Friday, October 21, 2016

Funiture & More Leases 20,000 SF at Dover Towne Center

Furniture & More Galleries signed a lease deal for 19,695 square feet in the Dover Towne Center at 1574 N. Dupont Hwy in Dover, DE.

The retail center totals 108,402 square feet in Kent County.

Wednesday, October 19, 2016

Philadelphia Market Isn't Slowing Down Anytime Soon

Matthew Rothstein, Bisnow

Although rents have been rising and more buildings are being built on spec than we’ve seen in years, optimism remains strong among some of the Philadelphia industrial market’s biggest names.

There is no more telling sign of the state of the industrial market today than the fact that manufacturing was not mentioned once at Bisnow's industrial event last week at Top of the Tower, the view from which is above. Rather, the industry on everyone’s lips is e-commerce, which means that far and away the biggest users of industrial space are warehouses and distribution centers.

E-commerce is growing at such an astounding rate that retailers are fighting to increase their capacity to meet demand—good news for developers, who are also having an easier time finding capital than ever before. “There’s so much appetite for industrial,” MRP Industrial’s Reid Townsend (below, center) said, “we can drive a better deal for each individual project.” “For every dollar of industrial that’s out there, there's about four dollars of capital chasing it,” added CBRE’s Mike Hines (below, left). “What’s more, this year it’s up to five dollars as opposed to four.” A big reason the market remains so bullish is that for all its impact on society, e-commerce still has room to grow within the economy. "For this year, e-commerce was 8% of total retail,” First Industrial Trust’s John Hanlon (at bottom, with microphone) said. “But that was a 4.5% growth in this quarter, and 15% from the year before...and total retail only increased about 2.3% [over that time frame].”

A big part of that growth is the increasing diversity of products commonly bought online. As e-commerce trades more in necessities, it becomes a more sustainable industry. “The warehouses had too many flat screen TVs in 2006,” said Liberty Property Trust’s Jim Mazzarelli (above, right), “But now if you look at our warehouses, they’re full of food and things that you can walk into a house and see five to ten of. “The consumer is pushing, not for the technology, but the needed products. And that’s what’s causing this trend to go consistently up,” Jim continued. “There’s another two-three years of runway for this, minimum.” This shift in the demands of e-commerce means that retailers are forced to constantly adjust to the logistics of fulfilling those demands. If they are used for more essential products, then shipping them quickly and efficiently becomes a need, not a want. Most of the industrial product that has been traded in the Philadelphia region has been outside of the city, in hot spots like the Lehigh Valley and South Jersey, for the standard reasons— it's easier to find space, cheaper to lease or buy the land (in general)—but the increasing demand for e-commerce to be faster and faster may soon change that.

“The industrial sector in the city proper has lagged behind,” says PIDC’s Tom Dalfo (above, right). “We’re seeing inquiries for sites to do construction, and getting a lot more interest in product that exists in the city. Part of the issue is the speed of delivery, and if you’re going to deliver food, you can’t be 200 miles away. Getting close to a population center is becoming a bigger deal.” Of course, any conversation about e-commerce has one retailer in particular’s name just waiting to be uttered: Amazon. It remains ahead of the curve on delivery speed, pricing and diversity, and it also buys more warehouse space than any other retailer in the region. Amazon’s quest for increased efficiency has led them to eschew the use of the post office or FedEx in some areas, using Uber drivers to make as many as 40 deliveries just between the hours of 8:00am and noon, Reid says. It’s such a tight timeframe that it requires a “unique design to retrofit [industrial] buildings.” “There’s some angst about what the long-term commitment of Amazon is to this delivery model,” Reid says. Rendering buildings functionally obsolete on a quicker timeframe than normal, as Amazon threatens to do, is a cause for concern, but if they abandon a space, developers have not had a hard time filling the vacancies. “If you build a building and it’s 75% occupied,” says Mike. “Someone’s going to pay you for that occupancy. Sellers aren’t concerned about vacancy today in the big box space, because they’re getting paid for it.”

If there’s one major concern among industrial developers for the continued growth of the market, it’s the potential for the labor pool to dry up. Automation in warehouses isn’t developing as fast as the warehouses are being built, which means that fulfillment and distribution centers require lots of staffing—and not every town can provide it. “Labor will be the big consolidator in this market,” Jim said. A test case for this concern is Carlisle, a suburb of Harrisburg that borders the Pennsylvania Turnpike and I-81, making it perfect for distribution centers. The only problem is that it already has so many, Mattel was forced to find a different location because they didn’t believe they could staff the warehouses they wanted to buy there. Of course, one town in central PA does not a crisis make, and other developers in the room cited the Elizabeth area of New Jersey as being ripe with potential labor. And then there’s the City of Philadelphia, which would require a “tremendous amount of construction” for labor to become scarce, according to Tom. “Our depth of the labor pool in the city is very deep and wide,” Tom says. “We also have the infrastructure of transit that will get people to workplaces.” In areas with a high concentration of industrial spaces, competition for labor will be very stiff—especially now, as retailers staff up for the holiday rush. Multiple panel members noted increased wages could be used as a powerful recruiting tool, which would be a welcome development for blue-collar workers, but not for developers already looking at compressed cap rates. “At this time in the cycle,” Reid said, “it’s very difficult to find a project that has it all in terms of both labor and tax incentives.” Despite those concerns, the Philadelphia region remains uniquely well-positioned in the current industrial market, if only because of its proximity to nearly a quarter of the country’s population. “You have incredibly powerful consumer demands in this area,” Jim said, “so warehouses have to be there.”

Hillwood Bringing 620,000-SF Spec Distrib Ctr Online in Central PA

Hillwood Investment Properties is nearing completion of its Trade Center 44 distribution center building, developed on-spec at 1495 Dennison Cir. in Carlisle, PA and slated to wrap construction later this month.

Hillwood broke ground on 50.4 acres in the Harrisburg Area West Industrial project back in October 2015.

When it delivers, the property will total 620,000 square feet and offer 96 dock-height loading positions with levelators and two drive-in doors, 32-foot clear heights, 3,000-amp heavy power, 52-foot column spacing and fluorescent lighting.

The building is currently available for lease, offered for a single user or divisible down to 200,000 square feet.

Tuesday, October 18, 2016

'Franklintown' dream renewed north of Center City

by Jacob Adelman, Staff Writer Philadelphia Inquirer

When Kevin Flynn moved his business to a former taxi garage north of Center City's office district in 1983, his was one of just a few occupied buildings among blocks of vacant lots and abandoned warehouses.

That was fine with Flynn, a property broker, investor, and developer of Harrah's Philadelphia Casino & Racetrack in Chester, among other projects.

He had relocated what is now the Flynn Co. to the area northwest of Broad and Vine Streets - remembered by some as the site of the 1970s' mostly unrealized "Franklintown" development scheme - because its little-trafficked streets made it easy to hop onto nearby highways to visit suburban clients.

Now, Flynn is preparing to bid those open streets goodbye, as a wave of development promises to fulfill Franklintown planners' largely forgotten dream of a vibrant northern extension to Center City.

"You'll be bumper-to-bumper trying to get out of here," said Flynn. "The roads will be jam-packed."

On the vast parking lot that fronted Flynn's two-story building - an eccentric warren of cigar-shop Indians, mounted hunting trophies, and ephemera recalling the 76-year-old's stint as a Marine - now rises a 32-story apartment building.

The 277-unit tower, the Alexander, is being built by Property Reserve Inc., the development arm of the Mormon Church, which unveiled its soaring Philadelphia Pennsylvania Temple about a block away in August.

About two blocks to the east, on the southwest corner of Broad and Callowhill Streets, Philadelphia's Parkway Corp. and a partner are developing a 239-unit, six-story apartment building as the eastern wing of their Hanover North Broad project.

Community College of Philadelphia, meanwhile, plans an 11-story complex beside its Spring Garden Street complex, with 500 student and nonstudent apartments.

And this month, to the south, PMC Property group plans to begin removing the concrete facade of GlaxoSmithKline's former 24-story headquarters in a bid to convert the long-vacant building into a glass-skinned office-and-residential tower with 360 housing units, to be called One Franklin Tower.

Those cumulative 1,376 new units will nearly double the 1,500 dwellings tallied by the U.S. Census in 2010, the most recent year data are available for the area between Broad and 18th Streets, from Race to Spring Garden.

And even more housing could be on its way, with the Archdiocese of Philadelphia set to present conceptual plans to community members next week for a possible development that could include residential buildings.

The interest in the area comes as developers seek to capitalize on its location near core Center City - where there are ever-fewer spots left to build - and the museums and parks along Benjamin Franklin Parkway.

"Pushing a couple of blocks north of the main business district provides great walkability, not only to the offices and jobs, but also to all the great amenities that line the Parkway," PMC executive vice president Jonathan Stavin said.

The activity in the area largely picks up on the never-fully realized Franklintown development scheme of the 1970s, which aimed to stem the loss of population from Center City with a new district of office towers, residential buildings, and hotels.

With the city's backing, area landowners - including the predecessor companies to GlaxoSmithKline and Peco Energy Co. - pooled their properties and cleared them for development.

But while the plan saw construction of the Glaxo headquarters tower, a hotel (most recently a Sheraton), and other buildings on the site's western half, it largely fizzled as it approached Broad Street to the east.

Paul Levy, president of the Center City District business association, said today's turnaround comes after the construction of the Barnes Foundation museum on the Parkway and the Mormon Church's moves to develop a large swath of vacant land into its apartment tower and temple complex.

"The result is a very positive connection that is being forged between the [central business district] and adjacent neighborhoods," Levy said.

But at the center of all this development, broker and developer Flynn expects the peace he's long enjoyed in his neighborhood to be upended by the coming wave of new residents.

Gone already are the days when cheap land let him enlarge his offices into a compoundlike state that includes the full interior - wooden wall panels included - of a since-demolished Kensington tavern and a big parking lot that doubles as a basketball court for Thursday night staff games.

Still, the real estate entrepreneur plans to leave the property intact for now.

"I'm not interested in making money off real estate here. This is our office," he said. "Where else are we going to put our basketball court?"

Thursday, October 13, 2016

Interview with Workspace Property's Roger Thomas -The Bold Contrarian Play for Liberty's Suburban Office Portfolios

By Randyl Drummer Costar
Workspace Property Trust this week closed one of the largest suburban office portfolio acquisitions of the year, acquiring 108 office and flex buildings and 26.7 acres of land in five markets from Liberty Property Trust.

The $969 million purchase with partners Safanad, a Dubai-based global principal investment firm; and affiliates of diversified investment firm Square Mile Capital Management LLC is WPT's second major transaction with Liberty Property and expands Workspace's holdings to 149 properties totaling 10 million square feet.

In the last year, Workplace Property Trust, led by former Mack-Cali Realty executives Tom Rizk and Roger Thomas, have so far amassed more than $1.2 billion in assets as part of its strategic plan to build a pure-play portfolio of suburban office properties in what they consider strategic locations.

Most investors continue to funnel capital into urban core office submarkets following millennial workers flocking into urban areas offering a "live, work and play" environment. However, somewhat under tha radar, U.S. suburban office markets have improved occupancy and rent growth significantly in the later stages of the economic recovery.

WPT President and Chief Operating Officer Roger Thomas proudly touted the firm's contrarian investment philosophy in an interview with CoStar this week.

CoStar:Why are you bullish on suburban properties at a time when most other investors continue to shy away from the segment?

Thomas:We've heard all the predictions - that there’s been a demographic shift and that all millennials want to live in the urban core and all employers are going to chase them and therefore the suburbs are dead or dying. We've seen Wall Street and the analyst community push the big institutional players like Liberty and Brandywine Realty Trust to get out or pare down their suburban office holdings. But suburban office is simply too big and important a component of the office market to simply go away.

We believe that the prediction of the death of the suburbs is greatly exaggerated. The desire of millennials to live and work in urban cores is true, to a point. They're young and before they have kids, it’s very exciting to live in an urban environment. But it’s only true to a point. Not all millennials want to live in the urban core, and not all employers want to be there.

We see the trend of the millennials living downtown to be part of a cycle. It may be a little bit longer of a cycle, but we think they will go through it and return to the suburbs when they start families, just as generations of adults before them have done. When we saw the pressure on the large institutional owners like Liberty to shed their suburban holdings, with no one else coming into the space to pick up the slack, that’s when Tom and I saw the opportunity. We see the disconnect.

What types of suburban assets meet your acquisition criteria?

When the market recovered in the mid-1990s (in the previous cycle), it lifted all property types, including suburban office. Almost all the suburban markets did really well across the board. (However,) we don’t think that will be the case this time around. While we think there’s a bit of a demographic shift, there will be haves and have-not properties.

The type of product we’re looking for are well-located properties close-in to the city, in communities with a 24/7 lifestyle lots of food and retail options, and good public and highway transportation infrastructure.

What we’re not looking for are those one-off assets, the corporate headquarters white elephants that are far flung out in the middle of nowhere, where you have to drive 10 minutes just to find lunch.

Can you give us a little background on how the mega-transactions with Liberty Property played out?

The $245 million acquisition of Liberty’s Horsham, PA portfolio was our first deal out of the box, closing last December. Having been in the public sphere through Mack-Cali and others, we know most of the players. Liberty had been shopping the Horsham portfolio, but it was not widely circulated, and we connected with them. The portfolio fit what we were looking for. It has maintained occupancy of 85% or above, for the most part, over the last 10 years.

Soon after that deal closed, in the beginning of 2016, we started talking again with Liberty, which was still in the middle of its disposition program of $1 billion in assets. We were impressed with the properties (in the second portfolio), which were well-leased and did not have a ton of deferred maintenance.

While there were understandable challenges putting together and executing such a sizable portfolio in the most recent transaction, all of the main players, including JPMorgan, Safanad, Square Mile and Liberty, worked well and cooperatively together to get to the finish. We hope to build on those relationships and take full advantage of the disconnect in the capital markets and our contrarian philosophy before the market tide shifts. Which we think is imminent.

At what point did Safanad come into the deal? Did you court them earlier for the Horsham portfolio as well?

Yes. We're very friendly with Safanad, particularly Vin Pica, their managing partner for North America. But it was a contrarian play and our first deal out of the box. So I think they were a little skittish about that and took a pass.

Once we closed that first deal, we went back to them again with the most recent Liberty portfolio and they were more interested. After we had the transaction tied up and structured with Liberty, we started working with Safanad. We started discussions around April, shortly after signing a non-binding term sheet with Liberty at the end of March.

Do you expect to broaden your search for suburban assets to other states or regions? Any markets or regions you’re not immediately interested in shopping for assets?

Some suburban markets may be a little too far along in the evolution of their recovery. Cap rates are bid way down and prices are pretty high. There are so many opportunities in other good markets that we may not chase the more expensive deals. We want to broaden our footprint and we don’t believe we’re limited to any geographic area.

I think the slowest suburban markets to recover may be those around New York City like Westchester County and New Jersey. They might present new opportunities. I think a market like Denver is almost too far along in its recovery; the cap rates are so low there.