Snavely, investors acquiring Vibrator site for Hingetown project

The familiar sight of the Cleve-
land Vibrator Co. in Ohio City
is due to give way to a fourth
phase of the Snavely Group's
mostly residential Hingetown
real estate development (KJP).
CLICK IMAGES TO ENLARGE

Cleveland Vibrator Co., one of the most recognizable names in local manufacturing, will move its operations to the city's Old Brooklyn neighborhood. In its place will be what amounts to the fourth phase of Snavely Group's ever-growing Hingetown development.

Pete Snavely Jr., vice-president of development at his family's Chagrin Falls-based development firm, confirmed the pending acquisition of the 1.715-acre, 14-parcel property bounded by West 28th and West 29th streets, as well as Church and Clinton avenues. Terms of the pending deal were not disclosed.

The property, and indeed the 96-year-old Cleveland Vibrator Co., are actually owned by 2828 Clinton Inc. To facilitate the property's ownership and development, Snavely Development Company (SDC) on Aug. 29 registered two new firms: SDC Residential – 2828 Clinton LLC as well as 2828 Clinton Avenue LLC, according to the Ohio Secretary of State's office.

Site of Cleveland Vibrator Co.'s 1.715-acre, 14-parcel property
in Ohio City's Hingetown section. Also on the same block is
 the Ohio City Firehouse, the Malachi House and the Banana
Blossom Thai Cuisine restaurant which, presumably, will
remain untouched by Snavely's fourth phase (Google).

As reported here at NEOtrans in February, Snavely initially intended to design the fourth phase of its Hingetown master development around the new offices of The Adcom Group. The full-service marketing and communications firm is headquartered at 1370 W. 6th St. in downtown Cleveland's Warehouse District, above Starbucks Coffee.

In Snavely's fourth phase, Adcom's offices would have relocated to the ground floor of a new building topped by residential. But Adcom CEO Joe Kubic said that plan was scrapped due to its high cost. That doesn't mean he has lost interest in redeveloping that site, however. Quite the opposite.

Snavely's third phase along Detroit Avenue between West 26th
and West 28th streets will have a commanding street presence.
But the fourth phase will be located off the main thoroughfare
and in a neighborhood of smaller-scale buildings (Vocon).

"Myself and other investors, including the Snavely Group, are in the process of buying the Cleveland Vibrator site," Kubic said. "We haven't determined what we are going to do with it yet, but we hope to soon. It's a great site, in a great community and we are excited to continue to explore our options there."

Kubic and others at Adcom, founded in 1990, haven't decided if they will look for another location to move the 120-employee headquarters. But a decision has already been made to relocate Cleveland Vibrator and its roughly three dozen workers from its 27,000-square-foot plant that has much outdoor storage. The company manufactures material handling equipment.

Construction barriers went up this week along Detroit Avenue
and West 28th Street for Snavely's third phase (KJP).

Cleveland Vibrator's new location will be at 4544 Hinckley Industrial Parkway in Cleveland, two sources said. The site is the former Watt Printing building located just south of the Jennings Freeway's interchange with Spring Road/Hinckley Industrial.

The property currently is owned by the Gergel-Kellem Company Inc. according to Cuyahoga County records. The 3.14-acre property and 60,790-square-foot building was listed for sale at $3.25 million.

Craig Macklin, president of Cleveland Vibrator, did not respond to an e-mail seeking comment for this article. Thus it is not known when the company will relocate.

The former Watt Printing plant, built in 1996 at 4544 Hinckley
Industrial Parkway in Cleveland, will be the new home of the
Cleveland Vibrator Co., according to two sources (LoopNet).

However, the firm on Sept. 10 was approved by the Ohio Air Quality Development Authority  (OAQDA) for $160,000 in Air Quality Revenue Bonds to install air quality facilities at its new plant.

Cleveland Vibrator also was awarded two grants by OAQDA. One grant will cover the financing closing costs and the other will pay up to 30 percent or $30,000 of the principal amount.

Visible construction got underway this week for phase three of Snavely's Hingetown development, featuring 88 apartments in two buildings. One is an existing structure -- the three-story Painters Union building at 2605 Detroit Ave. that is due to be renovated. Next to it will be a newly built, five-story building.

Not all of the block being bought up for Snavely's fourth phase
of development was owned by the Cleveland Vibrator Co. The
block includes several buildings that may not be be a part of the
development, such as Banana Blossom Thai Cuisine restaurant
and, at left, the Malachi House which provides hospice care
and housing for terminally ill persons (KJP).

Phase two was completed this year -- the renovation of the historic Forest City Bank Building and Seymour Block on the southwest corner of Detroit and West 25th Street. The two buildings were updated with ground-floor commercial uses and 38 affordable apartments above.

Last year, Snavely built the first phase at the northwest corner of Detroit and West 25th -- The Quarter, consisting of 194 apartments above 30,000 square feet of ground-floor commercial space.

END

$175 million Market Square development gets new life

Although Harbor Bay's Market Square development may not
be as big as it would have been with the financing that was
minutes away from being OK'd by the State of Ohio, it will
still be a big improvement for Cleveland's Ohio City neigh-
borhood. This old rendering of Market Square shows a plaza
off Lorain Avenue (HPA). CLICK IMAGES TO ENLARGE

Like a tree at risk of getting chopped down, a $175 million development in the heart of Cleveland's Ohio City neighborhood was in danger of being felled. But instead of hearing the cry "Timber!" Clevelanders should soon see a new plan released for the construction of buildings here.

The large mixed-use development combining residential, retail and offices in two connected, uniquely timber-framed buildings at Lorain Avenue and West 25th Street was in danger of being axed by an impasse between the city and Chicago-based developer Harbor Bay Real Estate Advisors.

On one side, Harbor Bay sought a source of non-conventional financing that included an unusually long (30 years) and expansive (affecting not just residential but commercial uses, too) property tax abatement without civic and public input.

And while the school district and Cleveland Metroparks were willing to consider a shorter abatement term, the City of Cleveland refused to concede its abatement powers to a state entity -- in this case the Ohio Air Quality Development Authority (OAQDA).

But the impasse was addressed at a Sept. 11 meeting between city officials and the developer. The project could go forward with city incentives rather than state help, although the development probably won't be in the same form as before, according to Harbor Bay Project Director Dan Whalen.

"We likely will have to revamp" the project, he said. "But we are moving quickly."

With West 25th Street in the foreground and West
Side Market's tower at far left, Market Plaza will
be a significant addition to Ohio City's Market
District and its urban vibrancy (HPA).

Part of the reason for the expedited development timetable is because Harbor Bay had to commit to contractors and suppliers by the end of September on whether it would proceed with construction.

"The project is 70 percent bid and we can hold those prices for only a limited time," he said.

Harbor Bay has invested nearly $10 million in the project so far, including buying a retail strip for which it has city permits in hand to demolish. City officials acknowledged the renewed positive dialogue and a shared willingness to move the project forward.

"Yes, there are productive conversations with Harbor Bay," said Ward 3 Councilman Kerry McCormack confirmed. "The (city's) normal economic development tools are on the table."

Those typically include a 15-year, 100 percent tax abatement on new-construction residential, with a tax-increment financing arrangement so the city can share the increased income taxes with the school district during the abatement period.

The existing Market Plaza retail strip has more in common with
auto-oriented suburban areas rather than an urban neighborhood
with a busy rail station and three 24-hour bus lines that get more
than 700,000 boardings at this site per year. Harbor Bay hopes
to increase that synergy by demolishing this retail strip and
constructing a transit-oriented development here (Google).

Harbor Bay had hoped to get $150 million in bond financing and the 30-year tax abatement approved at OAQDA's Aug. 13 board meeting. But last-minute letters of of opposition from the city, school district and metroparks nixed the financing and abatement.

OAQDA was approached because Market Square's timber framing would reduce emissions by 40 percent mostly from reduced heating and cooling, but also from avoiding the manufacture of steel and concrete. The most recent plan was for a 10-story office building and seven-story apartment building connected by a pedestal of ground-floor retail.

While Whalen wasn't prepared to say how the project would be changed, he said the timber framing for the buildings would remain.

"Timber will still be the focal point," he said.

Whalen also noted that all of Market Square's office and retail tenants will be new to Greater Cleveland, bringing more than 1,000 jobs and nearly $11.8 million per year in new sales and incomes taxes to the city and county.

END

Sherwin-Williams finally admits new HQ, R&D site search

This unofficial massing based on available information from
 several sources shows what a 1,000-foot-tall headquarters
tower would look like if located on the west side of down-
town Cleveland's Public Square, flanked on the west (right)
by a second tower about 500 feet tall for Sherwin-Williams
research center. This is viewed from Lake Erie (Geowizical).
CLICK IMAGES TO ENLARGE

After months of denials, Sherwin-Williams (SHW) finally has acknowledged publicly and officially that it is seeking a new home for its global headquarters and research-development facilities.

In a press release shared today, SHW Chairman and Chief Executive Officer John G. Morikis admitted what has been reported here at NEOtrans for nearly a year -- that the global coatings giant has outgrown its scattered offices throughout Greater Cleveland and is looking for a new HQ+R&D.

“The company’s significant growth and global expansion over the last several decades has resulted in a less than optimal configuration of headquarters, offices and R&D facilities across multiple locations,” Morikis said.

This action comes as a result of the company’s ongoing review of its facilities requirements as it seeks to best meet the current and future needs of its customers and employees, the company said.

After multiple articles written here at NEOtrans, Morikis and SHW's public relations staff issued at least two intra-office e-mails (including one just last week) urging staff not to publicly discuss the company's HQ+R&D facilities search.

This has been the location of Sherwin-Williams' headquarters
since 1930 -- the 900,000-square-foot Landmark Office Tower.
. Until the 1970s, SHW shared this 22-story building with three
other large companies' headquarters -- Sohio, Republic Steel and
the Erie-Lackawanna Railroad. Now, SHW owns the property
and occupies about 90 percent of the building (KJP).

As part of the exploratory process, SHW said officially that will consider multiple potential sites, including locations in Cleveland, Northeast Ohio and several other states. Any transition to new facilities is not expected to occur until 2023 at the earliest and would require approval by SHW's board of directors, the company said.

The reference to "other states" is likely to appease former Valspar workers now working for SHW in Minneapolis and other locales, according to several sources. The Cleveland suburb of Brecksville also has been mentioned, as the DiGeronimo family -- developers of the former Veterans Administration hospital -- have pitched their site for SHW's R&D facility and possibly the HQ as well.

Also, other sources reminded that SHW sent request for qualifications to the Cleveland offices of Turner Construction Co. and Gilbane Building Co. for the construction of 1.8 million square feet of HQ+R&D facilities. And, Cleveland-based architectural firm Vocon was retained to develop site alternatives for the new HQ+R&D facilities. SHW's attention to the Cleveland offices of those firms may be noteworthy.

Councilman Kerry McCormack, whose Ward 3 includes downtown Cleveland, didn't sound terribly worried about SHW leaving.

"We're in good communication with Sherwin-Williams," he said. "We'll do whatever it takes to keep them. But companies that want to attract talent are looking at moving into cities, not leave them. We are going to work closely with Sherwin-Williams to make sure they have a great new home in Downtown Cleveland."

The days are numbered for Sherwin-Williams' John G. Breen
Technology Center, 601 Canal Rd. But they also appear to be
numbered for the coatings giant's larger research facility in
Minneapolis. Both may be consolidated as a result of major
changes to the growing company's space needs (Ohio EPA).
CLICK IMAGES TO ENLARGE THEM.

SHW's consideration of other cities/states for its HQ+R&D spaces may have more in common with Swagelok's recent facility search. In 2018, Solon-based Swagelok Co. issued an RFP for a new corporate headquarters and innovation center.

While company officials claimed that they would consider building a new home anywhere, few expected Swagelok to leave the city where it was founded in 1965. Sure enough, Swagelok decided to stay put and build a new Solon facility for 400 employees now, and possibly growing to 1,000 in the near future.

SHW's roots go 100 years deeper into Cleveland's soil. To pull them out would be a tremendous blow to the city and possibly to SHW as well. And it wouldn't merely be a public relations stain on SHW. All of SHW's headquarters employees and most of its research workers are located here.

A high-level source last week informed NEOtrans that SHW reportedly favors building its HQ+R&D on the west side of Public Square, the same location where SHW had proceeded to advance detailed civil engineering for a new HQ in 2014-15 before the firm decided to direct its resources to acquiring rival Valspar. SHW is on an increasingly speedy glidepath to pay down debt from the Valspar acquisition, possibly by 2022.

SHW has been in its current headquarters in the Landmark Office Tower at 101 W. Prospect Avenue in Downtown Cleveland, Ohio since 1930. The company expanded and filled out that building after it acquired it in 1985 and has since spread its 4,400 employees to multiple facilities in Greater Cleveland.

These facilities include the neighboring Skylight Office Tower, offices for the Performance Coatings Group at 4780 Hinckley Industrial Parkway in Cleveland, plus the Automotive Division Headquarters, 4440 Warrensville Center Rd. in Warrensville Heights. SHW also operates the Breen Technology Center, 601 Canal Rd. and additional automotive research facilities in Warrensville Heights.

The new HQ+R&D facilities will reportedly house 6,000 workers, several sources said.

Sherwin-Williams in 2017 leased this former check processing
center for Charter One Bank as the location for its Performance
Coatings Group. The 151,830-square-foot building is the work-
place for more than 250 SHW employees. The increasingly
scattered nature of SHW's office workforce is why Cleveland's
153-year-old, growing coatings firm is seeking a new global
headquarters and research facilities (LoopNet).

“Given the limitations of our current footprint and driven by the needs of our customers, we are exploring options that will help us to accelerate productivity and efficiency, enhance technology and innovation, enable greater collaboration, support recruitment and retention and reduce maintenance costs over the long term,” Morikis added.

In its press release, SHW said the company will update employees and external stakeholders on an ongoing basis as the multi-year process goes forward. In the meantime, SHW will continue to focus its efforts on the service, quality and innovations that fuel the company’s commitment to help customers around the world succeed, the company said in its written statement.

END

NuCLEus may be on hold for years

NuCLEus was proposed by a partnership of Stark Enterprises
and J-Dek Investments five years ago, but appears no closer to
seeing construction (KJP). CLICK IMAGES TO ENLARGE

The latest word on the proposed $350 million nuCLEus development is that its partnership appears to be waiting on the Ohio General Assembly's passage of a new financial incentive. That's according to a source with the City of Cleveland. Others in the real estate investment community confirm that the project is on hold.

The apparent decision to wait on the State of Ohio by the partnership, called Gateway Huron LLC, comprised of Stark Enterprises and J-Dek Investments Ltd., means that the project could be on hold for two to three years. The project was first announced in 2014.

That financial incentive is a so-called transformational tax credit, Senate Bill 39. It would create a new tax credit to incentivize the construction of transformational mixed-use developments (TMUD) in Ohio. NuCLEus would likely qualify, but it's not that simple.

NuCLEus is proposed to feature two 24-story buildings, one for residential and the other for offices, atop a muli-story pedestal of parking and retail between Prospect Avenue and Huron Road at East 4th Street.

According to Thompson Hine LLP, which helped draft the bill at the request of Stark, for a development to be considered a TMUD it must include a mix of land uses, have a development cost of more than $50 million and be 15 or more stories in height or at least 350,000 square feet.

The bill authorizes a nonrefundable insurance company tax credit of up to 10 percent of total eligible project costs for contributions of capital to eligible projects. The legislation still has to pass both the Ohio House of Representatives and the Ohio Senate in the same legislative session, then be signed into law by the governor.

Assuming that happens, it still doesn't guarantee that nuCLEus would be one of the certified TMUDs. Ohio's next biennial appropriations (budget) bill would have to authorize the number of TMUD credits the state will allow per year. Ohio just passed a biennial budget law this summer. The next one won't be passed until June 2021. A "budget corrections bill" is often passed in the intervening years, however.

Since construction costs in Cleveland are as high as those in
New York City or Chicago, but rents aren't anywhere near as
high, real estate developers say they need public financing to
help close financing gaps. A tax credit for "transformational"
projects is pending before the Ohio General Assembly (KJP).

So even if the number of credits is authorized in the budget corrections bill next year, nuCLEus would have to be one of the limited number of projects certified months later by the state's Director of  Development Services. Just because Stark staff thought of the TMUD credit, doesn't guarantee that nuCLEus would be among those chosen to receive one.

Ask developers John Carney, Bob Rains and David Goldberg who urged the creation of a $25 million Catalytic Historic Tax Credit to help finance their planned renovation of the May Co. building in downtown Cleveland. But their development project got passed over twice for the credit and ended up having to resort to a special earmark three years later at the conclusion of the program.

Ironically, the TMUD tax credit legislation has passed both the Ohio House and the Ohio Senate. It just hasn't done so in the same legislative session. House Bill 469 was passed by the House 91-0 in June 2018. But the term of the 132nd General Assembly expired at the end of 2018 before the Senate could pass it.

So in the 133rd General Assembly, Senate Bill 39 was introduced by Sen. Kirk Schuring. The Senate passed the nearly identical TMUD legislation by a 32-1 vote in July. The legislation was then introduced in the Ohio House and referred to the its Economic and Workforce Development Committee. No committee hearings have been scheduled for the remainder of the year but that can and probably will change.

Even if SB39 becomes law by year's end, the number of TMUD credits per year still has to be authorized by a budget bill sometime thereafter. Then, hopefully nuCLEus would win one of the TMUD credits perhaps as early as 2021 -- seven years after the project was first announced.

NuCLEus' prospective anchor tenant, Benesch Friedlander Coplan & Aronoff, has been remarkably patient. In 2015, it agreed to occupy 66,500 square feet in nuCLEus' office building, estimated to measure 400,000 square feet. A 250-unit residential building also is proposed.

Stark has attempted different public financing schemes to help pay for nuCLEus' construction costs. They included a tax-increment financing scheme involving the school district in 2017 when nuCLEus was proposed as a 54-story tower. Earlier this year, Stark sought a $12 million forgivable loan from the city. Neither scheme won acceptance.

These are the proposed uses in the two towers, representing
Stark Enterprises' current plan for nuCLEus (Stark). 

Ezra Stark, chief operating officer, of Stark Enterprises did not respond to two e-mails seeking comment for this article. But he recently chided the City of Cleveland for its "localism" and "stubbornness" in not embracing innovations in a recent blog.

As an example, Stark cited the city's blocking of the introduction of Bird electric scooters which had chosen Cleveland among its first 100 cities for its e-scooters. Despite that the scooters would improve the city's quality of life, Stark said "bureaucratic red tape, political posturing and a very unfortunate accident" kept Bird from introducing them here for many months.

Earlier this summer, Stark said he would not comment on the status of demolitions involving nuCLEus, citing a "delicate" political matter involving the city.

In related news, on Sept. 6, the City Planning Commission unanimously tabled a request by Stark Enterprises to demolish its vacant Herold Building, 310 Prospect Ave., next to the proposed nuCLEus site.

It did so a day after the commission's Design-Review Committee voted 7-3 against the demolition. The committee's vote was only advisory whereas the commission's vote would have been binding.

Stark asked the commission to table its request following the committee's negative recommendation so that it could work with the Historic Gateway District on seeking tax credits to renovate the building. The demolition was proposed in response to the city's condemnation of the Herold Building due to its many building code violations.

Rebecca Molyneaux, vice president of development at Stark Enterprises, told the committee it would cost $6 million merely to address the code violations. It could cost another $1 million to mothball the structure or millions more to renovate the building into a marketable property.

The committee on Sept. 5 offered to table Stark's demolition request but Stark initially refused. The committee then advised the Planning Commission to deny the demolition at its meeting the following day. At the Planning Commission meeting, Stark finally agreed to table its request.

Downtown Cleveland properties outlined in red are those that
that Stark Enterprises or a Stark-led partnership with J-Dek
Investments acquired in late-2014. The group of properties at
right is where nuCLEus is proposed. The group at left is the
site of a possible high-rise development. Public Square is
 located in the top-center of this satellite image (Google)

Stark inherited the Herold Building as part of a larger portfolio of properties it acquired in 2014 from L&R Group of Companies for $26 million. L&R also tried to demolish the Herold Building but was rebuffed by the city. It discovered that it is extremely difficult to demolish a building in a designated Cleveland historic district.

That portfolio not only included the 3-acre parking lot where nuCLEus is proposed to rise, but also a 2.33-acre parking lot at West 9th Street and St. Clair Avenue. The latter site is reportedly involved in discussions for a possible high-rise residential development.

Stark also has experienced delays in Downtown Pittsburgh in trying to develop the $63 million Smith & Fifth project, previously called the Icon on Smithfield. The project would renovate the former Frank & Seder department store into apartments over restaurants. Stark bought the property nearly three years ago.

The start of construction has been postponed further, now expected to start in early 2020. The delays in developing the vacant building have become a source of impatience for some, according to an August article in the Pittsburgh Post-Gazette.

END

Sherwin-Williams HQ, R&D sites identified

This is an unofficial massing based on Sherwin-Williams'
favored location for its new headquarters and research center.
Shown as the tallest two yellow towers, they will reportedly
be on the west side of Public Square in downtown Cleveland.
The 1.8-million-square-foot complex does not include parking,
but likely will involve a new parking garage for many of the
6,000 workers (Geowizical). CLICK IMAGES TO ENLARGE

A high-level source has identified that the Jacobs Group-owned lot on the west side of Cleveland's Public Square, as well as a portion of the neighboring Weston Group-owned parking lots in the Superblock, are the favored location for Sherwin-Williams (SHW) new headquarters tower. And it is the preferred location for the coatings giant's new research facility, as well.

The source also confirmed an earlier report that the HQ plus research and development center would measure 1.8 million square feet total. And he also confirmed that they were the subject of a request for qualifications (RFQ) sent several weeks ago to Cleveland-area construction management firms.

Additionally, the source said two firms received the RFQ -- Turner Construction Co. and Gilbane Building Co. No other construction management firms were identified. It should be noted that those two companies have the most experience locally not only in building high-rise structures, but also in digging caissons to bedrock for buildings nearly 30 stories and taller.

It shouldn't come as a surprise that SHW prefers to build its new HQ on Public Square to address its worsening space needs. It's the same location that SHW had advanced planning for a 900,000-square-foot HQ tower in 2014-15 before it redirected corporate resources to the acquisition of rival coatings firm Valspar. Today, SHW is a larger, faster-growing company than it was in 2015.

But what is a surprise is that a consolidated R&D center will supposedly come with it. And that's no small facility. It would combine the 140,293-square-foot Breen Technology Center, 601 Canal Rd., with the 170,000-square-foot former Valspar Applied Science & Technology Center in downtown Minneapolis. And it would add extra space for elbow room and future growth, presumably totaling about 330,000 to 350,000 square feet.

Another massing based on the available information shows a
1,000-foot-tall headquarters tower flanked on the west (right)
by a second tower about 500 feet tall for Sherwin-Williams
research center. This is viewed from Lake Erie (Geowizical).

The R&D component would be in a second tower, located across West 3rd Street from the HQ. The materials used and tested at SHW's existing R&D facilities are in such small quantities that they are no threat to the structure, let alone nearby buildings.

Consider that the General Services Administration approved building the 430-foot-tall Carl B. Stokes Federal Courthouse tower across narrow Canal Road from the Breen Technology Center. The research center is more like a college laboratory which often shares the same building with classrooms and offices.

But the big reasons why SHW executives want the R&D next to the HQ are to preserve and improve interaction between research and corporate. That's important for ensuring innovation as well as for security. Electronic transmittal of research findings can be vulnerable to outside attack, such as for corporate espionage or by garage-based hackers. And, consider that SHW has numerous government contracts, including the military.

Lastly, the 1.8 million square feet of space noted in the RFQ does not include parking, another source said. The parking component alone will be a massive structure. For example, providing a parking structure for just half of the 6,000 SHW employees involved in this project would mean a garage measuring more than 1 million square feet. But, at this early stage, it isn't known what the parking needs will be.

A new SHW HQ tower could make a colorful state-
ment. An example would be the Wilshire Grand
Center in Los Angeles. At night, its LED strip can
change colors for certain occasions (UrbanOhio).

SHW currently has more than 1.1 million square feet of office spaces scattered throughout Greater Cleveland, most of which is bursting at the seams. A few hundred thousand extra square feet of office space for elbow room and future HQ expansion is likely in the cards. Plus, SHW has the previously stated needs for up to 350,000 square feet of R&D facilities.

Yes, it is always possible that something could come along and slow, stop or redirect this project to another community, such as a Cleveland suburb. But, increasingly, that doesn't appear to be the case.

This HQ+R&D project is going to be a gigantic undertaking, involving some gigantic amounts of money coming from a corporate cash flow whose volume boggles the mind. It is quite likely that this project will cost somewhere in the vicinity of $2 billion.

While that sounds like a lot, a $2 billion construction cost could be funded by SHW as a current liability (ie: debt paid off in less than a year). That's thanks to SHW's post-Valspar net operating cash flow.

SHW's cash flow is so voluminous that even a major recession let alone a city's public incentives are unlikely to move the needle much for SHW. However, SHW is still reportedly listening to offers from other communities.

The company's net operating cash flow is nearly $2 billion per year -- a 49 percent increase from 2016, the last full year before SHW absorbed Valspar. And it's almost double the cash flow from 2014.

Even more impressive, during the depths of the Great Recession in 2008 and 2009, SHW's net operating cash flow was $876 million and $859 million, respectively. That was well before the Valspar acquisition.

SHW is a very resilient company. So even if there is a recession, SHW could probably still afford this 1.8-million-square-foot HQ+R&D facility with little difficulty -- and without public incentives.

END

Market Square tax abatement isn't the issue; it's about control

A $200 million development by Chicago-based Harbor Bay is
at risk, as are other spin-off developments in Ohio City. City
officials fear that a state tax exemption on buildings that don't
yet exist would hurt the schools. However the city had already
offered a 100 percent tax abatement to the project (HBREA).
CLICK IMAGES TO ENLARGE

With just 35 minutes to go before an Aug. 13 meeting of the Ohio Air Quality Development Authority's (OAQDA) board of trustees, representatives of Harbor Bay Real Estate Advisors thought their request for $150 million in 30-year bonds and a property tax exemption would be approved.

The bonds would finance most of the $200 million Market Square development, including a 10-story office building and seven-story apartment building, at Lorain Avenue and West 25th Street in Ohio City. The innovative project, using timber framing, would reduce emissions by 40 percent mostly from reduced heating and cooling, but also from avoiding the manufacture of steel and concrete.

That's what made the project attractive to OAQDA. That, along with 13 letters of support from the likes of Ward 3 Councilman Kerry McCormack,  Cleveland Building & Construction Trades Council Executive Secretary David Wondolowski, Ohio City Inc. Executive Director Tom McNair, Cleveland-Cuyahoga County Port Authority CEO William Friedman, and economics professor Daniel Shoag, Ph.D. from the Weatherhead School of Management at Case Western Reserve University.

But moments later, three letters of opposition arrived by e-mail. Their authors were the City of Cleveland's Chief of Regional Development Ed Rybka, Cleveland Metropolitan School District CEO Eric Gordon and Cleveland Metroparks CEO Brian Zimmerman.

All complained bitterly about lost future property taxes -- taxes they would never get if Harbor Bay's development, being undertaken under the name Ohio City Legacy LLC., didn't win tax abatement.

OAQDA tabled Harbor Bay's request (click here for a draft of Resolution 19-47), not only putting the $200 million investment by the Chicago-based company in jeopardy, but also several other nearby proposed developments that were triggered by the Market Square project.

Among those catalyzed are a housing conversion of the closing Voss Industries, a new-construction transit oriented development by Carnegie Management, a tax-increment financed renovation of the West 25th-Ohio City Red Line rail station, plus several developments along West 25th that have yet to be announced publicly.

Voss Industries and its 300 employees, many of whom live in
the neighborhood or take transit to work, have vacated this site
for a new factory in suburban Berea. A proposed renovation
of the property into apartments by Chicago-based Bixby
Bridge Capital was instigated by Harbor Bay's project
across West 25th Street (LoopNet).

Without them, Market Plaza might still be razed or it could stay empty of retailers. A decaying West Side Market with fewer vendors would be denied a large source of new customers, the Metroparks' new Red Line Greenway would be denied a large source of users and the entire south end of Ohio City would decline with a possible recession looming.

Harbor Bay Project Director Dan Whalen noted that all of Market Square's office and retail tenants will be new to Greater Cleveland, bringing more than 1,000 jobs and nearly $11.8 million per year in new sales and incomes taxes to the city and county. More than 300 residents would live across the street from the West Side Market, the Red Line station and new greenway trail.

And just like the city's 15-year, 100 percent tax abatement which it routinely awards to similar developments, the state's exemption wouldn't apply to land -- only to buildings.

That means the Market Square project would increase the value of the land which currently pays only $85,000 in property taxes. The new development would double that amount of property taxes to the school district and the Metroparks while tripling the property's existing $17,000 contribution to the Ohio City's Special Improvement District, Whalen said.

"We're willing to be flexible on the duration of the tax exemption," Whalen offered. "And this exemption eliminates the need for tax-increment financing which the city routinely gives to new construction projects of this size."

Gordon and Zimmerman also offered to be flexible on the public financing, which Whalen said is necessary for Cleveland projects that cost as much as those in Chicago to build, but lack the high rents of Chicago.

"We are more than willing to work with all of the interested parties and believe it is important that the community as a whole be engaged in this discussion," Gordon wrote in an Aug. 13 letter to OAQDA.

Harbor Bay has an educational program called Project Classroom that uses skilled professionals to teach real estate development, design and construction while on the job. In Cleveland, Whalen says his company would partner with the school district, vocational schools and the union trade organizations to expand that program here. Each seemed excited at that prospect, he said.

The Market Plaza retail strip located at West 25th Street and
Lorain Avenue was bought by Harbor Bay earlier this year
for $5.85 million. Demolition permits were approved by the
city to clear land located inside the blue line, indicating the
boundary of the Market Square development. Soon, no
retailers will remain in the aging plaza (Google).

Zimmerman said he was troubled not just by the duration of the tax exemption, but also by the lack of public notice of OAQDA's Aug. 13 meeting agenda. Zimmerman said in an Aug. 13 e-mail to OAQDA that he was willing to accept a shorter bond and tax-exemption term of 20 years, or better yet, 10 years, with conditions including an annual audit of the project's performance measures.

"(OAQDA should) require Harbor Bay/Ohio City Legacy LLC to contribute a meaningful amount for (Red Line Greenway) trail enhancement/construction in the vicinity of their project," Zimmerman wrote.

Rybka made no offers in his Aug. 13 letter to OAQDA. Instead, he flat-out told OAQDA to deny the financing request.

Worse, just hours after a meeting Tuesday (Aug. 27) between Cleveland city officials and the Harbor Bay development team, a cleveland.com reporter was tipped off to the proposed exemption and the city's claims about the project, Whalen said.

That resulted in an article that was heavily slanted in favor of the city's position. It lacked any information about the new taxes that the project would bring in, or that no new property tax would be generated if the project never happened. In fact, less tax revenue would result after a demolition of the retail plaza, already approved by the city.

"We've already invested $10 million on the project in terms of buying the property, architectural fees, getting City Planning Commission approvals and so on," Whalen said on Aug. 19. "This (OAQDA) financing was the last piece. We have to commit in the next 30 days on whether to proceed. The project is 70 percent bid and we can hold those prices for only a limited time."

OAQDA has already approved significant financing requests this summer, including $100 million in bonds for a southern Ohio utility development project by the Ohio Valley Electric Corp. and a $350 million bond issue and 30-year tax exemption for expansion of AMG Vanadium's industrial recycling center in Muskingum County that would create 100 jobs. Harbor Bay's project would create more than 1,000 jobs.

Ironically, the city seemed less concerned about "lost tax revenues" when it was willing to offer a 100 percent property tax abatement to the Market Square development before Harbor Bay investigated the state bonding opportunity. But apparently, city officials feel that only they should be allowed to abate tax revenues to the schools, Metroparks and others.

“We really think it’s overstepping,” Rybka said in the cleveland.com article.

OAQDA could take up Harbor Bay's request again at its next meeting, scheduled for Sept. 10.

END

Sherwin-Williams seeks builders for HQ + R&D project

A request for qualifications sent to a few construction manage-
ment firms in Greater Cleveland for building a new headquarters
and research center for Sherwin Williams may indicate that the
global coatings giant is taking a serious step forward. But is
there another message in the issuance of an RFQ to so few
firms? (Bobek) CLICK IMAGES TO ENLARGE THEM.

Unless the economy does a crashing repeat of 2008 in the next 6-12 months, Sherwin-Williams (SHW) could make a significant announcement about its headquarters (HQ) as well as it research and development (R&D) facilities by the end of 2020. Even a modest economic downturn is unlikely to put a stop to a multi-year process that has already started.

That process suggests that SHW is on a schedule that could have them start construction on a new HQ and R&D project by 2022. And some aspects of the process point toward downtown Cleveland as the site for most, if not all of this massive project.

According to a source, a Request For Qualifications (RFQ) was sent to a small number of construction management firms in Greater Cleveland for the construction of a new headquarters and research center for Sherwin-Williams. The source didn't identify which firms received the RFQ, but it was reportedly sent by SHW's real estate broker CBRE.

An RFQ is intended to reduce the number of bidders on a project to only those with the expertise to qualify for the project. So then why issue it to so few firms to start with?

A logical assumption is that an RFQ was issued because SHW needs a highly specialized construction manager. Furthermore, considering that so few firms received the RFQ, it suggests that SHW apparently needs a level of expertise that few local construction management firms have.

What expertise? It isn't known for certain, but the temptation is point to firms that know how to build supertall skyscrapers, like those that reach up to 900 feet tall and require caissons excavated 200 feet down to Cleveland's bedrock.

Could the two tallest proposed buildings in this graphic be the
approximate size of a new Sherwin-Williams headquarters and
research facility over parking? Before this rendering gained a
new life and more buildings as part of Cleveland's promotional
efforts to attract Amazon's HQ2, it apparently was SHW's plan
in 2015 for a new HQ on Public Square (GCP).

The source says that the RFQ specifies the project will measure 1.8 million square feet. That's even larger than the last report of 1.6 million square feet, likely due to SHW's rapid growth.

Either number is large enough to mean that the project includes both the HQ and the R&D. It doesn't mean they'll be in the same building or even on the same property. But it does mean they could be part of the same construction bid.

Another source says that if an office campus of shorter buildings for an HQ+R&D near downtown or in the suburbs was under serious consideration, then the RFQ probably would have been sent to many more local construction management firms. It apparently wasn't.

That all leads to the next big question: where would the HQ+R&D be built? The RFQ apparently didn't identify the project's location except that it would be in the Greater Cleveland area and it would total 1.8 million square feet. The construction firm, when selected, will then presumably learn where the project will be built.

Vocon Partners, LLC is reportedly designing conceptual alternatives, including for different locations downtown. It isn't publicly known where those sites are. One site that is likely to be strongly considered is the site where SHW planned in 2014-15 to consolidate its scattered offices -- the Jacobs lot on Public Square.

The Jacobs lot on Public Square, as seen in 2014. This parking
lot has occupied the west side of the square for 30 years and
 measures 50,974 square feet or 1.17 acres. Another 6 acres
acres of surface parking on the Weston Group-owned lots
is visible beyond (Google).

Considering that more than one alternative site is in play downtown is also a good sign for those who believe SHW's HQ+R&D should stay in the central business district. And it's a good sign that the project would consolidate other offices and R&D activities from around Greater Cleveland and Minneapolis in downtown Cleveland.

Councilman Kerry McCormack, whose Ward 3 includes downtown Cleveland, didn't sound terribly worried about SHW leaving downtown Cleveland for the suburbs.

"We're in good communication with Sherwin-Williams," he said. "We'll do whatever it takes to keep them. But companies that want to attract talent are looking at moving into cities, not leave them."

While there are a lot of moving parts at work here, and based on the timeline of past projects, it is possible that facility conceptual designs, programming, infrastructure and other components could be ready for delivery to a city's planning commission in as soon as a year from now.

SHW representatives would likely request approval of conceptual plans, then refine them into more detailed schematic designs. Approval of the conceptual plans will first require releasing them publicly. That's when the public will probably get its first official notice of the project. The 6,000 SHW employees involved, as well as civic-minded Clevelanders, will have to wait until then.

Thankfully, at least SHW is no longer officially denying that there may be an HQ+R&D project on the horizon. They've confirmed they are analyzing their HQ space needs, but are peddling the theme that they do such analyses regularly. That's pretty unlikely considering the last time SHW moved into a new HQ building was 1930.

Sherwin-Williams' Center of Excellence is located inside its
existing headquarters building, the Landmark Office Tower.
The flags represent each country in which SHW has at least
$1.5 million in annual sales. The center has displays on the
company's 153 years of business, all of it headquartered in
downtown Cleveland (WKSU News).

It's also unlikely based on the post-2014 spread of SHW offices to several facilities beyond its aging, 900,000-square-foot Landmark Office Tower HQ where employees have complained of uncomfortable climate controls, lack of open floor layouts and even roaches. SHW's apparently random leasing of additional offices since 2014 doesn't scream "coherent plan."

Offices are located among three non-contiguous floors totaling 51,810 square feet in the Skylight Office Tower, a remodeled 151,830-square-foot flex space at 4780 Hinckley Industrial Parkway in Cleveland, as well as in 30,000 square feet of the Automotive Finishes Corp. facility, 4440 Warrensville Center Rd. in Warrensville Heights.

That doesn't include the 140,293-square-foot Breen Technology Center in downtown Cleveland and the former Valspar Applied Science & Technology Center in downtown Minneapolis. That complex includes several renovated historic structures and totals more than 170,000 square feet.

If combined into a new facility that offered more elbow room plus space for future expansion, it could mean an R&D center of 330,000 square feet or more. Parking for thousands of employees and visitors would add roughly 350 square feet per parking space in a multi-level structure. It isn't publicly known if the 1.8 million square feet figure for the HQ+R&D includes parking.

What is known is that SHW's debt burden from the 2016-17 Valspar acquisition is shrinking at an increasing rate. Six months ago, SHW had been on a glidepath to get its long-term debt-to-equity (D/E) ratio down to 2:1 by December 2019.

But it's already five months ahead of that pace. Last year, SHW looked like it would reduce its long-term debt to $8.12 billion by June 30, 2019. Instead, it fell to $7.2 billion. Shareholder equity is only slightly below where it was destined to be on June 30. It was on target to be about $3.77 billion. Instead it was at $3.75 billion at the mid-year point.

SHW debt-to-equity ratio on June 30 was already below 2:1 -- at 1.92:1, thanks to strong cash flow from the Valspar acquisition.

According to second-hand sources, SHW officials have said that the company wouldn't consider building a new HQ until its debt was down to reasonable levels. "Reasonable" may well mean the coatings industry average of a 1:1 D/E ratio.

Last year, it appeared SHW was on a glidepath to hit that 1:1 D/E ratio at the end of 2022. But if cash flow continues to be strong and shareholder equity continues to rise steadily, SHW should get its D/E down to 1:1 in a little more than two years from now.

That's roughly when the planning, programming, design and procurement should allow for construction of the HQ+R&D facilities to begin. Fingers crossed.

END