Sherwin-Williams Set To Go Forward With HQ2 Downtown

This article was published through an exclusive content-sharing agreement with neo-trans.blog.

In the weeks preceding Sherwin-Williams' ceremonial ribbon cutting on May 11 for its new 36-story headquarters tower in Downtown Cleveland, the company's executives took notice. They could see how employees were filling out its new HQ campus and, in suburban Brecksville, its new Morikis Global Technology Center.

The outcome of that filling-out process was reportedly the determining factor in whether the C-suite executives for the global coatings giant would pursue a second tower next to the first. The HQ campus is located just west of downtown's Public Square, near where the company was founded in 1866.

As actions speak louder than words, executives since May 11 began gathering information on pursuing that new tower, according to two sources who spoke to NEOtrans on the condition of anonymity.

The decision to pursue the tower, dubbed HQ2, was based on existing employment, hiring, workspace allocation, parking and future expectations. Starting this year, Sherwin-Williams is enforcing a return to the office five days a week. Contrast that with HQ1, which was designed for a hybrid work environment in the wake of the pandemic.

NEOtrans reached out to Sherwin-Williams Vice President of Global Corporate Communications Julie Young and to her staff earlier this week, seeking comment and more information. Her staff didn't reply in her absence, as she is out of the office until Aug. 11 to celebrate her daughter's wedding.

NEOtrans has received reports that existing and prospective contractors -- architects, engineers, builders, suppliers -- have been and are being engaged to get information on designs, materials options and costs for that second tower.

HQ2 is proposed to be built on a 1.3-acre parcel owned by Sherwin-Williams at the northeast corner of West Superior Avenue and West 6th Street. It's the same spot where company officials showed a tower for future expansion when city approvals were sought in 2021 for the overall campus.

According to the sources, the basic programming concept the company is working with is 12 to 24 stories of offices atop a multilevel parking garage of undetermined capacity. But the garage would have vehicular spaces not only for the new offices but for the existing 616-foot tower, too.

If the proposed HQ2 is not too heavy -- with fewer office floors atop fewer levels of structured parking -- the geotechnical sampling work done in 2020 for the HQ campus could suffice.

Drilling and sampling near West 6th and Superior did not reach to bedrock as was done farther east on the HQ campus site for the HQ1 skyscraper. If new drilling is done in the coming months, that might suggest a larger and heavier building is being considered for HQ2.

The reason why HQ2 could have so much parking is that one of the biggest gripes about the new campus among Sherwin-Williams' roughly 3,000 HQ employees is its lack of parking. The garage that was built for the campus has only 920 spaces. Its capacity and that of HQ1 was based on employees working hybrid -- a mix of in-office and remote work.

Company-owned surface parking lots around the perimeter of the campus along West 6th and St. Clair Avenue add another 314 spaces. The lot on which the second tower would rise has 135 spaces.

A parking garage might have several spaces per level that is similar to the existing parking lot. The lot also has landscaping areas. That includes a 15-foot-wide grassy strip along West 6th. A six- or seven-level garage here could have as many spaces as the existing HQ garage.

Parking is at a premium at the many lots around the new HQ, so much so that the State of Ohio paid Stark Enterprises $12 million for a 350-space lot on West 9th Street and St. Clair to ensure its Bureau of Workers' Compensation had parking for its employees and patrons near the Frank J. Lausche State Office Building, 615 W. Superior Ave.

And in another story broken by NEOtrans, K&D Group of Willoughby is securing the neighboring Rockefeller Building, 614 W. Superior. That included demolishing an obsolete parking garage behind Rockefeller for 26 surface parking spaces that may not be around for long.

Long-term, K&D Group plans to build on that lot a 500-space parking garage with rooftop pool and amenities for the adjacent Rockefeller which it plans to convert into a 275-unit apartment building. That garage could provide parking during the day for office users and at night for Rockefeller residents.

A new downtown parking garage is required by the city's building code to have ground-floor retail or active-use liners along the street-facing portion of that garage, and maintain a minimum depth of 15 feet plus active transparency across at least 70 percent of the frontage.

A six-level garage with 12 stories of offices above it might put HQ2 at roughly 250 feet tall. An eight-level garage topped by 24 stories could put HQ2 at 450 feet. A decorative crown would raise the height further.

For reference, Cleveland's sixth-tallest is One Cleveland Center (built 1983, 31 floors, 450 feet), seventh-tallest is Fifth Third Center (built 1992, 28 Floors, 446 feet), and its eighth-tallest is Stokes Federal Courthouse Tower (built 2002, 24 Floors, 430 feet), according to ClevelandSkyscrapers.com.

Sherwin-Williams also needed to see how employees were filling out its new 600,000-square-foot Morikis Global Technology Center. That facility has more than 900 scientists, engineers and technical staff with room for more.

But HQ staff is being kept downtown, including some employees remaining behind at the Higbee Building, 100 Public Square, where Sherwin-Williams has leased 212,000 square feet of space on the sixth, eighth and ninth floors to accommodate nearly 500 employees.

Last year, the coatings company spent $500,000 to renovate 12,000 square feet of common-area amenity spaces, or about 4,000 square feet on each floor it occupies. That suggested that this office space was not about to be closed.

Sources say that more employees from Higbee are to be moved into the new HQ1 tower in September. But that may not leave it empty, as Sherwin-Williams reportedly isn't yet getting rid of that space as it did with two others.

The company let its leases lapse at its old HQ in the 900,000-square-foot Landmark Building, 101 W. Prospect Ave., which it sold to Bedrock Real Estate. And its lease for 100,000 square feet lapsed at the Skylight Office Tower, 1660 W. 2nd St. No Sherwin-Williams workers remain in either building, sources said.

They also said Sherwin-Williams has what is described as a "robust" hiring board, especially after a hiring freeze last year, buyouts of senior employees, a temporary suspension of the company’s matching contributions to employee 401(k) plans and, most of all, the company's decision to enforce a return-to-office policy five days a week.

The result is that there are actually hundreds fewer Sherwin-Williams employees in Cleveland than there were just last year, the sources said. That also includes as many as 600 fewer contract workers, mostly in information technology, resulting from the return-to-office mandate.

So while there are still a few vacant floors at HQ1, they won't be vacant for long. And the occupied floors are reportedly tightly arranged. In the new HQ, there are not as many private offices but more workstations -- including for managers.

So while managers had private offices in the old HQ, at the new HQ they are now working from a workstation. The private offices are now reserved for directors and above. So any team moving to an open-office environment in the new building has proven to be a difficult adjustment for some employees, sources said.

Executives are still working on shuffling the deck in the building. Sources said some teams are getting moved up or down floors to fill in the gaps but it's a long and tedious process.

And it doesn't always allocate teams effectively and create the desired synergies. That and a renewed hiring push are holding up moving over more people from Higbee -- and driving interest in HQ2.

Sherwin-Williams maintains its 152,000-square-foot flex office space at 4780 Hinckley Industrial Parkway in Cleveland. That space opened in 2017 when SHW acquired Valspar. It is used as the company's mail facility and will not be closed.

Does Sherwin-Williams have the financial capacity to build a new tower, one that will likely cost it hundreds of millions of dollars after it just spent $860 million on the new HQ1 and the Morikis Global Technology Center?

The answer can be found in its debt-to-equity ratio, which indicates the liquidity of its finances. Right now, that ratio is publicly reported to be 3.9, or roughly four times higher than its competitors PPG, Masco Corp. (parent of Berhr Paint), Nippon Paint, RPM International and Axalta Coating Systems.

But some, like Macrotrends, calculate it differently. It figured the ratio to be 2.16. Still, twice that of its competitors since it acquired Valspar for $11.3 billion. Part of the reason for its high ratio is that Sherwin-Williams is actively buying back its stock. High buyback volume suppresses book equity.

And financial projections for the company show its debt-to-equity ratio is projected to fall over the next few years as it pays down debt. Plus, the company could raise money by selling a significant stake in HQ2, even while under construction.

That's what Sherwin-Williams did with its existing HQ campus three years ago. Florida-based Benderson Realty Development Co. acquired a 90-percent, $210 million stake in the company's HQ campus and leased it back to Sherwin-Williams for 30-80 years.

That deal did not include the property on which the coatings giant seeks to build the HQ2 tower, leaving it open for a similar sale-leaseback arrangement to help finance its construction.

NEOtrans has not heard any news about development activity on the Sherwin-Williams-owned parking lots surrounding its new garage. Conceptual plans from 2021 for those lots envisioned mixed-use developments including offices, residential and hotels over ground-level retail and restaurants.

The exception is the historic but brutalized Gilman Building, 1350 W. 3rd St. The five-story, 144-year-old building was modernized in the 1960s. It was Stark Enterprises' headquarters and, more recently, the construction offices for Welty-Gilbane, the general contractor partnership that built the HQ campus.

Two sources said Welty-Gilbane is selling the property, but they did not know who is buying it. If Sherwin-Williams acquires it, as they've tried, it will be demolished. The company has considered Gilman’s style and size to be inconsistent with what it has in mind for development westward along St. Clair Avenue.

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