Flats East Bank refinancing puts large-scale project on firmer ground

A recent refinancing of Flats East Bank, a more than $ 500 million project at the mouth of the Cuyahoga River, resolves long-standing financial problems and paves the way for further development at the 23-acre site.

Developer Scott Wolstein on Thursday, September 16, made an agreement that has been in progress for more than a year. The deal replaced bonds issued in 2010 and 2014 with new debt, with longer duration and lower interest rates, and freed up cash for Wolstein to catch up with millions of dollars in payments to lenders. public.

“It cleans up what has been a major source of acrimony between us and all the various government entities,” Wolstein said.

By simplifying the financial foundations of the project and removing privileges from parts of the site, the restructuring will also make it easier for Wolstein to refinance its existing buildings – and build new ones on parking lots that could potentially hold up to 1,500. apartments.

The Flats East Bank, where construction began ten years ago, features a 23-story office tower, the 150-room Aloft Cleveland Downtown hotel, a riverside building and more than a dozen restaurants and places of entertainment.

The apartments are full. Office space is 95% occupied, according to bond offering documents. The hotel, like others in the city center, is emerging from a pandemic-induced slump.

But the project has been on shaky ground with government and civic lenders since before the first phase of construction was completed, in large part because of a school tax that Cleveland voters approved in 2012. This increase in Tax was not part of the original financial projections for the project, which required more than 30 sources of funding to get started after the Great Recession.

The solution ended up involving a timely change in state law and, after fierce debate, a Cleveland City Council vote to double the duration of a key tax incentive for the project. In December, the council voted 14-2 to add 30 years to an existing property tax increase funding agreement.

Funding through tax increases reallocates some of the new land tax revenues created by development, often pledging this money to pay down public infrastructure debt.

In Ohio, the standard TIF lasts for 30 years. But the General Assembly last year created a short-lived opportunity for local governments to double that deadline for some existing projects. Such a “mega-TIF” was to keep local schools harmless during the extension period, regardless of the terms of the original agreement.

The initial 30-year window for Flats East Bank ends in 2040. The extension pushes this end date back to 2070. This additional lead has allowed Wolstein to replace the TIF bonds related to the first two phases of the project on more attractive terms. . And that gives it a valuable tool to fund other grassroots projects.

On Thursday, September 16, the Cleveland-Cuyahoga County Port Authority issued nearly $ 58.7 million in new TIF bonds for the project, in two batches that have generated strong investor interest. Almost $ 34 million of the proceeds was used to repay the principal of existing bonds, issued years ago by the port, state, and Summit County Development Finance Authority.

The transaction generated $ 17.4 million to repay a cascade of public lenders, including the city.

Ryan Sommers, a financial consultant on the deal, said there were only three government debt securities left from the first phase of the project: two state urban redevelopment loans and one loan from the US Department of Housing and Development. urban that crossed the city.

“Without that happening, you had those legacy government debt obligations over your head every time you had to refinance, expand, or sell,” said Sommers, general manager of financial services at Project Management Consultants in Cleveland. “You had to take care of it every time. And at that time, you have a very clean, more traditional funding structure.

At a council hearing last year, David Ebersole, the city’s director of economic development, described the apartments as a “high-risk project financed on very thin margins”. Doubling the length of the tax hike funding deal was the only way to clear things up and avoid litigation, he said at the time.

In an email Thursday, Ebersole wrote that the refinancing not only resolved public debt defaults, but also put high-level development in a better position to make outstanding payments.

“These repayments provide the city with financial resources which can be invested in future projects,” he writes.

Cleveland Development Advisors, a civic lender on the project, was repaid long before the deal closed, said Yvette Ittu, president of the real estate and corporate finance arm of the Greater Cleveland Partnership.

“We were delighted to be a part of bringing Flats East Bank to where it is today and happy that it will be able to continue to move forward with more traditional sources,” Ittu wrote in an e -mail. “It’s great when that happens.”

Wolstein said construction could start again this year on a second apartment building on the site. Akara Partners, a Chicago-based developer, has formed a joint venture with Wolstein for the project, which is expected to span a 2.5-acre parking lot at West 11th Street and Main Avenue.

New riverside restaurants and nightclubs, including an Asian fusion restaurant, Texan-style barbecue and country music hall, are expected to start opening in November, Wolstein said. Other incoming tenants include a bagel store, wine bar, and ESPN Cleveland.

Building on an award from the state’s latest capital budget, Wolstein is installing video screens in two locations and preparing to add two permanent stages for live performances. By next summer, he hopes to eliminate car traffic from more of the site, turning the waterfront area west of West 11th Street into a pedestrian-only area.

And the developer is in the early stages of planning for more apartments north of Front Avenue, in a parking lot between FWD Day and Nightclub and Margaritaville Cleveland. But he’s in no hurry.

“It’s more of an art than a science,” he said, “but what you never want to do is flood the market with too many units in the same neighborhood at the same time.… I would not start a project in the apartments until the immediately preceding project came out of the ground. “

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