Key piece going into place
Zaremba project to test downtown housing market
Tuesday, August 22, 2006
Henry J. Gomez
Plain Dealer Reporter
Nathan Zaremba's office offers a view of Jacobs Field and The Q - two sports complexes that taxpayers helped build.
"The public sector has made its investment," the Cleveland developer said as he nodded toward the window. "Now the private sector is making its investment."
Scott Wolstein has a $230 million plan to redevelop the east bank of the Flats. Bob Stark has a $1 billion proposal to make over the Warehouse District. Both would bring more for-sale homes to connected neighborhoods predominantly known for nightlife.
Zaremba envisions a quieter neighborhood. His $250 million Avenue District project would put 426 high-end housing units - ranging in price from $232,000 to more than $1 million - near downtown's eastern edge.
Wolstein's development calls for 330 housing units, along with 250,000 square feet of shops and other retail. Stark's plan is huge: Converting parking lots into 1 million square feet of street-level retail and a 6 million-square-foot mix of office and residential space.
But all eyes are on the Avenue District, which in mid-September is expected to be the first of the three ambitious projects to break ground. With questions about whether there is enough demand to support the explosion of for-sale housing available in and planned for downtown Cleveland, Zaremba's project will play guinea pig.
"Timing is going to be everything with this deal," said David Browning, managing director of the Cleveland office of commercial real estate services firm CB Richard Ellis. "It's a bellwether, that's for sure. It's going to give us a sign if this can work."
Zaremba said the Avenue District has 23 pre-sales - early contracts used to gauge a project's viability - and needs three to five more before beginning construction on the first phase, which will put 50 loft-style homes and eight penthouses at 1211 St. Clair Ave.
Other Cleveland-area developers and real estate watchers marvel at those numbers.
"The Cleveland market is a cautious market," said Werner Minshall, whose Bethesda, Md., firm owns the nearby Tower at Erieview and struggling Galleria shopping mall. "Frankly, a project that is not yet built is always tougher to sell than one that is."
But Minshall said he believes so much in Zaremba's project that he has signed a contract to live at the Avenue District. Minshall commutes downtown from a home on Kelleys Island. Living one block from Erieview would be "absolutely perfect for me," he said.
"I think it will be sold out by the time it's finished."
Even so, the Avenue District's groundbreaking approaches amid mixed signals about the downtown for-sale housing market. Vintage Development Group of Willoughby has shelved its plans for District Park, a 320-unit Warehouse District development.
"Steel prices almost tripled," project manager Michael Marous said.
The plans called for three large buildings on West Ninth Street, and Marous said there were enough pre-sales to break ground. But the company instead decided to focus on projects that could be built in smaller, less-expensive phases, such as the Battery Park development under construction near the Detroit-Shoreway neighborhood on Cleveland's West Side.
District Park "is definitely in our forecast for the future," Marous said.
One block away from where District Park is planned is the recently opened Pinnacle, developer Gus Georgalis' 14-floor building atop a parking garage, with 80 for-sale units. Georgalis said he has sold 55 of them. Prices range from $350,000 for a unit on one of the lower floors to $1.5 million for a penthouse loft overlooking Lake Erie.
"The market is there," said Georgalis, who boasted that he has sold units to lawyers, business consultants and Browns cornerback Gary Baxter.
But more rides on projects such as Zaremba's, which with a combination of lofts, townhouses and penthouses could erase a dreary stretch of parking lots.
"It's a part of downtown that's been fast asleep for a while, and Nate is waking it up," said City Councilman Joe Cimperman, whose ward includes downtown.
Zaremba's project also could inspire more retailers to open stores in the neighborhood.
Downtown boosters were ecstatic in late 2004 when an independent grocery store opened in the Warehouse District. But downtown's two shopping malls - Tower City Center and the Galleria - are struggling. It's a bit of a chicken-and-egg problem: Some people are uncomfortable living downtown without proximity to retail, and retailers are uncomfortable opening stores in neighborhoods without enough residents to support them.
"To support retail, you need to get more people in or get richer people in," said David O'Neill, managing director for Colliers Ostendorf-Morris, a commercial real estate services firm in Cleveland.
That's why you can bet Wolstein and Stark are eager to see the Avenue District succeed. Each of their developments involves substantial retail components.
"I wish this project success and am pleased it's off to a good start," Wolstein said through his publicist, Nancy Lesic. "The Avenue District offers a new, high-quality residential product downtown, and if it succeeds, it will only help to strengthen the demand" for downtown housing.
In the meantime, Zaremba said to expect what he calls an aggressive "guerrilla" marketing campaign to win over those who "don't think the East Side of downtown is a nice place to live." With 23 presales in less than 3½ months, he thinks he's off to a "remarkable" start.
"Cleveland is at a crossroads," Zaremba said. "It's either going to become a bigger Buffalo or the next Minneapolis."
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