Gilbert’s Bedrock sizes up downtown Cleveland building
Cavaliers owner, financier and casino operator Dan Gilbert’s Bedrock Real Estate Services may be starting to step up its game in the downtown Cleveland property market.
Bedrock’s name has surfaced as the potential buyer of the old May Co. department store on Public Square. The building also has an often overlooked side on Prospect Avenue across from the Jack Cleveland Casino’s welcome center, parking garage and recently installed Wahlburgers eatery.
Three sources familiar with the situation, who asked not to be identified because they are not authorized to discuss it, said Gilbert’s real estate arm is in due diligence to buy the building’s upper floors from Euclid of Cleveland LLC, the Miami Beach, Fla.-based affiliate of real estate investor Robert Danial.
However, a key part of Bedrock’s interest in the May Co. complex is that it incorporates a nine-floor parking garage at the northeast corner of Prospect and Ontario Street, across from the casino, one of the sources said. The garage originally served downtown shoppers.
Although revenues from casino gaming operations have failed to meet expectations before Jack, then known as Horseshoe Casino Cleveland, swept casino gambling into Ohio in May 2012, the operation has made parking a prized — and pricier — commodity in the area near Public Square, especially on weekdays and game days at nearby Quicken Loans Arena and Progressive Field.
Whether Bedrock, which has developed and renovated substantial properties in downtown Detroit the past few years, would pursue the most recent proposal for May to become apartments on its upper floors is unknown, but it does have lofts in its Detroit portfolio.
The potential Bedrock maneuver surfaces as the last venture targeting May Co. for 220 apartments comes to naught.
A trio of Cleveland developers — John Carney, Robert Rains and David Goldberg — had pursued a plan since 2013 to convert the May Co. building’s upper floors to apartments while the Florida owner would have continued to operate the first two floors of the building as retail space. A Taco Bell is the latest addition to the building’s frontage to the renovated Public Square.
Carney, a principal of Landmark Management, said in an interview July 25 that the May Co. project is “dead to us.” He said another group is working with Danial to buy the building but he does not know the next would-be buyer’s identity.
The local group had let its option expire during protracted efforts to secure highly competitive Ohio State Historic Preservation Tax Credits for the project, without success, in 2015 and 2016. Such credits are crucial to raising enough money to finance such a major construction project, estimated to cost a total of $140 million. The oldest part of the former store dates from 1911.
“Someone else will develop the building,” Carney said. “A lot of time, effort and treasure went into it. I am disappointed. That building needs to get done. If it does, it will be good for Cleveland.”
Whether a Gilbert-led group winds up with the May Co. building, Bedrock is a likely buyer for the property for several reasons.
Alec Pacella, an investment property expert and managing partner of NAI Daus real estate brokerage in Beachwood, said Gilbert’s other area interests make the property more valuable to Gilbert and his partners than to others. Those include The Q, the casino and its upstairs multitenant office space in the Higbee Building, 100 Public Square, and Ritz-Carlton Hotel and Chase Office Tower, 1515 W. Third St.
If parking needs are driving the deal, another scenario might play out. Pacella in 2003 was the broker on the $10 million sale of the May Co. building to a prior owner who wanted to use all of its upper floors for parking.
“That building is built like a fortress,” Pacella said. “I’m sure it structurally could handle it. It wouldn’t be cheap. But it’s an interesting idea as downtown has become under-parked.”
However, dropping the May Co. apartment conversion plan could leave money on the table.
The state has an allocation of $25 million in Ohio tax credits that could be called into play if another owner pursues a similar adaptive reuse of the landmark that also satisfies federal standards for historic preservation. Most real estate developers do not have enough cash flow for the federal and Ohio tax credits to be useful to their own firms, so they sell them. However, several of Gilbert’s ventures might be able to use the federal tax credits or the Ohio credit for his Ohio operations directly to reduce their tax liabilities.
The other intriguing development at Bedrock is internal. Bedrock has on its website an ad for a position for a director of development who would be based in Cleveland. The company seeks a mid-career applicant with at least 10 years of experience who holds an undergraduate degree in urban planning or a law degree.
The listing comes more than a year after Bedrock bought the long-suffering Avenue at Tower City from Forest City Realty Trust.
All that’s happened since at the formerly posh urban mall is that vacancy has increased, most recently with storefronts for The Children’s Place retailer, which is shutting more than 100 stores, and Sakio Japan, a food court venture, going dark in the last two months. However, retail closings are an epidemic in the nation as e-commerce increasingly challenges bricks-and-mortar retailing, along with store over-supplies.
Bedrock declined comment. Gabrielle Poshadlo, a Bedrock spokeswoman, said, “Our official stance is that we don’t comment on rumors in the marketplace.”
The May Co. building’s owner did not return two phone calls and an email about the changing prospective buyer lineup by 7 p.m. July 27.