NuCLEus gets financing, possible August groundbreaking

After facing complications in securing a $12 million city loan,
it appears the nuCLEus development in downtown Cleveland
is back on track (Stark). CLICK IMAGES TO ENLARGE

To paraphrase Mark Twain, the reports of the nuCLEus development stalling were greatly short-lived. For those of us who welcome investment in downtown Cleveland, we're grateful for the news.

Just last week, sources said all signs indicated that the $354 million project to build two 24-story towers between Prospect Avenue, Huron Road and East 4th Street had stalled. The delay apparently was the result of complications surrounding a $12 million loan from the city. It was among the final pieces of financing for the project.

But this week, a source says that real estate developer Stark Enterprises has significantly closed that $12 million gap without the city loan and is likely to close the remainder soon -- soon enough to tentatively plan an August groundbreaking for the mixed-use development. Two sources confirmed the August groundbreaking.

The complications surrounding the city loan also weren't what they seemed. Reports that the city was reluctant to give the loan to Stark because it wasn't going to pay workers prevailing wages, or that Stark was reluctant to accept the loan for the same reason don't hold water.

NuCLEus will be a mixed-use development, with its
uses stacked vertically. Its most prominent features
on the skyline will be its 354-foot-tall office tower
and its 311-foot-tall residential tower (Stark).

Stark reportedly has hired Cleveland Construction, Inc., a firm with seven offices nationwide but is based in Mentor, to be its general contractor for nuCLEus. Cleveland Construction is a prevailing wage contractor, meaning they aren't signatory with the trade unions. But it can use union labor or non-union labor.

Even if Cleveland Construction wasn't a prevailing wage contractor, the construction market in Greater Cleveland is booming and demanding higher wages. So there isn't much difference right now between prevailing and non-prevailing wage firms.

Furthermore, Stark was awarded and is gratefully accepting other forms of public financing including loans and tax-increment financing from the city, county and state that are likely triggering prevailing wage requirements.

It should not be a surprise that Stark has closed the financing gap on nuCLEus, a project featuring a residential tower and an office tower atop a pedestal of structured parking and ground-floor retail. The reason is that Stark is quickly leasing out its downtown projects' residential, office and retail components.

The Beacon apartment tower, as seen from the
site where the much larger nuCLEus develop-
ment may soon soon rise (mack34/UrbanOhio).

Stark's other big project downtown is The Beacon apartment tower -- a $94 million 19-story building atop an existing nine-story parking garage. It is filling up quickly.

Brian Weisberg, vice president of residential operations at Stark, said at the 5th Annual Commercial Real Estate Summit held June 27 that The Beacon is 60 percent pre-leased. Stark began soft-leasing (without advertising) The Beacon in February and immediately got 550 prospects for apartments in the 187-unit tower.

Weisberg said he anticipates leasing out The Beacon in the first year, despite commanding premium rents. A normal lease-out for a multi-family tower takes 18-24 months. He also noted that Stark is getting more interest for its downtown residential and office spaces than it is for its many suburban properties. NuCLEus will have 250 residential units, most of which will be apartments but some will be for sale.

In the other tower, two-thirds of nuCLEus' 400,000-square-foot office component is pre-leased, with the large law firm Benesch Friedlander Coplan & Aronoff as the anchor tenant. Stark's own offices will relocate to nuCLEus once it is completed. The national developer and capital group has temporarily relocated from 1350 W. 3rd St. to 629 Euclid Ave, Suite 1300.

There also is 80,000 square feet of ground-floor retail, with much of that leased out as well. The biggest portion will be occupied by Fox Sports Midwest, a national chain of sports and entertainment venues. Other retail tenants so far include HopCat and Starbucks Reserve. More are retailers coming, Weisberg said.

END

Seeking opportunity in the Opportunity Corridor

The Opportunity Corridor is finished between East 93rd Street
and Chester Avenue. Construction is starting on the boulevard
between Interstate 490 and East 93rd (ODOT).
CLICK IMAGES TO ENLARGE

This week I took a tour of the completed portion of the Opportunity Corridor, a project whose side mission is to change land use and turn dirt in a part of the city where the dirt hasn't been turned in a very long time.

Road construction started by widening East 105th Street to four lanes with a landscaped median between Chester Avenue and Quincy Avenue. Work in this area included replacing a straight bridge with a wider, curving span over the Norfolk Southern railroad tracks and Greater Cleveland Regional Transit Authority Red Line. Here, the rail station at East 105th-Quincy was expanded.

Then, the new boulevard extends southwest along the RTA Red Line to East 93rd Street. The next phase will link East 93rd to East 55th Street and finally to Interstate 490. That work is just getting underway.

Community development corporations along the Opportunity
Corridor have developed land use plans in preparation for the
completion of the roadway. Slavic Village CDC developed its
Hyacinth Transit Oriented Development plan with multi- and
 single-family housing to capitalize on access to the East 55th
rail station next to the Opportunity Corridor. Both the station
and roadway are just out of view beyond the top of the image
that looks northwesterly (Slavic Village Development).

Burten, Bell, Carr Development Inc. plans a mixture of housing,
light-industrial and agricultural uses north of the Kinsman Ave.-
East 79th intersection, at center-left. The RTA Green-Blue lines
curve through the middle- to upper-right of the image with the
Opportunity Corridor to the upper-right of it. This view also
looks northwesterly (BBC).

Fairfax Renaissance Development Corp. is advancing work on
Innovation Square starting with the two apartment buildings at
the left side of the image, next to an expanded Red Line station
at East 105th-Quincy. On the bottom of this westerly looking
image is East 105th/Opportunity Corridor (Fairfax RDC).

As you can see from the pictures below, the development signs and for-sale signs are already starting to pop up along the roadway. The city and the three community development corporations along the route have their land use plans. But property owners have their own ideas. How this road project will be able to "leverage the boomtown" that is University Circle for the benefit of nearby neighborhoods is still a work in progress.

So will the Opportunity Corridor be lined with gas stations and convenience stores? Or with biomedical labs and advanced manufacturing? Or with scrap processors and aggregates dealers? Or with light-industrial/warehousing? Or with townhouses surrounding apartment towers over retail near the Red Line stations?

What future will this $350 million investment by the Ohio Department of Transportation bring to this forgotten part of Cleveland? The following views are the "before" images. The "after" images will be interesting to see in the coming years and decades.

At the northeast end of the Opportunity Corridor-East 105th is
Ohio's fourth-largest concentration of employment -- University
Circle. The road will improve access to University Circle for
Northeast Ohioans with cars but how will it benefit residents
in the adjacent neighborhoods? (KJP)

Remnants of once-crowded neighborhoods surround University
Circle, often within sight of it. Plans are afoot to "reboot" those
neighborhoods, including with affordable housing (KJP).

One of the few transit-related components of the Opportunity
Corridor includes the expansion of the East 105th-Quincy Red
Line station that lengthens the trackside platform and adds this
secondary street access to reach the future Innovation Square
district south of University Circle (KJP).

The area surrounding the East 105th-Quincy intersection where
the entirely new section of roadway of the Opportunity Corridor
begins. This view looks northeastward (KJP).

A sign of things to come? A sign for Innovation Square adorns
the widened stretch of East 105th where a dense mix of homes,
stores, schools, churches and businesses stood. The goal is to
rebuild this neighborhood with 21st-century needs, such as
homes, stores, schools, churches and businesses (KJP).

The Opportunity Corridor is going to be an opportunity for
someone. Whether it is an opportunity for those who need it
most will take more effort than just putting up a sign (KJP).

In 2019, this is as far west as the Opportunity Corridor goes--
to East 93rd Street. Construction is already underway to link
this roadway to the highway system at I-490 and I-77. Making
the Opportunity Corridor useful to surrounding areas, called
the Forgotten Triangle, where poverty rates of 40 percent or
 are common will take years if not decades (KJP).

 END

Downtown's nuCLEus stalls with impasse, tiny Stark equity

Leasing signs for nuCLEus went up on Prospect Avenue at
East 4th Street -- in October 2014. Five years later, no dirt
has yet been turned for the ambitious, mixed-use real estate
development (UrbanOhio). CLICK IMAGES TO ENLARGE

Another bump in the road has stalled the massive nuCLEus development in downtown Cleveland. This time it has stalled from an impasse over a city loan, even as the project has garnered more than 95 percent of its funding and was scaled down to two-thirds of its previous size. The last piece of financing seems to be eluding the joint venture of Stark Enterprises and J-Dek Investments Ltd.

That's even more difficult to comprehend when considering Stark's equity contribution to the project may be no more than 1-2 percent, according to a source reportedly familiar with Stark's financing for the project, called the capital stack.

In dollar terms, Stark's contribution may be as little as $3.5 million to $7 million of the $350 million nuCLEus project. In other words, when Stark sold its former headquarters building at 1350 W. 3rd St. for $2.65 million in late-2018, it either came close to equaling its equity in nuCLEus or allowed Stark to almost double it.

Ezra Stark, Stark Enterprises' chief operating officer, did not answer questions for this article submitted by e-mail, including a request to confirm Stark's equity contribution. Stark, however, acknowledged that he read and received that e-mail. In other words, he has no comment.

Yes, Stark touts that nuCLEus has a $100 million equity contribution. But the sources of those funds is opaque. NuCLEus is actually being sponsored by a joint venture between Stark and J-Dek Investments Ltd. called Gateway Huron, LLC. Stark touts that Stark, J-Dek and their equity investors are making a sizable contribution to the project. That also includes their $26.7 million purchase of more than 3 acres of land in 2014.

This is a simplified breakdown of the capital stack for
nuCLEus, as presented to the City of Cleveland and that
appeared in an attachment to a proposed ordinance for
awarding a $12 million loan to the nuCLEus project. The
breakdown doesn't show who contributed the equity nor
does it show in what amounts (City of Cleveland).

And it includes $9.5 million which J-Dek raised in a public offering of a shares in Nucleus Jdek LLC in 2014-15, according to its Notice of Exempt Offering of Securities and subsequent amendment filed with the Securities and Exchange Commission.

The source familiar with Stark's equity contributions for nuCLEus and other projects said Stark typically doesn't contribute large amounts of equity to its projects. Stark also reportedly didn't contribute more than 1-2 percent of its own equity to build the $94 million Beacon apartment tower above the existing 515 Euclid parking garage, he said.

"Stark seems to be more of an organizer of equity from others, then Stark does the work to deliver the project," the source said.

It's not uncommon for project sponsors to deliver sweat equity in a project, only to get paid at the back end. By comparison, limited investors typically contribute 80-95 percent of the capital yet don't get their hands dirty on a project. Instead, they receive a preferred 5-10 percent return on their investment from a majority of the cash flow and profits as well as most of the tax benefits.

But that often means the project sponsor puts 5-20 percent of its own equity in a project -- not 1-2 percent. If Stark contributed just a shade more than 5 percent of the equity in nuCLEus, perhaps it might not need the $12 million city loan.

The latest plan for nuCLEus is scaled down by one-third
compared to the previous version. It has two 24-story
towers (actually a 16-story residential tower and a 16-
story office tower above a lobby, six levels of parking
and ground-floor retail (Stark).

Stark's desired final piece of the financial puzzle likely isn't going to happen, barring a miracle. That piece is the $12 million loan it has requested from the City of Cleveland. But City Council seems to be arbitrarily attaching a prevailing wage provision for this construction loan.

The city probably isn't going to back off that condition. City council members have said, given the scale of the nuCLEus project, they can't easily award the loan without the prevailing wage attached.

That's odd. The prevailing wage issue hasn't come up before. Stark has already been awarded two city loans totaling $360,000, a $19 million city-sponsored tax-increment financing deal, as well as two $6 million loans -- one pending from the county and another from the state. None have come with prevailing wage strings attached.

But apparently the wage condition is a deal-killer for Stark. It can't seem to make the numbers work on its nuCLEus project if it paid all construction workers the prevailing wages for their trades and crafts.

So the $350 million project has stalled because the city and Stark are at an impasse.

There may be other options. Stark could further reduce the scale of the project and thus reduce its cost (albeit scaling back its eventual revenue, too). But it has already been substantially scaled down from a $500+ million project that would have put the city's second-tallest skyscraper on downtown's second-biggest parking crater, across Huron Road from the Rocket Mortgage FieldHouse.

NuCLEus would eliminate downtown Cleveland's second-
largest parking crater, filling it with 400,000 square feet
of offices, 250 residential units and 80,000 square feet
of retail, bringing new life to an area that is a dead
zone much of the time (Stark).

Or perhaps Stark could create a new company to receive the $12 million city loan and to quickly build at prevailing wages the least lucrative part of the development, likely to be the foundation pad. Then Gateway Huron LLC could build nuCLEus above the pad, similar to how Stark built Beacon using the air rights above 515 Euclid, which is owned by another company (an investor group led by Reuven Dessler).

Stark will likely have little trouble filling nuCLEus' duo of 24-story towers -- one for offices and the other for residents. The office tower is two-thirds pre-leased in a tightening office market and the residential tower is likely to lease out quickly, just as other new housing products downtown keep filling up within a year or two despite rising rents.

But apparently Cleveland's real estate market isn't recovering as quickly as we'd hoped. And Stark is no stranger to finance. Stark created a capital group four years ago to raise money from institutional investors and high-net worth individuals and families. The firm knows where to find money if it wants to come here.

If Stark doesn't want to contribute more than a few million dollars and can't find $12 million from investors (including through Opportunity Zone funds) to top off the few remaining percentage points in his capital stack, then maybe Cleveland still isn't ready for projects like nuCLEus.

END

Seeds & Sprouts II - Early intel on real estate projects

This is the second edition of Seeds & Sprouts - Early intelligence on Cleveland-area real estate projects. Because these projects are very early in their process of development or just a long-range plan, a lot can and probably will change their final shape, use and outcome.

Nautica Entertainment LLC has secured financing and possibly
a joint development agreement to move forward on at least one
part of its Waterfront District project, possibly starting with this
building (AODK). CLICK IMAGES TO ENLARGE 

Flats West Bank: Nautica Waterfront District seeks Joint Venture

On May 13, Nautica Entertainment LLC recorded with Cuyahoga County the issuance of $35 million in five-year notes from a line of credit it collateralized through Wilmington Trust, National Association. The debt was mortgaged against all of Nautica Entertainment's properties on the Flats West Bank. A portion of the financing could reportedly help build the first phase of an ambitious, high-end community on the West Bank. Most of the rest will help capitalize the firm's other interests.

The first phase could be a 17-story residential building, located between Jacobs' Nautica Entertainment Complex (FirstEnergy Powerhouse & Jacobs Pavilion live stage) and the Main Avenue High Level Bridge (State Route 2).

Nautica Entertainment, chaired by Jeff Jacobs, isn't an active real estate developer in Ohio anymore. So it is seeking a joint development agreement with an active real estate developer to achieve a grand vision for its Flats West Bank properties. The issuance of short-term notes suggests that Nautica may be dangling some capital as a carrot to attract a deal. No joint development partner is yet confirmed.

David C. Grunenwald, vice-president of development at Nautica, did not return a phone call seeking comment.

The financing was secured as an amendment to a $350 million line of credit that Golden, Colorado-based Nautica Entertainment collateralized through Wilmington Trust, headquartered in Minneapolis. The amendment boosted the line of credit, established in 2017, to $385 million.

Nautica announced plans in 2016 for a $405 million complex of mid-rise buildings offering residential, office and hotel uses plus several parking garages. Once a joint development partner is in place, Grunenwald recently said he hopes to realize the grand vision for Flats West Bank in about seven years.

"We opened Nautica in 1987, and it has evolved from there," Grunenwald said in a cleveland.com article in 2016. "We've spent a lot of time evaluating the site and potential uses, and we've also watched as the city has emerged. This is not the same city as it was 36 months ago. Young people have discovered the city."

The former Cuyahoga County Engineer's headquarters
 in Cleveland's Ohio City neighborhood is for sale. The
 recommended bidder will likely build mid-rise housing
on the highly visible site (Allegro).

Ohio City: Hemingway favored to acquire county land

The former Cuyahoga County Engineer's headquarters property at the west end of the Veterans Memorial Detroit-Superior bridge is recommended to be sold to Hemingway Development, a county source said. The property, at 2429 Superior Viaduct, went on the market in an open-bid request for proposals (RFP) last winter.

Damon Taseff, a principal at Allegro Realty Advisors which serves as the county's real estate consultant, said he had no information he could share, but added "I presume the county will make a formal announcement in the future."

Mike Panzica, a principal at Hemingway, said he could not comment on the possible sale at this time.

The site is in a prime development location, at the edge of the booming Hingetown neighborhood and uphill from Flats West Bank (see previous news brief). It is also across the street from the planned $100 million, 20-acre Irishtown Bend Park and The Snavely Group's multi-phase Hingetown development.

Current zoning for the site is a mix of local retail-D and semi-industry-B, but both are in a height district allowing the construction of structures up to 115 feet tall, or roughly 11 stories.

Although the property is listed at 2 acres, it 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.

Also, there is an abandoned street running diagonally through the site. The county has yet to vacate the street. Once vacated, its ownership would revert to that of the adjoining parcels, all owned by the county and which are the subject of the RFP.

The Cuyahoga County Personnel Review Commission had offices in the building but Taseff said in January that it would 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 rights of way.

Cleveland Clinic's Fairhill Facility, 11203 Stokes Blvd., is due
to be redeveloped with 38 housing units called North Park
Place by Premier Development Partners (Google).

University Circle: Cleveland Clinic partners in residential project

A former medical office building uphill from the heart of University Circle is proposed to be redeveloped with 38 housing units, both for-sale and rental. Cleveland Clinic Foundation's Fairhill Facility, 11203 Stokes Blvd., and its two acres of land will be redeveloped as North Park Place by Premier Development Partners of Cleveland.

As proposed, the 50,752-square-foot medical office building will be converted into 23 apartments with indoor parking and a three-level, 43,560-square-foot parking deck will be demolished to make way for 15 townhouses. Both the office building and parking deck were built in 1965 for Kaiser Foundation Health which sold it to the Cleveland Clinic in June 2001 for $3.25 million. The land and buildings are appraised by the county at $4,815,000 for taxes.

The project requires several zoning variances before development can proceed. The Board of Zoning Appeals will consider those variances at its next meeting, scheduled for June 17. North Park Place's architect is Kaczmar Architects, Inc.

Cleveland Clinic used the Fairhill Facility for its Sleep Disorders Center and Ohio Renal Care Group. The medical building was remodeled in 2006 for $897,900. Additional improvements, including to interior electrical systems, elevator and sleep lab plus dialysis facilities, were made in 2013-14, according to county records.

North Park Place Partners, LLC was formed in April by Premier Development Partners's Chairman Emeritus Ross Farro to deliver the project. Farro did not respond to a request for more information about North Park Place.

Premier was formed in 2006 with the acquisition of 330 acres in Northeast Ohio, previously owned by Duke Realty Corporation. As Duke exited the Northeast Ohio market, Farro, who was then Duke's senior vice president of Duke's office development and Spencer Pisczak, Duke’s then-senior vice president of industrial development, joined forces to create Premier, according to an online company history.

Although North Park Place is located in the city's University Circle planning district, it is across the street from Cleveland's Buckeye-Woodhill planning district in one direction, Buckeye-Shaker Square planning district in another, and the City of Cleveland Heights in yet another direction.

A small portion of the Tinnerman Building on Fulton Road,
just south of Lorain Avenue, is visible from the street. Most
of the historic building, owned by The Dalad Group, will be
 rehabilitated with apartments (Google).

Ohio City: Dalad Group submits plans for Tinnerman Building

Nearly three years after purchasing the historic Tinnerman Building, 2038 Fulton Road, The Dalad Group of Independence has declared its intentions to redevelop the largest portion into 53 apartments. The "announcement" came in the form of a zoning variance request to the city's Board of Zoning Appeals (BZA).

Of the 62,550-square-foot, seven-building complex that extends south behind homes to Chatham Avenue, 54,101 square feet are proposed for renovation, according to Dalad's filing with the city. The seven buildings range from one to three stories and were built from 1903 to 1938, county records show.

The Tinnerman Building was used most recently by Vista Color Imaging and Able Packaging. Vista moved to Brooklyn Heights and Able closed. It was named the Tinnerman Building because the Tinnerman Steel Range Co. was located on the site from 1880 to 1957, then moved to a new plant on Brookpark Road. It merged with Eaton Corp. in 1969.

The BZA filing was submitted by Paul E. Gallo LLC. The Gallo family has owned the property since at least the 1970s. However, property tax mailings are sent to Neal Viny, president of The Dalad Group at the firm's Independence address, per county records.

Next door to the Tinnerman Building is a long-vacant store built as a Rite Aid drug store and became a Hollywood Video store after 1998. It was bought in December 2016 by paper company FRE Holdings II created by MetroHealth System.

MetroHealth is moving most of its neighborhood clinical services from the city-owned Thomas F. McCafferty Health Center, 4242 Lorain Ave., to its new facility at the Urban Community School campus. However, a MetroHealth dental clinic will move into the the former drug/video store. The Veterans Administration also has services at McCafferty but their new home isn't yet known. Once vacated, McCafferty will likely be sold by the city for redevelopment.

END