Monday, November 19, 2018

Cleveland's profile soars among out-of-state investors

Development of Cleveland's Flats East Bank also tracks with
the metamorphosis of Cleveland's economy in the last decade.
In that time, the Wolstein Group and other developers sought
huge public subsidies to justify their earlier investments. Now
Akara Partners, a Chicago-based firm, has joined Wolstein to
help develop Phase 3. It will be Akara's first investment in
 Cleveland (Akara)(CLICK PHOTOS TO ENLARGE).
Presidential candidate Ross Perot in 1992 famously referred to a "huge sucking sound" when it came to jobs leaving the USA. When money starts pouring into a city like Cleveland, it ought to make a sound, too. It is, and people are noticing.

Since the late 20th century, capital investment in Cleveland typically came from wealthy Clevelanders who loved their community and wanted to give something back to it. It was done in the name of altruism, not a healthy return. Indeed, local real estate investors who had to answer to out-of-town shareholders -- especially the highly demanding folks on Wall Street -- could never hope to justify investing in Cleveland. It's why publicly traded firms like Forest City Enterprises had stopped investing locally and instead directed their efforts toward coastal markets plus a few booming inland cities like Atlanta, Chicago, Dallas and Denver.

But nothing ever stays the same. Real estate markets get over-crowded with investors and overheat. Some get overbuilt. That's when real estate investors start looking for the next big thing. And they start looking for bargains.

NRP Group's 308-unit The Edison was the fastest lease-out of
a residential project in the history of the nation's 7th-largest
apartment developer. NRP, which seeks to expand The Edison
in 2019, recently joined forces with New York City-based
Tripost Capital Partners for an equity stream (Aerial Agents).
Enter Cleveland. And, to be fair, enter other Rust Belt cities that were also economic drivers of the late 19th and early 20th centuries whose momentum carried their growth briefly into the second half of the 20th century. Buffalo, Cincinnati, Detroit, Milwaukee, Pittsburgh, St. Louis and others are joining Cleveland, in part because of what they gained as the economic powerhouses of the industrial revolution. Their wealthy benefactors plowed riches into libraries, parks, museums, performing arts, institutions of higher learning and other assets that approach or even exceed those of the nation's top-tier cities. Nearly all of these cities still possess and support those assets.

And that's why, when coastal bargain hunters began looking for a good investment, they found Cleveland. Of course, you can't make money just by owning something cheap. There has to be a realistic hope for growth.

In doing an e-mail survey of real estate developers and entrepreneurs, they are noticing a big change in out-of-state investment in Cleveland. This is also borne out in the voluminous list of hot-linked headlines shared below. What do investors say is the reason? Greater Cleveland's positive job reports.

We locals sometimes question the validity and usefulness of those reports because we see the story on the ground, especially on Cleveland's troubled East Side. But out-of-state investors really do pay attention to this data. They are predicting population gains, so they are partnering with developers and entrepreneurs to try to get in on this market early.
With real estate investments throughout the Midwest, Chicago-
based Harbor Bay Group will enter the Cleveland market for
the first time with its Market Square development, on which
it plans to begin construction in 2019 in Ohio City (HPA).
Cleveland's job market has shot up in 2018 (includes the latest October data, which continues to show strong, steady growth) in all sectors except information technology and "other services." Job growth in Greater Cleveland is now increasing at a pace that ranks it with some of the fastest-growing metropolitan areas in the USA. The Web site recently announced that Cleveland ranked in the top 10 nationally among cities that had more jobs available than people to fill them. Global real estate firm CBRE ranked Cleveland 8th nationally in technology and talent growth "momentum markets."

Respondents to my e-mail survey cautioned that capital is not transferring away from the coasts. There are no signs that development is slowing in coastal cities as well as a few inland cities like Atlanta, Denver or those in Texas. Instead, it appears that investors are trying to diversify, and Cleveland, Pittsburgh and Detroit offer great opportunities to do that at a fraction of the cost of the coasts. Put it this way, respondents say they are more confident in the futures of Cleveland, Pittsburgh and Detroit than Chicago. They feel Chicago is building a bit of a bubble while its smaller Midwest neighbors still have huge growth potential and pent-up demand. Plus the image of Cleveland is definitely starting to change.

So investors are branching out into newer markets because of the overcrowding and cost of land in some of the East Coast markets. Insiders confirm that investors want to continue to put money in the Northeast markets because they are stable, but the opportunities are growing in the Midwest, and they are feeling very confident about diversifying their investments by putting money into the old Rust Belt powerhouses.

And it's not just Cleveland's residential projects that are attracting out-of-state investors. They're industrial and entrepreneurial projects as well.

Put simply, investors can get more for their money here, most say. They can buy and hold and get good returns versus markets with higher barriers to entry like on the coasts, and whose value is largely driven by investors from out of the country. They are at risk of a bubble and may already be over-priced.

Lastly, demographics here in Cleveland are starting to change slowly and, if they really pick up, these investors will be poised for even better returns should they stay or exit the market and sell the assets they've acquired. This is particularly visible when it comes to industrial properties around the area and the general lack of good industrial space that suits the needs of end users.

But don't depend on the word of unnamed sources. Look at the totality of recent actions by investors, not to mention the quality of their actions. They range from examples of direct investments in projects, to the opening and expansion of offices locally.

I don't expect readers to open all of these links and to read all of the articles (you can, if you want). But the story told by the totality all of these headlines is compelling...

11-13-18 / Arcapita of Bahrain teams up with homegrown landlord Weston Inc. to buy seven suburban industrial buildings

11-13-18 / Real estate investment-advisement firm Raider Hill Advisors expands to Cleveland 

11-07-18 / Dealmaker's guide to 15 cities where M&A thrives

11-06-18 / Bay Area tech startup sees a rent-to-own housing solution — just not here, invests in Seattle, Memphis, Atlanta, and Cleveland instead

10-26-18 / Dallas M&A firm Generational Equity opens office in Cleveland where outsourcing companies are booming

10-03-18 Santander Bank of Spain quietly enters Ohio market with Cleveland loan production office

09-11-18 / Align Capital buys Cleveland's enterprise asset management firm Predictive Service, merges it with Lewellyn Technology

09-09-18 / CBRE Group adds jobs to Cleveland, Akron offices to keep up with growth

06-24-18 / Biomedical investment growing in Cleveland, Midwest

03-09-18 / A dozen companies selected for Plug and Play Cleveland accelerator

01-28-18 / Banks feeling the draw to Northeast Ohio to break into market

01-09-18 / Courtland Partners of Cleveland agrees to be acquired by New York real estate investment firm, from among many suitors

11-26-17 / Bank of the West sees Cleveland region as growth zone

10-10-17 / Pennsylvania's NexTier Bank expands into Ohio with Cleveland market loan office

08-13-17 / Historic investment aims to bring opportunity, prosperity

08-10-17 / SunTrust Bank opens commercial banking offices in Cleveland, Cincinnati

07-31-17 / Fund That Flip plans to expand in Cleveland

07-30-17 / Investors starting to shower their love on Cleveland

05-17-17 / Marcus & Millichap’s IPA division launches Midwest Multifamily Group, bases its HQ in Cleveland

05-02-17 / Citizens Bank buys Cleveland M&A advisory firm Western Reserve Partners

There are many more stories that could be shared, but remain behind the scenes. They include small to large coastal investors taking board seats on Cleveland-based real estate firms and business expansion organizations to provide larger, more continuous streams of equity. These resources can only mean more jobs, construction activity and a higher quality of life for Greater Clevelanders.

"The talk at our company would have anyone very excited for what's to come in Cleveland and other Rust Belt markets," wrote a manager at a large, Cleveland-based residential development firm. "I think the 'sleeping giant' is finally awakening."


Thursday, November 8, 2018

Big developments converge on Ohio City's Red Line station

Ohio City station-area develop-
More developments are cozying up to the Greater Cleveland Regional Transit Authority's (GCRTA) Red Line and station in Cleveland's Ohio City neighborhood. The scope and scale of the planned developments are unlike anything that's been built along Cleveland's underutilized rail transit system, outside of the downtown area and University Circle. The lack of dense developments around rail stations has a direct correlation to the usage of the rail system. But that's starting to change.


Red Line Greenway (Vocon)
In 2019, construction will begin on the 2-mile, $6 million Red Line Greenway trail from near the Zone Recreation Center at West 53rd Street to the bluff overlooking the Cuyahoga River above Franlkin Ave. It will be on the south/east flank of the Red Line tracks, in some cases within a few feet of them.

Harbor Bay's Market Square development (HPA)
Also sometime in 2019, Chicago-area Harbor Bay Real Estate Advisors hopes to start construction on Market Square, a 3-acre development at West 25th Street and Lorain Avenue with a 12-story office building, 10-story apartment building, ground-floor retail and a 550+ car parking deck just above the west side of the Red Line tracks.

But if you don't think that stunning scale of development is enough, then you're in luck. Because there's more:

Look for an announcement in 2019 regarding the former Brickhaus Towers/One Twenty West development, first proposed by Andrew Brickman. With a lot on his plate already, a larger, more prominent local developer is seeking to take over this site to deliver as many housing units as possible to the booming near-West Side. Sources asked that this developer not be named publicly as the company doesn't like to announce a project unless it is more than 90 percent certain the project will happen.

That, of course, means this project is far from certain. But this site is in a prime location. It's across Lorain Avenue from the GCRTA station, has an unobstructed view of downtown, is a short walk to the West Side Market and the West 25th business/restaurant district, and is next to the Towpath Trail plus the planned Red Line Greenway. The Scranton Peninsula development will be down the hill along the Cuyahoga River and won't block the views here.

Original plan for Brickhaus Towers/One Twenty West (HPA)
Furthermore, the new developer will likely go back to something like Brickman's original vision for this site -- a larger-scale mixed-use development with mid- to high-rise towers offering 500-600 apartments with ground-floor retail and live-work units facing Lorain. Brickman scaled back the project in his last conceptualization. The new developer is not concerned about the scale of this project, citing increased interest by New York City investors in Cleveland and its newfound job growth.

Last but not least is the development of GCRTA-owned land along Columbus Road, above the Red Line and the planned alignment for the greenway. In the hopes of attracting a "high-quality, dense, mixed-use, transit-oriented development," GCRTA publicly issued a request for qualifications (RFQ) from developers so that a selection committee could choose the most capable company to whom the authority could sell or lease its land. The deadline for developers to respond was Oct. 11.
Rezoning changes approved by Cleveland City Council on
Oct. 17. The blue rectangle shows an area larger than what
GCRTA ultimately included in its development RFQ (CPC).
GCRTA Real Estate Manager James Rusnov said in an e-mail to All Aboard Ohio, a non-profit that advocates for better public transportation and more transit-oriented development, that it won't reveal the identity of the winning bidder or how many responses GCRTA received to the RFQ until after a development agreement is submitted to the GCRTA board. That probably won't happen until February or March of 2019.

However, a neighborhood rumor is that Sam McNulty, a proponent of mass transit and biking, is very interested in developing this property. His Duck Island 7 development at Columbus Road and Abbey Avenue, with townhomes selling for $500,000 to $600,000 each, is nearly sold out. And, on Nov. 3, McNulty posted on Instagram a photograph of a large roll of construction blueprints to be submitted to the city's Building Department for a large development. He pledged to "announce the details soon."

Sam McNulty's Nov. 3 Instagram post (Instagram)
An architect's name was visible on the blueprints -- Dimit Architects, which designed McNulty's Duck Island 7 project. Dimit sources refused to identify the project associated with those blueprints, deferring to McNulty. Considering that McNulty referenced getting building permits from the Building Department, they aren't for the GCRTA property. Its sale is still months away from being approved by the RTA board.

Cleveland City Council on Oct. 17 voted unanimously to rezone multiple parcels of land in the fast-growing Duck Island neighborhood (see map above). It followed the creation of a development masterplan based on public input. The land along the west side of Columbus Road, from Lorain to West 25th, was rezoned from semi-industry to "multi-family G-1" which allows a range of residential uses, from single-family homes to apartment buildings. The maximum square footage of a building on a property zoned G-1 is three times the lot area and can be up to 35 feet in height based on the street frontage. However, the Red Line right of way below Columbus Road is 25-30 feet lower.

Sam McNulty's Duck Island 7 townhomes (Mendo/UrbanOhio)
Rusnov noted that the GCRTA-owned land that is the subject of the RFQ is south of Abbey, measuring 85 feet by 700 feet. That brings it to the vicinity of the Wiley Avenue intersection. The land north of Abbey, next to GCRTA's Ohio City station, is not part of the RFQ because Rusnov said it is where an ADA access ramp to the greenway will be located.

GCRTA's RFQ stipulates that developers have the option to request additional land if a larger project is proposed. However, Rusnov emphasized that the Red Line Greenway is "distinct from the development site and is fully contained on a separate parcel of land."

GCRTA's Ohio City Red Line station (KJP)
Property south of Wiley isn't part of the RFQ because the GCRTA right of way widens in that area. It adds a third track that serves as a Red Line maintenance siding. A greenway ramp to/from West 25th will also be located south of Wiley. And, long term, the Duck Island masterplan proposed an extension of Monroe Avenue over the Red Line tracks and greenway to Columbus Road. That will allow the removal of Columbus Road's dangerous, angular intersection with West 25th and open up a multi-acre site for future development.

Increasingly, as living, working, shopping and playing becomes more popular in Ohio City and the adjoining Duck Island neighborhood, space is going to be at a premium -- especially near high-capacity public transportation stops like rail stations. Indeed, these latest developments show how much in demand this area is becoming.


Wednesday, October 31, 2018

Is Sherwin-Williams ready to paint Cleveland's sky?

Will a new 40+ story tower paint the sky in downtown Cleveland
 in a few years to consolidate the scattered headquarters offices
of the Sherwin-Williams Company? With the Valspar deal now
 behind it, there are new rumors that the world's largest coatings
company is reviewing its skyscraping options (thetorontoblog).

On Jan. 22, 2016, some 6,000 Sherwin-Williams Co. (SHW) salespersons began descending upon the Fortune 500 company's annual National Sales Meeting in Orlando, Fla. Many were excited and not just because it was the paint and coatings company's 150th year in business. Reportedly, a large number of attendees expected to learn about the company's grand birthday prize to itself -- a shiny new headquarters tower in SHW's home city of Cleveland, Oh.

But when the sales meeting wrapped up five days later, no such announcement was made. For the next two months back in Cleveland, however, rumors about the headquarters tower continued to swirl despite (or even enhanced by) off-the-record denials by SHW. The city's largest developers were reportedly responding to SHW's requests for proposals for a 900,0000-square-foot headquarters, roughly 40 stories tall, to consolidate its scattered offices into a modern, efficient, collaborative new headquarters. The Jacobs Lot on Public Square was the favored site. Before the sales meeting, developers apparently delivered their proposals to SHW.

It was soon learned why SHW didn't announce a new headquarters tower at Orlando. SHW had started working on something much bigger. In late March 2016, it was revealed that SHW was seeking to acquire rival coatings company Valspar Corp. of Minneapolis in an $11.3 billion transaction.

Accomplishing a task of that scale and complexity would occupy so much of SHW's staff time that they brought in outside consultants and law firms to help them through all of the paperwork and filings with the Federal Trade Commission, Securities & Exchange Commission, and other agencies in the USA and overseas. Antitrust approvals were also required in Australia, Brazil, Canada, China, Ecuador, the European Union, Mexico, Russia and Vietnam.

That paperwork didn't end after governments gave their blessings, with conditions, to the merger that wrapped up June 1, 2017. After that date, SHW managers began sorting through new organizational charts, staffing needs, office locations and assignments for nearly 53,000 employees on a global scale. It would take another year of internal reorganization and wrapping up of legal work.

Once the reorganization was done, SHW's interest payments increased roughly four-fold to service the debt from acquiring Valspar, but its free cash flow increased further, too. SHW's ability to cover its interest payments is still better than than any of SHW's competitors except PPG.

SHW started to grow again. It began hiring again. And it reportedly began looking at its headquarters situation again.

It's difficult to know the specifics of what SHW is pursuing because its clients apparently have non-disclosure agreements with the coatings firm. But you can learn some things even when typically friendly, chatty sources refuse to even return a phone call or e-mail to discuss this subject.

What can be gathered from recent sources and cross-referenced against 2016 information is that SHW is pursuing a headquarters tower measuring about 1 million square feet (upwards of 40 stories in height depending on the site), that it will be located within 1-mile of where the company was founded near SHW's John G. Breen Technology Center, 601 Canal Road (per the company's charter), that it may have already hired its engineering and architectural firms (possibly from 2015-16) but is still in the conceptual stage because it hasn't gotten into detailed costs of elements like electrical and structural needs.

If SHW had justification for consolidating its administrative offices in 2016, it has even more justification now. Fifty years ago, SHW occupied less than one-fourth of the Landmark Office Towers. Today, the growing company occupies six facilities scattered across Greater Cleveland. Consider:

Landmark Office Towers at Cleveland's Tower City Center
complex, with the Skylight Office Tower to the left (KJP).

  • In 2014, SHW outgrew its 900,000-square-foot (SF) Landmark Office Towers, which it has called home since it was built in 1930. Perhaps 100,000 to 150,000 SF is leased to other tenants, the largest of which are Reminger Attorneys at Law and McCarthy, Lebit, Crystal & Liffman Co., LPA. In the 1950s-70s, there were four major tenants leasing space in the complex -- Republic Steel Corporation, Erie-Lackawanna Railroad, Sohio and SHW. During the 1980s, an expanding SHW acquired the majority of the leases in the complex. SHW purchased the complex in 1985 and remodeled it in 1989. Nearly 3,000 SHW employees work at Landmark Office Towers today.
John G. Breen Technology Center, Cleveland (Google)
  • One of SHW's oldest facilities is the Breen Technology Center, built in 1948 but was expanded 50 percent in 1998 to 140,293 SF. It was built next to SHW's pre-1930 headquarters and where SHW was founded in 1866. Today, it is the workplace for about 400 researchers and scientists. The facility is so full that most of Valspar's R&D staff had to remain in Minneapolis.
Sherwin-Williams Learning Center, Strongsville (Google)
  • In 1994, SHW opened its Sherwin-Williams Learning Center, 11350 Alameda Dr., in Strongsville. It purchased a 8,928-SF building and added two new buildings, bringing the total size of the complex to 24,150 SF. It is one of several such facilities around the country. An online curriculum also is offered.
Sherwin-Williams Automotive Finishes Corp. world head-
quarters and technical center, Warrensville Hts. (Google)
  • In 2000, SHW acquired a 388,766 SF, 80-acre manufacturing plant and office campus, 4440 Warrensville Center Rd., Warrensville Hts., from BP America (was a Standard Oil facility) for its Automotive Finishes Corp. global headquarters, research and development facility and training center. The administrative headquarters building measures about 30,000 SF and houses about 100-130 employees.
Skylight Office Tower, Cleveland, tenants and leases
(Morgan Stanley et al, CLICK TO ENLARGE)
  • Starting in 2014, SHW began leasing up to 51,810 SF in the Skylight Office Tower., across West 2nd St. from the Landmark Office Towers. With respect to 39,792 SF, SHW's lease began on April 1, 2014 and had an expiration date of Oct. 31, 2018 with a three-year lease extension option that SHW exercised. With respect to 12,018 SF, SHW's lease began on July 1, 2014 and has a current expiration date of March 31, 2020 with a three-year lease extension option.
Sherwin-Williams flex, Hinckley Pkwy., Cleveland (LoopNet)
  • In mid-2017, and according to SHW sources, about 225 SHW administrative employees began moving to 4770-4780 Hinckley Industrial Parkway in Cleveland. This 1985-built, former Charter One Bank check processing facility was sold in 2012 to IRG Dayton I LLC (former Ohio Realty Advisors) which marketed the 151,830 SF facility as an office/flex space. SHW began moving employees from downtown Cleveland, from Valspar in Minneapolis or creating new jobs to replace (rather than relocate) Valspar workers. I was able to locate more than $740,000 in building permits in the past year for SHW's remodeling 63,000 SF of offices in this structure and for the addition of a fitness center for SHW employees. Leasing information could not be located.
When you see a summary of the office space growth of SHW from the past 30 years and how scattered it has become, the need for a new consolidated headquarters facility becomes more apparent. The need existed before the Valspar acquisition. The need is even more acute now. With the Valspar integration process concluded, it is understandable why there are reports that SHW has returned its attention toward graduating from its nearly 90-year-old headquarters building and constructing a much larger, more efficient and modern structure to chart its growth for the next 90 years.

It remains to be seen whether SHW can advance planning for a consolidated headquarters enough beyond a conceptual level by January to where its representatives can discuss it publicly. If so, when its cadre of salespeople gather for the next national sales meeting in Orlando, they will feel even more proud about their company and its towering future.


Saturday, October 20, 2018

Cleveland's economy is kicking butt

Greater Cleveland's economic growth is now ranking with some
of the fastest growing big-city economies in the United States,
like Charlotte, Denver and Portland (photo courtesy of Aerial

In case you've missed it, and judging by the lack of coverage in local mainstream media you have, but Greater Cleveland's economy has managed to win some serious momentum in recent months.

September jobs data from the U.S. Bureau of Labor Statistics (BLS) just came in this past week (see chart below). It showed that Greater Cleveland's employment grew by 2.7 percent compared to September 2017 year-over-year (YOY). That would have been an increase over August's robust 2.5 percent increase YOY, except that August's preliminary data was adjusted upward to 2.7 percent in this latest report.

And that followed a nearly-as-robust June and July when Cleveland not only outgrew every other big city in Ohio -- it was one of the fastest growing in the Midwest.

Well, don't look now (OK, go ahead and look), but Greater Cleveland's employment is now growing at a pace that puts it among the fastest growing metropolitan areas in the United States.

The latest set from the U.S. Bureau of Labor Statistics
shows September 2018 preliminary job data and that of
recent months for Greater Cleveland's economy and its
various job sectors (CLICK TO ENLARGE).
Out of large metro areas with more than 500,000 employees, BLS data shows only 15 had percentage increases greater than Greater Cleveland's. In August, we were on par with traditional-growth metros like Charlotte, Denver and Portland. And that was before Cleveland's preliminary growth data got revised upward to 2.7 percent.

What's causing this employment growth? Sure, our expansion of eds-n-meds (Education and Health Services) continues to grow. It's now at the highest level of employment ever. Leisure and Hospitality (aka tourism, conventions, etc.) is at record levels with Professional and Business Services (Progressive and AmTrust insurance being some of the biggest growth contributors here) coming up third. Construction is also booming, with 4,000 more construction jobs now compared to last year.

But the biggest contributor to Cleveland's job growth is an old friend who's been down on its fortunes for decades -- manufacturing. Its growth came in at a blistering 5.9 percent in September. That's not an anomaly either. Cleveland-area manufacturing has been growing in the neighborhood of 3-5 percent all year.

And that's been a pretty attractive neighborhood. All of this job growth is drawing new residents from all over the country and beyond. Perhaps you've noticed the many out-of-state license plates around town, the new faces at your child's day care or the new customers at your favorite fitness center, which I wrote about last March.

If this can be sustained -- and the August numbers being revised upward makes me hopeful it can -- metro population growth is either happening already, or soon will be. Then perhaps Greater Cleveland can soon get back to the employment numbers we last saw prior to 2001.


Thursday, October 18, 2018

Gentrification takes a Vantage in Ohio City

Vantage Place, a residential facility for elderly mental health
patients on Franklin Boulevard, has reportedly sold to The
Dalad Group that will convert it into luxury apartments.
Gentrification and Cleveland aren't words that have gone together much in recent decades. But they're mixing more often and, unfortunately, forcing more persons to relocate without them reaping financial windfalls from real estate sales.

The latest is due to occur in the coming months at Vantage Place, 3105 Franklin Blvd., in the Ohio City neighborhood. It will be sold to The Dalad Group based in Independence. Terms of the deal, which hasn't yet closed, were unavailable. The site includes three parcels totaling 1.376 acres and four buildings, valued in total at $1.3 million by the county for tax purposes.

Reportedly, Dalad will redevelop the site with market-rate apartments but no plans are available yet. The existing four buildings include a brick mansion built circa-1900, a three-story 56-unit apartment building constructed in 1915, a maintenance/storage building from 1915, and a 1-story common area built in 1960, according to county records.

In the early 20th century, the site was turned into a women's residential center by the Young Womens Chrisitan Association. In 1960, it was purchased by the Sisters of the Humility of Mary as a residence for the Sisters teaching at Lourdes Academy first located across the street at 3007 Franklin and later moved to 4105 Bridge Ave., according to former resident Sister Mary Hurley, HM. It became a private healthcare facility starting in 1976 when the Coury family (of the Aristocrat Berea Nursing Center) purchased it.

This turn-of-the-19th century mansion and a 1960-built common
area may figure into The Dalad Group's as-yet-unknown plans
for redeveloping Vantage Place's four structures.
Vantage Place has up to 86 elderly residents, many with varying degrees of mental illness. They are being forced to move by the end of the year to other facilities licensed and subsidized by the Ohio Department of Health as Residential Care Facilities.

Staff at Vantage Place were informed this week that the property is under contract to sell to a real estate developer and the subsidized facility will close in January. Although residents won't be thrown into the street, there is no plan in place for relocating them, according to staff.

The backstory is that the governmental funding that subsidizes Vantage Place has been reduced or eliminated due to recent federal budget cuts. That also reduces the options for relocating Vantage Place's residents to new locations.

The property is owned by TSCS Real Estate LLC which, in turn, is owned by Thomas Scheiman, 61, of Parma. Word is that Scheiman is retiring and, with the government budget cuts, he is losing money at Vantage Place.

Reportedly, Ohio City Inc. has had some initial conversations with Scheiman about buying the property and converting it into small, affordable apartments. But considering Scheiman's personal situation, when Dalad came calling and offered more money, it apparently was an easy choice for Scheiman.

While it is not a unique situation for a lower-income occupant to be displaced by market-rate housing in Ohio City, it is unique for 86 elderly person with mental health problems to be forced out. Skyrocketing real estate prices on the near West Side are the result of a boom in population and development in Ohio City, Tremont and the Detroit-Shoreway neighborhoods. The fate of a subsidized care facility like Vantage Place is but the latest, albeit acute symptom of this metamorphosis.


Friday, September 28, 2018

Cleveland: Nearly 40 towers planned

Among all phases of the Circle Square (was University Circle
City Centre/UC3), the One/Two University Circle and Park
Lane Condos developments, 13 buildings of 10+ stories were
built/are planned in the area of Euclid/Chester and East 105th/
Stokes, recreating a second downtown that existed here prior
to the 1970s (Midwest)(CLICK IMAGES TO ENLARGE).

A remarkable building boom is under way in Greater Cleveland. Because of a strong economic recovery that's been picking up momentum here over the past five years, there are more large building projects in the metro area now than at any time in perhaps the past 50 years.

By my count, there are approximately 39 buildings of 10 stories or taller that were completed since last year, are under construction, are about to begin construction or are planned. Of course, not all are going to get built because some are "plans" put out there for a real estate developer to generate publicity and/or test the market to see what can be economically justified.

Unlike the last boom, which featured many 10+ story apartment buildings in the suburbs of Lakewood, Euclid, Parma, Mayfield Heights, and elsewhere, nearly all of the structures in this current boom are in the city of Cleveland. And, unlike the last construction boom, there are also now many residential conversions of obsolete office buildings, many of which are 10+ stories tall. They are not included in this count.

This article ranks new construction projects based on their likelihood of a groundbreaking within the next five years. Their likelihood is based primarily on the project's current development status. Some developments are multi-structure projects; one or two buildings from each of those larger plans might see a groundbreaking by 2023.

Completed projects are, of course, listed first. Those with most or all of their financing in place and a nearer-term ground-breaking date are ranked as next-most likely. Other factors are the locations where these buildings are built and who the developers are. Some developers have a knack for quickly delivering projects. Others don't.

One thing that is not taken into account is the future of the national and global economy. If the economy tanks, most of these developments will probably get put on the shelf or killed outright. But no one knows when the economy will ebb again so that variable is omitted.

But we do know the Cleveland economy is humming right now, hence the justification for this building boom.

Cleveland was the fastest growing big-city economy in Ohio in 2017 and that pace is continuing well into 2018 so far. Not only was it the fastest growing economy in Ohio so far this year, but Cleveland was one of the fastest growing in the entire Midwest in June. Global real estate giant CBRE ranked Cleveland 8th out of the 50 fastest growing tech economies in the U.S. and Canada in the past two years. Lastly, San Jose, CA and Cleveland tied as the metro areas achieving the fastest wage growth in the second quarter of 2018, according to There's a reason why there's optimism in Cleveland's air.

So here's the building projects starting with those completed in the past year:

The Edge on Euclid (one tower of 10+ stories), 1750 Euclid Ave. --
Opened: Fall 2017
Height: 11 stories
Square footage: 262,000
Residential units: 240 apartments
Investment: $60 million
Developer(s): St. Louis-based CRG and San Diego-based Koman Group
Description: provides downtown off-campus housing and amenities for Cleveland State University students and affordable urban apartments for young professionals. Built on the site of the former Jewish Federation of Cleveland offices.

One University Circle (Joshua Jones)
One University Circle (one tower), 10730 Euclid Ave. --
Opened: Summer 2018
Height: 20 stories, 234 feet
Square footage: 533,000
Residential units: 276 apartments
Investment: $116 million
Developer(s): Cleveland area-based Petros Homes, First Interstate Properties Ltd.
Description: University Circle luxury residential tower built on mostly vacant lot.

The Beacon (UrbanOhio)
The Beacon (one tower), 515 Euclid Ave. --
Opening: Spring 2019
Height: 28 stories, 355 feet
Square footage: 440,000
Residential units: 187 apartments
Investment: $94 million
Developer(s): Cleveland-based investor Reuven Dessler and Stark Enterprises
Description: downtown 19-story luxury residential tower atop 9-story parking garage built in 2005.

The Lumen (PHS)
The Lumen (one tower), 1650 Euclid Ave. --
Opening: Summer 2020
Height: 34 stories, 396 feet
Square footage: 602,000
Residential units: 318 apartments
Investment: $135 million
Developer(s): Playhouse Square Foundation and Houston-based Hines Interests Ltd.
Description: downtown luxury residential tower under construction on former surface parking lot.

Circle Square (SO-IL+Kurtz)
Circle Square (three to eight towers), Euclid/East 105th/Chester/Stokes --
Groundbreaking: First phase Summer 2018
Height: First new building is proposed to be as tall as 10 stories, with later buildings in the 5-20 stories range
Residential units:700 units (all phases)
Retail/office/community space: 150,000 square feet (all phases)
Investment: $300 million (all phases)
Developer(s): Cleveland-based Midwest Development Partners and Orlean Co.
Description: More than $16 million in renovations to the 13-story Fenway Manor began in the summer of 2018. New construction, featuring up to a 10-story apartment building above a new MLK Branch Library, is scheduled to begin in 2019. In total, this is a four-block development that will demolish the old MLK Branch Library, the vacated Third District Police station, eliminate higher-speed turning lanes from Chester-east to Stearns-south, replaced by at least three new buildings of up to 10 or more stories and four more buildings that could be nearly 10 stories tall or more, depending on demand and financing. A dozen for-sale townhouses are planned on the site of a former roller rink/used car lot, now park land along Stearns Road.

Church & State (Hemingway)
Church & State (one tower), 2850 Detroit Ave. --
Groundbreaking: Fall 2018
Height: 11 stories (second building of six stories)
Residential units: 161 apartments
Investment: $57 million
Developer(s): Cleveland-based Hemingway Development
Description: Two buildings with apartments over ground-floor retail, adjacent to new public space, to be built on a vacant lot. This project is so imminent that it will likely be in the "proposed"category for only one more week after this blog is published.

Kenect Cleveland (Wolstein/Akara)
Kenect Cleveland (one tower), Main at West 11th --
Groundbreaking: Winter 2019
Height: 12 stories
Residential units: 309 apartments
Investment: $150 million
Developer(s): Cleveland-based Scott Wolstein and Chicago-based Akara Partners
Description: Luxury apartment building with ground-floor retail, adjoining movie theater and riverside restaurants. This is the third phase of the Flats East Bank development and will be built primarily on a surface parking lot. It is an imminent project with a developer Akara that has a knack for delivering projects.

Top Of The Hill (Eppstein Uhen)
Top Of The Hill (one tower), Cedar at Euclid Heights --
Groundbreaking: Summer 2019
Height: new plans now show one building up to 10 stories tall
Residential units: up to 285 apartments and 20 townhomes
Office space: unknown
Hotel space: unknown boutique hotel
Retail space: up to 14,000 square feet
Investment: up to $80 million
Developer(s): Indianapolis-based Flaherty & Collins
Description: This Cleveland Heights development is only one of two projects in this article outside of the City of Cleveland. It is a multiple-structure, phased development proposed on vacant land and surface parking lots at the top of Cedar Hill, above University Circle.

One Lakewood Place (RDL)
One Lakewood Place (one tower), 14519 Detroit --
Groundbreaking: Fall 2019
Height: one of the many structures could be up to 10 stories
Residential units: 200 apartments, 60 townhomes
Office space: 100,000 square feet
Retail space: 84,000 square feet
Investment: up to $100 million
Developer(s): Cleveland area-based Carnegie Management and Development Corp.
Description: This mixed-use development is only one of two projects in this article outside of the City of Cleveland. It will be constructed on the site of the now-closed Lakewood Hospital. Pre-demolition hazardous material abatement has begun on the former hospital after some of its medical facilities were moved next door to the new Lakewood Family Health Center.

Market Square (HPA)
Market Square (two towers), West 25th at Lorain --
Groundbreaking: Fall 2019
Height: 12-story office building, 10-story residential building
Residential units: 260 apartments
Office space: 137,000 square feet
Retail space: 36,000 square feet
Investment: approximately $130 million
Developer(s): Chicago area-based Harbor Bay Real Estate Advisors
Description: Transit-oriented mixed-use development including indoor and outdoor public spaces built on the site of an existing strip shopping center, next the RTA's Ohio City Red Line rail station. Harbor Bay has a proven record of developing projects in many Midwest cities.

nuCLEus (Stark)
nuCLEus (two towers), Prospect/East 4th/Huron --
Groundbreaking: Unknown
Height: prior plan was for a 54-story main tower
Residential units: up to 500 units, mostly apartments
Office space: 200,000+ square feet
Retail space: 150,000 square feet
Investment: up to $540 million
Developer(s): Cleveland-based Stark Enterprises
Description: Transformational mixed-use development on one of downtown's largest parking craters. Due to difficulties in securing gap financing, Stark may scale down the project including eliminating the hotel bridge building between Plot A and Plot B and significantly reducing the height of the residential tower. However, the office tower may actually increase in size and be the first phase of this project due to tightening of the Class A downtown Cleveland office market.

Flats South Innovation District (Dimit)
Flats South Innovation District (two towers), West 3rd at Stones Levee --
Groundbreaking: Unknown
Height: 12 stories each tower
Residential units: 240 apartments, 45 townhomes
Office/retail space: 81,300 square feet
Investment: approximately $100 million among all three phases
Developer(s): Cleveland area-based Joel R. Scheer Real Estate and Welty Building Co.
Description: Two identical 12-story apartment buildings are proposed, along with a wide variety of mixed uses. Demolitions of 1900-1960 W. 3rd were approved by the city in September to prepare for construction for the first phase of the Flats South development, which is proposed for a riverside industrial area that's long been underutilized.

Phase II site--One University Circle (Dimit)
Two University Circle (one tower), Euclid at Stokes --
Groundbreaking: Unknown
Height: Potentially 20+ stories
Residential units: Approximately 200 units
Investment: $100+ million
Developer(s): Cleveland area-based Petros Homes, First Interstate Properties Ltd.
Description: University Circle luxury residential tower built on a surface parking lot. Developers were pleasantly surprised at the very robust leasing of their first phase but tenants are reportedly disappointed that there is no lease-to-buy option. So condominiums may be available in a second phase.

Park Lane Condominiums (Finch)
Park Lane Condominiums (one tower), 10570 Park Lane -- 
Groundbreaking: Unknown
Height: 11 stories
Residential units: 18 condominiums
Investment: $20 million
Developer(s): Boca Raton, FL-based Finch Group
Description: This development is a follow-up to Finch's Park Lane Villa and would provide for-sale units on top of a parking garage entrance, between the villa and the 11-story Judson Manor, just north of the massive Circle Square development that's getting under way.

One West Twenty (Vocon)
One West Twenty/Duck Island (two towers), 2000 Lorain --
Groundbreaking: Unknown
Height: At least one building and possibly two may be 10+ stories
Residential units: was 500 apartments but may be more
Investment: was $100 million but may be more
Developer(s): NA
Description: The project and its properties were sold by an Andrew Brickman-led company to a nationally prominent real estate developer which seeks to increase the scale of the project. Existing zoning allows for structures of up to 13 stories. The site was mostly cleared by Brickman except for a small, remaining structure, the offices of Hauck Painting.

2210 Superior Viaduct (City Architecture)
2210 Superior Viaduct/Flats West Bank (one tower), 2210 Superior Viaduct --
Groundbreaking: Unknown
Height: 11-20 stories
Residential units: 64 apartments
Investment: unknown
Developer(s): Cleveland area-based Downtown Ventures LLC
Description: The developer, led by Daryl Kertesz, has a contract to buy the property but hasn't yet sought to demolish the small industrial building on the site. The developer would like to build a 20-story tower but is proposing only 11 stories at this time.

Nautica Waterfront District (GDP Group)
Nautica Waterfront District (seven towers), Main and Center --
Groundbreaking: Unknown
Height: 10-27 stories
Residential units: 664 apartments
Hotel space: unknown 150-room hotel brand
Office space: 187,000 square feet in 15-story building
Retail space: unavailable
Investment: $405 million
Developer(s): Cleveland area-based Jacobs Investments, Inc.
Description: Jacobs purchased 22 acres of mostly parking lots as well as several nearby buildings on the West Bank of the Flats for a massive, mixed-used development including seven buildings of at least 10 stories, starting with a 15-story office building and 12-story hotel, followed by two 27-story residential buildings connected mid-tower, three 10- to 12-story apartment buildings plus structured parking, public plazas and private marinas

Weston Superblock (Gensler)
Weston Superblock (four towers), Superior/St. Clair/West 3rd/West 6th --
Groundbreaking: Unknown
Height: 24-37 stories
Residential units: 1,500 apartments
Hotel space: unknown brand 250-room hotel
Office space: 1 million square feet primarily in a 37-story building
Retail space: 123,200 square feet
Investment: up to $1 billion
Developer(s): Cleveland area-based Weston and Citymark Capital
Description: 3 million square feet of development was proposed on mostly Weston-owned parking lots to which Weston has purchased more pieces of land to completely own the entire Superblock except for the Stark HQ. However there has been no news about this project in a year and it isn't even mentioned on Weston's website.

Settlers Point Tower (Dimit)
Settlers Point Tower (one tower), 1400 West 10th --
Groundbreaking: Unknown
Height: 19 stories
Residential units: up to 30 apartments or condominiums
Investment: up to $40 million
Developer(s): Cleveland area-based Joel R. Scheer Real Estate and Welty Building Co.
Description: Residential tower is proposed by the owner and developer of the adjacent and historic Settlers Point Building. It would be built between that building and the neighboring Riverbend Condominiums on a parking lot owned by Scheer. There has been no publicity or announcement about this building; just a casual reference to it on a map on Scheer's website as well as a "Happy July 4th" rendering that didn't mention the proposed building's name that was shared on the website of Scheer's architect, Dimit.

Two additional projects could someday appear on this ranking. One is a possible mixed-use redevelopment of the Lutheran Hospital's parking lot bounded by West 25th, Franklin, West 28th and Aust. Cuyahoga County property records show that an affiliate of commercial real estate developer Weston Inc. purchased property at 1550 W. 25th. This is a partnership with the Kertesz family to develop this site.

However, in recent years, community development officials have discussed developing the 5-acre Lutheran Hospital parking lot with one or more multiple-story buildings and consolidating the hospital parking into a new garage farther south. This development is being motivated further by the progress in establishing Irishtown Bend Park across West 25th that will provide an attractive view of downtown from the redeveloped hospital parking lot.

The other possible tower is a new, consolidated headquarters for the Sherwin Williams Co. The coatings company's offices and research facilities are spread among four buildings in Cleveland, including their historic headquarters in the Landmark Office Towers, 101 Prospect, plus their expanded offices in the Skylight Office Tower across West 2nd Street, 4780 Hinckley Industrial Parkway and the Breen Technology Center, 601 Canal.

Sherwin Williams was considering a new consolidated headquarters before 2016 when it began efforts to acquire Valspar Paint, then-headquartered in Minneapolis. Sherwin Williams has recently wrapped up all legal work from that acquisition, settled its reorganizing of employees, and begun adding new employees again. Once the company also pays down its debt to a satisfactory level, it may reconsider building a new headquarters.

That's my ranking of the likelihood of potential 10+ story building projects around Greater Cleveland.


Tuesday, September 4, 2018

Smaller nuCLEus may come from a Dream

A new Dream Hotel in Nashville involves lots
of new construction, except for an historic six-
story building at the right. Everything else is
new, including several facades designed to look
historic (CLICK TO ENLARGE, ESa graphic).
Two rumors about new real estate developments may not be unrelated as they first appeared. In fact, they may be directly connected.

The first rumor is that Stark Enterprises' nuCLEus development may be going forward after all, albeit scaled back. The second rumor is that a boutique hotel is coming to the Warehouse District.

Reportedly, a Dream Hotel is in the early stages of working with a developer to locate on St. Clair Avenue. Details are scarce about the location for this international chain of boutique hotels, other than "St. Clair in the Warehouse District." But hotels often follow themes in how they build and operate and we can learn about future plans by looking at projects they've already done and how they might evolve.

Based on Dream Hotel's themes in its existing or under construction sites, they like to repurpose older buildings. Their locations in New York, Miami and Hollywood are all repurposed historic structures. They are large boutique hotels, ranging in size from 169 to 314 rooms. Typically, boutique hotels are smaller, about 10-100 rooms.

With their Nashville location, due to open Feb. 1, 2019, they repurposed a six-story, historic commercial building. But they also built a new, 10-story structure alongside it, albeit with historic-looking facades on 4th Avenue North, a main thoroughfare. Their planned Dallas location will be a brand-new, 13-story building on historic Mockingbird Lane in the Uptown area. It was originally going to be a 128-room hotel but was increased to 264 rooms.

On St. Clair in Cleveland's Warehouse District, underutilized or vacant buildings are scarce. A possible location for Dream Hotel's Cleveland location could be on a parking lot, site of the long-planned Superblock development by Weston Inc. It might also involve repurposing the for-sale, 2002-built Reliance Building, 959 West St. Clair, next to the Flats. Those would reflect Dream's growing interest in newer structures. But Dream's philosophy is more about historic buildings and historic districts.

Stark Enterprises' headquarters building, at 1350 W. St. at St.
Clair in the Warehouse District, was once an ornate, but soot-
covered commercial building. The view at left is from 1964
with its modernized version seen in 2017 (CPL, Google)
To me, that points to the for-sale headquarters of Stark Enterprises, 1350 W. 3rd St., on the southwest corner of St. Clair. While this building looks relatively new, it was actually built in 1900. It was modernized in the late 1960s with a contemporary skin. Underneath is ornate masonry, much like the Schofield Building at Euclid Avenue and East 9th that had its modern skin removed and its elaborate Victorian facade beneath meticulously restored.

At 18,290 square feet, Stark's HQ is slightly larger than the Reliance Building. If converted into a boutique hotel, it could reasonably accommodate about 40-50 hotel rooms. If more rooms are desired, a historic-looking building could be built on the Weston-owned parking lots surrounding it. There is no room by the Reliance Building for expansion. Stark's asking price for its five-story headquarters is $2.9 million.

If Dream Hotel is dreaming about Stark's HQ as its Cleveland location, then it might help explain the rumor about Stark's nuCLEus development. If and when Stark builds nuCLEus, founder Robert Stark said he would relocate the company's HQ offices to it. NuCLEus was originally planned as a 48- to 54-story, mixed-use complex with approximately 125,000 square feet of retail and restaurants, 200,000 square feet of office space, a 120-room hotel, 406 apartments, 36 condominiums and parking garage with 2,100 spaces.

The basic site plan for nuCLEus will likely remain unchanged
except for the deletion of the hotel. The office tower (Plot B)
will likely be taller and the main parking deck (Plot A) along
with residential tower above it will likely be shorter (Stark).
Relocating 15,000 to 20,000 square feet of office space for a real estate development's sponsoring company to said development may provide more motivation to fill some gaps in the project's capital stack. But it doesn't fill it. Not even close. Even if Stark got its sale asking price of $2.9 million for 1350 W. 3rd, or will retain ownership and has a nice lease deal in the works with Dream, neither is enough to move the fiscal needle on nuCLEus -- a massive development with a $542 million price tag.

But the new rumor is that nuCLEus will be smaller than originally planned and be built in phases. The office component, now proposed to be slightly larger, is needed more urgently. Not only is Cleveland's Class A office market getting tight, but if Dream Hotel wants the old Stark HQ, then Stark needs a new HQ to relocate to sooner rather than later. Stark originally proposed a 13-story (minus a public parking pedestal) "Plot B" for nuCLEus, with floor plates of about 35,000 square feet. This building would not only contain nuCLEus' office component, but dedicated parking for the offices, building mechanicals and ground-floor retail/restaurants. It is unlikely Stark would increase the height of this building above 20-25 stories or it would require digging costly caissons to bedrock.

While the amount of reduction in the residential component is unknown, one might look to Playhouse Square for an answer. There, the 34-story Lumen apartment tower is under construction because the project's sponsor, the nonprofit Playhouse Square Foundation, is not interested in a profitable return on its investment. Its return will instead come in the form of a more vibrant district, including busier restaurants, stores and theaters.

Stark may be after the same thing. The residential component could be viewed as a loss leader (or, more likely, a break-even leader) for the rest of the development which is heavy on retail and restaurants. Stark's 28-story The Beacon tower located one block away has topped out the height of its steel skeleton construction and, when completed and filled next year, will also offer a supply of several hundred residents with purchasing power. The Beacon was built on an already existing parking pedestal and so might the residential building for nuCLEus, depending on Stark's new phasing plan.

Removing the 150-room hotel from the development plan, including its costly bridge between two towers at the 18th-story level, would drop the project's overall cost by tens of millions of dollars. And removing the hotel from nuCLEus makes sense if Stark is the one involved with Dream Hotel in the Warehouse District.

Furthermore, if the residential tower is reduced to roughly the size of the Lumen tower, nuCLEus' cost would drop by another $60 million or so. With 150 hotel rooms and nearly as many residential units removed from the plan, that means less structured parking too. Scratch another $20 million or so from the parking cost.

By the time the "value engineering" is done, nuCLEus could be a $350 million to $400 million project, including for-sale townhouses lining Prospect Avenue and five or more floors of condominiums at the top of the residential tower.

The proposed Warehouse District hotel and a first-phase office tower at nuCLEus will help continue the momentum of downtown Cleveland.