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Developer cancels purchase agreement for middle school

While last week’s announcement of $80 million in funding for affordable housing projects around Minnesota brought good news to the Cloquet-Carlton Housing and Redevelopment Authority, the same news was not good for developer Sherman Associates and the Cloquet School District.

Plans to repurpose the existing Cloquet Middle School into a 50-unit apartment building once the new middle school opens were not included in the list of projects to be funded.

Although Cloquet Schools Superintendent Ken Scarbrough said he wasn’t sure what that would mean for the project last week, on Tuesday he sent an announcement saying the school district received a cancellation agreement from Sherman Associates regarding the purchase agreement executed last May for the repurposing of the Cloquet Middle School.  

“The state did not award Sherman Associates’ middle school project the tax credits for which the company had applied, so the financing of the repurposing project did not seem favorable,” he wrote. “According to the terms of the purchase agreement, Sherman Associates has notified the school district that it is not continuing with the project.”

When the Cloquet School District put out its original Request for Proposals (RFP) for the existing middle school, Sherman and Associates was the only company to submit a proposal. One other company had been interested, said Cloquet Community Development Director Holly Butcher, but when they were informed that Sherman had submitted, they declined to submit an application. Butcher explained previously that the RFP was written in such a way that only housing developers with housing tax credit experience and a portfolio of successful housing products using state programs would qualify to apply.

As proposed, the apartment building would have retained many of the school building features, including some blackboards or lockers in individual apartments, plus the auditorium, a feature the new middle school does not include and which would have been available for community use. Sherman Associates had also revised its proposal so that the parking to apartment ratio was more than 2:1 after neighbors and planning commission members expressed concern that there wouldn’t be adequate parking.

The estimated cost for the Cloquet Middle School apartment project was significantly higher than the HRA’s new $6.4 million 35-unit affordable housing project, which will be located next to the existing Aspen Arms building on 14th Street in Cloquet.

Initial estimates put the total costs for renovating the middle school at nearly $15.2 million, with $11.8 million for construction and site work. A little more than half the funding was requested from Low Income Housing Tax Credit Equity, which is providing the lion’s share of funding for the HRA building. In addition, Sherman Associates was applying for another $5.5 million in historic tax equity.

When asked Tuesday, Scarbrough said he did want to speculate whether Sherman Associates would consider reapplying for that state funds in the next funding cycle.

Scarbrough said the Cloquet School Board will review the cancellation agreement at its Nov. 14 meeting. He added that school district officials are exploring options for the future of the current middle school building and property.  

“The board has said that any plans for the current Cloquet Middle School property must meet and be in the best interests of the Cloquet community,” Scarbrough said.

The school district did include $500,000 in its building bonds and budget for demolition of the existing middle school, but later estimates put the costs closer to $1.4 million, including some asbestos and lead abatement.

A Cloquet /Scanlon Housing Study completed in 2014 concluded that the two towns need 260 new rental units by 2025.