Developer's 'Dream' Venture Could Be Big for Lakefront

By Stan Bullard, Crain's Cleveland Business

Thirty years ago, a young architect named Richard Pace was a staffer on an early planning study for developing downtown Cleveland's lakefront at the north end of East Ninth Street. There was no Rock Hall, no Great Lakes Science Center and no pond-like inner harbor there.

As of June 16, the same architect (now turned real estate developer) in a joint venture with Dallas real estate development firm Trammell Crow Co. executed an option with the city of Cleveland to go beyond the plans for the same strip of Lake Erie coastline and to build on it retail, office and apartment structures.

“This is fulfilling a dream,” Pace said last Wednesday, June 24, as he discussed business terms for one of the most long-awaited real estate developments in the city's history. “We're farther along than anyone else has gotten in the last 50 years.”

In broad outline, the city's terms allow the developers to pay up as they put up projects. City spokesman Daniel Ball confirmed the developers put no money down as they executed the option this month. Instead, the developers will be subject to payments as they lease each of six phases surrounding the city's North Coast Harbor. The biggest cost they stand to have to pay is a minimum of $22.4 million over 50 years to replace parking revenue the city receives from the properties on the west side of the harbor north of FirstEnergy Stadium.

A market rent will be assessed for just two parcels on the east side of North Coast Harbor and southeast of the Rock and Roll Hall of Fame and Museum. Those rents are $9,634 and $23,124, respectively, each year, in addition to repaying $195,182 annually in parking revenue. However, those terms would only kick in for 50 years if the larger parcels north of the stadium are not developed.

Another clawback the city put into the project if the developers fail to proceed is that they will have to surrender architectural designs, engineering studies and other materials to City Hall. That would give the city ammunition to restart the effort anew, perhaps wooing another developer.

Pace said his team had no problem agreeing to surrender the planning studies.

“The number one thing is that we believe we are going to perform,” he said.

The developers also paid an amount Pace declined to disclose for an appraisal they and the city used to set the market value of the property. He said the idea of replacing the city's lost revenue from parking as the development kicked in had developed over time. 

Costs for such studies are mounting. 

“We've spent hundreds of thousands of dollars on it already,” Pace said, adding that the developers will assume the cost of environmental cleanup of the site.

Risk — with big 'upside'

Although the apartments would receive the city's standard tax abatements for new housing, Pace said the developers plan to ask for no other incentives. That's because the city will assume the cost for installing streets and sidewalks and other infrastructure on the project, Pace said. A significant one is 60 feet of intense landscaping on the project's north side to buffer it from the lake's winds and wintry weather.

The developers created the phasing plan for the project. Pace said Trammell Crow could build the entire project at once, but putting the 1,000 apartments on the market at once would glut the market. Instead, the developers will take down parcels as they are ready to undertake each phase.

“The strategy is to generate retail as infill around the harbor to create more of a sense of place,” Pace said. “The first three-story building will have some retail, 50,000 square feet of office and eight penthouse apartments. All those will be pre-leased. It's almost a market test for the entire project.”

Robert Simons, a real estate expert and urban studies professor at Cleveland State University's Maxine Goodman Levin College of Urban Affairs, described the long-sought lakefront project as “risky.”

However, “It's also a high-upside project,” Simons said.

“The developers get a chance to tie down a premium location for a long time without putting their capital at risk,” he said. “The lakefront location would be superior in many ways to others in the city with a lake view and cachet. What it does not have is a lot of restaurants and, as we all know, it's freaking cold in the winter there.”

Chain reaction

Joseph Marinucci, president of the Downtown Cleveland Alliance that operates the city's business improvement district, said moving forward with the project is “very important to the community. It provides us with more development in a way that also provides more access for the public to the waterfront.”

Marinucci said DCA studies have shown enough demand for more apartments in the city besides those already in the planning stages.

Although Pace has sought to provide more use for downtown's waterfront for years, his most recent experience as a developer has also come into play. Since leasing the retail space at Colonial Marketplace downtown two years ago, he has transformed mostly vacant storefronts below the Residence Inn hotel into a lively place with an eclectic mix of craft, art and food- or service-oriented shops.

“I'm convinced you can fill a large amount of retail space with local retailers,” Pace said. “Some of what's at Fifth Street can be extended down there. You don't have to go to a chain.”

As an architect, Pace also contributed at various levels to other projects proposed for the lakefront that came to naught since his first foray, from the onetime idea of a Progressive Corp. headquarters to an outlet mall.

Why did he come back to it again?

“The biggest thing is that it has been such a missed opportunity for the citizens of Cleveland,” Pace said. “We have a million-and-a-half people down there for Browns games and the museums. There's nowhere to bring down your kids to play sand volleyball and have a meal. I want to see those things happen.”