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Initial plans had called for the Duluth Economic Development Authority to consider approval of a development agreement for the long-awaited NorShor Theatre restoration this week, but details of the complicated, multifaceted $29.6 million project apparently will require more time to iron out.
David Montgomery, Duluth’s chief administrative officer, says he now expects to bring the agreement forward in October, requesting that it be approved by both DEDA and then the Duluth City Council. But he remains confident the deal remains on track to close in mid-November.
“We’re still working on internal drafts, and those are being shared amongst all the various parties. There’s a lot of documentation around the financing with the New Market Tax Credits and stuff, and we just said: ‘We can’t rush this, because we need to make sure that the documents all work so we don’t screw up the tax credits,’ ” Montgomery said.
DEDA bought the run-down NorShor Theatre, an annex and the neighboring Temple Opera Building in downtown Duluth for $2.6 million in 2010. The authority will retain ownership of the Temple Opera Building but plans to turn over ownership of the other property — valued at about $2.3 million — to Minneapolis-based developer Sherman Associates, with the exact terms of the deal yet to be inked. The plan is for Sherman Associates to renovate and restore the theater as an arts venue.
George Sherman, founder of Sherman Associates, said he expects to begin work on the theater immediately after his firm takes possession of the building in November.
Work will continue through the winter, beginning with the abatement of lead paint and asbestos from the building and then moving on to the extensive demolition that will precede the actual renovation.
“Even though we’ll be keeping all the historic features, we are doing a major revamping of the interior seating and the balconies of the theater. There is probably two to four months of interior demolition work to reconfigure the seating in more of its historic fashion,” he said.
Sherman said he hopes the theater will be restored and ready for use by September 2017, in time for the Duluth Playhouse to launch its fall season. The Playhouse will be the anchor tenant of the building and is expected to assume ownership of the theater after a few years.
“It will be tight. There’s a lot of work to do, but we are shooting to have it done within 20 months,” Sherman said.
The future ownership of the theater and its annex by a nonprofit of relatively modest means required much consideration, Sherman said.
“We really wanted no long-term debt on the buildings so they could be self-sustaining, and that meant we had to find sources of funds to do $29 million of development that did not require long-term repayment streams,” he said.
Sherman pieced together financing from a number of sources.
“It meant getting a lot of trains to the station at the same time,” he said. “It required a lot of creativity and ingenuity on the finance side,”
“This project has been five years in the making. That fact alone is indicative of how difficult this project has been,” Montgomery said.
The extended timeline of the project has come at a cost, however.
Original estimates had pegged the cost of the renovation at about $24 million — $5.6 million less than is now anticipated.
“The project has also gotten more complicated with time,” Sherman said.
Originally, plans called for the renovation of just the first floor of the NorShor annex, which is home to the theater’s lobby, but now plans call for the second and third floors will be built out as well. Meanwhile, the proposed skywalk connection through the building has been extended.
“The work on the theater space itself has become more extensive, with the addition of an orchestra pit, which was not originally in there, too. And we’re expanding the stage as well,” Sherman said.
Inflation has been another driver. Sherman noted that construction costs — including labor and materials — have been increasing 5 to 10 percent per year in most markets.
The venue dates back to the opening of the Orpheum vaudeville house in 1910. After extensive renovations, it reopened as the NorShor — a movie theater — in 1941. It operated as a first-run movie theater until 1982 and later as a venue for live events.
In more recent years, before DEDA acquired the property, the NorShor had become home to a strip club that Sherman and many others viewed as an impediment to additional investment in the neighborhood.
“I think it would have been a complete roadblock to any further redevelopment of Duluth’s east end if the city had not stepped up and acquired this building. As a strip club, it was having a major impact on any additional enhancements. I don’t think we would have gotten the type of upgrades at Greysolon Plaza or Black Water (Lounge) if we continued to have a strip club next door,” he said.
Sherman compared the NorShor of days’ past to a notorious head shop in downtown Duluth that also was shut down after it was legally deemed a public nuisance.
“It (the NorShor) was a lot like the Last Place on Earth. It was a cancer that was killing all the properties around it. The pre-existing condition as a strip club was devastating for this part of town. Families didn’t want to come down here,” Sherman said.
With the strip club gone, and the NorShor poised to be resurrected as an upscale theater venue again, Sherman sees a much brighter future.
“I think the fact that both businesses — the NorShor strip club and the Last Place on Earth — are no longer there is opening the investment gates and is generating the interest in improving this whole end of town,” he said.
Sherman Associates already owns both the Sheraton Hotel and the Greysolon Plaza buildings, and Sherman said he is looking at additional investments in the neighborhood.
“We just invested probably $1 million in Greysolon Plaza and we hope to do a couple more buildings. I think in the next 18 to 24 months, you’re going to probably see … double the investment we’re making in the NorShor in that area,” he said.
Montgomery said he expects DEDA’s investment in the Temple Opera Building to appreciate as well.
“We see the Temple Opera Building going up in value as an additional development opportunity for somebody,” he said. “It’s not too big a space. It’s a digestible space, and now it will be on the skywalk.”
Montgomery said plans call for the westward expansion of the skywalk system to the Fond-du-Luth Casino and an adjoining parking ramp in time, although details would need to be negotiated with the Fond du Lac Band of Lake Superior Chippewa, which owns the gaming facility.
Montgomery predicts the restored NorShor will be a catalyst for Duluth’s newly established Historic Arts and Theater District.
“I think two years from now when this theater is up and operating, there’s going to be an excitement and a buzz in this town over what’s been accomplished and over this asset they now have — not just the bricks and mortar asset but the space, the activity, the home for the arts that will be created and sustained by this,” he said.
Despite the delays the NorShor project encountered, Sherman said his team never was tempted to turn their backs on it.
“Everybody at our company was very dedicated to the project once we got into it. We don’t walk away easily, and we pride ourselves on finishing what we start,” he said. “We have a lot of persistent believers at our company who want to see this theater become a real crown to the city of Duluth’s art district. “
Montgomery said he has been impressed by Sherman’s steadfast efforts to restore the NorShor.
“George has shown an incredible commitment to this project,” he said. “I think he looks at this project not just as a developer would. I think he has a real passion for the concept of a historic theater and all that can come out of it. I think he has a real appreciation for the arts, and that’s what excited him about this project,” Montgomery said. “You can see that in how hard he’s been working to make sure this thing stays on track.”
Sherman contends his firm’s persistence paid off.
“When it was meant to be, everything came in line, and we’ve been able to put together the financing package this year that should allow us to move forward to closing,” he said.
Although the extent of any public investment that will go into the NorShor restoration has yet to be nailed down in a development agreement, Montgomery was quick to offer assurances.
“There is no taxpayer money involved in this project. The money that’s involved in this project is money that is spent for exactly these types of purposes. DEDA is in the economic development and redevelopment game. That’s what DEDA does, and we view this as fundamentally a downtown district redevelopment project on a terrific scale,” he said.
Montgomery maintains that any DEDA money that ultimately goes into the theater won’t come at the expense of other core city operations.
“None of the money going into this project can be used to build streets or to hire police officers or to run libraries. Oftentimes the public has a hard time understanding that. They kind of look at all money that the city touches as fungible — as though all money could be used for all purposes,” he said.
“In this case this is economic redevelopment money that’s going in here, and we’re including in these agreements the appropriate precautions and guarantees and limitations so that public dollars are not expended in support of this project,” Montgomery said.
Sherman said he harbors no illusions that his firm will make money on the NorShor project, although he thinks it will increase the value of the company’s other holdings in the area.
As for the NorShor restoration alone, he said: “I think it will cost us money. We’ll have spent 11 years on this project before we exit it, because we have to guarantee its performance for all the investors and all the credit people, and we have to make sure the theater remains operational for its first five to seven years, although we believe the Playhouse will keep it going way beyond that,” he said.
Complicated details in design, construction, legal documents and financing for the project have proven expensive, Sherman noted.
“Some of it will get covered by project costs, but for 11 years it will cost our company significant money in staffing and overhead,” he predicted.
But Sherman isn’t one to bellyache about the project.
“On the other side, we’ll gain by seeing something really improve,” he said. “That’s personal, and you don’t take money to your grave. What you take is your personal accomplishments and what you leave behind. And I think everyone at our company will be very proud of this.
“Certainly I am.”
Peter Passi | September 20, 2015