45 Erieview Office Tower in Downtown Cleveland, Half Empty, Sells in Off-Market Deal
CLEVELAND, Ohio – A New York investor quietly purchased a half-empty downtown Cleveland office building this week, but the firm’s redevelopment plan hinges on jobs – not another residential conversion.
Somera Road, Inc., acquired 45 Erieview Plaza on Monday, in a transaction that didn’t generate any public filings. The seller was an affiliate of Chicago-based Highlands REIT, Inc., which did not respond to requests for comment. The structure of the sale – Somera took over a limited liability company that owns the building – means the price is likely to remain a mystery.
Ian Ross, founder and principal at Somera, confirmed that the sale took place but would not disclose what his private investment firm paid for the 16-story building and its nearby garage.
The property last changed hands in early 2007 for nearly $52 million, public records show. The Cuyahoga County Fiscal Office now values the complex at just shy of $40 million, though. And the office building is half-empty. Longtime tenant AT&T is the sole occupant.
“We really like investing in urban markets,” said Ross, who plans to fix up the building and aggressively pitch space there to companies trying to court employees in their 20s and 30s.
“The millennial generation is what a lot of large American corporations are focused on, managing the attrition of that very fickle employment base,” Ross said, explaining his view of the market. “The suburban office concept, which you see a lot of in the Midwest and you see a lot of in Cleveland, specifically … that’s going by the wayside. That’s not going to be the pull or the attraction for that highly sought-after employee.”
Built in the early 1980s for Ohio Bell, 45 Erieview has been a bit of a sleeper building for more than 30 years, despite its prominent location at East Ninth Street and Lakeside Avenue. In 2007, Ohio Bell successor AT&T sold the property to Inland American Real Estate Trust, Inc. and signed a 12.5-year lease with several extension options, according to public records.
Since then, AT&T has pared its presence in the building, leaving the lower eight floors vacant and parts of the upper floors largely under-used.
Inland, based in Chicago, has changed its name and narrowed its focus. In April, the company – now called InvenTrust Properties Corp. and concentrating on retail – spun off its office buildings, including 45 Erieview; industrial properties; and other real estate into Highlands.
Regulatory filings indicate that 45 Erieview wasn’t necessarily a lucrative investment for Highlands to hang onto. An accelerated payoff schedule on the building’s mortgage required the company to put any income from the building, after operating expenses, toward paying off debt, according to a recent quarterly financial report. During the first nine months of this year, that meant Highlands didn’t get to pocket $800,000 from 45 Erieview.
A landlord in that position doesn’t have much incentive to make big investments.
“I think Ian and Somera Road probably bring a different approach to the property,” said Rico Pietro of Cushman & Wakefield/Cresco Real Estate, the local brokerage firm handling leasing at the complex. “I think they’re committed to making necessary upgrades to improve the marketability of the property.”
Pietro and Jim Krivanek will stay on as Somera’s leasing team.
Neither Pietro nor Ross would identify tenants they’re chasing for a large, contiguous block of space – up to 250,000 square feet now, perhaps more if AT&T decides to downsize more – in a relatively modern downtown building.
Over the past few years, 45 Erieview has lost contests for large public leases, such as Cuyahoga County’s headquarters deal, and routinely has been mentioned as a prospect for private-sector tenants on the hunt for new space. The sale to Somera comes as big employers including Medical Mutual of Ohio, a few blocks south on East Ninth Street, are considering a move.
“Our focus right now is being the best landlord we can be for AT&T,” Ross said. “They’re a dream tenant. … We want to continue making them happy.”
To liven up the property, Somera could overhaul the lobby, add a fitness center, create collaborative work areas, explore retail opportunities along East Ninth and add outdoor space. The complex already includes 400 dedicated parking spaces, between the building’s basement and the garage at Lakeside and East 12th Street. Ross is working on renovation plans with Vocon, an architecture firm with offices in Cleveland and New York.
He wouldn’t put a timeline on the improvements, saying that Somera has been putting together a team of seasoned local partners and is taking a slow approach.
One change he’s not considering, though, is turning office space into apartments.
“That’s not really our forte,” said Ross, who familiarized himself with Cleveland while working for Triangle Capital Group, a privately held real estate fund that has invested here. “There’s a fair amount of planned conversions in the market. That’s not what we think of this building and its highest and best use.”
Other residential makeovers have trimmed the supply of empty office space downtown. Meanwhile, a few developers are talking about constructing new office buildings, if tenants and lenders sign on. Ross is trying to position 45 Erieview somewhere in between – as long-term office space that’s a lower-cost, lower-risk alternative to new construction.
And though most office leasing here involves existing Northeast Ohio tenants hopping around, he’s not ruling out the prospect of attracting new players.
“I think a lot of national companies, in Los Angeles, New York, D.C., Chicago, are saying the cost of living in those cities has gotten astronomical. … Attrition problems continue to be an issue,” he said. “Companies are looking toward the Midwest. I do think there will be growth in the Greater Cleveland area in terms of new tenancy.”
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