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Strategic development key to future growth

Posted August 18, 2014 in Articles

Author: Stan Bullard

Commercial development with new stores and apartments that has recast University Circle the last four years is encountering its next challenge: a dearth of available empty sites that are under the control of University Circle Inc. and ready for development, or sites that are underutilized within its square-mile domain.

Much of the building action at University Circle was stoked by developers putting projects on sites that University Circle Inc., which oversees area development and provides services in the Circle, had under control in a land bank through which UCI began accumulating property in 1957 for institutional expansions.

Originally the land bank was intended to ensure that institutions would have room to grow in the Circle. However, in 2009, UCI’s board authorized its staff to try to spur retail and residential development to refresh the Circle and transform it into a full-fledged neighborhood.

Eight properties, all locations that might have someday become valuable to UCI members, were made available to developers.

The results ranged from the Courtyard by Marriott, 2021 Cornell Road, and Uptown, a mixed-use project with retail and rental apartments at Euclid Avenue and Mayfield Road, to the Hazel 8 Apartments at 1608 Hazel Drive.

Just three sites under UCI’s control remain available for real estate development: two straddle the Cleveland Institute of Art’s Joseph McCullough Center, 11610 Euclid, and the other is on Stokes Boulevard near Carnegie Avenue.

However, Chris Ronayne, president of University Circle Inc., calls the shortage a good problem to have and already sees how the area will retain its hard-fought development momentum.

“Our next frontier is either in the air or in adjoining neighborhoods,” Ronayne said. He said the Euclid sites that UCI controls are suited to dense, multi-story development. However, on Stokes, the sloping topography of the sites likely will limit the heights of potential projects on those parcels to three stories.

High hopes

Although the carefully orchestrated development of sites that UCI controlled launched the district’s new activity, the next round of projects may depend on the ability of real estate developers to identify viable locations for additional projects. Examples of that traditional real estate development know-how already are starting to be seen.

The biggest example is at the current home of the Children’s Museum of Cleveland, 10730 Euclid. That is where developers Mitchell Schneider, CEO of Lyndhurst-based First Interstate Properties Inc., and Sam Petros, CEO of Broadview Heights-based Petros Homes, have proposed building a more than 20-story apartment tower dubbed One University Circle.

The plan calls for about 280 apartments that will be in a structure taller than the 200-foot W.O. Walker Building next door and below the 260-foot height permitted by the parcel’s zoning.

Schneider said the height was not driven by the need to get a large number of units on a small parcel. Instead, he said, the 20-story height came from the desire to fit the context of University Circle with a building that would have “unparalleled” views of the area. The project would also require rents in the range of $2 a square foot that the city is only now reaching. High-end rents are necessary to cover construction costs that escalate astronomically as buildings rise above the three-story level because of the need for larger foundations and structural supports.

“Yes, we will be coming in at the top of the market in rents. We will not be at the top of the market in terms of the number of people who want to live there,” Schneider said. New apartments at such a rarefied height are planned in only one other location in the region, on upper floors of The 9, the Streetsboro-based Geis Cos. conversion of the 21-story former Ameritrust Corp. skyscraper to a hotel and apartments downtown.

“We believe that there is a significant depth of jobs and income,” Schneider said, “with the right demographic of empty nesters, well-paid academics and doctors who can afford a wonderfully appointed apartment within walking distance of what University Circle has to offer.”

The other side of the dynamic driving such scale is simple, according to Petros. He notes the $2,000 monthly rent in suites in the building is less than the property tax bill of some prospective tenants who would be downsizing from large homes in nearby Shaker Heights and Cleveland Heights.
Site selections

The other strategy is to locate available or underutilized properties in or near University Circle. Although finding fresh sites nearby is new for the Circle, it is part of the regular drill for every new project that real estate developers undertake.

Consider Fairview Park-based WXZ Development Co.’s next project on East 118th Street in University Circle. WXZ already has built the Circle 118 project at East 118th and Euclid Avenue and just north of there has just finished 17 units at what it calls the 118 Flats project.

However, it has pieced together on its own the next site for its developments on East 118th. WXZ acquired five homes on East 118th on the north side of the entrance to East Cleveland Cemetery. That site, where four of the homes have already been demolished will become a second phase of the 118 Flats that will add another 30 units to the Circle.

WXZ plans to soon seek city approvals to develop the additional suites, according to WXZ CEO Jim Wymer.

Construction of new institutional buildings or other projects also change the nature of what kind of development is possible at the Circle by changing its context.

WXZ has seen this first-hand. New dorms and a playing field completed by Case Western Reserve University several years ago proved crucial for WXZ.

“There was a time when we started on East 118th that there was a feeling we were outside of the Circle,” Wymer said. “The (CWRU) development has changed the street’s perception in the market.”

University Circle-fostered development is also pushing west, most prominently along Chester and Euclid avenues.

Boca Raton, Fla.-based Finch Group, which helped kick off the apartment rush in the Circle by installing luxury rentals in the Park Lane Villas, is constructing in a joint venture with Ozanne Construction Co. of Cleveland a six-story apartment complex at 10001 Chester Ave.

The 177 suites are technically in Cleveland’s Hough neighborhood. However, the suites will be marketed to typical University Circle tenants: medical residents, graduate students and postgraduate researchers.

Similarly, Chicago-based developer John Murphy plans to build a 274-room Holiday Inn on a site leased from the Cleveland Clinic Foundation at Euclid Avenue and East 86th Street. That project will go up almost 10 blocks west of the Circle’s western edges.
Up or out
Those projects lend credence to Ronayne’s feeling that there are opportunities for projects “all around the dial” from University Circle. Those projects will serve the market that University Circle tenants create and help transform blighted but land-rich neighborhoods surrounding the Circle.

“Gone are the days of turf politics in Cleveland,” Ronayne said. “We’re now in an era of space-based planning.” Real estate developments in neighborhoods such as Fairfax, Hough and Little Italy will continue to have their own identities but will also benefit from the jobs created by institutions at University Circle.

How far can those developments reach beyond the Circle? The key constraint may be how close each site is in walking distance to the Circle’s institutions and how close they are perceived to be to the Circle.

Original Article: http://www.crainscleveland.com/article/20140816/SUB1/140819832/strategic-development-key-to-future-g

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