Tuesday, April 25, 2017

The Cleveland skyscraper building-binge starts


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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



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

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


Sunday, March 13, 2016

Downtown Cleveland's next office tower is in the works

During LeBron James' playing time in Miami, residents and visitors to Cleveland got a brief insight as to the headquarters location of one of this city's most successful and enduring corporate citizens. However, the street address of that company could soon change and in a very visible way.

The paint and coatings giant Sherwin-Williams (SHW), founded in 1866 in Cleveland, isn't a flamboyant company. The only time it displayed a sign on its headquarters, telling the world what's inside, was in the final year of James' absence. The basketball star's previous 10-story-tall mural gave way to a barren, brick wall for three years. Then in 2013, a similarly sized marker was placed there by SHW. It suggested the company's headquarters was close by. Indeed, the mural hung on SHW's home -- the unfinished side of an 86-year-old collection of three buildings known as the Landmark Office Towers. That unfinished side is where a fourth building, 18 stories tall like the other three, was to be built until the Great Depression halted it.

Sherwin-Williams' vibrantly colored mural on the Landmark
Office Towers was displayed above Ontario Street for only
one year (2013-14). It read: "Our Vibrant Home Town --
Sherwin-Williams and Cleveland: Together since 1866."

SHW's giant mural pictured above gave way to a new James mural following his 2014 return to Cleveland. SHW's offices returned to anonymity, at least for those who did not already know the firm occupied most of the 900,000-square-foot Landmark Office Towers, which SHW owns. It also owns the land on which its Breen Technology Center sets on Canal Road downtown, roughly where the company was founded.

Since the Great Recession, the company has grown quickly -- from $7.8 billion in revenues and earnings per share of $4.19 in 2009 to more than $11.34 billion in revenues and earnings per share of $11.16 in 2015. That's five consecutive years of record sales and four years of record earnings. SHW has outgrown its Landmark home. Now its offices are spilling over like so much paint into a portion of the neighboring Skylight Office Building, a 12-story, 321,000-square-foot building constructed by Forest City Enterprises in 1991. That building is almost entirely full too.

In 1990, Sherwin-Williams planned to build
this 30-story office tower called "Gateway at
Landmark" where the LeBron James mural is
today. The recession of the early 1990s halted
further consideration of this skinny tower
. A
reincarnation of this tower apparently isn't
being considered because it is too small.
So SHW's Chief Operating Officer John Morikis began looking at his company's growth and measuring it against SHW's space needs. He came to the conclusion that the Fortune 500 firm needed more room to grow. The question is, should it expand into other downtown buildings or consolidate its offices into a new headquarters building. The latter was favored. So basic questions needed to be answered next such as how much space would it need, where should it be located, would SHW want to own the building or pay rent, and who would build it?

As Morikis was promoted to chief executive officer effective Jan 1, 2016, the search for a new headquarters went into high gear. Major downtown developers and property owners were contacted about constructing a roughly 40-story office building with modern floor plates averaging no more than 30,000 square feet so that open working spaces can be illuminated with natural light and foster more employee collaboration. Modern open-floor configurations also typically reduce the need for space by about 20 percent compared to the inefficient, enclosed rooms that SHW office workers are in now.

Those contacted reportedly include (see graphics at end of blog posting):
  • Geis Companies plans a low-rise, multi-building office campus called the Burke Development District at the west end of Burke Lakefront Airport that could accommodate 750,000 square feet of offices. Geis is also reportedly seeking to develop properties north and south of Playhouse Square;
  • Jacobs Group owns the parking lot on Public Square where the 60-story Ameritrust tower was to be built before the bank was acquired by Society Bank in 1991. Jacobs/Hines proposed a 21-story office building on that lot but the idea fizzled during the Great Recession; and
  • Weston Inc's conceptual plan for the Superblock in the Warehouse District, approved by the city, features two 23-story apartment towers, one hotel tower and a 37-story office tower on the NW corner of West 3rd St. and Superior Ave.

City Hall and developer sources confirmed these sites were under consideration but did not know which, if any was favored by the company. The Public Square site would certainly be the most visible, but given SHW's traditions, an identifiable headquarters building has not been a priority for this unassuming company. Whichever developer offers the best financial deal to SHW will likely win. The financial picture could also entail SHW selling or trading the Landmark Office Towers for redevelopment. It's an ideal candidate for a housing conversion.

Conceptual plans for other downtown Cleveland developments offering much smaller office leasing opportunities would have to be significantly altered to accommodate SHW. Stark Enterprises' proposed nuCLEus development north of Quicken Loans Arena features a 54-story, mostly residential skyscraper. It is proposed to have 200,000 square feet of offices. The Benesch law firm committed to 66,500 square feet of that, prompting Stark to consider altering its plans to add another 100,000 square feet of office space to "respond to demand."

Fairmount Properties/Wolstein Group are planning a small office building of roughly 150,000 square feet on Front Street as part of their third phase of Flats East Bank. Dick Pace/Trammell Crow plans only 80,000 square feet of offices in their lakefront development north of First Energy Stadium. That project's conceptual plan was recently amended to add more residential, not offices.

At one point, plans apparently were moving fast enough to spawn company-wide rumors that SHW was going to announce the new headquarters building at its national sales meeting Jan. 22-27, 2016. The event is held in late January every year in Orlando, Fla. and attended by more than 6,000 salespersons. Alas there was no announcement. [UPDATE: the reason why no announcement was made was likely due to the uncertainty surrounding SHW's pending acquisition of Valspar announced March 20.]

As recently as late February, a member of Mayor Frank Jackson's cabinet said that several downtown Cleveland sites remained under consideration by SHW. There is no information at this time to suggest that any sites outside of downtown are being considered. SHW apparently wants to stay close to its geographic roots, not far from where Henry Sherwin and Edward Williams founded the company along the banks of the Cuyahoga River 150 years ago this year.

It would be apropos if plans for a stunning new downtown Cleveland headquarters tower for this global coatings giant could be publicly unveiled in the company's sesquicentennial year. If all goes right, they will be.

Geis Companies' Burke Development District.
Jacobs Group/Hines' 21-story Public Square
tower, proposed in 2008.
Jacobs Group's 60-story AmeriTrust Tower on
Public Square, proposed in 1991.
What the AmeriTrust tower would look like if it was built as a
40-story structure, which is approximately the size Sherwin-
Williams is reportedly considering for its new headquarters.
Weston Inc.'s Superblock plan for the Warehouse District, with
the 37-story office tower being the closest structure shown.
Stay tuned!


Saturday, January 16, 2016

Cleveland ready to scrape the skies more

Downtown Cleveland buildings under construction in 2016 or planned in coming years are shown in light-blue (click to enlarge all photos). Courtesy of UrbanOhio.com.

The pace of investment in America's cities has been one of the remarkable stories since the end of the Great Recession. There are few places where that investment is more evident than in Greater Cleveland which in 2014 ranked ninth in the nation in total new construction jobs (not percentage of change).

Much of that is for renovating historic buildings, rebuilding infrastructure and some modest new buildings. Anyone who has spent time downtown or in neighborhoods like Asiatown, Gordon Square, Little Italy, Ohio City, Tremont or University Circle in recent years has seen orange barrels, scaffolding and construction crews everywhere.

With the rebuilding of Cleveland's foundation substantially underway and the region's economy pivoted away from manufacturing (only 11 percent of the metro area's employment), most renovation-related work is about to transition to new construction. Big time.

Cleveland's Public Square is seeing its largest transformation
in decades, an investment of more than $50 million. Courtesy
of the Cleveland Group Plan Commission.
Don't get me wrong. There's still lots of old buildings and infrastructure to rebuild or replace. While many of Cleveland's neighborhoods have seen amazing transitions and rising populations, others remain out of control from a safety and economic perspective. But bringing residents with purchasing power to support more jobs in a core city that's accessible to all is a worthy goal. A job is the best social program there is. More residents mean more shopping, restaurants and amenities which also make downtown more attractive to companies seeking settings to establish offices and to access talent.

So while there are still more old office buildings and department stores to convert into residential and other supportive uses (see the huge 925 Euclid or the May Company buildings), the market for more residential continues to grow as more residential products are added. Downtown buildings, in total, have 1,800 people on waiting lists. And yes, there's a few office buildings that will soon be in the mix too. All of these will change the skyline of downtown Cleveland in ways not seen in decades.

Here are the recently built, planned or proposed buildings of 20 stories or more in downtown Cleveland, ranked in order of probability:

Ernst & Young Tower/Flats East Bank Phase 1 (completed 2013): 23 stories or 330 feet tall, with 480,000 sq. ft. of office space. $275 million first phase includes an adjacent 9-story Aloft Hotel on W. 10th at Main. Phase 2 added a 8-story apartment building with surrounding restaurants. Phase 3 in 2016 will add an 11-story apartment building plus grocery store and movie theater, all developed by Fairmount/Wolstein.
Flats East Bank Ernst & Young
Tower. Photo by the author.
Hilton Convention Center Hotel (to be completed 2016): 32 stories or 380 feet tall, with 600 hotel rooms and Level 32 Skybar restaurant open to the public, on Lakeside at Ontario, costing $272 million and developed by Cuyahoga County.
Cleveland Hilton Convention Hotel.
Warehouse District Parcel A (groundbreaking August 2016): 24-story apartment tower with 352-apartments and adjacent 7-story mixed-use building to be developed by Weston/Citymark Capital at SE corner of St. Clair and W. 6th. $100 million is estimated for first phase.
Parcel A would host the two closest buildings at the bottom-
center of this rendering of the Warehouse District. Courtesy of
the Cleveland Planning Commission.
515 Euclid (construction due late-summer 2016): 27-story tower (18-story apartment building with 200 units atop existing 9-story parking garage) to be developed by Stark Enterprises at the building's namesake address. Parking garage cost $20 million. Adding the tower could cost about $50 million.
The planned apartment tower atop 515 Euclid is shown in purple
in this northerly view. Courtesy of Stark Enterprises.
nuCLEus (demolitions due late-summer 2016): 54-story tower mixing apartments, offices (Benesch is anchor office tenant) and hotel over pad of retail and parking between E. 4th, Prospect and Huron to be developed by Stark Enterprises and J-Dek Investments for about $380 million.
Even though it wouldn't be downtown Cleveland's tallest (Key
Tower would still be taller), the 54-story nuCLEus tower would
dominate the city's skyline when viewed from the south side.
Courtesy of Stark Enterprises.
Playhouse Square tower (groundbreaking TBA): 30-story tower featuring mostly apartments but may include dine-in movie/TV theater or other non-residential use on the ground floor to be developed by the Playhouse Square Foundation on SW corner of Euclid and E. 17th.

Justice Center replacement (groundbreaking TBA): 55-65 stories if all 2.3 million sq. ft. of current uses not including structured parking were stacked in the same structure with huge floorplates of about 40,000 sq. ft. each. Or the new center could be put in two new towers of 25-35 stories each, including parking. The current jail is spread among 20 floors; the courts tower is 25 stories; the police department is 9 stories. None has public parking. A space needs analysis is underway.

Warehouse District Parcel B (groundbreaking TBA): 24-story apartment tower with 380-apartments and adjacent 6-story mixed-use building to be developed by Weston/Citymark Capital at SW corner of St. Clair and W. 3rd.
Another view of the multiple towers and lower-scale buildings
proposed for the Warehouse District's parking crater by Weston
and Citymark. Courtesy of Cleveland Planning Commission.
Warehouse District Parcel C (groundbreaking TBA): 24-story apartment or hotel tower with 370-apartments or 250 hotel rooms and two adjacent 5-story mixed-use buildings to be developed by Weston/Citymark Capital at NE corner of Superior and W. 6th.

Warehouse District Parcel D (groundbreaking TBA): 37-story apartment or office tower with 1.5 million sq. ft. of space to be developed by Weston/Citymark Capital at NW corner of Superior and W. 3rd.
Weston/Citymark's proposed four towers in the Warehouse
District would dramatically change the skyline by filling in
most of downtown Cleveland's largest parking crater.
Courtesy of Cleveland Planning Commission.
The 37-story proposed skyscraper listed last could find an anchor tenant soon and be bumped higher up the list. Medical Mutual may consolidate its 1,700 Northeast Ohio employees into roughly 600,000+/- sq. ft. of space. That could be located in downtown Cleveland, based on their actions recently in consolidating its Central Ohio offices into a single building in downtown Columbus. Perhaps Medical Mutual might move to Weston/Citymark's development.

Perhaps Jacobs Group may build the insurance company a new, high-profile tower on its now-dismal Public Square parking lot. There are also rumors that Sherwin-Williams is in the market for a big new tower. The 150-year-old paint company has outgrown its headquarters space in the Landmark Offices at Tower City Center.

More new buildings albeit shorter than 20 stories are under construction or about to get underway in downtown Cleveland. This includes the 11-story, 237-unit Edge CSU Student Housing underway at Euclid and E. 18th and an 11-story, 100-unit apartment building will likely see a groundbreaking this year at Flats East Bank. Plus numerous buildings in the 5- to 20-story range are under construction or will start this year in Cleveland's Ohio City, Gordon Square, Tremont, University Circle and other city neighborhoods.

If you're having a hard time keeping track of it all, check back weekly at UrbanOhio's Northeast Ohio "Projects & Construction" section. There's always something new going on citywide and even a few developments in the suburbs. The pace of construction will kick into high gear after July once the Republican National Convention clears out of town. But most of the above projects will get their final designs reviewed by the city in the meantime and the graphics will be posted at UrbanOhio.


Tuesday, September 16, 2014

Cleveland's urban core only starting to reawaken

By Ken Prendergast

CLEVELAND – To anyone who follows real estate development news closely, you are allowed to be surprised by the scale and intensity of development occurring in the cores of our largest cities. And one of the biggest turnarounds anywhere in the USA is occurring in Cleveland.

What's even more amazing is that we're just starting a potentially major shift in housing and lifestyle choices to one that is decidedly more urban. True, Cleveland is jumping into it in a big way as you probably have noticed and which I will soon describe. But Cleveland has only scratched the surface on tapping a market that is in transition.

That may be hard for some to grasp as a dozen downtown buildings taller than 10 stories are already getting renovated into apartments, hotels and/or commercial space. And half of those buildings are taller than 20 stories. A few are mostly vacant, obsolete office buildings but others are at least half-occupied with offices. Nearly 700,000 square feet of offices will be on the move in the coming years, hopefully staying downtown in other existing buildings or possibly in a new building or two.

This flurry doesn't include new construction such as the 31-story Hilton Hotel, or the next phases of Flats East Bank, or a mixed-use neighborhood on the lakefront, or Brickhaus' Ohio City Townhomes, or Cedar Extension's redevelopment, or major improvements to FirstEnergy Stadium and Progressive Field, or the remaking of Public Square, or a new walkway linking downtown to the lakefront.

All of that construction and more has pushed Cleveland into the tops of national rankings of new construction jobs added in the past year. The Associated General Contractors (AGC) of America reported this summer that, out of 339 metro areas nationwide, only eight added more construction jobs than the 5,300 added in Greater Cleveland between June 2013 and June 2014. Some general contractors in Greater Cleveland reported that they have increased wages and upgraded benefit plans to attract and retain skilled construction workers, ACG reported in its Sept. 8, 2014 Data Digest.

The question many are asking: how long can this last?

First, consider the snowball effect. It rolls down a slope, gathers momentum and gets larger in the process. The same thing appears to be happening in Cleveland's center city, into which I will include Downtown, Ohio City, Tremont, Central and Asiatown. I debated whether to include University Circle, but chose not to since it is Ohio's fourth-largest employment center and therefore is big enough to stand on its own as an economic driver.

So each new or renovated residential building adds more purchasing power to the center city. That brings more restaurants, shops and amenities that attract new residents. New primary education schools are also popping up in the urban core. Here's an example of how the center-city market is flexing its muscles and absorbing more and more residents:

Marcus & Millichap's fourth-quarter 2013 Apartment Research Report showed that, among all the submarkets within Greater Cleveland (Cuyahoga, Lake and Lorain counties), Central Cleveland had the lowest vacancy rate at 2.5 percent AND commanded the highest average rent of $1,058. Lake County had the next-lowest vacancy rate of 3 percent while Beachwood/Mayfield had the next-highest rent of $926.

As more and more residential buildings opened in 2014, a funny thing happened – vacancy rates went down to 1.7 percent according to the Downtown Cleveland Alliance (DCA) in its August 2014 market report. And, most recently, the most luxurious building with the highest rents opened – The 9 in the former Ameritrust Tower. On the day the 29-story tower opened to new residents, the building was already 90 percent leased.

Similar development trends have occurred in Ohio City along West 25th Street, plus Detroit and Lorain avenues, where new and rebuilt buildings are offering hundreds of new residential units. Tremont continues to add mostly single-family residential homes, but now they're squeezing into the few vacant parcels left.

In Central, housing occupancy is at 96 percent and hundreds more housing units, including some market-rate housing, are coming thanks to the Cedar Extension development. And as Chinese and other Asian ethnic groups flood into America for college educations, Cleveland's Asiatown population has also grown.

Downtown's population has grown 88 percent since 2000, hitting an all-time high this year of 12,500 with more than 1,000 residential units under construction and another 1,100 units planned, DCA reports. Downtown's population will soon exceed 15,000 – larger than 32 of 57 Cuyahoga County municipalities.

Ohio City's population has stabilized at 9,200 residents as has Tremont at 8,000. Central is rebuilding its way past 12,400. While Asiatown, which comprises much of the officially named Goodrich-Kirtland Park neighborhood, saw its total population dip 5 percent since 2000 to 4,100. But its Asian population grew 14 percent, according to Census data. That's a core-city population of 37,000.

An even stronger downtown will lift surrounding neighborhoods. More residents means more purchasing power which means more jobs. The size of the growth still to come is potentially immense.

“A tsunami of young people and retiring Boomers has created demand not for three- and four-bedroom houses, but for smaller spaces,” said Scott Bernstein, president of Chicago’s Center for Neighborhood Technology, at the Sept. 12th annual meeting of the Northeast Ohio Areawide Coordinating Agency.

If national demographics apply to the Cleveland metro area, even if generally, then half of the metro's population is a potential customer for a center-city housing unit. How did I come to that conclusion?

Half of the nation's population is either a Baby Boomer (retiring & possibly downsizing) or a Millennial (more interested in “place” & technology, less into driving). But more so, a 2013 survey by the National Association of Realtors showed the nation roughly evenly split between those favoring smart growth, new-urbanist land uses (47 percent) vs. a single-family, detached home with a large yard (52 percent).

Although center-city rents are rising, they are still less than what is necessary to develop new-construction housing on prime downtown land without subsidies. Most residential units being added downtown are the result of converting obsolete office buildings that qualify for historic preservation tax credits from the state. Virtually all of downtown's obsolete office buildings have been converted, are under redevelopment or have plans to be converted. Once that supply runs out, rents may be high enough to support new construction without subsidies.

For that reason, downtown Cleveland is actually lagging behind many busier apartment markets. Developers would need to add 3,800 more units next year than currently are planned, according to Axiometrics, a Dallas-based apartment consultancy.

“I think the downtown residential rental market is severely undersupplied for a metropolitan area of this size,” said Scott Wolstein, a principal in Wolstein Group, as quoted in a Sept. 29, 2013 Crain's Cleveland Business article.

In the same article, “Developers jump on rental demand,” developer Ari Maron said that for a metropolitan area of 2.1 million, the central business district should possess at least 1 percent of the region's population – or 21,000 residents.

Indeed, developer Bob Stark, who is pursuing his new-construction nuCLEus development on a big parking lot at East 4th Street and Prospect Avenue, once said “it's not difficult to convince 1 percent of any group of people to do anything.” That was in reference to achieving the city's goal of 25,000 living downtown. He added that convincing the next 2 percent of people is even easier than convincing the first 1 percent, and the next 3 percent and so on. “It's an exponentially growing momentum,” Stark said.

Along with that growth comes more shopping options, including the 30,000-square-foot Heinen's grocery store at East 9th and Euclid Avenue that will open in February. More 24-hour restaurants and convenience stores will arrive. Someday there could be a City Target, a Staples, an Apple store or other options.

Each core-city neighborhood has room to grow to tap into the immediately available market within the metro area which is mobile and in a transition period in their lives. It doesn't mean that one of those core city neighborhoods will win the lion's share. It means that if downtown and its immediately surrounding neighborhoods go from being home to 0.5-1 percent of the metro population to up to 1-2 percent the metro population, then we're looking at 25,000 people downtown and another 75,000 people surrounding it.

And these areas won't just draw population from the metro area, but from the nation and the world. But there will be a shift in emphasis from suburban to urban. Why? Because it's already underway and there's no sign of it stopping.


Monday, June 30, 2014

Downtown Cleveland apartment conversions may drive demand for constructing a big office tower -- or two

Many older office buildings in downtown Cleveland are getting converted to apartments and other uses. How many? So many that ALL of the vacant office space may soon be gone -- and then some. So many that the time for constructing one or more major new office towers in the central business district is fast approaching.

In fact, by 2017, assuming that existing tenants in the older office towers relocate within downtown, there could actually be a shortage of leasable office space downtown. Typically, market pressure for a constructing a new office tower reaches a critical point when Class A (the most modern buildings) office vacancies drop below 10 percent and rents are rising.

In 1990, buildings on the west side
of Public Square were leveled for a
60-story office tower that never was
built due to Ameritrust and Society
Corp. merging. The cleared land,
owned by the Jacobs Group, has
remained a parking lot to this day.
At the start of 2014, Class A office buildings in downtown Cleveland were only 12.5 percent vacant, according to a market report by real estate firm Jones Lang LaSalle. This includes absorption of space by office users at the new 21-story, 550,000-square-foot EY Tower at Flats East Bank. A second, but smaller office building measuring 220,000 square feet will soon rise across Front Street from the first tower. But that won't be anywhere near large enough to relieve the coming pressure for more office space.

  • There is currently nearly 14 million square feet of Class B (older buildings) and Class C (obsolete) office space downtown. Of that, 9.3 million square feet is Class B and 4.64 million square feet is Class C. Between Classes B/C, there is about 3.36 million square feet of office space that's vacant, or 24 percent. That's about 10.64 million square feet of tenants occupying Class B/C offices downtown.
  • Between now and 2017, all the residential conversions on the books will reduce the downtown Class B/C office building supply to 9.34 million square feet (7 million in Class B, 2.34 million in Class C). 
  • That leaves about 1.3 million square feet of downtown office users looking for new digs. If they want to stay downtown, there's almost enough available space in the existing and planned Class A buildings (about 1.2 million square feet, which includes a second Flats East building) to accommodate them. Almost.
More residential conversions are possible that could tip the downtown office market over the edge. Weston Inc. may buy the Standard Building, a beautiful, 90-year-old, 21-story, 350,000-square-foot office structure at St. Clair Avenue and Ontario Street which is half full. Even larger is the old Huntington Building, a 1.3-million-square-foot edifice at East 9th Street and Euclid Avenue that was the second-largest office building in the world (only Chicago's Merchandise Mart was larger) when built in 1924. It is 90 percent vacant.

If those two buildings were renovated into residential (even partially), they would represent the fourth and fifth buildings downtown of 20 stories or taller to be converted since the Great Recession. The previous three were the Embassy Suites, old Ameritrust Tower, and the East Ohio Gas building. Embassy Suites was recently converted while the first apartments at Ameritrust Tower (will also include a Metropolitan Hotel) and East Ohio Gas Tower are almost ready for occupancy. Three vacant Class C office buildings of 10-19 stories (Schofield, 1010 Euclid and 1220 Huron) are also being renovated mostly for apartments.

Staff at the old Huntington Building say representatives of owner Optima 925 LLC have toured developers and investors through the building, including its world's largest bank lobby, with an eye toward adding apartments to a mix of office and retail uses. The amount of space that could be devoted to each use isn't yet known.

Furthermore, additional older Class C office buildings may be converted to apartments, soon. K&D Management LLC, Northeast Ohio's largest owner and manager of apartments, is finding the conversions of downtown office towers to housing so profitable that they are selling suburbans properties to buy more downtown buildings.

So if my math is correct, this could mean there will be more office users than office space left downtown -- assuming that all downtown office users relocate elsewhere within downtown. And it assumes there are no changes in absorption. Admittedly, those are both big "ifs."

But what isn't an "if" is that downtown's office market is about to become extremely tight, perhaps more than it's ever been. And the need for constructing one or more office towers downtown is about to reach a critical point.

Of course, the most visible location for an office tower is the west side of Public Square where a 60-story Ameritrust tower and hotel was to be built by the Jacobs Group. Buildings were leveled for the tower in 1990 but construction never started as Ameritrust merged with Society Corp. and moved into its new tower on the north side of Public Square. Society later merged with Key Corp. The west side of Public Square has remained a parking lot ever since. However there are rumblings that the Jacobs Group is rekindling plans for a new tower here.


Tuesday, November 5, 2013

It's time to stop ducking Duck Island

CLEVELAND – If it looks like a big real estate development and sounds like a big real estate development, it probably will be a big real estate development.

That's what a spate of real estate transactions in recent months suggest for an urban enclave close to downtown that's neither an island or named after ducks. (Some claim it's named for criminals who used to duck and hide here from the law). It's an ear-shaped area east of Columbus Road and west of the Walworth Run valley.

Duck Island is actually part of Tremont although many people think it's in Ohio City. The official dividing line for the service areas of the two community development corporations (Ohio City Inc. and Tremont West Development Corp.) is Columbus Road.

Duck Island reappeared on my radar Nov. 1 when the city's Design Review Committee was asked to approve a request by Ward 3 Councilman Joe Cimperman to vacate part of West 20th Street north of Lorain Avenue.

Council members don't just submit requests to vacate city streets when they feel like it. They do so at the request of others. And vacating a city street means the city is relinquishing its right of way, probably forever. It can be a pretty big deal, and it often takes a big project to justify it.

At the north end of West 20th is a vacant, single-level industrial building that was for sale for years. One year ago, it was acquired by Andrew Brickman. He is a partner with Justin Campbell in Abode LLC which builds eco-friendly, luxury town homes in Cleveland's University Circle and Little Italy, plus the inner-ring suburbs Cleveland Heights, Fairview Park and Lakewood.

All around Brickman's industrial parcel are numerous other residential and vacant properties having different corporate owners. Yet all the names trace back to Brickman or Abode in public records. Taken together, the properties west of West 19th/Grove Court Condos and atop the hill east of Columbus Road form a site about as large as the St. Ignatius High School campus (or at least the main campus north of Lorain Avenue).

The purpose of this agglomeration is not a secret. It is revealed in the name of one of the companies formed to acquire land at the north end of Duck Island – “Abode Ohio City Townhomes,” according to records from the Cuyahoga County Auditor's office.

The timing of this project is less well known; Brickman isn't talking publicly about this project yet. However, considering that the city is already vacating a street for it, this strongly suggests that demolitions and site preparation could be sought soon. How many demolitions? Four commercial structures are probable; but there are also 14 historic houses sprinkled in this area and most appear to be in fair to good condition. Their fates are unknown.

What is known are the intentions of the developer eyeballing the area of Duck Island south of Lorain Avenue. About 20 properties, most of them vacant land, were acquired by Matt Berges or his company Berges Home Performance. Ten of them are for development of green-friendly infill housing.

Plans for various housing styles and property locations are shown on his firm's Web site. Berges' motivations don't seem to be limited to the financial returns that normally drive developers. Why? First, he is the green housing manager at Environmental Health Watch. And second, he's invested in the neighborhood in the ultimate way – he and his family moved there.

County records show he recently acquired the large brick home and surrounding 10 parcels of the late Rosemary Vinci. If that name doesn't ring a bell, her name came up during early investigations of the county's corruption scandal. Vinci died in 2008 under suspicious circumstances. Her father, James Vinci, a reputed organized crime figure who famously owned Diamond Jim's in the Flats, was reportedly killed in a mob hit in 1985 to prevent him from testifying in a trial of accused mobsters.

But Rosemary Vinci was better known in the neighborhood for owning strip clubs and ruling the Duck Island Block Club with an iron high heel. One of her missions was to urge Duck Island residents to acquire a neighboring property and demolish the house on it (if it wasn't already torn down) to reduce the urban density of the urban neighborhood located just one mile from Public Square. She surrounded her own West 18th Street house by a moat of vacated lands and walls that exuded the kind of exclusive estate one expects in a gated suburban community.

A decade ago, Vinci also led opposition to a mixed-income, high-density residential development next to the Red Line Rapid station along Columbus Road south of Lorain. She claimed the transit- and pedestrian-oriented development would increase traffic but others accused her of fear-mongering against its low-income component.

Today, Berges is president of the Duck Island Block Club. He's a forward-thinking man who's highly regarded around the country and in Cleveland as a sustainable housing contractor.

With the booming demand by young professionals and empty-nesters for more housing in the urban core, it's important to have sustainability-minded developers like Brickman and Berges who are in a position to respond. It's a welcome change from the city's past when fear and corruption shaped our development policies.

Duck Island's location between Ohio City and the heart of Tremont makes it an ideal urban development area. Its proximity to the Rapid station and the Lorain-Carnegie Hope Memorial Bridge with its new bikeway/walkway into downtown enhances its drawing power. Hopefully Duck Island's new-urbanist promise shall be hindered no more.


Wednesday, August 21, 2013

Enhance Clifton starts Sept 13, merchants fear traffic detours

CLEVELAND – Now that contractors were chosen for $25 million worth of transit and pedestrian enhancements to Clifton Boulevard, a formal groundbreaking ceremony is scheduled for Sept. 13.

But after the West Shoreway was closed for two weeks this past summer for the filming of Captain America, Clifton's merchants want to know how construction of Enhance Clifton will be carried out.

Those answers will start to come into focus now that the Greater Cleveland Regional Transit Authority's board on Tuesday hired Perk Company Inc. for $8.65 million to construct infrastructure along 4 miles of Clifton from the west end of Lakewood east to Edgewater Park.

That includes a landscaped median in Cleveland, improved transit waiting environments and a streetscape for the business district between West 115th and West 117th streets.

RTA's board also approved a contract with New Flyer of America Inc. to buy 23 articulated, low-floor buses for up to $16.33 million. An articulated bus is extra long and bends in the middle so it can go around corners and curves. Most of these new buses will be used on the No. 55 Clifton route into downtown, according to RTA documents.

The contract with Perk also stipulates that the City of Cleveland may provide an additional $343,026 for sidewalk repairs, said Ward 16 Councilman Jay Westbrook.

“The sidewalks will be replaced as needed under the city's assessment program that's been used in the rest of Ward 16 to maintain safe sidewalks,” Westbrook said.

The difference with the Clifton project is that property owners will have to pay only 50 percent of the cost instead of the full amount. He said property owners having sidewalks in need of repair or replacement should have already received assessment notices in the mail.

Until the filming of Captain America shut down the Shoreway for two weeks in June and detoured traffic away from Clifton, merchants seemed excited about Enhance Clifton. But that shut down caused some merchants to experience a 90 percent reduction in business, said Anita Brindza, executive director of Cudell Improvement Inc.

“Some elements of Enhance Clifton will be very much welcomed, but merchants justifiably have some trepidation,” she said. “It depends on how the construction goes. If they do it in segments, then it may not be as bad.”

“The sequencing and scheduling still have not been determined,” Westbrook said. “Clifton will remain open during construction. Some of the work will start in the fall, but most will be done starting in the spring.”

He also noted that this project is the forerunner of what is planned for the West Shoreway, which is due to be converted into a landscaped boulevard. A funding request for this conversion is pending before the Northeast Ohio Areawide Coordinating Agency.