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Cleveland: The Major League City’s Late-Inning Comeback

In every country, they make fun of one city; in the U.S. you make fun of Cleveland; in Russia, we make fun of Cleveland. — Yakov Smirnoff

“Want to hear a joke about the construction on I-77?” “Sure.” “Sorry, it’s not finished yet.”

How do you know you if the cell phone you found belongs to one of the Cleveland Browns? It receives texts, takes voicemail and vibrates, but there’s no ring.

Clevelanders have heard it all, but those who call “the Mistake by the Lake” home might be getting the last laugh.

Success is a Habit

It’s often said that success is a habit, but so is failure. So when one takes a look at where Cleveland’s economy has been in years past, it’s easy but lazy to assume that failure is just Cleveland’s default position. Nothing, though, could be further from the truth.

At the turn of the 20th century, Cleveland was at least as important to the toddling automotive industry as Detroit was. A generation earlier, the company that would eventually be split into ExxonMobil and Chevron was founded there by local boy John D. Rockefeller.

The post-World War Two era was especially kind to the city, which at that point had come to measure its civic pride by the thickness of The Plain Dealer’s sports section. Between the Indians’ 1948 World Series victory and the Browns’ glory years of the mid-1940s through mid-1950s, Cleveland became widely known as “the City of Champions”. These were formative years for Don Shula and George Steinbrenner, two native Clevelanders born exactly six months apart in 1930 who grew up to learn a thing or two about winning it all. Don King, who’s met a champ or two, was born in Cleveland the following year. And, for whatever it’s worth, John Heisman — after whom the trophy was named — was at that time the city’s elder statesman of athletic competition.

Getting Back in Successful Habits

Still, there’s no denying that Cleveland has faded more than a little. Over the course of a hundred years, it dropped from the fifth-largest city in the United States to the 52nd-largest — 32nd-largest if you go by metro area. While not the highest-crime indexed American city, the concierge at your Downtown hotel will insist that you take a cab or shuttle van to your restaurant after dark, even if it’s only three blocks away.

The story of Cleveland — at least through the 19th and 20th centuries — is really the story of non-coastal urban America. It rode the tide of industrialization up, then rode it down. In 1978, in the wake of the oil price shocks and the loss of factory work to overseas competitors, Cleveland became the first major city to default on federal loans. By 1983, unemployment there peaked at 13.8%.

That was then. Nobody would ever accuse this city of lunchpails and hardhats of gentrification, but “revitalization” is an often-heard word. In addition to new arenas and stadiums demanded by sports-crazed Clevelanders, the Rock and Roll Hall of Fame opened up there in 1995, adding I.M. Pei’s Modernist flourish to Lake Erie’s shore.

With this renewed sense of energy, Cleveland managed to muddle through the Great Recession of 2007-2009 better than most. Such employers as the Cleveland Clinic, Sherman Williams, KeyCorp and Case Western Reserve University provided a great deal of insulation against the worst of it. Unemployment has been more or less in line with the national average, while roughly one in four jobs there remains within the manufacturing sector. That’s quite a trick.

And it is a trick, not happenstance. Cleveland’s civic leaders have proven to be somewhat better planners than those of many other Midwestern cities. Although data is hard to come by, there’s some anecdotal evidence that Cleveland’s steady-state population of around 380,000 isn’t just in contrast to Detroit’s sharp decline. It’s in part due to it. Cleveland has the reputation of being the city where other Midwesterners move to when their own Rust Belt town goes bust.

Urban vs. Suburban

As noted above, post-war Cleveland’s engine hummed — literally and figuratively — with economic vigor. That led to a mass migration of African Americans to the city and, as was all too common at the time, this led in turn to a mass migration of European Americans out of it. This led to the growth of the suburbs, particularly the towns now known as the “inner ring”.

The dynamic playing out right now in Cleveland is similar to that in other metro areas: The children of the suburbs are finding their way back to the urban core, finding mixed-use zones both more affordable and more naturally liveable.

“The construction of new units and the repurposing of underperforming commercial real estate assets into apartments is helping fulfill tenant demand in the city center,” according to a 2019 Marcus & Millichap report. “Subsequently, some employers like Nationwide Insurance are choosing to transition their suburban locations to downtown spaces.”

The report predicts that, with all this attention on the city center, vacancy rates will creep up there. Meantime, though, suburbs and exurbs can expect occupancy to tighten. Part of the reason is that what’s going on within city limits is mostly rehabbing of Class B and Class C units. If you want a Class A home you can afford, you might have to consider a long commute. According to a Crain’s Business Cleveland article, Orange Village, Shaker Heights and Beachwood have all attracted multifamily and mixed-use development and, subsequently, renters. YardiMatrix notes that Solon is the suburb that seems to be attracting the most multifamily real estate attention today.

Cleveland itself is divided into an east side and a west side by the Cuyahoga River. Long ago, these were two distinct cities: Cleaveland — original spelling — to the east and Ohio City to the west. In 1836, the construction of the Columbus Street Bridge allowed turnpike travelers to bypass Ohio City, essentially windjamming that town’s economic development. This led to riots, gunplay and at least one powder keg explosion, according to historians at Case Western Reserve University. Eventually, Cleveland absorbed Ohio City like a vanishing twin.

The old Ohio City mob would marvel at how little has changed. Most of the new development within the city today is solidly on the east side of the river. Downtown neighborhoods such as Public Square, the Flats and the Warehouse District are attracting investment, as is East 4th Street with its proximity to the Indians’ Progressive Field and the Cavaliers’ Rocket Mortgage Fieldhouse. The Euclid Avenue Corridor is a four-mile-long redevelopment program that extends four miles from the downtown district eastward into University Circle. Between University and Lake Erie lie Cleveland Heights and Glenville, establishing the east rim of the city line as some of the most desirable real estate submarkets in town.

These areas tend to attract more affluent knowledge or creative workers. Even so, both sides of the river are seeing the reemergence of middle-class communities. In fact, Tremont, adjacent to Ohio City, is emerging as one of the most desirable neighborhoods inside the city limits.

But it’s the lakefront that is developing the fastest. The Lake and Shoreway submarkets are looking at year-over-year rent increases of 6.5% to 7%, according to YardiMatrix, boosted by the rehabilitation of waterfront infrastructure.

But with all that building and rebuilding going on, Cleveland remains on whole a particularly affordable place to live. It is so affordable, in fact, that it’s dramatically less expensive to pay a mortgage than to pay rent. And yet people who move to — or move back to — Cleveland gladly pay that premium to a landlord. How long that lasts, though, is a factor of how successful the city proves to be in converting just-passing-through young careerists into multigenerational families.

“Renting is significantly more expensive than owning,” according to Yardi. “Homes in the metro remain among the most affordable in the country. However, the cost of living is escalating, while wage growth remains flat. Cleveland residents are increasingly challenged to find affordable housing, especially since roughly two-thirds of incoming stock is targeting professionals relocating to high-end properties in the area.”

And while it’s true that Cleveland has done a better job than most cities at attracting college graduates, most longtime residents would eagerly trade them all to get LeBron James back.

Cleveland at a Glance

  • Construction (projected, 2019): 1,600 units; while a decline from 2018’s 2,000, this would the first time since in the 21st century that more than 1,500 units were delivered in two consecutive years
  • Vacancy rate (projected, year-end 2019): 5.8% metro-wide, down 20 bps year-over-year
  • Annual rent (projected, 2019): $940, up 3.1% year-over-year

Sources: Marcus & Millichap

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