DEDA Terminates $2.35M TIF Agreement With Lincoln Park Flats, Company Responds

DULUTH, Minn. – The Duluth Economic Development Authority, or DEDA, voted unanimously Tuesday to terminate its multi-million dollar agreement with the owners of the newly built Lincoln Park Flats.

This means roughly $2.3 million in Tax Increment Financing (TIF) through 2048 is no more.

The move comes after the property’s owner, P&R Companies, said it was forced to make plans to turn the second floor of the Lincoln Park Flats into a boutique hotel to handle what they called unforeseen interest rates and costs during and after the pandemic.

The city said P&R went against the agreement by changing to a partial boutique.

P&R disagreed and said the agreement was to have 27 market-rate units and 23 affordable, which they said would remain in the new business model.

P&R released a statement Tuesday and said they are “disappointed” with the city and its councilors who they said have turned their backs on a company that’s invested a lot into Duluth.

Below is the full statement from P&R:

The Lincoln Park Flats building took material delivery at the height of pandemic when the construction supply chain costs spiked. Materials increases were as high as 500%. Post pandemic, we saw record increases in lending interest rates. Those two factors alone, let alone all economic factors affecting the global marketplace at the time, were completely unprecedented in history. The truth about this project is that P&R is the only company that took the risk to build through the pandemic, providing jobs and stability to over 100 Twin Ports families in an uncertain time. If we had not, there would still be an abandoned furniture store on Superior Street.

It was our intention to maintain the building as a mixed-rate property. Unfortunately, due to the considerations mentioned above, we had to take drastic steps to maintain the financial stability of the property. Before switching to short-term rental units, we consulted with the City of Duluth and worked through all of the proper channels to obtain some form of shorter-term rental license. A license, we were assured of receiving, because we were maintaining the affordable units per the terms of the Development Agreement. However, when the Council responded to media reports, we were informed the City removed their support from the conversion and said they believed we were in violation of the agreement. With the hotel conversion, we were maintaining 27 market rate units and 23 affordable units as required under the Development Agreement, unfortunately the Councilors chose to cancel the Agreement.

Although we appreciate the efforts of City staff, we are disappointed at the Council’s reaction to completely turn on a local business that has invested so much in its city simply for attempting to save its building. Our only options were to pursue a legal course of action or agree to a mutual cancellation of the Development Agreement. We chose the latter.

The Lincoln Park Flats opened in June 2022. The neighborhood has also been the home of P&R Companies offices since 2011. For additional information about the property please visit www.prproperties.org.