Cleveland is rising up in the O-Zone

Perhaps the largest development in Cleveland being marketed
for Opportunity Zone financing is Thunderbird on Scranton
Peninsula. This 22-acre development could soon be the site
for corporate offices, residential buildings and riverfront
parks (CBRE).(CLICK TO ENLARGE ALL IMAGES)

Last week I sat in a small conference room with nearly a dozen real estate developers and investors planning a cool new project in Cleveland's urban core. I was there to add my two cents on a transportation access component of that project. Seated in the corner of the room was another guy, representing a lending institution that provides equity from one of the many fast-growing Opportunity Zone Funds.

The developers began to discuss how tall the apartment building component of their project should be. They agreed to add that question to their yet-to-be-undertaken feasibility study. The guy from the O-Zone Fund lender said in so many words "Whatever you come up with, let me know. There's going to be more than enough funding for your O-Zone piece of the capital stack."

In recent decades, scraping together enough equity for projects in all but a few land uses in all but a few sub-markets in Greater Cleveland has been something akin to a scavenger hunt. The capital stack for projects usually ended up looking like a cross section of baklava. While capital stacks still contain multiple layers, the private equity layer is thicker than it used to be, with O-Zone funding representing a way to expand the private sector contribution.

For those who don't yet know, under the 2017 federal tax overhaul, Opportunity Zones are designated census tracts with an individual poverty rate of at least 20 percent and a median family income no greater than 80 percent of the area median. These areas will be eligible for Opportunity Funds to invest in economic development to receive a 10-year federal capital gains tax break. Up to 25 percent of eligible tracts can be designated as O-Zones. Ohio recommended a maximum 320 out of 1,280 eligible census tracts.

Greater Cleveland's O-Zones include many urban core tracts that are already experiencing high levels of investment. They were designated because the state wanted to maximize the investment in and near O-Zones within its 10-year window. But cities like Cleveland, which has some of its hot neighborhoods (downtown, Ohio City, Tremont, University Circle) included in O-Zones, want to make sure this program doesn't neglect the low-income population it was designed to benefit. So it is encouraging that 20 percent of residential units in a given development be set aside as "affordable." In Cleveland, developers are finding those rents aren't all that much lower than market-rate rents.

Increasingly, real estate project meetings in Cleveland have an O-Zone guy sitting in the corner of the room, offering a pipeline to equity that simply did not exist before. A recent article at Cleveland.com noted that, thanks to the O-Zone program, "the floodgates are about to open."

Now, projects that many Cleveland-based construction crane aficionados could only dream about before are now seeing movement. Like what? Consider these large-scale projects in Cleveland's O-Zones (it is not known if all of these are or will directly receive equity via O-Zone funds):

Harbor Bay's Market Square development could break ground
by fall, featuring an apartment building (at left) and an office
building (at right). At 10 stories, the latter would be the tallest
timber-frame building in the country (Harbor Bay). 

Market Square (Ohio City - West 25th and Lorain): The Forest City will soon be home to the tallest wood timber frame building in the United States thanks to Harbor Bay Real Estate Advisors. A new 10-story office building will be flanked by a seven-story apartment building, built next to the Ohio City rail station on the Red Line linking the airport, downtown and University Circle. Construction is due to get underway this summer.

Public and private financing, possibly including Opportunity
Zone equity, is finalizing the capital stack for Stark Enterprises'
nuCLEus development in the Gateway District (Stark).

NuCLEus (Downtown - East 4th between Prospect & Huron): Demolitions are slated to begin by fall by Stark Enterprises to prepare for the construction of two 24-story towers -- one for residential and the other for offices. Although the project was scaled back from a 54-story tower, the increased liquidity of equity markets, thanks to O-Zone funding, will likely aid this long-planned project.

Library Lofts apartments, circled in red, is the second phase
of the multi-block Circle Square development. But it is the
first new-construction element of the overall development
that could bring a $300 million investment (MDP).

Circle Square (University Circle - 10601 Euclid Ave.): Plans for Library Lofts, representing the second phase of the multi-block City Square development by Midwest Development Partners, are now making their way through the city approvals process. If approved, construction on the apartment building, topping out at 8-11 stories, could begin by year's end, a source says. The development includes a new Cleveland MLK Branch Library to free up its current library site for a future development phase. The first phase involved Orlean Co.'s $16 million renovation of the 13-story Fenway Manor apartments that began in 2018.

Geotechnical drilling to gather soil samples was conducted in
March below a parking lot at 720 Euclid Ave. prior to the
engineering work for an apartment tower that could be
up to 20 stories tall (NCLE-UrbanOhio.com).

Cleveland City Club Apartments (Downtown - 720 Euclid Ave.): Two sources say this is going to be a high-rise apartment building in the 17- to 20-story range. The scale of this proposed development is comparable to that of City Club's apartment projects in other Midwest cities. It is possible that construction on this project could start by the end of this year or early next year.

An updated rendering of Akara's Kenect Cleveland apartment
building, sans movie theater, in the Wolstein Group's Flats
East Bank development downtown (Akara).

Kenect Cleveland (Downtown - 1155 West 11th St.): When the Wolstein Group wraps up construction of several riverside restaurants in the first part of Phase 3 of its Flats East Bank development, look for it to proceed with construction of the second half of Phase 3. This includes a 12-story apartment building and shops in partnership with Chicago-based Akara Partners. That means construction should start early next year.

In Cleveland's fast-growing University Circle, a new apartment
building up to 10 stories tall may rise on the current site of the
Centers for Dialysis Care (Google). 

Infinium (University Circle - 11717 Euclid Ave.): A source says that the Finch Group seeks to build an 11-story 133-unit mixed-income apartment building with 32 townhouses, ground-floor retail and a parking deck at the site of the current home of the soon-to-be-relocated Cleveland-East facility for the Centers for Dialysis Care. The property is owned by University Circle Inc. There is no timeline for development yet but it could be in the next 12-18 months.

While the Avian office building isn't by itself a large real
estate project, it is likely to be the first phase of the huge
Thunderbird development that promises to transform the
desolate Scranton Peninsula into a vibrant, mixed-use
neighborhood of offices, housing and shops (CBRE).

Thunderbird (Scranton Peninsula - 2000 Carter Rd.): This large, 22-acre site is being developed in 2- to 8-acre chunks and heavily marketed for O-Zone funding. Although Great Lakes Brewing Company's expansion here was announced first, the first development will likely be the repurposing of a vacant industrial building at 1970 Carter with offices, called The Avian at Thunderbird. Also, the NRP Group of Cleveland is reportedly taking a 7.44-acre parcel to develop a parcel called Lot A with 300+ apartments. Lastly, Hemingway Development may be seeking to build offices, shops and waterfront parks here.

At this time, reports are that only Geis' square-shaped parcel at
the northeast corner of East 9th Street and Bolivar Road may
be developed with mid- to high-rise condo building. The rest
 of Geis' land here may remain a parking deck (Google).

Bolivar-9th condos (Downtown - 2173 East 9th St.): A source says that a skinny residential tower, perhaps upwards of 10 stories tall, could be built on this site. Downtown Investment Group LLC, a Geis Companies affiliate, bought the former New York Spaghetti House and razed it for future development. Although there is not yet a timeline for this project, the city in 2015 gave Geis permission to use the property for a parking lot for up to five years.

Since 2000, The Frangos Group has acquired 3.3 acres of land
along East 14th between Prospect and Carnegie avenues, west
of the Wolstein Center at CSU. Most of the land was acquired
in 2017 and 2018 as The Frangos Group shifted its focus from
operating parking lots to developing real estate (Google).

Prospectus 14 (Downtown - 1412 Prospect Ave.): Throughout its history, the Frangos Group has focused on parking as its core business. But the firm is widening its horizons by pursuing more real estate development opportunities, including on its 3.32 acres of land it has acquired in an angular block in the Campus District. Sources say a large development is in the works here, including possibly a high-rise apartment building.

Those are Cleveland's largest developments not yet under construction which are benefiting or could benefit from Opportunity Zone financing. This doesn't include two projects I wrote about just last week in my article Developers discover Midtown's other axis. And, as with my opening example, there are more projects in the early stages of planning that might offer buildings about 10 stories tall, give or take a couple of floors, whose developers don't yet have site control. Hopefully I'll be able to share news about them soon.

END

Developers discover Midtown's other axis

Exciting plans and projects are percolating along East 55th
Street in the heart of Cleveland's Midtown district. This was
once one of the city's most vibrant neighborhood downtowns.
New investments here could help restore some of that lost
density (Pennrose). CLICK TO ENLARGE ALL IMAGES

Much of the rebuilding in Cleveland's Midtown, between downtown and University Circle, has focused along the parallel east-west roadways of Euclid, Carnegie and Chester avenues. But the primary north-south axis, East 55th Street, is largely devoid of similar development activity. That's true even where East 55th intersects Euclid, Carnegie and Chester.

Those intersections once had the density and activity of a small downtown called Penn Square, with large apartment and commercial buildings, shops, cafes, theaters, two streetcar lines that carried 150,000 riders per day (as many riders as all of the transit agencies combined serving Northeast Ohio today), and Cleveland's main station for the Pennsylvania Railroad that had 24 daily passenger trains to/from places as far west as St. Louis and as far east as New York City.

Looking east on Euclid Avenue toward the intersection of East
55th Street in the early 1940s. The Pennsylvania Railroad bridge
slices across the vibrant scene, including one of the city's busiest
streetcar transfer points outside of downtown thanks in part to
Pennsylvania RR station just out of view to the right (Press/CSU).

Today, it is home to social service organizations, gas stations, vacant lots, abandoned buildings, and a City of Cleveland vehicle maintenance garage. That could soon change with two major developments emerging and long-range planning underway.

Indeed, it already is changing with more than $80 million in new development within a few blocks of the East 55th-Euclid/Carnegie/Chester area. This includes a new Link 59 office building, University Hospitals Rainbow Center for Women and Children, and Dave's Supermarket just east of East 55th. Just west of East 55th, a 65,000-square-foot former automobile assembly building at 4600 Euclid Ave. was renovated into offices, as was the 54,000-square-foot former Agora Building (previously the Metropolitan Theater opera house and WHK auditorium) into the Offices at Penn Square, 5000 Euclid.

Two major, new developments are being pursued by proven companies with a good track record of delivering complicated and/or large-scale projects in Cleveland: Berusch Development Partners, LLC and Pennrose Properties, LLC.

Pennrose's plans -- to redevelop the long-vacant Warner & Swasey complex -- are publicly available albeit still conceptual. They are posted at the Cleveland Opportunity Zone Exchange, a Web-based portal where investors seeking to minimize capital gains taxes and where real estate developers seeking to build within designed Opportunity Zones (dubbed O-zones) can find each other.

Warner & Swasey's four lower-level sheds as seen from
the roof of the factory's taller structures. This view is one
of 15 photos of the site by Jeffrey R. Stroup published
in an online slideshow by Scene Magazine (Scene). 

Pennrose estimates the Warner & Swasey redevelopment will cost about $53 million and is seeking a $10 million Opportunity Zone investment.

The City of Cleveland, which owned the Warner & Swasey property since 1991, requested proposals for the redevelopment of the unused, 3.1-acre site last year. The RFP also noted that if the winning developer wished to acquire the neighboring city-owned parcels, totaling 7.9 acres and which includes a city vehicle maintenance garage, the city would be willing to consider selling them as long as the developer has a strategy for replacing the garage.

Pennrose was the winner. According to its listing on the O-zone portal, the Philadelphia-based firm acquired the entire 7.9 acres of land, which includes the east side of East 55th, from Carnegie to Euclid and over to the Norfolk Southern Corp. railroad tracks. The city will contribute to the project several vacant, decaying buildings ranging from one to five stories tall and totaling 221,727 square feet, Pennrose representatives said in their listing.

A rendering of the Warner & Swasey property for a renovation
project proposed in 2010. That project fell through (Geis).

The north end of the site was the former Pennsylvania Railroad passenger station which was built in 1912 (replacing smaller depots dating to the 1850s) and demolished in 1973. Its two pedestrian underpasses below the tracks, which had stairwells and baggage elevators up to track-level platforms, remain. South of it is the five-story Warner & Swasey building, made of reddish-brown stone and constructed from 1904 to 1910. It replaced the original Warner & Swasey facility that had been erected on this site in the early 1880s. Warner & Swasey built telescopes and machine lathes here.

As currently proposed, the low-level structures will be repurposed to provide covered parking while the five-story building will offer housing over offices and a small amount of amenity retail to support the residential and office tenants. The housing will be affordable at a range of incomes and targeted to mixed-income workforce households. The office and program space will be marketed to supportive services for job readiness, workforce development and employment training organizations.

The ground level of the Warner & Swasey facility is proposed to
have 33,654 gross square feet of office space in the base plan with
up to 40,453 gross square feet if the fourth parking shed, near the
top of the graphic, is developed with offices instead. Floors 2-5 are
proposed to be converted to residential, as seen below (Pennrose).

"We believe the site will be able to achieve collected rents within a comparable range of the overall rent per square foot averages at the selected properties (that offer comparable residences nearby)," Pennrose representatives said in a written statement.

Estimated monthly rents are $1,105 to $1,170 for one-bedroom units and $1,275 to $1,360 for two-bedroom units. These rents are well below the average collected rents at the comparable developments in the Midtown/University Circle area. Pennrose anticipates receiving Low Income Housing Tax Credits this year, as well as federal and state Historic Tax Credits, New Market Tax Credits plus private debt, most likely agency products with favorable terms.

St. Luke's Hospital (before) and St. Luke's Manor (after) its
redevelopment by Pennrose Development in 2014. The photos
show that a gutted building can be saved and turned into a
comfortable, even elegant building again (Pennrose).

Pennrose has a track record with large-scale, complicated and historic renovation projects in lower-income neighborhoods nationwide. Its best local example is the renovation and conversion of the 1927-built, 380,000-square-foot St. Luke's Hospital in Cleveland's Buckeye-Shaker neighborhood into a senior housing complex. The long-vacant building was heavily vandalized but Pennrose was able to bring it back to life as St. Luke's Manor for $53 million -- ironically for the same price as is estimated for the Warner & Swasey project.

Meanwhile, at the southwest corner of Euclid and East 55th, a gas station could soon give way to a mixed-use development. It has been nearly 40 years since this corner had such a use. The L-shaped, three-story Leonard Building, with apartments over ground-floor retail, succumbed to a loss of transportation access, depopulation and ultimately the wrecking ball by the early 1980s. It was replaced by a Shell gas station.

Tarrify Properties has city approval to demolish its gas station
at East 55th Street and Euclid Avenue. Replacing it may be a
larger mixed-use development spreading to adjacent parcels
south to Carnegie and west to the former Agora Building,
renovated as the Offices at Penn Square (Google).

Since 2004, the gas station property has been owned by Ahmad Taye of Tarrify Properties. His firm gave a presentation to the City Planning Commission on behalf of a Cleveland-based national developer, Berusch Development Partners, proposing to demolish the station.

For a demolition to be approved by the city, a site plan has to be submitted showing how the property would look after its structures are torn down. A site plan with temporary landscaping was submitted and the demolition was approved March 15. Demolition and removal of underground tanks began in early April. However a long-term site plan showing the eventual proposed development was not submitted nor is it publicly available, said MidTown Cleveland Inc. Executive Director Jeff Epstein.

Looking east on Euclid Avenue toward the intersection of East
55th Street in October 2018. Compare this view with the second
image from the top of this article. If Berusch's and Pennrose's
plans come to pass, this once-vibrant urban intersection won't
look so desolate anymore (Google).

He also said there were no further updates regarding Berusch's project, even though the Cleveland-Cuyahoga County Port Authority in January acquired by quit claim deed 1.7 acres of land to the south and west of the 0.9-acre gas station site. And in February, the port authority amended a longstanding property access and assessment agreement with Lassi Enterprises, LLC, the land assembly and project partnership equity subsidiary of MidTown Cleveland Inc.

If the port authority and gas station sites are combined as part of a single development, it would abut the Offices at Penn Square and run the length of East 55th between Euclid and Carnegie -- opposite of the Pennrose development site.

Interestingly, Berusch worked with Pennrose on the St. Luke's redevelopment in 2014 as well as many other developments in Cleveland's urban core, in the suburbs and associated with college campuses in Ohio and New Jersey. Unfortunately, no one is yet revealing what Berusch's plans are.

END

Hingetown, Cleveland's hottest development hotbed

A picture is often worth a thousand words. This graphic shows
how many developments were built, are under construction, or
in advanced planning in Cleveland's Hingetown since 2000.
CLICK TO ENLARGE ALL IMAGES (Google/KJP)

Hingetown, that little enclave within a neighborhood within a city seemingly couldn't be growing any faster than already it is. No matter where you stand in Hingetown these days, you're either standing next to a 21st-century real estate development, across the street from one or you can see one less than a block away. Increasingly, in Hingetown, you're surrounded by projects.

That's a dramatic change considering that drug dealers and prostitutes once roamed this northeast corner of Cleveland's Ohio City neighborhood. Today, they have given way to young professionals eager to share their fresh ideas, families pushing baby strollers and entrepreneurs looking to make their mark or a new start. It's come a long way from what was a "toxic corner" as Vanity Fair told the enclave's story four years ago.

Now, one of the neighborhood's biggest developers, The Snavely Group, is rapidly expanding its footprint on Detroit Avenue which is along the northern edge of Hingetown (actually, the West Shoreway seems to be the unofficial northern boundary).

By the end of this year, Snavely reportedly hopes to delve into Phase 3 of its multi-phase, mixed-use, mixed-income development, moving westward from West 25th Street. A fourth phase may not be far behind that.

Snavely's first phase, The Quarter (clad in green), is under
construction in this January 2018 scene. Two buildings across
Detroit Avenue were undergoing renovation as part of phases
1 and 2. The third phase will renovate the historic Painters'
Union in the center-foreground and add a 5-story apartment
building on the parking lot at bottom (Aerial Agents).

“This project is a place-making project,” said Peter Snavely Jr., vice president of development for the Snavely Group in a written statement. “It’s a mixed-use, mixed-income, socially-driven project.”

Last year, Snavely completed its first phase at the northwest corner of Detroit and West 25th, called The Quarter -- 194 apartments above 30,000 square feet of ground-floor commercial space. The commercial space is fully leased and the residential units are 93 percent leased, according to The Quarter's Web site. The development replaces a huge, windswept parking lot.

Tenants for the ground-floor commercial space in The Quarter include the Music Settlement, an early education and music school, APG Office Furnishings, D.O. Summers dry cleaners, and The Grocery OHC, a local grocery offering healthy, locally sourced food. But the first phase also continues across Detroit -- though only to the ground floors of two historic buildings. There, Hingetown's reputation as a place where entrepreneurs can find a guiding hand is enhanced.

The first floor of the Forest City Savings and Trust Building was renovated into the Ohio City Galley, a restaurant incubator including a 200-seat food hall and four kitchens for new-start restaurateurs. To the west is the Seymour Building whose first floor was redeveloped with the The Beauty Shoppe, a co-working office space and Foyer café, according to an article by Novogradac & Company LLP, a real estate services consulting firm specializing in affordable housing development.

Soil boring equipment for geotechnical testing was on the site
of Snavely's planned third phase of its Hingetown master
development during the first week of April (KJP). 

The second phase stayed in one of those historic buildings. Snavely is renovating the upper floors of the Forest City Savings and Trust Building with 38 affordable apartments. The building will be renamed Forest City Square, with work due to be completed by the end of the year. Total investment among the first two phases is $60 million.

Next is the third phase -- 88 apartments in two buildings. One is an existing structure -- the three-story Painters Union building at 2605 Detroit Ave. that is due to be renovated. Next to it could be a newly built, five-story building like The Quarter across Detroit albeit smaller in land area. It will be on the April agenda of the Clinton-Franklin Block Club which will meet at 7 p.m. April 25 at St. John's Parish Hall, 2600 Church Ave.

 An image from the schematic designs for
phase 3, submitted by Snavely to the city
for approval. A renovated painters Union
building is at left and the new-construction
 element is at right. (Vocon)

Deciding whether to pursue a third phase likely wasn't a difficult one for Snavely, considering the speed and market-rate rents at which The Quarter leased out. But the third phase, due to start this fall, will feature affordable apartments for residents earning 80 percent of the average median income. Snavely was able to offer reduced-rate apartments thanks in part to Opportunity Zone funding, according to the Novogradac article.

A possible fourth phase may come in a couple of years, pending the relocation of two businesses. The first relocation would be Cleveland Vibrator Company, 2828 Clinton Ave. Its relocation, which isn't yet finalized, would make way for the other relocation, that of The Adcom Group whose offices are currently located at 1370 W. 6th St. in downtown's Warehouse District.

The 1.7-acre Hingetown site of the Cleveland Vibrator Company
 is being acquired for redevelopment, including for ground-
floor offices and apartments on the upper floors  (Google/KJP).

Although still in a preliminary stage, four sources say the development concept for the fourth phase involves putting the offices for Adcom, a fast-growing marketing company, on the lower floors of a new building with apartments on the upper floors.

"I personally, along with some other partners, are in the process of buying some commercial property in Ohio City," said Adcom CEO Joe Kubic. "We haven’t yet finalized our plans for it though. It is certainly a possibility that Adcom may relocate there at some point, but we are happy in our current location as of now."

Few places in Greater Cleveland have had so many real estate development projects built or planned in so small of an area in recent years as Hingetown. While downtown adds housing units in big gulps, Hingetown adds them in seemingly countless nibbles. Even as this walkable neighborhood's bites into the market are getting bigger, the appetite seems insatiable.

For now it's just a big hole in the ground. Soon, two apartment
buildings, one six stories tall and the other 11 stories, will rise
for the Church+State development between Detroit and Church
avenues, and West 28th and 29th streets. The latter was called
State Street. It shows how Hingetown continues to grow and
foster a much more vibrant urban neighborhood just west of
 downtown Cleveland (Ken Prendergast).

The spark to this development brush fire began with a main street of shops, cafes and restaurants along West 29th Street south of Detroit. It was led by investors Marika Shiori-Clark and Graham Veysey. They named it Hingetown because it's like a hinge between the Gordon Square Arts District, the Market District, and the Warehouse District.

The goal was and is to have an inclusive, socially conscious, entrepreneur-based enclave, located in the cultural heart of Cleveland's LGBT community. Shiori-Clark and Veysey renovated an 1854-built firehouse with a coffee shop and businesses. Other pioneering efforts were the Federal Knitting Mills Apartments conversion and renovation of a long-vacant streetcar electrical substation-turned-art gallery called the Transformer Station.

END

New county jails proposed as UC-area high-rises!

This reportedly is the conceptual design for Cuyahoga County's
new consolidated jail facility proposed on East 105th Street, just
north of the Greater Cleveland Regional Transit Authority's newly
 expanded East 105th-Quincy Red Line station (KJP file).

Instead of seeking to develop high-rise, quality, affordable housing near rapid transit stations along the Opportunity Corridor, community development corporations are vying for Cuyahoga County's proposed consolidated jail facility.

The winning site, according to 13 sources, is on East 105th Street at Quebec Avenue. The location is next to the newly expanded East 105th-Quincy Red Line rail station, just east of the county's nine-story Juvenile Justice Center built in 2011. As part of the Opportunity Corridor project, the Greater Cleveland Regional Transit Authority (GCRTA) opened the expanded station last year after investing $5 million in local and state funds. The previous station was rebuilt in 2005 for $1.3 million.

GCRTA's newly expanded East 105th-Quincy station, looking
westward. The proposed jail facility will reportedly be located
just out of view to the right (GCRTA).

The new Cuyahoga County Consolidated Jail Facility, comprised of two towers, one 27 stories and the other 18 stories over a two-story pad offering restaurants, neighborhood retail and a Star-On-The-Fly drive-through coffee store, is projected to cost $1.8 billion. It will not only address overcrowded conditions at the aging jails downtown, it will unite in one location county and municipal jails from several suburbs.

"This Transit Oriented Development will place hundreds of exciting jobs within a short walk of a rail station, which is what TOD is all about and what the Opportunity Corridor is all about," said John Jacob Jingleheimer Schmidt, president of Schmidt Corrections Construction Corp. "This jail is about opportunity."

But Ken Prendergast, executive director of All Aboard Ohio, a nonprofit that advocates for improved transit and for TOD to address the region's spatial mismatch between jobs and job seekers, called the project a missed opportunity.

The proposed location of new Cuyahoga County Consolidated
Jail Facility on East 105th Street at Quebec Avenue (Google).

"This has to be a joke, right?" Prendergast asked. "The largest planned project on the Opportunity Corridor is going to be a jail? Sure, the jail jobs and retail jobs will be a welcome addition to this depressed neighborhood that's within sight of the shiny towers of University Circle. But that's not what TOD is all about."

All Aboard Ohio recently advocated for developing larger-scale housing developments next to Opportunity Corridor rail stations at East 105th and at East 79th streets. The organization said that new, inexpensive construction techniques combined with Opportunity Zone financing and existing incentives for affordable housing should make these larger-scale developments more viable and likely.

"I'm sure the jail towers will be a tremendous visual addition to University Circle's growing skyline," Prendergast added. "But it's time for this region to stop developing as if every day is April Fool's Day."

END

USL Cleveland soccer stadium site chosen

While a new Cleveland USL soccer stadium will probably be
less elaborate than this new stadium being built in Louisville,
it shows how much the USL has grown in some markets. The
new home of the Louisville City Football Club will seat 11,700
and can expand to 20,000 seats. The site will also have offices,
retail & a hotel (LouCityFC).(CLICK IMAGES TO ENLARGE)

For 30 years, a forlorn spit of land south of the Inner Belt highway in downtown Cleveland has been eyeballed by different people for different types of sports stadiums.

Now, the latest and perhaps most realistic stadium effort has reportedly targeted land owned by the Ohio Department of Transportation (ODOT) for a 5,000-plus-seat United Soccer League (USL) venue. That's according to two sources, one a major local developer and the other a Cleveland building and construction trades representative.

Brothers Greg and Shaw Abrams, co-owners of six Force Sports fitness centers, are apparently teaming up with as-yet unidentified investors to acquire and develop the site, as well as to pay the USL's $5 million franchise expansion fee. The team will be called the Cleveland Force, as the Abrams brothers acquired the naming rights to the Force, an indoor soccer league team that briefly thrived at the since-demolished Richfield Coliseum from 1978-88. However, the Abrams said they are not in a position yet to confirm the site.

"Our goal is to make sure that a stadium deal can be announced at some point soon," Greg Abrams said in an e-mail March 28. He said the announcement will be made as soon as he gets the OK from his partners.

The site involves less than half of the 49-acre, former Norfolk Southern intermodal rail yards. It is located just south of the Interstate 90 Inner Belt and is bounded by Ontario Street/Broadway Avenue, East 9th Extension and Commercial Road. ODOT acquired the land in 2011 for $29.8 million to construct the Inner Belt's new Cuyahoga Viaduct bridges.

ODOT acquired all 49 acres of Norfolk Southern's intermodal
rail yards on the south side of downtown Cleveland in 2011. An
ODOT spokesman said it doesn't want or need the entire site
and confirmed that there are suitors interested in acquiring at
least some of the land, but refused to identify them until
agreements have been finalized (Cuyahoga County/KJP).

A soccer stadium measuring at least 400 feet wide and 500 feet long could fit on the mostly level land next to the Inner Belt. An ODOT spokesman confirmed there have been inquiries about that property but no deals have been finalized.

"There is excess land that ODOT is having appraised," said Brent Kovacs, public information officer at ODOT District 12. "ODOT has received inquiries about the land. ODOT would like to sell the land, but there is no agreement to sell or lease the land with any party, at this time."

Constructing USL Division II stadiums in other cities cost anywhere from $15 million to $65 million. The United States Soccer Federation sets the USL Championship league at one level below the top-rung North America's Major League Soccer (MLS). The Abrams brothers and their partners reportedly want Cleveland in this league to draw better players, competition and attendance.

The USL continues to grow in franchises, popularity and games. In 2018, USL's Championship league was drawing an average of nearly 5,000 fans per game. However, the USL's most popular team, FC Cincinnati that attracted 25,000 fans per contest last year, was moved up one level to the MLS.

This is an oversimplified diagram of how a soccer stadium and
supportive uses could fit on the site that is reportedly being
targeted for a new USL Cleveland franchise (Google/KJP). 

This would be Cleveland's second attempt at a USL franchise. The first one lasted just three years, from 2007-09. In its first two years, the Cleveland City Stars regularly filled Cleveland State University's (CSU) 1,800-seat Krenzler Field on Chester Avenue. For its third season, the Stars moved from USL's lower division to the upper division, so it had to offer a stadium of at least 5,000 seats, per league rules. The team's home games were played at Bedford's Bearcat Stadium and attendance dropped. There were some conversations about building a new stadium downtown, including at the former intermodal yards, but the Stars franchise was losing money and soon folded.

After rumors that it was looking to replace Krenzler Field, CSU renovated the soccer stadium last year for $2.9 million, including a removable, air-supported dome. A spokesman said CSU will not move its soccer program to the proposed USL stadium due to the number of indoor and outdoor matches and practices that CSU can host at Krenzler Field.

"At this juncture, we have had no discussions with parties associated with the construction of a USL soccer stadium, or any partnership with the team after completion of the project," said Roger McAfee, CSU's assistant athletic director for communications.

The size of the proposed USL stadium, supportive infrastructure and surrounding amenities like parking, restaurants/bars and team shops is limited by other land uses and the topography of the land. The site is perched atop a hill overlooking the Cuyahoga Valley and is next to a trench through which the Greater Cleveland Regional Transit Authority's (GCRTA) rapid transit rail lines pass. To the north is Interstate 90's Inner Belt, although the highway bridges over the land that has a paved and illuminated parking lot on it.

The Greater Cleveland Regional Transit Authority's rapid transit
rail line cuts through the southeast edge of downtown Cleveland
and alongside the site (at left) where the USL soccer stadium is
 proposed to be built (KJP collection).

GCRTA has no current plans to build a station here but some long-range planning from 20 years ago proposed adding an infill station or relocating the East 34th-Campus station to this vicinity. If a station was built, it might cost up to $15.6 million as the 2015-built Little Italy-University Circle Station had. That was the last all-new rail station built by GCRTA. However, GCRTA completely redesigned and replaced its existing Tri-C Campus District Station 1 mile east of here in 2018, costing $7.5 million. Some GCRTA rail stations are located less than a mile from each other.

On the other side of the GCRTA rapid transit line is Cleveland Black Oxide, a small industry that makes metal finishing products. Its 22,000-square-foot building sits on 0.71 acres at 836 Broadway Ave. Its owner and President Bob McElwee bought a roughly 14,000-square-foot building in October 2018 at 3490 W. 140th St. But McElwee says it was for storage, not for relocation. He also notes that he has been approached by developers recently.

"We don’t have plans to move, however there have been developers talking with us about purchasing our building or building us a new building and doing a like kind exchange," McElwee said. "We are also looking at expanding at our current site (on Broadway). The folks that have approached us were not involved with a stadium development."

The LouCity FC stadium in Louisville is now under construction
and carries a price tag of $65 million. However, it is unlikely that
Cleveland's new soccer stadium will be so grandiose. But it could
be expandable to someday offer the kind of facility now enjoyed
by soccer fans in many top-attendance USL cities (LouCity FC).

Discussions about building a sports stadium at this location date back to the late 1980s. But those early efforts focused not on world futbol, but on American football -- the Cleveland Browns. When serious discussions were getting underway for the Gateway sports complex, the Browns were invited to participate along with the Cavaliers and Indians. The Browns stadium was proposed to be where the current soccer stadium is planned, south of the Inner Belt. Ultimately, however, then-owner Art Modell preferred to renovate the existing lakefront Municipal Stadium.

In 1996, after Modell moved to Baltimore, the City of Cleveland didn't want to build a new Cleveland Browns stadium anywhere other than on the lakefront site of the old stadium. But there were those with dissenting opinions in Mayor Mike White's administration who wanted it built on the newly vacated Norfolk Southern intermodal yards. The complicated site was rejected because the city wanted the Browns returned to Cleveland without delay and without having to build the infrastructure necessary to accommodate 70,000 sports spectators.

But the site might just be right for a 7,000-seat soccer stadium. We'll see if it's good fit here.

END

Ohio City manufacturer bucks housing trend

The Kowalski Heat Treating Co. is a manufacturing outlier in the
booming Detroit Avenue residential corridor in Cleveland's Ohio
City neighborhood (Google).(CLICK IMAGES TO ENLARGE)

A stretch of Detroit Avenue in Cleveland's Ohio City neighborhood, once known as Mariners' Row for its many boat dealers and boating stores, is quickly becoming home to a number of mid-rise apartment buildings. From The Quarter, Federal Knitting Mills, Mariner's Watch, Edge 32, to the latest and largest project yet -- Church + State -- more than a dozen blocks of Detroit Avenue next to the West Shoreway (now Edgewater Parkway) are lined with apartment buildings from four to 11 stories tall.

A notable exception is a holdout manufacturer, Kowalski Heat Treating Co., that has grown from 3,000 square feet to 83,000 square feet during its 44 years, adding nearly 23,000 square feet just in the past week.

A source said owner and President Steve Kowalski had secretly been looking to move to larger quarters in a business park elsewhere in Cleveland but the deal fell through. If so, it makes sense that Kowalski may stay put because his metalworking equipment is expensive to move. But the source said it is possible that Kowalski's latest acquisition might be for storage in the short term. In the long term, he could still sell his entire property to a developer and relocate his operation which employs about three dozen people.

Prior to 5 p.m. March 22, Kowalski had not returned two voicemails and an e-mail seeking clarification for this article. A woman who answered the phone earlier that day at Kowalski Heat Treating said the company wasn't planning on moving.

There are other indications that Kowalski Heat Treating will keep expanding to increase production of treated metal products and continue bucking the trend of an increasingly residential Detroit corridor overlooking Lake Erie and Whiskey Island.

To the right of the new Edge 32 apartments is the former head-
quarters and plant of Conveyer & Caster that was bought on
March 18 by Kowalski Heat Treating. Conveyer & Caster
moved out to Westlake and Kowalski moved in (Google).

On March 18, a corporation owned by Stephen G. Kowalski of Bay Village closed on the purchase of 0.83 acres that belonged to The Storefront Ltd. (doing business as Conveyer & Caster Inc.), 3501 Detroit Ave. Storefront is named after the Stohr family who founded Conveyer & Caster in 1961 and continues to run it today. The land and four buildings, including a house on Clinton Avenue, were valued in 2018 by Cuyahoga County at $719,400 for tax purposes.

The purchase amount is not publicly available. However, SGK Development Co. and KMJC Properties LLC, both owned by Kowalski, secured two $1.44 million mortgages from The Storefront Ltd. which also acted as lender, according to documents filed with the Cuyahoga County Fiscal Officer.

SGK Development is the firm that owns most of the 1.16 acres on which Kowalski Heat Treating had been operating. Its mortgage pertains to the parcels in those 1.16 acres. KMJC Properties was formed in January as part of Kowalski's efforts to acquire the neighboring Conveyer & Caster site.

Conveyer & Caster moved its offices, manufacturing plant and roughly 30-40 employees on March 1 to a 75,000-square-foot building it renovated at 29570 Clemens Rd. in Westlake. KMJC Properties' mortgage pertains to the parcels in the 0.83 acres that Kowalski acquired March 18.

It isn't known for what purpose Kowalski will use or has used the $2.88 million in loans. But it appears that one loan was used to acquire the Conveyer & Caster site and the other to possibly improve, replace or add equipment owned by Kowalski Heat Treating.

Stephen G. Kowalski, owner and president of Kowalski Heat
Treating, now has a significant presence on the Detroit Avenue
corridor that stands out along the West Shoreway (Google/KJP).

Kowalski Heat Treating has been expanding ever since the company was founded by Steve Kowalski's father Robert in 1975. The company's previous expansion before last week was in 2014 when it acquired Kennick Mold & Die, 3601 Detroit, for what Kowalski calls Plant 6. That acquisition brought the six-building site up to 60,000 square feet.

In 2002, according to Crain's Cleveland Business, Kowalski invested $2.5 million to refurbish its then-18,000-square-foot site and add 10,000 square feet of space to it. The article noted that Kowalski said he had no thoughts of relocating the company because many of his employees lived in Cleveland.

"We love this area," Kowalski told Crain's 17 years ago. "This location is ideally suited for our business. We didn't do this (refurbishment of the building) for the short term."

Ironically, back in 2002, Kowalski also said he doubted the ability of the Detroit corridor to support more shops and housing. Yet, the neighborhood continues to boom with the addition of more shops and housing -- and a growing manufacturing plant.

END

New Sherwin Williams HQ plans may stir by 2020

Sherwin Williams' world HQ is the 89-year-old Landmark Office
Building in downtown Cleveland that the Fortune 500 company
outgrew five years ago. That was before it swallowed up rival
Valspar Corp. (KJP). (CLICK IMAGES TO ENLARGE)

By the end of this year, Cleveland coatings giant Sherwin Williams (SHW) plans to issue a request for proposals (RFP) from design-build teams for a new or expanded corporate world headquarters and research facilities. That's the word from two sources in the development community.

Once SHW wrapped up legal and staffing issues in the summer of 2018 surrounding its acquisition of rival Valspar Corp., it commissioned work on drafting an RFP for the combined company's facilities. While most of the parameters in the RFP aren't known, some are. For example, the RFP will reportedly seek proposals not only for a new headquarters but also for a new research center.

It is apparent that SHW will re-open consideration of Downtown Cleveland sites for the new headquarters or an expansion of its existing headquarters. Prior to launching its plan to acquire Valspar in 2016, the company was near to announcing a new headquarters tower on the Jacobs Group-owned parking lot on Public Square, according to a source at a firm hired by SHW five years ago to assist its extensive due diligence efforts.

SHW's headquarters since 1930 has been the Landmark Office Tower, 101 Prospect Ave. which it has owned since 1985 but outgrew five years ago. The growth accelerated even more rapidly following the Valspar deal, with local SHW employment increasing by 615 people between June 2017 and June 2018, to nearly 5,000 employees. SHW corporate office and research activities now are scattered among six facilities in Greater Cleveland.

Reportedly, SHW's charter directs its principal offices to be located within one mile of where the company was founded in 1866, roughly where SHW's Breen Technology Center is today at 601 Canal Rd. If the existing headquarters is vacated, the RFP may include parameters for purchasing and redeveloping it.

SHW's Breen Technology Center is next to where the company
was founded on Canal Road in 1866. The crowded R&D facility
is in need of a larger, more modern replacement. While it could
be built anywhere in the world, it will likely be close enough to
the downtown Cleveland headquarters to retain easy, personal
interaction between SHW's executives and scientists (Google).

Unlike the headquarters, there is no corporate restriction on where the Breen Center should be located. A new research and development facility is also part of the RFP, a source said. More than 400 people work at Breen which was built in 1948 and expanded in 1998. Today, the facility is so full that most of Valspar's R&D staff has had to remain in Minneapolis.

The RFP will likely leave it open to relocate SHW's primary R&D facility to anywhere in the world, although remaining relatively near the headquarters is apparently desirable. There is a lot of personal interaction between the two facilities, as SHW executives and researchers regularly walk back and forth between Landmark and Breen in their duties to advance new products and processes.

The timing of the release of the RFP before 2020 coincides with SHW's progress in paying down debt it incurred from the Valspar acquisition. SHW has been hyper-focused on paying down that debt and will not consider a new headquarters or research facility until its debt load is reduced. That includes leasing new facilities built and owned by others because long-term leases also count as debt.

In 2017, SHW's debt was more than four times higher than the average debt-to-equity ratio of its competitors in the coatings industry.

SHW's debt load is still significant but improving. Right after the Valspar acquisition was given the green light by numerous governments around the world, more than $11 billion of debt was on SHW's books in the third quarter of 2017. Its debt is now dropping to near $9 billion, but was just below $2 billion before acquiring Valspar.

So far, SHW has been able to pay off about $1 billion of its debt per year thanks to strong cash flow from increased business following the Valspar buy. The firm is not over-leveraged, however, as measured by the debt-to-equity (D/E) ratio. SHW's D/E ratio was 4:1 in 2017 but is now below 2.5:1 and should be at 2:1 by the end of this year.

An over-simplified projection of how and when SHW's debt-
to-equity ratio could recover from the Valspar acquisition and
return to an industry standard 1:1 ratio. SHW will not build or
pay a long-term lease for a new headquarters until its debt is
reduced to a normal level. Note that it takes more than three
years to design and build a skyscraper (KJP).

For context, competitor PPG's D/E ratio is at 1.66:1, although their debt is at a five-year high. The industry average is slightly better than 1:1. It is possible that SHW's D/E ratio could approach PPG's level by level by the middle of next year, assuming cash flow and share values do no worse than remain stable.

Assuming there are no major corporate or economic hiccups, SHW's D/E ratio should be able to reach 1:1 by the end of 2022. That's interesting timing considering that it takes more than three years to design and build a roughly 1-million-square-foot skyscraper that would be big enough to accommodate all of SHW's scattered corporate offices and allow room for future growth.

That three-year clock could start ticking at the end of this year. That coincides when sources say SHW will issue its RFP to developers for what would likely be the largest office building constructed in downtown Cleveland in 30 years.

END