Stoneleigh – Crain’s Cleveland

Crain’s Cleveland | Stan Bullard | April 19, 2020

Chicago developer Stoneleigh buys site in Ohio City, plans apartment project

Stoneleigh Cos., a Chicago-based apartment and office
builder, is preparing plans for a $60 million, 241-suite project at the west
edge of Hope Memorial Bridge between Ohio City and downtown.

Rick Cavenaugh, senior principal and Stoneleigh founder,
said it’s the kind of site his company seeks because it’s central to people
going to or from downtown, but also near restaurants and amenities where people
like to live.

“It’s not an internal site in the neighborhood that’s
near where people want to go; it’s on the way to where people are going,”
Cavenaugh said. “It will have views of downtown Cleveland and be within
walking distance from the West Side Market and West 25th Street.”

Stoneleigh on March 30 shelled out $7.6 million for the
four-acre parcel to Brickhaus Integrity Ohio LLC, according to Cuyahoga County
online property records.

The seller in 2013 had proposed One West Twenty, a much
larger apartment complex of 500 suites that later was revised to a 300-suite
first phase and a 200- suite later phase. But nothing went forward. Brickhaus
Integrity parted with the larger of two parcels at the site, but kept a
two-acre portion for its future use.

An unseen factor also sold Stoneleigh on the location: It’s
part of a federally designated Opportunity Zone. The zones are designed to aid
growth of companies or projects in designated economically distressed areas by
allowing investors in them to shelter capital gains from other investments.

“We were interested in the project initially because it
is in an Opportunity Zone,” Cavenaugh said. “A number of the family
offices that we typically work with had interest in participating in the
program. We’re finishing up one in St. Paul, (Minn.), on one of the last sites
overlooking the Mississippi River. We are not merchant builders. We see our
projects as 10-year holds. They have to be for the Opportunity Zone
program.”

Cavenaugh is having designers from the Cleveland-based Vocon
architecture firm fine-tune drawings for a structure with two floors of parking
and four floors of apartments. It will look like a five-story building on its
northeast-facing side.

The company is using Vocon because the firm’s designers
already were familiar with the site’s challenges, a location atop the bluff on
the south side of Columbus Road.

“We’re working feverishly to design a really slick
building,” Cavenaugh said — one that responds to current architectural
philosophies and trends in the apartment business to build for efficient
operations and not just “construct space.”

Cavenaugh declined to release a copy of the proposed design
because the company has not shared its most current version with the Duck
Island neighborhood block club. It hopes to do so next month.

Brickhaus Integrity Ohio City was formed by developers
Andrew Brickman, who has built multiple for-sale townhouses from Beachwood to
Rocky River, and attorney Dan Siegel, who owns a substantial apartment
portfolio.

Siegel said in a phone interview, “I believe in the
site and the downtown market, but I no longer liked the risk. Construction
costs have gone up, and a lot of projects are adding apartments in Ohio City
and downtown. It would not produce the kind of yields we normally seek.”

The business partners are finishing the conversion of Mt.
Zion Church in Tremont to apartments and are looking at constructing for-sale
condominiums or townhouses on the remaining One West Twenty site.

Brickman, who originally launched One West Twenty alone,
added, “That’s a nearly untapped (for-sale) market there.”

Cleveland city councilman Kerry McCormack, whose Ward 3
includes downtown and Ohio City, said the new project does not have the
economic impact promised by the former one.

“But having a dynamic project there will add to the
market,” McCormack said. “It’s a site that’s hot even though Opportunity
Zones are not.”

Nationally, the Opportunity Zone program has been criticized
for aiding real estate projects in areas with strong development potential
rather than improving conditions for low-income residents.

In Cavenaugh’s view, the problem with Opportunity Zones
stems from a flaw in the concept.

“The intent is excellent,” he said. “It’s
just that Opportunity Zones are in the wrong place. All the money in the world
will not fix the wrong neighborhood for a real estate deal.”

Cavenaugh said Stoneleigh also wouldn’t have considered a
Cleveland project without the city’s 15-year property tax abatement program for
new residential structures. He said rents have climbed here, but not by enough
to cover high construction costs similar to those in cities with higher rent
rates.

Funding for the project is nearly in place thanks to the
Opportunity Zone’s equity investment requirements and a likely loan commitment
from KeyBank, a lender to the company’s projects in other areas.

Stoneleigh, which was launched in 2008, owns 1,452 units.
It’s building two projects now and pursuing three projects in Texas, in
addition to the one in Cleveland. A sister company, Waterford Residential,
operates six multifamily communities.

Cavenaugh said he is not intimidated by the more than 1,000
units under construction in and near downtown, nor the quick onset of economic
woes from the COVID-19 pandemic.

“Design and location matter, and I’d rather be starting
to build going into a difficult economic environment than finishing at the tail
end of a good one,” he said. “The last four weeks have upset the
world’s apple cart. There will suddenly be fewer construction projects in the
pipeline.”