“Too big to fail”: Inside the city’s $12M deal to save Shaker Square

Hallie Bram Kogelschatz, co-owner of the strategy and design consulting firm Shark and Minnow, wants to create three new jobs at Shaker Square. Right now, though, she doesn’t have anywhere to put new employees. With her roof leaking and her basement flooding with water, she had to postpone her plans to expand to a second floor office space.

When Kogelschatz and her husband first opened their office at the iconic shopping plaza five years ago, it was vibrant and full of life. Then their former landlord, The Coral Company, tried to refinance it and the lender pulled the financing during the pandemic because of the risk of losing tenants. Now, the square is owned by Wilmington Trust bank and Kogelschatz worries about its future — and her own.

“What’s happening at Shaker Square is threatening our future here, our expansion and our investment,” said Kogelschatz. “We love Shaker Square. But if we can’t grow here, how can we stay?”

Others are asking the same question. Veteran eateries Yours Truly and Fire closed during the pandemic. Recently, beloved Hungarian restaurant Balaton, a 25-year fixture at the square, announced it is looking for another space, and Dave’s Supermarkets, whose lease is up in the near future, also has begun publicly questioning its future at the square.

“We enjoy serving the community at Shaker Square, but continue to be frustrated by significant capital needs to our store and the square as a whole that are outside of our control,” wrote David Saltzmann in a recent letter to Cleveland City Council. “These issues impact safety and the shopping experience we are able to offer our customers.”

Now, a deal is emerging to potentially rescue the square from receivership and reposition it for future development — but at what cost?

A deal to save the square 

To protect Shaker Square, the City of Cleveland wants to buy it from the bank, turn it over for repairs to nonprofit owners Cleveland Neighborhood Progress and Burten Bell Carr Inc., and eventually sell it again to a new, responsible owner. According to the proposal being considered by Council, it would cost about $12 million because the lender is unwilling to negotiate.

Although the price tag is high — the square is worth $5.6 million according to appraisals, but the bank has rejected lower offers — proponents advocate selling quickly before the square falls into further disrepair and more tenants leave. The deal would protect one of the city’s historic treasures and shore up Cleveland’s beleaguered southeast side, they say.

Although Cleveland would be overpaying for the property, the investment would protect one of Cleveland’s historic treasures and could ultimately pay cost the city less in the long-term, said Tania Menesse, president and chief executive of Cleveland Neighborhood Progress (CNP), which would own the square under its real estate arm, New Village Corporation (NVC).

“If we don’t act now, the bondholders will take it to sheriff sale, they will buy their own asset, and we’ll watch Shaker Square languish the next couple of years,” said Menesse. “Everyone has that reaction. I had that reaction: ‘Oh my god, you’re overpaying for that asset.’ Until you understand it. It’s the city of Cleveland investing in Shaker Square, the residents, and the merchants.”

In addition to the $12 million from the city, CNP and BBC are proposing spending $4 million on stabilizing the property — making much-needed capital improvements such as fixing the roof. These funds would stem from Cuyahoga County, area foundations, and Cleveland Development Advisors, which is the real estate and finance arm of Greater Cleveland Partnership.

How much is too much? 

The $12 million price tag for the square includes the cost of the mortgage, unpaid interest, and fees. Originally, the city had proposed spending American Rescue Plan Act (ARPA) dollars until lawyers realized the property was ineligible because its problems started before the pandemic. Now, the city wants to tap its general fund to provide low-interest loans to the developers.

According to the terms of the deal, the city would provide a $6 million first-position loan at 2% over 5 years, and a second $6 million subordinate loan at 0% for five years and 1% for an additional five years, to CNP and BBC.

The deal could have an upside for the city if the property is sold in a few years for a profit. One prominent critic, though, says that’s unlikely and the deal amounts to overpaying a rich, out-of-town bank. If the property is sold for anywhere near its current, appraised value, he said, the city would be left holding the bag, and taxpayers would lose millions of dollars in the sale.

“While we are excited to hear the news of the potential investment in Shaker Square, we are also concerned at the speed at which this is moving forward as there are many unanswered questions and millions of public dollars involved,” wrote Brandon Chrostowski, CEO of Edwins Restaurant and Leadership Institute, which occupies space at Shaker Square, in a letter to City Council. “We are asking that there be a pause to actively discuss this proposed ordinance in a public forum so that all information is disseminated accurately and allows for a dialogue amongst the community.”

“As a city of Cleveland (Shaker Square) resident who is operating business in and around the area as well as having our son in a CMSD/charter school it is deeply concerning and a questionable to use public funds to pay banks nearly double than what expert realtors say Shaker Square is worth when it could go back into our community,” he continued. “Why the overpayment when there is only one $5 million offer on record?”

Council considers the deal 

Chrostowski — who also made a bid to purchase Shaker Square for $5 million, which the banks rejected — believes the city and its nonprofit partners are moving too fast and the property could be purchased for less in the long term by waiting out the foreclosure process. Meanwhile, he says, the receiver has been responsive in making needed repairs to the property so far.

Menesse disagrees, saying the square has bigger issues that need to be addressed now, including the major roof leak that Kogelschatz experienced. “They are putting lipstick on the pig and they’re being fairly responsive about that,” she said. “They’re doing what a receiver does, they’re doing basic things. But there are significant issues. That’s why you act now.”

At the Tues., Nov. 23 meeting of City Council’s Development, Planning and Sustainability committee (DPS), the partners admitted they’re overpaying for the property but said the city could recover some of its investment if the square is sold for more than its estimated $6 million value in a few years. “This is the best way to secure and stabilize this anchor for the long-term,” agreed David Ebersole, the city’s economic development director.

Council member Mike Polensek of Ward 8 was skeptical, however. “If the property is worth $5.6 million, then why are we paying twelve?” he asked. “I hope you folks know what you’re doing.”

Ward 6 council member Blaine Griffin, who represents the Buckeye neighborhood where the city is making investments through Mayor Jackson’s Neighborhood Transformation Initiative (NTI), said the square is “too big to fail” and refuted the notion that the deal would simply help Coral.

“This is not about bailing out a rich developer,” Griffin said, noting that the company would lose all of the money it invested in the project. “This is about saving a city asset and stabilizing the area.”

Menesse said that while the $12 million price tag might be a tough pill to swallow, private developers aren’t interested right now, and the investment would create time for a community visioning process. “The long-term owner of the square might be for-profit, or a mix, or Burten Bell Carr Inc. and New Village might still be in the deal,” she said. “We just don’t know yet.”

Getting community buy-in

One of the more exciting aspects of this deal, Menesse said, is the opportunity to help re-envision the future of Shaker Square. The aging property includes a five-acre green space that could be transformed into a public park, she said. Also, large, outlying parking lots could be used for future, mixed-use development that would help spark growth in the area, she said.

A few years ago, CNP and LAND Studio worked with the Coral Company on a $400,000 plan to turn the five-acre parcel into a green space that would be maintained by a public or nonprofit entity. That proposal ultimately fell apart over disagreements as to whether or not to close Shaker Boulevard. That process halted when Coral put the square up for sale.

With this new deal, Menesse said, there’s an opportunity to re-engage the community around the square’s future. The property owner has been responsible for maintaining the green space, and Coral Company also held concerts there every Saturday evening during the summer months at its own expense, yet that’s a substantial expense for the developer, according to Menesse.

Other parcels, such as the parking lots behind Dave’s Supermarket and CVS Pharmacy, could be future sites for redevelopment, she said.  “It’s clear there are long-term development opportunities,” Menesse said. “It could attract a good private partner.”

CNP and its partners could have a tough time in the coming months if their deal to buy the square goes through. Some merchants and stakeholders are still mad about the plans to close Shaker Boulevard.

“I’m concerned about how this development is going to go,” said Donita Anderson, executive director of the North Union Farmers Market, which holds its outdoor market on Shaker Boulevard every Saturday in the summer months. “We need to be included.”

Menesse said the plan is gathering community buy-in and pointed to the fact that DPS received dozens of letters of support from merchants, stakeholders, and residents, including Shark and Minnow and Dave’s Supermarket.

DPS chair Tony Brancatelli said the finance and DPS committees will vote on the Shaker Square proposal on Monday, Nov 29 and that City council Could finalize it at its Nov. 29 meeting. Ward 7 council member Basheer Jones, speaking at the DPS meeting, expressed his support for the deal.

“Shaker Square is the West Side Market of the east side of Cleveland,” he said. “It’s that important to the city.”

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This article is sponsored by Cleveland Development Advisors.

Lee Chilcote is editor of The Land.