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May. 31, 2014

Joint Venture Buys Large Cleveland Industrial Portfolio

By Adrian Maties, Associate Editor

A joint venture acquired a large industrial portfolio in the Cleveland area. Alex. Brown Realty Inc., a real estate investment firm headquartered in Baltimore, teamed up with Biynah Industrial Partners LLC, a Minneapolis-based real estate private equity firm, to buy the Great Lakes Industrial Portfolio. The seller was a joint venture between Virginia’s Harbor Group International and local investors.

The Great Lakes Industrial Portfolio includes nine Class A buildings with 766,477 square feet of space. The properties are located in Cleveland’s South, Southeast and Southwest submarkets. According to CBRE Group Inc., these three submarkets had a good first quarter of the year, registering a decrease in vacancy. The South submarket saw the largest drop in vacancy of the three, falling from 6.2 to 5.6 percent. Meanwhile, the Southeast and Southwest markets showed vacancy rates of 7.3 and 7.2 percent, respectively.

Cleveland’s overall vacancy decreased to 6.2 percent in the first quarter of 2014 and remains significantly lower than the U.S. average. Meanwhile, the average asking lease rates remained steady at $4.51 per square foot.

“We like the fundamentals of this deal—quality assets, submarket diversification, and a strong and stable tenant base,” Jeff Josephs, Biynah’s co-founder & managing principal, said in a statement for the press. He added that the existing leases have at least five years of remaining term and that more than 80 percent of the existing tenants have made significant capital improvements to their space.

The Great Lakes Industrial Portfolio represents the eighth transaction between Alex. Brown Realty and Biynah. According to The Plain Dealer, the price of the transaction was $43 million. The joint venture said it acquired the portfolio at a substantial discount to replacement cost. “Given our low basis and the in-place income, our investment should yield strong cash-on-cash returns from day one,” commented Tom Burton, Alex. Brown Realty’s chief investment officer. He also said that the financing arranged by ARES Real Estate gives the joint venture the flexibility to sell off individual buildings. “That flexibility will undoubtedly enhance our exit strategy.”

Photo credit: Alex. Brown Realty
Charts courtesy of CBRE
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