Leader-Building-file

The Leader Building, at the southwest corner of Superior Avenue and East Sixth Street, will be part of the next wave of downtown Cleveland apartment conversions. The K&D Group of Willoughby plans to hold the building for two to three years before starting construction.

(Plain Dealer file)

CLEVELAND, Ohio -- Another downtown Cleveland building is set to become apartments -- and this time, the property isn't an empty office tower or a shuttered department store.

The K&D Group, Inc. plans to buy the Leader Building, at 526 Superior Ave., in a deal that could close by mid-August. Roughly 60 percent full, the 16-story office building is a longer-term, mixed-use play for K&D, which expects to sit on the property for two to three years before converting most of the floors to housing.

Coming on the heels of Weston, Inc.'s purchase of the Standard Building, a historic office building that is 45 percent occupied, the Leader Building sale points to the next chapter of the downtown apartment push. In the central business district, the number of empty buildings that make sense for apartments -- and qualify for valuable historic preservation tax credits -- is dwindling. So developers are looking more closely at half-full office properties that could accommodate spaces to live and work.

Built in 1913 for the Cleveland Leader newspaper, the Leader Building is a remnant of the city's old newspaper row. The 16-story office property is roughly 60 percent full. The K&D Group expects to buy the building in mid-August.

"We're buying it as an ongoing, existing office building, so this is much different than most of the deals in the past," Doug Price, K&D's chief executive officer, said of the Leader Building.

"I can tell you that the first floor is certainly going to stay retail," he added. "From there, we're not sure how many floors are going to stay commercial. But we're thinking we want to get about 230 apartments in there."

Price wouldn't say what K&D is paying for the 322,600-square-foot building. TriState Capital Bank, a Pittsburgh-based lender that has an office in Cleveland, is providing the acquisition financing.

An asset manager at Carlyle Development Group, which owns the property, couldn't be reached for comment. A New York investor, Carlyle paid $4 million for the building in late 2004 but declined to sell it in late 2012 for nearly $7.7 million -- the top bid in an online auction. The Cuyahoga County Fiscal Office now estimates that the real estate is worth $2.7 million.

Built in 1913 for the Cleveland Leader newspaper, the building isn't on the National Register of Historic Places. But preservation experts say it would qualify.

"Architecturally, it's a jewel," said Tom Yablonsky, executive vice president of the Downtown Cleveland Alliance and executive director of the Historic Gateway Neighborhood Corp. "It's very commanding. And culturally, it's very important, too. That whole [East Sixth Street] location is where newspaper row was."

K&D hopes to get the property added to the national register, making the redevelopment eligible for federal and state preservation tax credits. Those credits, a key financing tool for many downtown conversion projects, cut developers' costs and help attract investors to historic real estate.

The Leader Building, middle, pictured in 1954, could have a future as a mixed-use property with offices on several floors and roughly 230 apartments. The ground floor would continue to house retail space.

The sale will put apartment landlords in control of two key corners on downtown's East Sixth Street, a quiet corridor that developers and neighborhood leaders hope to revive.

The Millennia Companies of Valley View have a deal to buy the largely empty Garfield Building, at East Sixth and Euclid Avenue, for a residential conversion. That sale, scheduled to close in December, will make way for 172 apartments.

Investors are circling other nearby properties, including the 11-story Baker Building, which is listed for sale by the Newmark Grubb Knight Frank brokerage.

"At this point, the demand for downtown buildings to convert is really great, and the supply is getting short," said Geoff Coyle of the Ostendorf-Morris brokerage, which represented K&D in the Leader Building deal.

Price said he and K&D President Karen Paganini are looking at other opportunities downtown, as the Willoughby-based apartment company tries to line up its next five years of projects. Odds are that they, and other developers, will increasingly look to marry housing and offices, balancing demand for space.

"I think we're going to see more mixed-use, more retail and office, and then housing on the upper floors," Yablonsky predicted. "I think we're going to attract more businesses downtown if we aren't arbitrarily one thing or the other. Mixed-use is the way to go."