Every Friday for a month last fall, Scott and Iris Wolstein and the team working to secure financing for the Flats East Bank would come up against a seemingly unconquerable problem that threatened to derail the $280 million mixed-use project.
“There were almost humorous aspects to the crises that came up,” says Stephen Strnisha, director of finance services at Project Management Consultants and a consultant on financing to the Flats East Bank since 2005. “We’d sit around and say, ‘How will we fix this?’ and someone would say, ‘We just will,’ ” Strnisha says.
Each Monday, they’d found a way to keep it on track.
Financing for the project was complicated and became even more so with the economic recession in 2008. The project was cut into phases with additional public funding.
When the credit markets deteriorated, the borrowing power of the leases they had pre-secured dropped from approximately $125 million to $53 million, says Adam Fishman, a principal of Fairmount Properties, which is
partnering with the Wolsteins. In fact, the development had a consortium of banks ready to lend $260 million before the economy collapsed, but the lenders pulled away until they were left with nothing, says Scott Wolstein, head of the Wolstein Group.
“We had to put private financing on hold and go after whatever was available from federal, state, county, any conceivable public and civic body,” Wolstein says. “The thought was after a significant amount of money was secured from public entities, they would have something to present to a private lender that was difficult to poke holes in.”
The developers approached the city with a two-pronged strategy. They had already begun investing in the cleanup of the building site and the sewer projects. They had to convince the city that real dollars were being invested in the area, Strnisha says.
“The Wolsteins are committed to keeping this project going, and the project never stopped,” Strnisha says.
Leases for the prime tenants in the office buildings — accounting and consulting firm Ernst & Young and law firm Tucker, Ellis & West, which both signed on in 2007 before the recession — were also on the line. Both companies were looking for new locations for their offices, some in the area and some outside of Cleveland.
Ernst & Young will rent 160,000 square feet to house between 1,000 and 1,100 employees. Tucker, Ellis & West will lease about 100,000 square feet for 275 employees.
“If we waited, we would lose them,” Strnisha says. “There was no other building in town that could pull this off, and no one else was willing to build at this time. That got us the attention of both the city and the state.”
Cleveland Developers Advisors, an affiliate of the Greater Cleveland Partnership, provided early financing and guidance.
Cleveland committed about $53 million through several forms of financing, including a federal loan to the city for $30 million. The city also offered $6 million for land acquisition, $1.2 million for a vacant property initiative loan and $10 million worth of bonds for public improvements.
The state kicked in about $30 million, including $15 million from the Ohio Enterprise Bond Fund.
“The city and the state particularly bent over backward to find everything possible to close the gap,” Wolstein says.
The team, with GCP assistance, hunted down hundreds of sources of financing and ended up with 37 different pieces, Strnisha says. “We got creative at the end; we’d chase down wacky money and then realize it wasn’t there,” he says.
Still the deal closed in December and concrete was poured at the end of May.
“It is exponentially the most complicated deal I’ve ever worked on,” Fishman says. “I would say it’s one of the most complex public-private partnerships ever done in the United States.”
But everyone’s hoping the effort will be worth it. “It’s been quite a journey,” says Joe Morford, managing partner of Tucker, Ellis & West. “We simply think ... the point where the river and the lake meet should be a special place utilized by people on a daily basis. Our location will be a great benefit to our workforce.”
Finalists
Lorain County Community College, R.W. Beckett Corp., Acense, Greenfield Solar Corp. and Case Western Reserve University
Project: SMART Center for Commercialization of Microsystems
A new public-private initiative between Lorain County Community College, Case Western Reserve University and several Northeast Ohio businesses may help many in the business of sensors/microelectromechanical system-based technologies bring their products to market faster.
These technologies are tiny micro-machines used in a variety of applications and industries.
LCCC along with R.W. Beckett Corp., Acense, Greenfield Solar Corp. and CWRU secured $5.5 million in funding from the Ohio Third Frontier to open the SMART Center for Commercialization of Microsystems on the campus of LCCC.
Before market entry, the SMART Center will help companies test and package sensors/MEMS technology, which Greenfield Solar uses in solar panels and Acense uses to sense faults in oil immersed electrical equipment.
The funding has been used to purchase high-tech equipment for testing and packaging the materials, which are in a temporary home until a 40,000-square-foot facility can be built to house it. Recently, Spectre Sensors moved from Buffalo to Northeast Ohio to be close to the SMART Center, bringing six new jobs to the region.
City of Shaker Heights and Shaker LaunchHouse
Project: Shaker LaunchHouse
The city invested $500,000 to revamp an old car dealership into a 23,000-square-foot shared office space for entrepreneurs. The facility can hold up to 12 portfolio companies and 100 members that pay $99 per month for a workspace and many of the accoutrements of a business office.
The LaunchHouse is really two entities: a for-profit incubator and nonprofit community improvement corporation. The for-profit venture can negotiate a stake in the companies it houses with a focus on health care and wellness technology, mobile applications, enterprise applications, gaming and e-commerce. The nonprofit community improvement corporation raises funds and applies for grants that enable seminars and speaker series for the companies.
Shaker LaunchHouse has an advisory team with expertise in startups, finance, marketing, management and technology and provides some mentoring for the companies inside.
The LaunchHouse also partners with Cleveland State University’s Nance College of Business for an annual Idea Competition, in which students compete for scholarships and LaunchHouse services.
The city of Shaker Heights gets a 3 percent stake in the Shaker LaunchHouse and 10 percent of whatever stake the LaunchHouse takes in a company.