CLEVELAND -- Developer John Carney walked through Cleveland's warehouse district last week, moving quickly in the cold to get from one of his buildings to another, as he raised a finger toward a surface parking lot along the way.
"Tear down is not our mentality," Mr. Carney said. "That's why we have these parking lots here, because people tore things down. Our mentality is to preserve these historic structures and make an adaptive reuse, and the primary reuse is housing."
The idea is also to make some money, and after restoring five buildings in Cleveland, and another in Indianapolis, Mr. Carney -- along with business partner Bob Rains -- now plans to start doing the same in downtown Toledo at the vacant Berdan Building.
Dan Ross, director of operations for Mr. Carney and Mr. Rains' business, Landmark RE Management, said once the Berdan is renovated into 123 "high-end, upscale" apartments, finding tenants won't be a great challenge.
"I am excited about the neighborhood because it's really cool and upcoming," Mr. Ross said while meandering around the company's Bridgeview Apartments on West 9th Street in Cleveland's warehouse district.
"Toledo and Cleveland are definitely the same vintage, same ancestry, so same kind of potential," he said. "There are some nicer things here as there are some nicer things in Toledo, just like any city."
Like Cleveland and many cities in the Midwest, Toledo is losing population. Vacant storefronts and derelict buildings dot the downtown landscape that once teemed with people and businesses. Leaders in such communities struggled between advocating for razing old buildings or putting the taxpayers on the hook to help a private developer.
In the case of the 108-year-old Berdan Building, a former grocery warehouse at Washington Street near Fifth Third Field, the duo of developers are asking Toledo City Council to approve a $10.5 million Section 108 loan from the federal Department of Housing and Urban Development.
They also want historic tax credits and $2 million from Neighborhood Stabilization Program 2 Grant money, which is federal stimulus money, for their $22 million plan to convert the former warehouse into one and two-bedroom apartments.
The plans for the Berdan Building take in features used at some of the other historic buildings renovated by Mr. Carney and Mr. Rains over two decades.
Michael Carney, Mr. Carney's son, said a central atrium at the Berdan will be comparable to one built at Bridgeview Apartments -- with the center of upper floors cut out and large timbers stretching across, with skylights above.
"It's very dramatic, and obviously I can take no credit for it since it was all the work of our architect," the younger Mr. Carney said. "You don't sandblast because it does too much damage. [Instead] you use crushed walnuts and you blast them with that."
Except for the drywall and the duct work, all of the atrium features are original. "That is part of the historical tax credits -- we have to keep as much original," he said. "What used to be the floor, we just cut it … because the center is not rentable space and it opens up the structure. Without that, it might as well be a parking structure."
Bridgeview Apartments, also a former grocery warehouse, consists of 247 apartments ranging from 630 to 2,000 square feet, of which about 94 percent are occupied. The rents are from $795 for a one-bedroom of 630 square feet to $2,400 for a large three-bedroom of about 2,200 square feet. Rents at the Berdan will start about $695.
The older Mr. Carney said the Berdan Building will have some better features than the company's other projects.
"Over the years, we have made our finishes better and better, and more high-end, because that is what the young people who want to live in our units want to have," Mr. Carney said.
"We want to be able to rent it, maybe someday sell it, so that is a lesson we have learned over five projects."
Mr. Rains noted that the loft-style apartments in the Berdan are slated to have granite countertops, polished concrete floors, nickel bathroom finishes, and perhaps stainless-steel appliances and hookups for washers and dryers.
Also in the Bridgeview Apartments, Mr. Rains showed off a 690-square-foot apartment with a raised bedroom overlooking the living room that will rent for $830 a month. That same design is planned for the Berdan.
"The reason for elevating the bedroom, is the person in the bedroom has a semisense of privacy and when they stand up, they can see the natural light also," he said.
Those types of amenities are meant to appeal to the developers' core target demographic.
"Our target market is 25 to 35, college graduates, professionals, [and] we rarely have [people with] children," Mr. Rains said. "We have a decent smattering of empty-nesters and we have in this building, as we will in the Berdan, secure indoor parking, so that really opens up to females who want that for safety."
Mr. Carney and Mr. Rains completed rehab of the historic Perry Payne building, which was built in 1888, in December, 1995. It is now 93 "luxury lofts" that the duo said resemble what will take shape in the Berdan. Two have sold as condominiums and the others are rentals.
The space has large windows, high ceilings, modern, euro-style kitchens and spacious, ceramic-tiled bathrooms. There is also Victorian-era decor and a marble-floored atrium.
"Rehabs are very, very inefficient since the buildings are not right for apartments, the space is not right, the roof is typically gone, there is a lot of water damage, plus rehab construction of an old building is a high- risk proposition," Mr. Rains said. "You always find things you didn't expect."
Government subsidy programs such as tax credits or municipal bond sales have enabled some historic renovation and reuse projects to move forward.
The city of Toledo sold bonds in the late 1990s to help finance the redevelopment of the former Hillcrest and Commodore Perry hotels into rental apartments for market-rate and lower-income tenants.
But expenses soon outpaced revenues at both downtown apartment buildings -- ultimately putting the city on the hook for debt payments.
Now, approving the financing for the Berdan is a tough sell for some members of Toledo City Council because past real estate deals like that have gone sour and saddled the city with debt.
Toledo has had a $1 million annual obligation on the Commodore Perry, Hillcrest, and Museum Place apartment buildings since the early 2000s. The city expects to continue paying the debt until at least 2025, and it will own none of the buildings.
Brad Peebles, commissioner of development for Toledo Mayor Mike Bell, said the Berdan building project is part of a larger plan to create a vibrant neighborhood downtown.
He said the Berdan financing structure would not leave Toledo in the same predicaments. In a worst-case scenario, should the project fail and the firm default, the city of Toledo would be responsible for repaying the loan money, but it would take ownership of the building.
Landmark RE Management has guaranteed completion of the project along with tax credit equity for five years, which commits the building to run with tenants for at least that period.
Additionally, Mr. Peebles said the Section 108 loan would be offered at 1.5 percent rather than the 3 percent that Landmark has factored into its business plan.
The company would put the balance between the 1.5 percent and the 3 percent, which would be about $150,000 a year, into a joint escrow account with the city that would give Toledo a cash fund to use for repayment, if needed.
Still, the financing situation for the Perry Payne has given Toledo City Council reason to pause. Landmark RE Management used a Section 108 loan for that project and it is behind on payments. Mr. Carney said the halt of condominium sales is to blame.
"The Perry Payne [108 loan] we put in place in 1994 or 1995 and it paid as agreed for 10 years," Mr. Carney said. "At that point, it started heavy amortization -- $100,000 to $150,000 a year in amortization -- so on top of the interest, which we had kept current all those years and early amortization which was less, it went to heavy amortization and the project could not support that."
To work that out, the company converted it to condominiums, he said. "The condominium sales would have easily kept it current, but condominiums sales stopped when Lehman Brothers failed in November, 2008," Mr. Carney said. "We are working with the city on that particular one, but until we can start selling condos, it's not going to be able to pay them." The balance of the loan is about $1.5 million.
Mr. Rains pointed out that for the that project, the city of Cleveland has a second mortgage, whereas in Toledo, the city will have the first mortgage position, giving it more protection. He also said Cleveland would get all its money back in the end.
Landmark's initial project was the relocation of the downtown Cleveland City Mission and the redevelopment of the mission's previous headquarters into 54 luxury apartments and 8,000 square feet of street-level retail space. The $6 million project took two years to complete. Mr. Carney said it was the first significant redevelopment project in Cleveland's historic Warehouse District.
Chris Warren, chief of regional development for Cleveland Mayor Frank Jackson, called Mr. Carney and Mr. Rains pioneers.
"I would say in the warehouse district, with a number of projects, they were pioneers in the initial efforts in the mid to late 1990s to redevelop historic properties," Mr. Warren said. "They were the first developers who took risk with older, decrepit buildings."
The two men are attorneys who in the mid-1970s began real estate development with a tennis club in Strongsville, Ohio. Since then, they have developed, owned, and managed projects including shopping centers, office buildings, recreational centers, condominiums, and apartments. Since 1990, they have focused principally on redevelopment of national historic landmark structures.
They have also expressed interest in renovating the former Toledo Edison Steam Plant along the downtown Maumee River front. "That too is a great building, great location, great project. It's just that the Berdan went first," Mr. Rains said.
Bob Seyfang, who migrated from the suburbs to the Bakery Building on South Michigan Avenue with his architecture firm in 1989, acknowledged the risk in renovating old vacant buildings.
"Frankly, we are all for it," Mr. Seyfang said of the Berdan plans. "It has been a long time coming and anything that happens around our building certainly increases the value of our building."
Used as a warehouse since 1930, the Bakery Building property was purchased by Mr. Seyfang, the grandson of the building's original owner, and converted into eight loft apartments with five office spaces.
"There were a lot of surprises in the building and in retrospect, we did it right," he said. "We first did the shell. We had it watertight and as we get tenants for spaces, we would amortize those improvements as we went."
Steve Green, who along with his wife, Michelle Green, developed the 14-unit, market-rate Sunflower Building on Lafayette Street, also said renovating the Berdan would be great, but he said the downtown needs more jobs.
"Personally I would like to see more stuff downtown -- residential or commercials," Mr. Green said. "My wife and I have been down here for a decade and you need some white-collar jobs. You need a firm to throw 100 to 500 jobs downtown."
The 24,675-sqaure-foot, three-story Sunflower Building was built in 1899 for SW Flower & Co., a wholesale field seed merchant. It was renovated by the couple in 2001.
"We did both River West Townhomes [at 145 South St. Clair St.] and the Sunflower building with no governmental help," Mr. Green said. "From a business prospective, we have done two projects and we did it with private dollars."
According to a draft document provided to City Council, the other sources of funding for the Berdan are:
• $10.5 million Section 108 loan.
• $1 million loan from union trades.
• $3.55 million in federal historic tax credit equity.
• $2.35 million in state historic tax credit equity.
• $500,000 in facade easement proceeds.
• $2 million from Neighborhood Stabilization Program 2 Grant money, which is federal stimulus money.
• $2.3 million from a deferred developer fee.
Toledo developers Joseph Swolsky and Robert Gersten, who converted the seven-story warehouse at 745 Washington St. into the Bartley Lofts condominiums, own the Berdan Building under Parkstone Berdan Building LLC.
It was purchased from Root Redevelopment LLC in January, 2006 for $1.35 million. Landmark RE Management plans to pay $1 million for the building.
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Like Cleveland and many cities in the Midwest, Toledo is losing population. Vacant storefronts and derelict buildings dot the downtown landscape that once teemed with people and businesses. Leaders in such communities struggled between advocating for razing old buildings or putting the taxpayers on the hook to help a private developer. In the case of the Berdan Building developers are asking Toledo City Council to approve a Section 108 loan from the federal Department of Housing and Urban Development.