To use the jargon of commercial real estate investment brokers, a whale of a potential apartment deal, with a rumored asking price of $ 110 million, is working below the surface at two properties on West Ninth Street overlooking the Lake Erie, the Cuyahoga River and the downtown Cleveland skyline.
Marcus & Millichap’s brokerage firm set Tuesday, October 19 as the closing date for a tender for the massive Bingham Apartments – 339 units at 1278 West Ninth St. – and some 100 feet north of it towards lakefront, Archer Apartments – 248 suites at 1200 West 10th St., which also has a West Ninth entrance.
In investment brokerage circles, the so-called “whispered price” is $ 110 million, reflecting some idea of property expectations in a resurgent apartment sales market.
Dan Burkons, executive managing director of Marcus & Millichap, discussed the properties the national investment firm has listed for two separate property groups associated with Rochester, New York-based Morgan Communities. He manages a trio of Marcus & Millichap brokers in charge of the listing.
Morgan purchased both properties after woes suffered by previous owners in apartment conversions from former warehouses that were at the forefront of the renaissance of residential living in downtown Cleveland. Both date back to the early 1990s, when downtown loft conversions took off during the Michael R. White administration’s push for more city housing.
Morgan paid $ 40 million in 2010 for the Bingham and $ 15.5 million in 2014 for the Archer, then known as the National Terminal Apartments.
“These are the first properties to hit the market after the pandemic has closed,” Burkons said. “Except for the summer 2020 hiccups, the market has only gotten better.”
Burkons said the property groups had 10-year loans on the properties that matured in 2022. Morgan, he said, made the decision to see what the properties could bring and offer them on the market. The deals could hinge on the high prices of projects in northeast Ohio and downtown Cleveland paid for by well-heeled apartment investors on the East Coast, especially New Jersey, making locals unlikely .
Apartment brokers are also busy as some longtime homeowners hope to sell before the end of the year. Their reason: to fear in the unlikely event that the stranded US Congress could adopt the Biden administration’s reduction or potential elimination of favorable capital gains tax treatment to pay for its massive infrastructure and social spending program. Similar swaps – buying new commercial property after unloading one to shelter the gains – are also a potential target for income improvement.
Last month, the Crittenden Court Apartments, located between West 10th and West Ninth streets overlooking West St. Clair Avenue, were acquired by a group of investors led by Snavely Group of Chagrin Falls, which recently completed several apartment buildings. Ohio City apartments and developing properties in several markets. Snavely paid $ 19.75 million for the 208-suite Crittenden. It provides for a substantial renovation of the building to make it more competitive with newer and more expensive rentals in the city center.
However, this price does not include a parking garage next to the building which was designed to accommodate additional construction on a portion facing West Ninth Street facing the superblock where the proposed Sherwin-Williams Co. skyscraper would rise. . Snavely has multigenerational expertise in construction and real estate development that could allow it to capitalize on the development opportunity if it completes its planned purchase of the garage, which is held separately from the Crittenden apartments.
Additionally, 1900 Lofts LLC of Boca Raton, Fla., Landed 1900 Euclid Lofts across from Cleveland State University for $ 7.9 million, or roughly $ 99,000 per se, last April. The seller had destroyed this office building turned into a multi-family residential complex for $ 3.7 million after defaulting on a loan guaranteed by the US Department of Housing and Urban Development, the same fate to which the original Bingham developer based in Chicago was confronted.
Other apartment buildings in downtown and in the suburbs capitalized on a sharp increase in the occupancy rate after the vacancy rate increased due to the arrival of new buildings on the market almost at the same time. time that COVID-19 and a riot that rocked downtown Cleveland in mid-2020.
Apartment owners are also taking advantage of continued rental growth to refinance their properties at low interest rates.
Such refinances are the ultimate tax shelter, as homeowners do not pay federal taxes on the mortgage proceeds on top of the replaced loans, and bid at higher values, and continue to own the property.
In the case of the Bingham, the seller has upgraded suites with granite countertops and the like, as units empty to trap higher rents. And Morgan repositioned the former National Terminals Apartments as a market-priced apartment building with substantial upgrades when he purchased this property. Additionally, Burkons said the Archer has seven years of property tax relief left since the last top-to-bottom renovation, which improves returns for the next owner.
Burkons said Marcus & Millichap has conditioned the properties for individual sale or portfolio sale in order to attract the widest range of buyers, especially at the institutional level. He said the high occupancy rates of 90% of properties and the opportunities to increase rents with new apartments on the market were very attractive to apartment groups.
Ralph McGreevy, executive vice president and chief operating officer of the Northern Ohio Apartment Association business group, said he was “very surprised” that Bingham and Archer were put up for sale.
“They seem to be doing very well and have a strong management team in place,” said McGreevy. “I’m sure they will generate a lot of interest.
Dan Siegel, who co-owns a large apartment portfolio with suburban, Tremont and Ohio City holdings operating as Beachwood-based Integrity Real Estate, speculated that a group from out of town would make the deal. And what does he think they’ll trade for?
“Whatever it is,” Siegel said, “it will be a lot more than it would have been five years ago.”