Re: The Medical Mart
It seems everyone has an opinion on the Medical Mart project (and with good reason, if only because of that whole taxation without representation thing), and I thought I would throw in my two cents. I hope to bring a unique perspective on this issue since I was part of the team that was working on the Medical Mart during the Campbell Administration. As a quick aside, if Mayor Campbell were still in office this region would already have a completed deal with the Merchandise Mart group. And once you read my notes on this subject, I believe you will understand why.
And there needs to be proper context to the Jackson Administration’s economic development projects – Avenue District, East Flats Project, Euclid Corridor, VA Hospital, University Hospital Expansion, Cleveland Clinic Expansion, Design District, and the Medical Mart – were all developed, planned, financed and prepared under the Campbell Administration. Okay, okay the original idea for a Medical Mart was first proposed by Forest City in the mid-1980s when it sought to turn the former U.S. Post Office at Tower City into a medical merchandise mart. But, Mayor Campbell really propelled the Medical Mart to an exciting possibility.
It was the summer prior to the election in 2005 and I received a call from the Mayor’s office to meet her at the Cleveland Clinic for a meeting with Toby Cosgrove – CEO of the Cleveland Clinic. I was given little information except to meet the Mayor at Toby’s office. Fair enough. Another typical day at City Hall. As per usual, I got lost in the vast “medical land” that is the Clinic. I just happened to bump into the Mayor in this long hallway near nowhere and we both lucked our way into finding Cosgrove’s office.
Again, I was still in the dark as to the purpose of the meeting. Anyway, we were joined in the meeting by Chris Ronayne – Chief of Staff, City of Cleveland; Greg Huth – Director of Economic Development, City of Cleveland. From the Clinic side we were joined by Cosgrove and the CFO of the Clinic (I hate to say this but his name escapes my memory). Cosgrove took over the meeting and detailed the Clinic’s expansion plan (which were amazing – what the public is seeing in terms of development and real estate purchases are nothing relative to the massive plans the Clinic has for its University Circle campus), and then offered the possibility of a Medical Mart.
It seems, Cosgrove had been in touch with the Merchandise Mart management team and was planning to do a Medical Mart concept near the Clinic campus – but did not rule out the possibility of the Mart’s development in Downtown. He then mentioned that he had invited Chris Kennedy (Bobby Kennedy’s son) to join everyone at the meeting. Chris was the CEO of the Merchandise Mart (legal name Merchandise Mart Properties Inc. and is a wholly owned subsidiary of Vornado Realty Trust), and was selected by Cosgrove to study the concept of the Medical Mart and to review the Medical Mart as an investment opportunity for Merchandise Mart. (I know. A lot of “Marts.”)
This first meeting was simply informative – Cosgrove talked about how this could leverage the Clinic’s already sterling reputation. The ability to review a product (i.e. a CAT scan, for example) at a vendor’s show room and then to go see it being used at the Clinic, Cosgrove reasoned, would be a tremendous value add for hospital administrators. It would also provide the Clinic with a pipeline of cutting edge technologies that could probably be used for free and perhaps the Clinic might get a revenue share of any products sold. Kennedy talked about the Merchandise Mart’s expertise in creating this type of product-based showroom space and the ability to bring a number of trade shows into the venue. Everyone agreed at this first meeting that Merchandise Mart would complete a study for the Medical Mart in Cleveland. This study would include perceived space requirements (how big was the Medical Mart going to be), financial metrics (how to finance this behemoth), an estimated range of shows and attendees and a short list of buildings or land that would be considered for the Medical Mart. We took a brief tour of the Clinic with Cosgrove and Kennedy and then went back to City Hall.
The second meeting took place almost two months later at City Hall in what I can best describe as a hastily arranged lunch meeting (there was not enough salads for everyone – I was left without a meal) to talk through Merchandise Mart’s initial study. This is where things got interesting. But to set the stage the following members were a part of that meeting: Mayor Campbell, Toby Cosgrove – Cleveland Clinic, Christopher Kennedy and Mark Falanga of the Merchandise Mart; Chris Ronayne, Greg Huth and myself, City of Cleveland; and Timothy Hagan, County Commissioner – Cuyahoga County. After the obligatory small talk Christopher Kennedy passed out a bulky report detailing the vague structure of a Medical Mart on how it might operate.
Some interesting notes from this meeting include:
· Merchandise Mart was considering a facility that would start at 300,000 square feet (I believe this was the correct figure) but that was expandable to 1.2 million square feet. Essentially a flexible, green building. A very provocative concept.
· Christopher Kennedy made a comment that Merchandise Mart was willing to invest “up to a $1.0 billion” into this project. However, there was a need to subsidize this $1.0 billion with a hotel room tax and a rental car tax. This, of course, is very logical because it sets part of the financing on the attendees of the various medical trade shows. Meaning the users of the facility (outside of rent and various other fees) subsidize the facility and not necessarily the local residents.
· Significant detail on the 571 medical trade shows in the U.S. but no “target list” or strategy on how to capture these trade shows – outside of the “moral suasion” of the Cleveland Clinic was offered.
But notice the proposed financing options – hotel room tax and rental car tax. These taxes, I believe, were smarter levies to use when financing the Medical Mart. These financing options lessen the tax burden on the local populace. The “billion dollar” comment was verified for me by attendees at the meeting. The quote did not go unnoticed.
After the meeting, Chris Ronayne led a tour of the current convention center for the Merchandise Mart and Cleveland Clinic representatives. I went for the walk. It was a gorgeous summer day. Anyway, I am always amazed at the size of our convention center and shocked at how poorly it was designed. What could have been – and I say this because the time to build a new convention center was 20 years ago. This train has left the station and if we decided to build one the convention center would stand as one of the worst investments ever for the region – but with a nice new shining white elephant for us to look at for the rest of our lives. The Medical Mart on the other hand is full of amazing potential for the City and for the region. One could reason a very provocative cluster effect of business development, supplier/vendor office requirements and logistics could propagate from an investment in the Medical Mart.
The Mart concept did not receive much attention – at least from the Department of Economic Development – from that second meeting to the election of 2005. However, the Department did review the land options available for the Medical Mart. An obvious site was the land behind Tower City (originally planned as the second phase of retail), the Higbee Building (awful selection), various sites in the University Circle/Cleveland Clinic area and, of course, Mall B (current Convention Center site). At one time I even suggested building the Medical Mart on the oxbow at Scranton Peninsula (which is predominantly owned by Forest City) along with a new R&D center, with housing, connected in some fashion to the new Medical Mart. This was a very interesting opportunity – to redo the entire Peninsula – commercial space, high-wage office space and living options right on the river. I think that’s cool stuff.
Another concept I proposed during the waning days of the Campbell Administration was to give Merchandise Mart our current Convention Center as well as the land on the opposite side of Mall B (currently the County Administration Building and an Office Tower/Garage on St. Clair). The idea here was the City would invest its “equity” in the deal as the actual facility and land. The City has never been able to manage its own convention center, so having professional management that manages other like facilities seemed like a keen idea. Additionally, this “equity” investment would be the City’s in-kind investment outside of the County’s proposed hotel room and rental car taxes. But with any investment, the City would require a return – say, 3-5% of gross revenues of the new Medical Mart facility on Mall B. In effect, I proposed taking a revenue-loser, i.e. – Convention Center, and making it an annuity for the City. Coupled with the $1.0 billion investment from Merchandise Mart and the taxes from the County and, perhaps, the Medical Mart could be a real winner.
Then, of course, the election occurred. As the Jackson transition team was beginning to take shape a request came for documentation on the Medical Mart as well as a transition memo. I remember Greg Huth, then interim Director of Economic Development, asking for detail on the Medical Mart, memos, supporting documentation, etc. And then….silence. During the transition it became clear that City of Cleveland development staff would not be working on the Medical Mart. In fact a rumor came around that no deal would be developed with the Merchandise Mart until Jimmy Dimora – County Commissioner was reelected in November of 2006. (Why this mattered I never could understand, I mean who is going to beat Dimora out of seat?) Interesting, of course, that right after the election of 2006 all sorts of activities began to take place on the Medical Mart. And notice the time line – a whole year wasted on nothing when a deal regarding the Medical Mart could have been struck.
Of course, the whole dynamic of the conversation has changed hasn’t it….no more taxes on hotel rooms and rental cars but rather a sales tax levied upon the backs on County residents. Taxes being paid but no Medical Mart deal struck. I have heard from a number of sources close to the action that the Merchandise Mart is now asking for revenue guarantees (meaning if the facility loses money – the good residents of the County will be asked to make up the difference). I have also been told that Commissioner Hagan is a bit out of his league as the negotiations have progressed. What exactly is the reason for Hagan to demand that the facility be built in Downtown? University Circle could work just as well and certainly offers some interesting dynamics with the Cleveland Clinic, University Hospital, Case Western Reserve University and the Cleveland Institute of Art (great synergies in industrial and product design). Point being a $1.0 billion facility in Cleveland is a great opportunity and if the developer wants to build it in University Circle…so what? Let’s make it happen. Really, what poor deal is being negotiated outside of the taxes we are already paying? And to think this started off so promising.
Maybe we should build the Medical Mart in Youngstown seeing how the key piece to Mayor Jackson’s economic development plan is a non-binding agreement with a city 75 miles to our south. How exactly are these two struggling cities supposed to do a development deal? (See the following post by HG, the hardest working man in the Fourth Estate: http://blog.cleveland.com/plaindealer/2008/02/cleveland_to_join_youngstown_i.html.)
And here is my problem with how our current leadership represents and implements economic development. As far as they are concerned building a large public works project (always under the pretense of a private – public partnership) is economic development. And this, of course, is faulty logic. Economic development is getting the 35-year male from Hough a job. It is helping a 24-year old single mother secure a career. No one though wants to do the dirty work. Instead, we build big white elephants and call it progress.
And there needs to be proper context to the Jackson Administration’s economic development projects – Avenue District, East Flats Project, Euclid Corridor, VA Hospital, University Hospital Expansion, Cleveland Clinic Expansion, Design District, and the Medical Mart – were all developed, planned, financed and prepared under the Campbell Administration. Okay, okay the original idea for a Medical Mart was first proposed by Forest City in the mid-1980s when it sought to turn the former U.S. Post Office at Tower City into a medical merchandise mart. But, Mayor Campbell really propelled the Medical Mart to an exciting possibility.
It was the summer prior to the election in 2005 and I received a call from the Mayor’s office to meet her at the Cleveland Clinic for a meeting with Toby Cosgrove – CEO of the Cleveland Clinic. I was given little information except to meet the Mayor at Toby’s office. Fair enough. Another typical day at City Hall. As per usual, I got lost in the vast “medical land” that is the Clinic. I just happened to bump into the Mayor in this long hallway near nowhere and we both lucked our way into finding Cosgrove’s office.
Again, I was still in the dark as to the purpose of the meeting. Anyway, we were joined in the meeting by Chris Ronayne – Chief of Staff, City of Cleveland; Greg Huth – Director of Economic Development, City of Cleveland. From the Clinic side we were joined by Cosgrove and the CFO of the Clinic (I hate to say this but his name escapes my memory). Cosgrove took over the meeting and detailed the Clinic’s expansion plan (which were amazing – what the public is seeing in terms of development and real estate purchases are nothing relative to the massive plans the Clinic has for its University Circle campus), and then offered the possibility of a Medical Mart.
It seems, Cosgrove had been in touch with the Merchandise Mart management team and was planning to do a Medical Mart concept near the Clinic campus – but did not rule out the possibility of the Mart’s development in Downtown. He then mentioned that he had invited Chris Kennedy (Bobby Kennedy’s son) to join everyone at the meeting. Chris was the CEO of the Merchandise Mart (legal name Merchandise Mart Properties Inc. and is a wholly owned subsidiary of Vornado Realty Trust), and was selected by Cosgrove to study the concept of the Medical Mart and to review the Medical Mart as an investment opportunity for Merchandise Mart. (I know. A lot of “Marts.”)
This first meeting was simply informative – Cosgrove talked about how this could leverage the Clinic’s already sterling reputation. The ability to review a product (i.e. a CAT scan, for example) at a vendor’s show room and then to go see it being used at the Clinic, Cosgrove reasoned, would be a tremendous value add for hospital administrators. It would also provide the Clinic with a pipeline of cutting edge technologies that could probably be used for free and perhaps the Clinic might get a revenue share of any products sold. Kennedy talked about the Merchandise Mart’s expertise in creating this type of product-based showroom space and the ability to bring a number of trade shows into the venue. Everyone agreed at this first meeting that Merchandise Mart would complete a study for the Medical Mart in Cleveland. This study would include perceived space requirements (how big was the Medical Mart going to be), financial metrics (how to finance this behemoth), an estimated range of shows and attendees and a short list of buildings or land that would be considered for the Medical Mart. We took a brief tour of the Clinic with Cosgrove and Kennedy and then went back to City Hall.
The second meeting took place almost two months later at City Hall in what I can best describe as a hastily arranged lunch meeting (there was not enough salads for everyone – I was left without a meal) to talk through Merchandise Mart’s initial study. This is where things got interesting. But to set the stage the following members were a part of that meeting: Mayor Campbell, Toby Cosgrove – Cleveland Clinic, Christopher Kennedy and Mark Falanga of the Merchandise Mart; Chris Ronayne, Greg Huth and myself, City of Cleveland; and Timothy Hagan, County Commissioner – Cuyahoga County. After the obligatory small talk Christopher Kennedy passed out a bulky report detailing the vague structure of a Medical Mart on how it might operate.
Some interesting notes from this meeting include:
· Merchandise Mart was considering a facility that would start at 300,000 square feet (I believe this was the correct figure) but that was expandable to 1.2 million square feet. Essentially a flexible, green building. A very provocative concept.
· Christopher Kennedy made a comment that Merchandise Mart was willing to invest “up to a $1.0 billion” into this project. However, there was a need to subsidize this $1.0 billion with a hotel room tax and a rental car tax. This, of course, is very logical because it sets part of the financing on the attendees of the various medical trade shows. Meaning the users of the facility (outside of rent and various other fees) subsidize the facility and not necessarily the local residents.
· Significant detail on the 571 medical trade shows in the U.S. but no “target list” or strategy on how to capture these trade shows – outside of the “moral suasion” of the Cleveland Clinic was offered.
But notice the proposed financing options – hotel room tax and rental car tax. These taxes, I believe, were smarter levies to use when financing the Medical Mart. These financing options lessen the tax burden on the local populace. The “billion dollar” comment was verified for me by attendees at the meeting. The quote did not go unnoticed.
After the meeting, Chris Ronayne led a tour of the current convention center for the Merchandise Mart and Cleveland Clinic representatives. I went for the walk. It was a gorgeous summer day. Anyway, I am always amazed at the size of our convention center and shocked at how poorly it was designed. What could have been – and I say this because the time to build a new convention center was 20 years ago. This train has left the station and if we decided to build one the convention center would stand as one of the worst investments ever for the region – but with a nice new shining white elephant for us to look at for the rest of our lives. The Medical Mart on the other hand is full of amazing potential for the City and for the region. One could reason a very provocative cluster effect of business development, supplier/vendor office requirements and logistics could propagate from an investment in the Medical Mart.
The Mart concept did not receive much attention – at least from the Department of Economic Development – from that second meeting to the election of 2005. However, the Department did review the land options available for the Medical Mart. An obvious site was the land behind Tower City (originally planned as the second phase of retail), the Higbee Building (awful selection), various sites in the University Circle/Cleveland Clinic area and, of course, Mall B (current Convention Center site). At one time I even suggested building the Medical Mart on the oxbow at Scranton Peninsula (which is predominantly owned by Forest City) along with a new R&D center, with housing, connected in some fashion to the new Medical Mart. This was a very interesting opportunity – to redo the entire Peninsula – commercial space, high-wage office space and living options right on the river. I think that’s cool stuff.
Another concept I proposed during the waning days of the Campbell Administration was to give Merchandise Mart our current Convention Center as well as the land on the opposite side of Mall B (currently the County Administration Building and an Office Tower/Garage on St. Clair). The idea here was the City would invest its “equity” in the deal as the actual facility and land. The City has never been able to manage its own convention center, so having professional management that manages other like facilities seemed like a keen idea. Additionally, this “equity” investment would be the City’s in-kind investment outside of the County’s proposed hotel room and rental car taxes. But with any investment, the City would require a return – say, 3-5% of gross revenues of the new Medical Mart facility on Mall B. In effect, I proposed taking a revenue-loser, i.e. – Convention Center, and making it an annuity for the City. Coupled with the $1.0 billion investment from Merchandise Mart and the taxes from the County and, perhaps, the Medical Mart could be a real winner.
Then, of course, the election occurred. As the Jackson transition team was beginning to take shape a request came for documentation on the Medical Mart as well as a transition memo. I remember Greg Huth, then interim Director of Economic Development, asking for detail on the Medical Mart, memos, supporting documentation, etc. And then….silence. During the transition it became clear that City of Cleveland development staff would not be working on the Medical Mart. In fact a rumor came around that no deal would be developed with the Merchandise Mart until Jimmy Dimora – County Commissioner was reelected in November of 2006. (Why this mattered I never could understand, I mean who is going to beat Dimora out of seat?) Interesting, of course, that right after the election of 2006 all sorts of activities began to take place on the Medical Mart. And notice the time line – a whole year wasted on nothing when a deal regarding the Medical Mart could have been struck.
Of course, the whole dynamic of the conversation has changed hasn’t it….no more taxes on hotel rooms and rental cars but rather a sales tax levied upon the backs on County residents. Taxes being paid but no Medical Mart deal struck. I have heard from a number of sources close to the action that the Merchandise Mart is now asking for revenue guarantees (meaning if the facility loses money – the good residents of the County will be asked to make up the difference). I have also been told that Commissioner Hagan is a bit out of his league as the negotiations have progressed. What exactly is the reason for Hagan to demand that the facility be built in Downtown? University Circle could work just as well and certainly offers some interesting dynamics with the Cleveland Clinic, University Hospital, Case Western Reserve University and the Cleveland Institute of Art (great synergies in industrial and product design). Point being a $1.0 billion facility in Cleveland is a great opportunity and if the developer wants to build it in University Circle…so what? Let’s make it happen. Really, what poor deal is being negotiated outside of the taxes we are already paying? And to think this started off so promising.
Maybe we should build the Medical Mart in Youngstown seeing how the key piece to Mayor Jackson’s economic development plan is a non-binding agreement with a city 75 miles to our south. How exactly are these two struggling cities supposed to do a development deal? (See the following post by HG, the hardest working man in the Fourth Estate: http://blog.cleveland.com/plaindealer/2008/02/cleveland_to_join_youngstown_i.html.)
And here is my problem with how our current leadership represents and implements economic development. As far as they are concerned building a large public works project (always under the pretense of a private – public partnership) is economic development. And this, of course, is faulty logic. Economic development is getting the 35-year male from Hough a job. It is helping a 24-year old single mother secure a career. No one though wants to do the dirty work. Instead, we build big white elephants and call it progress.
1) Toby Cosgrove thinks a med mart would be of great benefit for the Clinic. AFAIK, he is unwilling to invest any of the Clinic's money. Why should the Clinic reap the benefits of a med mart without assuming any of the risks?
2) Why are Chris Kennedy's projections to be believed? (A projection of 50 medical shows annually with an average attendance of 6,000 doesn't sound very likely to me.) Doesn't the fact that MMPI wants revenue guarantees suggest that he doesn't believe his own projections?
3) Is MMPI the best choice for running a med mart or a convention center? AFAIK, MMPI has never run a merchandise mart for tech products. They've run marts for apparel, gifts, home furnishings, and the like. But how similar are such marts--which are frequented by people such as department store buyers--to a mart for medical professionals, who make buying decisions in different ways? Also, MMPI has no experience running a convention center. (BTW, has anyone, anywhere, successfully run a tech product mart? I know that Atlanta's Inforum for IT products failed.)
4) "What exactly is the reason for Hagan to demand that the facility be built in Downtown?" Because he has tied the MM to a convention center and considers only a downtown location for a convention center acceptable? That's where most hotels are, so that doesn't seem unreasonable.
FWIW, I find the idea of turning the current convention center into an "annuity" intriguing. (Comment this)
I, too, have always been curious as to why the Clinic was not more involved financially. And the truth is no one, at least during the meetings I was involved with, ever asked the Clinic to pony up some jack.
Truth is we will never ever get the amount of shows promised. This is a very competitve market - and if the Medical Mart got half of the shows it has offered then it might prove to be beneficial.
On the tech products mart question - I am with you, I have never come across a mart specifically designed for a tech product. Nor have I heard of one be successful. This is truly new territory for everyone.
On the Downtown vs. University Circle question - Hagan is conbining the Mart and the Convention center. Were as I see two distinct facilities....but you are right they can be combined. But dictating I believe is wrong.
Tech Czar (Comment this)
Those of us who opposed this from the beginning did so not due to any underlying problem with the concept, which arguably remains promising. It's that we knew this was going to happen--that government has no business doing these kinds of projects anyways. Historically, commissioners were overseers of social service programs, complete minions of state law. It's only been in the last decade, with the city's budget in shambles, that downtown interests yoked these losers with broad economic development priorities--because and only because of their access to tax dollars. Is it any surprise we've reached this point?
And doesn't it stink to high heaven when these same officials have the audacity to want to dictate location, as if they know better? Here's how I read it: strike one: failure to follow up in 2006; strike two: yoking mm to convention center; strike 3: haggling over location and private sector cash commitment. I want my money back. (Comment this)
What is another 1/4 or 1/2% tax amongst friends. When was the last time any of us paid an extra tax, and saw a concrete {get it?} result. I approve this message. More taxes! Yes!
Joel Libava (Comment this)
Nonetheless, the way the deal has been handled thus far with the tax being approved without any formal financial commitment, without a location pinned down etc... is unfortunate. Even with some apparent optimism the erosion in public trust via the approval of the sales tax without a vote, no apparent serious effort to buffer the impact on the public portion of the financing, the disbanding of the Cleveland-Cuyahoga County Convention Facilities Authority, the lack of strong participation of the City of Cleveland etc… still lingers heavily in the air.
I appreciate your comments about the suggested use of the existing convention facility. I recently took a tour of the facility and although the main convention spaces would need a complete redesign the connected Music and Public Halls as well as Little Theater Ballroom etc… are great historical and architectural assets that have been dusty, bruised and sleepy spaces far too long ignored while we’ve supported and built newer facilities in the City such as Gateway, the Stadium and the Wolfstein Center.
It is hard for me to believe the location is such a contentious issue specifically with respect to Downtown vs. University Circle… the aggregate Hotel space alone has always pointed to the current facility site as the preferred site for me, especially with regards to overall land use planning and synergies that could be generated in multiple adjacent districts.
For those who have not seen my earlier pre-tax posting on the issue refer to:
http://www.brewedfreshdaily.com/2007/07/24/councilman-brian-cummins-on-the-med-martcon-centersales-tax/
as well as the PDF file:
http://www.brewedfreshdaily.com/wp-content/uploads/oped_pd_cnty_tax_mmcfa_cummins7_23_07b.pdf
Thanks again for shedding more light on the workings of the project.
Ohio, Ohio, Ohio…
Education, Education, Education…
Jobs, Jobs, Jobs…
Sustainability and Technology….
And all of it on a much faster timetable than we’ve been able to achieve thus far.
Regards,
Brian Cummins
Cleveland Council Representative, Ward 15
Brooklyn Centre & Old Brooklyn (Comment this)
Many thanks, my man, for the post. This is AWESOME stuff.
Everybody needs to go to Brian's links - NOW!
Tech Czar (Comment this)
Thanks, Michael, for your response.
Brian, very informative. (Comment this)
Norm (Comment this)
No worries. Glad to chat. You don't have to be so anonymous here - we are all friends.
Tech Czar (Comment this)
You will begin to see my development plan for Cleveland and this region begin to take shape over the coming months.
Could always use your perspective, my good man.
Michael (Comment this)