TOH is a cautionary tale for future CH development

The city of Cleveland Heights passed an ordinance in December 2018 approving the purchase of a property on Euclid Heights Boulevard, to be added to the Top of the Hill (TOH) site. The city authorized Liberty Development—a partner of Flaherty & Collins (F&C), the main TOH developer—to buy the property from the owners, then turn it over to F&C, who would then sell it to the city for no more than the property’s purchase price, plus closing and due diligence fees.

The maximum amount the city authorized Liberty to pay for the property—known as the “Green House”—was $395,000. The actual total came to about $311,000 (the purchase price, plus closing and due diligence fees), yet the city paid $369,000. The city has just, as of mid-February, provided public records, requested in November 2019, that explain the difference in the purchase price and the price it paid.

By the time CH City Council authorized the purchase in December 2018, Liberty Development was 215 days into a contract with the original owners to purchase the property for $310,000. Liberty apparently put down $10,000 earnest money, which it lost because the contract allowed only 150 days before that money was forfeited. Liberty then had to pay an additional $5,000 to the owners to extend the contract. Thus, $15,000 was added to the purchase price quoted to the city. There is no explanation of why there was a more than five-month lapse between when Liberty signed the contract and the city passed the ordinance approving the property’s purchase.

Liberty never bought the property. F&C bought it, but not until July 2019—another seven-month delay. This apparently encouraged Liberty to charge a $24,800 administrative fee, probably for the hassle of managing the contract for 14 months. But the ordinance did not authorize administrative charges. F&C added more charges, including closing and due diligence fees of about $1,100, and legal fees of $18,000. The original development agreement stated that F&C would pay all legal fees associated with the project. There was nothing in the amendment authorizing legal-fee payment.

City representatives are not worried about the extra charges for the property. They say that the property’s purchase was part of a $1.85-million pledge the city made to the project. The city's position is that it was obligated to give the full $395,000 that council authorized for the purchase, in order to honor its pledge. So, whether the city overpaid for the property or not, F&C would have received that amount of money. This became a convenient way for the city to avoid having to closely scrutinize the invoice and avoid a potential confrontation with the developer.

The city believes TOH is a unique project, and therefore (a) exceptions are allowable and, (b) none of the irregularities in its financial transactions are likely to occur in other city financial dealings.

It was in the best interests of city officials to keep the property purchase transactions quiet. Only repeated public record requests unearthed the details of some city-developer interactions. The documents suggest that either one or all of the parties involved had a role to play in the delays that seem to have led to the excessive charges. The best way for them to deal with the problem was to do a little creative accounting, move on, and hope residents would accept the rationale that the money was just part of a bigger debt.

TOH will probably have received final approval by the time this article is published. CH City Council members pledge to do a better job of processing future developments. But they have rejected many opportunities to postpone TOH until citizen concerns about design, financing, and traffic are resolved.

It is likely that if council members decide that Lee/Meadowbrook, the Medusa Building, and Severance developments must go through, residents will be given the same perfunctory treatment that residents concerned about TOH have received.

I don’t want to watch. My personal plans are to leave Cleveland Heights as soon as possible. 

Joan Mallick

Joan Mallick is a 49-year resident of Cleveland Heights whose home is a 100-year-old brick Georgian which she and her husband restored. She earned a Ph.D. in community health nursing, and served as commissioner of health for the city of Cleveland.

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Volume 13, Issue 3, Posted 10:30 AM, 02.28.2020