Waterford Bluffs – Crain’s Cleveland

Published: November 8, 2020

Pandemic, recession aren’t deterring Northeast Ohio apartment developers

Crain’s Cleveland | Stan Bullard | November 8, 2020

The boom in Cleveland-area apartment developments continues to be undeterred by the pandemic, the resulting recession and the previous introduction of new suites into the market.

Construction crews in the next few weeks will start work on at least five additional projects, based on multimillion-dollar lender commitments made since the COVID-19 crisis struck in March.

Moreover, they extend the reach of the project pipeline beyond those already under construction, such as the mid-rise Intro apartment building by Harbor Bay Real Estate Advisors of Chicago, which has a
construction crane towering above the nearby West Side Market in Ohio City.

Moving ahead as most hotel, office and retail projects hit the pause button has even created a boon for multifamily developers: sweeter bids by building contractors who are starting to worry about the supply of future work.

Jonathan Holtzman, CEO of the Detroit-based City Club Apartments chain, said that’s the word he’s getting from general contractors as his company completes a round of bidding for 300 suites in a planned 22-story tower on lower Euclid Avenue.

“The amount of interest is substantially more than six months or a year ago,” Holtzman said. “Prior to the pandemic, everyone was busy. This is a substantial project that can carry the successful bidders through the next two years. I can tell you the amount of bidders is much larger than what we have seen for about the last 10 years.”

Rick Cavenaugh, president of Chicago-based Stoneleigh Development Co., said he’s getting bids from subcontractors, such as wall framers, who were so busy that they were not pursuing jobs a few months ago.

“We’re seeing seven or so subcontractors for components that we expected to get bids on from two or three,” Cavenaugh said.

He wouldn’t estimate projected savings on the company’s 241-suite Waterford Bluffs project. Building permits are in hand to start construction within weeks at the site on the northwest corner of the Hope Memorial Bridge in Ohio City.

However, there are hiccups.

City Club Apartments in Cleveland had a stated start date of November, but Holtzman acknowledges it now is likely to launch in January due to delays posed by the pandemic.

“I think everyone working from home slows things down,” Holtzman said. “The time of year slows things down. The recession slows things down. We also see that as the opportunity. You want to build in a recession and deliver the apartments when the economy improves or after the vaccine arrives.”

Holtzman said his family began developing real estate more than a century ago, and that long-term perspective tempers his outlook.

“When there are events that we don’t control, such as recessions or a pandemic, it might affect the timing but not our plans,” Holtzman said. “We selected this site because we believe the direction in downtown Cleveland is very positive.”

For Waterford Bluffs, Stoneleigh recently filed documents for a $15 million construction loan with Sungate Capital of Chicago, but Cavenaugh said he will not draw on it for some time. That’s because the project has substantial equity, 85%, compared with the typical 35%, because it is a federal Opportunity Zone project that allows investors to shelter capital gains from U.S. taxes.

Meantime, MyPlace Group of Cleveland closed on a total of $30 million in loans last month for two projects, one at West 44th Street and Lorain Avenue, the other at 4815 Franklin Blvd. Both are in Ohio City with 77 and 24 units, respectively.

“We did not experience any issues (with financing),” MyPlace president Chad Kertesz said. “To be honest, my projects and my partnership are strong. We expect to be in full go within weeks.”

Across town in Little Italy, an affiliate of M. Panzica Development of Cleveland has construction crews pouring concrete and will soon go vertical on a $17 million project with 44 suites adjacent to the famed
former Baricelli Inn.

The only change due to the pandemic, said Michael Panzica, M. Panzica’s principal, is that the scope of the Cornell Road project will increase because he now plans to add suites in the landmark inn following the closing of the restaurant there that had replaced Baricelli.

“We still believe Cleveland has pent-up demand for apartments,” Panzica said. “The low interest rate environment also gives us confidence to move forward, especially for when we will be able to lock in long-term loans.”

He’s also encouraged because a related development project that he leads, the new Church + State apartments on lower Detroit Avenue in Ohio City, is 40% leased so far, slightly below the 50% leased rate projected for this time. He is continuing to pursue the purchase of a Cuyahoga County-owned site next to Veterans Memorial Bridge for another project, and both he and Kertesz say they and others continue to seek multifamily project sites.

All the developers of next-wave projects pooh-pooh the impact of downtown’s 16% vacancy rate. They are confident that projects including Lumen, the May and others should be leased up by the time  newer projects open in 2021 or 2022.