Berkadia, Berkshire Hathaway’s joint venture with Leucadia National Corporation, has arranged $262.5 million in acquisition financing for Key Center, Cleveland’s tallest skyscraper—a 1.3 million-square-foot, Class-A office tower and the adjacent Marriott Hotel and parking structure.
The property is located in Cleveland’s Public Square. Senior Director Mark Vogel secured the acquisition loan, representing Berkadia’s largest conduit loan to date. The deal was completed on January 31, 2017.
Berkadia represented The Millennia Companies, which is headquartered in Cleveland. The seller was Columbia Property Trust, Inc. The 10-year senior mortgage fixed loan lead by Citibank, included Bank of America and Deutsche Bank. Apollo Global Management provided the mezzanine debt financing.
“Key Center is an iconic part of Cleveland’s skyline and represents the state of Ohio’s tallest building,” said Vogel. “The institutions involved in this transaction acted extremely aggressively. They provided a substantial portion of the required capital to facilitate the acquisition and fund future improvements related to the hotel’s redevelopment and the building’s increased occupancy. Berkadia worked diligently with the entire Millennia team, and it was truly a collaborative effort.”
Built in 1991, the integrated, mixed-use complex Key Center comprises a 57-story office tower, a 400-room Marriott Hotel and a parking structure. It also houses the headquarters of both the property’s namesake, Key Bank, and law firm BakerHostetler.
At the end of 2016, the office tower was 82 percent leased. A portion of the asset will become Millennia’s new headquarters, moving hundreds of employees from Rockside Road to Key Tower over the next year. Millennia’s lease, along with the anticipated move of Forest City Realty Trust, Inc. to Key Center, will increase the building’s occupancy up to 95 percent.
“We are already in the design phase of a $24 million renovation to the tower lobby, plaza and hotel,” said Frank Sinito, president of The Millennia Companies.
Founded in 2009 as a 50/50 joint venture between Berkshire Hathaway and Leucadia National Corporation, Berkadia is a third-party commercial mortgage servicer, as well as an approved lender for Fannie Mae, Freddie Mac, and HUD/FHA.
The company is among the top Freddie Mac and Fannie Mae multifamily lenders.
Berkadia owes its origins to GMAC Commercial Mortgage Corporation, which was acquired in 2009 by Kohlberg Kravis Roberts & Co., Five Mile Capital Partners LLC, and Goldman Sachs Capital Partners. Christened Capmark Financial, the company had $10 billion of originations in 2008 and a servicing portfolio of more than $360 billion before running into bankruptcy in October 2009.
In a deal approved by the bankruptcy court, Capmark sold its mortgage loan and servicing to the newly formed Berkadia in a deal worth $515 million.
The deal brought Berkshire into the heart of the commercial loan serving business, and the company has one of the largest commercial real estate servicing portfolios.
© 2017 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.