A Duluth developer announced plans this week to convert a 50-year old downtown office building into apartments. It’s the first of what the city hopes will be several office-to-housing conversions in the next several years as Duluth works to revitalize its downtown post-pandemic.

Titanium Partners, which also redeveloped the downtown building once occupied by the infamous head shop Last Place on Earth, plans to spend at least $8 million to convert the 7-story Ordean Building on Superior Street into 35 to 37 apartments. The bottom two floors will be commercial space.

“We expect that we’re the first of many projects in downtown most likely, where you see office to multi-family conversions,” said Titanium Partners CEO Brian Forcier.

“You’re seeing it across the country, quite frankly. COVID changed the way we act and the way we live.”

Downtowns across the country have struggled as workers have shifted to working from home, or adopted hybrid schedules where they may only come to the office a couple days a week.

Before the pandemic, about 18,000 people regularly worked in downtown Duluth.

But city officials estimate only 50 to 60 percent of those employees have returned. There’s now a 21 percent office vacancy rate downtown.

Duluth, like many cities, hopes to replace that lost daily commuter traffic with full-time residents, to help restore energy and vibrancy downtown around the clock, not just 9-to-5.

“We had a skywalk that was packed with businesses, we had more retail, we had the capacity,” said Duluth Mayor Emily Larson. “And so now, we, like many downtowns, have to kind of look back to move forward. And go back to building that density.”

Titanium’s Forcier, who anticipates construction to begin in early 2024, believes his project can help. It’s located on a key corner downtown across from the library and kitty-corner from the St. Louis County Depot, proposed home for the Northern Lights Express rail line between Minneapolis and Duluth.

“If you look back at old pictures of our downtown, the vibrancy of it, that’s what we’re trying to do here. And I hope that others take note in the downtown and follow suit.”

The residential conversion is already underway. Kristi Stokes, president of Downtown Duluth, said the city has added about 100,000 square feet of housing downtown over the past three years, which marks about a 13 percent increase.

One of the more high-profile recent additions to downtown’s housing stock was the conversion of an old county jail into more than 30 mixed-income apartments.

A project converting the old Duluth Central High School into 122 housing units is expected to be completed by the end of the year.

But it can be tough to attract new residents when there are still many vacant storefronts downtown, and when on some evenings there just aren’t that many people milling about.

Stokes, who co-chaired a downtown task force Larson created last year, said public safety issues have also increased since the pandemic.

“We’ve seen more people who are unsheltered, more people who are dealing with mental health issues, as well as addiction issues. And so the resources are stretched thin in a lot of areas.”

Shaun Floerke, president of the Duluth Superior Area Community Foundation and the other co-chair of the downtown task force, said it’s a chicken and egg phenomenon.

“How do you attract people if there aren’t people?” Floerke said he believes that if more housing is created downtown, businesses will follow.

“I think sometimes we view it the other way, that maybe if we had more businesses, people would come. But when you walk through cities that are thriving, there’s people living there, that’s their neighborhood.”

There’s also safety in numbers, Larson said.

“You take care of where you live, you take care of your neighborhood. So bringing more people into experiencing downtown as a neighborhood, is one of the best ways we take care of it and keep it feeling safe.”

Housing potential

Duluth’s push for added housing downtown is driven not just by the changing habits of office workers, but also by a huge need for more housing across the city.

The rental vacancy rate last year in Duluth was just 3.5 percent. The city has added more than 1,000 housing units since 2019, far short of the 3,600 affordable units a consultant recommended the city add to meet demand between 2019 and 2024.

A new study released this week commissioned by the city found the greater downtown area could support up to 2,500 new housing units over the next five years.

Laurie Volk with the firm Zimmerman/Volk Associates, which conducted the study, said for that to happen, the city needs to help developers overcome challenges to repurposing office space into comfortable homes, especially the high redevelopment cost.

“We had many interviews before we produced this study, and I heard over and over and over again about how expensive it is to develop in Duluth, that it’s more expensive to develop here than it is in Minneapolis and St. Paul. That’s getting materials here, the cost of labor, the cost of land,” Volk said.

She said may cities have created gap financing pools to help developers cover costs. The city has provided tax increment financing to help many developers build projects. Developers in Duluth have also leveraged historic tax credits to redo buildings.

Volk also recommends that Duluth create an “adaptive reuse handbook” and appoint an “adaptive reuse ombudsman” to help developers obtain necessary approvals and guide them through the process.

“It’s very important for the city to work with developers not against them,” Volk said.

For the Ordean Building project, Forcier is working with officials to purchase a city-owned plaza adjacent to the building that he plans to make “as Instagrammable as you can imagine.”

Forcier said there’s no public financing involved in the project. As a result the city can’t mandate affordable housing requirements.

But Forcier said he plans to price rents at a level that people who work across the street at Maurice’s or at the nearby St. Louis County Government Services Center can afford.

The biggest obstacle, he said, is dealing with building codes to convert mechanical and plumbing systems in the building to residential.

“So we get to be a guinea pig and try to push through these,” he said. “But I think in the future, you’ll see some of those building codes changed and adapted, so buildings like this can be reused as hybrid work and housing environments in the future.”

Housing projects like these are critical to rejuvenating downtown, said Chad Ronchetti, director of planning and economic development for city of Duluth.

“A downtown is the heart of a community. And it is impossible for a community to function without its heart. And so we need a strong, healthy heart. And it’s projects like this that make that happen.”