Jerome Schmelzer’s father bought a 60,000-square-foot office building in 1948 on what was then a bustling Prospect Avenue.
More than five decades later, that same building, originally known as the Financial Building, is in its third incarnation, this time as condominiums. In that time, good times have since gone and now come back again.
Jerome, with his brother, Lawrence, developed the property along with several adjacent buildings near the intersection of Prospect and Huron avenues in downtown Cleveland. He says that dealing with change is part of the real estate business.
“A property isn’t like a stock, where you can quickly sell it and get your money back,” says Schmelzer. “It is more cumbersome, and you have to live with it for awhile.
“This area (Prospect Avenue) was a hot area when the property was bought in 1948; it was a very viable area. There were a lot of department stores downtown, and Prospect was a lot of commercial and office space. The occupancy rate was 100 percent for this building.”
In the late ’60s, indoor shopping malls and strip centers in the suburbs began forcing downtown department stores to close. The entire downtown area went down with it, and the small law firms and accounting offices that had filled the space moved elsewhere.
“We had the building 100 percent leased as an office, and that went down in the late ’80s to 10 or 15 percent, and half of that was my offices,” says Schmelzer. “Landlords couldn’t get the rents they needed, so they wouldn’t invest in their property. There was a period of disinvestment through the ’60s, ’70s and ’80s. It was not a safe area anymore.
“There were a lot of vacant stores, and there was no one living here at the time. The situation called for a big change.”
That big change came in the form of the Gateway Sports and Entertainment Complex and the completion of Jacobs Field and Gund Arena in 1994. Schmelzer, who was looking at renovating one building for about $1 million to $2 million, ended up buying three adjacent buildings and pouring $12 million into a historical renovation of the group, including turning the office building into apartments.
“By the mid-’90s, the Warehouse District had renovated buildings that had been adapted for reuse,” says Schmelzer. “I saw that and started thinking about housing. There was really nothing available for market-rate housing.”
After conducting a feasibility study and getting tax credits and support from government officials, the Financial Building became The Apartments of the Pointe at Gateway.
“At the time, this building was in bad shape,” says Schmelzer. “It was probably worth $600,000 back in the ’80s when this all started. We put in $5 million to make the 42 apartments. It’s been a very tough deal for us, but it was our way of giving back to a city that’s been very good to us. We felt the rents would cover the costs, and we were right at the time.”
In less than a year, all the apartments were rented. The retail space in the adjacent buildings became businesses that fed off the crowds generated by Jacobs Field and Gund Arena. People were starting to return to downtown.
But change came again. By 2002, the apartment industry was overbuilt, and the economy had taken a turn for the worse. Interest rates plummeted, and as a result, renters became buyers.
So the Schmelzer brothers have rolled with the changes again and are in the process of selling the former apartments as condominiums. They expect to have them all sold in less than two years, transferring most of the ownership of the building to the tenants.
“The steps we have taken have maximized the value of our real estate,” says Schmelzer.
HOW TO REACH: The Apartments of the Pointe at Gateway, (216) 621-6300
Extreme makeovers
Jerome Schmelzer, managing partner of The Apartments of the Pointe at Gateway, has seen his father’s investment in a small building on Prospect Avenue go from a bustling office to a blighted building to a luxury apartment complex to condominiums in 54 years. Making the move from the original office use to that of housing in an unproven urban market was not an easy decision.
Here are the factors Schmelzer says helped him make the leap.
* Catalyst for change. Jacobs Field and Gund Arena were catalysts that would bring people downtown from the suburbs and revitalize a dead downtown market.
* Feasibility studies. Schmelzer hired a respected research firm to study whether there would be a demand for housing in an urban market that, at the time, had few housing options. The firm found there was a demand.
* Government backing. Schmelzer had strong backing from then-Mayor Michael White and other government officials. Tax abatement, income tax credits and an upgraded streetscape all made the project more palatable for Schmelzer’s small real estate company.
* Good people. Schmelzer says surrounding yourself with good people who can help you navigate through difficult decisions is key to a successful project.
* Instincts. “You have to anticipate the market,” says Schmelzer. “It was difficult getting financing, but we were doing our homework and getting the best information we could. The rest is just having a lot of guts.”
