Cleveland school board won't consider unusual property-tax break for nuCLEus project downtown

 

CLEVELAND, Ohio - If the ambitious nuCLEus development in downtown's Gateway District gets off the ground, it will do so without a special tax break from Cleveland's schools.

 

Eric Gordon, chief executive officer for the Cleveland School District, confirmed Tuesday that an unusual tax-increment financing deal for nuCLEus is off the table. He doesn't plan to ask the Cleveland Board of Education, the district's governing body, to vote on such a proposal.

 

The board shelved a vote on a potential tax deal in August 2017, after a monthlong run of community meetings and a public information campaign. At the time, the district attributed the delay to ongoing talks between the city of Cleveland and Cuyahoga County about the overall public-financing plan for the project, which would bring offices, apartments, retail, entertainment and garage parking to a site north of Quicken Loans Arena, at East Fourth Street, Prospect Avenue and Huron Road.

 

http://realestate.cleveland.com/realestate-news/2018/09/cleveland_schools_wont_conside.html

The change in scale of the project has been hinted on here recently....Here's the latest:

 

First, the size and timing of the project are different. Revised plans for nuCLEus, which once called for a 54-story tower, are more modest, with shorter buildings, fewer apartments, more office space, no hotel - and a smaller budget. Stark also has broken the development into phases, spreading out the investment over time.

 

http://realestate.cleveland.com/realestate-news/2018/09/cleveland_schools_wont_conside.html

I blame LeBron.

Cleveland school board won't consider unusual property-tax break for nuCLEus project downtown

 

CLEVELAND, Ohio - If the ambitious nuCLEus development in downtown's Gateway District gets off the ground, it will do so without a special tax break from Cleveland's schools.

 

Eric Gordon, chief executive officer for the Cleveland School District, confirmed Tuesday that an unusual tax-increment financing deal for nuCLEus is off the table. He doesn't plan to ask the Cleveland Board of Education, the district's governing body, to vote on such a proposal.

 

The board shelved a vote on a potential tax deal in August 2017, after a monthlong run of community meetings and a public information campaign. At the time, the district attributed the delay to ongoing talks between the city of Cleveland and Cuyahoga County about the overall public-financing plan for the project, which would bring offices, apartments, retail, entertainment and garage parking to a site north of Quicken Loans Arena, at East Fourth Street, Prospect Avenue and Huron Road.

 

http://realestate.cleveland.com/realestate-news/2018/09/cleveland_schools_wont_conside.html

 

Even though the school board's surveys showed nearly 60 percent support for school district TIF for nuCLEus. The school district is unresponsive to the community in so many ways....

 

http://www.clevelandmetroschools.org/nucleus

 

Just in case the district deletes this page in the coming days.....

 

I don't mind if this project is smaller in scale.  Sure it would have been nice to see a 54 story tower built at the site; however, truly filling in that lot instead of having it stay empty for another 20 years is in the best interest of all.

Smaller nuCLEus may come from a Dream

http://neo-trans.blogspot.com/2018/09/smaller-nucleus-may-come-from-dream.html

I don't mind if this project is smaller in scale.  Sure it would have been nice to see a 54 story tower built at the site; however, truly filling in that lot instead of having it stay empty for another 20 years is in the best interest of all.

 

I'd prefer a small project that didn't further chip away at norms and expectations of school taxes. Fingers crossed we still see a nice project here.

KJP ... "for-sale townhouses lining Prospect Avenue".  Really?  That would be great!  Part of the grand plan?

:-(  oh well, better than nothing...

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.

 

Interesting, because in many downtown developments it seems to have been the opposite, no? Residential has been profitable while Heinen's, Constantino's, etc are rumored to pay low rents because the landlords view it as an amenity for residents. Not to say NuCLEus would be the same economics, Stark is obviously going much harder on the retail component.

Stark has always been more of a retail developer. He needs more foot traffic to fill out his mix of desired, complementary retailers.

 

BTW, one other factor that's not well understood yet is how the federal Opportunity Zone tax benefits will come into play in major projects like this.

The Treasury Department still hasn't released final guidelines for Opportunity Funds, so all the moneyed people are sitting on their hands, but I think it'll be a boon once things get up and running. Hoping it does a little bit to level the playing field between cities and suburban greenfields. But Cleveland will still have to compete with other O-zones nationally for funding.

Are OZ tax benefits a competition? I thought it would be more like a tax deduction--if you're eligible and claim it, you get one.

^ yeah you’re right, it’s essentially a deduction.

You are correct, it is noncompetitive from the point of view of the taxing authorities - what I meant though is that this new law will create a whole new class of investment and a whole new source of capital. Investors will be shopping for OZ projects, cities/projects will compete for those dollars, if not for the deduction itself.

Great work with that NEO blog KJP that Dream Hotel intel was money!

Btw there was this comment from Cleburger[/member]  a couple of weeks ago that got me to start searching.

 

Re: Cleveland: Random Development and News

« Reply #4886 on: August 20, 2018, 09:46:32 PM »

I was given no specifics--other than it was a new hotel on St Clair in the Warehouse district.  I thought maybe this could be the project...unless there is something bigger brewing on the lots!

Smaller nuCLEus may come from a Dream

http://neo-trans.blogspot.com/2018/09/smaller-nucleus-may-come-from-dream.html

 

Great blog KJP - any idea how one reconciles the desire to build a foundation capable of hosting an expansion (similar to the Beacon) with the need/expense of caissons? Without the caissons, it sounds like there's a solid cap of 25 stories on any possible expansion were it not to go that high at the onset.

Thanks. I don't know engineering stuff. My guess is that an office tower will be less than 20-25 stories (including parking levels) and not need caissons whereas a residential tower will be more than 25 stories (above the parking deck) and will require caissons.

 

Another possibility.... Look at floorplates for the residential tower vs the parking "floorplate" for Plot A. If the residential building was like Flats East Bank Phase II and III and had a large floor plate nearly as large as all of Plot A, it could offer as many units as a 30+ story building in a 15- to 20-story building that wouldn't need caissons.

 

Kjp’s blog definitely news-worthy. I wasn’t a fan of the design of the residential Jenga Tower nor was I a big fan of the hotel bridge -but it would’ve been more than “nice” to have had a new 54 story tower added to the skyline. I guess we can add Nucleus 1.0 to the list of cancelled Cleveland skyscrapers. It’ll be very interesting to see what Nucleus 2.0 might look like - I wonder how many more years that will take.  At the risk of being accused of tower worship, I’m hoping we still might get something close to 500 feet in the residential tower, but maybe that’s wishful thinking. I also wonder why the Cleveland school board wouldn’t even take a vote, especially when you consider their own survey results, showing a majority supported the TIF.

I'm not mourning the loss of that tower design.  It was a poor fit with what's already here.

Kjp’s blog definitely news-worthy. I wasn’t a fan of the design of the residential Jenga Tower nor was I a big fan of the hotel bridge -but it would’ve been more than “nice” to have had a new 54 story tower added to the skyline. I guess we can add Nucleus 1.0 to the list of cancelled Cleveland skyscrapers. It’ll be very interesting to see what Nucleus 2.0 might look like - I wonder how many more years that will take.  At the risk of being accused of tower worship, I’m hoping we still might get something close to 500 feet in the residential tower, but maybe that’s wishful thinking. I also wonder why the Cleveland school board wouldn’t even take a vote, especially when you consider their own survey results, showing a majority supported the TIF.

 

 

Who knows. Maybe Stark can come back and try to re-negotiate that complicated school board offer

with something more than 18 million.

Another revision will follow this one and be even smaller in scale. We will see something completed around 2022, but I expect it to be a lot closer to the scale of FEB phase 3 than nuCLEus as first proposed...

By the sound of things it appears that regardless of whether the tax credit comes through at the state level the project is still poised to shrink in size. That must say a ton about the difficulty in building large scale projects in Cleveland.

On the bright side, there are a lot of very attractive projects around the world featuring paired towers of 20-30 stories (office) and 30-40 stories (apartment).  That size would be a very meaningful reduction in cost, complexity, and risk for Stark without wildly exceeding potential market demand.

 

I like KJP's idea that the hotel component of NuCLEus could shift to West St. Clair.  NuCLEus' proximity to the Q and Progressive Field, however, would guarantee a big hunk of the break-even occupancy number for a 200-room operation; it's hard to see investors giving up that piece of high-margin business.

By the sound of things it appears that regardless of whether the tax credit comes through at the state level the project is still poised to shrink in size. That must say a ton about the difficulty in building large scale projects in Cleveland.

 

Let's remember though, that many of the good things Cleveland have come from a long effort of small improvements and projects that add up over time. 

Not my idea. These are proposals by others, albeit in the early stages.

 

There is increasing pressure for adding a Class A office building in downtown Cleveland. Recent articles have suggested that it's going to take an anchor tenant to make that office building happen. Stark has one in the Benesch law firm that will take nearly 70,000 square feet of space. Add in 15,000 to 20,000 square feet for Stark's HQ and he's already got nearly 50 percent of his proposed office component filled. With the Class A market strengthening, Stark reportedly wants a bigger office building. I'm curious to see how much of an increase he wants.

Michelle was on PBS Ideas last night more or less summarizing her excellent article regarding the school board and Nucleus (it is such a joy listening to somebody that actually knows what they are talking about and can articulate it so well).  Like she did in the article, she put recent events in historical context and spoke about other issues surrounding  the hunt for financing, which we all discuss at length on this thread and in others.

 

Something she just briefly added (and which was not brought up in her article) is the possibility of an apartment glut downtown if and when Nucleus is built and that this might be another factor negatively impacting the funding search.  Again she did not address the point in detail but it is interesting that she brought it up.

 

As we know, about 2000 apartments will be coming on line in the next couple of years (and I am not including Huntington or possible Lakefront apartments in that number nor Weston which is probably dead).  Moreover,  a fair number are planned for Ohio City and University Circle which are fighting for the same tenant demographic as downtown.

 

I ran across a Bloomberg article today which suggests that rents are starting to flatten out in hot rental markets (Seattle was a focus of the article but it is apparently a recent trend nationwide) with overbuilding cited as one of many factors for this trend.  I am sure we can all agree that the perception of already cautious lenders is that if Seattle might have a cold, Cleveland is probably suffering from terminal cancer.

 

 

 

Or that the high prices on the coasts are creating more interest in lower-cost, high-amenity markets. Which they are.

Michelle was on PBS Ideas last night more or less summarizing her excellent article regarding the school board and Nucleus (it is such a joy listening to somebody that actually knows what they are talking about and can articulate it so well).  Like she did in the article, she put recent events in historical context and spoke about other issues surrounding  the hunt for financing, which we all discuss at length on this thread and in others.

 

Something she just briefly added (and which was not brought up in her article) is the possibility of an apartment glut downtown if and when Nucleus is built and that this might be another factor negatively impacting the funding search.  Again she did not address the point in detail but it is interesting that she brought it up.

 

As we know, about 2000 apartments will be coming on line in the next couple of years (and I am not including Huntington or possible Lakefront apartments in that number nor Weston which is probably dead).  Moreover,  a fair number are planned for Ohio City and University Circle which are fighting for the same tenant demographic as downtown.

 

I ran across a Bloomberg article today which suggests that rents are starting to flatten out in hot rental markets (Seattle was a focus of the article but it is apparently a recent trend nationwide) with overbuilding cited as one of many factors for this trend.  I am sure we can all agree that the perception of already cautious lenders is that if Seattle might have a cold, Cleveland is probably suffering from terminal cancer.

 

Seattle is a unique case because housing costs have been climbing astronomically for a while.  However, they have increased total supply to keep up with demand and have been able to flatten rental rates.  In Seattle this is a good thing because the rate of increase in prices was not sustainable. Cleveland's overall urban housing supply is not that robust yet.

FWIW, per the DCA reports, average rent psf in 2018 Q2 was flat compared to 2017 Q2 (despite lots of relatively expensive new units coming on line), and occupancy was only the in the low 90s, after hovering in the mid and even high 90s for much of the past several years. Could be early signs of softening.

There is a profound unmet demand for downtown housing that is for-sale. If a developer were to find some creative financing other than typical banks which hate condos, the downtown population would be growing even faster and we'd likely already have 30-35k people between the river and the innerbelt right now. I'd live Downtown, but as an owner, not by paying $30k-$40k a year to a landlord. In 12 years, that's a half a mil down the toilet. I'm sure there are many others who feel this way.

FWIW, per the DCA reports, average rent psf in 2018 Q2 was flat compared to 2017 Q2 (despite lots of relatively expensive new units coming on line), and occupancy was only the in the low 90s, after hovering in the mid and even high 90s for much of the past several years. Could be early signs of softening.

 

I’m not sure whose report is more accurate, but this one from Crain’s has the occupancy rate downtown over 96%.

 

Statistics from the Northern Ohio Apartment Association show the switch in downtown's outlook. The trade group reported vacancy at the end of July of 3.3%, compared to 5.6% vacancy at the beginning of the year. 

 

http://www.crainscleveland.com/real-estate/downtown-apartment-rentals-gain-momentum

 

Yeah, I thought downtown occupancy did fall a year or so ago but has risen again.

 

I also recall reading somewhere (but don't remember where) that downtown's residential growth remains strong but the business tenant side is slow-growing.

I agree that there is tremendous unmet demand for condos. Unmet demand for condos means unmet demand for condo financing. Typically what happens with unmet demand is that a risk-taking, ambitious company arises or an existing company starts to look into filling that demand.

 

So the question is when will banks start to lend on condos? When will one bank take the leap? Either an existing bank or a startup? If I were a banker, I'd be looking into this. Perhaps sale prices aren't high enough to justify, but nobody really knows what a new condo would sell for because it hasn't been done in so long. We know one thing though - the market today is totally different than it was when the Avenue project went south.

 

Such financing would likely be at a premium but that's what happens when there is tons of unmet demand.

I was rereading this thread and it seems that there is a consensus that this project will be scaled down.  After looking at the Stark website 

( http://www.starkenterprises.com/ ) , it doesn't seem to indicate that.  Is this speculation or has Stark definitely announced the project would be scaled down?

Exactly what I've been wondering. Is this a rumor, speculation or fact. I do think the the school board voted it down which I also don't understand why the Cleveland Public School System has anything to do with a tower being built downtown in the first place.

Exactly what I've been wondering. Is this a rumor, speculation or fact. I do think the the school board voted it down which I also don't understand why the Cleveland Public School System has anything to do with a tower being built downtown in the first place.

The Cleveland Public School system has something to do with it because the developer was asking it for money to help build the tower.

Which was really two towers anyway, albeit connected by a bridge building. With the hotel no longer part of nuCLEus and a larger office tower, look for two independent towers -- a slightly larger office building and a much smaller residential building.

No News to report on the Project Update. https://www.news5cleveland.com/news/e-team/downtown-cleveland-construction-projects-move-along-heading-into-fall

No News to report on the Project Update. https://www.news5cleveland.com/news/e-team/downtown-cleveland-construction-projects-move-along-heading-into-fall

 

Oh I wouldn't say that. Sub. HB469, the transformation tax credit, was finally given a Senate committee assignment yesterday. The Senate Rules & Reference Committee referred the bill to the Senate Ways & Means Committee, after it had been introduced to the Senate on July 5 following passage in the House. It is on track to being passed in the lame-duck session following the November election....

 

To amend sections 107.036, 5725.98, and 5729.98 and to enact sections 122.09, 5725.35, and

5729.18 of the Revised Code to authorize a nonrefundable insurance company tax credit for

contributions of capital to transformational mixed use development projects.

To the Committee on Ways and Means.

http://search-prod.lis.state.oh.us/cm_pub_api/api/unwrap/chamber/132nd_ga/ready_for_publication/committee_docs/cmte_s_rules_ref_1/submissions/cmte_s_rules_ref_1_2018-09-25-1100_1523/refreport9252018.pdf

From the desk of the COO. http://www.starkenterprises.com/downtown-cleveland-is-on-the-rise-and-on-the-mind/

Quote

"Our current project, The Beacon, and future project, nuCLEus, will connect the central business district in a way that has never been done before and..."

 

Terminal Tower says hello.

 

No sign there from Stark of anything except moving forward to Nucleus. 

Edited November 2, 20186 yr by CleveFan

Just now, CleveFan said:

 But reportedly, Stark is hustling to use the proposed  transformational tax credit bill to kickstart Nucleus - any updates on that process from forum insiders will be eagerly received. 

 

Look for state legislative action on the transformational tax credit to begin again next week, now that the election is behind us. There are committee meetings and full senate sessions scheduled throughout the rest of the year in the so called lame-duck session. We should start hearing of some Senate committee action before Thanksgiving and hopefully a full Senate vote before the end of the session in December.

On 11/7/2018 at 10:56 AM, KJP said:

 

Look for state legislative action on the transformational tax credit to begin again next week, now that the election is behind us. There are committee meetings and full senate sessions scheduled throughout the rest of the year in the so called lame-duck session. We should start hearing of some Senate committee action before Thanksgiving and hopefully a full Senate vote before the end of the session in December.

 

Update: The Senate's Ways & Means Committee will meet at 9 a.m. Wednesday. The transformational tax credit (HB469) is on the committee's Wednesday agenda:

http://search-prod.lis.state.oh.us/cm_pub_api/api/unwrap/chamber/132nd_ga/ready_for_publication/committee_docs/cmte_s_wm_1/notice/cmte_s_wm_1_2018-11-14-0900_1559/current/notice.pdf

 

At this time, Wednesday is the only scheduled meeting of the Ways & Means Committee in the lame-duck session and thus, it may be the only hearing that HB469 will get from Ways & Means before the committee decides whether to table it, refer it to another committee, or refer it to the floor for a vote by the full Senate. If it is the latter, it is possible although unlikely the full Senate could vote on it at 1:30 pm that afternoon. If it isn't voted on by the Senate at that time, it will have to wait at least until after Thanksgiving week -- Nov. 27 or 28. There are additional Senate sessions scheduled in December, as well. If there is no opposition testimony to HB469 and the backing for it remains strong, it could move very quickly depending on how many bills are on the Senate's agenda.

Edited November 11, 20186 yr by KJP

Thanks for keeping an eye on this.

What are the chances of this project actually happening? It seems like forever ago that the plans were released to the public, but nothing's happened. Is this a lost cause?

2 minutes ago, CLE_Millennial said:

What are the chances of this project actually happening? It seems like forever ago that the plans were released to the public, but nothing's happened. Is this a lost cause?

 

Overunder - I'd say 50% tossup.

 

I'm based out of Columbus, some people I know at NBBJ have mentioned that the project in it's announced/planned form, is long dead. However on the flip side, I know people working for the Q who have told me that the project is planned to kickoff once the Q renovations are complete. When I asked about scale and design, they said all they really have been told was that it was not going to impact operations as much and will be more in line with FEB. 

 

Basically, nobody knows at this point. 

I understand that people want to predict the future, but all we can do is take stock of where things are now. My understanding of this project's current planning is that it could be two independent towers, each one potentially representing a phase of the project. It may be possible that both towers, one an office tower and the other a residential tower built on platforms of parking/retail, get built at the same time if the transformational insurance credit passes and Stark wins a credit or credits as early as next year. Without the credits, Stark may proceed with the office tower as his first phase, using other, existing development incentives, and leave the residential tower to a future date if/when market conditions or new incentives make it feasible.

 

Edited November 14, 20186 yr by KJP