Cleveland is ushering in a new set of landlords as improving market conditions attract out-of-state investors.

1. Cleveland
Investor Perspective
Analyzing the surge of office investment sales in Cleveland

2. 32 3
• Sales volumes have increased steadily since
2010 and are now approaching prerecession
levels; driven in part by out-of-state investors.
• In just the last two years office investment sales
in Cleveland have totaled more than $550.0
million.
• Thesenewownersplantorepositiontheirassets.
Tenants will enjoy upgraded finishes and added
amenities, however, higher rents will follow.
• No matter which type of buyer, there are
attractive opportunities in Cleveland and the
long-term outlook for the region should keep
investors scouting the market for years to come.
Cleveland ushers in a new set of landlords
as improving market conditions attract
out-of-state investors
Introduction
Total sales volume ($M)
Average sales price ($ p.s.f.)
$0
$100
$200
$300
$400
$500
$600
2001 2003 2005 2007 2009 2011 2013 2015 2017
$0
$25
$50
$75
$100
$125
$150
2001 2003 2005 2007 2009 2011 2013 2015 2017

3. What is unique about this real estate cycle
opposed to past ones is the increased level
of investment from out-of-state buyers. Three
groups in particular have amassed significant
portfolios in Cleveland: Hertz, Shelbourne and
Somera Road. These investors have acquired
more than 3.0 million square feet of office space
in transactions totaling $301.8 million.
A common set of themes led these groups
and others to make investments in Cleveland
including higher yields than available on the
coasts, relatively low barriers to entry and the
positive underlying market fundamentals.
“I’m very excited about what I see in downtown Cleveland as
in other cities. The movement to downtown has become very
big and will only increase”
Judah Hertz, Hertz Investment Group
“[Beachwood is] an absolutely phenomenal area. We get
the feeling that a lot of businesses want to be in that area,
and a lot of people want to work and live in that area.”
Ben Schlossberg, Shelbourne
“Companies are looking toward the
Midwest. I do think there will be growth
in the Greater Cleveland area in terms of
new tenancy.”
Ian Ross, Somera Road
Hertz Investment Group Shelbourne Somera Road
Out-of-state investors
Fifth Third Center
Date: April 2015
Size: 508,397 s.f.
Price: $53.4M / $105 p.s.f.
Percent leased at sale: 78%
Seller: Tier Reit
Chagrin Highlands
Date: April 2017
Size: 224,988 s.f.
Price: $24.5M / $109 p.s.f.
Percent leased at sale: 83%
Seller: Richard E Jacobs Group
North Point
Date: August 2016
Name: Size: 873,335 s.f.
Price: $95.0M / $109 p.s.f.
Percent leased at sale: 68%
Seller: Equity Commonwealth
Metropolitan Plaza
Date: June 2017
Size: 163,105 s.f.
Price: $24.2M / $148 p.s.f.
Percent leased at sale: 100%
Seller: Lone Star Funds
45 Erieview
Date: December 2016
Size: 463,992 s.f.
Price: $32.0M / $69 p.s.f.
Percent leased at sale: 56%
Seller: Highlands REIT
Skylight Office Tower
Date: September 2015
Size: 320,793 s.f.
Price: $34.5M / $108 p.s.f.
Percent leased at sale: 90%
Seller: Forest City
Landerbrook Corporate
Center
Date: June 2017
Size: 333,071 s.f.
Price: $29.9M / $90 p.s.f.
Percent leased at sale: 81%
Seller: Lone Star Funds
Strongsville Corporate
Center
Date: June 2017
Size: 125,006 s.f.
Price: $8.3M / $66 p.s.f.
Percent leased at sale: 0%
Seller: Evergreen Realty Group

4. Local real estate groups have also been active
in the market, acquiring some of Cleveland’s
most iconic office assets. Chief among them is
Key Tower, which Millennia purchased for $167.4
million in January of 2017.
Local apartment operator K&D has also been
active in the market, acquiring 2.5 million square
feet of office space over the last five years.
While much of this product has been targeted
for office-to-residential conversion, K&D has
indicated that some office space will remain in
Terminal Tower, Post Office Plaza and the Keith
Building.
“I am honored to be a part of such an
iconic asset [Key Tower] and one with
such a rich history of excellence.”
Frank Sinito, Millennia
K&D Group Millennia
Terminal Tower
Date: September 2016
Size: 576,620 s.f.
Price: $38.5M / $67 p.s.f.
Percent leased at sale: 73%
Seller: Forest City
Post Office Plaza
Date: August 2017
Size: 476,000 s.f.
Price: $15,5M / $33 p.s.f.
Percent leased at sale: 44%
Seller: Forest City
Keith Building
Date: March 2015
Size: 220,000 s.f.
Price: $10.0M / $45 p.s.f.
Percent leased at sale: 65%
Seller: Bill West et al.
Key Tower
Date: January 2017
Name: Size: 1,321,000 s.f.
Price: $167.4M / $127 p.s.f.
Percent leased at sale: 90%
Seller: Columbia Property Trust
Local buyers
“We’re in [the office] business now. We’re open for business
and ready to make deals.”
Doug Price, K&D Group

5. 98
Many of the recent transfers could be categorized as value-add
investments, and the new owners have signaled their intent to make
significant upgrades to the properties. Office tenants will enjoy additional
amenities, upgraded finishes in common areas, and improvements to the
building’s operating systems. However, along with these upgrades,
landlords will command higher rents on renewals and new lease
negotiations. Landlords have already begun to capture some of these
rent increases, thanks to the tightening market and negotiating leverage
shifting in the landlord’s direction.
Looking ahead, capital markets activity is expected to remain elevated as
a number of high-profile assets are currently listed for sale, including The
Tower at Erieview, AECOM Center, 1100 Superior and 1111 Superior. No
matter which type of buyer, there are attractive opportunities in Cleveland
and the long-term outlook for the region should keep investors scouting
the market for the years to come.
Summary
Cleveland

6. 10
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