Tale of a sale
After nearly two years, the Cleveland real estate market can finally point to a market transaction for a net-leased industrial property. The market used to see one or two of these a month but hey, times are tough, right? This is actually an interesting transaction on a couple different levels but let’s talk deal points for a minute. The building is a 343,000 square foot warehouse/distribution property located in Cleveland’s southeastern industrial submarket of Streetsboro. Visible from I-80/the Ohio Turnpike, the property was a build-to-suit for Chrysler, who use the facility to distribute parts to its network. It was built in 1996 and was state-of-the-art for the time: 28′ clear, ESFR sprinklers, pre-cast construction, ample trailer parks, etc. Chrysler occupies the facility on a net-leased basis - originally with a 10-year lease and has since exercised two 5-year options. The property was put on the market this past summer by its owner, Dallas-based Invesco. It was purchased at the end of October by Boston-based Stag Capital Partners. They paid $10.9 million or $31 psf for the property, which I’m guessing equates to somewhere around a 10.75% CAP rate. So what does this tell us? Most importantly, that commercial real estate investment deals are starting to get done. And this one could not have been easy. Chrysler’s credit, while vastly improved as compared to a few years ago, is still well below investment grade. And I’m guessing the buyer also had to deal with a short lease term. The original 10-year lease would have expired in 2005 and the first 5-year option would have expired sometime this year so the lease term is likely early in its second 5-year option. And counting. Finally, there is some scattered but persistent vacancy in the immediate area, including a 120,000 sf building right next door and an 80,000 sf building across the street. The former recently sold for $26 psf to a speculative investor who purchased the empty building. However, despite all of factors, the buyer was still able to close this deal. Part of this undoubtedly is due to Stag’s comfort and familiarity both with sub-investment credit deals and with the Cleveland market (they own or have owned half a dozen buildings here over the last decade). But adding up a short lease term + sub-investment credit + a Midwest location does not equal an easy deal. Hopefully, the olive branch that this dove has brought back is real.
