SB Equities

Last month, Cleveland saw the sale of a 575,000 square foot downtown office building known as the Penton Media Building.  The building sold for $46.5 million or $81 per square foot and I’ve had at least a dozen people ask me what I thought about this number.  Since I’ve answered this several times in private, it’s time to put my thoughts out there in public.  But before I do, let’s set the table a bit.  This transfer represents the largest deal, in aggregate dollars, in over two years.  The building wasn’t a troubled or financially strained asset and in fact was 94 percent occupied.  And the building marks the fourth Cleveland CBD acquisition for Miami-based Optima Ventures.  All of these things are leading some to believe that this transaction may mark a turning point in the commercial real estate investment market and/or the price acheived on a per square foot basis illustrates the new standard for the office market.  And what do I think?  Nothing.  Let me clarify that a bit.  I think that an investor bought a building for $81 per square foot.  But to try to extrapolate anything more from this deal is a reach.  Let me give you three reasons why.  First, this is the fourth acquisition for Optima since 2008.  Not only did they already have a vested interest in the Cleveland CBD but they are also the only investor that has bought office buildings in downtown Cleveland over the last 30 months.  Second, the prices they have paid are scattered – $135 psf for One Cleveland Center in 2008, $103 psf for 55 Public Square in 2008 and $14 pfs for the Huntington Bank Building this past June.  The buildings are very different from one another, in immediate location, layout, amenities and age so extrapolating any type of trend among these is difficult.  And third, Optima has purchased all of these buildings for cash, with no financing.  Although a stark absence of financing for commercial real esate investments has been a hallmark of the last few years, all-cash sales are normally the exception rather than the norm.  A primary principle for most real estate investors is leverage, so to try to interprete an unleveraged (or all-cash) transaction within the framework of a segment that has traditionally relyed on leverage is difficult at best. 

So when I look at this deal, I don’t see it as a high water mark or a low-water mark nor as the start or end of a trend.  I don’t think the seller made a killing or the buyer got a steal.  I do think it was a fair price for a well-located office building.  And, most importantly, that it is a closed sale – something that has unfortunately been a pretty rare thing lately.