CLEVELAND, Ohio -- Construction will start this week on the long-delayed Flats East Bank project, now that developers have finally locked in the money to build offices, a hotel, retail and a park at the mouth of the Cuyahoga River.
The Wolstein Group and Fairmount Properties closed on their financing Tuesday - making a $272 million development real after years of dreaming and planning. Set to open in spring 2013, the project will extend downtown Cleveland to the waterfront and include the central business district's first new multi-tenant office building in more than a decade.
The project is a rare private, urban development to move forward, in the wake of a recession and a financial crisis that roiled the real estate industry. And it is one of three potential game-changers for downtown Cleveland, where a new convention center-medical mart project is scheduled to break ground soon and a casino is in the works.
"We have major headquarters that are here in Cleveland that will remain in Cleveland as a result of this," Mayor Frank Jackson said. "I believe it will eventually attract other people to that part of the city and, in some fashion, may even move what we consider the center of town as people begin to consider the water's edge as a place where they want to live and work."
Loans and grants from the city are among 35 sources of funding for the project. To pay for the 18-story office building, a 150-room Aloft hotel, a parking garage, retail and public spaces, the developers lined up everyone from major banks to foreign investors who hope to gain U.S. residency in exchange for putting money into the Flats.
Stakeholders described the project as the most complicated financial transaction in Northeast Ohio's history.
"Every professional involved would tell you this was the most complex undertaking and closing that they've ever been part of," said Adam Fishman, a principal with Fairmount Properties.
The $272 million first phase will house accounting firm Ernst & Young, law firm Tucker Ellis & West and the CB Richard Ellis real estate brokerage -- all downtown tenants itching for a new location. The Flats East Bank also will include a riverfront boardwalk and 14 acres of parkland. The green space eventually could be the site of residential development, shops, restaurants and entertainment venues, once the economy improves and more financing becomes available.
"Today is finally the beginning of implementing my husband's vision for the Flats," said Iris Wolstein, whose husband, Bert Wolstein, hoped to turn the former nightlife mecca into a riverfront district. He died in 2004.
"While it has been a very long and treacherous road to get to today, this family collaboration will benefit our hometown and give the city a vibrant showcase for all of us and future generations of Clevelanders to enjoy," she said in a news release Tuesday afternoon.
Iris Wolstein and Scott Wolstein, her son and the executive chairman of Developers Diversified Realty Corp., unveiled their plans for the Flats East Bank in 2005. When financial markets collapsed in 2008, money for real estate disappeared and the development was put on hold. The Wolstein Group and Fairmount Properties struggled for two years, split the construction into phases and sought additional public and private funding sources to revive the project.
Wells Fargo Bank funded $53 million in bonds to support the office building. The Ohio Carpenters' Pension Fund and the Cleveland International Fund, a group of foreign investors, also stepped in on the first-mortgage bonds. FirstMerit Bank provided a loan. The federal government, the state and Cuyahoga County kicked in loans and grants.
Cleveland contributed nearly $53 million, $37.2 million of that in loans, worked with the developer on a deal to divert anticipated increases in property taxes from the project to pay for construction, and took advantage of a federal economic stimulus program to lower the cost of bonds for the project.
"These deals don't work with straight private financing anymore, particularly in cities like Cleveland or Pittsburgh where the market is not booming," said Tom Murphy, a senior resident fellow with the Urban Land Institute and a former Pittsburgh mayor. "This is an investment for the future that will create momentum in Cleveland."
