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“Free Rent,” reads a sign in the window of the building at the corner of Superior and Adams Streets downtown. And every weekday afternoon, dozens of people head for the building at 502 Adams.
But few notice the sign, and none go there to rent space. Instead, they go seeking lunch at the first-floor Subway sandwich shop — the building’s only tenant.
“The rehab of the building was completed in 2006, 2007, and then we got Subway in. And that was it,” said building owner Dino Sarris, a real estate investor from Chicago.
In 2011 Mr. Sarris began offering free rent, promising up to six months free depending on the length of lease a tenant signed.
“We had a couple of convenience-store types call. One felt the rent was too high, the other was not qualified [to get a loan],” Mr. Sarris said.
But other than that, there have been no offers to rent space in Mr. Sarris’ four-story, 16,000-square foot building, which is the only structure on the so-called Paramount block, where the old Paramount Theater once stood. It is directly across Superior Street from the Valentine Theatre.
Built in 1920, the building started as the National Bank of Toledo. It became known as the Bond Building when it was home to a men’s clothing store by that name. The Bond Store competed with another menswear retailer, the B.R. Baker Co., which was directly across Adams Street.
The Bond Building later housed Davis Business College. In the 1980s it was a flower shop before going vacant and falling to the federal Resolution Trust Corp.
Macid Corp., Mr. Sarris’ real estate company, bought it from the Resolution Trust Corp. in 1993 for $21,000.
At one point, Mr. Sarris considered selling it for use in a project for underground parking and a park the city was contemplating for the block. He then planned to refurbish it, but he shelved the plans when renovation of the Valentine was delayed.
Finally, in 2000 Mr. Sarris began renovating the exterior, then the inside, finishing in early 2007.
He said he spent $1.3 million on remodeling.
Why did he spend so much without having anybody committed to renting it?
“Between 1999 and 2001 I thought this town was going to move, that something was going to happen” Mr. Sarris said. “It didn’t happen.”
The building has finished bathrooms on each floor, new wiring and plumbing, and updated heating and cooling systems. Although Mr. Sarris did not replace the old elevator, the elevator shaft remains.
“It probably would take only 120 days to install an elevator if we had tenants,” he said.
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“When we put the sign ‘Free Rent’ up, I realized maybe I was asking a rate a little higher than the other older buildings are asking. So now we are reconsidering everything. This was a huge investment that has been sitting here without producing,” Mr. Sarris said.
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Mr. Sarris previously used two different real estate firms to market the building. Recently, he switched to a third, Flex Realty.
Tony Arvanitis, the agent who is marketing the building, said the rental rate sought previously was likely too high, considering downtown’s 21 percent vacancy rate. Mr. Sarris had been asking $9 to $11 a square foot.
Mr. Arvanitis said the three upper floors now will be $8 a square foot plus utilities, with the first floor at $12.50 a square foot.
“The thing is, it is a brand spanking new building on the inside. He used a lot of marble from Greece. He’s really done a nice job with it,” Mr. Arvanitis said.
Commercial real estate is classified as Class A, Class B, and Class C, with “A” being the best quality.
Mr. Sarris’ building is classified as Class B space despite the renovations. “This isn’t Class A, but I would put it close. I would call it Class B+,” Mr. Arvanitis said.
“Yes, there are some better buildings that are at $12 or $14 a square foot, but those are prime Class A space,” he said.
Rental rates aside, Mr. Sarris said other issues could be keeping tenants from renting his building, but he declined to name them.
The building is surrounded by a pay parking lot, and previously had issues with a crumbling sidewalk, but other buildings downtown suffer from similar issues.
Mr. Arvanitis said he thinks that the main problem facing Mr. Sarris’ property and others downtown is lack of demand for space.
“There doesn’t seem to be any new businesses moving into the downtown,” Mr. Arvanitis said.
Available numbers seem to confirm Mr. Arvanitis’ theory.
According to the twice-a-year MarketView Toledo office space reports by the Reichle Klein Group, a Toledo commercial real estate firm, the central business district’s vacancy rate has been consistently in the 21-22 percent range the last 3½ years. For the most recent 2014 midyear report it was 22.1 percent.
“It has been more or less the same. It’s not gotten dramatically better, but it’s not gotten dramatically worse either,” said Harlan Reichle, company president and chief executive officer.
Demand for prime Class A space mostly has been flat since 2011. Demand for good Class B space has been falling, while demand for smaller, older Class C space has been rising slightly.
The vacancy rate for Class A space was 16.2 percent in 2011, and as of last month it had risen to 19.9 percent.
Class B space vacancy was at 17.4 percent in 2011 and at 20.4 percent in June, while Class C space vacancy was 32.6 percent in 2011 and 27.3 percent in June.
As of June, the average lease rate for Class A space in Toledo was $18.27 per square foot; Class B space was $14.43 per square foot, and Class C was $9.92 per square foot.
Overall, lease rates in the central business district are averaging $14.37 per square foot, according to Reichle Klein.
For example, in Mr. Sarris’ hometown of Chicago last month, Class A space was averaging $40.06 per square foot, Class B space was $33.04, and Class C was $25.54, according to commercial real estate firm CBRE Inc. In Detroit, the June rates were Class A $21.58, Class B $17.29, and Class C $14.85.
In Cleveland, CBRE said the rates as of June were: Class A $20.49 and Class B $15.70; Class C rates were not available. In Columbus, the rates were Class A $20.75, Class B $16.46, and Class C $12.81.
Mr. Reichle said he’s uncertain what problems beset Mr. Sarris’ building, but “there are just plenty of other buildings around that don’t have as many problems to overcome.”
If demand for downtown space were greater, Mr. Sarris’ building might draw more interest. That it doesn’t emphasizes the lack of white-collar job growth downtown, Mr. Reichle said.
“If I had to put one thing on top of the list, that would be it,” he added.
Sam Zyndorf, a broker with the Toledo office of commercial real estate firm Signature Associates Inc., agrees that flat demand is the biggest problem downtown.
“The problem with Dino’s building is, if you are out there looking, you have better choices,” Mr. Zyndorf said.
Mr. Zyndorf said the downtown office space market “vacuumed out” in 1986 with a series of mergers and moves by large corporations. But Mr. Zyndorf and Mr. Reichle agree that a change, a recent one, appears to be occurring downtown, one that most did not see coming but could eventually rejuvenate the central business district
“There is more interest in downtown and that’s something that I haven’t said in the last 20 years,” Mr. Zyndorf said. “I can honestly say the downtown has some momentum. At least, there seems to be momentum, and it’s definitely got a lot of believers. These people weren’t believers in the last 10 or 20 years, but they are now.”
Tom Lemon, director of the Toledo-Lucas County Plan Commission, said a pile of anecdotal evidence exists over the last few years that points to improvement — even though the raw numbers and overall picture suggest redevelopment is stagnant.
“From our vantage point it’s been a gradual improvement over the last eight years. If you look at it not from month-to-month but rather today versus five years ago, it’s going in the right direction,” Mr. Lemon said.
“Right now it seems like, especially in the Warehouse District, that there’s more people interested in coming in here and doing something with the buildings,” Mr. Lemon said.
The biggest example of momentum is ProMedica’s recent decision to move its headquarters — and 700 employees — downtown to the vacant Toledo Edison steam plant.
But then last week the Lathrop Co. said it would leave Maumee for downtown Toledo because its executives “sensed momentum” downtown.
Tom Manahan, Lathrop’s chief executive officer, then cited the ProMedica decision as an example that helped convince the general contractor to relocate.
Matt Sapara, Toledo’s department of development director, said ProMedica and Lathrop are just two companies the city has talked to regarding relocating to downtown.
“There’s a dynamic going on where we have smaller companies that are jumping to the forefront and contacting us,” Mr. Sapara said.
Time to sell
Interest in downtown is now at a point where Mr. Sapara said he and a team of experts plan to “sell Toledo” to firms outside the metro area who plan to relocate.
“We plan to go to those markets that we know are shedding jobs for some reason,” Mr. Sapara said. “Dearborn, Michigan, is one place. We plan to go there, and I think we have a very attractive story here to tell.”
There is general agreement locally that renewed interest in downtown is being fueled by younger workers, many of whom would prefer to live, work, and play downtown.
Mark Rodriguez, CEO of Hickory Farms Inc., moved his company from Maumee to downtown two years ago. He did so, he said, mainly to recruit younger workers.
“As our work force has turned over we have tried to attract younger people that bring a different skill set — the understanding of new technology,” Mr. Rodriguez said.
“So our relocation to downtown Toledo has been a huge advantage getting top graduates to the company, as opposed to before, when we were out in the suburbs and they didn’t even want to talk to us,” the chief executive officer said.
Mr. Sarris said when ProMedica arrives downtown it may encourage more businesses to relocate, and thereby lift all boats with a rising tide.
“It’s a possibility that those [ProMedica] people are going to walk and do a little shopping. But what are they going to shop for? There’s nothing here basically,”Mr. Sarris said.
Mr. Zyndorf said that kind of thinking is based on an older lifestyle model — one that predates the Internet.
“There are changing lifestyles taking place. Your needs and how you get your services is changing,” Mr. Zyndorf said.
Young people don’t need a shoe store. They order shoes online, Mr. Zyndorf said. They don’t need a bookstore, they get their books online, Mr. Zyndorf added.
Bill Thomas, president of the Downtown Toledo Development Corp., said the biggest problem facing downtown is not enough residential space.
“All our residential, for all intents and purposes, is full. We have a need for more product, and people want to move downtown,” Mr. Thomas said.
But Mr. Reichle said he expects that in five or seven years “we’re going to look back and this [office] vacancy number will be reduced because ... many of those vacant buildings will be repurposed, and the one big area they’re going to be repurposed to is residential multifamily housing.”
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Realtors see hope as ProMedica eyes move to central Toledo.