The federal government will provide a $15 million loan for the Centennial, one of downtown Cleveland’s trickiest — and longest-gestating — renovation projects.
The U.S. Department of Housing and Urban Development has approved a Section 108 loan guarantee to support the anticipated $520 million makeover of the historic Union Trust Building, at East Ninth Street and Euclid Avenue. The 1.36 million-square-foot complex, which has been sitting vacant for years, is set to become workforce housing, with retail, dining and a museum-like space downstairs.
HUD’s Section 108 program gives cities access to low-cost financing for major projects. Local governments borrow money from the agency and, in turn, pledge their current and future federal Community Development Block Grant allocations as collateral in the event of a default. The idea, though, is that the projects will produce enough income to repay the debt.
In this case, HUD will lend $15 million to the city, which will make a loan to the Millennia Cos., the Cleveland-based developer of the Centennial. Millennia will make repayment guarantees to the city as part of the loan agreement.
Public records show that the developer and city officials have been working on the arrangement for more than two years. Cleveland City Council approved enabling legislation for the loan application in December 2020.
In an emailed statement, Millennia CEO Frank Sinito said the company is thrilled about the approval, which HUD announced Friday, Jan. 27. He described the loan guarantee as a critical component of a complicated capital stack.
“The financing positively impacts the entire adaptive reuse and mixed-use project and, among other things, will create workforce housing for low- and moderate-income households,” he wrote. “This housing opportunity, located steps away from public transit, healthy food and jobs, will meet a significant need.”
Sinito expressed appreciation for HUD and thanked Cleveland Mayor Justin Bibb, the mayor’s staff and City Council for their work to move the massive undertaking forward. Millennia now hopes to close on its financing and start construction in the late second quarter or early third quarter of 2023.
“Section 108 loan guarantees allow communities to invest in critical infrastructure, including housing,” HUD Secretary Marcia Fudge, a Cleveland native, said in a news release. “I am pleased that Cleveland will be able to use this funding to transform this historic space and bring much needed affordable housing and community amenities to the area.”
At least 51% of the apartments will serve low- and middle-income households, the agency said. “Prioritizing affordable housing units with historic preservation isn’t just good for our economy. It gives families a new opportunity to strive for more, once they have rent they can afford,” Marion McFadden, principal deputy assistant secretary in HUD’s office of community planning and development, said in a news release.
Millennia purchased the nearly century-old Union Trust Building in 2018, after two previous owners failed to execute on redevelopment plans.
The company managed to hang onto a $25 million allocation of state tax credits for historic preservation — money the state won’t pay out until a project is complete.
Last year, the Centennial secured $40 million in additional tax credits through a new state program aimed at catalytic, mixed-use developments. Though housing will fill most of the building, Millennia also has talked about retail, dining, offices, a boutique hotel and, in part of the grand old bank lobby, a gallery space curated by the Western Reserve Historical Society.
The financing also includes federal tax credits for low-income housing; residential property-tax abatement, which Cleveland offers for construction that meets certain green-building standards; and tax-increment financing, which pledges a portion of the property-tax revenues created by development to paying off project costs.
The Centennial hit a speed bump in December, when the Ohio General Assembly approved House Bill 45, a spending bill that included a last-minute amendment that bars developers from using low-income housing tax credits and state historic tax credits on the same project.
Developers and underwriters across the state paused to parse the language, which appeared to be retroactive, putting unfinished projects at risk of losing awards. But a final analysis of the wording shows that the ban on mixing credits will apply only to new deals — projects where developers seek state historic tax credits after the bill becomes law in the spring.