Long-sought $500M Duluth project in limbo with New York developer’s finances questioned

DULUTH – A self-described “rabbi real estate mogul,” Lazar “Luzy” Ostreicher shepherded an impressive $76 million investment in Duluth, including buying two prime apartment buildings.

And his plans called for something bigger.

He envisioned a $500 million development on a promising but long-vacant hillside site overlooking Lake Superior, once home to Duluth Central High School.

Ostreicher, a New Yorker unknown in Duluth just a few years ago, vowed to create a neighborhood of about 1,200 residences — with the city’s financial help.

But in June, just six months after a festive public groundbreaking for the 53-acre project dubbed Incline Village, the city of Duluth said Ostreicher’s companies had breached eight parts of a development agreement.

The city said it lacked key financial information; construction contracts were in default; and little work had been done.

With the project stalled, questions linger about Ostreicher’s finances and how Incline Village will move forward.

“I don’t think [Ostreicher] was ever properly vetted as a viable developer,” said Wendy Durrwachter, a Duluth city councilor who cast the lone “no” vote to award $75 million in projected tax increment financing (TIF) for Incline Village.

Durrwachter said she was skeptical from the start because the council received so little information about Ostreicher’s past projects.

But most city officials trusted Ostreicher’s wherewithal, buoyed by his previous investments in Duluth real estate.

City Councilor Arik Forsman said the developer’s “default of commitments” makes him wonder about Ostreicher’s capabilities. “But I’m also going to stand by the process and hope that it gets turned around.”

Last month, the city threatened to cancel Incline Village’s development contract in 45 days if Ostreicher hasn’t corrected the breaches. None of the TIF financing has been disbursed yet.

On Tuesday, Ostreicher’s Duluth attorney, William Burns, sent the city a letter “demanding” it withdraw the breach notice. The letter says the Incline project has “drawn significant interest” from potential backers to replace a $45 million financing commitment that disintegrated.

But the project can’t move forward unless the development breach is removed, Burns wrote.

Incline Development on Thursday sued St. Cloud-based Stearns Bank, alleging the development breach was caused by Stearns’ failure to complete the earlier $45 million deal. Stearns Bank declined to comment for this story.

Meanwhile, Ostreicher is fighting to hold onto Endi, a modern apartment building overlooking Lake Superior on Duluth’s London Road.

Ostreicher’s Endi Plaza LLC bought the building in 2022. But Endi’s largest creditor, Fannie Mae, wants to foreclose, claiming the company defaulted on a nearly $52 million loan.

Endi fell behind on payments and submitted financial reports revealing “significant inconsistencies and inaccuracies” and in one case, “false information,” Fannie Mae claims in court filings. Endi Plaza has denied those accusations.

Ostreicher did not respond to requests for comment.

At the Dec. 10 groundbreaking, Ostreicher said he comes from a “real estate family” that discovered Duluth eight years ago.

“We see a market, we see good people, people who are community-minded,” Ostreicher told an assembly of Duluth politicians and business leaders.

He gave the city a Hanukkah menorah at the hillside project’s debut event, using it to illustrate his journey to Duluth.

Ostreicher, 46, hails from Monsey, N.Y, a hamlet about 35 miles northwest of New York City. It’s a prominent hub of Hasidism, a branch of Orthodox Judaism.

Ostreicher serves a congregation of 100 in Monsey, according to Luzyostreicher.com, which is headlined “rabbi real estate mogul.”

Ostreicher describes himself on the site as “a savvy and discerning real estate professional who works on large-scale projects,” as well as “teacher of values, counselor, healer and caretaker.”

In mid-2023, Ostreicher was ministering to his congregation in the basement of his Monsey home, according to a federal lawsuit he filed in New York.

The dispute centered on control of a Monsey property used for religious purposes.

Ostreicher claimed he bought the property for his congregation, but that another New York rabbi, Mordechai Beck, wrested it away in a fraudulent scheme.

In May 2024, a judge dismissed Ostreicher’s racketeering claims against Beck.

Ostreicher’s federal suit came after he was sued in New York state court by Anshei Sfard D’Monsey, a “religious corporation” at least half-owned by Beck. The suit claimed Ostreicher tried to oust Beck’s synagogue and yeshiva from the same property, which Ostreicher denied.

Anshei Sfard D’Monsey won a state court order prohibiting Ostreicher from interfering with Beck’s use of the property.

Ostreicher’s first big splash in Duluth came in 2018 when one of his companies paid $21 million for Kenwood Village, a year-old apartment building near the University of Minnesota Duluth.

In 2022, an Ostreicher company bought the Endi apartments for $50 million and a commercial building in west Duluth for about $5 million.

Another Ostreicher company paid $8 million in 2023 for the Duluth Central High site. The school had sat empty since its last class graduated in 2011, with multiple real estate deals falling through.

The city hoped to see desperately needed housing come to a spot Duluthians hold dear.

Duluth Mayor Roger Reinert said “1,200 housing units over a multiyear period is absolutely the bull’s-eye of meeting a housing need, meeting a tax base need and doing something productive on that site.”

He said he talked to Ostreicher about his ability to finance Incline Village.

“In the opportunities that I’ve had to not just talk with Mr. Ostreicher, but others that are family members, they certainly conveyed the sense that they had the capability to do that,” Reinert said.

Ostreicher sought the TIF package in 2023, and the city granted it in early 2024, soon after Reinert replaced Emily Larson as mayor.

Larson declined to comment for this story.

The TIF application said the “Ostreicher family of New York is an experienced real estate developer” — but lacked details about past projects.

Questions were “raised concerning the developer’s financial capabilities,” according to a memo written to the Duluth City Council in February 2024 by David Montgomery, the former chief administrative officer for Duluth.

But Montgomery noted that “the developer’s financial credibility is evidenced” by the money his companies had already invested in Duluth real estate. Montgomery wrote, too, that Ostreicher “presented four other sizable housing projects developed by his firms in recent years.”

The four projects — three in or near Monsey, the fourth in Miami Beach — were described in a handout that Montgomery gave to the council.

But a Minnesota Star Tribune review found that two of the four properties, including the one in Florida, were built in 1974 — before Lazar Ostreicher was born. It isn’t clear if his family members were involved in building the 1970s projects.

Montgomery did not respond to requests for comment.

Ostreicher talked about his access to capital, large development projects and deals that he’d done overseas, said Matt Baumgartner, president of the Duluth Area Chamber of Commerce.

Yet in June, the city cited a financing issue as one breach of its development agreement with Ostreicher’s companies. Financial information submitted for Incline Village “no longer accurately reflects the developer’s source of funds,” the city claimed.

Burns, Incline Village’s lawyer, responded to the city in a June letter saying the developers worked “diligently to move the project forward.”

Financing information “was 100% accurate at the time,” and Ostreicher provided “evidence of equity contribution to the project,” Burns wrote.

The developer had assembled a financing plan for the project’s first phase featuring a $45 million cash infusion from SGGI Holdings Ltd., a Wyoming company. But it fell apart.

Burns’ June letter blamed St. Cloud-based Stearns Bank for failing to issue a critical standby letter of credit.

In the federal suit filed Thursday, Incline Village claims that standby letter of credit was worth $27 million and would have financially backstopped the project. As a result, the SGGI deal fell apart.

Ostreicher’s financial issues continue.

One of Ostreicher’s companies has not paid past due 2024 property taxes on the Incline Village property. In April, the company challenged the property’s valuation.

His companies also have bounced checks to St. Louis County and the city of Duluth, both since successfully resubmitted, public records indicate. The construction permit for Incline Village still sits at City Hall, awaiting payment of $192,000 since May 7.

The day before Incline Village’s December groundbreaking, Endi Plaza filed for Chapter 11 bankruptcy reorganization, which shields companies from creditors’ claims — and litigation.

The bankruptcy was aimed at forestalling Fannie Mae’s quest for a state court order to put Endi into receivership.

In February, Endi asked the court to dismiss the bankruptcy filing, saying it was negotiating with Fannie Mae. Talks failed, and on June 6, St. Louis County District Judge Eric Hylden ordered Endi Plaza placed in receivership.

Endi promptly filed for Chapter 11 protection again to freeze the takeover.

In court filings, Fannie Mae called Endi’s latest bankruptcy “fraudulent” and in violation of Hylden’s order. Only the independent real estate firm appointed by Hylden to run Endi can put the entity into bankruptcy now, Fannie Mae claims.

Fannie Mae also has sued an Ostreicher business associate, Abraham Schnitzler, in connection with the Endi loan default.

Schnitzler, of Brooklyn, N.Y., personally guaranteed the $51.8 million loan and is the “key principal” of a company that controls Endi Plaza, according to state court filings by Fannie Mae.

Schnitzler did not respond to requests for comment.

Schnitzler also is an officer and manager of the company that owns Ostreicher’s Kenwood Village apartments, as well as the apparent owner of a lighting company in New Jersey, public records show.

A Duluth source familiar with Incline Village, who declined to speak for attribution, said Schnitzler has been involved in the hillside project, too, and that Schnitzler attended the December groundbreaking.

Reinert said if Ostreicher does not move ahead on Incline Village, the way forward is unknown, since Ostreicher owns the land.

The city is willing to play “matchmaker” if Ostreicher’s project falls through and he wants to sell to another developer, Reinert said.

“We need the housing on that site, but it also has to be done in a way that if [public money] is involved, it protects the public interest.”

John Wareham of the Minnesota Star Tribune contributed to this story.