DULUTH — Plans for a proposed $500 million development dubbed Incline Village on the former site of the Duluth Central High School campus likely face an uphill battle.

A letter sent to Luzy Ostreicher on Monday officially notified the New York-based owner and would-be developer of the picturesque hilltop site that representatives of the Duluth Economic Development Authority considered him to be in “material breach” of a development agreement signed with the organization.

The dispute stands to place proposed public subsidies — in the form of a $75 million tax-increment financing package — at risk for the first phase of the project.

That initial build-out was to include a 220-unit apartment building, plus another 120 condominiums in two separate structures. All told, the first phase of Incline Village promised to bring more than $170 million of investment to a site that has sat idle for 13 years since the closure of Duluth Central.

Additional development phases were to result in a proposed $500 million project within the coming decade or so.

Now, that future appears far less certain.

Developer Luzy Ostreicher of New York speaks while presenting a menorah to the city of Duluth during groundbreaking ceremonies for Incline Village on Dec. 10, at the former site of Central High School.

Clint Austin / File / Duluth Media Group

Ostreicher did not respond to either phone or email messages requesting comment regarding the situation from the News Tribune on Monday evening.

At large City Councilor Arik Forsman, who also serves on DEDA, said, “I think the city and DEDA are following process, and that the goal when you follow process is to try to get projects like this back on track.”

Meanwhile, a June 2 letter from Tricia Hobbs, DEDA’s executive director, laid out eight instances of alleged breach:

• Inadequate information on sources and uses of funds
• Failure to enter into a minimum assessment agreement for the first phase of the project
• Inability to provide proof of loan commitments, financing agreements or proof of individual equity investments in the project
• Multiple missed deadlines to commence construction, including the latest that expired on April 1, 2025
• Failure to maintain and stabilize the site since earthmoving began
• A finding that developer Chester Creek View LLC is not properly credentialed and qualified to do business in Minnesota
• The developer’s inability to cure a previous notice of default sent to its attention on April 1, 2025, within 45 days 
• Default on obligations under the developer’s construction contracts for the project

The June 2 letter will set in motion a 45-day clock for a response “to cure” the development agreement. Otherwise, Hobbs threatens that the development agreement “shall be terminated immediately and automatically.”

When fully developed, Incline Village was expected to provide 1,180 rental apartments, in addition to 120 condo units. Ostreicher also proposed more than 80,000 square feet of retail/commercial space as part of the project.

Forsman noted that while tax-increment financing support has been offered for Incline Village, those public subsidies have not yet been distributed.

Tax-increment financing captures new taxes generated by a development and then uses them to cover certain prescribed costs. If a development has not yet occurred — as is the case with the Incline Village project — those monies have not yet begun to flow.

“Those dollars are only invested if the project happens,” Forsman said. “If work is actually done, those proceeds can be used to pay for infrastructure. So, if a shovel of dirt is never turned, a dollar of taxpayer money is never used.”

“Regardless of what happens with the project from here forward, we’re only partnering if the project happens,” he said.

Nevertheless, Forsman’s optimism persists.

“I’m very hopeful that we’re going to see a great development at Central. And I really hope that the current developer is able to cure the defaults and get back on track,” he said.

Ostreicher’s communications with DEDA commissioners, city staff and local business partners have waned in recent weeks.

ICS, a design partner in the development of Incline Village, recently shared a letter with DEDA staff indicating that the company planned to terminate its working agreement with Ostreicher unless his firm’s “unexcused failure to pay” $169,252.20 in bills was addressed promptly.

Peter Passi covers city and county government for the Duluth News Tribune. He joined the paper in April 2000, initially as a business reporter but has worked a number of beats through the years.