Frank Sinito has sky-high hopes for real estate portfolio

Frank Sinito has sky-high hopes for real estate portfolio

Frank Sinito recently bought the 57-story Key Tower and the attached 400-room Marriott Cleveland Downtown in a $267 million deal. It’s a long reach for a Cleveland native who started out with a 14-suite apartment complex and a bar in the suburbs.

But at 54 with a tireless devotion to work, he’s fine-tuning things at the Key Center complex and has his eye on another big downtown building and renovation project.

On Sept. 1, Sinito will move the last of about 90 employees of his Millennia Cos. to Key Tower and is eagerly undertaking enhancements to Ohio’s tallest skyscraper, as well as the hotel.

Asked what’s next for him and Millennia in the wake of an epic transaction, Sinito said he’s hoping to launch the multimillion-dollar conversion of the massive former Huntington Building — now called Union Trust, in honor of its original name — on the northeast corner of Euclid Avenue and East Ninth Street.

“I have a bid in,” Sinito said. “I hope I get it. It will be a real roll-up-your sleeves opportunity.”

If a Sinito affiliate lands the 1-million-square-foot property or a stake in the project, it would be a big change and the biggest development for the massive Huntington Building since late 2015, when Hudson Holdings of Delray Beach, Fla., won an allocation for as much as $25 million in Ohio State Historic Preservation Tax Credits. Hudson Holdings has planned a $300 million adaptive reuse as apartments, hotel and contemporary office space, though construction is not yet underway.

Sinito said he would undertake adding 400 apartments to part of the landmark building if he gets involved in the project. Other parts of the building? He’ll figure those out later.

Although he would not say how much he offered to pay for Union Trust, Sinito’s disclosure of his interest in it also confirms that Hudson has been shopping the project or seeking additional investors.

For months, Andrew “Avi” Greenbaum, has denied such efforts. He wrote in a text message to Crain’s last week that Sinito “submitted an offer to which we haven’t responded at this time.”

How Sinito fares, coming weeks will tell. Making a play for another giant deal in his hometown so soon after snagging the city’s tallest skyscraper says a lot about Sinito. He enjoys what he does. He is aggressive. That’s also how the native Clevelander went from humble beginnings to launching the highly regarded Lockkeepers restaurant to growing an apartment-based real estate empire with 24,000 suites in 26 states. Now the company is so large that it hosts an annual conference in downtown Cleveland devoted to training and motivation for 500 managers.

Doing it the hard way

Motivation is important in the segment that provides most of Sinito’s cash flow, as 80% is in affordable and senior citizen housing. The remaining 20% is in more traditionally profitable market-rate projects.

Running affordable housing is not an undertaking for the passive or thin-skinned. Some of the buildings he buys have been covered for squalid conditions or crime problems by local news or TV stations in places including Jacksonville, Fla., and Birmingham, Ala. Millennia’s growth has been low-profile in Northeast Ohio, and Sinito likes it that way, saying he does not like talking to news media or about himself. Most of the coverage of Lockkeepers, for instance, is done by quoting his wife, Malisse, who runs it.

For his part, Sinito said his wife’s operation of the restaurant puts her in the limelight while allowing him to put his energies into the apartment business. As a result, many outside real estate circles were surprised when Millennia last year surfaced as Key Center’s buyer. Some even considered him a restaurateur. Moreover, Millennia pursues a segment of the multifamily business that other apartment owners wouldn’t consider.

A telling commentary on sizing up a new acquisition in Birmingham was shared by Sinito to staffers who attended Millennia’s recent annual meeting at the headquarters of Global Cleveland.

“When I first stopped at Bankhead Towers, the hookers were there to ask if they could help me,” Sinito said. “When I went the last time, residents were there to go to a picnic.” He then told staffers that they are on the front lines and need to work to keep affordable housing properties “places where you, your family or grandmother would live.” A zero-tolerance policy on drugs and improving security are essential, he said.

“I know how hard your jobs are. I’ve done your jobs. You are in the trenches every day,” Sinito said at the conference.

Many elements in the multifamily business eschew investments in the affordable housing segment, even with their stable cash flow from federal housing assistance, and even fewer do what Millennia has done: bought market-rate properties as well as affordable and senior citizen properties.

Ralph McGreevy, executive vice president of the Northeast Ohio Apartment Association, said Sinito chose a tough road.

“It’s a difficult path for many reasons,” McGreevy said. “Another is that it’s an eye-on-the-ball business because you are dealing with public money. The i’s have to be dotted and the t’s have to be crossed. Market-rate (housing) is not as risky. If you’re smart, have a good property and a good location, it’s hard to screw it up.”

Sinito balanced those challenges while building a portfolio of market-rate housing, which McGreevy said takes someone who is “very skilled. What he’s doing has impressed most members of our association.”

For Sinito’s part, he traces his interest to writing a paper on public housing while he was earning a degree in economics at Cleveland State University, at the time thinking he might pursue a law career. The takeaways from that research would later shape his direction with respect to affordable housing.

“This is an industry that is recession-proof,” Sinito said. “Unfortunately, demand for it will always exceed supply.”

Leaving an impression

John Burke, a now-retired Cleveland State professor, does not remember the paper Sinito said he penned for him, but remembers Sinito, even though he has not seen him for 30 years and believes he taught thousands of students.

“He was congenial, friendly and open,” Burke said. “He wanted to know why things happened. When you teach a class with 100 to 150 students, isn’t it amazing that (Sinito) made such an impression? When I read that he had bought Key Center, I said, ‘Good for him.’ “

For Sinito, buying his first properties also solidified his passion for the low-income housing business: “These are folks with needs. They are the least of the least,” Sinito said. At the conference, he reminded managers to hold Thanksgiving dinners at the properties because they provide social contact as well as food for some residents who lack families to visit.

A crucial step came in 1995, when Millennia was technically launched and Sinito owned about 1,000 units. That was when Millennia bought a six-property portfolio of Northeast Ohio senior citizen apartments from Cleveland developer John Ferchill. Sinito said he and his wife, who had created Lockkeepers as an upscale restaurant a few years before, refinanced the restaurant to swing the portfolio’s purchase.

The other key thing was listening to advice people gave him. In 1988, he bought a 52-unit portfolio where Sinito said, “I did everything wrong. I hired the wrong general contractor. I had the wrong financing. I had to take over the construction and run it myself.”

The late Kenneth Snyder, a BakerHostetler lawyer who would later become its managing partner and died in 2005, told Sinito in the late 1980s, as Sinito recalls it, “‘You’re going to be successful. You’re hard-working.’ He advised me to be careful about the scale of my business as I grew.” He emphasized building a solid organization. In 1992, Sinito decided to hire some key executives. That is when his CFO, John McGinty, joined Millennia, and Allan Pintner, vice president emeritus, came on after a long career in federal subsidized housing at the former Associated Estates Corp. of Richmond Heights, which had developed thousands of such units primarily in Northeast Ohio.

A new era

Today, Millennia has its own in-house design staff with two architects and an interior designer, an in-house construction company and a four-lawyer legal team. Such staffers allow closer control of the business than using outside specialists.

On a tour of Millennia’s new office on Key Tower’s 13th floor, the place is strikingly different from most downtown offices.

For one, it’s a bustling place. Staffers huddle over construction drawings or meet with designs in front of them. Sinito and the firm’s executive staff are scheduled to move to the 40th floor by Sept. 1 from Millennia’s Thornburg Station project in Valley View, a mixed-use project that is up for sale. In early August, the 40th floor was just beginning to take shape. Sinito will occupy the building’s northeast corner with a view of North Coast Harbor, the Hilton Cleveland Convention Center Hotel and Burke Lakefront Airport. When it’s in, the 87-person headquarters office will occupy more than twice the 18,000 square feet it has in Valley View.

On the tour, Sinito quizzed staffers about how the new layout was working for them in communicating with other departments. Known for being detail oriented, he even commented on how the new carpet on the 40th floor looked more blue, and better, than the sample.

“This is like a dream come true,” Sinito said as he looked down at a broad sweep of Lake Erie from such a height.

Buying Key Center was the end of a two-year undertaking to find Millennia’s new home. He started sizing up downtown because he looked for office buildings to convert to apartments years ago. The result of years of searching is just now being realized as the first tenants are moving into Corning Place, apartments in the 1890s-vintage former Garfield Building at Euclid Avenue and East Sixth Street.

As Corning Place came together, he also looked for a home for Millennia because he enjoyed the place that downtown has become and needed room to grow. After Key Center owner Columbia Property Trust put the buildings on the market, he was approached to become an investor with Scott Wolstein and lease two floors of the building. After Wolstein’s deal fell through, he discussed leasing space with another bidder Sinito did not identify. After that Chicago group passed, Sinito decided to buy it himself.

“I got excited about what we could do here,” Sinito said, both as a tenant and owner. He said that as a tenant, Millennia would have occupied two side-by-side floors. Now, doing what he considers best for the building, most of the staff is on the never-before-occupied 13th floor. The remainder is on the 40th floor.

Seeing the light

The makeup of the building also played into the favor of the local buyer. When the skyscraper was built in the late-1980s, developers Richard and David Jacobs of Westlake won a 20-year tax abatement on the project by incorporating the 400-room hotel in the project, which the city needed to promote its emerging goal to become a tourist and convention destination. However, the combination turned off many buyers — particularly institutional-quality buyers, who typically buy large office buildings.

“I don’t think we would have gotten the project if it had been only an office building or only a hotel,” Sinito said. “The office buyers did not want the hotel. And the hotel buyers did not want the office building.”

However, Sinito said with his food and beverage background, he saw opportunity with the hotel. As a result, Millennia Hospitality took over the hotel’s restaurant, where it’s installing an Italian restaurant and is adding a sushi operation in place of the former newsstand.

“We have 3,000 people working in the building who can be customers of the restaurant,” Sinito said. “Previously, there was no synergy to the three parts of the building. Our challenge is to create that.”

Likewise, the renovated fitness center, operated by an outside firm, will serve hotel guests and the public, and Millennia will operate an event center in the dining room and related space in the formerly private Club at Key Center. Plans to renovate the Marriott are being worked out with the hotel chain. Other improvements will soften the lobby and replace deteriorating pavers on the building’s east side.

“We don’t take the typical landlord’s view of the building,” Sinito said. “We look at it as a tenant. What do we want? A pleasant setting. Food. Artwork. Lots of light.”

All told, the improvements are budgeted at more than $25 million. Sinito said the ability to retain Jacobs Real Estate Services of Westlake to lease and manage the property also was an important factor in the transaction.

“Tom Kropf has been here since the beginning, and Doug Miller worked with Richard and David Jacobs on the development,” he said.

Work still to do

Alec Pacella, an investment specialist and managing principal of the NAI Daus, pointed out that the $276 million purchase of the skyscraper overshadowed another transaction associated with the deal. Concurrent with the acquisition, Millennia landed a lease with Forest City Realty Trust for the megadeveloper to move into seven floors at Key Tower from its former headquarters in Terminal Tower, which it had sold. Pacella said the lease is the largest in downtown Cleveland since 1995, when the former LTV Corp. (now part of ArcelorMittal) moved into what’s now 200 Public Square.

Sinito also has a loose end to tie up downtown.

He bought 75 Public Square in 2014, but plans for converting the office building to apartments have come to naught because Millennia has not landed key state tax credits for the project. A potential sale to a hotel developer also fell through.

Millennia looked at moving into 75 Public Square, but Sinito said the building’s floor plates are too small for it and the company would have wound up on too many floors. And going after Huntington shows he’s still hunting major projects.

“I love to work,” he said. “I’ve always worked.”

And Sinito’s end game?

“I really hope my three kids want to be in the business,” he said.

(Why?)

Published at Sun, 20 Aug 2017 04:01:00 +0000