The former Medical Mutual of Ohio headquarters in Downtown Cleveland sold earlier this month. But its sale price wasn’t publicized until the deed transfer was recorded by the county on Christmas eve. The sale included the 10-story Rose Building and the attached six-story Sloan Building, at left (Google). CLICK IMAGES TO ENLARGE THEM.
Financing for redo as apartments, hotel pending
Although the buyer of the former Medical Mutual of Ohio headquarters in Downtown Cleveland publicized earlier this month it had closed on its purchase financing, they declined to reveal the transaction amount at that time. But that amount became public when the deed transfer was filed with the Cuyahoga County Fiscal Officer on Christmas Eve.
Developer Spark GHC, doing business as East 9th Scarlet LLC, paid $10,956,666.71 for the insurance company’s former headquarters that includes the 10-story Rose Building, 2060 E. 9th St., and the attached six-story Sloan Building, 823 Prospect Ave. Spark GHC plans to convert the historic office buildings into apartments and a boutique hotel, both under the Marriott flag, in a $120 million effort called Project Scarlet.
“Closing on the Rose Building is more than a milestone for Project Scarlet,” said Bhavin Patel, co-founder and principal of Green Harvest Capital and Spark GHC, in a written statement. “It’s a promise to Cleveland; a promise to honor its history while creating a brighter, more innovative future. I’m grateful for the partnerships and teamwork that have brought us here. This is just the beginning.”
Spark GHC’s team also includes general contractor Cleveland Construction. Marcus & Millichap plus CBRE will handle leasing for the ground-floor commercial spaces. Arrival Partners and BrandDog will brand the hotel and apartments. Coury Hospitality will manage the property. The architects are Vocon Partners and Berardi + Partners with Walter Haverfield, Calfee, Halter & Griswold LLP plus Sikora Law LLC handling legal matters.
The six-story Sloan Building, next to the 10-story Rose Building, on Prospect Avenue was part of the Medical Mutual of Ohio headquarters and thus was part of its sale to the affiliate of Spark GHC (Google).
“Together, we are turning ambition into action, preserving the legacy of this iconic structure while paving the way for a modern, vibrant Cleveland,” Patel said.
The team still has to pull together financing for the project’s development. But that effort was aided substantially by a max-level, $5 million Ohio Historic Preservation Tax Credit awarded on Dec. 11. Financing for the property acquisition came from Fahey Bank of Marion, OH, and the deed transfer also was signed on Dec. 11, public records show.
“The Rose Building holds a special place in the history of Medical Mutual,” said Steve Glass, Medical Mutual of Ohio’s president and CEO, when the deal started coming together. “It’s important to us that it’s being used to invigorate the area and contribute to the vibrancy of Cleveland’s downtown. That’s why passing the baton to Spark GHC and Cleveland Construction feels right.”
NEOtrans did not hear back from a local CBRE spokesperson on what the purchase means not only for this project but for downtown as a whole. But Terry Coyne, vice chairman of the Cleveland office for the Newmark real estate brokerage, said the sale price of just under $11 million for the 380,000-square-foot property, or under $30 per square foot, was “a great deal” for the buyer.
The architectural details of the Rose Building are seldom appreciated by passerby who usually don’t have time to study the exterior of the Gilded Age edifice (CBRE).
“Even with all of the historic and conservation tax credits, the buyer couldn’t reach $30 per square foot,” Coyne said. “But this is the new pricing expectation for empty, Class C (office) redevelopments.”
Although Medical Mutual of Ohio has been at the Rose Building since 1947, it had only occasionally owned it. The last time it took title to it was in 2017 when it paid a total of $37.9 million for control of the Rose and Sloan buildings. That included $10.3 million for the property deed and the remaining three years of lease payments that Medical Mutual owed.
Medical Mutual of Ohio had a 20-year lease on the Rose and Sloan buildings from financially troubled, California-based landlord BentleyForbes. In 2000, BentleyForbes paid $47.77 million for the property, acquiring it from Medical Mutual of Cleveland, county records show. That’s more than $125 per square foot and nearly 25 years ago.
When the medical insurance provider acquired the Rose and Sloan buildings for its 1,300 downtown employees in 2017, it also also began looking for office space to consolidate 700 suburban employees from Beachwood, Copley and Strongsville offices where leases were due to expire near-simultaneously in 2020.
When the Rose Building was built in 1902, it was called “Rose’s Folly” because Benjamin Rose had built such a large building outside of Cleveland’s central business district. But the forward-thinking Rose saw Downtown Cleveland expanding east and called the intersection of Prospect Avenue and Erie Street (later East 9th) as “New Center” (Cleveland Public Library).
There were rumors back then that Medical Mutual would consolidate everything into a new building downtown. Instead, the insurer leased space in the former American Greetings headquarters in suburban Brooklyn to consolidate its suburban workers. And it reached a tax-incentive deal with the city of Cleveland but never executed it to retain employment at the 1902 Rose Building and 1917 Sloan Building for its corporate headquarters.
Then the pandemic hit in 2020. Like many employers, a large number of Medical Mutual of Ohio employees began working from home. It closed the downtown headquarters and, after two years, the company realized it no longer needed two office buildings. So it consolidated all of its in-office staff at its Brooklyn location and sold its downtown building at a loss after modernizing it for $35 million, Spark GHC noted.
“Medical Mutual should have stayed downtown,” Coyne added. “They moved to Brooklyn in a leased building. They could have stayed downtown in their own building and not suffered this loss. Plus the city would be much better off with that foot traffic.”
Although programming for Project Scarlet hasn’t been announced, its square footage suggests something on the order of 250 apartments and about 100 hotel rooms, or about 500 everyday building occupants. While that doesn’t include the addition of several to-be-announced restaurants and/or shops, the total building occupancy probably would still be far less than the 1,300 office workers that were there.
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