the question is, when does the market stabilize enough for private debt to be ready to commit?  6, 12, 18 months?

 

That's the million dollar question.  And again, this isn't only happening here, and was always going to take more than one bank.  Wolstein is a pretty smart guy who has about 50m of his own (or his own "groups") money already sunk in this, I'm confident he'll get it done.  And as I said earlier, if a project like FEB can't get done in the next 18 months or so... we've got a lot more problems on our hands than FEB.  And I'm not talking just locally, that means our national economy and lending structure is in shambles.

the question is, when does the market stabilize enough for private debt to be ready to commit?  6, 12, 18 months?

 

That's the million dollar question.  And again, this isn't only happening here, and was always going to take more than one bank.  Wolstein is a pretty smart guy who has about 50m of his own (or his own "groups") money already sunk in this, I'm confident he'll get it done.  And as I said earlier, if a project like FEB can't get done in the next 18 months or so... we've got a lot more problems on our hands than FEB.  And I'm not talking just locally, that means our national economy and lending structure is in shambles.

 

I totally understand its a national problem and it is a multibank deal.  The problem is and was finding enough banks willing to be a part of it.  The loss of NCB doesn't affect this since I heard that their financial troubles kept them from being a player in the deal.  If PNC was to step in that would be a huge help to the project. 

If PNC was to step in that would be a huge help to the project.

PNC?  I don't think so.  The new owner of the bank might change the philosophy of the banks lending practices. 

 

I would think they have to worry about intergration and sorting out bad business before starting to reinvest.

If PNC was to step in that would be a huge help to the project.

PNC?  I don't think so.  The new owner of the bank might change the philosophy of the banks lending practices. 

 

I would think they have to worry about intergration and sorting out bad business before starting to reinvest.

 

Understood.  Hence the "joking....sort of" comment.  Plus PNC is a strong bank for a reason.  They would likely pass on this anyways.  I was simply throwing it out there as an opportunity to help mend the wounds that NCB's departure will cause.  I would prefer them to do that by not firing anyone but we all know that won't happen.

This bailout was sold on the idea of investments, not mergers.  Either they feel obligated to move FEB forward or they are made to feel that way.  If they want to build consumer confidence they can't let things like FEB just sit there.

My understanding is that there is an attrition rate of something like 5000 workers every year at NC.  Since there is a hiring freeze presently, then the workers who would have left anyway simply won't be replaced, and since there's a big difference between the bank firing people vs simply not hiring new ones, I'm (attempting to be) cautiously) optimistic that there won't be massive layoffs.

 

Also, I would think that PNC's investing in the Flats East Bank would be a heck of a way to ingratiate itself to the Cleveland community, where it will obviously have a strong presence even if there are mass layoffs. 

I think this project will take a longtime to resurrect unless Wolstein wants to offer his and mom's signature.  I appreciate Wolstein ponying up $50 million but I'm guessing he did this expecting to immediately lay off on bonds.  Unluckily he got caught in the credit market meltdown.  Plenty of smart people are losing WAY more than $50 million.  This is just a drop in the bucket.

 

All the people quoted in Crain's have a vested interest.  Do you really think they'd say anything negative.  Get some quotes from banks, private equity, hedge funds, etc. with the ability to pull the trigger on lending and I'd give the article much more credence.

 

Nationally, it very well will get worse.  The commercial lending pain is in the early innings as deleveraging grinds the economy to a halt.  I'm struggling with two scenarios... Japan where this lasts many years or an inflation bubble a few years out due to the world's central banks firehose money supply mentality.  Not sure which is the worse outcome but regardless I fear this pain train has a long way to go.

You are correct.  The hurt to banks started with residential mortgages.  If we continue towards a severe

recession and consumers continue to pull back spending - the next wave will not be residential foreclosures

but commercial tenants going out of business and vacating retail centers.  Then not only will banks be

dealing with residential foreclosures, you have banks dealing with non-performing or completely foreclosed

commercial real estate loans.

 

Banks understand this so any sort of significant lending into new projects in the forseeable future (next

2 years or so) is pretty bleak.  What started as a "sub prime" mess will most likely lead to a major distress

in the overall commercial real estate world.

OK, I agree with both of you... which is why I said, "when" we pull ourselves, globably at this point, out of the economic doldrums is the million dollar question.  That being said, this seems to be devolving into an economic thread as opposed to Flats East Bank... so in light of those 5 pretty blue stars under my name, I say, unless we have news relevant to the Flats East Bank project itself to report, let's give this thread a break.  :wink:

Upside/Downside: Wider Implications of Flats On Hold

http://www.wcpn.org/index.php/WCPN/news/15109/

Posted Friday, October 31, 2008

Topics: Economy

 

http://audio1.ideastream.org/wcpn/2008/10/1031upside.mp3

 

If there was any doubt that banks are significantly tightening credit, it was laid to rest this week when developer Scott Wolstein announced his project to develop the East Bank of the Flats is going to be put on hold, at least for a number of months. The law firm, Tucker, Ellis and West and Accounting Firm Ernst and Young are planning to move to the Flats East Bank. But now, their new digs are in limbo. The developer has expressed optimism that credit will loosen up by this spring, but really, who knows? And what will happen to this project if these companies decide to make other plans. ideastream®'s Eric Wellman posed those questions to Chris Warren, chief of regional development for the City of Cleveland.

i curse those holdout delays....if this had only gotten started it would have gone up. so close!

 

in the meantime maybe wolstein & the city can keep working on the infrastructure as its going to happen in one form or another eventually. i dk who pays for all of the sewer, electrical, paving, etc? is it all on the developer or is the city covering some of it too? maybe they can keep moving on that kind of site prep stuff?

I thought the city was covering the infrastructure stuff, no?

I think that at this point it would make sense to do this project in phases.  There are some solid tenants for the office building and it seems that maybe some financing could be obtained to start this.  Also, the hotel/condo has a signed tenant and maybe this could get off the ground as well.

 

Then, when the credit crunch eases up, the rest of it could begin.  Or, this could also be developed in phases.

the problem with doing this project in phases is that all so called "commitments" were contingent on everything else happening.  The office tenants only wanted to be there if there was a hotel, restaurants, etc.  The hotel only wanted to be there if there was enough restaurants, shops, etc.  The restaurants will only come if there is X amount of residences.  It's all intermingled and is why it is difficult to phase out without losing some of the loosely held together commitments.

The reason the infastructure work can't be continued, is that yes... the city pays for it, but it pays for it by the port issuing bonds.  Without the project moving forward those bonds are basically worthless, which means there is no money.  Wolstein actually fronted the 50m or so for work done to this point, and would have been reimbursed with the public money.

 

I also had a conversation with someone who is involved this weekend, who basically said, that everyone involved is still extremely confident in this getting done.  It's just that quite frankly there is no money to be found anywhere for a major development right now.  Once that "thaws" a project like this would be one of the most likely anywhere to get financing simply because of the amount of comitments they have.

 

And I agree with lewarctj... this has to be a built neighborhood, trying to phase this in wouldn't work.

This got picked up by the Enquirer today...

 

Credit woes stall Cleveland project

http://news.cincinnati.com/article/20081103/BIZ/311030004/1076/NEWS

 

A $522 million project to create an upscale, mixed-use development near downtown Cleveland is temporarily on hold due to tight credit, the project’s lead developer said last week.

 

The Flats East Bank project is on the east bank of the Cuyahoga River near its intersection with Lake Erie. The former industrial location and popular spot for nightclubs has been demolished, clearing the way for new homes, offices, stores, restaurants and taverns.

 

More at

http://news.cincinnati.com/article/20081103/BIZ/311030004/1076/NEWS

The reason the infastructure work can't be continued, is that yes... the city pays for it, but it pays for it by the port issuing bonds.  Without the project moving forward those bonds are basically worthless, which means there is no money.  Wolstein actually fronted the 50m or so for work done to this point, and would have been reimbursed with the public money.

 

isn't part of the money brownfield grants (a small piece)?  is it possible that some of the brownfield remediation work can continue?

I usually like to keep negative thoughts to myself on this board, but I thought I would share a brief conversation I had last night with a casual friend regarding the East Bank.

 

The conversation was just a quick "hey how are you...how are things going?" and did not last more than 90 seconds so not a lot of details, just general impressions.  My friend is a "higher up" at E and Y and pretty much in the know.  He asked me how my business was going and I started to lament about the economy (like pretty much everybody these days).  He blurted out that their building was on hold (not aware that I probably know more about the situation than the average Clevelander, if only because of my general interest in urban development and my stalking this website for so long) and I told him "I knew this", but based on what I had observed it would go forward eventually.  Unfortunately, this comment resulted in a major grimace (sorta like "well that is really wishful thinking").  I of course (being a good UOer) started pressing for details but he clearly did not want to share and was being very coy.  He did finally say that there are many contingencies in the deal between E and Y and Wolstein and basically the whole project has to be built (he mentioned specifically the hotel and health club) before they had to committ to the space in their building.

 

What I found more disconcerting is that my friend is generally a forward looking and positive fellow.  He clearly knows what is going on given his position with the company (I did not put him on the spot and remind him of Don Mishaff's (e and y managing partner) recent positive comments) and I was very disappointed with his reaction even if he clearly was not at liberty to share much.

 

Again I just thought I would share this for what it is worth.

I guess that's not unexpected.  At this point, one single office building down there would be awkward and isolated.  I'd demand all or nothing if I were E&Y.

Hopefully Obama's stimulous package, along with the current bailout package, can build banking confidence and ease credit restrictions to get FEB back on track.  I think it's more a matter of "when" than "if" with this project -- it's too attractive, well planned and partially executed to simply fail.  And the Wolstein's, as well as Frank Jackson, are firmly committed to it. Hopefully E&Y will remain commited to weather the storm.

good sleuthing htsguy.

 

i'm not surprized either. doesnt sound like e&y is the only one who's building is tied to the rest of it getting built. i guess this reinforces why its all on hold for now.

 

If they only built one building down there it'd be a joke.  It's essentially an all or nothing development, everything plays off everything else.  The only "later phase" developments can be the additional residential towers by the river.  Everything else has to be built at once.

Looks like our incoherent friend, Edsiou has made a return.

 

Hahahaha .. yay!

An article in Scene today and discussion of the sewer infrastructure rehabilitation underway:

 

“Even though the Wolstein project is temporarily stalled, the infrastructure necessary to make the project have vertical [elements] is continuing on,” says [executive director of the the Flats Oxbow Association] Newman. “So that’ll all be ready to build upward on when the economics of it all make that viable.”

 

http://www.clevescene.com/scene-and-heard/archives/2009/05/12/remember-the-flats

This is good news, indeed.  I've figured too much $$ has gone into this project, already, to simply let it die. ... But for once in this town, I'd like to believe our public officials (Frank?  Timmy & Co.?) are working behind the scenes, creatively, to help Wolstein get going again... Fixing the infrastructure's a big boost, no doubt, but it seems even more could be done, if anything, w/ Frank showing leadership by continuing to talk up this project; which is simply too important for downtown...

 

... but let's be clear, this project is a bald power grab of public officials aiding a private developer, Wolstiein, to help destroy (as the article notes) existing businesses (or at least move them out of the way).  I don't like it, but what are you gonna do?; our Bourbon Street has long been deep-6ed. We had one of the most talked about entertainment dists in the USA but couldn't maintain it ... but that's, literally, water under the bridge.  So let's get the Wolstein project moving again; at least before the residential aspect of will be so diminished as to make the thing not worthwhile.

Did anyone else hear what I just did on WTAM?  They said East Banks received the last bit of financing needed to begin to move forward again.  It is early, I could have dreamed it...

Funny, I just thought about this thread yesterday... but GREAT NEWS!

 

 

Move forward at full size and scope or move forward with a scaled back design or in phases?

Yappi scooped us on this article!  Is UrbanOhio slipping?!?!?!?!  :-P

 

State money expected to re-energize Flats East Bank project

There is still going to be a very long uphill battle to get this thing off the ground.  So everyone may want to temper their enthusiasm a bit.  :)

If, hopefully when, they get some of the stimulus money they are hoping for, then I will be exited. 

even then, it will only be such a small fraction of what they need, that i will at best be cautiously optomistic.

 

this is a $500m project.  Getting banks to lend $500m (we can even say $450m, should they land stimulus money to go along with the rest of these grants) to someone whose main company is saddled with billions of dollars in debt, a good deal of which matures in 2010... whose company is trying to shed assets left and right to raise cash.... well... it's not going to be easy.

My thought would be that it would be easier to get investors if they see something being built, even if it is just a garage for now.

Very true McCleveland - this announcement is only about the government money going into - primarily the sewer realignments, site preparation, etc.  Wolstein still does not have financing for the actual project - that will only come from financial institutions.

 

My belief is he is going to have to change his strategy to get any substantial financing in the near term.  It was a stretch when the markets "were good" and is near impossible today at its original plan.

If somehow the clouds part and Wolstein receives his financing in full, can this project still get completed in time to accomodate those firms (E&Y, ??) whose leases were expiring in other bldgs around town? I'm thinking not likely. So what will those firms do? Stay put temporarily? Look at something completely different, i.e. Jacobs' PS Tower or K&D's Ameritust project?

 

Has this been brought up anywhere else? Just curious.

If somehow the clouds part and Wolstein receives his financing in full, can this project still get completed in time to accomodate those firms (E&Y, ??) whose leases were expiring in other bldgs around town? I'm thinking not likely. So what will those firms do? Stay put temporarily? Look at something completely different, i.e. Jacobs' PS Tower or K&D's Ameritust project?

 

Has this been brought up anywhere else? Just curious.

 

How do they look at a tower that hasn't started construction  :?  Isn't that the same as looking at the FEB site for occupancy?

 

The company will probably move in phases.  That what we did when SOHIO tower opened.

This and the news of that Ford plant reopening have brightened my morning!

I really hope this project gets the funding it needs. The 'scooby doo ghost-town' flats is such an eye sore.

If somehow the clouds part and Wolstein receives his financing in full, can this project still get completed in time to accomodate those firms (E&Y, ??) whose leases were expiring in other bldgs around town? I'm thinking not likely. So what will those firms do? Stay put temporarily? Look at something completely different, i.e. Jacobs' PS Tower or K&D's Ameritust project?

 

Has this been brought up anywhere else? Just curious.

 

Just because their lease expires, doesn't mean they couldn't still stay and pay month to month assuming the landlord and E&Y had an agreement.  I don't know why a building owner wouldn't want that income to continue coming in on a monthly basis unless they had someone else lined up to replace all those rents. 

golf clap

 

Just so people understand what an uphill battle it is going to be for Wolstein to obtain necessary financing for this project.

 

http://www.cleveland.com/business/index.ssf/2009/05/fitch_ratings_downgrades_devel_1.html

 

Fitch Ratings downgrades Developers Diversified to junk status

by Michelle Jarboe/Plain Dealer Reporter

Tuesday May 19, 2009, 9:34 AM

Updated at 1:22 p.m.

 

Fitch Ratings has slashed credit ratings for Developers Diversified Realty Corp. to junk status, based on concerns about the company's debt and limited access to credit.

 

The ratings agency reported late Monday that it downgraded Developers Diversified, a shopping center owner and manager based in Beachwood, on several ratings. Fitch cut the company's issuer default rating from BBB- to BB. The ratings agency made the same downgrade for $1.3 billion in unsecured revolving credit facilities, $1.4 billion in unsecured medium term notes and $656.8 million in unsecured convertible notes. The BB rating is considered a junk rating...

^Yeah, that could be tough to overcome.

 

For those in the know, what are the odds Wolstein eventually sells his land down there to another developer? I can't see him sitting on that land indefinitely with no money to do anything, or would he? It's not like he can open some parking lots down there and generate some revenue.

:-(

^Yeah, that could be tough to overcome.

 

For those in the know, what are the odds Wolstein eventually sells his land down there to another developer? I can't see him sitting on that land indefinitely with no money to do anything, or would he? It's not like he can open some parking lots down there and generate some revenue.

 

I have no "know" of this.  But I've been thinking this may be the case for some time.  Once site prep is finished, that land becomes pretty ludicrously valuable... and appealing to other developers.  Assuming he can't find financing to get the project started in the pretty near term, he'll start losing those commitments.  And then it's going to be awfully difficult for him to get this thing going.  And though I'm sure it would be immensley painful for him.  It might be in his and his companies best interest to sell.  I am not in the least bit worried about the East bank of the flats getting developed, the land is simply too valuable.  I'm just not sure it's going to be by Scott Wolstein in the itteration we've seen.

 

But of course again, that's just speculation.

^Yeah, that could be tough to overcome.

 

For those in the know, what are the odds Wolstein eventually sells his land down there to another developer? I can't see him sitting on that land indefinitely with no money to do anything, or would he? It's not like he can open some parking lots down there and generate some revenue.

 

I have no "know" of this.  But I've been thinking this may be the case for some time.  Once site prep is finished, that land becomes pretty ludicrously valuable... and appealing to other developers.  Assuming he can't find financing to get the project started in the pretty near term, he'll start losing those commitments.  And then it's going to be awfully difficult for him to get this thing going.  And though I'm sure it would be immensley painful for him.  It might be in his and his companies best interest to sell.  I am not in the least bit worried about the East bank of the flats getting developed, the land is simply too valuable.  I'm just not sure it's going to be by Scott Wolstein in the itteration we've seen.

 

But of course again, that's just speculation.

 

I hope that he's able to develop the land somehow, someway.  His design for the FEB was quite appealing, and I would hate for another developer to try to come up with something different.  Here's hoping that the planets align for this project.

 

...I just thought of a nightmare scenario concerning Wolstein selling the proprty... to Forest City.  Ok, I'm done being off topic.

 

 

well luckily those two developers aren't very fond of each other, I'm pretty certain they can't even be in the same room.  :)

casinos casinos casinos!!    ;)

Also remember FEB is not a part of DDRC, if the company would go into bankruptcy protection, it would have no effect on the company that Scott and Iris Wolstien set up for FEB.

Also remember FEB is not a part of DDRC, if the company would go into bankruptcy protection, it would have no effect on the company that Scott and Iris Wolstien set up for FEB.

 

HUH?  I don't understand that.  Can you explain your reasoning.

Also remember FEB is not a part of DDRC, if the company would go into bankruptcy protection, it would have no effect on the company that Scott and Iris Wolstien set up for FEB.

 

Absolutely.  However DDR is the prime source of Scott Wolstein's personal cashflow and wealth.  As it is his main financial asset, I'm guessing that the stability and health of that asset will be considered whenever financial institutions are considering lending him half a billion dollars.