Downtown office tower hits the market

The for-sale sign is out for Fifth Third Center, downtown’s sixth-tallest skyscraper, with CBRE Group Inc. offering to the market the 27-story building for Hertz Group, its Los Angeles-based owner.

A group of Atlanta-based office investment specialists has the listing, and an offering memorandum is circulating among likely buyers of multitenant downtown buildings. While prospective buyers must register and swear confidentiality to see the office building’s financial records, the CBRE listing can be found on a CBRE website.

Hertz Group acquired the 508,397-square-foot building at 600 E. Superior Ave. in April 2015, for $53.75 million, according to online records of the Cuyahoga County Fiscal Office.

The county assigns the 1991-vintage structure a market value of $53.9 million for property tax purposes.

CBRE’s site with the listing does not include a stated asking price, typical for such properties. It described the building’s location as “the epicenter of the residential and retail renaissance in downtown Cleveland. Downtown Cleveland is the largest jobs hub and largest residential downtown in the state of Ohio, and with 31% population growth since 2010, downtown is the fastest-growing neighborhood in Cleveland. Downtown is home to the city’s civic center, three professional sports (Browns, Cavaliers and Guardians), and the largest performing arts center outside of New York City.”

The structure also has 68.6% occupancy, which CBRE said provides the tower “stability with repositioning upside” by improving vacancy. However, the 31.4% vacancy rate signals the building is more likely to attract an opportunistic buyer willing to gamble and spend the money on office updates to attract new tenants.

That also means it’s unlikely to attract a strictly investment-oriented buyer or institutional investor, typically termed the “coupon clippers” for commercial property.

The CBRE offering does not include other Hertz properties downtown: North Point Tower, 1001 Lakeside Ave., and Skylight Office Tower, 1660 W. Second St.

Alec Pacella, a commercial realty investment expert and president of NAI Pleasant Valley in Independence, said, “This is going to be really interesting.”

The question, he said, is whether Hertz will find a buyer willing to pay as much as it wants for the building.

“There haven’t been transactions like this for years, and none like this since the pandemic,” he said, as the structure has multiple tenants. The most recent skyscraper sale downtown was the empty 45 Erieview Plaza, which was acquired for $21.1 million in February for conversion to apartments after a prolonged effort to market it as offices came to naught.

The question of the value of a downtown office building was juiced by a $39 million sale of the Chagrin Highlands I and II office buildings on Auburn Drive in Beachwood on Tuesday, April 5. The price was considered a statement of belief in the future of well-located and equipped office buildings by Rico Pietro, a principal of Cushman & Wakefield Cresco brokerage. He represented Shelbourne, a Brooklyn, New York, real estate investor in the sale to an affiliate of Kawa Capital, an Aventura, Florida, real estate asset manager for private equity and institutional investors.

However, others would view buying a downtown office building at a premium price as a feat similar to catching a falling knife as the extent of business demand for offices in the future is in play after working from home became a way of life during the pandemic.

Moreover, suburban office buildings are viewed as winners in the evolving market because they benefit from proximity to suburban residential areas and free parking.

Hertz made news in the commercial real estate market earlier this year as its second-generation CEO, William Hertz, told the Multi-Housing News trade magazine it was diversifying its office portfolio by investing in a 400-suite apartment portfolio in Austin.

That Jan. 5, 2022, article was under the cheeky headline, “How to survive the office sector storm: Invest in multifamily.”

Even as Hertz first invested in Cleveland, its focus on downtown office towers was an outlier as office investments lost their luster. The company owns a portfolio of more than 16.5 million square feet in 21 cities.

John Lamberson, a CBRE senior vice president, declined comment on the offering. Hertz did not return three calls and an email about the proposed sale.