Ups beat downs in the realty market in 2019 – Crain’s Cleveland Business

Moving up, moving in, moving out and moving on characterized Northeast Ohio's lively 2019 real estate market.

The new era of large apartment building construction began to be felt downtown as The Beacon, a 28-story building that was the first highrise residential project constructed downtown in 40 years, opened and the rise of the 34-story Lumen at Playhouse Square also put its stamp on the skyline.

Meantime, K&D Group of Willoughby capped its long run of projects rehabilitating old downtown office buildings to mixed use with big doses of apartments in the city's most iconic building, Terminal Tower.

Downtown Cleveland Alliance, the downtown security and promotional nonprofit, estimated the residential population as 18,800 as of Sept. 30, 2019, and said it's certain to grow more next year, with more than 1,000 apartments in development.

While large warehouses serving online retailers took center stage as Amazon opened its new fulfillment center in Euclid, its third operation in Northeast Ohio, and launched construction of another in Akron, smaller manufacturers kept things busy on the other side of the staff count.

Ohio City alone lost Voss Industries to Berea and Conveyer & Caster to Westlake. Downtown lost Tap Packaging Solutions, better known as the former Chilcote Co., to Brooklyn and Cleveland Vibrator Co. stayed within the city limits but moved to the Jennings Freeway Industrial Park.

However, other groups already own the properties shed by Tap and Conveyer & Caster, respectively, setting the stage for potential new apartments downtown and expansion by the neighboring Kowalski Heat Treating Co. in Ohio City. As those deals show, many high-profile real estate sales in 2019 were for development or redevelopment purposes, a reflection of the continued low-interest-rate environment.

Perhaps the best example was the $5.6 million sale of the Market Square Shopping Center, 2011 W. 25th St., in Ohio City to an affiliate of Chicago-based real estate developer Harbor Bay Real Estate Advisors. The firm plans to build a $175 million project on the site of the small single-story plaza across the street from the West Side Market. Thirty years ago, the strip center was progress for ground that had served for decades as extra parking for patrons of the market. Putting in midrise apartment and office buildings is the largest-scale commercial project in the city neighborhood near downtown since the 1920s.

Also in Ohio City, the 11-story Church + State apartments began rising at 2815 W. 25th St., and more were launched in locations from Franklin Circle to Tremont and Little Italy.

While big things were happening in Greater Cleveland, some big real estate development projects downtown stayed stuck in park. Plans for the Centennial, an apartment-office redo of the massive office building at 925 Euclid Ave., and nuCLEus, a long-planned retail-office-residential project proposed for the parking lots between Prospect and Huron roads near Rocket Mortgage FieldHouse, both got revised plans. But neither closed multimillion-dollar financial packages to begin the major rebuilding, and building, projects.

The biggest question-mark for downtown and the city's real estate market surfaced in September as The Sherwin-Williams Co. announced it was launching a search for a new headquarters and a research-and-development center to replace its longtime locations on Prospect Avenue and Canal Road.

John G. Morikis, Sherwin-Williams' chairman and CEO, said in October the company planned to provide guidance for shareholders, employees and the community by the end of 2019 or early 2020.

Uncertainty about whether the massive paint and coatings maker would move to a site near Public Square, expand near its current headquarters at 101 W. Prospect Ave. or go for some other option perhaps in another state hovered over the city and the region like a vast cloud as the last days of 2019 ticked away.

With the completion of the huge Van Aken District in Shaker Heights and Pinecrest in Orange Village, no other large multitenant mixed-use projects with significant retail components are underway in the region. For an area that has added almost a million square feet of retail space annually for several years, that's a dramatic change. However, as some retailers with multiple locations drop like flies, it also reflects the challenge faced by brick-and-mortar shopping in the face of online rivals.

Filling empty Sears or Kmart spaces and empty mall stores is a big pursuit for shopping center owners as they try to woo other users to fill empty gaps and attract people. Beachwood Place is in the midst of planning an open-air meeting space to complement the enclosed two-story mall in Beachwood. Meantime, a full-blown remake of outlying grounds of the Macy's and Sears properties at Richmond Town Square as apartments and even self-storage is in the planning stages in Richmond Heights.

Although multiple stores went dark, it's a contradictory picture. Menards, the Eau Clair, Wis., hardware chain, and Meijer, a Grand Rapids, Mich.-based grocer and softgoods retailer, both privately held purveyors, opened new large-format stores at multiple locations in the region.

On the existing-home sales front, it was the busiest year of the past two as low interest rates in the 3% range kept buyers searching for desirable homes and allowed some owners to move on to larger properties or downsize. Residential builders continued to be busy, but the overall market remained flat. U.S. Census Bureau statistics for the combined Akron and Cleveland Metropolitan Statistical Areas show the number of single-family permits fell 9%, to 2,644 units, through October of 2019, the latest period available, from 2,891 in 2018's like period.

Dean Tompkins, 2019 president of the Home Builders Association of Greater Cleveland trade group, said he was surprised production statistics dipped given how busy his colleagues appear to be. However, he can see why the numbers are coming up that way.

"Even if we pulled more permits, we might not be able to get the labor to build more homes," said Tompkins, vice president of Payne & Payne Renovations & Design in Chardon. "There is clearly pent-up demand. Financing is available but still hard to get and rising land development and construction costs are (limiting) factors for homebuilders. But there's also a tremendous amount of home remodeling going on out there."

For all the go-go aspects of the market, cracks have started to emerge as the economic expansion ages. Lenders filed foreclosure proceedings against two big downtown Cleveland properties in 2019, the IMG Center building at 1360 E. Ninth St. and the Doubletree Hotel at 1111 Lakeside Ave. Both serve as cautionary tales to developers and owners that the economic winds can shift and change the direction of the market, their holdings and the contents of their wallets.

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Ups beat downs in the realty market in 2019 - Crain's Cleveland Business