Cleveland, OH - The developers of the $522 million Flats East Bank neighborhood say that despite worsening economic conditions, they still intend to move forward with the project. But, they say work will be placed in a temporary holding pattern in the face of the global credit crisis that is impacting the developer's ability to close private and public financing anticipated for the project.
"As everyone well knows, there is an historic dislocation in the debt market," said Scott Wolstein, who is leading the development of Flats East Bank with his mother, Iris, and codeveloper Fairmount Properties. "Virtually all new development projects nationwide are stalled or shut down as a result of what's happening in the financial industry."
Extensive public improvements are required on this former industrial land, including significant environmental remediation and replacement of deteriorating sewers.
Over the past several months, the developers have incurred costs for the public work undertaken to date. Under the financing plan in place, these costs are to be reimbursed by grants from government agencies. Thus far, the Wolstein family has incurred more than $50 million in private and public costs.
Additional public infrastructure improvements - including major street, utility, park, and public parking work - will eventually be financed through the issuance of bonds which would be repaid from future tax, parking and other revenues. In order for a government agency to issue these bonds, the developer must be able to lock down private financing commitments.
But, Wolstein said, the credit market has made it difficult to secure financing commitments that would assure the flow of revenue needed to cover the bond issues.
"Private construction wasn't scheduled to commence for several months. We are hopeful that markets will return to some level of normalcy in the near future and that we'll finalize the remaining private financing in advance of when it's needed," Wolstein added. We look forward to working with the public agencies to keep this project on track."
Cleveland Mayor Frank Jackson said: "We're encouraged that the Wolsteins have recommitted to the Flats East Bank project despite the uncertainties in the worldwide financial market. I pledge to work hand-in-hand with the developer to ensure the completion of this critical mixeduse development.
Don Misheff, Northeast Ohio managing partner of Ernst & Young, which announced in May that it would become an anchor tenant of an office tower in the Flats East Bank neighborhood, said the Big Four accounting firm remains committed to the project
"Everyone knows these are tough economic times, and no one could have anticipated what's happening in the credit market' Misheff said. 'We remain committed to this project and plan to build our new home in the Flats.
Cleveland-headquartered law firm Tucker Ellis & West also continues to be interested in being a major tenant in the office building planned for the new Flats neighborhood.
'We continue to look forward to our new home in the Flats East project and are confident the Woistein family and their public partners will deliver up a terrific new neighborhood: said Curt Isler, national managing partner of Tucker Ellis & West.