Initially, DEDA had considered issuing a forgivable loan for the Seaway purchase, but Chris Eng, the authority's director, said the debt is now structured to be repaid from any operating profits or from the proceeds of any future sale of the property. But, if the hotel remains in the HRA's hands three years from now with no sale imminent and no significant profits to show for its efforts, the loan agreement will likely need to be renegotiated.
Ball said the HRA does not intend to own the Seaway building indefinitely and hopes it will be under new management within three to five years.
DEDA members voting in favor of the loan authorization were Krug, Heino, Nancy Norr, Emily Larson and Tim McShane.
Fosle cast the sole vote against the resolution.
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