Hey all-

 

I think a thread is warranted on the hurdles faced by developers trying to build in Cleveland.  We've seen many rehabs of older office buildings but little new construction in the core.  All the while, there is pent up demand for new construction that builders can't meet currently due to the high costs.  Meanwhile, an article posted today on Cleveland.com states that a development in Ohio City required 25 sources of funding to move forward on a $60 million project http://realestate.cleveland.com/realestate-news/2016/10/construction_starts_on_60_mill.html#incart_m-rpt-1 . 

 

What will it take for development to take off downtown and elsewhere?

 

I'm curious too about "high costs" and don't understand why they would be higher than anywhere else.  Wages and costs of living around here are notably low, so that can't be it...? 

We here in Cincinnati just heard that a ~30 story proposed residential tower was cancelled due to high costs associated with construction.  The developer had built nearly identical towers in Nashville, Austin, and some other southern cities where apparently costs weren't too high.  I don't get it either. I've heard that material costs have increased in recent months, but surely there is more to it than that.

I'm curious too about "high costs" and don't understand why they would be higher than anywhere else.  Wages and costs of living around here are notably low, so that can't be it...?

 

The returns (rents) are too low to pay back mortgages on the new construction. Thus construction costs are "Too high." Union labor also adds to costs.

 

The renovation jobs that are getting done in a lot of cases, are done with large government subsidies.

Someone posted construction cost indices across the top 20 major cities (which I think ended up getting deleted from the thread). But I remember seeing labor costs were definitely lower across the entire south. I was hoping to see the Greatlakes and Midwest able to edge the South on material costs but it was pretty consistent across all cities.

It is somewhat problematic for construction workers to be unionized when most renters and buyers aren't, but that analysis could go in either direction. 

 

So have we reached a point where major urban construction is only feasible for doctors and executives on one end, and indigents on the other end?  It seems a little off for poor cities to be subsidizing homes for doctors and executives.  That's what we're talking about, if high rents are a requirement in addition to subsidy.  I can see wanting to bring those residents in, sure, but it doesn't seem like a sustainable plan.  And if we're talking downtown and hospital-area workers, those people are already paying city income tax regardless of where they live, so there isn't much to be gained fiscally by getting them to change their address.  And unless they can do their shopping within the city, a lot of their income is still going elsewhere.

 

Sounds like the same thing we did on a national scale during the housing bubble, except in that case the subsidies involved new roads, utility hookups and runoff management.  But it was still a matter of everyone paying in so developers could maximize profits by building high-end products for the high-end market... a market which turned out not to be so large. 

I have always assumed that part of the challenge to new construction, at least downtown, is the remaining vacant building stock. If you are a developer and have the choice between rehabbing a historic building and receiving substantial subsidy thru state and federal historic tax credits or building new and receiving a potentially lesser incentive, you would likely choose the historic rehab project even if the new construction would still give you a reasonable return.

 

You saw Stonebridge and the mid-rise tower in the Warehouse District (blanking on the name) before the state historic tax credit came about, and now you are seeing more discussion about new downtown mid and high-rise residential construction as the amount of available building supply has decreased.

 

At the end of the day, however, high-rise construction is driven by market demand. Columbus struggles to get buildings taller than 6-8 stories downtown, but the desirability, density, and associated rents in the Short North are attracting numerous developers who want to go higher than 12 and would probably go 20 if permitted.

 

I've heard it ballparked that you need rents in excess of $2 - $2.50 sq/ft to justify vertical/steel construction, but you are probably on the higher end of that in Cleveland from union labor costs. Cleveland is starting to see these rents in a couple projects downtown, so these projects may become more viable.

This could go into one of many threads here at UO, but this seems as all-emcompassing as any. If the younger Geis is interesting in building an empire, than perhaps the older Geis can build him an office tower downtown in which to put it?? It will be interesting to see if this will spur or slow Geis construction projects in the city. It sounds both are willing to take a little more risk, and taking risk is the only way toward making growth....

 

Geis Cos. ownership shifts from two brothers to one, in 'amicable' restructuring

By Michelle Jarboe, The Plain Dealer

on October 09, 2016 at 5:00 AM, updated October 09, 2016 at 5:02 AM

 

CLEVELAND, Ohio – Together, the Geis brothers transformed a suburban industrial real estate business into a major player in the city of Cleveland. They won a deal to build Cuyahoga County's headquarters. And they remade the empty Ameritrust complex, an apparent albatross on East Ninth Street downtown, into a mixed-use property called The 9.

 

Now, the well-known developers have come to a partial parting of ways.

 

Over the past year and a half, Fred and Greg Geis quietly restructured the ownership of the Geis Cos., the business their parents started in the 1960s.

 

MORE:

http://realestate.cleveland.com/realestate-news/2016/10/geis_cos_ownership_shifts_from.html