CLEVELAND — One of downtown’s tallest buildings just changed hands at a steep discount.
The $54 million sale of 200 Public Square will have plenty of ripples, impacting everything from nearby office buildings to property-tax payments that flow to the city’s schools.
“You won’t see the effects today,” said Terry Coyne, a vice chairman at the Newmark brokerage’s office downtown. “You will see them over the next couple of years, and it won’t be good. This is not good news for Cleveland.”
The 45-story building sits just east of Public Square. Many locals still know it as the BP Tower, from its early days as a corporate headquarters. Or they call it the Huntington building because of the bank’s prominent signs on the façade.
The skyscraper is currently on the Cuyahoga County tax rolls at nearly $137 million. Now, its value will be slashed by $83 million, a reduction largely driven by the pandemic and the rise of remote work.
“There’s a direct loss of revenue to local governments,” said David Seed, a local attorney who represents school districts in battles over property values. “And then there’s an overall loss of value … increasing the burden on other taxpayers.”
'They got a great deal'
Public records show that Namdar Realty Group of New York is the new owner of 200 Public Square. The company is best known as a buyer of distressed shopping malls.
Namdar has owned the struggling Severance Center in Cleveland Heights since 2016. The company owned much of Midway Mall in Elyria from 2017 until last year, when the Lorain County Port Authority bought the property in hopes of seeing it redeveloped.
So, a downtown skyscraper seems like an unusual purchase.
“They are not the pedigree that you would expect of an institutional office buyer of properties across the U.S., which also reflects on where the market is now,” Coyne said.
But, he added, “they got a great deal. If you were them … it’s tough to pass.”
By paying so little, Namdar is in the position to chase new office tenants and make improvements to the building, where vacant shops and restaurants line a large atrium. But the new landlord is better known for sitting on dying malls, collecting rents and selling off pieces of the properties to developers or other investors.
News 5 reached out to Namdar about 200 Public Square. A spokeswoman said that nobody at the company was available to discuss the purchase Thursday.
“For all we know, they could be fantastic office owners in this market – and we’re all hoping that’s the case,” said Jamie Dunford, a senior associate with the CBRE brokerage. “A new owner that comes in, that’s financially sound, is needed in our market today.”
'Time will tell'
The last time 200 Public Square changed hands was in October 2018. The price was close to $190 million, but that sale included the neighboring parking garage—which Namdar did not buy. Seller DRA Advisors unloaded the garage in a separate transaction in February for $31.25 million.
In 2018, the office tower was 87% full. Today, occupancy is closer to 77%, according to marketing materials posted online.
Dunford expects more fallout in the office market as tenants downsize and move to higher-quality buildings. The best and newest office buildings will be fine, he said. But that isn’t the case for older properties where landlords don’t have much cash to reinvest.
“I think this could be the first of a few assets that end up ultimately selling,“ he said. “But time will tell.“
Coyne echoed that.
“There’s going to be a few buildings that make it, and there’s going to be quite a few buildings that will be what we call zombie buildings, and those are going to drag down the market,” he said, adding that it’s getting more expensive and tricky to turn those buildings into apartments, as Cleveland has done for so many years.
A handful of downtown buildings already are in financial distress, owned by lenders or controlled by court-appointed receivers. And several office landlords are challenging county appraisals. They're seeking lower valuations – and, in turn, lower property-tax bills.
To fight the decline, Mayor Justin Bibb's administration is planning big investments in public spaces and better infrastructure, with a heavy focus on the downtown riverfront and lakefront. Cleveland City Council recently approved a new approach to paying for those investments by borrowing against long-term tax growth.
“Making downtown a more vibrant place, a more interesting place, helps the office market,” Coyne said. “It helps everything else. ... So I don't think this is a doom loop if the public infrastructure is invested. If the city makes wise investments, I think there's a way out.”
