CoyneReport - 2011 Year-End Wrap Up

While looking back at the 2011 commercial real estate market, we first need to look at prior years to spot trends which may have occurred. Utilizing CoyneReport.com, we have reviewed the past several years in terms of trends and sales and report the following:

The total value of sales over $1,000,000 has increased every year since 2008. Large sales in 2011 topped $700,000,000, for an increase of over $200,000,000 when compared to 2010. The years 2010 and 2009 also recorded an increased value of sales year-over-year. Although past events are not a perfect predictor of the future, it is safe to say that the economic recovery has started in Cleveland’s commercial real estate market. The numbers were boosted by a handful of large transactions, including Rock Ohio Caesars’ purchases of land and the Ritz, Duke Realty’s sale of its North Olmsted office building, and the purchase of the former Chrysler Stamping Plant in Twinsburg. Although these large sales can skew the numbers, their presence does signal that some investors are willing to risk a great deal of capital in Northeast Ohio.

A closer look at the types of properties sold in 2011 reveals some interesting details. Retail properties performed surprisingly well, with over $136 million in sales in 57 transactions > $1,000,000. The only types of buildings that saw more value in transactions were office and industrial properties. A total of 30 office properties sold for just over $137 million, for an average over $4,500,000 per transaction. 52 industrial properties sold for a total of $148,220,661, averaging over $2,800,000 per sale. Owner-users were the primary purchasers of industrial space in 2011, but the strengthening market would suggest that more investment sales could take place in the near future. The amount of money in land sales, more than $120 million, would also suggest that development could increase in 2012.

Many industries are still feeling the effects of the recession, and businesses have been reluctant to hire. The amount of money spent on real estate suggests that some industries, such as manufacturing, are recovering and others, such as apartments, continue to experience success.

CoyneReport Reveals Trends/Changes in Value Across Cuyahoga County Communities

Since the Cuyahoga County Assessor’s Office has last updated property values, almost 1,000 commercial sales have taken place. Utilizing the search power of the CoyneReport.com, we have compiled a list of all these transactions. Since the Assessor and the Board of Revision use sales comps to determine property values, we thought we’d take a look to see whether local communities can expect their commercial property values to increase or decrease in the 2012 reassessment. Commercial property values provide a significant portion of many cities’ property tax revenues, so this data is relevant to school boards, town halls, and concerned citizens alike. Our study revealed some surprising results.

The City of Cleveland has had the largest positive difference in property values, with buyers paying more than $26 million over the assessed values. Other cities that saw large increases were Berea ($9,734,301), Richmond Heights ($7,891,800) and Bedford ($4,740,971). Woodmere, Parma, Beachwood, Lakewood and North Royalton also saw significant gains.

Not every city saw gains, however. Where 21 cities recorded gains, 27 saw property values slip. The good news is that the county as a whole recorded $11,040,693 in gains. Shaker Heights (-$5,766,980), Solon (-$5,691,720) and Strongsville (-$5,559,400) recorded the biggest losses. Westlake, Brooklyn and Euclid all recorded negative differences between assessed values and sales prices as well. 

The news of cities showing lower property values is not surprising; the last full reassessment was conducted in 2006, with an update in 2009. The Great Recession took its toll on commercial property in Cleveland in 2009 and 2010, so it is hardly surprising that property values in some communities would be lower. The news that the county’s commercial property values have increased, albeit slightly, is welcome good news. The City of Cleveland led the way as companies and investors purchased property, and the trend of downtown revitalization continues. Although not a perfect predictor of future events, this analysis would seem to suggest that the commercial real estate market is beginning to recover from the lows of the recession.

For this and other insights into the Cleveland commercial real estate market, please visit us at CoyneReport.com.

CoyneReport - Analysis of Ohio's CMBS Loans & Breakdown of 8 Counties

State of Ohio:

There are 1,088 hold CMBS loans in the state of Ohio. The total appraised value for these properties is approximately $8.5 billion, with the total current loan balance of a little more than $10 billion. The shortfall of approximately $1,500,000 is not nearly as dramatic as expected. With more than half of these loans due between 2015 to 2017, it is possible the market could turn favorably, thus closing the gap (data provided by bloomberg.com).

Almost 30% of these loans are retail anchor developments, a little more than 20% multifamily housing, and the third largest group is office buildings. Cap rates range from 7.02% for mixed-use to 13.77% for health care properties. Of these, 43.91% are performing, while a little over 10% are either in REO, or with a special servicer.

When you break the numbers down further, the 8 counties of Northeast Ohio show slightly different trends. The counties include; Cuyahoga, Geauga, Lake, Lorain, Medina, Portage, Stark and Summit. Together, these 8 counties show 318 loans outstanding.  The total current loan balance is $3,644,225,489 with a total appraised value of $3,148,872,425, for a deficit of approximately $500 million. This region has a lower percentage of REO and special servicer loans - a bit less than 5%. There is a higher percentage of Retail Anchored loans; 37% vs. the 30% state average.

Next, let’s look at a breakdown by county:

Cuyahoga County: Better statistics than the state overall

• 185 loans outstanding
• Current Outstanding loan balance: $2,519,600 vs. an appraised value of $2,099,672
• 33% of the loans are Retail Anchored
• 39% are performing
• Interesting note - all cap rates across all property types is sub 9.75% cap

Geauga County: Warning !! Greatest difference between appraised value and loan balance

• Only 5 loans
• $83,735,000 is the total outstanding balance, with an appraised value of only $44,085,000 - a huge percentage difference between loan balance and appraised value
• 92% of the loans are performing, and 91.30% are retail anchored
• The cap rate for the largest loan is about a 6% cap rate. If this cap rate moved up to a more realistic sale cap rate, the appraised values would go down, making the deficit greater

Lake County: The numbers do not tell the whole story

• 15 loans made
• 50% are retail anchored with an average cap rate of 5.73% ; which is a remarkably aggressive cap rate, and perhaps rather unrealistic
• Cap rates range from the low of 5.73% up to 8.85%
• None are in REO, or with a special servicer, but - but - but - 62% are in a Grace period
• Only 23% are performing, much lower than the state and regional average

Lorain County: Similar to the state averages

• 13 loans
• $51,665,000 total current loan balance with an appraised value of $40,365,000 ; almost $11 million dollar short fall
• Aggressive cap rates for this older industrial county
• 75% of the loans are either with a special servicer or in a Grace period - a much higher percentage than the state or the region - which is a bit alarming
• Currently none of the loans are classified as "performing"

Medina County: County with the least number of loans

• 1 loan currently outstanding
• Loan balance and the appraised value are the same $6,600,000
• The one loan is a Retail Anchored center with a cap rate of 6.36% cap rate and it is currently classified as "Late"

Portage County: Strong lending county for Mobile Home Parks

• 17 loans
• $133,900,000 Total Current Loan balance with an appraised value of $128,450,000
• Highest percentage of loans is in the Mobile Home category - 38.85% of all loans. This percentage is the highest percentage of Mobile Home loans of any of the 8 counties and much higher than the state average.
• Cap rate for the mobile homes is 7.26 - which is a rather conservative cap rate. Mobile Home parks usually carry an even more aggressive cap rate, so the loan balance and the appraised value for this county may be closer to even than the numbers show.
• About 32% are either in REO or special servicer - a much higher percentage than the state or the region

Stark County: Industrial loans are most plentiful in this county

• 21 Loans
• Total Current Loan Balance: $91,225,000 with an appraised value of $92,124,489 - one of the few counties in the black
• 38.03% are for industrial properties, much higher than the state or regional average with a cap rate of 9.22%
• 20% are performing with almost 20% either in REO or with a special servicer - again higher than the state or region

Summit County: Highest percent of Retail loans in the region & higher than the state average

• 60 loans
• $646,900,000 Total Current Loan balance with an appraised value of $632,835,000
• More than 50% are for retail anchored centers and 22% for office buildings with cap rates of 7.27% and 9.40% respectively
• 36% are performing
• Only approximately 5% are in either REO or with a special servicer

For more information, please feel free to contact me at 216-453-3001.

Caldwell Building - Perfect Facility for Utica and Marcellus Shale Activity

The Utica and Marcellus shale region frenzy is all the buzz, appearing in the news, papers, magazines and online. The demand for building/warehouse and office space in the shale area is great, and with that in mind, 17226 County Road in Caldwell, Ohio has incredible potential. The 233,000 SF facility is located in Noble County, and could possibly serve as an operations center to the Utica and Marcellus shale region. Formerly used as a manufacturing facility, this building can accommodate the needs of pipe and drilling companies, and offers an on-site waste water treatment facility. Power, sewer, gas, water & telecom are all on-site. The cost of the facility is 80% less than the cost of reconstructing the building. Growing interest and demand for building space in the Utica and Marcellus shale region make this Noble County facility a hot commodity.

AmTrust Financial To Occupy 800 Superior

Great news for downtown Cleveland! AmTrust Financial Services announced it will be occupying between 250,000 – 300,000 sf of the former Key Bank Center office building, located at 800 Superior Ave., in Cleveland. New York based AmTrust plans to create up to 1,000 jobs over the next three years, and move its current Seven Hills employees as well. Lower vacancy rates downtown and new jobs being created; all positive news for the city of Cleveland. How will this effect nearby neighbors? It’s speculated that the East Ohio Gas Building at 1717 East 9th St. will likely be redeveloped and/or sold for apartments. Currently the building is unoccupied. Both buildings are located in the NineTwelve District, whose goal is revitalizing the business and residential area.

Former Rubbermaid Facility Vacant

The former Rubbermaid facility, 1147 Akron Rd., located in Wooster, Ohio is again vacant. The huge facility has a lot to offer; 1,316,428 sq. ft., 22' -80' ceiling height, and 78 docks. I wouldn't be surprised if the building was re-occupied by a competitor. The building is a fantastic manufacturing facility, ready to be occupied again. It has a 200,000 sq. ft. of office area, as well as 675,199 SF warehouse, and rail access.
The initial sale of the former Rubbermaid warehouse was the largest in Northeast Ohio's history, and it sold after being on the market for just 60 days. Only time will tell, but I have a feeling Rubbermaid's biggest competitor may be calling this facility home.

Transaction of the Week -11/28/11

DiGeronimo Companies Lease Valley View Office Building

Grubb & Ellis Company is pleased to have assisted DiGeronimo Companies in the
lease of the property located at 5533 Canal Rd., in Valley View. The 17,843 square foot office building is fully leased to SupportCare/ViaQuest. Significant upgrades are being made to the facility, which was built in 1973. Terry Coyne and Jeff Kennedy, of Grubb & Ellis Company, represented the landlord, DiGeronimo. ViaQuest was represented by David Hollister, Grubb & Ellis Company.