Tower Play

Jimmy Dimora, Tim Hagan and Peter Lawson Jones bought the Ameritrust Tower to give the county a new home — then figured out they couldn’t afford the project. They ignored three advisers’ warnings about the project’s cost. They said
Jimmy Dimora and Tim Hagan have a lot on their meeting agenda today. They’re going to vote to sell the Ameritrust Tower. But first, they’ll settle a score with their critics.

Standing near the county commissioners in their cramped meeting room, developer Doug Price tells them about his plans: Filling the tower with residential suites and a boutique hotel, building an office tower next door.

“This is certainly a very happy and welcome project,” says Dimora.

The county bought the skyscraper in 2005. Dimora and Hagan planned to tear it down and build a new Cuyahoga County administration building, as grand and dramatic as Cleveland City Hall, to hold about 1,200 to 1,500 county workers. Now, it’s April 2008, the county has pulled the plug on the project, and it’s selling the building — for several million dollars less than it’s put into it.

The commissioners say it’s not a loss, but an investment. “Unfortunately,” says Dimora, “we can’t get it across to some of the media folks in town that this is a plus and a win for the community because we’re investing a few million dollars.”

Selling the tower means the commissioners are stuck in their 1950s administration building at Ontario and Lakeside, in this meeting room that seats 61. When they expect big crowds, they have to book the library auditorium.

“We’ll look for other means for our needs — that we need to get out of this building,” Dimora says.

The commissioners have taken lots of criticism for purchasing the Ameritrust Tower. The Plain Dealer called it “a white elephant 29 stories tall” and said they were lucky to find a buyer.

Stung, they’re fighting back.

“Anytime we can put in several million dollars in public money to leverage hundreds of millions of dollars in private investment, we would be willing to do it any day of the week,” Dimora says. “What government body wouldn’t in today’s market and economy?”

“Jimmy is absolutely right,” says Hagan. The public has spent less on the tower than on helping Scott Wolstein remake the Flats, he argues, and less than the value of Eaton Corp.’s proposed deal with the port authority for its new headquarters site.

“There’s no secret room here,” Hagan complains, his voice rising to scold the reporters in the room. “We’re not playing a game.” He says the media have challenged the commissioners’ credibility and integrity. “And I would say to the press, you need to take a hard look at the way your perspective of this has shaped this public debate. ... You are not divinely inspired, and you do not perceive things always in the interest of the public.”

“This is a wonderful hallelujah moment,” says Peter Lawson Jones, the third commissioner, “not merely because we are quote, ‘unloading,’ end quote, ... a political and public policy hot potato and football — because that’s a very cynical view.” Jones, who voted to buy the Ameritrust Tower but didn’t want to tear it down, praises K&D’s plan to preserve it.

Dimora jumps in again. “If we don’t purchase this property, and get it into the public’s eye and the business community’s eye, this wouldn’t be happening today,” he says. “So instead of criticizing the county commissioners, as we have been in the past by our local media friends, they should be patting us on the back for a change, saying, ‘Somebody’s doing something in these economic tough, difficult times.’ ”

The commissioners accept K&D’s $35 million bid for the Ameritrust complex. They’ll finalize the sale as soon as K&D comes up with the money. As the regular meeting ends and advisers join the commissioners for an investment meeting, two Plain Dealer reporters ask Dimora if a county employee they’re writing about works for him. He screams at them. “We’re in a meeting right now, and you’re disrupting it! And you should be removed from here!” As they leave, Dimora turns on another PD reporter, Joe Guillen, for his Ameritrust Tower stories. “You’re another one, Joe! Irresponsible reporting!”

That’s the fight the commissioners want, the way they want to be seen: as agenda-setting leaders with a grand strategy, opposed only by a cynical, ignorant press.

But they have a different adversary. A half-hour into their quiet investment meeting, a man in the dwindling audience gets up to leave. Dimora notices him.

“Tell Mayor Sutherland we said hello,” Dimora says sarcastically.

“Sure will!” the man says on his way out the door. He’s Patrick O’Malia, campaign manager for Bay Village Mayor Debbie Sutherland. She’s the Republican candidate for county commission, running to unseat Peter Lawson Jones. A vocal critic of the Ameritrust Tower deal, she’s certain to make it a major campaign issue this fall.

The county bought the Ameritrust complex three years ago, but questions about that decision won’t fade anytime soon, no matter how loud the commissioners shout.

Before the county bought the Ameritrust property, three advisers warned the commissioners about the project’s affordability, Cleveland Magazine has learned. The commissioners went ahead with their $160 million plans anyway.

Staubach, the county’s real estate broker, told them in 2005 that the plan Dimora and Hagan preferred — to build a new tower at the Ameritrust site — was not “fiscally responsible.”

The county’s budget director, Sandy Turk, expressed “real reservations,” as Tim Hagan puts it, telling her bosses that paying for a new county administration building would require serious budget cuts or new revenue.

RBC Dain Rauscher, which put together a financing plan for the project, warned that the new debt might affect the county’s Wall Street bond ratings.

None of that advice stopped the commissioners from buying the tower, but the project’s high cost kept them from taking the final plunge and going into debt to pay for it. Last year, the commissioners acknowledged what some financial signs pointed to in 2005: The county can’t afford to build a new headquarters, at least until it finishes its new juvenile justice center.

As recently as February, the commissioners still claimed that a new county administration building would pay for itself with the savings from moving out of their current offices. But they were clinging to optimistic cost estimates that have not been true for years. Their own staff’s calculations now show that a new county building would add millions of dollars a year to the cost of government.

The county has lost about $6 million on the Ameritrust complex, with more losses to come. To justify that spending, Dimora says the county created demand for the Ameritrust Tower by buying it and removing the asbestos. But Price of the K&D Group says he could have bought it more easily if it were still on the private real estate market at the lower price the county paid in 2005.

Hagan and Jones say they picked the best site for a new county building, that they thought they could adjust their budget to pay for the project, and that changing priorities and economic conditions caused their change of plans. Dimora declined to speak with Cleveland Magazine.

Today, a new administration building is on the back burner, so the county will take on a lot less debt in the next few years. But the commissioners may revive the project. If they do, they — and Cuyahoga County taxpayers — will face hard questions about how much debt and how many big projects the county can afford as it struggles to fund all its other responsibilities, from social services to a new voting system to economic development.

The Ameritrust Tower is tall and black, with hundreds of floor-to-ceiling windows set in a honeycomb of gray concrete frames. Historical preservationists see it as a priceless example of a master’s work: Marcel Breuer, famed architect of the aptly named Brutalist school, built it in 1971 for what was then the Cleveland Trust Co.

Others look at the tower and see an ugly blot on the sky. Local Republicans say it’s a 383-foot monument to a one-party government’s wasteful spending. Dimora and Hagan saw it as blight to implode and the place to remake downtown, to bring new life to Euclid Avenue, to build a landmark, a legacy.

You can work downtown for years and not really notice the Ameritrust Tower. But once you look for it, you’ll see it everywhere: standing on the horizon as you drive into town, looming behind the center-field fence at Indians games, rising above Euclid Avenue and East Ninth Street in a dark, modern contrast to its gorgeous classical neighbor, the Cleveland Trust rotunda. The tower absorbs light. At night, a single bulb shines in one south-facing window. Vacant for 16 years, it haunts Cleveland’s skyline like a ghost.

It haunts the county commissioners too.

They decided to buy it in 2005, after a long search for a new home. Cuyahoga County’s government is spread among 12 buildings, seven owned and five leased.

The goal, Dimora said at a meeting this February, was to make the government “friendlier to consumers and constituents and residents of the county, [so] when they do come to a public building, there’s a place that they can park, easy to access, easy to be able to use, all under one roof — no different than any city hall.” Dimora invited the public to size up the county annex building on Ontario Street. “Go look at it, what crap it is. ... We are a $1 billion operation. You wouldn’t tell by the facilities we’re in.”

The commissioners were tired of paying for repairs on their old buildings, tired of leasing. They wanted to put that money into a new building instead.

In fact, they expected the new building to pay for itself — for its cost to equal the costs in the old buildings they were shedding. The county told developers in its request for proposals that it wanted to “complete this project with the use of existing resources only, with no additional financial burden on the taxpayers of Cuyahoga County.”

The idea that the building would pay for itself stuck in the commissioners’ minds long after it was no longer achievable.

At the end of 2004, Staubach, the county’s real estate consultant, narrowed eight proposals down to a top three: the Ameritrust complex, including the tower and rotunda, owned by former Indians owner Dick Jacobs; the Higbee Building in Tower City, owned by Forest City Enterprises; and the 668 Euclid building, co-owned by Ohio Savings Bank co-chairman David Goldberg.

All three developers proposed leases. The Jacobs Group’s offer included an option to buy the property after 20 years. The Ameritrust Tower was filled with asbestos, a multimillion-dollar cleanup job, but that cost would’ve been included in the rent, the proposal promised.

Meanwhile, in January 2005, Hagan rejoined the county commission after six years away. He’d served on it from 1984 to 1998, then won the 2004 Democratic primary to get the job back. Hagan was opposed to leasing offices.

“I don’t believe the government should be subservient to a landlord,” he says. (He also recalls a legal concern about lease-to-build agreements, but the county’s legal counsel did not provide details for this story.)

Staubach delivered its final recommendation on March 31. The commissioners took the advice they liked from it and discarded what they didn’t.

Staubach recommended that the county lease the Ameritrust Tower, the Cleveland Trust rotunda, a second tower Jacobs would build and a huge, lucrative, attached parking garage. Total cost: an estimated $120 million to $125 million.

“The existing tower’s high-rise identity and historic rotunda are unmatched by the other submittals,” Staubach’s letter said. It warned against tearing down the Ameritrust Tower. “We do not believe a totally new construction alternative would be fiscally responsible at this point in time,” it read.

Dimora and Hagan ignored that recommendation. The commissioners all liked the Ameritrust site best, because of its central location, parking garage, and historic rotunda. But Dimora and Hagan didn’t like the tower. It had low ceilings and a narrow floor plan. To fit into it, the county would have to split up many departments among several floors.

“We needed to be in control of our own future,” Hagan says. “And I always thought we needed to have a signature building on that corner, not one everybody thought should have been torn down 20 years ago.”

A county financial consultant produced cost estimates for having Jacobs demolish the Ameritrust Tower, build a new tower, and lease that to the county. The price: $172 million, an extra $47 million compared to renovating.

By mid May, Dimora and Hagan both declared they wanted to buy the complex, not lease it, and demolish the tower. Jones wanted to buy it and renovate the tower.

Buying the building meant the county was free to do what it wanted with the property when it wanted — it could even back out of the project later. It could put off the demolish-vs.-renovate decision. But it also meant the county had to pay to clean out the tower’s asbestos. And, though few noticed at the time, it also meant that the building would not pay for itself.

Breaking even on the new building was an important goal for Dimora and Jones. They used it to justify buying the tower as recently as this February.

“This building and outside leases [cost] $8 million in expenditures a year with all the costs figured in,” Dimora said at a meeting. “To put $8 million into this building and the other buildings ... is not a prudent way to spend taxpayer money and an efficient way to bring services.”

Dimora said he’d invited PD reporter Guillen to get project manager Barb Shergalis to walk him through the potential savings. “Ten years at $8 million a year, that’s $80 million. Twenty years, that’s $160 million. So this property pays for itself over the course of a 20-year bond package!”

So I called Shergalis. “Commissioner Dimora, and all the commissioners, frankly, never appropriately made the switch to the new understanding of what dollars are available when you move to a building and own the built building,” she said.

Here’s the problem. Staubach, the real estate consultant, pegged the county’s total occupancy costs at $10.4 million in 2003. Moving to a new building would have wiped out the cost of the county’s leases and building repairs, saving $4.1 million.

A more efficient building would have also lowered the $6.3 million in other occupancy costs, from janitors and security guards to the electric bill. But it wouldn’t have eliminated those costs, because a new building still needs janitors, guards, heat and light. That is, unless a generous landlord had wrapped up all its occupancy costs — guards, janitors, utilities, everything — into one big new rent payment.

That seems to be what the county was hoping for. Its request for proposals asked developers to keep the price of the project close to its current occupancy costs —which it identified as $7 million a year.

But the county’s best-case scenario was obsolete as soon as the lease proposals came in without all those costs included. The Jacobs Group’s proposed $7.5 million a year rent deal didn’t include security, janitors or electricity.

And once the county bought a building, its hopes of breaking even were doubly obsolete. If it’s their building, they have to staff it and pay the bills. So moving would only eliminate about half of the old costs — not nearly enough to pay for the new project.

In 2005, Cuyahoga County was already planning for another big construction project: a new juvenile detention facility at East 93rd Street and Quincy Avenue. That project couldn’t wait. It’s meant to replace the medieval hellhole on E. 22nd Street that, in 1997, the National Juvenile Detention Association called “one of the most ... bleak, depressing, unsafe, and psychologically harmful facilities that anyone on the review team ever visited.”

That raised the question: Could the county afford a new juvenile facility and a new administration building at the same time?

“The potential size of both projects would prohibit use of general obligation debt to fund both,” warned the county’s 2005 budget plan, released that spring. In other words, the projects would have caused the county to hit its debt ceiling for bonds paid off by property taxes. Other borrowing options all carried higher finance costs. It’s as if the county was ready to max out its best credit card and charge the rest to cards with higher interest rates.

The payments on the projects would have diverted millions of dollars a year from the county’s general fund, which was $507 million and shrinking, making budget cuts necessary, county budget director Sandy Turk reminded the commissioners in 2005.

“I think the budget director had real reservations about it,” says Hagan. But Turk warns them about the county’s bonding capacity and bond rating whenever they look at new projects, he adds. Hagan wasn’t concerned. “They can warn me all they want. I know enough about the budget to know I can cut something.”

More money for government buildings means less money for the county’s other responsibilities, which keep growing even as its budget shrinks. The commissioners fund all the county offices, from the sheriff and prosecutor to the courts and coroner. The state relies on the county to deliver social service programs to the poor and disabled. The commissioners are also footing the bill for the rising cost of holding reliable elections in the post-Florida-2000 era. And they’ve tried to boost Cleveland’s ailing economy with economic development programs: grants for redeveloping old industrial and commercial properties and loans for new businesses and new-technology entrepreneurs. To pay for the new building, the commissioners could’ve laid off employees or imposed a hiring freeze, says Hagan — or taken money from the economic development fund.

Next, the county asked financial consultant RBC Dain Rauscher to draw up a borrowing plan. Its July 2005 report showed that going into debt for the Ameritrust project, then estimated to cost $160 million, would have resulted in debt service payments of $295 million in principal and interest over 30 years, or about $10 million a year. (Renovating the tower would have cost about $2 million a year less.) The juvenile facility debt would have added another $3.5 million a year.

That worried RBC. Cuyahoga County’s bond ratings are among the best of any Ohio county, allowing it to borrow money at cheaper rates. Wall Street rating agencies praise the county’s fiscal management and moderate debt burden —but they might not have considered $13.5 million a year in new debt service “moderate.” The county was already committed to about $34 million a year in debt service for past projects.

“The level of debt that will result from the new projects currently under consideration ... may adversely impact the rating agencies’ views of the County,” RBC warned.

That didn’t faze Hagan. “If they would have said ‘will,’ you might have gotten a different response from me,” he says. “I’ve read enough of those things over the years to know how every adviser makes sure that they’re covered.”

“Was it another factor in the equation? Absolutely,” Jones says of RBC’s warning. “Did it keep us from moving forward on something we thought would be cost-neutral and improve efficiencies? Absolutely not.”

In September, the county bought the Ameritrust complex for $21.7 million, close to its value on the tax rolls. Selling it must have been a relief for Jacobs, who had owned it since the early 1990s but never developed it and was being charged about $580,000 a year in taxes on it. The deal required the county to put two plaques on the Cleveland Trust Rotunda honoring him. “Mr. Jacobs has consistently and selflessly devoted his insight, skills, and resources to the development, redevelopment, and preservation of Downtown Cleveland and Cuyahoga County,” the plaques were to read.

The commissioners all knew Jacobs well. He and Hagan were longtime friends, and he had seeded Dimora’s first campaign for his job, in 1998, with a $36,000 donation and Jones’, in 2002, with $25,000. Jacobs is the only person that all three commissioners list every year in their disclosure forms as giving them each a gift: a box of steaks. (“Did that buy my influence? No!” says Hagan. “I’ve got 13 brothers and sisters. We usually eat ’em all in one day.” Says Jones: “A box of steaks, as tasty as they are, is certainly not influential.” )

Hagan and Jones say their relationship with Jacobs did not play any greater role in negotiations than those with other bidders. Sam Miller and the Ratners of Forest City also support their campaigns, and they know David Goldberg too. “Almost with every group, there was someone that you knew,” says Jones. “It played no influence and no role.”

A year ago, the Ameritrust Tower seemed doomed. Jones could not persuade his colleagues to renovate it, even after historical preservationists took up the cause and the local Republican Party echoed his argument that renovation would cost less. Hagan and Dimora were shocked at the sudden love for the tower.

“Some do-gooders thought it was making a statement about a profound architect,” Hagan scoffs. “I thought that was absolutely amusing. It could have been written for a ‘Saturday Night Live’ skit, to have some architects talk about the beauty of the building no one had used for 20 years.”

The design firm the county hired claimed unforeseen costs to renovate would wipe out any savings. Jones didn’t buy it. “I’ve disagreed with studies before,” he says. In March 2007, Dimora and Hagan voted to demolish the tower. Jones voted no.

Meanwhile, the county’s financial situation was tightening. In 2006, the juvenile court judges had agreed to move their court to East 93rd Street, next to the new detention center, doubling the complex’s size and price. (Work started on the facility this year; it should open in 2010.) Also, thanks to Cleveland’s stagnant economy, the county’s general fund was shrinking compared with inflation, so the commissioners had to cut the county’s budget by 3 percent. Committing to a new building would’ve meant committing to even deeper budget cuts in the future.

The commissioners concluded they couldn’t afford to issue the bonds to build a new county building until 2009 or beyond. “You have to have a revenue stream that pays the bonds,” Hagan says.

“It became clear we simply couldn’t move forward on both projects simultaneously without some other new revenue source,” Jones says. He’s pushed to increase the county’s economic development spending, and he didn’t want to sacrifice it to debt payments or cut social services. “Trying to finance both of these projects would have done that,” says Jones.

In July, Dimora and Hagan voted to raise the sales tax a quarter-cent to pay for a new convention center and a Medical Mart. Jones, who voted no, says, “There was some interest, on the part of some members of the board, in using some of the residual funds, if there were any, from the sales tax to help erect the county administration building.” But Hagan doesn’t recall that. And before they approved the tax, Hagan and Dimora agreed to a suggestion from four suburban mayors: They earmarked it for the convention center and Medical Mart only.

The mayors, nicknamed the Gang of Four, included Sutherland and Parma Heights Mayor Martin Zanotti. “Several of us believed they were going to earmark some of that money toward trying to save that tower [project],” Zanotti says. “We just didn’t want any of the money to fall into a black hole.”

The new convention center won’t burden the county’s bonding capacity, since a reserve has been set aside to pay for it. But it was another reason to postpone the new county building: The commissioners say they don’t have enough staff to oversee three huge construction projects.

They say they planned to land-bank the tower until the juvenile justice center was finished. The idea of selling the tower, Hagan insists, came from Jay Miller, a reporter for Crain’s Cleveland Business. Miller had heard chatter in real estate circles that developers might want to buy it. “I was also hearing,” Miller recalls, “that it was going to be difficult for the county to finance everything they wanted to do at the same time.” He asked Hagan about selling the tower in early October. Sure, Hagan said, we’d consider it.

In November, the commissioners halted work on the tower and put the complex up for sale. Bidding would start at $35 million, the amount the county had put into the project. “We’re not going to give the site away without getting what we’ve got in it — period,” Hagan said in the Nov. 6 Plain Dealer.

Five months later, the county had committed to spending about $4 million more on the tower — and Hagan was unapologetic. “Would I be willing to put $8 million into that corner to encourage development? Absolutely,” he said in the April 3 PD.

What had gone wrong? Asbestos.

The Ameritrust Tower’s old asbestos fireproofing had to be removed before it was demolished or renovated. The county took bids on the job last summer.

The lowest bidder, Midwest Asbestos Abatement of St. Louis, bid $6.5 million. But the commissioners chose Precision Environmental, from Independence, to do the job for $7.4 million.

County staff had claimed Midwest wasn’t qualified because it hadn’t proven experience in removing asbestos fireproofing or working on asbestos in high rises. Midwest had sent a rebuttal listing more asbestos projects.

“It’s $915,000, a significant sum, between the lowest bid and the second lowest,” Jones said before the Aug. 2 vote. “The response from Midwest seemed to address quite adequately any of [the staff’s] concerns.” Midwest had secured a performance bond guaranteeing its work, he noted.

Without explanation, Dimora and Hagan voted to give the contract to Precision. Jones voted no. Because Dimora did not talk to Cleveland Magazine, his reasons for his vote are not clear. Hagan says he voted for Precision for three reasons.

“The low bidder is from Missouri,” he says. “All things being equal, I’m going with the local company, period.”

Second, Midwest’s local partner, Great Lakes Contracting, was owned by Brian Donelon, who had just broken away from his family’s business, American Abatement — Precision’s partner. His brothers complained he had no employees or equipment. Donelon says Midwest would’ve lent him equipment, and he would’ve recruited employees at a local union hall.

Finally, Hagan asserts, “The company from Missouri had never done a high rise.”

This isn’t quite true.

“They’ve done significant work for us, high-rise stuff in St. Louis. They’ve done a great job,” says Pete Gass, president of Lawrence Group Properties, which hired Midwest to remove asbestos pipe wrapping and lead paint from the 23-story Marquette Building in St. Louis. Midwest also claimed it removed fireproofing from the company’s 17-story Security Building, but Gass says they only did a little work on that project.

Jones says he thinks Midwest should’ve gotten the contract. He disagrees with Hagan on how much leeway the county legally has to reject a bidder for not being local: “There was really not any room, unless everything was completely equal.” He adds, “You can’t be local enough for me to say we should spend another million dollars on you.”

Precision started work in the tower last fall. In November, when the county decided to sell the building, it told them to stop.

Only one company bid on the Ameritrust complex: The K&D Group of Willoughby. And its first bid, in January, was a mess. It offered only half of the required deposit, said it could come up with only $20 million of the $35 million purchase price this year, and it asked the county for $1 million to $4 million in credits for the unfinished asbestos work. The bid was practically a code: Clean out the asbestos!

On Feb. 28, the commissioners voted to reject K&D’s offer and seek new bids. They quietly told their staff to restart the asbestos work. That means Precision will complete its $7.4 million contract after all — and it can charge more for the costs of the work stoppage. Those costs haven’t been determined.

For now, the county says it has committed to spending $44.2 million on the project. Subtract a state asbestos grant and income from the property’s parking garages, and the county puts the project’s cost at $39.5 million, or $4.5 million more than K&D will pay. That $4.5 million could have funded dozens of economic development loans, or more than a third of the impending cost of a new optical-scan voting system for the county’s 1,400 election precincts.

But if you include income from the property, it also makes sense to include the tax money lost because it’s publicly owned and off the tax rolls. That’s about $580,000 a year that the county, city, libraries and schools have lost, or $1.5 million so far. Total tax money lost on the project: $6 million and rising.

In April, K&D once again submitted the only bid. It asked for six to 12 months to line up the $35 million.

“We really couldn’t finance this building without the asbestos out of there,” Doug Price of K&D said gratefully at the April 17 commissioners’ meeting.

“I think that’s why the deal’s going to be consummated,” replied Dimora, who argued that justified the county’s purchase of the tower. “If had we not done this, it’d probably be sitting there today, vacant, idle and just being a total eyesor
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