• Old Arcade Restoration Presents Complex Challenge
  • May 1, 2003 | Author: Thomas J. Coyne
  • Law Firm: Thompson Hine LLP - Cleveland Office
  • Cleveland's Old Arcade, formerly operated as a mixed-use retail and office facility, will reopen its doors May 1 as the Hyatt Regency Cleveland. The opening marks the completion of a 20-month redevelopment project that presented both a complex architectural and funding challenge.

    The facility, originally known as "The Arcade," is one of America's most historic and treasured buildings. Constructed in 1890 at a cost of $867,000, the building features a 100-foot high gabled skylight that spans the length of a football field. The refurbished facility includes 293 hotel rooms, 48,000 square feet of retail and restaurant space, and 12,000 square feet of new meeting and banquet room space.

    The structure, at its inception, was one of the first enclosed shopping facilities of its kind in the United States, and reflected an important part of Cleveland's history. Over the years, it fell into substantial disrepair and disuse, except for the many restaurants and shops on the lower levels catering to the lunch hour crowd.

    The facility was acquired in 1999 by a joint venture formed between LR Development Company, a leading developer of historic renovation and adaptive reuse projects, and an affiliate of Hyatt Corporation.

    The developer worked successfully with the City of Cleveland, Cuyahoga County, the Downtown Cleveland Partnership and other organizations to make the redevelopment economically feasible. This project is a textbook example of how government incentives can operate as a catalyst for urban redevelopment.

    Engineering Challenge

    The principal investors in The Arcade in 1890 included John D. Rockefeller, Stephen Harkness, an original partner in the Standard Oil Company, Charles Brush, the famous inventor, Myron Herrick, banker, and Louis Severance, treasurer of Standard Oil. The Detroit Bridge Company served as the general contractor and was selected because no local builder was willing to assume the engineering challenges and risks presented by the revolutionary design of architects George Smith and John Eisenmann.

    The Arcade attracted international attention when it opened, and is often compared to the Galleria Vittorio Emanuele in Milan, Italy, which was completed in 1877. Over the years, The Arcade hosted many prominent events, including a banquet for 2,000 delegates to the National Convention of Republican Clubs, held on June 22, 1895, and attended by then Ohio Governor William McKinley.

    A.E. Stouffer's humble beginnings started in 1922 at The Arcade, where he operated a dairy stand that specialized in Dutch apple pie and sandwiches. In 1976, the Arcade was included in a list of the top 10 architectural treasures in the United States.

    The facility consists of three separate buildings, including two Romanesque style 10-story office buildings facing Euclid Avenue and Superior Avenue on opposite ends. These buildings are connected by an elegant five-story enclosed atrium, which serves as a pedestrian street between Euclid and Superior.

    Interestingly, Euclid and Superior are not of equal grade, nor are they parallel, and this presented both design challenges and opportunities. At the Euclid entrance, the grade is 12 feet higher than the Superior entrance, so the architects established two ground floors, connected by a grand marble staircase on the Euclid side. A second staircase on the Superior side was later added, and then replaced by the existing, reversed staircase in 1930.

    The building also features a rotunda between the Euclid office building and the atrium, with a 23 degree angled walkway to Euclid. The four upper levels of the interior arcade are recessed with iron railings to dramatize the skylight, which is supported by arched iron trusses.

    Adaptive Reuse

    In addition to the replacement of all 1,800 windows of the skylight with thermopane glass, the refurbishment of the gargoyles and many other unique architectural features throughout the facility, the installation of new building systems, sprinklers, elevators and other upgrades, the redevelopment of the Old Arcade includes the following retrofitting and changes in use:

    • The conversion of the office buildings along Euclid and Superior to hotel use, including a reception and lobby area on the Superior side.

    • The conversion of the top three floors of the interior arcade to hotel rooms.

    • The establishment of business class conference rooms and banquet facilities in the basement of the building, which required excavation and lowering of the floor.

    • The establishment of a 10,000 square foot, Hyatt operated restaurant, aptly named "1890," on the second floor of the facility.

    Jonathan Sandvick, whose name has become synonymous with rehabilitation of historic buildings in Cleveland, served as project architect, and Marous Brothers served as the general contractor for the redevelopment.

    Economic Inducements

    The project is benefited by the following government inducements:

    • TIF. The City of Cleveland provided tax exemption on new improvements comprising the project for a period of 30 years pursuant to Ohio Revised Code Section 5709.41. Under the program, known as Tax Increment Financing ("TIF"), the developer is required to make semi-annual service payments in lieu of taxes for the full 30 year period. The payments are charged in the same amount as would have been required to be paid if such improvements were not benefited by the exemption, plus any additional sums required to retire the debt payments on the $7 million of bonds issued by Cuyahoga County to help finance the redevelopment.

      A portion of the service payments is passed along to the school district, so that the school district is made whole and receives the amount that it would have received in the absence of the tax exemption (approximately 60 percent of the total tax payments). In addition, the school district will benefit from the increased assessments generated from the project.

      The balance of the service payments is applied to make payments on the bonds. As a precondition to the granting of such exemption, the City of Cleveland determined, through City Council, that the improvements constituted a public purpose, and acquired title to the property in a step transaction so as to qualify the project under Section 5709.41 of the Ohio Revised Code.

      The semi-annual service payments are secured by 30 separate instruments that have priority over the other liens on the property, including the primary mortgage to LaSalle National Bank securing a construction loan of $33.3 million. The TIF agreement required the developer to invest at least $45 million in the project, and also required the creation of at least 150 jobs. As part of the TIF agreement, the property is subject to a declaration of restrictions which provides, among other things, that the public spaces in the lower two levels are to remain open for use by the public during ordinary business hours.

    • City and County Loans. The City of Cleveland provided an Economic Development Loan in the sum of $1 million for the project, including $300,000 designated for tenant relocations and short term rent concessions for new tenants. The developer also received a loan from Cuyahoga County in the sum of $2 million for the project.

    • Conservation Easement; Foundation Support. The developer established a conservation easement encumbering The Old Arcade in favor of The Historic Gateway Neighborhood Corporation. The easement preserves and protects the architectural, historical and cultural features of the Old Arcade for the benefit of the public in perpetuity. The conservation easement was established in connection with a $1.5 million dollar loan made by Historic Gateway for the project, which loan was made possible by separate loans advanced from the Cleveland Foundation and the Gund Foundation. The project also benefited from $300,000 in grants made by the Cleveland Foundation and the 1525 Foundation.

    • Rehabilitation Tax Credits. The project is also eligible for federal rehabilitation tax credits, which are designed to encourage the restoration of historic structures. These credits are based on qualified rehabilitation expenditures, and reduce the taxpayer's basis in the rehabilitated structure.