Tuesday May 01 2007
Duluth's downtown redevelopment picks up the pace
New housing, retail and hotel come to once-moribund Old Downtown area, with a DECC expansion also on tap.

Anne Bretts Contributing Writer

Anyone who has ever had to sit through a community visioning meeting has heard the wish list for a successful downtown: a base of natural beauty, mixed with of offices and housing, topped with tourism, the arts and nightlife. Lots of towns can get some of the pieces, but getting everything to line up perfectly is like mastering the Rubik's Cube.

Duluth may be close to cracking the code.

"We're the best we've been for a number of years," says Steve LaFlamme, head of Duluth Building Owners and Managers Association and president of Oneida Realty, a major downtown building owner. The office vacancy rate, stuck for years at 20 percent or more, has dipped to a manageable 12 percent.

As with most downtowns, however, retail remains slim. But LaFlamme maintains Duluth finally is showing real momentum.

"I think it's the accumulation of a lot of little things," he says.

It's also the accumulation of a lot of big things, from new office buildings, hot restaurants, urban housing -- both affordable and high-end -- and public spaces that take advantage of the biggest amenity around, Lake Superior.

Mother Nature gets the credit for the lake, but many of the man-made "big things" bear the very personal stamp of Rob Link of A&L Properties and A&L Development. Link's partner is Lee Anderson, who founded and still is chairman of APi Group in Minneapolis. He now lives in Naples, Fla., and is still involved with A&L, but Link is its local heart and soul.

A&L's new ventures

His latest venture is the Renaissance Project, a multi-million-dollar project that will blend preservation with new construction, retail and restaurants with offices and high-end housing -- all with a spectacular view of Lake Superior.

The plan includes two buildings and a vacant lot in the 100 block of East Superior Street. One building, which has historic significance, will be gutted and renovated; the other will be demolished and replaced with a design in keeping with its historic partner.

The project sits right across from Link's largest, most contemporary and most controversial project: the $27 million, five-story Duluth Technology Village. Opened in 1999 as a partnership with the city and the University of Minnesota-Duluth, it struggled to find tenants as the promising tech bubble burst.

"There are probably 200 buildings around the country that failed at exactly the same time," Link says, putting the loss in perspective.

But today it's fully leased, including offices, a theater and a northern outpost for Minneapolis-based Pizza Luce, which brought a welcome urban edginess to the mostly family-friendly restaurant scene.

Just a block away, A&L recently completed the renovation of the long-vacant Bridgeman Russell Building, converting the old creamery into 31 market-rate and affordable apartments.

A&L also hit gold with its Lakewalk Surgery Center, a few blocks east of downtown, and has started work on a second building mirroring the first.

"We're kind of the 800-pound gorilla in the room," Link says of his place in the Duluth market, not bragging so much as just stating the obvious.

Link and Anderson teamed up to form A&L in1985 and grew so much that in 2004, Link sold 15 buildings, about half of A&L's inventory, for about $80 million to North Dakota-based Investors Real Estate Trust. Link plowed the money into new projects and now has a portfolio of 1.8 million square feet, worth some $260 million.

Still, he notes that while it was once easy to find deals, it's getting tougher. For example, the Bridgeman Russell project had a budget of $3.8 million, but it ballooned to $5.3 million.

"It was a little bit of everything," he says.

Office costs are high as well, but Duluth isn't generating enough business growth to absorb increases in lease rates, which still can hover around $10 per square foot, triple net.

Link also sees more competition, and more names familiar in the Twin Cities. Kraus Anderson Construction opened a Duluth office in 2000 and now works with Link on many projects. LHB Corp. started in Duluth and still has its headquarters on Superior Street.

Hotel-condo project on East Superior Street

George Sherman of Minneapolis-based Sherman Associates Inc. is wrapping up a $30 million, 11-story hotel-condo project just east of Lake Avenue along Superior Street. Called 311 Superior, the project includes a 147-room full service Sheraton Hotel topped with 33 units of high-end condominiums.

Sherman has positioned the hotel to tap business, tourist and medical business. It's on the eastern edge of the business district, connects to the waterfront Lakewalk pedestrian promenade and also by skyway to the St. Mary's Duluth Clinic. SMDC, already the region's largest healthcare provider, is adding a 250,000 square foot cancer center that will link its hillside flagship hospital and clinic campus directly to Superior Street. The SMDC project totals $120 million, including a city investment in an $11.5 million, 600-stall parking ramp and other infrastructure.

The parking will help Sherman, who is seeking to tap the healthcare market for meetings and events. Instead of building all-new facilities into the Sheraton, however, he has acquired Greysolon Plaza - the historic former Hotel Duluth - across the street. Saved from the wrecking ball in the 1981, it now contains senior apartments, which Sherman plans to renovate and keep. The dramatic and popular ballroom and lobby will get a facelift and the competitive advantages of once again being part of working hotel.

"All of that hard work is really starting to pay off," says Kristi Stokes, who has spent seven years as head of the Duluth Greater Downtown Council. "When I started, we were not able to be very proactive, we were always being reactive."

She quickly rattles off employers who left and stores that closed. The list of misfortunes includes a fire that forced a local television station to move from downtown and the closing of the landmark Chinese Lantern restaurant.

After a couple of other much-hyped restaurants failed at the location, the Lantern site at Second Avenue West and First Street seemed cursed. But then Mike Emerson and his partners decided to evoke a classic name that evoked the city's past and created the Duluth Athletic Club, which is now thriving at the spot.

Stokes says that today there are 52 restaurants in the downtown/waterfront districts, largely a sophisticated mix dominated by locally grown successes.

As traffic worsens in the busy Miller Hill Mall retail corridor over the hill, non-retail business owners are looking for an alternative. Renovations and new construction, combined with parking ramps, skyways and restaurants, are making downtown that alternative.

For instance, Harbor City School converted 50,000 square feet in a long-vacant plumbing supply warehouse and turned it into a bustling charter school. It uses the space and brings traffic downtown.

Construction firms see busy Duluth future

Greg Wegler, director of business development for Kraus Anderson Construction's Duluth office, says the Minneapolis firm's decision to staff an office "up north" has proven a wise one. It now has about 25 office staffers and about $207 million in projects in the area, and is one of the finalists for the Duluth Entertain and Convention Center (DECC) expansion, along with M.A. Mortensen Co. and Oscar J. Boldt Construction.

"I've got a good mix of work booked this year and leading into next year," he says.

Wegler remains enthusiastic about some condominium projects underway or recently completed, but he thinks the local buying market may be maxed out.

"People who are going to be buying aren't from here," he says, pointing to Milwaukee, the Twin Cities and other areas as places where Duluth is being seen as an attractive and less congested location for a second - or third - home.

Wegler quickly clicked through a list of new projects in the area, from aviation industry growth to new healthcare facilities to projects at UMD to high-end residential along the North Shore of Lake Superior and more.

"The whole city's ready to bust open," he says.

"It all has to do with the magic of Lake Superior and the fact that Duluth is such a unique setting, good things are bound to happen," says Dan Russell, longtime director of the DECC. "There's tremendous growth on the North Shore, and to a lesser degree on the South shore, with Bayfield and Madeline Island. It was just kind of a natural magnet. We like to think at the DECC we were part of that."

Russell's main business is running the largest event center, auditorium and sports complex north of the Twin Cities. But he says more was needed to balance the seasonal nature of tourism and get locals back downtown.

"We thought it was very, very important to have a traditional movie theater downtown," he says.

At a time when urban theaters weren't even being discussed, he brought local theater owners together and carved out a deal for a 10-screen theater adjacent to the DECC's existing I-MAX theater.

"It's been a huge addition," Russell says. "National research shows 42 percent of people go out for a meal or a cocktail before or after a movie. It works really great, because the best movie months are winter months."

He says that's the same justification he used in lobbying for the city's request to the Minnesota Legislature to pick up half the tab for a $75 million expansion, adding a new hockey arena for the UMD Bulldogs, thus freeing up the existing arena for additional convention space. A bonding bill containing the project had passed the Minnesota Senate at press time, but faced an uncertain fate with Gov. Tim Pawlenty.

Anne Bretts is a freelance writer based in Northfield.