In downtown Cleveland, a construction crew is transforming a onetime Radisson hotel into a Hotel Indigo set to open late this year.
At the former McKinley Grand Hotel in Canton, a $30 million makeover as a DoubleTree is underway. And in Fairview Park, local developer Ceres Enterprises is preparing to convert a former NASA building into a small hotel that will fly a Wyndham flag.
A pandemic that's causing unparalleled pain in the hospitality business hasn't sidelined development altogether. Projects that were in progress this spring, when the coronavirus and government shutdowns sent occupancy spiraling, are inching forward. Risk-tolerant developers still are sniffing around for new deals, eyeing potential opening dates in 2023 or later.
But the development pipeline is likely to shrink dramatically, at least for the next few years. Many local projects that began 2020 on the drawing board are delayed, if not dead.
"If you've started construction, you're essentially pregnant and you've got to finish up. … If you're in pre-planning and planning stages, and maybe even up to where you've acquired a site to develop, you may be pumping the brakes," said Eric Belfrage, a Columbus-based senior vice president who handles hotel deals for the CBRE Group Inc. brokerage.
"And if you're not, as a developer, your lender might be saying, 'We need to take a step back,' " he said.
The pandemic prompted the Millennia Cos. to drop its plans for a high-end hotel at the Centennial, a redevelopment of the historic Union Trust Building at East Ninth Street and Euclid Avenue in downtown Cleveland.
A few blocks away, Texas-based developer Todd Interests has not closed on a deal to fill part of the Ohio Bell Building with a Canopy by Hilton. The company didn't return phone calls about the project.
In the city's Midtown neighborhood, developer Beaty Capital Group announced plans in late May to build a 19-story Dream hotel next to the historic Masonic Temple on Euclid Avenue. That formidable project, with a 400-car parking garage, isn't going to hit its 2022 opening date.
Architect Paul Deutsch, a principal at Cleveland-based firm Bialosky, said that additional pre-development and design work has been delayed until sometime next year. If the 207-room hotel project moves forward, it isn't likely to be finished until 2024.
Amid so much uncertainty, it's difficult for hoteliers and lenders to look more than a few months into the future. Major hotel brands are giving properties a temporary pass on required improvements, deferring renovations meant to keep buildings current with company standards.
The Renaissance Cleveland Hotel downtown has put upgrades on hold. Skyline Investments, the Canadian owner of the Renaissance and the nearby Hyatt Regency at the Arcade, didn't respond to inquiries about the project.
Opportunistic developers who have the foresight and cash are taking advantage of the pandemic to spruce up existing properties or plan long-term projects, since new hotels tend to outperform their older competitors, said David Sangree, president of Hotel & Leisure Advisors in Lakewood. But finding financing is a huge hurdle.
"Any bank regulator, if you're doing a construction loan for a hotel now, they're going to look at you like you're crazy," said Ryan Terrano, a financial consultant who worked in banking before launching his current company, Cleveland-based Terra Real Estate Capital.
In Fairview Park, Ceres expected to secure a $3 million bank loan for its boutique hotel, which is set to open at the end of next year. Then the pandemic made lenders leery.
Now the family-owned hotel business is privately filling that gap. The hotel is part of a two-building, $46 million historic preservation project that also includes apartments.
"This project's been committed, so that's why we're going through with it," said David Crisafi, the company's president.
Where banks once might have offered a loan covering 80% of a project's costs, they've pulled back to 50%, local hotel developers said. Or they're blackballing hospitality completely.
In response, some developers are searching for non-traditional funding sources, such as smaller lenders without many hotels on their books; bridge loans; and deal structures centered on the owner's financial strength, for example, rather than the product type.
"You have to be beyond creative. And you have to have a lender that's going to listen to you," said Terrano, who is working on the McKinley Grand redevelopment in Canton.
Developers laid the groundwork for that deal, part of the sprawling Hall of Fame Village project, last year. They only recently lined up a bank loan, months after starting construction.
The Hotel Indigo overhaul in Cleveland also was in the works long before the pandemic rocked the industry. A New York-based investment group bought the Radisson in March 2019 and temporarily rebranded it as the Hotel Cleveland Gateway. The city issued building permits for the project in late June, according to public records.
The hotel's ownership and management said it's not ready to discuss the project, which industry consultants pointed to as an example of making the best use of historically low occupancy levels and an economic slump.
"If it's down time, I'm going to work on my property," said Eric Hansen, a director with LW Hospitality Advisors in Westlake. "I'm going to invest in it. I'm going to make it better than it was pre-COVID. Because there's going to be a lot of competition post-COVID."
Lenders were more disciplined coming out of the Great Recession of 2007 to 2009 than they have been in past real estate cycles, Belfrage said, so the industry isn't contending with an overabundance of hotels. Cleveland, though, arguably still is feeling the effects of the small building boom that occurred in the run-up to the 2016 Republican National Convention.
Across the country, 2020 started as a potentially busy year for hotel development. And that included a notable queue of Northeast Ohio projects.
In ordinary times, it's not unusual to see potential deals fall apart because of partnership challenges, financing problems or other issues. In the next year or so, the failure rate could be much higher than usual, said Laurel Keller, a hotel appraiser and consultant with Newmark Knight Frank in Cleveland.
"It's all very much up in the air," she said.
In Cleveland's Ohio City neighborhood, a small project called the Hulett Hotel won't get moving until mid-2021 at the earliest, said developer Mark Raymond. He'd hoped to start work this year, but financing dissolved in the spring for repurposing a building at West 25th Street and Church Avenue, overlooking the future Irishtown Bend park.
Now Raymond is exploring new funding sources for the 32-to-50-room project.
At the Cleveland Hostel, his existing lodging property in the neighborhood, business is down about 70% from last year, though he's catering to more bicyclists traversing local trails.
"If we can get through the winter and things start to turn around with a vaccine or something, I think we should be all right," Raymond said.
Between now and then, don't expect to see many shovels in the ground, Crisafi said.
"Until they figure this thing out," he said, "they've done a number on real estate development."
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Northeast Ohio hotel projects aren't dead, but pandemic stalls development pipeline - Crain's Cleveland Business
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