Cleveland Mayor Frank Jackson and Cuyahoga County Executive Ed FitzGerald are working together to take $350 million worth of long-discussed downtown projects from vision to reality.
CLEVELAND, Ohio -- In a rare collaboration, Cleveland Mayor Frank Jackson and Cuyahoga County Executive Ed FitzGerald are partnering to push forward on roughly $350 million worth of long-discussed downtown development, including a convention center hotel and a nearby pedestrian bridge to the lakefront.
FitzGerald will announce today that he plans to use extra money from the convention center complex to support construction of a 600-to-700-room hotel in place of the county's administration building at Lakeside Avenue and Ontario Street. Lower construction costs and higher-than-expected sales tax and hotel bed tax revenues -- the funding streams for the convention center and attached Global Center for Health Innovation -- have left the county with a windfall.
Now the county plans to use that money, which totaled $93 million on Tuesday, to support downtown projects private developers are unlikely to tackle. To stretch those dollars, FitzGerald has been working with Jackson, the business community and an array of consultants to sketch out budgets, identify funding sources and find opportunities for public-private partnerships.
The result is an unusual alliance that could lead to the opening of the city's largest hotel and improvements to public spaces and lakefront access by spring 2016.
"We're not talking about new plans. We're not talking about coming up with new ideas," FitzGerald said during a joint interview with Jackson and business leaders. "We're talking about actually implementing things that have been discussed for many many years and making them happen and turning them into bricks and mortar."
Jackson added: "This is a very practical plan. It's not about pictures as much as implementation of existing plans and tweaking them in a way that really brings everything together.
"It really connects Public Square, the Malls, the pedestrian bridge and the lakefront. The county is heavily funding on one side, and we're funding on the other side. We will share in the funding of all of this, and there are no new taxes. Our ability to do that is here. It's here, and we intend to do it."
The largest of the projects is the hotel, a potential $260 million endeavor where the county would contribute its land and, essentially, play the role of developer. The other investments, at an estimated cost of $95 million, include the pedestrian bridge and a 740-space parking garage just northeast of the convention center, an overhaul of Public Square and improvements to the grassy downtown Malls, East 3rd Street and existing bridges over railroad tracks at West 3rd and East 9th streets.
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Public officials said the projects will make downtown more attractive to residents and visitors, ensuring better public pathways through the city and allowing Cleveland to compete for major events -- including the 2016 political conventions during the presidential race.
Demand exists, but hotel project is tough
With the city's new convention center set to open in mid-June, interest from event promoters is running high. But tourism officials say downtown Cleveland does not have enough hotel rooms, or the right mix, to accommodate large shows.
Columbus, Cincinnati, Indianapolis and other competitors have anywhere from one to three large hotels tied into their convention centers, with an average of 605 rooms per hotel.
Preliminary results from a market study by PKF Consulting show demand for nearly 500 rooms here, even after three new hotels -- an Aloft, a Westin and a Drury Plaza -- open. Positively Cleveland, the local convention and visitors bureau, is paying for the study, which should be finished soon.
"At the end of the day, if a meeting planner tries to come here and we can't accommodate them, it's harder to get them three years down the road," said David Gilbert, who leads Positively Cleveland. "We're missing out with the number of rooms we have. ... If there's a need in the market for 600 more rooms, in the best-case scenario that need shouldn't be filled by three 200-room hotels. If someone's looking to build 200 rooms on Euclid Avenue, they're looking at a different market than a 600-room convention hotel is. A convention hotel is looking for group business. All the other hotels would love that. When big groups are in town, it creates compression for everybody."
Attorney Jeff Appelbaum, who represents the county on the convention center project, has been crunching the numbers on the proposed hotel and public-space investments.
"If I look at this 18 different ways, everything we've done, everything we've studied, it's going to be a 650-room hotel, plus or minus 50," Appelbaum said. "Never smaller than 600 and never larger than 700."
View full sizeCleveland Mayor Frank Jackson, left, and Cuyahoga County Executive Ed FitzGerald talk about plans for $350 million worth of long-discussed downtown development, including a convention center hotel and a nearby pedestrian bridge to the lakefront. Early project sketches show a 600,000-square-foot hotel, with 650 rooms and 80,000 square feet of ballrooms and meeting spaces. Underground parking, with 350 spaces on two levels, would serve the hotel.
A restaurant and bar might look east onto the Malls, with an outdoor cafe spilling patrons out into the public space. The hotel lobby would connect to the convention center and the Global Center for Health Innovation, the building formerly known as the medical mart.
Large, attached hotels might be critical to a convention center's success. But that doesn't mean they make money. With a $260 million project budget, the Cleveland hotel would have to rent rooms at $400 a night -- nearly three times the $150 average daily rate that Appelbaum is projecting. Many cities fill that gap by offering huge public subsidies to private hotel developers.
Cuyahoga County, which already owns the hotel site, is taking a different approach.
Though the deal structure and hotel ownership are still being worked out, it appears the county will seek bids from architecture and engineering firms, hotel managers and design-build companies. FitzGerald said the first such request for bids could be available within 30 days. A private operator might run the hotel, but a public entity -- most likely one affiliated with the county -- would own it.
The county expects to generate $150 million for the project through bonds issued based on anticipated new bed taxes from the hotel, a portion of the new property-tax revenues and a slice of the hotel's operating revenues. Other funding sources include a sales-tax exemption on construction materials, worth $9 million, and the county's contribution of the administration building site. The city would pull together $8 million, while the county would contribute $83 million from its savings on the convention center.
County takes on development role
To jump-start the project and meet the aggressive construction schedule, FitzGerald might move county workers out of the administration building this year -- months before the county's new headquarters building, at East 9th Street and Prospect Avenue, will be finished. Employees could land in other county properties or nearby buildings.
The extra move would cost the county $2 million, but that expense would be offset by more than $5 million in savings from starting work on the hotel early, officials said.
Politically, moonlighting as a developer might be an easier sell for the county than handing out subsidies to a private company. And that structure isn't unheard of. Columbus and other cities have used public entities to build convention center hotels. But one hospitality expert, who is not involved with the project, expressed surprise about how the county is structuring the deal.
"That's quite a big hotel," said David Sangree of Hotel & Leisure Advisors, a Lakewood consulting group. "If the government is literally doing the whole thing, that's honestly not very fair to private hotel developers who want to build projects downtown. The government's cost of capital is so much less than a private developer's. They did this in Columbus, but most other cities in the U.S. have not done it this way."
Building a hotel linked to the convention center is a good idea, he added, but a 650-room project will make it even harder for smaller, slow-moving hotel projects -- including a handful of proposed building conversions along Euclid Avenue -- to get done.
Private sector eyes public spaces
Though the county and city envision a swift process, any public funding will need legislative approval. The city also is waiting on federal government feedback on a $17.5 million grant application for the largest piece of the public-space improvements -- the pedestrian bridge and parking garage.
Twice rejected for a U.S. Department of Transportation grant to help pay for the project, the city recently filed a third application, with support from the county and the Cleveland-Cuyahoga County Port Authority. To prove that they have skin in the game, the city and county each have pledged to spend $10 million on the development. Another $10 million would come from issuing bonds based on anticipated revenues from the garage. The city expects to hear back on its grant application in August.
"It doesn't mean we're going to be waiting for a federal check or nothing will happen," FitzGerald said.
Design for the bridge and garage could start late this year, and construction might run from mid-2014 to late 2015, said Ken Silliman, Jackson's chief of staff.
There is no firm deadline for remaking Public Square, but the city and county hope that project will follow a similar timeline and be finished in 2016. The bridge and street projects, which hinge on private fundraising, have more uncertain timelines. And designs and costs for the Malls could change, since the hotel will impact the western edge of the sweeping public space.
"I think it's very realistic," said Joe Roman, the chief executive of the Greater Cleveland Partnership, the region's chamber of commerce. Leaders at the partnership have worked with the Group Plan Commission, which came up with the vision for downtown's public spaces, and have researched creative ways to pay for public spaces and attract private investment.
Roman anticipates that local foundations, corporate sponsors, nonprofit groups and investment funds will drum up $30 to $35 million -- about a third of the budget for the green spaces and infrastructure projects.
"This may be the first project of this scale that can be financed without new taxes," he said. "I really think it has more impact than the stadiums and other museum-oriented projects. ... This is a major priority for us. There are enough different pots that can be tapped."
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