Saturday, July 15, 2017

Cleveland transit-oriented development gains traction-Part 1


Van Aken District development rising
alongside the light-rail Blue Line's
Warrensville station in Shaker Hts.

In the 1990s, the Greater Cleveland Regional Transit Authority was considering extending the Red Line into Berea. Planners touted the economic development potential of the rail line. So a group of elder Berea residents who apparently hadn't ever ridden the Red Line before took a driving tour of the areas around some of the existing Red Line stations.

What they saw were sprawling parking areas, aging or abandoned industrial buildings, used-car lots, self-storage facilities and other unsightly land uses. The elder Berea residents understandably found it difficult to believe that the Red Line extension would be an asset for their community. Little did they know that in other metro areas with new rail and bus rapid transit (BRT) lines, development arrayed in a neo-traditional land use style was popping up around rail and BRT stations. It's called Transit-Oriented Development (TOD).

More of an adjective than a noun, TOD describes a land use theme in which a transit stop is the epicenter of a densely developed, attractive public realm surrounded by mixed-uses in a walkable setting. It's a setting that produces for transit more ridership than a station surrounded by park-n-ride lots. In Greater Cleveland, the usefulness of and benefit from its rail/BRT transit system is limited by the land uses surrounding its stations. Here, many drive or take a bus to catch the train (Clevelanders call it "The Rapid") and ride it to and from work or school in downtown Cleveland. That's worth only two transit trips a day.

Rail/BRT transit systems in most other metro areas have more ridership because they are "all-purpose" systems. They have more stations that are closely surrounded by lots of residents, jobs, retail and civic uses like libraries, recreation centers, and schools including those that offer career development. They are multi-purpose rail/BRT systems along which a comfortable lifestyle can be sustained without depending on a car. In other metro areas, this transit ecosystem was built by the private sector in response to growing populations and worsening road traffic conditions. Greater Cleveland lacks those stimuli for TOD.

Greater Cleveland does have other TOD stimuli that are just as important but depend on more public sector involvement -- namely addressing a worsening physical disconnect between jobs and job seekers. In Greater Cleveland, only 10 percent of available jobs are within a 60-minute transit commute. Many available jobs are therefore left unfilled or have a smaller pool of labor available to fill them, raising costs for employers. This also keeps many residents unemployed. The disconnect has manifested itself into some inner-city neighborhoods experiencing high concentrations of poverty. The overall poverty rate in Cleveland is near 30 percent.

There are two basic alternative responses to this challenge -- either extend the transit system farther out to where the new jobs are or attract jobs and residents to within walking distance of existing, high-frequency transit. The first option simply is not possible to any great degree, absent new revenue sources for transit. Northeast Ohio transit agencies are facing flat or declining operating funding from countywide sales taxes, as well as fewer state and federal capital improvement funds. Additionally, expanding transit farther out into sprawling, low-density, less walkable areas produce proportionately higher costs and lower revenues for each new transit vehicle service-mile added.

The second option isn't necessarily cheap or easy either. Many of the underutilized properties within walking distance of existing rail/BRT stations in Greater Cleveland are problematic. Some have contaminated soil conditions due to decades of pre-regulatory commercial activity that involved the use of toxic chemicals. Other properties are tied up in protracted legal battles. And some underutilized properties have owners who don't want to develop or sell their land despite the obvious public benefits from developing their transit-accessible land with more productive uses.

Beyond the public benefit aspects of TOD that include less energy used and pollution emitted from lifestyles based on walking, biking and transit, there's actually a free-market angle to having more TOD in  Cleveland. The two largest population demographic groups -- Baby Boomers and their Millennial children -- are seeking low-mileage lifestyles. Either they don't own cars or they want to downsize by keeping just one car and using it less so it lasts longer. They also don't want to rely on their car for everything. If Greater Cleveland won't avail this lifestyle in sufficient quantity, it will lose its Baby Boom and Millennial populations to metro areas that do.

Fortunately, Greater Cleveland is waking up to these threats and opportunities. Its strengths are its rail/BRT system which offer an asset that many cities of similar size or even larger lack. Greater Cleveland also has underutilized land near its rail/BRT stations that are both a weakness (because they don't produce ridership now) and an opportunity (because they can offer a clean slate to start over with great urban design). Another weakness is that the region's public and private stakeholders need more education on the benefits of TOD, and that it already possesses but doesn't utilize public and private financing tools to plan, prioritize and develop TOD.
West Boulevard-Cudell station, proposed TOD concept.

East 116th Street station, proposed TOD concept.

An effort to utilize and focus more public financing tools to incentivize TOD in specific focus areas is underway at the Northeast Ohio Areawide Coordinating Agency (NOACA), in partnership with the Greater Cleveland Regional Transit Authority, City of Cleveland and neighborhood development organizations. Three initial focus areas were identified by NOACA:
These three locations were identified by NOACA during a prior stage of developing a TOD scorecard and station typologies. All three sites have a market potential for TOD, but require public investment to upgrade transit facilities, improve sidewalks, narrow street widths, realign streets and enhance public realms to improve their pedestrian experiences.

There are also is zoning and funding available to help private real estate developers construct TOD. One of the most significant changes is in Congress' 2015 passage of the five-year surface transportation program authorization, called the Fixing America's Surface Transportation (FAST) Act. The FAST Act expanded eligibility of the Transportation Infrastructure Finance and Innovation Act (TIFIA) to provide low-interest loans, loan guarantees and lines of credit for up to 33 percent of costs of local TOD infrastructure and are applicable to all GCRTA rail and BRT station areas.

FAST also expanded the use of the $35 billion Railroad Rehabilitation & Improvement Financing (RRIF) program to support TOD infrastructure and development finance near passenger railroad stations, such as the Amtrak station in downtown Cleveland. RRIF loans can pay for 100 percent of project costs.

State, local and locally utilized federal incentives can also be used to incentivize TOD, such as:
  • Incentive Districts: Ohio law allows for the creation of Incentive Districts, such as around transit stations where Tax Increment Financing (TIF--the additional tax revenue created by a public or private investment) can be broadly applied to TOD infrastructure.
  • New Market Tax Credits: This federal program is often used by the Greater Cleveland Partnership (GCP) and Enterprise Community Partners (ECP) to induce private equity and/or debt capital at below-market terms for real estate developments, but GCP/ECP does not award credits based on transit-accessibility.
  • Affordable Housing ProgramsOhio Housing Finance Agency runs its own programs and allocates the federal Low Income Housing Tax Credit to real estate developments. Transit accessibility is an important factor in awarding these credits.
  • Ohio Brownfields Funding: the Ohio Development Services Agency offers a menu of state and federal programs. Many properties near transit stations are polluted and require cleaning before they can be returned to productive use.
Private developers aren't waiting for TOD pilot projects. Station-area developments, most of which are utilizing TOD guidelines, are popping up around GCRTA rail and BRT stations. In the next article, I'll cover that part of the story -- which has the makings of a coming boom in station-area developments. Just about every significant real estate development in Cleveland and its inner-ring suburbs is happening within walking distance of a rail/BRT station.

END

Friday, May 26, 2017

Is Cleveland erring in the marketing of its industrial sites?

Development of the largest shovel-ready industrial/warehousing sites in the City of Cleveland aren't attracting much private-sector interest despite discounted asking prices. Meanwhile, inner-ring suburbs offering large parcels that are almost shovel-ready are having greater success in drawing private sector interest and potentially thousands of jobs from significant planned developments.

What, if anything, is the City of Cleveland doing wrong vs. what, if anything, are the suburbs doing right?

Take, for example, the largest available site in Cleveland in more than a half-century. Located off Interstate 77 south of the Pershing Avenue exit, the 65-acre Cuyahoga Valley Industrial Center offered the potential for up to 750,000 square feet of new manufacturing space and 1,000 new jobs, according to promotional materials for the site.

The 65-acre Cuyahoga Valley Industrial Center

Two prospective users of the former International Steel Group coal/coke plant are finalizing plans for their building construction projects that will occupy about half of the center. More than $5 million in taxpayer funds from the city and state were used to clear and clean the polluted property. But the number of jobs involved will likely be far less than backers of the redeveloped site had hoped.

Ohio High Reach LLC, which rents construction and maintenance equipment, is relocating to 12 acres of the Cuyahoga Valley Industrial Center. Ohio High Reach has outgrown its Exchange Street property in Valley View, according to Patricia Herrington, the registered agent for Ohio High Reach and ETC Commercial Property LLC.

The business database Graphiq notes that Ohio High Reach opened its doors in 2009 and already has $5.8 million in yearly revenue and 18 employees. Its relocation will allow that strong growth to continue, Herrington explained.

ETC Commercial Property bought the 12-acre site in April for $731,250 from the Greater Cleveland Community Improvement Corp., according to records from the office of the Cuyahoga County's Fiscal Officer. GCCIP is a part of Team NEO, a nonprofit, regional business development organization.

On May 8, the city's Board of Zoning Appeals approved a variance for ETC to construct a new two-story building and parking lot on the site whose address is listed as 4800 Ruffini Court. Ruffini is an old street, recently rebuilt for $1.5 million as an underpass of I-77 off East 49th Street. The street accessed the original industrial user of this site, the Fronek-Reid Coal Co., more than a century ago.

Herrington said no construction date has been identified yet as financing is still being finalized. However, she said the pending relocation had advanced far enough that Infinity Construction Co. of Warrensville Heights was hired as the building contractor.

That still leaves more than 50 acres of the Cuyahoga Valley Industrial Center left for development. Roughly 15 acres of that will be acquired by the Ohio Department of Transportation's District 12 for its new Cleveland maintenance facility, according to ODOT records.

ODOT District 12 currently has five maintenance facilities. It's existing, aging Cleveland facility is located at a 2.75-acre property at 5430 Lake Court, along I-90 near East 55th. ODOT District 12's newest maintenance facility, opening December 2016 off Emery Road and I-271 in Warrensville Heights, covers 16 acres.

Further details of ODOT's plans aren't yet available, including the number of jobs involved. But the maintenance facility's relocation would be within the City of Cleveland, possibly resulting in no net gain of road maintenance jobs.

Another publicly financed clean-up and repurposing of an old industrial site that came up short in drawing private sector interest was the Trinity Development Site. For more than 50 years, the address of 9203 Detroit Ave. was home to Club Aluminum/Monarch Aluminum Products, employing 500 people in 450,000 square feet of buildings.

An out-of-state investor bought the company in the 1980s and moved aluminum manufacturing operations to a southern state. The building was later used as a "chop shop" for stolen cars until the building caught fire in 1998 and was structurally damaged. The city seized the property, demolished its buildings in 2007, and cleaned the property of pollutants, costing $3 million in city, state and federal funds.

Despite city efforts to sell the site at below-market prices, there were no takers except for less than 1 acre sold to a neighboring business, Penstan Ltd. Trinity's remaining 4.7 acres are valued at $140,800 by the county. The property's zoning permits uses such as retail, light industrial and warehousing.
Proposed City Kennel development

Instead, the city will construct its new $5.3 million City Kennel at the Trinity site. The new, 13,500-square-foot building will be about the same size as the old one near Tremont and result in no increase in jobs or new tax revenues for schools from the property returning to the tax rolls. Ward 15 Councilman Matt Zone defended the decision to put the City Kennel there as a productive re-use of a property that had long been a blight on the surrounding neighborhood.

The site is a short walk to the nearby West Boulevard Red Line station, offering an opportunity for redeveloping the site with mixed uses including residential. That wasn't possible with the current zoning or with the property being offered at $70,000 per acre that was only slightly below market value. A deeply discounted asking price might have encouraged greater investor interest. But that train has departed as construction is about to begin on the new kennel.

An opportunity to better encourage development remains possible for the available site of the former Midland Steel Products Co. Until 2005, a 540,000-square-foot plant stood on 23 acres at Madison Avenue and West 110th Street. Midland built automobile frames here from 1893 to 2003 when the plant was closed. Like the ISG coke plant and the Trinity site, a lot of tax money totaling $5.3 million was invested to clear and clean this brownfield property to make it ready for productive use again.

Cleveland Urban Design Collaborative's
concept for the Industrial Crossings
District, including the 23-acre Midland
Commerce Park, 10615 Madison Ave.

The city owns the site, dubbed Midland Commerce Park, and has it listed for sale. Like Trinity, the city is reportedly asking $70,000 an acre for Midland, or $1.61 million for the whole thing. The county valued the property at $463,200 for taxes.

Ward 11 Councilwoman Dona Brady said the city has rejected inquiries about using the property for storing trucks or other less-than-desirable uses. The city is requiring that the new user employ 10 people per acre of the property. Furthermore, the city wants the new user to pay to develop the site's utilities and roadway infrastructure. That's a tough ask when competing suburban municipalities will install utilities and roads for new office or industrial parks. There have been no takers for Midland.

Meanwhile, it's a different story in the neighboring inner-ring suburbs of Euclid and Brook Park. In a story first broken here by NEOtrans, Euclid Square Mall is proposed to be demolished for a massive distribution center, possibly for online retailer Amazon. The redevelopment could bring at least 600 jobs and possibly several times more if the project proves to be an Amazon Fulfillment Center. Principals involved with the project refuse to identify the end user.

Euclid Square Mall may be replaced by a similarly 
sized distribution center offering at least 600 new jobs.

The 66-acre mall site is owned by Beverly Terrace Ltd. that wants to sell the property for $5.75 million. As recently as 1997, when the mall was still active, the property was valued at $28,958,700 for tax purposes, according to county records. The owner since has petitioned to lower the property's taxable value to $1.1 million.

Similarly, a game-changing business development could be coming to an inactive, 88-acre portion of the Ford Motor Co.'s sprawling Brook Park complex. American Plasma Energy Group intends to revolutionize the internal combustion engine through an exclusive licensing deal with Plasma Igniter, LLC to make the Coaxial Cavity Resonator Ignition System. The CCRIS is essentially a plasma spark plug that improves fuel efficiency by anywhere from 25-50 percent while reducing carbon emissions by the same amount.

Ford Engine Plant No. 2, Brook Park

Not only is the auto industry interested in this innovation but so is the U.S. military, which has four seats on APEG's 18-member business advisory board. They are outnumbered only by the seven Northeastern Ohioans on this board, including board Chairman Doug Benns of the Cleveland suburb of Rocky River. That's a potential advantage for Northeast Ohio as APEG intends to decide by the end of summer on where to locate a production and distribution facility as well as management offices that may ultimately total 500 employees.

So far, only the empty Ford Engine Plant No. 2 on Snow Road in Brook Park has been named specifically. But APEG reportedly is keeping its options open for other sites near Cleveland, Detroit and Pittsburgh, too. The availability of the 1.2 million-square-foot Brook Park facility that closed in 2012 may offer a cost savings for APEG which prefers to locate in an existing structure rather than build new.

As recently as 2004, the county valued the Ford Engine Plant No. 2 at $33,572,400. Ford has since petitioned to have the plant's value lowered to $8.4 million. No sale or lease listing for the plant could be located. APEG may need only 10 percent of the facility's square footage to ramp up operations by the end of this year.

This doesn't include major warehouse, distribution and/or industrial developments in outer suburbs like Mentor or Twinsburg. So are the suburbs doing something right in attracting private sector employers to these redeveloped sites that the City of Cleveland is not?

END

Saturday, May 13, 2017

Busy month: 3 big downtown Cleveland projects?

UPDATED WITH NEW INFO REGARDING MEDICAL MUTUAL

The next month may be very busy with Downtown Cleveland construction announcements. As a follow-up to my recent posting The Cleveland Skyscraper Building-Binge Starts, it appears that three projects will be making news very soon. One project is a surprise.

Least surprising is that workers this month are swarming over the nine-level 515 Euclid parking garage. Stark Enterprises will soon erect a $62 million, 19-story apartment building called The Beacon on top of it. The workers are construction managers who are mapping out the logistics and sequencing of work to be done over the next 16-18 months. The Beacon, with its 187 apartments, is due to open in late-2018.

The Beacon apartments, 515 Euclid 

The project faces a small glitch, however. Stark representatives discovered a typo in a variance approved in Sept. 2016 by the city's Board of Zoning Appeals regarding the height of The Beacon. In 2016, BZA approved a height of 340 feet. Instead, Stark is requesting a height of 355 feet at BZA's May 22 hearing. It is possible this glitch will delay the project's start until about Aug. 1.
________

I've also learned from several sources that Medical Mutual's board of directors will meet June 20 to decide its facilities plan, including possibly a new downtown headquarters. They health insurance company wanted to decide its facilities plan in May but negotiations with the developer/property owner have taken longer than expected. Medical Mutual said it is unlikely it will own its new headquarters, be it an existing building or a new building. The company may seek to extend its leases to strengthen its negotiating stance.

The address or size of its new office building isn't known, but at least several major Northeast Ohio developers responded to a request for proposals from Medical Mutual last year on new or renovated buildings for Ohio's largest health insurance company. It is quite likely the public will learn in the next month about the winning proposal.

Medical Mutual HQ (Rose Building)

Medical Mutual also is moving forward on a new suburban office, apparently for its Consumers Life Insurance subsidiary based in Strongsville. There will be some corporate consolidations but those may involve its much smaller Beachwood and Copley locations. It isn't known if the Toledo office is part of the office consolidation plan.

In Northern Ohio, Medical Mutual has these existing offices (lease information according to LoopNet.com):
  • Downtown Cleveland HQ -- 2060 E. 9th St. -- 1,300 employees (lease ends late-2020)
  • Toledo Business Team -- 3737 W. Sylvania Ave. -- 500 employees (lease ends late -2020)
  • Strongsville Consumers Life Insurance Co. -- 15885 W. Sprague Rd. -- 400 employees (lease ends mid-2020)
  • Copley Mutual Health Services/Benefit Health Services Inc. -- 3636 Copley Rd. -- 50 employees (lease info NA)
  • Beachwood Data Center -- 23700 Commerce Park -- 20 employees (lease ends mid-2020)
It is interesting to note that one company, BentleyForbes, owns three of Medical Mutual's five Northern Ohio locations: downtown Cleveland, Toledo and Beachwood. BentleyForbes purchased them at the same time, in 2000, for $75 million and later took out a $52.7 million mortgage on Medical Mutual's downtown Cleveland headquarters, the 1905-built, 10-story Rose Building.

After the real estate market crashed in 2008, BentleyForbes has been unable to repay or refinance the mortgage on the downtown headquarters. About $47 million remains unpaid. BentleyForbes has occasionally been trying to sell its three buildings that are occupied by Medical Mutual. Medical Mutual will reportedly move out of all of their existing offices, and it may move out of all of them at the same time when their leases expire simultaneously in 2020, sources say.

This includes its Strongsville location to which it moved from another location in Strongsville in late 2016. But Medical Mutual will retain a suburban presence, sources said. It is not known where it will be, how many employees will be located there or from where they will come. But the board's action now allows enough time for constructing new buildings for either the downtown Cleveland headquarters, the suburban Cleveland office, or both.

Finalizing architectural documents, securing government approvals, programming and other pre-development activities for new office buildings will require about a year. Construction will take about 18-24 months. The new-construction timeline fits, albeit tightly, within the timeframe of Medical Mutual's simultaneously expiring leases. Medical Mutual may seek to stay i
________

Lastly, a proposed skyscraper that seemed a distant possibility may instead leap forward into the ranks of the likely candidates. As early as next month, a national real estate developer will reportedly announce plans for a 34-story luxury apartment tower on a surface parking lot at the southwest corner of Euclid Avenue and East 17th Street, according to two sources.

Development site is on the left, past the gateway arch

The 1-acre property is owned by the Playhouse Square Foundation who in 2011 razed the two-story Hanna Annex at 1512 Euclid. Later, in 2015, the foundation acquired a mid-lot, 1/4-acre parcel to put the entire lot under one owner. The goal was to encourage development of the lot which was made more accessible after the Greater Cleveland Regional Transit Authority extended East 17th Street south of Euclid to Prospect Avenue. The street extension was part of the Euclid Corridor Project that in 2008 that yielded the HealthLine bus rapid transit.

The Playhouse Square Foundation has been seeking to boost foot traffic in the theater district. It recognized two shortcomings of the district -- parking decks are behind and connected to the theaters, meaning that too few theatergoers set foot on Euclid Avenue's sidewalks to patronize its shops, restaurants and cafes. The foundation also says the district needs more residents -- something that is slowly being delivered by local real estate developer K&D Group Inc. K&D recently converted the eight-story Hanna Building Annex on Prospect to apartments and has begun work on the residential conversion on the upper six floors of the 12-story Halle Building.

But the proposed 34-story luxury tower would make a major contribution to the Playhouse Square Foundation's goals in two profound ways. First, it would add hundreds of moneyed residents to the theater district. And, second, it would add a proposed 600-car parking deck with ground-level retail on Euclid Avenue that requires people to set foot on Euclid Avenue's sidewalks to reach the theaters. No more sneaking in the back way, sight-unseen.

Much like 515 Euclid, this Playhouse Square tower would be built on a parking pedestal of perhaps five levels high. The foundation requested $4 million from the state's capital budget in 2016 to help fund the parking deck but got only $1 million. Additional subsidies are usually needed to make the financial numbers work for residential construction. But the more downtown residents there are, the more rents are growing to where fewer subsidies are needed.

Downtown's residential growth has attracted the interest and headquarters of powerhouse national developer NRP Group, based in Garfield Heights. NRP has chosen to relocate to Playhouse Square, into the lower floors of the Halle Building. The timing of NRP's relocation is intriguing. NRP is the nation's seventh-largest developer of apartment buildings. But it's tallest apartment building thus far is a 10-story structure in St. Petersburg, FL. If NRP is the developer of the proposed 32-story tower, it would mean a new philosophy for the 22-year-old company.

But so does relocating its headquarters and 200 employees from the suburbs to downtown Cleveland. NRP Principal and CEO J. David Heller said in an April 30th press release the company is moving to seize on opportunities for "rapid growth and expectations for further expansion (and for) enabling our employees to fully experience the city of Cleveland and what it offers."

###

Wednesday, May 3, 2017

Bye, Euclid Square Mall; hello Amazon?

After 40 years, Euclid Square Mall is destined to be physically replaced by the latest thing in retailing -- E-commerce. The mall, having closed Sept. 19, 2016 after years of limping along with two dozen churches as its remaining tenants, is vacated and officially condemned by the city for safety violations. Euclid Square Mall had succumbed to the changing retail market and population shifts long ago.

Circumstantial evidence suggests the replacement for the 687,000-square-foot shopping mall will be a massive distribution facility for the online retail giant Amazon. Called a Fulfillment Center, the facility would measure at least 650,000 square feet and possibly be as large as 1 million square feet. Based on similar projects elsewhere in Ohio, it would represent a capital investment in facilities and equipment of more than $100 million and result in the hiring of more than 600 permanent jobs.

AMAZON FULFILLMENT CENTER

Two similarly sized Amazon Fulfillment Centers that opened in 2016 outside Columbus now employ 5,000 people total, or roughly double what was originally projected. An 855,000-square-foot Amazon Fulfillment Center in Etna Township employs about 3,000 people while a 1 million-square-foot Amazon facility in Obetz employs more than 2,000 workers.

According to public records, Euclid's Planning & Zoning Commission on May 9 (see last item on the agenda) will consider at its regular meeting a proposed zoning change by Seefried Industrial Properties, Inc., an Atlanta real estate developer. The agenda reads:
Seefried Industrial Properties, Inc., prospective purchaser, on behalf of Beverly Terrace Ltd, SNS Properties LLC, MCM Superior-Glen Apartments, Lee-Silsby Associates, and Gerome’s Grove, has submitted an application requesting the rezoning of a group of parcels from a U4-Local Retail or Wholesale Store District to a U6-Industrial and Manufacturing District. The proposed rezoning is for eight irregularly shaped parcels totaling 2,866,248 square feet (65.80 acres) in size.
If the rezoning and other permits are approved, Seefried will execute pending purchase agreements with the five property owners listed above to acquire nine parcels. Not only would Euclid Square Mall be demolished for this distribution facility, but so would four long-closed outlot structures. These include a Toys 'R' Us store, Stop-n-Shop grocery store, Red Lobster restaurant and a bank according to documents submitted to the City of Euclid by Seefried.

PROPOSED DISTRIBUTION FACILTY

EXISTING MALL AREA/PROPERTY OWNERS

While Seefried develops facilities for other clients such as Pepsi, PPG, Home Depot, and others, recent indicators suggest the client for the Euclid project is Amazon. The indicators include:

  • Seefried's largest client is Amazon, as Seefried is the real estate developer for dozens of Amazon distribution center projects around the country;
  • A source says Amazon is opening "three or four" distribution centers around Cleveland but could not identify their locations;
  • Amazon is opening a Twinsburg sorting facility in a 248,000-square-foot building at the former Chrysler automotive plant;
  • Amazon is also leasing 80,000 square feet of space in Euclid's Bluestone Business Center, across East 260th Street from Euclid Square Mall, for a delivery station;
  • This facility's size is consistent with Amazon's largest distribution facilities (Fulfillment Centers), including its first two in Ohio as described above;
  • Amazon enjoys having its facilities receive electricity either directly or indirectly from wind turbines and Euclid's location along Lake Erie makes it ideally suited for wind power. Euclid already has four companies whose facilities are directly powered by wind.

The Euclid Square Mall site is next to Interstate 90, State Route 2 and only several miles from Interstate 271 as well as CSX's intermodal rail terminal at Collinwood Yards. It is probably the largest, cleanest, developable property so close to the urban core of the Greater Cleveland area.

Euclid city officials are to be commended for re-purposing a large site that was made obsolete by the changing retail business. They further deserve kudos for ensuring that the city will benefit from the very business activity that replaced the shopping mall -- E-commerce. Too often, very large distribution centers find sprawling, clean properties at the urban fringe, far from labor pools that need jobs and established communities that need to replace lost tax revenues.

After World War II, Chase Brass & Copper Co. had two large plants on either side of East 260th Street in Euclid. One was sheet mill on Babbitt Road and the other a tube mill on East 260th (formerly Upson Road). The tube mill was shut down in the middle of a strike in 1973. In 1975 the mill was demolished for Euclid Square Mall, built by Jacobs, Visconsi & Jacobs (now the Jacobs Group) and opened on March 1, 1977. The mall's last retailer, a Dillards outlet store, closed in September 2013.





- END -

Monday, April 24, 2017

The Cleveland skyscraper building-binge starts


READ FOLLOW-UP STORY HERE

Construction workers will begin building in August The Beacon apartment tower at Euclid Avenue and East 6th Street in downtown Cleveland. But that's just the start. Those of us who like to see construction cranes over downtown will probably enjoy the skyline view for the next decade or so.

The reason is that the 28-story Beacon apartments by Stark Enterprises is likely to be the first of many new large buildings to rise downtown. How many is "many"? It could be as few as three or four and as numerous as 10.

Why is this happening now? The Cleveland skyscraper building binge is due to the following factors:
Consider these large, older downtown office buildings that have, are being or will soon be converted to residential (post-conversion, some buildings include hotel, retail and/or office uses):
  • Cleveland Athletic Club, 225,000 square feet, 15 stories;
  • Halle Building, 392,000 square feet, 12 stories;
  • John Hartness Brown Buildings (4 buildings), 250,000 square feet, 6-7 stories.
  • Leader Building, 322,600 square feet, 15 stories;
  • 925 Euclid (was Huntington Building), 1.4 million square feet, 22 stories;
  • Residences at 1717 (was East Ohio Gas HQ), 340,000 square feet, 21 stories;
  • Scofield Residences (was Euclid-Ninth Tower), 140,000 square feet, 14 stories;
  • 75 Public Square, 150,000 square feet; 15 stories;
  • Standard Apartments (was the Standard Building), 350,000 square feet, 21 stories;
  • Terminal Tower, 584,000 square feet, 52 stories;
  • The 9 (was Ameritrust complex), 831,000 square feet, 29 stories;
  • Tower at Erieview, 750,000 square feet, 40 stories.
Other local factors are significantly affecting the downtown office market, including these recent or pending relocations:
  • Cleveland Police Department headquarters moving from its own building to 55 Public Square by 2018, taking 180,000 square feet;
  • Forest City Realty Trust headquarters moving from Terminal Tower to Key Tower in 2018, taking 148,000 square feet;
  • Millennia Companies headquarters moving from Valley View to Key Tower in 2017, taking 45,000 square feet;
  • New York Life Insurance moving from Lakewood to 200 Public Square in 2016, taking 110,000 square feet;
  • NRP Group moving from Garfield Heights to the Halle Building in early 2018, taking 43,000 square feet.
While those moves are tightening up Cleveland's downtown office market, perhaps even more exciting is the investment by national and international firms in the central business district -- and the reasons why. Cleveland’s relatively affordable cost of living compared with Chicago and especially coastal cities is attracting businesses to the metro area, fueling demand for office space.

"Many owner-users are snatching up space as prices remain relatively affordable compared with the national average, and as asking rents remain on the rise," said Ryan E. Moore, associate, Marcus & Millichap in RE Business Online. "Moving forward, upward pressure on rents and relatively higher returns compared with gateway metros will continue to motivate investors to inject capital into the Cleveland office sector, primarily in downtown Cleveland."

Consider these out-of-town investments and the reasons for them:
  • Turkish capital firm Alto Partners bought the half-empty 55 Erieview office building as well as the neighboring buildings at 65-75 Erieview and will modernize the combined 280,000 square feet of office spaces located between East 9th and East 12th streets south of Lakeside Avenue;
  • Alto is also buying the legally troubled quartet of John Hartness Brown office buildings at 1001-1101 Euclid Ave. that have seen their renovations stall, but Alto's project will likely be a mix of hotel/housing/retail and take roughly 250,000 square feet of office space off the market;
  • Those projects may be but a glimpse into Alto's big plans for Cleveland, as "Alto really likes the Cleveland area and is committed to acquiring and developing a few million square feet in that market," said Michael Sabracos, Alto's chief executive officer for U.S. operations;
  • Another out-of-town investor, Somera Road Inc. of New York City, bought the half-empty, 16-story, 45 Erieview office building at East 9th and Lakeside Avenue and will bring in back-office tenants from New York that are desperate to reduce their real estate and employment costs.
  • Somera founder and principal Ian Ross said "I think a lot of national companies in Los Angeles, New York, (Washington) D.C. (and) Chicago, are saying the cost of living in those cities has gotten astronomical. Attrition problems continue to be an issue. Companies are looking toward the Midwest. I do think there will be growth in the Greater Cleveland area in terms of new tenancy."
  • Ross added investing in downtown and other urban settings in Cleveland will retain and attract young people: "The millennial generation is what a lot of large American corporations are focused on, managing the attrition of that very fickle employment base. The suburban office concept, which you see a lot of in the Midwest and you see a lot of in Cleveland, specifically ... that's going by the wayside. That's not going to be the pull or the attraction for that highly sought-after employee."
Despite these new market trends, significant speculative office construction in Greater Cleveland remains non-existent. That could soon change. The historical average downtown Cleveland Class A office vacancy rate is 12 percent. But since early 2016, the vacancy rate dove below 11 percent and is projected to fall below 8 percent by 2020.

Typically, a vacancy rate of 10 percent or less and rising rents will justify the development of a speculative office building. Downtown Cleveland office vacancies remain the highest in the metropolitan area, but are falling quickly due to residential conversions of older office buildings and most of their tenants remaining downtown.

"It would not be surprising, though, to see announcements for new speculative construction in the very near future," said Colliers International's first-quarter 2017 Cleveland office market report.

And then there's the issue of corporate growth and consolidations. Two stand out above all others:

1. Medical Mutual may soon announce a new office building to consolidate its 1,300 workers from downtown's 115-year-old, 380,000-square-foot Rose Building at East 9th and Prospect Ave. Medical Mutual also has 700 employees in Beachwood, Copley and Strongsville offices (leases expire in 2020), plus another 500 workers in Toledo that may be consolidated into a new tower downtown. The lease-expiration timeline means Medical Mutual must make a decision any day now.

How big might Medical Mutual's new building be? An average of roughly 200 square feet per employee could equal a 500,000-square-foot tower. With modern, open floor plates averaging about 25,000 square feet -- small enough to be illuminated with natural light -- perhaps 20 stories of offices may be involved (not counting parking, contingencies for growth, additional speculative office space, or vertically stacked mixed uses). It isn't known where Medical Mutual would build its new headquarters.

2. Sherwin-Williams in 2015 outgrew its headquarters in the 87-year-old, 900,000-square-foot Landmark Office Towers, 101 Prospect Ave., with some of its 2,800 workers spilling over into 50,000 square feet of the neighboring Skylight Office Tower. That was before the global coatings giant announced in 2016 it would acquire Minneapolis paint firm Valspar that could bring up to 600 more jobs to downtown Cleveland. That doesn't count another 300 workers in Sherwin-Williams' Breen Technology Center, 601 Canal Rd., next to where the company was founded 150 years ago.

The Valspar deal should be wrapped up by this summer and an announcement about a new headquarters building may soon follow. Using the same spatial assumptions from the Medical Mutual scenario, Sherwin-Williams may be looking at 740,000 square feet of offices contained in a 30-story tower (again, not counting parking, contingencies for growth, additional speculative office space, or mixed uses). The site of Sherwin-Williams' tower isn't known either, but it will be in or near downtown Cleveland. Sherwin-Williams' corporate charter says the company's headquarters must be located within 1 mile of the firm's founding location on Canal Road.

Both historic buildings currently containing Medical Mutual and Sherwin-Williams are obsolete as headquarters for major corporations. They have enclosed offices which don't facilitate employee interaction and creative collaboration. They are costly to light, heat, cool and maintain. But they are perfect for residential conversions. And both the Rose Building and the Landmark Office Towers are in dynamic areas of downtown with other residential buildings, shopping, restaurants, entertainment and transportation.

One more significant office building is planned and likely will be built downtown:

3. Cuyahoga County's Justice Center development appears to be moving forward. The Cleveland Police Department is selling its headquarters which is part of the old, decaying Justice Center complex to the county and moving its 180,000 square feet of offices to 55 Public Square (see above). Cuyahoga County Executive Armond Budish referred in his annual State of the County address on April 19 to an upcoming project that the county is going to be involved in that will be the "largest yet" though he gave few details.

A new county courthouse tower could follow the cost-effective approach of the county's new administration building that was built and owned by a private developer to which the county pays rent. The courthouse tower project might involve a land swap in which the old Justice Center is given to the developer that builds the new courthouse tower. A new tower could be one of Northeast Ohio's largest real estate developments since the old, 2.3-million-square-foot facility was opened in 1976 and expanded in 1995. If built with slightly larger floorplates averaging 40,000 square feet, a 2.1 million-square-foot courthouse tower might climb upwards of 50 stories.

Considering all of these projects, downtown Cleveland's skyline will look different in the next few years, and possibly very different over the next 10 years. How different? Consider the photo comparison below.

TODAY

TOMORROW

The "tomorrow" Cleveland skyline picture shows labeled massings of buildings speculated, planned or under construction. These massings are identified and described below in the order of their possible likelihood:

  • Edge/CSU -- Edge CSU Student Living LLC is constructing an 11-story residential building on Euclid at East 18th Street. The project should be completed in summer 2017;
  • 515 Euclid -- Stark Enterprises is beginning construction on The Beacon apartments in 19 stories atop the nine-level 515 Euclid parking garage. It is due to open in late-2018;
  • nuCLEus -- Stark Enterprises and J-Dek Investments are wrapping up financing for the 1-million-square-foot development at East 4th and Prospect, including residential, offices, retail, hotel and parking in multiple structures, including a 48-story tower.
  • Hippodrome Tower -- Some believe a new Medical Mutual office building could rise on the Goldberg family-owned site of the Hippodrome Theater, now just parking in the 700-block of Euclid and Prospect. This is next to Medical Mutual's current headquarters in the Rose Building. 
  • Jacobs Lot Tower -- Ever since the 60-story Ameritrust Tower project died in 1990, Jacobs Group's parking lot has scarred Public Square. Some believe Sherwin-Williams will build its new headquarters tower here. Others believe this Public Square address is the perfect site for a new county courthouse tower.
  • Weston Superblock office tower -- Weston Inc. and Citymark Capital may build at the northwest corner of Superior Avenue and West 3rd Street a 37-story tower for whichever office user, between Sherwin-Williams or the courthouse tower, doesn't land on the Jacobs Lot.
  • FEB (Flats East Bank) Phase 3 -- Fairmount Properties seeks to build an 11-story residential tower atop retail and a movie theater on West 11th and Main Ave.
  • PHS (Playhouse Square) residential tower -- An unidentified national developer is seeking to build a 30-story residential tower including a 600-car parking garage pedestal, much like 515 Euclid. Playhouse Square Foundation sought $4 million from the state in 2016 to help build the parking pedestal but won only $1 million.
  • Weston Superblock residential tower1 -- A 25-story residential tower is proposed on the southeast corner of St. Clair Avenue and West 6th Street. This was to be the first phase of Weston's Superblock development but the office market may change that.
  • Weston Superblock hotel tower -- A later phase of the Weston/Citymark Superblock development in the Warehouse District is to include a roughly 20-story hotel. No hotelier has been publicly identified, however.
  • Weston Superblock residential/office tower2 -- Someday, the final phase of development of the superblock development may be realized, with this structure being an residential and/or office building.
With all of the moving parts of the coming downtown Cleveland skyscraper binge, it will be interesting to see what end-users and developers bring their projects off the drawing boards first and where they will land. Keep tabs on Cleveland's building binge as things could move quickly toward the end of this year.

END