Memorandum CITY OF SHAKER HEIGHTS I ECONOMIC DEVELOPMENT

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1 Memorandum To: City Council Cc: From: Mayor Earl M. Leiken Chief Administrative Officer Jeri E. Chaikin Tania Menesse, Director Economic Development Date: October 23, 2017 Re: Authorize the City Administration to enter into a Development and Use Agreement and Community Reinvestment Area Agreement with Maximar Properties, LLC The Economic Development Department requests Council approval to enter into a Development & Use Agreement (D&U), a Community Reinvestment Agreement (CRA), and a Vision Fund Forgivable Loan Agreement with Maximar Properties, LLC, a company that shares common ownership with Shaker Rocks, LLC, the intended operator of the proposed Shaker Rocks rock climbing gym, to be located at 3377 Warrensville Center Road, at the northeast corner of Farnsleigh Road and Warrensville Center Road, in the Van Aken District. Specifically, Council approval is requested for the following: 1. A D&U that includes at minimum the following terms: a. The sale of the Property for $1.00 to Maximar Properties, LLC; b. The operator of the rock gym will be Shaker Rocks, LLC; c. The demolition of the building, with the first $100,000 of the demolition cost being paid by a grant from Cuyahoga County, Maximar will pay the cost of demolition over $100,000, up to $200,000, and the City will pay any cost of demolition that exceeds $200,000; d. The construction by Maximar of an approximately 14,000 square foot building for the purpose of housing a state of the art rock climbing gym and related facilities; and e. Maximar and Shaker Rocks will provide proof of financing to build and operate Shaker Rocks. 2. A CRA Agreement that includes the following terms: a. Approval of the CRA application submitted by Maximar; and b. The City will grant Maximar property tax abatement in the amount of 50% on the portion of the Property s value that is due to the improvements to the Property as approved by the County, for a period of fifteen (15) years, pursuant to State law. 3. A Vision Fund Forgivable Loan Agreement, as follows: a. the City will loan $50,000 to Maximar for costs associated with its construction of the rock climbing gym to be operated by Shaker Rocks, LLC; b. Shaker Rocks will operate the rock gym for at least 5 years; and c. The business is expected to generate substantially more than the $50,000 loan over that five year period. CITY OF SHAKER HEIGHTS I ECONOMIC DEVELOPMENT 3400 LEE ROAD I SHAKER HEIGHTS, OH I TEL I FAX I OHIO RELAY SERVICE 711 I WEB shakeronline.com

2 City Council agreed to deed the City-owned property at 3377 Warrensville Center Road for a $1 to Shaker Rocks at its November 2016 Council meeting, and to approve a CRA agreement, which will reduce property taxes 50% for fifteen years as part of a subsequent D&U. The owners and developers of the project are Annie and Spencer Richman, 20 year Shaker residents, and avid rock climbers. Since November 2016, Shaker Rocks and the City have worked through the following: Met with Architectural Board of Review (ABR) and the Van Aken District City Planning Commission working group several times. Shaker Rocks has struggled to strike the balance between a design and site plan that fit the character and quality of the Van Aken District that doesn t exceed their budget. The team is scheduled for Planning Commission approval on November 7. Preliminary approval from the bank to construct the building under Maximar Properties, LLC at a cost of $2.25 M. Prepared offering documents for investors of the operating company, Shaker Rocks, LLC. The demolition specifications were completed and bid by The County Land Bank (CCLRC). Extensive asbestos in the roof tiles and carpet and the need to dispose of potentially dangerous tanks and chemicals from dental and orthodontic offices, has taken the demo price to $233,078 including a 10% contingency and CCLRC s 2% fee. This exceeds the Shaker Rocks budget by $33,078. Scheduled a community meeting to share the project with neighbors on Wednesday, October 25 at 7 p.m. at Christ Episcopal Church. The Law Department has entered into discussions with Roco Real Estate to clarify the easement between the former office building and Golfview apartments. The high cost of new construction in the Van Aken District, the easement across the 3377 Warrensville property, and the remediation issues in the building on the property, will be a challenge to developing this critical property in the Van Aken District regardless of the proposed use. The rock gym, as explained in the November 2016 memo to Council, brings unique benefits to the community and complements RMS development in ways that other retail or residential uses on the site would not. The City s financial commitment to make the development feasible includes the following: The $50,000 Vision Fund Forgivable Loan will be offset by the fifth year of operation of the rock gym by virtue of the payroll that ramps up to $600,000/year by that fifth year. There is precedent with the Vision Fund $12,000 forgivable loan to Le Chaperon Rouge. The City will assume the cost of the demolition above $200,000. This mirrors the City s commitment to the Qua demolition of $30,000, and supports the $100,000 investment of Cuyahoga County, through its demolition grant, and the $100,000 commitment of Shaker Rocks toward demolition costs. The extraordinary cost of remediation and demolition will likely require some City support regardless of the development on this site and the City will likely not have the $100,000 Cuyahoga County grant funds at a later date. There is an existing easement for the property to the benefit of the neighboring apartment building, Golfview. It requires access across the property, and some parking for residents and visitors. This easement will be an impediment to developing this site for a more traditional commercial use. The Richmans willingness to work through the process and ownership risk with the City is unusual. At the November 16, 2016 meeting, Council members had asked for a broader discussion of the proposed 15-year 50% tax abatement for the project. The City created the commercial CRA to support just these types of projects alternative uses with community benefit that cannot absorb the land costs and overhead of a first suburb like Shaker Heights. Property in the Van Aken district has been appraised at $500,000 an acre so the City estimates that the value of 3377 Warrensville Center Road is 2

3 approximately $250,000. The cost to demolish the current structure and prepare the site for development is more than the estimated appraised value of the property. Economic Development incentives are meant to fill the gap on projects in which business owners/developers are willing to make significant personal investment to bring a project to fruition. Examples of Commercial CRAs in communities comparable to Shaker Heights are as follows: The City of Cincinnati and Bedford Heights have CRAs across their commercial districts; a 12- year, 100% real estate tax abatement on the improvements helped Bedford Heights secure Universal Windows Direct HQ to a former abandoned hotel site The City of Cleveland and Akron have 100% 15-year tax abatement eligibility for residential and commercial development The City of Euclid created Tax Increment Finance Districts (TIFs) under to amass funds to incentivize future lakefront development South Euclid has a TIF under the for Cedar Center North and a CRA across the entire City for new housing or commercial development (75% for five years) City of Parma just approved a 100% TIF for the redevelopment of Parmatown Mall and the shops at Parmatown with a small office component. There are several pre 1994 CRAs in effect in Parma Cleveland Heights has a Commercial CRA in Severance Circle for Kaiser s expansion and at Meadowbrook. A TIF was utilized to purchase the land for the Zagara s grocery story. Background The City of Shaker Heights was deeded 3377 Warrensville Center Road in October 2016 through the tax foreclosure process after four years of the former medical office building sitting vacant. The property is.6 acres at the northeast corner of Warrensville and Farnsleigh Roads and shares an entrance and parking lot easement with the adjacent apartment building, Golfview. The property directly abuts Thornton Park, will be catty corner to Le Chaperon Rouge school and is across the street from the $100 million first phase of the Van Aken District. The Economic Development Department issued a request for proposals for the property to be reimagined in early October 2016 with the following goals in mind: Provides community benefit and ideally connects the commercial district to Thornton Park Complements the first phase of the Van Aken District development Contributes to the long term sustainability of the Van Aken district Draws people to the Van Aken District from greater Cleveland Offers a unique amenity or use to the Van Aken District Contributes to a dense urban walkable environment via placement, height and design of the structure. The RFP was sent to ten developers and brokers who had shown interest in the site specifically, in the District or the City as a whole. It was also posted on the City s website. While there were several inquiries about the property and a couple teams that toured the site, just one proposal was received. This was due to the size limitation of the property, the significant easement and the cost to rehab or demolish the current office building. The single respondent, Shaker Rocks, has been working with RMS and the City of Shaker Heights to find a location for a state of the art rock climbing gym for two years. Shaker Rocks initial plan was to be a tenant in Shaker Plaza or in the first phase of development but it became clear that the enterprise would need to own their own facility to make operating a rock gym in a mixed use development sustainable long term. 3

4 The Richmans identified a gap in the Cleveland market for a full service, competitive facility that was not isolated in a warehouse/industrial area. The family is committed to Shaker Heights and is personally investing in the facility in order to locate it in the Van Aken District versus along the 271 business corridor. The Richmans proposal meets all of the criteria laid out in the City s RFP. It will perfectly bridge the gap between Thornton Park and the commercial district by satisfying the needs of a growing climbing community in Northeast Ohio. It will provide extensive programming to support youth and adults alike: classes, camps, clubs, teams and monthly special events. The newly constructed 14,000 square foot facility will rise 40 feet high and sit in the heart of the eastern suburbs. It will be a climbing and social hub for local residents, a destination spot for the entire region, and a supporter of environmental and socially responsible non-profit ventures. A climbing gym in Shaker Heights has the potential to be transformative for the entire district. In the past decade, indoor rock climbing has become an explosively popular sport with over 400 gyms in the U.S. The industry has bloomed from a 5% growth rate in 2003 to a growth rate averaging 10% every year since Recently membership in the USA Climbing (USAC) association grew by 13%, and participation in youth bouldering competition grew by 23%. Although the industry is still young, it has become dependable and mainstream. Rock climbing will be a new sport in the 2020 Olympic Games, and rock gym franchises are popping up around the nation. Over 30 commercial climbing gyms now have multiple locations. The target markets for the facility are millennials, who prefer walkable urban neighborhoods, and families who are looking for new activities that they can do together. Visitors will park their cars throughout the neighborhood and walk down the street to enter the gym. This will increase the pedestrian presence at Van Aken and contribute to the urban feel of the entire district. Although there are some actual products that are sold at rock gyms, indoor rock climbing is mainly a service industry. The pristine facility and high quality staff of three (growing to five) will be the main products. Shaker Rocks will also employ numerous part time positions that may be filled with high school and college students or other community members. The gym will be open to the public with entrance fees for single day use as well as monthly membership options. The business plan is modeled on successful rock gyms around the country. A typical climbing gym will draw visitors from 30 minutes away, but because of its location Shaker Rocks anticipate some regular visitors may drive as far as 45 minutes for this unique facility. The gym will have not only climbing, but a climbing-centered fitness space, a yoga room, and dedicated areas for private parties. There will be locker rooms with showers, as well as cubbies scattered throughout the gym for climbers belongings. To mimic the social scene at an outdoor crag (climbing wall), the gym will be designed as a social hang-out space for the general community. However, instead of sitting in the dirt and leaning against a tree, there will be comfortable soft seating along with café tables. Visitors will not only come to climb, but to talk, play, eat, and even work. The facility design will meet the building standards for hosting USAC events. Meeting these standards will allow Shaker Rocks to host competitions at the local, regional and divisional levels drawing climbers from Ohio, Pennsylvania, New Jersey Virginia, West Virginia, DC, Maryland and Delaware. The project meets two critical RMS objectives for the District providing a use that will complement the retail, office and housing in the first phase development and offers a unique amenity that will draw people to the District on a regular basis. RMS investment team reviewed the Richman s business plan and assisted with the investment strategy. The Richman s have assembled the $3.5 million capital stack to construct and operate the facility. 4

5 Traditionally, climbing gyms were located in remote industrial corridors to keep the cost of real estate low. Shaker Rocks plan to open in Shaker Heights is contingent upon their ability to secure the following assistance from the City of Shaker Heights. Shaker Rocks will attract climbers from across Northeast Ohio to the Van Aken District, supporting the retailers and restauranteurs in the project and providing a unique amenity for residents and office tenants. The Richman s have worked diligently for a year to be ready to break ground on the state of the art rock gym in January 2018 (once the demolition is completed). The Finance Committee asked the Economic Development Department to provide the City s direct costs for the Shaker Rocks project; the total is expected to be approximately $80,000 ($30,000 for the demolition and $50,000 for the forgivable loan). With this confirmation, the Finance Committee unanimously supported the proposal moving to City Council Therefore, the Economic Development Department requests that City Council authorize the administration to enter into the following agreements with Maximar Properties, LLC as outlined above: 1. a Development Use Agreement; 2. a Community Reinvestment Agreement; and 3. a Vision Fund Forgivable Loan. It is requested that the two ordinances---one for the D&U and CRA Agreement, and the second for the Forgivable Loan---be approved by Council on first reading to enable the project to move forward without delay and, in particular, to allow the demolition to proceed promptly, which requires advance notice to Ohio EPA for asbestos abatement.. 5

6 ORDINANCE NO. BY: Authorizing a Vision Fund forgivable loan in the maximum amount of $50,000 to Maximar Properties, LLC for costs associated with the construction at 3377 Warrensville Center Road, Shaker Heights, Ohio, Permanent Parcel Number , of an approximately 14,000 square foot building for the purpose of housing a state of the art rock climbing gym and related facilities, to be operated by Shaker Rocks, LLC. WHEREAS, this Council adopted the City s Economic Development Plan in Ordinance , enacted November 8, 2010, to serve as an update to the City s Strategic Investment Plan and to nurture the development of new businesses and attract professionals to the City; and WHEREAS, the Economic Development Plan calls for the City to provide economic incentives to make it financially feasible for businesses to expand or locate in the City, and forgivable loans, within specific parameters related to targeting certain areas of the City and focusing on certain types of businesses, have been determined to be one such incentive that can be used to achieve the Plan s goals; and WHEREAS, in Ordinance No , adopted on November 28, 2016, this Council authorized the City to sell the property located at 3377 Warrensville Center Road, Shaker Heights, Ohio, Permanent Parcel Number , (the Property ) to Shaker Rocks, LLC, for $1.00, pursuant to the terms set forth in that Ordinance and to a Purchase and Development and Use Agreement ( D&U ); and WHEREAS, the City has negotiated a D&U with Maximar Properties, LLC, a company related to, and with the same principal owners as Shaker Rocks, LLC, and the City intends to enter into said D&U with Maximar as authorized by a separate ordinance of Council, to purchase the Property, and to construct an approximately 14,000 square foot building for the purpose of housing a state of the art rock climbing gym and related facilities, to be operated by Shaker Rocks, LLC; and WHEREAS, the D&U requires that Shaker Rocks, LLC operate a rock gym at the Property for at least five (5) years, and the business is expected to generate substantially more than $50,000 in income taxes over the ten-year loan period; and WHEREAS, the Director of Economic Development has recommended that the City authorize a forgivable loan in the maximum amount of $50,000 to Maximar Properties, LLC for costs associated with its construction at the Property of an approximately 14,000 square foot building for the purpose of housing a state of the art rock climbing gym and related facilities, to be operated by Shaker Rocks, LLC. NOW, THEREFORE, BE IT ORDAINED by the Council of the City of Shaker Heights, State of Ohio:

7 Section 1. The Mayor is hereby authorized and directed to enter into such agreement(s) as may be necessary in conjunction with a forgivable loan in the maximum amount of FIFTY THOUSAND DOLLARS ($50,000) from the City to Maximar Properties, LLC for costs associated with the construction at 3377 Warrensville Center Road, Shaker Heights, Ohio, Permanent Parcel Number , of an approximately 14,000 square foot building for the purpose of housing a state of the art rock climbing gym and related facilities, to be operated by Shaker Rocks, LLC. Said agreement(s) shall be in a form as approved by the Director of Law. Section 2. This ordinance shall take effect from and after the earliest time allowed by law. Enacted, Approved this day of, Attest: EARL M. LEIKEN, Mayor JERI E. CHAIKIN Clerk of Council coun17/1017maximarproperties,llc-visionfundloanloan 2