The North Point office complex in Downtown Cleveland includes 901 Lakeside Ave. at left, 1001 Lakeside at right, and a parking garage behind them with its primary entrance off East 9th Street in the distance at far left (Google). CLICK IMAGES TO ENLARGE THEM.
Jones Day’s office lease remains unresolved
On Friday, Judge Christopher Boyko at the U.S. District Court for the Northern District of Ohio ordered the North Point office complex in Downtown Cleveland be placed in the hands of a receiver to manage the property and, more specifically, to pay its creditors. The request was made earlier in the week by Wells Fargo Bank, as trustee for the benefit of the registered holders of GS Mortgage Securities Corp.’s distressed loan collateralized by the property.
Friedman Real Estate Management OH Inc. was named as the receiver and will manage the property that includes a five-story office building at 901 Lakeside Ave. called North Point I, a 19-story office tower at 1001 Lakeside called North Point II, and a 1,004-space parking garage with its main entrance at 1111 E. 9th St. Hertz Investment Group of suburban Los Angeles is the owner of the North Point complex.
Based in the Detroit suburb of Farmington Hills, MI, Friedman has an office in Cleveland. Friedman Real Estate Brokerage OH Inc. will handle leasing at North Point while another affiliate, Premier Construction & Design, will act as general contractor to oversee any renovations, repairs or construction on site.
“The receiver may commence any action the receiver deems necessary to enforce the terms of this order or to protect the mortgaged property or any other property under the control of the receiver,” according to the court order secured by NEOtrans from public records via Pacer’s Web portal.
The order notes that Friedman will possess the property but not own it. In possessing it, Friedman gains all keys, security codes, lease records, bank accounts, financial records, legal documents and other proprietary items relating to the North Point property. On the motion of the plaintiff, Wells Fargo, or the receiver, Friedman, are authorized to make a public or private sale of the mortgaged property, court records show.
However, the financial troubles involved here are more about the property owner Hertz and less about the office property North Point. As the owner of dozens of office properties nationwide, Hertz has had significant exposure to the post-pandemic downturn in the office market.
Hertz’s only other property in Downtown Cleveland is the 12-story Skylight Office Tower, 1660 W. 2nd St., in Tower City Center. In November 2024, ownership of the 27-story Fifth Third Center, 600 Superior Ave., was transferred from Hertz to its lender, an affiliate of Prime Group Finance of San Francisco. The transfer was due to Fifth Third Center being in foreclosure.
Hertz has more than a dozen office properties in receivership, sold off others and even imploded its 22-story Hertz Tower in Lake Charles, LA. On Sept 1, 2024, Hertz announced the appointment of a chief restructuring officer and revealed “significant doubts regarding the continued existence of the company.”
All three structures of the North Point complex — the 19-story North Point II office tower, the five-story North Point I and the 1,000-care parking garage — are visible from South Marginal Road next to the light-rail Waterfront Line (Google).
In the announcement, Hertz said its financial distress was the reason for the company possibly not being able to operate in the future. CoStar News reported this disclosure was likely due to concerns about the company’s ability to manage its debt and ongoing challenges in the office real estate market, particularly with declining office leasing rates.
In 2016, North Point was one of four office properties in the Midwest purchased by Hertz for $416.9 million. A $90 million mortgage on the North Point property was sold in 2019 on the securitized mortgage market by Citicorp and J.P. Morgan Chase to GS Mortgage Securities Corp. Hertz continued to make payments on the loan.
But that loan matured on Sept. 6, 2024, court records show. The principal would be due at the loans’ maturity to which Hertz reportedly could not pay. The principal would be difficult to refinance in this market. Sources who spoke to NEOtrans on the condition of anonymity say Hertz has had difficulty paying its own employees. A Hertz spokesperson could not be located for comment.
“During the preparation of the financial statements for June 30, 2024, the company came to the conclusion that an error had been made in light of the failure to disclose several transactions with related parties, as well as with the way of presenting the balances of liabilities,” Hertz’s September announcement said.
Hertz is also allegedly not paying its bills. On Sept. 17, 2024, Cresco real estate brokerage filed a mechanics lien on the North Point property for $34,444.71 in unpaid brokerage fees plus legal and other costs after securing two tenant leases at the office building, according to an affidavit filed with the Cuyahoga County Fiscal Officer.
The North Point garage and the North Point II office tower, at left, are visible from the Shoreway east of East 9th Street (Google).
“To date, owner has failed to pay brokerage the commission in accordance with the agreement and broker claims a lien on the property in that amount. Brokerage further asserts a claim for all costs and reasonable attorneys’ fees incurred to perfect and enforce its lien,” wrote Cresco’s then-Managing Director Nathan Kelly in the affidavit.
Kelly declined to comment on the latest developments. While he remains a consultant with Cresco, he became president of real estate services at the Playhouse Square Foundation last month. Back when the affidavit was filed, Kelly told NEOtrans he had no issues with the building management or the condition and tenancy of the building itself.
The 873,335-square-foot North Point office complex was built from 1984-1989 by the Ferchill Group. About 83 percent of the office space is leased, with 146,126 square feet listed as available. It recently attracted the EY accounting firm, has the General Services Administration’s offices and is still hanging on to its largest tenant — law firm Jones Day.
But that could change after next year. Jones Day’s lease is set to expire at the end of 2026. It leases about 340,000 square feet of the five-story, 377,694-square-foot North Point I building where Jones Day has been since 1984. North Point was built on the site of the Cleveland Press newspaper’s offices and printing plant.
Founded in Cleveland in 1893 and headquartered here until 2002, Jones Day now has its global HQ in Washington DC. But it continues to maintain a large presence here of nearly 600 legal and administrative employees, requiring at least 250,000 square feet of office space.
This pedestrian bridge over the lakefront railroad tracks links the North Point garage to the North Point office buildings. There are also 70 underground parking spaces below the two office buildings (Google).
Several real estate sources who spoke on the condition of anonymity said Jones Day has begun its search for a new office space. They are also willing to consider staying put. But the uncertainty over the future of North Point adds an extra wrinkle to Jones Day’s options, they said.
Although Friedman is a reputable receiver, in practice a receiver is typically a less effective property manager than an owner, the sources explained. An owner has an incentive to generate lease revenues while a receiver does not, they pointed out.
Having uncertain ownership and uncertain finances to pay for tenant improvements and provide effective maintenance can be an issue. Another property owner can use that message to lure Jones Day.
On the other hand, Jones Day, or any existing tenant at North Point has tremendous leverage with the present or future building owner. Of course, in this office market, a large prospective tenant like Jones Day would have leverage to negotiate favorable lease terms with most building owners.
END
