3/21/2011

A bumper crop of empty offices in dow

A bumper crop of empty offices in downtown Cleveland: Brent Larkin

Published: Saturday, March 19, 2011, 8:15 PM Updated: Monday, March 21, 2011, 3:48 PM

By Brent Larkin
When Werner Minshall bought the Galleria and adjacent Tow er at Erieview just eight years ago, the $30 million price tag was widely view ed as a steal. After all, as recently as 1991 the 40-story tow er was on the tax rolls as a $93 million property. And w hen it opened in 1986, w ith a cast of first-rate retailers and restaurants, the glassy, glitzy Galleria next door had cost Dick Jacobs $43 million -- not including the value of the land. Sure, by 2003 the Galleria and the Tow er w ere struggling, but so low was the $30 million sale price that conventional w isdom agreed with a Plain Dealer assessment that Minshall got himself a "bargain."
View full size

Some bargain. The Galleria has become, at times, a ghost town. When it rains, the roof sometimes leaks. The food court is hurting. And at noontime one day recently, I walked past Glitz, a female fashion store w ith a large sign that screamed, "Going out of Business Sale." Inside, the store w as empty.

Gus C han / The Plain De ale r Not m uch going on a t the Ga lle ria the se days.

In the adjacent office tow er, it's a struggle to keep the occupancy rate near 60 percent -- w hich is below what's usually needed to break even. "It's Armageddon," said Minshall, describing the status of commercial and retail property along the East Ninth Street corridor. "There's almost no hope. My equity in this investment is w iped out. It's disastrous. I love Cleveland, but there's sort of a poisonous, w eird attitude there. People spend all this time muddling on things that never get done." Indeed, the entire East Ninth Street corridor, once the heart of dow ntown's business district, is in desperate shape. As a story by Plain Dealer reporter Michelle Jarboe detailed in November, the corridor - an area encompassing East Ninth and East 12th streets, from Euclid Avenue to Lake Erie -- contains about 2 million square feet of empty office space.

blog.cleveland.com//print.html?entry

1/3

3/21/2011

A bumper crop of empty offices in dow

Jarboe's story said that's enough empty space to fill the 52-story Terminal Tow er more than 31/2 times. And with more tenants expected to flee the corridor w ithin the next 18 months, that empty space could sw ell to the equivalent of more than five Terminal Tow ers. "It's in the worst shape I've seen, and I've been doing this 40 years," developer John Ferchill, w ho ow ns property on East Ninth, said of the corridor. David Brow ning, managing director of CB Richard Ellis Inc.'s Cleveland office, has a plan designed to save that important part of dow ntown. Browning is a realist about the area's problems, though he's not nearly as pessimistic as Minshall. "Some naysayers are predicting the death of East Ninth Street, and that message concerns me a little bit," said Brow ning. "The street w ill never be what it was, in terms of all those office buildings being occupied. There's going to be some that just aren't going to make it as office space. What we need to do is create an identity for the place and focus on mixed use going forw ard -- an environment where people are living, working and there's entertainment and green space." Mayor Frank Jackson doesn't sugarcoat East Ninth Street's problems. "It's a mess," said the mayor. "It's bad." But Jackson thinks good things happening elsew here downtow n -- the casino on Public Square, the Wolstein family's development on the Flats' east bank and the medical mart-convention center project -eventually can spread to the East Ninth Street corridor. He insists he sees "light at the end of the tunnel." Councilman Joe Cimperman, who represents dow ntown, also takes a subtle shot at Minshall's negative view of Cleveland, saying, "The view from 30,000 feet is much different from w hen you have boots on the ground. When you're dow ntow n on the streets every single day, talking to people w ho actually live and work here, it may be imperfect but the trajectory is up." Because of the office-space glut, some have been short sightedly critical of the Wolstein project for building new office space and taking tenants out of the corridor. Brow ning said some companies need the new , built-to-suit space the Wolstein project offers. Without it, those companies probably w ould relocate to the suburbs. Nevertheless, despite all of the potential signs of life dow ntown, the number of "for rent" signs is anything but encouraging. In 1996, the dow ntown vacancy rate w as 11 percent for Class A space and 19 percent for Class B. Today it's 18.7 percent for Class A space and 26.6 percent for Class B. It may be an overstatement to label that "Armageddon." But the numbers don't lie -- and they're pretty bleak.

blog.cleveland.com//print.html?entry

2/3

3/21/2011

A bumper crop of empty offices in dow

2011 cleveland.com. All rights reserved.

blog.cleveland.com//print.html?entry

3/3