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CLEVELAND-Locally based KeyCorp has signed a 15-year lease to take about 221,000 sf of office in the 887,000-sf Higbee building, at 100 Public Square in Downtown. The new tenant will move about 1,000 software development, technology and real estate operations employees from the May building into the new space by the end of 2009.

The bank-based financial services company has been searching for new space for a year for the operations it now has in the May building, where it uses four floors and is leased until the end of 2010. KeyCorp’s lease at the Higbee starts in 2010, but the company will take possession in June 2009 to outfit the offices.

KeyCorp executives says in a statement that they could not complete growth objectives in the May building. The company has about 19,000 employees, with 6,500 of those workers in the corporate headquarters at Key Tower in the Downtown, as well as on Public Square, its district offices at 800 Superior Ave. and at 70 branches in the area. The company also has a 581,000-sf technology and operations campus and call center at Tiedeman Road and Interstate 480.

Henry L. Meyer III, CEO of the company, says in the statement that the Higbee space is adaptable and will result in operating efficiencies, as well as being close to public transportation and other amenities Downtown. The building’s other tenants include Elantic Telecom, Fiber Media, Verizon and XO Communications. Forest City Enterprises Inc. has owned the building since 1983, as part of the mixed-use, 6.5-million-sf Tower City Center property.

Patrick Lott, SVP of office development and leasing for Forest City, said that company had spent $50 million more than five years ago to upgrade building systems and amenities, and installed infrastructure to support technology-intensive tenants, in a switch to make the building an Internet hotel. However, the change came at the end of the cycle, just before those properties went bust, and now the building is only 38% leased. “We’ve recently converted it to a true office building,” Lott says. The 14-story Higbee, built in 1931, was formerly the home to the Higbee and Dillard’s department stores.

Though he can’t reveal the lease rate for this deal, Lott says the asking rate is in the high teens. According to a fourth-quarter Grubb & Ellis market report, the average lease rate for downtown is $23.46 per sf. Lott says the Higbee is still a consideration for the proposed Medical Mart, which would house permanent showrooms for healthcare companies. “Sufficient additional space–including space that offers direct access to a potential new convention center site–remains in the building,” Lott says.

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