The K&D Group plans to convert the Hanna Building Annex into 102 apartments, bringing the first residential project to the heart of Cleveland's theater district.
View full sizeThe K&D Group has signed an agreement to purchase the Hanna Building Annex, an office building at East 14th Street and Prospect Avenue, from PlayhouseSquare. The building's seven floors of offices could become 102 apartments by mid-2013.CLEVELAND, Ohio -- A private developer plans to convert a PlayhouseSquare office building into 102 apartments, capturing explosive rental demand and bringing the first residential project to the heart of Cleveland's theater district.
PlayhouseSquare has agreed to sell the Hanna Building Annex on East 14th Street to the K&D Group of Willoughby.
The largest privately held owner of apartments in Northeast Ohio, K&D plans to acquire the downtown property on April 1. PlayhouseSquare and K&D executives declined to comment publicly on the purchase price for the building, an eight-story structure that houses the Hanna Theatre.
Leaders of the nonprofit PlayhouseSquare Foundation have been dreaming about residential projects for more than a decade. With occupancy rising at downtown apartments -- approaching 95 percent during the third quarter, according to the Downtown Cleveland Alliance -- PlayhouseSquare thinks it's the right time to bring more renters to the nation's second-largest performing arts center.
"On the edges of PlayhouseSquare, there are about 1,500 units, but most people don't think of PlayhouseSquare as having a lot of residential," said Art Falco, the nonprofit's chief executive officer. "This project, I think, is going to start changing that impression."
K&D transformed a historic retail-and-office complex at 668 Euclid Ave. into an apartment building with a waiting list. The developer envisions a similar project at the 120,000-square-foot Hanna annex. The redevelopment won't affect the Hanna Theatre, which was renovated several years ago to house the Great Lakes Theater company.
"This is their plan, to do this throughout the district," Doug Price, K&D's chief executive, said of PlayhouseSquare's residential aspirations. "I think this is one of the first (projects), and I don't think it's the last. We talked maybe as many as 500 units in the district, all redevelopment, utilizing these older commercial buildings."
The second through eighth floors of the annex will become apartments, ranging from 600 square feet to 1,200 square feet. Price expects the units to rent for between $725 and $1,500 a month. K&D will lease the ground-floor retail space back to PlayhouseSquare, which hopes to keep the few existing tenants and bring in other stores and service businesses to cater to residents.
Office and storage space in the annex is about 70 percent occupied by tenants including an accounting firm and nonprofit organizations. Falco said PlayhouseSquare is offering those tenants space in the neighboring Hanna Building, which stretches along East 14th and Euclid Avenue, just north of the annex.
PlayhouseSquare Real Estate Services has been trying to boost occupancy at the Hanna Building, which is about 80 percent full.
The Hanna complex is the site of roughly $70 million in completed or planned investments, including the theater makeover, improvements to the Hanna Building and K&D's anticipated $23 million budget for buying and remaking the annex. Construction on the apartments could start in June, and the project might be finished by mid-2013, Price said.
And work at the Hanna is one act in a larger revitalization playing out in the district.
The Cleveland Play House and Cleveland State University are finishing work on a theater-and-education complex. Restaurateur Zack Bruell aims to open his newest outpost next month in a longtime jewelry store space East 13th Street and Euclid. Dwellworks LLC, a real estate-services provider, is moving its headquarters and 30 to 40 jobs to PlayhouseSquare from Warrensville Heights.
The Huron Square and Osborn apartments, toward the western edge of the neighborhood, are nearly full, said property manager Donna Jarden. And other property owners are contemplating residential-conversion projects.
"The logical step would be to continue to push housing in that neighborhood," said Joe Marinucci, chief executive of the Downtown Cleveland Alliance.
Eventually, PlayhouseSquare would like to see new residential construction, atop historic buildings at East 13th and Euclid and in place of a parking lot across from the Palace Theatre. But in a soft economy, with construction financing still hard to find, tackling an existing building seemed more feasible.
Price will be able to use federal and state tax credits aimed at historic preservation to cut the cost of his project. The developer also hopes to secure New Markets Tax Credits, which offer a tax benefit to individuals and companies investing in areas with high poverty and unemployment.
"I think the Hanna annex has the ability to be one of those projects that creates a whole new district for downtown living," said Ralph McGreevy, executive vice president of the Northeast Ohio Apartment Association. "If you've listened to PlayhouseSquare over the years, they've always mentioned housing in their platform of things they want to accomplish."
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