Tower at Erieview and Galleria go up for sale, as RAIT presses pause on apartment plans (photos)

CLEVELAND, Ohio - The owner of downtown Cleveland's fourth-tallest building is doing an about-face, marketing the Tower at Erieview and the adjacent Galleria shopping mall for sale after more than a year of exploring a partial conversion of the skyscraper to apartments.

RAIT Financial Trust recently put the buildings on the market, at an undisclosed price. A listing package from real estate company HFF, Inc., started making the rounds last week.

The 40-story tower, at East 12^th Street and St. Clair Avenue, is only 45 percent leased, according to HFF's listing materials. The glassy, barrel-shaped Galleria is 60 percent leased. The property also includes a 421-space parking garage.

Related: Oswald Centre, former Eaton Center hit the market

RAIT's decision doesn't shut the door on a potential residential redevelopment of a third of the office space. But the listing throws the timeline for such a project into limbo - and signals that the Philadelphia-based company won't necessarily be the force behind renovations.

That's not shocking. RAIT is a publicly traded commercial real estate lender, not a buyer or developer of office buildings, shopping centers and housing. In December 2015, the company converted a $57 million mortgage on the long-troubled Erieview complex into full ownership of the properties. The investment remains an oddity on RAIT's balance sheet.

As recently as June, though, the company still seemed to be fine-tuning redevelopment plans. On June 23, the Ohio Historic Site Preservation Advisory Board voted to recommend the tower for a slot on the National Register of Historic Places. That designation, which is pending in Washington, D.C., will make the building eligible for federal historic tax credits for renovations.

Andres Viroslav, a RAIT spokesman, didn't respond to an interview request. Jaime Fink, a senior managing director at HFF in Chicago, declined to comment.

The Cuyahoga County Fiscal Office estimates that the property is worth just over $27 million. But the county's valuations aren't always a good reflection of what commercial real estate buyers are willing to pay.

Local consultants working with RAIT said the company has been considering two paths - redevelopment, down one road, and a sale or possible joint venture, down the other. Heather Rudge, a historic-preservation consultant, said she expects the National Register listing to come through by mid-September. That designation could be attractive to a buyer, she said.

"If another developer moves forward, it will generate significant federal historic tax credits," said Ryan Sommers, managing director of financial services at Project Management Consultants in Cleveland. "We've also secured a preliminary commitment from the state of Ohio for an up to $5 million state brownfield loan. Both of those programs, along with any other support, would benefit any subsequent developer-investor."

RAIT has spent money on building upgrades, including improvements to the elevators, the roof and heating and cooling systems. But pulling the trigger on an apartment project, which would involve moving office tenants and remaking the lobby, would be much costlier - potentially between $50 million and $60 million.

Alec Pacella, managing partner of the NAI Daus real estate brokerage in Beachwood, doubts that the Erieview complex will appeal to traditional office investors. "That's not where the true value lies," he said. "The true value lies in this redevelopment potential."

But the tower and, particularly, the Galleria have been tough puzzles for past owners.

The YMCA of Greater Cleveland took over one corner of the 1987-vintage mall and opened its new downtown branch there last year. Restaurants, offices and local businesses fill the other occupied spaces. But nobody's figured out a way to make the building feel vibrant, or cohesive. The largest tower tenants are Walter Haverfield and Weston Hurd, two law firms.

"This is a property ... that hasn't had a stable period beyond 24 months in the last 20 years," said Rico Pietro, a principal at Cushman & Wakefield/Cresco Real Estate in Independence. "There are signs of optimism, but there's a lot of work to do to either absorb the space as office or restack the building as residential."

Pacella said he's heard from local and national investors who are eyeing the buildings. He wouldn't predict a price for the property, though he said the complexity of the deal will eat into what any redevelopment-minded buyer is willing to pay.

"It's a hairy kind of deal, for sure," he said.

Over the last nine months, there's been a surge of interest from out-of-town buyers in the Erieview district, where office buildings at 45, 55 and 65-75 Erieview Plaza have been sold. In every case, the new owners are betting on the upside potential of renovating the properties, rebranding them and attracting new tenants to soak up substantial vacancies.