A flurry of public filings on April 15 signaled that the Wolstein Group and Fairmount Properties had consummated a $149 million deal.
CLEVELAND, Ohio -- The developers of the Flats East Bank project tied up a financing package last week for their second phase, clearing a path for the 23-acre waterfront district's first apartments to open by June 2015.
A flurry of public filings on April 15 signaled that the Wolstein Group and Fairmount Properties had consummated a $149 million deal that took more than 18 months of negotiations. The lower levels of a 243-unit apartment building already are taking shape near the Cuyahoga River, where the developers plan to add more restaurants, entertainment venues, parking and public spaces.
Scott Wolstein; his mother, Iris; and Fairmount completed the first phase of their long-discussed Flats development last year, after fighting to keep the downtown Cleveland project alive through a painful recession and protracted recovery. Now their Ernst & Young Tower, the center city's first such building in two decades, is largely full. Below it, an Aloft hotel and restaurants line West 10th Street.
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View full sizeA rendering shows the riverfront apartment building at the Flats East Bank project in downtown Cleveland. The first floor of the building will house restaurants and other businesses. Parking for residents will be tucked into the second floor. Construction started earlier this year, but the developers didn't close on their financing package until April 15. The second phase will add residents to the mix, in an eight-story, curving building near the river. Six residential floors will sit above street-level restaurants and businesses, with parking hidden inside. The project also involves a boardwalk and standalone restaurants, including a Toby Keith's I Love This Bar & Grill.
"It's a promise fulfilled," said Cleveland Councilman Joe Cimperman, whose ward includes much of downtown. "It's amazing that this project just continues to yield not only a look to the future but a real hat-tip to the past, in terms of how Cleveland started and how Cleveland is starting again."
Adam Fishman, a Fairmount principal, said the Wolsteins fronted the money to get construction moving earlier this year. The Wolstein Group is putting $24 million into the second phase of the project, which marries public and private cash.
Of the $149 million flowing into phase two, approximately $35.5 million came from public sources -- much of that through loan programs or bond-financing deals that allowed the developers to borrow money at lower interest rates. Cuyahoga County, for example, issued $17 million in economic development bonds to generate a loan for phase two.
With completely new buildings housing an array of uses on a challenging site, the project presented hurdles, said Ryan Sommers, who brought together 18 funding sources. The Flats didn't qualify for various tax credits that often make or break deals in downtown Cleveland. And many public incentive programs focus on job-creation at office buildings and industrial complexes, not residents or retailers.
"The capital markets have recovered in some respects, but gap financing is critical for ground-up projects like phase two," said Sommers, director of financial services at Project Management Consultants in Cleveland.
Cuyahoga County also kicked in a $1.5 million loan from a downtown development fund supported by casino-tax revenues. The city of Cleveland, which had a heavy hand in the project's first phase, contributed to phase two through a loan program meant to revive vacant or little-used properties. And the Flats picked up state grants for waterfront development, the public boardwalk and site clean-up.
On the private side, Wells Fargo and Huntington lent money for the apartment building. Toni Perry of Wells Fargo said that the success of the first phase, coupled with the popularity of downtown apartments, made the rental housing a logical investment.
"It's exciting to look out the window and watch the construction progress and see the Flats ... transform before your eyes," Perry added, referring to Wells Fargo's vantage point from the bank's new offices in the Ernst & Young Tower.
Cleveland Development Advisors, an affiliate of the city's chamber of commerce, provided both a long-term loan and short-term financing -- the latter meant to bridge gaps until some slower-moving money trickles in. The group raises cash from Northeast Ohio companies and makes secondary loans to real estate projects.
Beyond the apartments, the Cleveland International Fund took the lead. The fund, which pairs overseas investors with Northeast Ohio real estate projects, committed to a $24 million loan for new restaurants, venues and parking lots.
The fund is part of a federal program that offers wealthy investors in China and other countries a shot at U.S. residency if they lend money to projects that create jobs in America. CiF started raising money for phase two of the Flats last year. Chief Executive Officer Steve Strnisha said the fund's current push extends beyond the just-closed loan, to money that could support a second office building and other construction in the Flats.
The Wolsteins and Fairmount are planning that second office building, which wasn't covered by the recent financing deal. Fishman said the developers have money lined up, though, and they're working to secure tenants.