Cleveland Investment Market: Another Strong Year!

NAIYearEnd2014InvestmenCleveland’s investment market turned in another strong year in 2014. Bolstered by improving real estate fundamentals and increased access to debt, investors were active across most sectors. And although distressed real estate continues to play a role in the overall market, it has significantly diminished when compared to a few years ago.

After seeing the investment sales volume bottom out in 2009 at just over $190 million, the market has benefitted from a slow but steady improvement. The investment sales volume for 2014 was $714 million. While this is slightly lower than the $790 million achieved in 2013, the volume achieved last year is significant for three reasons. First, it marks the third straight year of volume in excess of $700 million, a threshold that typifies a ‘normal’ investment market for Cleveland. Second, although the total dollar volume was 7% lower in 2014 as compared to 2013, the number of deals was nearly 40% higher – 109 investment transactions in excess of $1 million in 2014 as compared to 79 in 2013. And third, the market saw a return of several significant ‘keynote’ deals in several segments, including transfers of Golden Gate Plaza in Mayfield Heights and the Summit Park office complex on Rockside Road. Click here for full report.

Advertisement

What’s the Point? The Impact of Points on a Mortgage.

Properties - February 2015_Page_1

Author: Alec Pacella
NAI Daus – Managing Director
apacella@naidaus.com
Twitter @dausyouknow

In 1994, I purchased my first house – hard to believe that was over 20 years ago. And  although it was exciting, the thing that I remember most about that house was a conversation with the lender about the mortgage. I know – I have issues, but those that were around the real estate biz back then may remember how mortgage rates were at “historical lows.” And at 7.75%, my rate was indeed attractive (at least for those days).

But my conversation with the lender was focused on a concept known as “points.” If I were willing to pay two points at the time the loan is originated, an amount equal to 2% of the initial loan amount, the interest rate associated with the loan would be lowered to 7.5%. At the time, I didn’t have enough of a technical grasp to determine the exact impact of this, so I made a snap decision. But now I do – and in a few minutes, so will you.

Analyzing the impact of points can be done using a T-bar and following three simple steps. You may recall that a T-bar is a tool developed by the CCIM Institute to help visualize time and money. As shown in Figure A , time is shown on the left side of the T and represented by N. Flows of money are shown on the right side of the T and include present value (PV), periodic payments (PMT) and future value (FV). To help walk through this, let’s go in the way-back machine and analyze the alternatives that I faced in 1994. My loan was for $100,000, amortized over 30 years with monthly payments. The interest rate choices were 7.75% with no points and 7.5 % with two points. For reasons that will be apparent in a few minutes, the analysis will only focus on the loan with points. Link to full article.

Central Business District Renaissance!

officeThe Northeast Ohio office market ended 2014 with minimal fanfare statistically speaking, but the future looks exceedingly bright. Overall, vacancy increased a minimal .32 basis points, mainly due to the addition of a now vacant suburban office building in the Southwest submarket, formerly occupied by NASA. But this seemingly lackluster activity doesn’t paint the complete picture. The Central Business District (CBD) is in the midst of a renaissance, which took center stage in 2014. The city’s resurgence received national recognition and began showing up on many “best of” lists. In addition, the Republic National Committee has taken note of the world-class facilities and amenities and decided to hold their 2016 National Convention in Cleveland. Northeast Ohio based developers and entrepreneurs have been the primary catalysts for this ongoing transformation, forever changing the landscape of downtown Cleveland.

In the CBD, the Class A category, which includes 11 buildings, is the healthiest segment of the downtown office market with a year-end vacancy of 15 percent, down slightly from 15.23 percent at the end of 2013. Some tenants have relocated to the newest Class A building, the Ernst & Young Tower in the Flats East Bank, freeing up opportunities for tenants currently in B buildings to upgrade to more efficient and higher-quality space. Two downtown companies downsized in the class A category, stifling gains in occupancy. In the class B category, Barnes Distributing was acquired by MSC Industrial Supply Co. in 2013 and relocated many business operations out of state, closing the Cleveland office in the summer of 2014, vacating nearly 40,000 square feet at Tower at Erieview. Also in the CBD, there is meaningful progress toward the conversion of functionally obsolete inventory of class B- and C office buildings, prompted by the voracious demand for downtown housing. The process of repurposing office buildings can take several years to achieve because existing tenants need to be relocated before construction can proceed. In the next 24-36 months, there should be an appreciable and steady reduction in vacancy in the class B and C categories as a result of these conversions. Link to full report.

Where are we in the Real Estate Cycle?

Screen Shot 2014-12-23 at 11.25.23 AMCYCLING UP!
Several years ago, I had the opportunity to listen to a noted professor and author by the name of Glenn Mueller. In addition to being on the faculty at the University of Denver, he also has written several notable research publications. One of the things that Mueller often talks about is what phase we are in according to the real estate cycle and as we close out 2014 and look forward to 2015, I have no doubt that Mueller as well as many other forward looking experts on the speaker set will be weighing in with their thoughts on our position within the real estate cycle. But how many of us understand exactly what this so-called “real estate cycle” actually is? This month, we will discuss exactly how this cycle works and what moves the market from phase to phase. Click here for full article. 

The 9: Redefining Cleveland a ULI Cleveland Event

Cyndie W. O’Bryon, SIOR, a Senior Vice President in the NAI Daus office group attended the ULI Cleveland Event at the Metropolitan at The 9 in downtown Cleveland on Thursday, September 18th. The event featured speakers Fred Geis and Kevin Brokaw for a presentation of Geis Companies’ $250 million project at the former Ameritrust Tower on E 9th and Euclid.

The project is located in the NineTwelve District and includes the repurposing of the long vacant Ameritrust office tower and surrounding buildings and is adjacent to the new Cuyahoga County administration facility at E 9th and Prospect. Heinen’s will be opening a smaller version of their grocery store in the old Ameritrust Rotunda and into the adjacent 1010 Euclid Avenue building, on the Southeast corners of E 9th and Euclid.  The project is a luxury, mixed-use development and will include luxury housing called The 9 Cleveland and a Metropolitan Hotel. The complex will also incorporate several bars and restaurants, an indoor dog park and a dinner theater.

photo-2 photo-3 photo-4 photo-5