Development in Cleveland – Part 1

As many of you know, I work for one of the most prolific development companies in Northeast Ohio. Unfortunately, the last few years have been tough for commercial real estate not only here but all over the country. Our related construction company has been able to grow, but only because we have some great customers who are expanding and building elsewhere in the country. However, for most people looking to find space in Cuyahoga and surrounding counties, unless you have a specialized need, there are plenty of very inexpensive buildings, both to rent and buy. We have been approached by sellers requesting that we buy properties that we built within the last 10 years for significant discounts, in some cases 50% or more.

The bright spot in all of this is the MidTown neighborhood of Cleveland. We have been engaged with the local CDC, MidTown Cleveland, Inc. as well as the City of Cleveland in the development of a 128,000 square foot technical/research building located at 69th and Euclid.  This new building will be the first new construction in MidTown in many years.  To get this project off the ground has been truly an education and a indicator of the way things are going to be for some time to come. I say this because it is a speculative building.  We do not have any tenants yet  but believe in the market and the prospects for the area.  A recent study commissioned by the major stakeholders in the MidTown area concluded that because of the growth in the medical sector concentrated on the RTA Health Line, there is a desperate need for “move-in-ready” space for the companies that are being started by the two major hospitals and supported by BioEnterprise, JumpStart, NorTech and the other early stage capital companies.  We hope to capture some of these companies with our building.

Because of the recent financial crisis, we can’t use conventional financing sources.  Banks are very slowly coming back into the real estate lendng market, but none of them will finance a “spec” building.  They aren’t allowed to by the regulators.  And so, this project could not be built without the assistance of the federal, state and local governments. The cost of construction has increased over the past 5 years and even though the recession has brought those costs down some, the rents that can be charged in our region have not kept pace. Land prices have increased because of the hospital expansions and related improvements.  The assistance we are receiving in the form of a low-interest loan from the City, federal New Market Tax Credits and the State Job Ready Sites grant all help to subsidize the cost of the project so that we can bring down the rents to the market.

In my next post, I’ll talk about some of the hurdles we have had to face and how our partners have helped us overcome them.

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