Pappas Realty Co... "Commercial Real Estate...Exclusively" in Northeast Ohio since 1957

Friday, March 16, 2007

Gambling on Cleveland - by Stan Bullard

Making a daring redevelopment play in downtown Cleveland, Manhattan-based Sovereign Properties Ltd. led an investor group last November to buy the 1717 East Ninth Street office building and parking garage. Sovereign paid $12 million for the 320,000 sq. ft., 21-story building that enjoys a prime location in the Finance District. There was only one catch: The building stood 89% vacant.

The sale price of $37 per sq. ft. “is a very long dollar for an essentially empty building in this market. It raised eyebrows,” says Chris Smythe, president of Smythe Property Advisors, a Cleveland real estate consulting and investment group. The seller was a subsidiary of Regency Savings FSB of Chicago. The prior owner, Sterling EOB of Chicago, had given up on the city's office market and handed the keys back to the lender in 2004.

The fate of 1717 East Ninth reflects the fortunes of Cleveland on multiple levels. Sovereign is part of a wave of entrepreneurial and institutional investors drawn to the city and region by bargain-basement prices and modest improvement in vacancies and rents. Although 1717 East Ninth is a rare redevelopment in downtown Cleveland, the purchase by Sovereign shows how dramatic the turnaround has been. Five years ago Cleveland brokerage firms commonly said that the city had a black eye in the national investment market thanks to no population growth, weak job growth, little rent growth and scarce development opportunities.

Duke Realty Corp., the Indianapolis-based real estate investment trust, looks at the market differently. The REIT is voting with its feet and exiting the city's suburbs after 10 years in the market and has said it wants to redeploy its capital to areas with stronger development climates such as Savannah, Ga. and Phoenix, Ariz.

Meanwhile, other investors have decided to gamble on Cleveland. Besides Sovereign, several national players, many of institutional quality, have taken new positions in downtown Cleveland, where all three of the city's trophy skyscrapers changed hands over the last two years.
In November last year, Behringer Harvard Real Estate Investments of Dallas made the most recent purchase, paying $64 million for Fifth Third Center, a 500,000 sq. ft. office tower built in 1991.

The pinnacle of Cleveland commercial real estate is Key Center, which includes Key Tower, the tallest office building between New York and Chicago, and the attached Cleveland Marriott Downtown. With a tenant roster boasting the headquarters of KeyCorp and white-shoe law firm Squire Sanders & Dempsey, the 1992-vintage Key Tower drew Wells Real Estate Funds of Atlanta as a new 50% owner in 2005.

Joel Williamson, vice president and asset manager for Key Center at Wells, says his company bought into Key Tower because it is a high-quality asset that was available for less than replacement cost.

FOR FULL STORY - Click on HEADLINE

0 Comments:

Post a Comment

Subscribe to Post Comments [Atom]



<< Home