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A $25 million Hotel/Condo Proposed
 for Downtown Duluth, Minnesota
Sheraton Branded Property Would Have
 145 Hotel Rooms, 30 Upper Level Condos

By Jane Brissett, Duluth News-Tribune, Minn.
Knight Ridder/Tribune Business News

Feb. 4, 2005  - Duluth, Minn., could be home to a new 145-room first-class hotel with 30 upper-level condominiums by mid-2006.

The $25 million project is being proposed for downtown Duluth by Minneapolis-based developer Sherman Associates and could get the go-ahead as early as Monday.

It would be located at Third Avenue East and Superior Street, near the St. Mary's/Duluth Clinic cancer center that now is being constructed on First Street. The hotel would be connected by skywalk to a yet-to-be built city parking ramp and the medical campus. City plans also call for skywalk links west to the Technology Village.

The development would be similar in scope to other major downtown construction projects such as the Holiday Inn, U.S. Bank building and the Technology Village, said Tom Cotruvo, director of the Duluth Economic Development Authority.

Construction of the hotel will be privately funded, except for the skywalk portion. It likely will be a Sheraton franchise, according to Richard Hicks, a representative of developer George Sherman. Sheraton officials were in Duluth Wednesday and Thursday to discuss the project, he said.

DEDA will hold a public hearing on the proposal Monday and could vote on a resolution authorizing the agreement at the same meeting. The city authority must approve the development agreement because the hotel will be in a Tax Increment Finance District, which involves public money.

Hicks said that construction is expected to begin about June 1 this year and be complete in June 2006.

SMDC and Marilyn S. Krenzen hold title to the property on which the hotel would be built, according to county records. SMDC is buying the property it doesn't own and will sell it to Sherman, according to Jim Abelsen, the health system's general counsel.

The hotel would have 11 floors -- six of hotel rooms and five of condos. Room rates are expected to be competitive with other lodging properties, Hicks said. Guests would park in a city-owned 400-stall parking ramp that will be constructed behind the hotel.

The condominium units would be 1,500 to 2,000 square feet, he said, and selling prices in the high $300,000 to low $400,000 range. The project would include parking for the condo units.

Since there would be no load-bearing walls within the units, they can be designed according to the owner's specifications, and two units could be combined into one large living space, Hicks said.

The building would contain amenities such as a restaurant, pool and fitness center. It also might have a gift shop, Hicks said.

In a development agreement with the city, Sherman associates pledges to create 10 full-time jobs by Dec. 1, 2007, at an average hourly wage of at least $8.52 per hour, which is the city's living wage floor, Cotruvo said.

Altogether, the hotel probably will create 15 to 20 full-time and an unspecified number of part-time jobs, Hicks said.

About 150 to 200 temporary construction jobs will be created as well, he said.

But "his isn't a jobs creation project. That's not the purpose," Cotruvo said.

The hotel complex is intended to help downtown redevelopment, add downtown housing and strengthen the tourism economy, he said.

Mayor Herb Bergson said Thursday that he believes the hotel would attract more people to downtown. He expects increased demand for lodging with seven or eight new summer and fall events planned for Old Downtown. Also, people will want to stay there because it's close to the hospitals, Fond-du-Luth Casino, Duluth 10 movie theaters, specialty shops and restaurants, he said.

"I don't see this as competition to the other motels downtown," he said.

The Sherman project isn't the first hotel envisioned on the property, which would consume half a block of land directly across Third Avenue East from the Greysolon Plaza on the upper side of Superior Street.

In 2003, the Lion Hotel Group, a division of Duluth-based Labovitz Enterprises, explored the idea of building a 120- to 150-room Marriott Residence Inn there, but ultimately decided not to move forward.

The new hotel would be in a Tax Increment Financing zone, which means a portion of new property taxes generated by a project would help cover development costs. In this case, an estimated $249,000 a year would be returned to cover costs related to the skywalk, Cotruvo said.

The TIF district plan would have to be modified to accommodate the hotel, he said, but the boundaries, which encompass the hospital project, will remain unchanged. The district will be in existence for 25 years.

Bergson doesn't expect DEDA commissioners to oppose the hotel's presence in the pre-existing TIF district.

The development agreement calls for a minimum investment of $16 million, but Hicks said it would be more like $25 million.

The SMDC construction project is expected to be completed in the spring of 2006, Abelsen said. The health system will continue to supply families of patients with information about lodging establishments throughout the city, he said, but it will be nice to have another hotel nearby.

SMDC has no financial interest in the hotel, Abelsen said. But the 20 or so lodging rooms SMDC once operated are being converted into offices and other types of space for SMDC's business, creating additional lodging demand for patients' families.

"It benefits the project because so many of the people are here for lengthy stays," Abelsen said. "It seemed to us that this would be a benefit to the families to have a nice hotel."

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