4 questions about Ameritrust & county HQ deal

This one’s for my fellow Ameritrust Tower obsessives, government geeks, and Cuyahoga County taxpayers who’ve resolved they won’t get fooled again.

On Tuesday night, the county council is likely to vote on executive Ed FitzGerald’s proposal to unload the skyscraper albatross and get a brand-new county headquarters in the deal.

Optimism is high. Crain’s Cleveland Business staffers sat in on the same Dec. 11 meeting with FitzGerald as I did, and a Crain’s editorial (subscription required) has called the proposal “a splendid opportunity to turn that real estate lemon into lemonade.” (Here’s my post on the Dec. 11 announcement.)

But since the old county government’s plan to build a headquarters at the same site ended in an embarrassing $45 million failure, I’ve taken my own look at FitzGerald’s plan, testing a few things: What’s the simplest way to understand the choice the county is faced with? Will the deal really lower the cost of government? What could go wrong? What’s in the fine print?  Here are some things I’ve found.


The choice at East Ninth Street: new or old? Do you want the county to move into a new, modern office building, which it will own in the 2040s, for a cost of about $6.7 million a year for 26 years? Or should it lease in a historic building, despite some inefficient nooks and crannies, for $700,000* a year less?

That’s the choice the county faces at East Ninth Street. It fielded three offers for the Ameritrust complex and several offers of headquarters sites, but only two developers offered to tackle both at the same time.

FitzGerald has chosen the new building. He’s recommending the Geis Cos. proposal to buy the Ameritrust complex for $27 million, knock down the ugliest part of the complex (the P&H Buildings at East Ninth and Prospect) and replace it with a new eight-story, green-roofed headquarters for the county government. Geis would fill the Ameritrust Tower with apartments and open up the Cleveland Trust rotunda to restaurants, shops and public use.

Rejected developer Optima Ventures wants the county to lease several floors in its 925 Euclid building, the former Huntington Building. It’s a beautiful 1924 landmark with classical columns and a soaring bank lobby with striking murals. It already looks like a seat of government. Optima offered to buy the Ameritrust complex across the street for $16 million (or $11 million less than Geis), use the Cleveland Trust rotunda as the county council chambers, and also put apartments in the Ameritrust Tower. It proposed a 20-year lease of about $6 million a year, or about $700,000 a year less than Geis’ deal.

Optima executive Chaim Schochet hasn’t given up. At council meetings, he’s argued that building new offices means the county government won’t be able to shrink its space if it downsizes in the future. It won’t be cheap to operate those offices in the 2040s, when the building is no longer new, he warns. Schochet also says downtown Cleveland has so much office space, it doesn’t need any more. (After FitzGerald chose Geis, Schochet made an an 11th-hour alternate offer: $30 million for the Ameritrust complex, $6.1 million a year rent, for 26 years, $10 million option to buy the space at the end.)

So why not choose Optima, with its lower rent? FitzGerald’s consultants don’t like the Huntington Building’s layout. They say it’s inefficient for the county’s purposes; they’d have to split up offices they’d rather put together. They’d have to set up office cubicles in part of the grand lobby (as Huntington Bank did) to make it even semi-efficient.

County officials would rather have new, efficient, modern offices. The new building would replace the ugly old P&H Buildings -- arguably a good tradeoff. Crucially, FitzGerald and (I’ve heard) the council like the idea that future county leaders could buy the building in 2040 for $1. In other words, for an extra $700,000 dollars a year for 26 years, the county gets the building at the end of the lease.


Will the county sell all its excess properties? FitzGerald and the consultants say the $6.7 million a year lease at East Ninth and Prospect will cost less than the current occupancy costs -- $10.3 million a year -- at the buildings the county wants to vacate. In other words, moving will lower the cost of government.

“That’s to me what’s appealing about this,” FitzGerald said on Dec. 11. “You take obsolete office space off the market. You get a $180 million investment into Euclid Avenue. You get first-class office space that’s better for employees and customers. You sell the Ameritrust complex. And you do it for less than what you’re paying now. That’s pretty damn good.”

But saving money depends on actually getting rid of the buildings the county doesn’t want. Even vacant buildings cost money to maintain. For instance, just holding onto the Ameritrust complex costs the county $936,000 a year in security, utilities, maintenance and the like.

So how many vacant buildings can the county sell, and how soon? That’s hard to evaluate right now. FitzGerald has 12 properties up for sale besides the Ameritrust complex, from the current county administration building to the old juvenile courthouse on East 22nd. He has some offers in hand. He wants to accept some and reject some others. But he isn’t releasing the details until this month or next.

FitzGerald may simply be trying not to overwhelm the council with lots of deals. Or he may still be negotiating some of them. In December he hinted he was negotiating a possible deal for a convention center hotel on the current county administration building site.

“It’s not a fire sale,” FitzGerald said last month. “We’re not in a desperate position where it’s a buyer’s market and they’re going to dictate to us what we’re going to get.”

This is how you want your chief negotiator to talk and think: He’ll hold out for a better offer if he must. But to realize those annual savings in the cost of government, the county can only hold out so long for a good one-time price for its properties. And there’s still the chance we’ll get stuck with a few dogs.


What are the other costs besides rent? The costs you don’t think about — that’s where the old government screwed up with its aborted 2005 headquarters project. The former county commissioners bought the Ameritrust complex thinking that building a new headquarters would pay for itself – but their switch from leasing to buying would’ve added millions to the cost of government. (For the whole sorry story, see my 2008 story “Tower Play.”)

Two pieces of good news. One is, by leasing, the county covers certain costs. The developer is on the hook for the development costs, providing custodians, and $50 per square foot in tenant improvements. The county would pick up the rest of the cost of outfitting the building, an estimated $25 per square foot, or about $5.5 million.

Also, FitzGerald’s consultants, CBRE, seem to have their eye on other stray costs. They’ve estimated the 20-year cost of utilities, future refurbishment, and the move. They think those extra costs come to at about $1.2 million a year, a fraction of the expected savings from moving and consolidating.

Councilmen David Greenspan and Dale Miller, at Tuesday’s meeting, cited a couple of further moving costs: the cost of wiring the building for phones and computers and possible extra costs if the county doesn’t like the developer’s building designs and pushes for something fancier. Greenspan thinks the move will cost about $16.5 million plus an unknown cost for phones and computers.

Any reader who wants to take a deeper dive into these numbers can download this 108-page pdf of CBRE’s Jan. 2 presentation to council. It’s at least clear that this set of county leaders and consultants are doing a much more thorough job than the guys who tried to move the county in 2005.


What’s this pesky ground lease? The deal with Geis includes some weird fine print that sticks the county with part of the burden attached to the Ameritrust complex. Some of the land under the P&H Buildings is actually half-owned by the county, half-owned by developer Lou Frangos. So the county has to pay Frangos rent on his share of the land. The two sides have been battling in court for four years over how much. The county-Geis deal says Geis will pay $11,000 a year in rent; the county will have to pay the rest of whatever rent is set by court-appointed arbitrators.

As a taxpayer, I wish the developer would take over all of the rent when it buys the Ameritrust complex. It seems like the obligation attached to the land should go with the buildings. But when FitzGerald struck the deal with Geis last month, the arbitrators hadn’t set the rent yet. It’s got to be hard, in negotiations, to demand that another party take over an obligation of unknown size.

The arbitrators’ report was filed Tuesday. Their ruling: the county has to pay Frangos $21,500 a year in rent, plus inflation. (The rent is set at $65,000 plus inflation; the county's share is half that, minus Geis' $11,000.) That's not a huge line item compared to the other terms of this deal – except that the lease lasts 99 years.

So unless Frangos sells his share to the county, he and his heirs will eventually pocket $2 million-plus. In one small way, future Cuyahoga County residents will still be paying for Tim Hagan, Jimmy Dimora and Peter Lawson Jones’ rash decision to buy the Ameritrust complex into the 22nd century.

(Photo from clevelandskyscrapers.com)

FitzGerald era vs. Dimora era: 9 ways the new county HQ hunt is different

Ed FitzGerald's administration is ready to deal. Cuyahoga County put 13 properties up for sale today and asked landlords to offer proposals for a new county headquarters.

FitzGerald wants to get out of the current administration building and unload the Ameritrust complex, the white elephant we ended up with when Jimmy Dimora and Co. bumbled their way through their own headquarters hunt almost nine years ago.

To the layman (me), the new RFPs read like they were written by pros -- smart guys experienced in commercial downtown real estate. (That'd be CBRE, the county's consultants.) They left me feeling nostalgic for the era when our county ran a little more fast and loose.

So I dug up the RFP from the wildly improvised 2003-2005 headquarters search, and I'm posting it for download here, in case you'd like to compare the old and new ways of doing business in Cuyahoga County. Here are some of the big differences I noticed.

1. Old way: Be transparent at the start and secretive at the end. New way: Vice-versa. The 2003 search started out promising, with all the developers' proposals released to the public right away. The mistakes came at the end, in summer 2005, when Tim Hagan and Jimmy Dimora rejected a lease deal and directly negotiated an as-is purchase of the Ameritrust complex from Dick Jacobs, asbestos and all.

Today, when a once-burned public is paying more attention, we won't have much info to go on at first. "Your proposal will be kept confidential during the negotiating process," the RFP promises, but "ultimately this information will become public when a transaction is submitted by the Cuyahoga County Executive Branch to Cuyahoga County Council for its approval."

This is an improvement over what we heard last week, that the public wouldn't get to see the proposals until a contract was signed.  But it means we'll only have a short window of opportunity to see the details of the administration's plans and debate the other options before the county commits.

2. Old search: For 600,000 to 700,000 square feet.  New search: for about 225,000.  FitzGerald wants a much smaller county headquarters than Dimora and company did.  One reason is that Dimora liked building big, while FitzGerald is cultivating a reputation for shrinking government. He's laid off plenty of people.

But that's not the main reason for the smaller HQ.  The county is seeking to relocate fewer offices this time.  Many agencies, such as the Board of Elections, will stay put.  The idea is to get out of the current county building fast, in hopes a developer will buy the site and add a hotel to the convention center.

3. Lease old, not build new.  The old government looked at leases in existing downtown buildings, then switched gears at Tim Hagan's urging and bought the Ameritrust complex. Hagan wanted the government to own and control its own home.  He and Dimora wanted to tear the Ameritrust Tower down and build something new themselves.

FitzGerald's RFP allows for the options of buying a building or having a developer build a new office for the county.  But leasing an existing building is clearly the favored option.  Building owners are repeatedly required to explain what they'd do as landlords.  Under "New Building Option," the county insists that developers would need to line up lenders in advance and have the building built by March 2014.  Not easy.


4. Old way: Just keep it under $7 million a year.  New way: Break down the costs and cut us some breaks.  The 2003 request asked developers to "detail all and total costs," which "should be similar to current County occupancy costs" of $7 million a year. But the commissioners -- especially Dimora, who wasn't very good at math -- took their eye off the details when they bought the Ameritrust Tower as is, not realizing the move would no longer pay for itself.

FitzGerald's RFP gets into detail: it leaves a space on the form for a rent discount, asks about utility costs, insists the landlord offer janitors and maintenance, and even asks the landlord to pick up the county's costs of moving, "including packing cartons."

5. Broker's fee set in advance.  The county is still smarting from the $3 million paid to its real estate broker, the former Staubach Co., after the Ameritrust purchase.  This time the developer is asked to "outline the standard procuring broker fee offered by Landlord."

6. Package deals encouraged.  FitzGerald clearly doesn't want developers to pick over the 13 county buildings up for sale, bid on some and leave us stuck with the rest.  He'd rather the county's future landlord also take our surplus buildings off our hands.

"Any aggressive offers by Landlord to acquire property shall be a consideration of the [headquarters] transaction, and taken into account during the evaluation," it says. (The 2003 RFP included a line about proposed reuse or purchase of county buildings too, but it wasn't as forceful.)

7. Changing downtown.  Dimora, Hagan, and Peter Lawson Jones justified buying the Ameritrust complex by saying a county headquarters there would revitalize the East 9th and Euclid area.  This time the county will consider the effects on downtown of selling its properties.  Potential buyers have to tell the county what they'll do with the property, how much they plan to invest in it, and whether any renovations will be eco-friendly. (How they'll be held to that once they buy it isn't clear.)

8. Be good!  "Please confirm Landlord and its management company have completed Cuyahoga County ethics training and registered as such with the Cuyahoga County Agency of Inspector General," the new RFP reads.

9. Old way: Insist the deal pay for itself, then forget to do the math.  New way: Just make the best deal.  The 2003 RFP included the goal, "Complete this project with the use of existing resources only, with no additional financial burden on the taxpayers of Cuyahoga County."  Instead, the commissioners pulled the plug after sinking $45 million into the Ameritrust complex, when they realized their plan would permanently add to the cost of government.

The new RFP doesn't make any promises about the budget.  FitzGerald has said that consolidating into new offices will save the county money in the short and long terms.  But it'll be up to him, and us, to do the math before the deals are inked.

(photo from clevelandskyscrapers.com)