1.2M-SF BP Tower Trades for $141M-Plus

CLEVELAND, OH-Equity Office Properties has sold the 1.27 million-sf BP Tower here for $141.25 million. The Chicago-based REIT sold the 45-story Downtown landmark to Norfolk, VA-based Harbor Group International and its joint venture partner Electra Ltd., an Israel-based public company. The building is 89.4% leased. The purchase includes a 757-space parking garage.BP Tower is located on Public Square in the center of Downtown Cleveland. The building served as the North American headquarters for BP America prior to its 1999 merger with Amoco. The property includes several restaurants, a fitness center, conference facility and an eight-story atrium. Harbor Group chief executive Jordan Sloan tells GlobeSt.com the purchase price translates to a going-in cap rate of 9%. That relatively lofty figure is due largely to the fact that BP’s lease for 25% of the building–which it no longer occupies–runs out in September 2008. Current class A vacancy in the CBD averages about 18%. In addition to thinking the office market will be in a better place when BP’s lease gets closer to rolling, Sloan says BP Tower is one of two buildings in the CBD that stand head and shoulders above the rest, which is why it is nearly 90% leased in a market where the average is closer to 80%. Harbor Group president Richard Litton adds that the economic development activities under way in Downtown Cleveland, combined with the recovering office market and the quality of the asset should allow the company to meet its investment and leasing objectives. “We believe our timing is right,” Sloan tells GlobeSt.com. “We think things are moving in the right direction in Downtown Cleveland.”BP Tower’s current tenant roster includes Marsh USA, Mercer, PriceWaterhouse Coopers, National City Bank, Wells Fargo and several Cleveland-based law firms and other professional service firms. BP is the largest tenant with 25% of the building. The next largest tenant, with 10% of the building, is the Benesch Friedlander law firm, which is on a long-term lease. Sloan says most of the leases aside from BP’s are longer-term leases, which will allow the company to focus on preleasing BP’s space before the master lease runs out.To handle the task, Harbor Group has retained the Grubb & Ellis leasing team that worked on the building for EOP. The property manager will be a subsidiary of Harbor Group. Harbor Group currently owns approximately 7 million sf of office space throughout the United States and more than 10,000 apartment units. It maintains offices in Norfolk, New York, Chicago and Tel Aviv. The BP Tower purchase was its third investment in partnership with Electra Ltd.