Ten million square feet of downtown Cleveland construction

More than 4 million square feet of
development projects were recently
completed, are underway or about to
begin along Euclid Avenue in down-
town Cleveland. But that may be just
the appetizer for what's next. (KJP)
CLICK IMAGES TO ENLARGE

What if I told you that Downtown Cleveland could soon have more than six million square feet of buildings under construction at the same time? What if I told you downtown already has four million square feet of construction underway or about to begin? Yes, 10 million square feet total.

First, the second question. Here's a quick summary of current projects to add residential space only along Euclid Avenue and only between Public Square and Playhouse Square. In some cases, where the building is being completely rehabbed, I'm including the total square footage of the building which may include some ground-floor retail space or some co-working spaces. I'm not including all of the space in the Halle's and Terminal Tower buildings for example, because roughly half of each will not be touched by renovations and therefore is not subject to the construction investment.

May Company........800,000
Centennial/925....1,360,000
Euclid Grand..........308,000
Athlon/CAC............225,000
Beacon...................300,000
Lumen....................602,000
Halle Building.........200,000
Terminal Tower.......340,000

TOTAL.................4,060,000 square feet

There has been some publicity recently about how many construction cranes dot the skylines of America's largest cities. Cleveland counts only one tower crane currently up -- for The Lumen 34-story apartment tower at Playhouse Square. It went up shortly before the tower crane for The Beacon 28-story apartment tower came down last fall. Another will go up soon for the Church & State development now underway on Detroit Avenue at West 29th Street. This doesn't include the many shorter cranes positioned around the Quicken Loans Arena expansion.

Downtown Cleveland's many underutilized, obsolete commercial buildings can be renovated and repurposed for less cost than building new towers that would require construction cranes. All those old buildings have been or are filling up with residents to satisfy the still-insatiable demand for housing in our urban core.

Among 37 downtown Cleveland residential buildings 100 feet or taller, 21 of those became or are becoming residential since 2010, 27 of 37 since 2000, and 31 of 37 since 1995. Downtown has seven 20+ story residential developments completed or underway since 2006 with two more in advanced stages of planning. That's nine total. Only three 20+ story residential buildings were developed in downtown Cleveland before 2006 -- all from 1967-73. How many of 20+ story downtown residential developments since 2006 involved a construction crane? Two.

Downtown Cleveland, as seen from Voinovich Park at North
Coast Harbor in summer 2018 (KJP).

More are coming, however. The unmet demand for housing amounts to 6,800 residential units by 2030, which would equal another 21 Lumen-sized apartment towers to meet that demand. Cleveland's suddenly robust job growth and near-exhaustion of the supply of obsolete commercial buildings is timely. It coincides with new financial tools like the Opportunity Zone tax breaks or the fact that real estate investment trusts are willing to take lower, longer-term returns. These changes bode well for meeting the residential demand with new construction as the supply of obsolete, convertible commercial buildings runs dry.

So when someone says it's a bummer that Cleveland doesn't have more construction cranes dotting our skyline, we probably would have them if we didn't already have so much obsolete, lower-cost commercial space available for conversion to meet the demand for residential.

Now, the first question. What might the six million square feet of new construction involve? Right now, we're looking at a much more feasible, scaled-down but still massive nuCLEus development, potentially measuring 2 million square feet of offices, residential, retail and parking.

A preliminary massing for Stark Enterprises' scaled-down
nuCLEus development between Prospect and Huron at
East 4th Street. Plans are still being finalized (Stark).

In the last two years, Stark Enterprises tried to initiate two innovative financing schemes to provide additional public funding to his original, $500+ million plan for nuCLEus. Those schemes suggest that Stark had a $50 million to $100 million gap in his capital stack for nuCLEus. In other words, Stark Enterprises was able to amass upwards of $400 million of capital for the project. At current construction prices, the revised design for nuCLEus could cost as little as $350 million. If so, it's possible that Stark may have enough capital to move forward with this new, smaller plan.

What's next? It's possible that another 4 million square feet of downtown development could be in the cards and, at their rates of apparent progress, they could both see construction at roughly the same time.

In talking to city officials and consultants hired by Sherwin Williams, the Fortune 500 company was ready to move forward in 2016 with a new 900,000-square-foot headquarters tower on the Jacobs Group-owned parking lot on Public Square. The global coatings company was quickly outgrowing its 86-year-old headquarters in the Landmark Building on lower Prospect Avenue.

Then, Sherwin Williams saw an opportunity to build its market share and revenue by acquiring rival coatings firm Valspar for $11.3 billion. All planning for the new HQ was put on hold. The Valspar acquisition was approved by various governments around the world in 2017, and all of the legal work and internal reorganization was wrapped up by mid-2018.

To accommodate the year-over-year growth of 615 new jobs
in Greater Cleveland, Sherwin Williams added a fourth office
building to its local inventory, on Hinckley Industrial Parkway
in Cleveland. This came two years after the coatings giant
shelved plans for building a new consolidated headquarters
tower on Public Square in downtown Cleveland (LoopNet).

But Sherwin Williams is now carrying more than four times the average debt that the rest of the coatings industry was carrying. At current trendlines, it could take the coatings giant until the end of 2022 before its debt-to-equity reaches levels more typical of its competitors.

But with 615 additional employees now spread across four office locations in Greater Cleveland in 2018 compared to a year earlier, Sherwin Williams has more of a need for a consolidated headquarters tower than ever before. And it needs to be an even larger headquarters than the one it planned in 2014-16. It is likely to be 1 million square feet or even larger so it can accommodate future growth of the company.

Sherwin Williams isn't going to take on new debt from constructing or long-term leasing a new headquarters, possibly costing $1 billion, until it pays down the Valspar debt. But it might revisit planning for a new headquarters before the Valspar debt is paid down to a reasonable level. At its current rate of paying down long-term debt, and considering that the design and construction of a skyscraper takes three to four years, we might start hearing more substantial rumblings from Sherwin Williams about a new headquarters in about a year.

The existing Justice Center, including the courts tower (center-
left) and jail (part of which is visible in the foreground) is a
massive complex at 2.3 million square feet. Its replacement
will likely be even larger, perhaps up to 3 million square
feet and built at separate locations (Google).

That project could also coincide with what may be the largest single real estate construction project since the Cleveland Union Terminal complex and associated rail rights of ways were built in the late 1920s and early 1930s. All signs are pointing to the county building a new Justice Center consolidated courts tower and a regional jail complex rather than rebuilding its existing center.

The reason is that the existing facility, despite measuring 2.3 million square feet, is too small for Cuyahoga County's vision. Its goal is to regionalize all municipal courts and jails, thereby eliminating duplicative functions and saving taxpayers money. It's quite possible that a consolidated courts tower and regional jail complex would add up to 3 million square feet, including parking.

That doesn't mean that both facilities would be under one roof as they are now or even across the street from each other. The county hired Project Management Consultants to present alternatives, ranging from reconstructing the existing Justice Center courts tower and/or jail facilities to building new in adjacent sites or separated by miles. The consultant began their work in early 2018 and must wrap it up by Jan. 31, 2020. Their to-do list includes developing build/rebuild specifications for a possible request for proposals from developers.

If the county does favor new construction for both the courts tower and jail complex, the cost could be more than $1 billion. According to a 2014 report by Cleveland-based Osborn Engineering Co., maintaining the 26-story court tower, central atrium, the two 11-story jails, the city's seven-story police headquarters (now leased for county probation offices) and 432,500 square feet of underground parking over the next 10 years would cost nearly $179 million.

Leasing a new courts tower and jail, as the county does with its administration building, could cost upwards of $75 million per year. And, as with its administration building, the county could buy a new courts tower and jail for $1 at the conclusion of the lease.

One option proposed about a decade ago was the construction
of a new courts tower and jail tower built over a parking deck
and transit center along Superior Avenue, between West 3rd
and West 6th streets in the Warehouse District (GCRTA).

County officials have prioritized keeping a consolidated courts tower downtown because of its central location, accessibility by public transportation and car, the presence of many restaurants for workers, visitors and juries, and the proximity of offices for attorneys/public defenders, bail bondsmen, social services and other support services.

A location that might make sense for a 30-story consolidated municipal and county courts tower is on the Weston-owned parking lots on Superior Avenue at West 3rd Street, one block west of Public Square. It is also right next to the Public Square lot where Sherwin Williams planned to build its headquarters tower and might revisit that site again.

Where might the new regional jail be put? Anywhere in or near downtown is a logical guess. But if a new regional jail isn't built next to a new courts tower, look for a jail facility for unsentenced inmates to be included inside the courts tower so that the accused and their attorneys can have proximate access to each other. The consolidated jail would offer 200 more beds than the existing jail. It will be a massive complex, measuring more than 1 million square feet.

In 2026, just seven short years from now, the Justice Center will be 50 years old. By that time, it may already be vacated. And as part of a request for proposals, the winning developer may get the keys to that complex, perhaps at a vastly reduced price, to do with it what they will. Given its age by then, the building would qualify for historic tax credits to reduce its cost of redevelopment. And given the building's rapidly decaying condition, its redevelopment will have to be extensive.

END

Old Westinghouse plant may soon be in developer's hands

The former Westinghouse plant near Edgewater Park is
sought by a real estate developer that specializes in
renovating and converting historic factories into
residential properties (CLICK TO ENLARGE)

One of the most visible historic factories in Cleveland may soon be in the hands of a developer that has a proven track record of restoring such buildings.

The former Westinghouse Electric and Manufacturing Co. at 1200 W. 58th St. near Gordon Square in the Detroit-Shoreway neighborhood is best known for its eight-story structure towering over the Westinghouse Curve of the West Shoreway (aka State Route 2) near Edgewater Park. Or, perhaps you recall the Black Widow interrogation scene from the 2012 Avengers movie that was filmed here.

On Jan. 22, a Certificate of Disclosure was filed with the city regarding Sustainable Community Associates' purchase of the 3.62-acre property from Paramount-Breakwater Properties LLC, according to the city's Division of Records. Certificates of Disclosure must be processed by the city prior to a property transfer taking effect. The certificate was processed Jan. 25.

Motorists on the West Shoreway (State Route 2) know the old
Westinghouse plant well. It towers over the highway and the
Norfolk Southern Railroad tracks just west of Whiskey Island.

Considering the sale hasn't taken effect, Josh Rosen, one of three partners in Sustainable Community Associates with Naomi Sabel and Ben Ezinga, couldn't comment on his company's interest in the property.

"I am not at liberty at this juncture to discuss this or our involvement with this," Rosen said. "As soon as I am able to, I would be delighted to reach out and discuss any and all of this."

Because the transaction has yet to be recorded by the county, the sale amount isn't known either. The Westinghouse plant was listed for sale as an industrial property at $6 million. However, its land and structures were appraised for taxes in 2018 by the county at $1.18 million, up from $981,100 the year before.

One of 59 residences (plus 12,000 square feet of office
space) at the newly renovated Wagner Awning
Building in Tremont (SCA).

Sustainable Community Associates has built new and renovated old structures for housing in Oberlin and Cleveland. Until recently, their Cleveland projects have been all been renovations of vacant light-industrial structures, including the Mueller Lofts in Asiatown (80,000 square feet) plus the Fairmount Creamery (100,000 square feet) and Wagner Awning in Tremont (88,000 square feet).

The latter will soon be complemented by a $20 million, new-construction project by Sustainable Community Associates on the other side of Scranton Avenue. The Tappan will feature 95 residential units and a corner bakery. Rosen says his firm is putting a lot of effort into attracting a retailer, the bakery, to this new-construction neighborhood development.

In 2015 (above), redevelopment north of Gordon Square had
yet to spread east toward the foreground in this view. Now,
everything visible here has been targeted or redeveloped by
real estate investors. The extent of redevelopment was already
visible in this March 2018 view (below) by Aerial Agents.

Redevelopment of the vacant Westinghouse property will be, by far, Sustainable Community Associates' largest project to date. In total, the site contains 303,000 square feet of buildings, the oldest of which dates to 1882. The most notable is the eight-story, 122-foot-tall, 112,000-square-foot tower built in 1915. Until recently, it featured multi-story, lighted Christmas decorations, visible to motorists on the West Shoreway.

Presumably, the tower would be converted to residential because of its amazing views of Lake Erie, Edgewater Park, Wendy Park, Downtown Cleveland and the rapidly developing north end of the Detroit-Shoreway neighborhood. Hundreds of new apartments and townhomes have been built, are under construction or are planned nearby.

In fact 10.5 acres of the former Westinghouse property was sold five years ago to Cleveland-based NRP Group, one of the nation's largest apartment developers. On that land, NRP Group built The Edison at Gordon Square, a 306-unit apartment complex. NRP plans to build phase two, a 323-unit complex on the south side of Breakwater Avenue and west of West 58th.

The 1915-built, 122-foot-high Westinghouse tower,
as seen from the West Shoreway (LoopNet).

The Westinghouse plant's tower could easily accommodate more than 100 residential units, depending on how the first floor is redeveloped. Its floor plates measure 14,000 square feet and the walls are 2 feet thick in some places. Skylights and/or walk-out sun decks could be offered thanks to a saw-toothed portion of the roof. A two-story penthouse could be added in a cupola-like structure on the rooftop.

How Sustainable Community Associates intends to develop the remaining 200,000 square feet of the Westinghouse complex will be interesting to see, too. If historic tax credits are used to fund the property's redevelopment, there will be restrictions on how much of the site's original architecture can be altered.

Interior of the Westinghouse tower (LoopNet).

It is possible that some of it could become parking for tenants. But perhaps some could be used for offices, restaurants or even retail like a convenience store, considering how many people already live in the neighborhood and how many more housing units are planned. Perhaps there could be a community space such as an active sports center and/or indoor farmers market.

The shorter buildings in the Westinghouse plant actually pre-date Westinghouse's ownership of it. The factory at the foot of West 58th (previously called Waverly Avenue) dates to 1882 when John Walker founded Walker Manufacturing Co. to produce power-transmitting machinery for street railways. His company substantially rebuilt and expanded the plant in 1891, three years before Westinghouse sued Walker Manufacturing for patent-infringement.

Westinghouse plant circa 1920s (LoopNet).

Walker lost the case. Court-ordered constraints on the firm's activities led to its sale to Westinghouse for about $1 million in 1898. Westinghouse manufactured aluminum and brass castings at Walker's plant but transitioned in the 1930s to become the headquarters of the Westinghouse Lighting Division. It produced lights for use in industry, at airports and along highways, including the 1939-built West Shoreway. More than 500 people were employed at this plant. It closed in 1979 and the Lighting Division was relocated to 5901 Breakwater Ave. from 1980-82, according to the Encyclopedia of Cleveland History.

Westinghouse plant circa 1970 (CLICK TO ENLARGE)(WikiMedia).

In 1986, the plant was sold to the Kole family of Westlake, county records show. Peter Kole was president & CEO of Paramount Stamping, Welding & Wireforming Co. He was born in Pogradec, Albania in 1937 and came to America with his mother the following year. In 1978, Kole purchased a manufacturing company, Farco, located in Elyria and in 1981 moved the company to the Westinghouse plant where he started another company, Paramount, that manufactured steel automobile seat frames. He employed 300 people. Kole also was Honorary Consul Consulate of the Republic of Albania in Cleveland, according to a biography by his alma mater Idaho State University.

Kole sold off pieces of the 14-acre factory property to developers, with the remaining portion of the plant transferred in 2016 to a company Kole created -- Paramount-Breakwater Properties LLC. That company was renamed on Jan. 7, 2019 as Paramount-Breakwater LLC, according to Ohio Secretary of State records. Presumably, the LLC, not the property, could be sold in an Entity Sale to reduce the transaction fees and property taxes on Sustainable Community Associates.

END

Stark's nuCLEus has a smaller, more achievable concept

With its scale reduced to about 2 million square feet and to a
price tag as low as $350 million, Stark Enterprises has value-
engineered its planned nuCLEus development in downtown
Cleveland in line with available fiscal resources. For orien-
tation, the intersection at the bottom of this south-easterly
view is Prospect Avenue and East 4th Street. (Stark)
(CLICK IMAGE TO ENLARGE)

After months of speculation and rumor about a scaled-down design for Stark Enterprises' downtown Cleveland megaproject called nuCLEus, revised conceptual site plans for the project were briefly posted on Stark's web site earlier today. They apparently were posted in error or posted prematurely because they were since taken down. All references to nuCLEus were briefly removed from Stark's website but since restored using an aerial graphic showing only the existing parking lot at the proposed site.

Stark representatives have yet to respond to an e-mail seeking updates about the nuCLEus project. Nor did they comment on why the new conceptual graphics and promotional brochure were posted earlier today and soon removed. Before they were removed, the nuCLEus page was shown as updated in January 2019. So clearly there is activity regarding this project.

In fact, it's possible that Stark has enough resources to build the scaled-down version of nuCLEus, which is still a very large project measuring approximately 2 million square feet. The old design showed a single 54-story residential tower connected by a four-story hotel suspended like a bridge to another, shorter building with office space. The vertical structures were to built on top of a pedestal of parking over ground-floor retail and restaurants.

The original plan for nuCLEus, as viewed from Huron Road
looking east at East 4th. It featured a 54-story residential
tower and a 4-story hotel bridge building over to a 7-story
office building (Stark).

The preliminary new design shows two disconnected towers -- one for residential (much shorter) and the other for offices (about twice as tall as before) -- atop the parking pedestal over ground-floor retail, restaurants and food halls. There are about seven floors of parking topped by an amenity/lobby level. The taller tower is the office building, offering 15 floors and higher ceilings than the 14-story residential building. The larger office and smaller residential components jibe with recent rumors about the project being scaled down. 

From street level, an observer would look up to a 25-story office tower and a 22-story residential tower, including the parking, amenity and retail levels below, according to the preliminary design. The residential building would also cascade down over the Prospect Avenue side of nuCLEus' parking structure, effectively hiding it. The Huron Avenue side, however, would have the parking deck exposed as its facade, albeit with ground-floor retail/restaurants. A six-lane ingress/egress for the parking garage and loading docks would be on East 4th which Stark had previously proposed closing to vehicular traffic north of High Avenue.

A scaled-down nuCLEus would no longer be the tallest tower
on Huron Road (the AT&T Building, to be renovated into a
Canopy by Hilton hotel, is 27 stories). However, nuCLEus
would still be a major presence and a dramatic improvement
compared to the 3-acre parking crater there now (Stark).

Between the residential and office towers, Stark would retain his Melbourne, Australia-inspired laneway -- a narrow pedestrian walkway lined with shops, restaurants and food halls. It will compete with the historic East 4th District that's popular most evenings, but especially with people attending the many sporting events, concerts and other shows at Gateway (Quickens Loans Arena and Progressive Field).

Stark signaled some possible momentum on nuCLEus last month when he sold his downtown Cleveland headquarters to Rlfed Manager LLC, a firm controlled by Yaron Kandelker, an Israeli investor with property holdings in Northeast Ohio. Stark Enterprises planned to move its nearly 20,000 square feet of headquarters offices from 1350 W. 3rd St. to nuCLEus upon completion of the $500+ million project.

Also motivating Stark to move forward on nuCLEus is an agreement with law firm Benesch to occupy 66,500 square feet of office space at the new development. The agreement remains in place despite Benesch extending its lease at 200 Public Square until 2022. Meanwhile, a nearly 50,000-square-foot entertainment venue called Cleveland Live! also agreed to locate at nuCLEus, as did the Ohio debut of Starbucks Reserve, an upscale coffee bar, and HopCat, a restaurant and craft beer bar. Shake Shack also sought to open at nuCLEus but grew impatient with its lack of progress and opened instead in the Garfield Building on Euclid Avenue and East 6th Street. 

Building cross-section view of the scaled-down nuCLEus
development in downtown Cleveland. (Stark)

In the last two years, Stark tried to initiate two innovative financing schemes to provide additional public funding to his original plan for nuCLEus. The first was a $120 million Cleveland school district property tax increment financing mechanism from which Stark would give back $18 million to help finance school facility construction.

When that fizzled, Stark presented to the Ohio General Assembly a bill that would encourage insurance companies to finance up to 10 percent of large real estate developments that met certain transformational characteristics. NuCLEus could have benefited from more than $50 million in tax credits from that scheme which passed the Ohio House unanimously but didn't pass the Ohio Senate before the clock ran out on the 2018 legislative session.

Those proposed schemes suggest that Stark had a $50 million to $100 million gap in his capital stack for nuCLEus. In other words, Stark Enterprises was able to amass upwards of $400 million for the project from public and private pledges, commitments and resources already in hand or available to the firm. That might also include new capital from Opportunity Zone funds (downtown Cleveland is located in an Opportunity Zone) and from real estate investment trusts that are increasingly willing to take lower returns from longer-term investments in low-rent markets like Cleveland.

A smaller nuCLEus would produce less revenue, but it's still a very large project. The new conceptual massing for the scaled-down shows that the roughly 2 million square foot development would be split roughly evenly between parking and non-parking uses. At current construction prices, the revised design for nuCLEus could cost as little as $350 million. If so, it's possible that Stark has the resources necessary to move forward with this new plan.

END

County engineer's Ohio City property hits the market

The former Cuyahoga County Engineer's headquarters
in Cleveland's Ohio City neighborhood is for sale and
is expected to attract a lot of interest from real estate
developers to build new housing on the site (Allegro).
CLICK IMAGES TO ENLARGE THEM

It's official. Cuyahoga County has put on the market one of the most attractive properties for redevelopment in years. The former Cuyahoga County Engineer's headquarters at the west end of the Detroit-Superior Veterans Memorial Bridge is expected to fetch the most interest by real estate developers among four sites in the county's latest disposition of surplus properties.

Last month, I wrote that the engineer's office and its 2 acres of land at 2429 Superior Viaduct would soon go on the market. It is one of five major development locations or projects emerging along the West Rim of the Cuyahoga River valley, in Cleveland's Ohio City neighborhood.

The property at 2429 Superior Viaduct is surrounded by recent and planned developments including the newly opened, $60 million apartment complex to the west called The Quarter. Its developed area is slightly larger than the county engineer's property. Just east is the multi-building Stonebridge development built in the early 2000s.

To the south is the planned and partially funded, 20-acre, roughly $100 million Irishtown Bend Park. To the north is 2210 Superior Viaduct, a proposed 11-story apartment building proposed by Activity Capital, an investor group led by Daryl Kertesz who says this project is still active.

These are two views of the former county engineer's
site that were included in the marketing flyer designed
by the county's real estate consultant (Allegro).

According to a new listing by Allegro Realty Advisors Ltd., all four of the county's excess properties will be sold through an open-bid Requests For Proposals (RFP). Bids must be received by March 18. Each property can be toured in person on one of two dates later this month. The tour dates are different for each property, per their listings.

"The one (county engineer's property) is definitely exciting," said Damon Taseff, a principal at Allegro Realty Advisors. "It's redevelopment will help keep building momentum in the area."

Taseff notes that there are two issues with the site. One is that its 2.03 acres of land includes easements that extend out into the roadways for West 25th Street and old Detroit Avenue. Those easements cannot be built upon, reducing the developable land area to 1.6 acres.

The other issue is that there is an abandoned street running diagonally through the site. He said the county is working with the city on vacating the street and removing the right of way. That will cause its ownership to revert to the adjoining parcels, all owned by the county and which are the subject of the RFP. Taseff expects the right of way to be removed by the March 18 RFP deadline, so it is shown as "to be vacated" on Allegro's marketing materials.

A 2017 satellite view of the county engineer's property. (Google)

The Cuyahoga County Personnel Review Commission still has offices in the building but Taseff said it will be moving out soon. The Cuyahoga County Engineer, which plans, builds and maintains all Cuyahoga County-owned roads, bridges and structures, was changed into the Department of Public Works during the county's reform in 2009. Its offices were relocated to the new county administration building at East 9th Street and Huron Road downtown.

Actually, there are four structures and six parcels which comprise the former county engineer's headquarters. According to the Cuyahoga County Fiscal Officer, the structures were built between 1947 and 1964, with the two largest buildings remodeled in 1970 and 1993. In total, there are 21,616 square feet of usable buildings on site. The entire property was appraised by the county at $732,300 in 2018 but was valued at $1,015,200 in 1999. The appraisals didn't include the street right of way.

The other three county-owned properties to hit the market in this latest offering are at 4000 Brookpark Rd. in Cleveland, 6100 W. Canal Rd. in Valley View, and 14875 York Rd. in North Royalton. These three are being advertised as potential light-industrial/warehousing sites.

Cuyahoga County hired Allegro Realty Advisors to help it review its real estate needs and recommend follow-up actions. After an analysis, Allegro identified dozens of properties countywide as no longer essential to the operation of county government. Many properties have already been sold off. Taseff said the four properties in this latest RFP will be the last to be disposed of for the foreseeable future.

END