Waterford Bluffs – Crain’s Cleveland

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

Pandemic, recession aren’t deterring Northeast Ohio apartment developers

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.