CLEVELAND, Ohio – Forest City Realty Trust, Inc., is preparing to sell its last remaining piece of Tower City, the mixed-use complex positioned as a linchpin for downtown revival in the late 1980s and early 1990s.
The K&D Group of Willoughby has inked an agreement to buy Post Office Plaza, a five-floor office building on West Third Street, from Forest City. Doug Price, chief executive officer for K&D, said the sale could occur in late August.
He wouldn’t divulge the price for the 477,000-square-foot building, which is 65 percent vacant after the departures of tenants including Quicken Loans and engineering firm AECOM for other downtown addresses.
But, Price said, “it was a good deal. I’ll put it that way.”
The sale will end Forest City’s run as a downtown landlord. Once a dominant player in the central business district, the publicly traded company has shed its local holdings in favor of investing in bigger, busier cities including New York, Dallas, Los Angeles and Washington, D.C.
Forest City still owns apartment complexes in the Cleveland suburbs and has a stake in a few suburban office buildings. But the company, much-changed over the last decade, is bowing out of the downtown real estate game – presenting opportunities for other investors to step up.
Post Office Plaza will be K&D’s third purchase from Forest City. In late 2014, K&D bought the Halle Building on Euclid Avenue, at the western edge of the theater district. Last year, K&D snapped up Terminal Tower, the 52-story building where Forest City has maintained its headquarters for 20 years.
Forest City plans to move its offices to nearby Key Tower in the spring. K&D is converting part of the Halle Building into apartments and hopes to transform the lower floors of Terminal Tower into housing, as well.
But Post Office Plaza won’t be a residential redevelopment. Price expects to attract new office tenants to the building, which opened in the 1930s as Cleveland’s central post office and was renovated as a corporate headquarters called MK Ferguson Plaza in 1989.
“We don’t have immediate tenants,” he said, “but with the future of Public Square and the whole area, it’s going to be a great space for somebody.”
Jeff Linton, a Forest City spokesman, declined to comment. The company typically won’t discuss property sales until they’re complete. But Forest City has been openly exploring sale prospects for Post Office Plaza for at least four years.
Regulatory documents show that the building carries $13.6 million in debt – a mortgage that Price said K&D will take over as part of the transaction.
The Cuyahoga County Fiscal Office puts the value of the property at $21.6 million, but that figure doesn’t necessarily account for recent vacancies. AECOM and Quicken Loans left last year, emptying more than 130,000 square feet.
Post Office Plaza houses the central plant system that heats and cools all of the buildings at Tower City, along with offices leased to legal, financial-services and call-center tenants.
There’s enough wiggle room to accommodate a company that needs more than 200,000 square feet of contiguous space, said Rico Pietro of Cushman & Wakefield/Cresco Real Estate, the real estate brokerage that has been marketing the building for Forest City and will stay on the job for K&D.
Pietro said he and colleague Bill Saltzman found that tenants were reluctant to commit to Post Office Plaza without clarity about who the landlord would be. “A tenant with hundreds of jobs wants to know there is consistency down the line,” Pietro said.
He played up the building’s proximity to Public Square and public transportation as key selling points for companies, particularly those with young employees who want to be close to everything downtown. The property includes access to 500 parking spots at Tower City, though K&D won’t actually own that parking.
“They’re in it for the long-term,” Pietro said of Price and longtime business partner Karen Paganini, K&D’s president. “I think they’re getting a great price for the building, and it’s going to allow them to be aggressive with lease terms.
“And I think what Forest City gets out of the transaction is peace of mind. They have a buyer they have worked with in the past … and can be confident they’re going to close on time, at the price point that they negotiated. In a market like Cleveland, that’s a very important thing.”