Chicago developer Stoneleigh buys site in Ohio City, plans apartment project
Crain’s Cleveland | Stan Bullard | April 19, 2020
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.”