CLEVELAND, Ohio -- Two years after buying one of downtown Cleveland's best-known buildings at a foreclosure auction, Skyline International Development Inc. is revamping hotel rooms and considering ways to revive empty storefronts at the historic Arcade.

A $6 million renovation of the 293-room Hyatt Regency hotel, on the old shopping mall's upper floors, started in December. Crews have gutted 113 of those rooms, which are set to reopen with new fixtures and furniture before May. The remaining rooms will close in spring 2015 and come back online by summer.

By industry standards, the hotel renovation -- 13 years after the Hyatt opened -- is overdue. It signals that Skyline, a Canadian investor that owns high-end hotels and resorts, sees an upside to further investment in Cleveland, where the downtown hotel market has rebounded after a painful recession. Skyline also has assembled a new team to manage the property and market the retail space, two half-empty floors of small stores and restaurants that have struggled to bring in shoppers.

"We are very open-minded, and we are very eager to move forward," said Natalie Roz, the asset manager overseeing the Arcade for Skyline, which is based in Toronto, Ontario.

A crop of new hotels, including a Westin, the Metropolitan, a Kimpton and a Drury Plaza, is set to open in rehabbed downtown buildings during the next few years. Other projects, such as a Le Meridien and a Crowne Plaza, are being planned or are in early stages of construction. And Cuyahoga County expects to finance and build a 600-room Hilton next to the new Cleveland Convention Center, in a bid to bring larger trade shows and events to the city by 2016.

Tim Meyer, the general manager at the Hyatt, said those projects aren't driving Skyline's decision to invest.

"We've known the market is going to be more competitive, with new hotels coming on, for a while," he said. "So none of that really dictated specifically when we had to get this done. Cleveland has been developing for the past several years."

A finished suite at the Hyatt shows how much tastes have changed since the hotel's 2001 opening.

Wooden shutters have replaced the heavy curtains that lined the interior windows, which offer views over the Arcade's ornate balconies. To buffer sleeping guests from the noise of weddings and parties under the central skylight, Skyline added doors between the suite sitting areas and sleeping spaces. The old palette, with earth tones and plaids, is giving way to a sleeker spectrum of grays.

Meyer expects the renovated rooms to command higher rates, though he wouldn't provide specific numbers. The Hyatt charges anywhere from $110 to more than $200 a night, depending on the time of year. Last year, the average daily rate downtown was $121.85, according to research firm STR. Hotels in the center city posted an average occupancy rate of 70.6 percent for 2013 -- an improvement from 2012.

A unique building, a challenging investment

Skyline took its time deciding how to approach the Arcade, which the company purchased at a sheriff's auction for roughly $7.7 million. The sale marked a reset for a landmark property that experienced a series of setbacks after a $60 million hotel conversion.

The Hyatt opened four months before the Sept. 11, 2001, terrorist attacks, which prompted businesses to cut back on travel. Across the country, hotels felt the fallout.

A few years later, work started on a redesign of Euclid Avenue to support a higher-speed bus line linking downtown and University Circle. The project, finished in 2008, spurred private investment and redevelopment along the street. But the construction squeezed retailers at buildings including the Arcade, which stretches between Euclid and Superior avenues near East Fourth Street.

Crews wrapped up the Euclid corridor job in 2008. Then the nation's near-financial collapse threw the hospitality industry into a tailspin. In 2009, the Arcade slipped into foreclosure after its owner -- a joint venture between a Chicago developer and Hyatt -- defaulted on a $33.3 million mortgage. In late 2011, the building was auctioned off. Skyline stepped in.

The Arcade purchase marked the company's first investment in the United States.

"Cleveland is a different market than Toronto, where Skyline's head office is," Roz said. "In Toronto, we've come to $600 per square foot for condos, which is a lot higher than in Cleveland. Overall, we've attracted national, international and class A tenants. When we came to Cleveland, it was definitely different. ... We were kind of cautious. Now that we've got the right team in place, the right vision, we can move forward. Also, the market has improved in the interim."

Skyline recently brought in Cresco Real Estate, a company based in Independence, to manage and market the Arcade's retail space.

Cresco, perhaps best known for its industrial brokerage work, has been grabbing more downtown listings. During the last few months, the company also has added to its office division and has partnered with Continental Realty of Columbus to offer property-management services in Northeast Ohio. Both Cresco and Continental are part of the Cushman & Wakefield alliance, a global real estate network.

"Without overstepping confidentiality agreements, we're evaluating multiple proposals and letters of intent for the property," said Rico Pietro, a Cresco principal. "We're trying to accomplish one significant roll-out and minor additions for the Arcade going forward. We're hoping to get multiple restaurants and retailers to agree to open up at the same time, to create more pop in the marketplace."

With full apartment buildings and a growing residential population, downtown Cleveland is drawing more interest from retailers. Heinen's Fine Foods expects to open a store at East Ninth Street and Euclid next year, and some national chains, including drug stores, have been considering spaces in the center city.

Still, traditional retail is tough. Foot traffic can be sporadic. And the Arcade has to contend with small storefronts that can be difficult to fill.

At the nearby 5th Street Arcades, developer Dick Pace managed to fill similar spaces by taking an incubator approach, offering start-up businesses reduced-rent deals, with some help from the city. At the Arcade, Cresco won't talk about specific tenants the company is courting. But Pietro said the target market includes suburban retailers and national restaurant chains.

Retailers ready for a recovery

Raymond Liptak moved his shoe-repair business out of the Arcade in June. Now he's leasing a storefront at the 5th Street Arcades. Brass Tack Shoe Repair survived the construction on Euclid and the economic slump, Liptak said, but he couldn't get clarity last year about Skyline's plans for the Arcade and his odds of securing a lease renewal.

"I really wish them a lot of luck," he said. "I really hope they can bring back that old Arcade, because that's a wonderful building and it needs to be brought back."

Judy Simon, an assistant vice president with Continental Realty, stepped in six weeks ago as the property manager for the retail space. She's still working through budgets and recommendations with Skyline, but her proposals include renovating a vacant storefront as a model to show prospective tenants.

"The retail side and the hotel side are acting as much more of a cohesive unit now, which is good," Simon said. "It's a matter of changing perceptions to help both."

Existing retailers are expectant.

"Hopefully the new management team will come in there in invest some money and get this thing up and running and fill all the empty spaces, because it will be a win-win for everybody," said Dominic Fanelli, one of the owners of the Chocolate Bar, a restaurant on the Euclid side of the building. "Cleveland's ready for the old Arcade to come back to life."