The proposed subsidy still awaits action by the Duluth City Council, which is slated to take up the aid package Monday night.
Three D I LLC, the prospective developer, aims to create 84 residential housing units in the historic building, constructed in 1895 and designed by Oliver Traphagen, a prominent local architect in his day.
Of the apartments, 17 units would be reserved as affordable housing for tenants earning 50 percent or less of the area median income. The development will include studio, one-bedroom and two-bedroom units, with monthly rents starting at $625.
The remaining 67 units would be offered for rents designed to be appropriate for people earning at least 80 percent of the area median income. This portion of the building likely would rent for between about $750 and $1,200, said Jason Hale, a senior economic developer for the city of Duluth.
“As you probably realize, that’s certainly lower than we have seen with other new products on the market in Duluth. So, it looks like a great opportunity in that regard,” he said.
In addition to rental housing, plans call for the eight-plus story building to accommodate retail businesses on the ground floor, as well as commercial and co-working spaces on the second and eighth floors. About 17,000 square feet of the 96,400-square-foot building would be used for commercial purposes.
The project would provide for about $20 million of new investment in the Board of Trade Building. Three D I LLC and its investors would provide $3.5 million in equity and take out a $10 million mortgage. The project also is in line to receive $6.5 million in state and federal historic tax credits, in addition to the proposed tax-increment financing.
Tax-increment financing is a form of subsidy that uses new property taxes generated by a project to cover certain qualified development costs. After the TIF agreement expires — following a maximum 20-year period in this case — the full value of future tax collections will flow into the coffers of local government.
The Board of Trade Building currently has an assessed value of $920,000, but following the proposed improvements its estimated value would grow to about $9 million, Hale said.
Tax-increment financing is considered a permissible tool only in cases where a developer can demonstrate that without the requested help a project would not be feasible, and Hale said a report by Ehlers, a financial analysis firm, indicated the proposed Board of Trade Building project meets that test.
Since a chimney collapse in 2016, much of the building has gone vacant, and despite some subsequent repairs, Hale said the project would offer an opportunity to address some lingering blight.
“We’re all excited at the opportunity for that building to be full and utilized and to be leased up,” Hale said, noting that many downtown workers lack access to affordable housing close to their places of employment.
Hale said the developer already controls about 40 parking spaces in an adjacent parking lot and noted that additional space is available in nearby parking ramps and structures. He also pointed out that the building boasts skywalk access as well as close proximity to public transit, perhaps making it unnecessary for a number of tenants to own personal vehicles.