Namdar Realty Group, a major owner of problematic shopping centers, paid $54 million for the office tower at 200 Public Square in downtown Cleveland.
CLEVELAND - One of the tallest buildings in the city center has just changed hands at a significant discount.
The sale of the 200 Public Square tower for $54 million will have many consequences that will affect everything—from neighboring office buildings to property tax payments that go to the city schools.
"You won't see the consequences today," - says Terry Coyne, vice president of the Newmark brokerage office downtown. "You will see them over the next few years, and you won't like it. This is bad news for Cleveland".
The 45-story building is located east of Public Square. Many locals still know it as the BP Tower, from the early days when it was the corporate headquarters. Or they call it Huntington Building because of the bank sign on the facade.
Currently, the skyscraper is tax-assessed in Cuyahoga County, with a value of nearly $137 million. Now its value will decrease by $83 million, largely due to the pandemic and the spread of remote work.
"It's a direct loss of revenue for local governments," - said David Sid, a local attorney representing school districts in property value courts. "Then, there's an overall loss of value that increases the burden on other taxpayers".
Namdar Realty Group received an excellent offer
According to public records, the new owner of 200 Public Square is a New York-based company, Namdar Realty Group. The company is most known as a buyer of distressed shopping centers.
Since 2016, Namdar owns the Severance Center shopping mall in Cleveland Heights, which is in trouble. The company owned most of Midway Mall in Elyria from 2017 until last year, when the Port Authority of Lorain County bought the property in hopes of redevelopment. So, the downtown skyscraper seems an unusual purchase.
"They do not have the experience expected from an institutional office real estate buyer across the U.S., which also reflects where the market is right now," - said Coyne.
By paying so little, Namdar has the opportunity to look for new office tenants and upgrade the building, where vacant stores and restaurants line the grand atrium. But the new landlord is better known for sitting in dying malls, collecting rent, and selling parts of the property to developers or other investors.
Time will tell
The last time 200 Public Square changed owners was in October 2018. The price was close to $190 million, but that sale included the neighboring parking lot, which Namdar did not buy. The seller, DRA Advisors, sold the parking lot separately in a deal in February for $31.25 million.
In 2018, the building was 87% occupied. Today, according to online marketing materials, occupancy is nearing 77%.
Danford expects further declines in the office market as tenants reduce office space and move to more modern and higher-quality buildings. According to him, the best and newest office buildings will be safe. But this does not apply to older properties where landlords have little money for reinvestment.
"I think this could be the first of several assets that will eventually be sold," - he said. "But time will tell".
Coyne confirmed this opinion.
"There will be several buildings that can be renovated and improved, but there will be quite a few buildings we call zombie buildings, and they will pull the market down," - he said, adding that converting these buildings into apartments, as Cleveland has been doing for many years, is becoming increasingly expensive and difficult.
A few downtown buildings are already in financial trouble, owned by lenders or controlled by court-appointed arbitrators. Several office landlords are appealing recent reassessments by the county assessor’s office. They aim to lower the valuation—and, consequently, reduce property tax expenses.
To combat decline, Mayor Justin Bibb’s administration plans significant investments in public spaces and infrastructure improvements, with a special focus on the river and lakefront in the city center.
"Transforming downtown into a livelier and more interesting place helps develop the office market," - says Coyne. "It also helps everything else. So I don't think it's a dead end if we invest in public infrastructure. If the city makes smart investments, I believe there's a way out".
