Overview
Institutional Property Advisors, a division of Marcus and Millichap, is pleased to offer the opportunity to acquire a +/- 135,936 SF four-story office building that is 100% leased by AK Steel Corporation located in West Chester (Cincinnati MSA), OH. The Asset has served as AK Steel’s headquarters since its build- to-suit construction in 2007.
AK Steel is a leading producer of flat-rolled carbon, stainless and electrical steel products, primarily for the automotive, infrastructure and manufacturing, including electrical power, and distributors and converters markets. The company also provides customer solutions with carbon and stainless-steel tubing products, hot- and cold-stamped components, and die design and tooling. Headquartered at the Asset in West Chester, Ohio (Greater Cincinnati), the company has approximately 9,300 employees at manufacturing operations in the United States, Canada and Mexico, and facilities in Western Europe.
In March 2020, Cleveland-Cliffs (“Cleveland-Cliffs” or “Cliffs”) acquired AK Steel (including AK Steel International), vertically integrating its legacy iron ore business with quality-focused steel production and emphasis on the automotive end market. AK Steel became a direct, wholly owned subsidiary following the acquisition, retaining its branding and corporate identity. Cleveland-Cliffs is the largest flat-rolled steel producer and largest supplier of steel to the automotive industry in North America. Founded in 1847 as a mine operator, Cleveland-Cliffs is also the largest producer of iron ore pellets in North America. Cleveland-Cliffs employs more than 25,000 people across its mining, steel and downstream manufacturing operations in the United States and Canada. Cleveland Cliffs (NYSE: CLF) reported $22 billion in full-year 2023 consolidated revenues with a $1.9 billion EBITDA and a GAAP net income of $450 million.
Investment Highlights
STRONG TENANT
- 100% leased to AK Steel (“Tenant”) as their headquarters
- The Tenant’s parent company, Cleveland-Cliffs*, features is Fortune 185 on the 2024 Fortune 500 ranking
- Cleveland-Cliffs is publicly traded on the NYSE, ticker symbol “CLF”, with a market capitalization of $7.6 billion with $21.9 billion in revenue, $1.86 billion in EBITDA and $399 million in net income
- AK Steel is a world leader in the production of flat-rolled carbon, stainless and electrical steel products, primarily for automotive, infrastructure and manufacturing, construction and electrical power generation and distribution markets
LONG TERM TENANT WITH RECENT LEASE EXTENSION
- The Tenant has occupied the building since its development in 2007
- The Tenant signed an early lease extension running through July 2029
- The lease has a favorable NNN lease rent structure with landlord only responsible for capital improvements, which are amortized over the useful life of the improvement replaced
- The Tenant has two (2) five-year renewal options at the going rate for similar office spaces in the area
DESIRABLE BUILDING AND SITE FUNDAMENTALS
- Class A office building constructed in 2007
- +/- 135,936 SF across four stories with +/- 33,984 SF floor plates
- Large +/- 6.86-acre site with attractive underground executive parking and ample surface parking
- Institutionally maintained building with AK Steel being the only tenant since construction
- Central elevator corridor allowing for multi-tenant use in the future
- Amenities including commercial kitchen, cafeteria, and fitness center with a locker room
- The building contains a full basement which includes an executive parking garage and mechanical rooms
LOW-COST BASIS COMPETITIVE ADVANTAGE
- The Asset is being offered well below replacement cost and will provide future ownership a much lower basis than existing competitive buildings. Future ownership will have the benefit of:
- Potential continued renewal of the existing Tenant
- The opportunity to outcompete for potential tenants with additional TI funding and reasonable rents should the Tenant no longer wish to remain at the site
- High quality building limiting capital improvement costs over future ownerships hold period
- Limited new construction in the submarket
HEALTHY OFFICE MARKET WITH A LOW COST OF BUSINESS
- The overall vacancy rate in Cincinnati fell 70 basis points year over year to 8.9% while the national benchmark climbed 100 basis points to 13.8%
- Limited deliveries and positive net absorption have kept vacancy balanced, and at 9.2%, Cincinnati sits well below the national benchmark of 13.8%
- Stable vacancy will likely continue over the near term as few projects have broken ground over the past year, and space underway is at the lowest level on record
LOCATION, LOCATION, LOCATION
- The Asset is just half of a mile west of I-75, one of the main north/south arterials running through the Cincinnati MSA
- The Asset is within one mile of nearby amenities, including: National Retailers: Ikea, Kohl’s, and Target Local Restaurants & National Chains: Jimmy John’s, First Watch,Starbucks, Smoothie King, Buffalo Wild Wings, Red Robin, McDonald’s,P.F. Chang’s, and Applebee’s Entertainment: AMC, Main Event, Dave & Buster’s, and TopGolf Grocers: Costco, Kroger’s, Publix, Walgreens, and Walmart
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