CLEVELAND — The developers behind Cleveland’s first major skyscraper in decades are proposing a complex property tax deal to move NuCLEus forward.
Stark Enterprises said the arrangement would clear the way for construction of the 54-story tower and mixed-use project that would include restaurants, retail, apartments, offices, a hotel and more than 2,000 parking spaces.
Under the proposal, the Cleveland Metropolitan School District would receive a lump sum payment of property taxes up front, which would assist the developer in its financing.
Bob Stark, President and CEO of Stark Enterprises, called NuCLEus a catalyst for downtown growth, comparing the project to Terminal Tower a century ago. Planned for a site now occupied by a parking lot across from Quicken Loans Arena and bordered by Prospect Avenue and East 4th Street, it marks a departure from the trend of renovating existing buildings.
“We need desperately to advance the process to the point where we’re building new great architectural projects that change our skyline in Cleveland if we want to be a major league city in the 21st century,” Stark said.
The ambitious project will cost an estimated $542 million, but its property valuation upon completion is expected to be just $250 million. That difference prompted Stark Enterprises to propose tax increment financing (TIF) that would allow it to use future property tax payments to repay construction debt and help close the financing gap. Stark said financing must come from several sources for such a large project, and the public component is critical.
“Without that assistance, it’s completely impossible to do because there’s a total disconnect between how property is appraised in downtown Cleveland and what it costs to build something new that’s iconic and that’s world class,” Stark said. “We don’t have the rents to support it.”
Under the proposed TIF, publicly unveiled this week by the Cleveland Metropolitan School District, the district would receive $18 million in guaranteed property tax revenue from Stark Enterprises up front, instead of variable long-term tax revenue. Taxes paid by residents would not be impacted.
CMSD said it would use the money in its continuing building construction and renovation program, so it would be eligible for $38 million in matching funds from the state of Ohio, bringing the total to $56 million.
Stark said that money would be more valuable than the amount the district would otherwise collect over the next three decades while the TIF is in effect.
“That’s real easy math to figure out that $60 million today is worth hundreds of millions of dollars over a 30 year period,” Stark said.
The parking lot at the proposed site of NuCLEus currently generates about $360,000 per year in school taxes, according to CMSD, and the financing deal only affects new tax revenues beyond that. If the property becomes valued at more than $250 million, Stark Enterprises would be responsible for paying additional taxes.
Tax increment financing has been used in Northeast Ohio before, including for the Flats East Bank and Key Tower, according to Stark, but this arrangement is unique.
CMSD is hosing eight information sessions over the next few weeks before the Board of Education votes on the proposal on August 22. Cleveland City Council will have final say on the agreement and is expected to vote in September.
Ward 3 Councilman Kerry McCormack, whose ward includes downtown, said he supports the deal, which would likely lead to school construction projects outside of downtown.
“It’s an example of how we can support downtown development and also support neighborhoods outside the downtown neighborhoods,” he said. “It’s a catalytic project for downtown Cleveland, and it shows the positive momentum in Cleveland is continuing.”
Stark said construction could potentially begin at the site in the summer of 2018.