County in the market to buy and sell real estate
Cuyahoga's search for new headquarters, plan to shed other properties will influence Cleveland's office market going forward
Photo credit: CRAIN'S FILE PHOTOS
The Huntington Building (pictured) and Eaton Center are two of a dwindling list of options for a new Cuyahoga County headquarters site, a move County Executive Ed FitzGerald wants completed in two years.
By STAN BULLARD AND JAY MILLER
4:30 am, March 5, 2012
The 800-pound gorilla in Cuyahoga County's real estate market over the next few years is likely to be Cuyahoga County's government.
The county stands to impact the market both as a tenant and as a seller of space. In the case of the former, it still is looking to house many of its offices in a headquarters of as much as 300,000 square feet. As the latter, it plans to sell various buildings it now occupies as it proceeds with a consolidation of its space needs.
The county will put up for sale as many as a dozen buildings in what still is a soft market for office space in Cleveland. Prime among them are the county administration building at Lakeside Avenue and Ontario Street, the old Juvenile Court complex on East 22nd Street, the controversial Ameritrust Building at East Ninth Street and Euclid Avenue, and Courthouse Square at West Third Street and Lakeside, which it bought in 2004. The cast of characters
County officials are reviewing five bids for a consultant to manage the consolidation of the county's real estate portfolio. Bidding closed last Thursday, March 1. The winning bidder will represent the county during its search for new headquarters space and will help dispose of county-owned properties that no longer will be needed after the consolidation.
Bonnie Teeuwen, the county's director of public works, told Crain's last Thursday that she expects the bid review probably will be completed by March 13, and that she hopes to seek bids for new leased space for the county's headquarters by the end of April.
The bidders, who could be identified only by the names on the sealed bids, are Allegro Realty Advisors, CB Richard Ellis, DLZ Ohio, McKelvey Partners and Vocon Inc.
How quickly the county prop- erties might sell and how much the county might net from any sales is hard to gauge. Brokers, however, note that buyers can be found for properties that are what the industry calls “priced right,” which means priced low enough to compete in a market where rents are declining or that enable a property owner to invest in improvements or conversion to another use.
The county values the dozen properties it hopes to sell at more than $30 million, though that figure may be high given current market conditions. Small buildings hold potential
Still, the county is offering a few intriguing properties from its portfolio.
The biggest-ticket item is still the Ameritrust Building, which the county values at less than $17 million.
Ms. Teeuwen said Cuyahoga County Executive Ed FitzGerald has talked recently with officials of development firm K&D Group about the 29-story tower. In 2008, a $35 million bid submitted by K&D with the county won it the right to redevelop the former bank headquarters into a hotel and residential complex. That deal fell through as the real estate market soured.
Perhaps the most attractive property in the county's portfolio, however, might be the administration building. The four-story building that dates to 1957 is adjacent to the under-construction Cleveland Medical Mart & Convention Center and is considered an attractive site for a hotel that could be linked to the convention center.
The county also believes Courthouse Square could be attractive to a developer who could convert it into condos or apartments, Ms. Teeuwen said.
Other buildings on the for-sale list are the Whitlatch Building at 1910 Carnegie Ave. and the auto title building at 1261 Superior Ave. Ms. Teeuwen said the county also is putting up for sale the Loew's Building, a part of the Playhouse-Square complex the county purchased in the 1970s.
Joseph Martanovic, senior vice president and director of industrial brokerage at Ostendorf-Morris Co., said he does not believe it's possible to make a sweeping judgment about the effect on the market of the county properties. As for the next HQ ...
“More so than ever before, each building is its own market,” depending on where it is located, Mr. Martanovic said. He said buildings near Euclid Avenue and in the city's MidTown and University Circle neighborhoods would have more demand than similar structures in other neighborhoods or on the fringes of downtown.
Terry Coyne, executive vice president of Grubb & Ellis Co., was more optimistic.
“I don't see it as a glut,” he said. “I don't think it will be as negative as you might think it would be.”
Mr. Coyne notes that a handful of small buildings are available near downtown and it is “hard to find little good buildings to buy.
“I could see (business tenants) staying in Cleveland because they can buy some of these buildings,” he said.
Some of the county's downtown office buildings also might end up as residential properties.
“We cannot have all these buildings continue to be office buildings,” said David Browning, managing director of the Cleveland office of CB Richard Ellis, talking broadly about the older, smaller office buildings in downtown. “We need some rental apartments, condominiums, some retail spaces and hotels.”
The county also will move some employees from space it leases. That, too, will have an impact on a downtown office market that already has a 23.4% vacancy rate in Class B office space, which includes all the county's leased properties.
For example, the county leases space in Reserve Square on East 12th Street for its development and senior and adult services departments. The space, in a building that mainly is apartments and a hotel, is unlikely ever to be used for office space again, said Bob Nosal, managing director of Grubb & Ellis Co.'s Cleveland office.
With respect to the county's prospects for a new headquarters, the field appears narrow.
A search of available contiguous office space through the online real estate data provider CoStar shows just two potential headquarters sites have more than 300,000 square feet of existing office space. The former May Co. department store, most recently marketed as the Public Square Tech Center, has the most space: 665,000 square feet. The Huntington Building, 900 Euclid Ave., has the second-largest volume, with about 600,000 square feet in its main building and an attached annex.
Should the county reduce the scope of its space needs to around 200,000 square feet, the options rise.
After global manufacturer Eaton Corp. vacates Eaton Center, 1111 Superior Ave., later this year for a new headquarters in Beachwood, more than 270,000 square feet will be available in that structure. Another less-visible prospect would be the former Ohio Bell headquarters building at 45 Erieview Plaza, which has more than 210,000 square feet of contiguous space.
And do not underestimate the ability of building owners to produce options to the county for a sweet deal, Mr. Nosal said. For example, Mr. Nosal noted that Forest City Enterprises Inc., owner of the Halle Building, 1228 Euclid, might be able to cobble together empty space by relocating tenants. CoStar shows more than 200,000 square feet of space is available in the building, but only 40,000 is contiguous.
The field of potential headquarters properties may be small, but the county still might be able to extract a good lease for itself just the same, according to Mr. Browning of CB Richard Ellis.
“All you need to have a good horse race is two or three horses,” Mr. Browning said.
“It is a far different landscape in the office market than the last time the county went to the market,” he said. “Yet I'm certain the county and developers will create a competition. The market is still soft.”