CLEVELAND, Ohio — The Wolstein family has refinanced the Ernst & Young Tower at the Flats East Bank project, securing a $92 million loan on the 18-floor office building that anchors a key redevelopment of the city’s downtown waterfront.
The deal, which closed Friday, provides the Wolstein Group and Fairmount Properties with cash to finish out the remaining offices. By refinancing, Scott Wolstein and his mother, Iris, were able to pay off higher-rate debt and eliminate some personal liability on loans for the project.
Citigroup supplied the mortgage, which replaced a construction loan from Wells Fargo and generated money to pay down a loan from the Ohio Carpenters’ Pension Fund. The Citi loan will be bundled with other commercial mortgages and used to back bonds that will be sold to investors.
“Anytime you bring $100 million of private capital into Cleveland from outside the city, I think it’s a pretty cool thing,” Wolstein said Wednesday.
The city’s first new private downtown office tower in two decades, the Ernst & Young building was valued at $145 million, or about $302 per rent-able square foot, said Mark Vogel of RiverCore Capital, a Cleveland mortgage banker who structured the transaction.
That’s a big number for Cleveland, but it’s based on rents that surpass $30 per square foot per year and deals with high-profile tenants including Ernst & Young (which recently started calling itself EY), law firm Tucker Ellis and the CBRE Group Inc. real estate brokerage.
“That’s coastal pricing,” Alec Pacella, managing partner of the NAI Daus real estate brokerage in Beachwood, said of the valuation of the tower. “That’s way over anything we’ve seen. … but I’m sure that in other markets, with buildings of similar quality, you could justify it all day long.”
It frees up capital from the family … that can be redeployed into the next phase of the project.
Between the tenants that have moved in and other deals in the works, the tower is roughly 90 percent full, Wolstein said.
The roster also includes OM Group, Northwestern Mutual,Wells Fargo and the Porter Wright law firm.
“We started working on the deal back in December, when the building had only three signed leases,” Vogel said. “It’s such a good piece of collateral that the lender was willing to make a loan when the building only had three tenants. When it reached 83 percent occupancy, we restructured the deal.”
The building still carries debt from the Cleveland International Fund, which amassed money from foreign investors seeking U.S. residency through a government visa program. The Wolsteins will finish paying off the Carpenters’ loan as the final tenants move in.
The refinancing did not include the Aloft hotel, a parking garage, restaurants and a fitness center in the first phase of the Flats project. The development, a Herculean effort coming out of the recession, required more than 30 sources of public and private financing and a hefty commitment — in the form of equity and personal guarantees — from the Wolsteins.
Putting new debt without personal liability on the tower “certainly helps us in the sense that it frees up capital from the family that would have otherwise had to go into the office building that can be redeployed into the next phase of the project,” Wolstein said.
He hopes to close a public-private financing deal within 60 days for the next wave of development. Updated plans for that second phase include 245 apartments, plus restaurants and entertainment venues.
Based on the success of the Ernst & Young Tower, the developers are considering another office project — a more modest building on another part of the site. But Wolstein said that building, which “requires more public support,” won’t happen on the same timeline as the apartments.