PARTING SHOTS
APARTMENT FINANCE TODAY • FEBRUARY 2008
Cleveland Condos Survive
with New Markets Tax Credits
A government program has helped keep prices low and sales moving for one
of the first high-rise condo developments downtown.
By Bendix Anderson
Cleveland—In the heart of
this city’s downtown, in a
region wracked by mortgage
foreclosures and falling
home prices, Zaremba, Inc.,
plans to build 550 condominiums
at its high-rise
Avenue District project.
In December, the first tower, with 62
planned condos, had almost topped out
at 10 stories.
Sales prices are rising for the condos,
according to Brian Blasinsky, financial
manager for Zaremba. By December, 35
were already under contract to sell.
Federal New Markets Tax Credits
(NMTCs) made the deal possible.
Equity provided by the NMTCs covered
some of the profit KeyBank needed
to earn from its loan to the developer,
allowing the lender to lower the
interest rates on much of the project’s
construction financing. “From our
standpoint, it’s just like a commercial
loan,” said Blasinsky.
The low interest rate helped make it
possible to offer condos at prices averaging
about $300 a square foot. That’s
about $100 per square foot lower than
the prices of comparable projects in
secondary markets like Pittsburgh and
Nashville, said Blasinsky.
The prices were low enough to
attract homebuyers to downtown.
Zaremba has been able to raise prices
by as much as 6 percent since the condos
first began to sell 18 months ago,
while still attracting a steady flow of
buyers.
The NMTC program is intended to
encourage commercial investment
activity in low-income neighborhoods.
Zaremba’s lenders used the equity
generated from the NMTCs to make a
loan instead of providing equity directly
to a mixed-use development. That’s
allowed under a provision of the
NMTC program that authorizes use of
the credits to make loans to businesses
located in low-income census tracts.
KeyBank made a $12 million floating-rate construction loan subsidized
with NMTCs to Zaremba to build its
high-rise. At press time, the loan’s rate
was 5.5 percent. Just to compare, the
project received a second unsubsidized
$12 million floating-rate construction
loan from National City Bank. At press
time, that loan’s rate was 7.25 percent.
The tower also received an NMTC-subsidized
$2 million construction loan
from the Cleveland New Markets
Investment Fund for the tower’s first-floor
retail space. That adds up to a $26
million package of loans. When
Zaremba’s own undisclosed equity
investment in the tower is added in, the
total development cost could come close
to the $29 million that Zaremba expects
to receive from condominium sales.
Thin profit margins now may be a
small price to pay if Zaremba’s long-term
strategy pans out. By creating a
new market for high-rise condos downtown,
the developer hopes to increase
the value of the future buildings it’s
planning for the project. Zaremba has
an option to buy land from the city of
Cleveland for later phases at the
Avenue District. Plus, it plans to build
64 for-sale townhouses on the site.
“We like to call ourselves pioneers,”
said Blasinsky.
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