nuCLEus nighttime rendering

A rendering shows the proposed nuCLEus project, north of Quicken Loans arena, in downtown Cleveland's Gateway District. The ambitious, mixed-use development could benefit from a new tax break being considered by the Ohio legislature.

(NBBJ)

CLEVELAND, Ohio - A new state tax credit being considered by the General Assembly appears tailor-made for a downtown Cleveland project - the high-rise nuCLEus development in the Gateway District.

House Bill 469 would create a tax credit for "transformational mixed-use developments" with specific parameters: A project must cost at least $400 million. It must include at least one building that's 20 stories or taller. The site can't be more than 7 acres. And the project has to include multiple uses, such as retail, offices, a hotel, recreational facilities or parking garages.

The bill, introduced in January, doesn't specifically mention nuCLEus. But projects that large, lofty and densely built are a rarity. And one critic, a left-leaning policy group, is decrying the Republican-backed legislation as a special-interest tax grab.

An executive from Stark Enterprises, the Cleveland developer behind the nuCLEus project, testified in favor of the proposal during a public hearing in Columbus late last month. "I can speak of a direct connection between this proposed legislation and a project that hits close to home," Steve Coven, vice president of development for Stark, told the house government accountability and oversight committee, according to a written copy of his remarks.

Planned for a 3-acre site just north of Quicken Loans Arena, nuCLEus would be a $500 million to $540 million project. Stark has released renderings showing a residential tower as tall as 54 stories, along with more than 300,000 square feet of offices, 100,000 square feet of retail, a hotel and garages housing upwards of 1,800 parking spaces. The housing largely would be for rent, though Stark executives have talked about offering a handful of condominiums for sale.

Stark and joint-venture partner J-Dek Investments Ltd. of Solon bought the nuCLEus site in September 2015.

Since then, the developer has been trying to scrape together enough public incentives and private cash to make the ambitious project work, amid rising construction costs, interest-rate creep and the persistent challenge of building something from scratch in a central business district with relatively modest rents.

Last year, financing talks between Cuyahoga County, the city and the Cleveland School District - which explored giving up some long-term property-tax revenues from the project in exchange for an up-front payment - stalled. Local officials say they're still discussing nuCLEus, but they won't get into details about what's on the table, or what's causing the hold-up.

Now the state could pick up part of the deal, sacrificing as much as $54 million in tax revenues if HB 469 becomes law. The legislation would create a nonrefundable tax credit for insurance companies that invest in such major, mixed-use projects. Insurers would use the credits to offset premium taxes, which flow into the state's general fund.

Basically, the state would award a tax credit to a property owner. That property owner, in turn, would sell the rights to the credit to an insurance company or a group of insurers, with some sort of discount. The arrangement would generate cash at the outset for a development and would give the insurers the ability to reduce their tax payments over as many as five years.

The credit would be capped at 10 percent of development costs. Insurers wouldn't be able to claim it until a real estate project is complete. That's similar to the structure of the state's historic tax credit program, though there's one major difference: Historic credits max out at $5 million per project, with few outliers. This mixed-use credit has no upper limit.

A financial consultant to nuCLEus confirmed that he and real estate developer Bob Stark worked with Rep. Kirk Schuring, R-Canton, on the concept. Schuring co-sponsored the bill with fellow Rep. Thomas Patton, R-Strongsville.

"if you structure these tax credits correctly, you're going to bring in more new revenue than goes out," said Schuring, who also authored the legislation behind the state's popular tax-credit program for preservation of historic structures.

The consultant, Ryan Sommers, pointed out that nuCLEus and other new developments don't qualify for historic tax credits, which have helped to fuel most of downtown's growth over the last decade. Other existing incentives, such as federal New Markets Tax Credits that attract investment to low-income areas, are difficult to come by.

Sommers, managing director of financial services for Project Management Consultants in Cleveland, said the legislation has broader applications for substantial, mixed-use developments, most likely in Cleveland, Columbus and Cincinnati. It's not just a bill for nuCLEus, he said. But, he acknowledged, "not many projects would fit this framework."

Bob Stark didn't respond to a request for comment.

Policy Matters Ohio, a nonprofit research institute with a liberal bent, criticized the proposal as a handout to developers. "We have all kinds of very significant needs in the state that we have not fully met," Zach Schiller, the organization's research director, said. "In light of those needs, should we be providing tens of millions of dollars to this special interest?"

He also questioned how the state will measure a return on its investment. The bill talks about the potential impacts of a project, from job creation to changes in property values to tax revenues from people shopping, dining, lodging, working and living on site and within a one-mile radius. But the legislation doesn't outline firm marks that a project, once completed, would have to hit to be worthwhile.

"I think there's a whole slew of reasons why this is inappropriate," Schiller said.

Schuring expects the legislation to be refined through amendments, which could better define economic-impact benchmarks and make the incentive more widely available, perhaps by offering different tiers of credits for smaller projects. He's aiming for a House vote before late May, which would put the bill on track to be taken up by the Senate in late 2018.

"I think we can make a credible case that a project of the size that is being planned for downtown Cleveland will have a significant impact on the Cleveland economy," Schuring said. "And I think we could certainly measure that and use that as a criteria for the credit to be awarded."

Kent Scarrett, executive director of the Ohio Municipal League, also testified in favor of the legislation last month. During an interview, he said he'd like to see the proposal broadened to make the tax credits accessible for a wider array of cities exploring mixed-use development to attract and keep residents, jobs and visitors.

"There's a larger audience in the conversation, and some people object and have concerns about the effectiveness" of such tax credits, Scarrett conceded. "But we're always encouraging our communities to try new things."