The Cleveland area continues to see thousands of new apartments each year, a pace that has not slowed even through an economy ravaged by the coronavirus pandemic.
Construction of new buildings, renovations of old ones and plans for future projects continued at a rapid clip in the past half-decade and didn’t slow down even during a recession that began last year. The evidence is both anecdotal – with developers frequently announcing new projects – and is borne out by the number of new units and low vacancy rates.
Developers said the demand for new units has not slowed, even if the number of apartments built is not as many as in other comparable cities in the Midwest and nationwide the older units are not becoming more affordable at a fast enough pace.
“For all intents and purposes, people still need a place to live,” said Aaron Pechota, senior vice president of The NRP Group in Cleveland. “And that’s not going to change.”
Numbers compiled by the CoStar real estate analytics service said developers added 1,460 units to the Cleveland area in 2020. That includes Cuyahoga, Geauga, Lake, Lorain and Medina counties.
That number is somewhat in line with the construction completed here in the past five years. The number of apartments added to the region fluctuated each year since 2016, though it averaged about 1,240 annually. Overall, the numbers began exponentially increasing around 2015, climbing to new heights after bottoming out at zero in 2008, during the height of the housing crisis and the Great Recession.
The projects announced during the pandemic are ones that were often years in the making. A real tell will be whether the pace continues in the coming years.
Still, the fact that developers are currently proposing and building new apartments during the current recession is not lost on Metro West Community Development Organization Executive Director Ricardo León. His organization is in Cleveland’s Clark-Fulton neighborhood, which has seen multiple residential developments proposed and approved in recent years, with one as recently as last week.
And that’s to say nothing of the demand driving a very bullish market for people who want to buy and sell homes. Realtors say locally the demand is being driven, at least in part, on a scarcity of homes to buy, new or otherwise.
“It’s an interesting juxtaposition based on economy,” León said.
Still, some developers began the pandemic with the same trepidation as those in other industries. They were unsure about how lenders would react to the mass shutdowns and job losses, as well as whether prospective residents would remain interested in new buildings.
Pechota said The NRP Group thought 2020 would be like the Great Recession when new projects ground to halt. He said the company hit “pause” on work for a few weeks after the shutdowns in March 2020.
After some time, the executives there acknowledged that “there’s a lot of challenges, and there’s a lot of risks we have to be aware of and concentrate on.” But things were able to go forward, in large part because the state deemed construction an “essential” activity, Pechota said.
The Cleveland-based developer, which owns The Edison at Gordon Square and The Luckman building on East 12th Street, recently boasted of breaking ground on 21 apartment buildings nationwide in 2020. Pechota said market-rate and lower-income housing remain a hot commodity nationwide, even if other sectors of the real estate market are suffering during the pandemic.
The pandemic did not slow down the speed at which millennials are entering the job market and moving into their own places for the first time, another factor that might suggest a recession that adversely affected poor people who lack higher education. And even as developers lamented higher costs for lumber and construction materials, Pechota said low-interest rates for loans also helped new projects emerge.
Jon Ratner of the RMS Investment Corp., which recently unveiled its proposal to build two towers with a combined 225 apartments in the Van Aken District of Shaker Heights, also said his company felt comfortable going forward with a new apartment building during a recession because it’s not a plan for now, but rather for decades down the line.
“It’s always a good time for apartment building and housing,” Ratner said. “The market condition for apartments are always right because we’re going to own them for a long time.”
Robert “Roby” Simons, a professor at the Maxine Goodman Levin College of Urban Affairs at Cleveland State University, said building multi-family projects is a lower-risk venture for developers because demand will remain higher than other sectors, even with fluctuations, and that apartments are cheaper to build than housing or retail.
It’s not unique to Cleveland, either. Developers in Columbus added 6,078 apartments in 2020, and averaged more than 4,300 each year since 2016, according to CoStar. Cincinnati saw 2,132 new units last year and averaged 1,820 units annually over the previous five years. In fact, developers and buyers have of late seen housing as a stable investment in many parts of the country.
And even if they aren’t as high as the other two major Ohio metro areas, the Cleveland area’s numbers are still striking. The number of people living in the city shrank over decades though has flattened out in recent years. The region’s population has remained relatively stable since 1970, and evidence has shown that the people moving here are not coming from out of state.
“There’s still a lot happening here. But relative to other parts of the country, it’s still a lot less,” Pechota said, explaining that he also feels some cities have made “multi-family housing” a dirty phrase that has resulted in fewer projects. “And that’s just because you don’t have as much growth in this region, but you still have a need for new products.”
He also noted that there are plenty of apartments and houses in the Cleveland area that people could buy up. It’s just that many renters and buyers often don’t want to live in many areas, be it for school, crime or other reasons.
The high demand for apartments is also semi-unique because other real estate markets, such as for office space, remain very much in flux. In terms of offices, the pandemic sped up a trend already in place before last year. With many white-collar employees working from home to prevent catching and spreading the virus, some companies are rethinking how much space they need for a central location if workers can perform just as well virtually.
It doesn’t appear the apartment demand will slow down anytime soon, given the number of projects announced and moving forward.
Multiple developers are eying more construction and renovation projects in downtown Cleveland, a neighborhood that saw increased demand in recent years but an increased vacancy rate since the pandemic forced shutdowns in March 2020. They include new projects like the City Club building on Euclid Avenue to turning offices into apartments in the former Huntington building and 75 Public Square.
Even Doug Price, head of the Willoughby-based K&D Group who has said downtown has too many apartments, plans to add units once he finalizes the purchase of 55 Public Square from a company under federal investigation for possible money laundering by its Ukrainian oligarch owners.
“In the scheme of things, we’re really hoping for a fairly good recovery by the end of the year,” Price said in an interview last month, referring to the hope for an economic bounce back.
It’s not just in the city, either. On the East Side, there’s the Van Aken project, for one.
In neighboring Cleveland Heights, the Flaherty & Collins development company wants to add between 200 to 225 market-rate apartments at Meadowbrook Boulevard and Lee Road. The Indianapolis developer is also behind the nearby Ascent at Top of the Hill, an in-progress, $83 million development that will add 261 apartments and 11,000 feet of retail space where Cedar Road meets Euclid Heights Boulevard.
The city of Lakewood is also moving along in giving the required incentives Columbus developer Jerome Solove said he needs for two projects on Detroit Avenue – the sites of the former Steve Barry Buick and Spitzer Chrysler – that will add a combined 280 units to the near-west suburb. The Lakewood City Council could approve tax increment financing incentives worth $9.3 million toward the combined $43 million projects.
Others are in various stages of planning. They include the Bridgeworks project beside the Veterans Memorial Bridge in Cleveland’s Ohio City neighborhood, the proposed redevelopment of the Agora office building in Midtown and a mix of low-income and market-rate apartments near the Woodhill Homes public housing complex.
Developer Steve Rubin also plans to start construction in March on a 24-story apartment building that is part of a larger project called “Circle Square” in the University Circle neighborhood.
Simons, the CSU professor, said the housing stock in the Cleveland area is old. Likening it to “an ecological process,” he said some of the older, poorly maintained properties get replaced with new and shinier products, which benefits from people wanting a change of scenery.
Nationwide, that has been an issue. A 2018 report from the Joint Center for Housing Studies of Harvard University said landlords nationwide have not made older apartments more affordable as newer buildings spring up.
Still, “there’s quite a lot of old vintage stock” in Cleveland, Simons said. “In this town, we do a lot of replacing and are able to fill our stuff.”