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By Michelle Jarboe

The Plain Dealer

June 10, 2017

CLEVELAND, Ohio – After years of behind-the-scenes planning, Playhouse Square Foundation is getting ready to stage its biggest real estate act: Building a 34-story apartment tower at the edge of downtown Cleveland’s theater district.

The nonprofit organization will own the project, a $135 million investment comprised of a 319-unit rental building and an adjacent, 550-space parking garage at East 17th Street and Euclid Avenue. Hines, a global real estate firm, will serve as the development manager, shepherding the project without holding a stake in it.

Playhouse Square’s decision to push forward on a long-held development dream comes during a rental renaissance for Cleveland, which is seeing proposals for new construction pick up as the supply of potential conversion projects – older buildings primed for residential makeovers – thins.

An apartment tower called One University Circle is being built on the city’s east side, and a high-rise called the Beacon is earmarked to rise above a parking garage at 515 Euclid Ave. A handful of developers are trying to stretch Cleveland’s skyline, while others are tying up neighborhood sites for smaller rental deals.

Yet economists across the country are asking how long the rental boom will last. Some markets are showing signs of slowing. And lenders are tempering their approach to apartments, making financing tougher to find.

Playhouse Square executives aren’t worried. They aim to start construction on their tower by the end of the year and open the building by early 2020.

“We have vetted this pretty well,” said Art Falco, chief executive officer for the performing arts district, which owns more than 1 million square feet of real estate and manages a comparable amount of space for other property owners.

“We have a database of about 800,000 people that come to Playhouse Square,” Falco said. “So we have great comfort that a small percentage of those will want to live here.”

Plans for the building show a slim, glassy tower at the southwest corner of East 17th and Euclid, with a parking garage just to the west, next to the Hanna Building.

The site, slightly over an acre, is a parking lot. Playhouse Square has owned most of the property since 1999 and acquired the last piece in 2015.

The nonprofit is putting that land into the apartment deal as equity, along with a little more than $10 million — a gift from the Richard J. Fasenmyer Foundation to Playhouse Square’s ongoing $100 million capital campaign. The district also received $1 million from the last state capital budget to help with construction of a garage.

The garage, with two floors underground and four levels above, will replace 140 surface parking spaces. An amenity deck, with a pool, heated gathering areas and a dog run for the apartment residents, will span the garage roof.

At 378 feet tall, including mechanical floors, the apartment building will be comparable in height to the Hilton Cleveland Downtown. The average apartment will be 880 square feet, though the units will range from one to three bedrooms.

Falco won’t discuss potential rents, though they’re likely to be among the loftiest in the market. Early this year, the average monthly rent in the downtown area was $1,400, according to Reis, Inc., a research firm that tracks market-rate, multifamily properties of at least 40 units. Vacancy was a mere 3.1 percent.

Due to modest job growth and a fairly stagnant number of people living in the region, rents in Cleveland aren’t high enough to make new construction an easy sell. That’s why Playhouse Square is shouldering its tower project in-house, rather than selling it to a developer.

Two local developers – the NRP Group, first, and then Hemingway Development – seriously considered the deal but ultimately passed when they couldn’t make the numbers work.

Hines, which entered the talks late last year, reached a similar conclusion: The project wouldn’t generate enough cash to satisfy an owner-developer. But it still could make sense for Playhouse Square, which views the buildings as a working endowment and will accept more moderate returns.

“For a developer who has a certain cost of capital, it just wasn’t penciling out,” said Brad Soderwall, a managing director at Hines. “But we felt strongly that the product itself would be very well received in Cleveland and could compete well and capture the highest possible rents that could be achieved in Cleveland.”

Playhouse Square derives a third of its revenues from real estate and the rest from theater operations.

“We have the benefit of having a long-term perspective, a very different perspective than most investors,” said Allen Wiant of Playhouse Square Real Estate Services. “We also have a perspective of having a broader portfolio where we can evaluate this return as raising the bar on the rest of our portfolio.”

The nonprofit’s holdings, other than the theaters, generate property taxes.

But the foundation does plan to seek property-tax breaks on the apartment tower and garage. Other major downtown developments have tapped a city residential tax- abatement program and have used tax-increment financing, which shifts part of the new tax revenues created by development to paying off project debt.

HollyAnn Eageny, a Chicago-area consultant who worked on a market study for Playhouse Square, acknowledged that it’s getting harder to finance and build apartments in some cities. And she noted that there are thousands of new units on the drawing board in Cleveland – though not all of them will get built, and the ones that do won’t all open at once.

Her firm, Tracy Cross & Associates, Inc., estimates that this metropolitan area can accommodate at least 500 new apartments each year for the next five years, without pushing the overall vacancy rate above 5 percent.

And, she added, there’s a diverse group of renters, ranging from Millennials to slightly older professionals to downsizing suburbanites, who want to live in a new, efficiently designed building with lots of amenities and easy access to dining and entertainment on foot, by bicycle or via public transportation.

Those are the people that Playhouse Square plans to court.

“Everything in apartments is cyclical,” Eageny said, “and there will come a period of accelerated construction followed by a lull. That’s just the way it has always been. You have not overbuilt and, in fact, you’re kind of catching up because there’s been so little construction for so many years.”

By Dennis Rodkin

Crain’s Chicago Business

May 09, 2017

2017.05.09 crains-pic 1

Photo by Dennis Rodkin Townhouses at Weekley’s Easton Station development in Buffalo Grove.

A couple of years after bringing its Texas-sized ambitions to Chicago’s lackluster suburban real estate market, a national homebuilding firm is scaling back its expectations here.

Since mid-2015, Houston-based David Weekley Homes has sold about 46 homes in Buffalo Grove, Naperville and other suburbs. That’s less than one-third the goal of 150 homes that a Weekley sales executive told Crain’s about in mid-2015.

“Chicago has been a hard-to-predict market,” said Rich Bridges, Chicago division sales manager for the publicly owned builder. “We’ve been disappointed.” At least 30 of the sales, or about three-quarters of them, came in late 2016 and early 2017, he said.

Bridges now says he hopes to sell 75 to 100 homes in the next 18 months.

The retrenchment will take another form too: Bridges said Weekley may try more townhouses, which have done well at its Easton Station project in Buffalo Grove but aren’t usually a big part of the builder’s offerings.

The challenges slowing Weekley down aren’t unique to this firm, they’re built into Chicago’s weak suburban homebuilding market, people outside the firm say.

“They came into this market banking on an upturn that never happened,” said Erik Doersching, executive vice president of Tracy Cross, a Schaumburg-based consultancy for the homebuilding industry. “They’re not the only ones who’ve been disappointed that this market didn’t pick up.” Earlier this month, Cross released a report on the first quarter of 2017 showing that even with several consecutive quarters of improvement, suburban new-home sales remained around one fourth the norm that prevailed between 1994 and 2007, when the housing market crashed.

New-home sales in the suburbs have lagged because of a litany of factors, including lopsided job growth that favors the city’s housing market, two years of population declines, and low prices on existing homes that reduce buyers’ demand for new construction.

Those factors “pose a challenge for everybody” in the industry, said Jerry James, president of Edward R. James, a privately owned builder based in Glenview. While declining to comment directly on Weekley’s situation, he said “it’s gotten tougher here” in the period since the Texas firm arrived in the Chicago suburbs. Along with the other factors, James cited the elephant in the room in any discussion of Chicago’s economy: uncertainty about the financial health of the region and state in the next several years.

Publicly traded national homebuilders generally shoot for about 2.5 sales a month in each of their developments, Doersching said. By his firm’s count, Weekley is getting an average of one to 1.5 sales a month in each of its four developments, in Naperville, Barrington, Glenview and Buffalo Grove. That’s about or slightly below the average for Chicago builders, Doersching said.

“If you’re from Chicago, you think we’re moving at a good pace,” said Bridges, who’s been in the homebuilding industry here since 1988. “But if you’re from Houston, you say, ‘my goodness, that is slower than it is down here in Texas.'”

Weekley has a double-barreled sales strategy in Chicago: it builds subdivisions in infill locations but also builds on single lots or small clusters of lots. It’s unclear how many of the latter Weekley has sold. Bridges suggested the total is between eight and a dozen, though he declined to give specifics, and Cross’ tally does not include small sites.

Chicago’s slow housing recovery may be affecting that side of Weekley, too. On Fort Sheridan Avenue in Highland Park, Weekley cut its asking price by about 23 percent, from almost $1.1 million to below $850,000, before a home went under contract in March, according to listings on Redfin. The sale hasn’t closed yet, and listing agent Jodi Taub of Coldwell Banker did not respond to a request for comment.

Buffalo Grove has been a particular bright spot for Weekley’s subdivision sales, Bridges said. At the firm’s Easton Station development of 15 townhomes that broke ground in April 2016, 12 are sold and the first three owners moved in recently, he said.

Easton Station, where townhomes are priced from $450,000 to $490,000, has done well, Bridges said, because of Buffalo Grove’s strong schools, easy access to a Metra station, expressways and a Mariano’s grocery store, and “a scarcity of new home development.” Also turning Buffalo Grove buyers’ attention to new homes: a lack of existing homes to buy. For about two years, Buffalo Grove has had an especially low inventory of existing homes for sale. For most of the past two years, Buffalo Grove has had enough homes for sale to feed about 2.5 months’ of sales, while a balanced market has four to six months.

Bridges said Easton would be a model for Weekley’s plans in the Chicago area. Townhouses, which Weekley builds mostly in subdivisions targeted to seniors, “is something we’ll do more of here” but in all-ages developments, he said.

By Dennis Rodkin

Crain’s Chicago Business

April 13, 2017

 

Photo by 5a7 LLC A conceptual rendering for houses grouped around common green space at Plum Farms.

Photo by 5a7 LLC A conceptual rendering for houses grouped around common green space at Plum Farms.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

A 186-acre tract of northwest suburban farmland could become a series of walkable neighborhoods with city-style three-flats and other housing options that aren’t the suburban norm. It would also include a “tranquility center” with a stream flowing through it.

“It will look like something between the suburbs and the city,” said Anthony Iatarola, who will present the plan, called Plum Farms, to the Hoffman Estates village board April 17 in an effort to get most of the land annexed to that suburb, where about 40 acres already lies.

“This should be a model for the way we want to live now,” Iatarola said. Walking trails would thread through the neighborhoods and around wetlands to the shops, school, platform tennis courts and other amenities that would be constructed over the course of what he estimates as an eight-year buildout.

Photo by 5a7 LLC A conceptual rendering of the development's 'tranquility center.

Photo by 5a7 LLC A conceptual rendering of the development’s ‘tranquility center.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Iatarola, a partner in the Plum Farms development partnership called 5a7, said his father bought the land in 1959, when he saw suburban development headed northwest. Iatarola, formerly an attorney and head of the Wirtz family’s real estate operation, now runs a small industrial company and said the Plum Farms land is owned by his family members along with a few other people.

His firm’s proposal, which calls for more than 1,000 homes and at least 155,000 square feet of shops and offices surrounding 70 acres of wetlands, would occupy a site at the northwest corner of state routes 72 and 59. The other three corners are developed or underway, and just southwest is Prairie Stone, the corporate park around the Sears headquarters.

That leaves the Plum Farms site as “the hole in the donut, and you’ve got to do something special,” said John McLinden, whose Skokie-based development firm, StreetScape, consulted on the land plan, which includes houses that face common green spaces, a community greenhouse and a shops building with an outdoor ice rink out front. Streetscape developed the new urbanist-style projects School Street in Libertyville and Floral Avenue in Skokie along similar lines, though they were far smaller.

Plum Farms “will be School Street on steroids,” Iatarola said. It includes a commercial first phase of shops, offices and an outdoor ice rink, which his firm would build at the parcel’s southeast corner near the major intersection, and multiple residential phases to be built by other firms.

LARGEST HOFFMAN PROJECT SINCE 1990s

With plans for 1,035 housing units, the residential part of Plum Farms would be the largest project proposed in Hoffman Estates since the late 1990s, said village manager James H. Norris. The 1999 proposal for University Place contained 850 houses and single-family homes as well as commercial and educational facilities on 325 acres, and another 193 residential units were added in a separate annexation in 2005.

In plans that Iatarola showed Crain’s but would not allow to be published, the land has housing around three sides, built in various configurations including three-flats (where, in traditional Chicago settings, the building’s owner lives in one and rents out the other two units), houses grouped around common courtyards and three-story townhouses for rent.

In presentation documents, Iatarola refers to these and others as “the missing middle” types of housing in the Hoffman Estates and Barrington-area market, where houses and mid-rise apartment buildings predominate. Iatarola said an apartment developer is ready to roll with seven buildings containing 253 rental units on the project’s southwest corner “as soon as we have all the approvals from the village,” but he would not identify the firm.

Photo by 5a7 LLC A conceptual rendering of the commercial property to be built at Plum Farms' southeast corner.

Photo by 5a7 LLC A conceptual rendering of the commercial property to be built at Plum Farms’ southeast corner.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The vision of a mix of housing types “is a strategy that can keep you alive out there,” said Tracy Cross, principal of suburban development consulting firm Tracy Cross & Associates. His firm is not connected to the Plum Farms plan.

Sales of high-end homes have been slow in the northwest suburbs for more than a year, and construction of new homes even slower. “With those different types of housing, you’re not sitting waiting to sell one or two houses a month on your 180 acres,” Cross said. “That could take you 500 months, which is infinity.”

Cross said a residential use for the land might be a good plan, considering that the former AT&T campus, also in Hoffman Estates, has 1.6 million square feet of commercial space standing empty. The long, slow death spiral of Sears Holdings also could end with that firm’s behemoth facility next door becoming available.

The types of housing are all only concepts for now, Iatarola said. Because each phase of development will require separate approval from the village, “I presume that what eventually gets built will be dictated by the market and what is selling on that site,” Norris said.

The Iatarola family sold some of its Hoffman Estates land off in the early 2000s, including 42 acres south of Higgins Road, where the 400,000-square-foot Poplar Creek Crossing shopping center was completed in 2006. Of the larger remaining chunk north of Higgins, he said, “I’ve been dreaming of what I could build here since I was a kid.”

For nearly six decades, the family has rented most of the land to farmers and other users, he said. The family long ago sold off his father’s other postwar real estate investment, tracts of land northwest of Tucson.