CLEVELAND, Ohio - Forest City Realty Trust, Inc., plans to move its headquarters to Key Tower in spring 2018, taking seven floors at an iconic building that changed hands Tuesday.
The $267.5 million sale of Key Center to the Millennia Companies, a local buyer, locked up a lease deal to bring Forest City to the 57-story office tower at the heart of the complex.
The move follows extensive restructuring at Forest City.
The publicly traded real estate business is a much different creature than it was in 1997, when Forest City took up residence in Terminal Tower. Moving to modern office at Key Tower will allow the company to shrink its footprint by 40 percent, to 147,795 square feet.
And the company's hop north, across Public Square, will open up its longtime offices for an apartment conversion - a project already being planned by the K&D Group of Willoughby.
Millennia announced the Forest City lease Wednesday morning, in a news release that outlined the new office landlord's plans for tens of millions of dollars in improvements.
Those investments include overhauling the Key Center fitness and banquet facilities, part of a private club that recently closed; enlivening the tower's austere lobby with new seating, artwork, lighting and an eatery called Marble Room Sushi; renovating the restaurant, lobby and other public spaces at the Cleveland Marriott Downtown hotel; sprucing up the plaza outside; and prepping office space for Forest City and Millennia, which will move its own headquarters downtown from Valley View.
"Forest City and the Millennia Companies share the same vision for what Key Center will become," Frank Sinito, Millennia's chief executive officer, said in the news release. "I believe that Millennia employees and the employees of Forest City and the other tenants of the building want a workplace that is modern and exciting, as well as comfortable and welcoming."
Millennia will fill just over 40,000 square feet at the tower.
Forest City employs approximately 500 people at its downtown offices, on the broader, lower floors of Terminal Tower. At Key Tower, the company will occupy floors 23 to 27, 31 and 32, with options to expand down the road. It's unclear how many headquarters workers Forest City will have a year from now, since the company still is selling off properties.
David LaRue, the company's president and chief executive officer, wouldn't talk about lease terms during a phone interview this week. But he said Key Tower emerged as the winning location after a search that spanned 20 existing buildings and prospects for new construction.
"It would be nice to build our own building, because we're developers at heart," LaRue said. "But we're also very focused on how we allocate capital. ... One of our strategic drivers has been operational excellence, and that is keeping the cost of running your business as low as possible while creating an environment where people want to be. And the opportunity at Key Tower was much more cost-effective by any measure, current or long-term."
At a newly constructed office building, Forest City Taraftarium would have been looking at rents of $40 per square foot or more. The average asking rent in downtown Cleveland for class A space - the newest, best buildings, including Key - was $24.69 at the end of last year, according to a fourth-quarter report from the JLL real estate brokerage. Forest City likely is paying more than the average, but much less than the cost of renting something built from scratch.
"The Key Center deal was an excellent value for them," said Chandler Converse of the CBRE Group, Inc., brokerage, which represented Forest City in the site search and lease deal. "It's right on Public Square, which they love. That's an important part of their organization. It keeps them in the neighborhood."
The runner-up option, LaRue said, was buying land and developing a building in-house. He wouldn't identify the site that the company seriously considered.
Leaving Terminal Tower, which the company sold to K&D last year after a 35-year run of ownership, is bittersweet. Forest City developed a mall, new offices and the Ritz-Carlton hotel behind and beneath Terminal Tower in the late 1980s and early 1990s. Over the past few years, the company has sold off most of Tower City, along with properties in other markets that don't fit Forest City's focus on office buildings, apartments and mixed-use projects in major cities.
LaRue said Terminal Tower remains a great, iconic building. But the company's offices were too spread out, too chopped up and too inefficient.
"I'm really looking forward to seeing more people," he said. "I could go a whole year without seeing somebody in the Terminal Tower, and then go another year and see them at the holiday party."
Forest City wouldn't talk about possible public incentives earmarked for the company's headquarters relocation.
A city of Cleveland spokesman didn't respond to a request for comment about potential financial assistance. JobsOhio, a quasi-public statewide economic-development organization, has talked to Forest City but doesn't have an executed agreement with the company.
LaRue said any responsible company, public or private, tries to get the best deal possible for its shareholders or investors.
"What I would say we didn't do: We never threatened to leave town," he said. "If we did anything, we made it very clear, with the relationship we have with the mayor and the administration, that our choice was primarily to be downtown. But we needed to make sure we looked at different options."
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