Investors Strike Two New Deals in Downtown Cleveland’s Hot Apartment Market
- Sep 14, 2014
Downtown Cleveland – with its steady economic growth, low apartment vacancy and numerous retail and hotel developments – continues to prove very attractive to investors. Recently, two new companies made their presence known in the area, in attempts to take advantage of the 95 percent-occupied downtown apartment market.
According to The Cleveland Plain Dealer, the Millenia Cos. of Valley View acquired the office high-rise at 75 Public Square on Sept. 5. The company paid $4 million for the property. It now plans to turn the property into an apartment building with between 80 and 100 units, with one lower floor reserved for offices and street-level retail.
The 187-foot-tall 75 Public Square office building was completed in 1915. It was designed by the Cleveland architectural firm of Hubbell & Benes and once served as the headquarters for the Cleveland Electric Illuminating Co. The Plain Dealer reports that the property slipped into foreclosure in June, after its owner, a company named Northpoint Properties Inc., failed to make a balloon payment on a $4.5 million mortgage.
Millenia President Nico Bolzan told the Plain Dealer that the 15-story building was 60 percent occupied at the time of the sale, making it a perfect candidate for conversion to apartments. Construction will start once the developer manages to secure federal and state preservation tax credits and other subsidies. Until then, Millenia Cos. will operate the building as offices. The company plans to invest about $30 million in the project. Nico Bolzan said he hopes to finish it in time for the 2016 Republican National Convention.
Morgan Management is the second investor. But unlike the Millenia Cos., it purchased an already converted building. According to Crain’s Cleveland, the Rochester, N.Y.-based firm acquired the National Terminal Warehouse Apartments for $15.5 million from Irving, Texas-based Kimberly-Clark Co. on Sept. 8.
Once an old warehouse building, National Terminal was converted into 250 apartments in 1996. It was the single largest conversion of its time, opening the door for other such projects in the area. Crain’s Cleveland reports that unlike other multi-family properties in the area, the National Terminal is only 83 percent occupied, with rents of 75 cents per square foot, compared to $2 per square foot in other buildings. Given that it paid less than the $16 million market value of the property, Millenia Cos. might make additional investments to renovate National Terminal and achieve better rents.
Marcus & Millichap reports that apartment vacancy in the Cleveland metro area will climb by 0.7 percent this year, to 6.2 percent, as new apartments come online. In spite of this, average rents will continue to increase and will reach $805 per month this year.
Charts courtesy of Marcus & Millichap.