Tuesday, June 19, 2018

Industrial Attention Shifting To S. Jersey As F. Greek Launches New Logistics Facility

by Steve Lubetkin, Globest.com
As space availabilities continue to tighten and warehouse rents soar in Northern New Jersey, South Jersey is getting more attention from developers and tenants seeking industrial distribution locations.

“A lot of it has to do with the lack of availability of class-A space elsewhere in the state and the lack of availability of large format buildings that are available to lease anywhere else in the state,” says David Greek of F. Greek Development. Greek discussed their new distribution facility in Logan Township in a wide-ranging interview with GlobeSt.com at the recent NAIOP I.CONN conference in Jersey City. “South Jersey, I think, plays an important role in that development going forward. It’s easy access to four or five big metropolitan cities within a day’s drive.”

The building is the 3.3 million-square-foot warehouse/distribution asset located at 2858 U.S. Route 322 in Logan Township.

“You can get from DC all the way up to Boston in a day’s drive of this site, so it creates a great hub for large distribution clients that are looking to put a large footprint down and service a lot of different markets. South Jersey is still affordable for a lot of people, as well. We’ve seen rent growth really climb, especially for infill in northern Jersey. We’ve seen 10-plus percent rent growth over the last three or four years, and a lot of tenants are getting priced out of that market, especially in the big format buildings. They’re looking for something more affordable.”

The owners originally bought the 415-acre property to the current owners in late 2016. It was the largest non-deep-water-port industrial land site sold in New Jersey that year. The Port of Philadelphia has high-cost and high-wage challenges, but he says there are positive factors as well.

“It’s also the epicenter of the largest demographic base of consumers in the United States in terms of income and disposable spending. We see a lot of our clients come in, they test the market, they like what they see.”

The widening of the New Jersey Turnpike south to Exit 6 in Burlington County has helped South Jersey.

“Interstate 195 at about exit 7 had been essentially a barrier for a lot of firms that were importing goods to the ports of Newark and Elizabeth. Since the widening of the Turnpike, that that traffic has been flowing, and we’ve seen really a lot more demand for our clients, south of Exit 6 down to where the Logan North project is based.”

Developed in partnership with Advance Realty, the master-planned industrial campus consists of 11 buildings ranging in size from 90,000 square feet to 1.1 million square feet with build-to-suit opportunities. Best-in-class design features include 40- to 45-foot maximum ceiling heights, slab-on-grade construction with live floor loads that exceed over 500 pounds per square foot, and industry leading trailer parking and loading ratios.

“The efficiency of the building is becoming increasingly important for a lot of tenants,” Greek says. “The way you design it, speed in and out of the building is really important. We’ve been paying a lot of attention to the speed bays of the buildings, and how much room the tenants have to maneuver inside.”

Situated at a mid-point between New York City and Washington D.C., in the heart of the country’s richest consumer demographic, Logan North offers unparalleled proximity to the region’s deep-water ports and transportation infrastructure. The Park provides direct access to Interstate 295, U.S. Route 322 and the New Jersey Turnpike, and is serviced by two Class 1 railroads, Norfolk Southern and CSX. It is located just 15 miles from Philadelphia Airport and the PhilaPort complex, 93 miles from the Port of Newark and Elizabeth, and 88 miles from the Port of Baltimore.

Under the New Jersey Economic Development Authority’s Grow NJ incentive program, Logan Township qualifies as a Priority Area. Tenants of Logan North would receive a base grant of $3,000 per year, per new job created, for a term of 10 years. Retained jobs would be entitled to 50 percent of the new-employee base grant amount, and projects may be eligible for more than a dozen additional bonus grants.
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Demand for Industrial Real Estate Shows No Sign of Abating (Video)

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Monday, June 18, 2018

Time to Sell Self Storage Properties? (Video)

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Lehigh University Student Housing Site Sells for $30+M to Hong Kong Investment Group

Campus Apartments sells a 71-building/383-bed, scattered-site student housing portfolio at Lehigh University in Bethlehem, P for  $30 million-plus.  A private investment vehicle managed by Hong Kong-based Beacon Assets purchased the property free and clear of existing debt. The 71 properties within the portfolio have prime ‘walk to campus’ locations and incredible access to nightlife and retail.  The portfolio achieved close to 99 percent occupancy during the last two academic years amidst strong year-over-year rent growth.  Lehigh University has an enrollment of more than 7,000 with growth of 25 percent expected during the next seven years.
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Corvest Realty and Balashine Properties JV for Warminster Purchase

Corvest Realty and Balashine Properties of Blue Bell, PA, formed a joint venture, to acquire County Line Commerce Center, a 427,421 square foot property in Warminster, PA, for $11.2 million.   Ackman Ziff arranged financing for the acquisition and for future capital and tenant improvements. Corvest and Balashine created the purchasing entity, CLCC Balacor, along with Millbrook Properties of Chicago, IL.
The new owners plan to spend $12 million for property upgrades including, among other things, a new amenity center, common area renovations, tenant improvements and exterior modifications. The 427,421-square-foot property is currently 36% occupied and 277,681 square feet of office space is available for lease. The property was formerly the headquarters of Fisher and Porter which was purchased by ABB several years ago. ABB still occupies a portion of the property. Preferred Properties bought the property in a sale-leaseback transaction with ABB in 2003 and made major upgrades to the property.
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Tuesday, June 12, 2018

Haverford Station Road property sells, LuckyVitamin expands

by: Natalie Kostelni Reporter Philadelphia Business Journal

$16.4 million

Cabot Properties paid $16.4 million for 444 E. North Lane, a 174,400-square-foot warehouse in Conshohocken. The seller was not disclosed. The building was built in 1974 and fully leased to David’s Bridal. John Plower and James Galbally of JLL arranged the transaction.

24,200 square feet

LuckyVitamin, which split from GNC, signed a long-term lease on 24,200 square feet at Spring Mill Corporate Center at 1100 E. Hector St. in Conshohocken. The company added 5,700 square feet to its existing 18,500-square-foot lease.

31,000 square feet

Independence Blue Cross will relocate its Independence Center for Innovation into 31,000 square feet at its headquarters at 1901 Market St. in Philadelphia. The innovation center is now in 1700 Market St. and will open next year. IBC also occupies other space along West Market Street. It has a call center at 1900 Market and Independence Live, a 10,000-square-foot center at 1919 Market.

Full story: https://www.bizjournals.com/philadelphia/news/2018/06/06/haverford-station-road-property-sells-luckyvitamin.html?s=print

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Monthly Economic Outlook — June 2018 (Video)

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Monday, June 11, 2018

As Distribution and Retail Sectors Converge, Industrial Demand is Outstripping Supply

The demand for industrial space is outstripping the supply, driven by the convergence of the retail and distribution real-estate sectors, according to speakers at a conference that brought executives from around the country, and the world, to New Jersey’s Gold Coast.

The first day of I.CON’18, an industry conference focused on the industrial property sector offered panels that brought together officials from the biggest players in the industrial real estate market like Prologis, as well some of the largest U.S. retail landlords like Brookfield Property Group, to talk to an upbeat group of more than 850 conference attendees.

The two-day event, which was sponsored by NAIOP and the Society of Industrial and Office Realtors (SIOR), was sold out, “clearly an indication of how hot the sector is," noted NAIOP President and Chief Executive Thomas Bisacquino.

The ballroom at the Hyatt Regency on the Hudson River waterfront in Jersey City, NJ, was packed as keynote speaker Gary Anderson, Prologis chief executive for Europe and Asia, offered his outlook for the industrial sector globally and nationally. The company’s portfolio is 64 percent in the Americas, 27 percent in Europe and 10 percent in Asia.

Anderson was the first one to address the theme of the day: how consumer shifts to online shopping rather than brick-and-mortar, and their desire for swift delivery, continues to fuel the demand for warehouse-distribution space.

“Commodity retail, sorry, is dead,” Anderson said. “I think that has been supplanted by industrial, in my personal view.”

Traditional retail’s opportunity now is to create experiences for consumers, according to Anderson.

Prologis is the leading landlord for one of retail’s biggest disruptors, Amazon.com, which is the developer’s single largest customer, Anderson said. He described the e-commerce behemoth as “maniacal” about customers and customer satisfaction, testing new models every day and taking a lot of risks.

During several of Thursday’s panels, real estate officials echoed Anderson’s remarks that the need to be close to consumers, to enable faster delivery, has transformed industrial real estate – warehouses and distribution centers ‐ into a retail business.

“You can’t have your product a three-day drive away. It’s all about getting closer and closer to the customer,” Anderson said, adding that in this environment, supply-chain decisions have become a strategic part of businesses.

At one panel, Jay Cornforth, Brookfield’s managing partner and global head of industrial, said that the sea change in the retail world presents new vistas for that real estate space.

“I can tell you we are advising Macy's on their supply chain and their stores in terms of how you might redevelop those stores,” he said. “There is no doubt that there is opportunities in their retail space to higher, better use. The way we look at retail is yes, we accept it’s changing, but well-located retail, particularly in malls that we own, will continue to have a great future.”

The participants at Cornforth’s panel “Insights into Global Capital Flows” agreed that the hot industrial market, particularly in areas like the New York metropolitan region, especially North Jersey, showed no signs of slowing down. In fact, it’s hard to find land or properties to acquire in the sector, which is why Center Point Properties is doing more redevelopments, according to Jim Clewlow, its chief investment officer.

“We struggle to find development sites,” said Marshall Loeb, chief executive of EastGroup Properties. “I can’t imagine what New York is like [...] if you look for a good site in Dallas or Atlanta, they’re few and far between.”

He said he’s not worried that the industrial sector will fall out of favor, but rather that demand is outstripping supply.

In some markets, absorption is outpacing supply by 30 to 50 percent, according to Amy Curry, regional director for GLP.

Because of the spillover of demand for industrial space in North Jersey, Cornforth added, “You are seeing development now pushed down to almost Philadelphia, down to Exit 2 [of the New Jersey Turnpike].”

The growth of the industrial market in Lehigh Valley, PA, over the past 10 years is essentially an extension of the North Jersey market, according to Cornforth.
Mark Eppli, a professor of finance and real estate at Marquette University, conducted the questioning of Prologis' Gary Anderson during the keynote presentation, and asked what kind of impact the development of autonomous vehicles would have on the industrial sector.

Anderson said there “are lots of implications to the supply-chain industry.” For example, driverless trucks could be on the road for longer periods of time than those manned by human motorists, whose hours are limited by federal regulations to ensure they have proper rest.

That could impact where regional distribution hubs are located, permitting them to be farther away than they currently are since autonomous trucks could drive long distances continuously, according to Anderson.

Eppli told the audience that a developer who is building a 20 million-square-foot facility in Wisconsin is planning to have an autonomous vehicle lane from General Mitchell International Airport in Milwaukee to its facility 20 minutes away, a route that would run from 11 p.m. to 4 a.m., by 2021.

The conference, which continues Friday, is being held by the national NAIOP organization in partnership with the New Jersey Chapter of NAIOP and SIOR. Dave Gibbons, chair of this year’s conference committee, is president of NAIOP New Jersey as well as president and chief executive of Elberon Development Group in Elizabeth, NJ. Attendees came from as far and wide as Brazil, Colombia, Mexico and "three from Hackensack" in New Jersey, Bisacquino joked.
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Top Owners of Apartment Properties near AmerisourceBergen’s Planned HQ in Conshohocken

Local Multifamily Landlords in Line to Benefit from the Pharma Industry Giant’s Relocation

AmerisourceBergen recently announced plans to relocate at least 700 employees from Wayne, PA to a new headquarters at the planned SORA West Development in Conshohocken, PA.

Conshohocken apartment rents are already rising significantly faster than the Philadelphia metropolitan area’s average and the relocation by the area’s largest publicly traded company by revenue will only bring additional momentum to an already thriving submarket.

As the developer of the SORA West project and the owner of at least two other large office properties in Conshohocken, Keystone Property Group is undoubtedly the main beneficiary of AmerisourceBergen’s relocation. However, a number of multifamily owners nearby the SORA West development site also stand to benefit, particularly given the restaurant, rooftop bar, and public space components that are also in planning as part of the project’s retail and hotel components.

The chart below uses CoStar’s radius search functionality to display the top owners (by units) of apartment properties within a one mile radius of the SORA West development site near the corner of W. 1st Ave. and Fayette Street.

The Riverwalk at Millennium, owned by a joint venture between Long Wharf Capital and Scully Co., and The Londonbury, owned by Invesco Advisors, are both high-end apartment communities less than a 15-minute walk from SORA West. They are first in line to benefit from the economic boost that Conshohocken will receive from the relocation. Plymouth Gardens, owned by Samuel Geltman & Company, near Sutcliffe Park is also less than a 20-minute walk from AmerisourceBergen’s new location.

Rents among all three of these properties have already been moving up over the past year, currently averaging $1,580 per month for a one-bedroom unit, up 3.3 percent compared to early June of 2017.

The jobs brought to Conshohocken by the AmerisourceBergen’s relocation and the additional retail amenities that SORA West is likely to eventually spur, can only benefit existing apartment landlords in this already healthy submarket. In particular, if Keystone Property Group decides to pass on including a residential component to SORA West, the viability of which the developer has been assessing over the past several months.
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Thursday, June 7, 2018

Robert Entin - Vornado Realty Trust - The Future of Commercial Real Estate Software (Video)

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Philadelphia Developers See Cause For Optimism, But Challenges From City's Tax Structure

by Steve Lubetkin, Globest.com
Commercial real estate development in Philadelphia’s burgeoning neighborhoods is facing a generally good economic climate, with only a few clouds on the horizon in the form of increasing labor costs, lack of skilled construction crews, and uncertainty about city tax policies, according to a panel of developers.

“There is an irrepressible march that is moving forward of improvement in the city,” says Bobby Fijan, a partner in Cross Properties. “Whether it’s restaurants and neighborhoods and creativity, and that sort of energy feels like it has just taken hold and it’s just going forward.”

“I think that the next 24 months look look strong for Philadelphia,” says Paul L. Badger Jr., president and CEO of The Badger Group. Badger thinks the city’s prospect of attracting the Amazon HQ2 development is good, but says regardless, “The city is positioning itself well to be receptive to new business, and that’s what’s really needed, jobs to help grow the tax base to help bring additional need for development, and continue to drive the demand.”

The “Meet the Developers” panel at the city’s Pyramid Club June 5 was organized by the Center City Proprietors’ Association, a networking chamber of commerce-style organization.

Rising construction costs in the market remain a major concern for developers, and could be playing a role in making outside investors hesitate about committing to projects here.

“Philadelphia has some of the highest construction costs of any city in this region but unfortunately we have rents that are commensurate with Baltimore and some of the more impoverished areas of the city,” says Badger. “So, without the proper incentives, it’s almost impossible to make a balance sheet work almost impossible to attract investment in the city and to raise capital. One of the biggest challenges that we have as a firm is getting outside investors to come into Philadelphia and invest in some of the projects that we are involved in.”

Tariffs on international shipments of lumber, in particular, are affecting the development business in Philadelphia, says Logan Kramer, CEO and founder of Design Pro Development, which is focused on development in the Brewerytown section of Philadelphia.

“My lumber costs gone up by about 12 to 14 percent,” Kramer says. “In terms of my pro formas for multifamily, I used to underwrite at like, $110, $115 dollars per square foot. I now have to underwrite it closer to $125 or $130 per square foot.”

One critical issue facing developers appears to be a lack of skilled construction workers, and the panelists called for improved training programs in collaboration with schools and local unions.

“I think there is a large amount of people in Philadelphia who are willing to work, but don’t have the skills to be anything more than a demolition contractor in distressed neighborhoods,” says Greg Reaves, principal and managing member of Mosaic Development Partners. “They have the ability to gain those skills, but I don’t think we have the labor education environment to basically take someone who’s currently unemployed, and in a year or two, they can be working on an electrical crew, or on a plumbing crew, and growing there.”

Despite these challenges, Philadelphia has significant strengths, the panelists agreed, with costs about 30 percent lower than other major cities.

“The market is super affordable,” says Kramer. “You also have a pretty good rate environment. The entry point  is really low in comparison to large cities.”

Better clarity in local tax policy would also help, says Post Brothers director of acquisitions Zak Klinvex.

“If there were a way to kind of make the taxes more predictable, even if it’s higher at first, but it gets you to the same place, and does it in a way that we can understand how to underwrite these deals to be a little more effective,” he says.
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AmerisourceBergen Selects SORA West for 400,000-SF HQ Consolidation

AmerisourceBergen has decided on Keystone Property Group's SORA West development in Conshohocken, PA to house a new consolidated headquarters.

Signing a 400,000-square-foot office lease there, the firm will consolidate and expand its operations, currently spread between Conshohocken and Chesterbrook, PA

With plans to house approximately 1,500 employees at the new site, AmerisourceBergen – with more than 21,000 associates worldwide – provides products and services as a partner in the pharmaceutical supply chain for thousands of healthcare providers, veterinary practices, livestock producers and global manufacturers.

"It is extremely exciting that Pennsylvania’s largest company by revenue is making a long-term commitment to the region in a way that will optimize operations and collaboration within the company. In addition, Conshohocken gets a new landmark that will be a catalyst in its continued growth as a semi-urban environment," said David R. Binswanger, president and chief executive of Philadelphia-based Binswanger, which represented AmerisourceBergen in its search.

The site is located at Fayette and Elm Streets in Montgomery County. When the project delivers in 2020, it will include the 400,000-square-foot office building in addition to a 1,500-stall parking garage, a 125-room hotel, public spaces and street-level retail and restaurants.
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Comeback Underway In Bala Cynwyd Office Market

Development, Renovation Activity Across Various Property Types Helped Push Bala Cynwyd’s Office Occupancy Rates to New Heights
Bala Cynwyd’s office market may not be exhibiting a red-hot leasing environment or 5 percent rent growth, but the area’s occupancy rate, currently 92 percent, has been gradually tightening since 2010 and is now near its highest levels in 15 years.

Coming out of the Great Recession, Bala Cynwyd struggled to compete for office tenants with nearby suburbs like Conshohocken or Radnor, both of which offer prospective lessees a larger stock of newer or more recently renovated office properties.

However, a gradual progression of development and renovation projects has helped Bala Cynwyd reassert its competitive edge.

The 2007 opening of a 120,000 Target across City Line Ave. from Bala Cynwyd added an additional anchor for retail traffic to the area. The new Target had helped support a range of popular restaurants along the periphery of the relatively new shopping center, including California Pizza Kitchen, Naf Naf Grill and Starbucks.

Since then, more than 750,000 square feet of office space has been renovated along the portion of City Line Ave., stretching from Interstate 76 to the Bala Regional Rail Station at Conshohocken Road. Lower Merion Township also approved new zoning ordinances to promote dense, mixed-use and transit-friendly development, and Post Brothers renovated and up-scaled roughly 1,000 apartment units at Presidential City.

Office owners in the area are beginning to see the benefits of these upgrades.

Existing financial tenants such as Investedge and Allied Mortgage both chose to stay in Bala Cynywd and expand their office space within the submarket during 2017. In the first quarter of 2018, auto parts remanufacturer Cardone Industries also decided to relocate its front office operations from Northeast Philadelphia to lease all of 15 Kings Grant Dr., a vacant, 57,000-square-foot Bala Cynwyd property where Keystone Property Group is underway on a full-scale renovation.

While its properties offer tenants ample parking ratios in line with other Philadelphia suburbs, Bala Cynwyd’s proximity to educated workers, particularly those living in and around Center City, is unparalleled among the metro’s suburban submarkets. The largest office property in Bala Cynwyd has about 190,000 residents with a bachelor’s degree or higher living within a five mile radius; more than double the tally that lives within a five mile radius of competing areas like Radnor, Conshohocken and King of Prussia.

If local owners continue to modernize Bala Cynwyd’s existing office stock, the narrative of underperformance that dogged Bala Cynwyd in the years following the Great Recession could very well be turned upside down.
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Tuesday, May 29, 2018

Dunham’s Sports to Open New 43,000SF Store in Pottsville, PA

by Steve Lubetkin, Globest.com

Dunham’s Sports retail sporting goods chain will open a new, 43,000-square-foot store at Fairlane Village Mall, according to Levin Management Corporation, exclusive leasing and managing agent for the 405,000-square-foot retail property. Formerly located in Frackville, PA, Dunham’s Sports will continue its long tradition of providing area consumers with a wide variety of value-priced, name-brand merchandise at the new Fairlane Village Mall location. Founded in 1937, the chain maintains more than 230 stores in 22 states, offering a full line of traditional sporting goods, outdoor and athletic equipment, and active and casual sports apparel and footwear for men, women and children. Shoppers will be able to access Dunham’s Sports from both exterior and interior mall entrances. Fairlane Village Mall is co-anchored by Kohl’s, Michaels Arts & Crafts and Boscov’s department store. The property features a lineup of national, regional and local tenants also including Harbor Freight Tools, T-Mobile, Dollar Tree, Schuylkill Valley Sports, Benigna’s Creek Winery, Kay Jewelers, GNC and Super Shoes, among others.
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Tuesday, May 22, 2018

Berger Rentals, Lancaster, PA Mainstay, Acquires 261-Unit MF Portfolio

by Steve Lubetkin, Globest.com
Berger Rentals acquired 261 residential units in a portfolio consisting of two multifamily properties—Quail Run Apartments and Stone Mill Station Apartments—for $25.5 million.

Each property was sold by two related entities that are all owned by the same investors. For Quail Run, they were Quail Run Holdings and OW Quail Run Holdings, and for Stone Mill Station, the owners were Stone Mill Holdings and OW Stone Mill Holdings.

All those entities appear to be owned by the same joint venture between Oscar Wercberger and Asher Handler, which acquired Quail Run for around $10.7 million and Stone Mill for $9.9 million, both in December 2015.

According to Real Capital Analytics, a proprietary research database, the joint venture for each apartment complex shares a mailing address in Lakewood, Ocean County, NJ. Handler is a managing partner of Redstone Equities, a real estate investment company that describes itself as focusing on “residential garden-style apartments, low- and mid-rise apartment buildings, several million square feet of industrial space, student housing and single family residential houses and townhomes,” in New York, New Jersey and Pennsylvania. The two properties appear on the Redstone Equities website’s portfolio page.

Both properties were refinanced in August 2017 through Fannie Mae, with Quail Run getting a $10.6 million first mortgage at a fixed 4.2 percent interest rate, and Stone Mill getting a $10.4 million mortgage at the same rate, according to Real Capital Analytics.

“The deal represented a value-add opportunity for the purchaser to obtain higher rents by upgrading kitchens and baths. This was the fifth time Kislak sold these properties, with the sale price higher each time as the rent roll has grown.”

Uniquely, the Quail Run Apartments at 1424-B Passey Lane in Lancaster, and Stone Mill Station Apartments at 250 Stone Mill Road in Manor Township, include 136 and 125 residential units, respectively, and were at 95-percent occupancy at time of sale. Both complexes are garden-style apartments consisting of 17 two-story and 11 three-story buildings, respectively, and are well-maintained and beautifully landscaped.

The unit mix for both properties is approximately 55-percent two- and three-bedroom units and 45-percent one-bedroom units.  Approximately 80 percent of the kitchens and baths have been upgraded with additional improvements to windows, roofs, hallways and stairs. Large spacious floor plans, walk-in closets, balconies/terraces or patios and individually-controlled HVAC are among the many features of the units.

The properties, within a half-mile of each other, are located in fast-growing Lancaster County with a population of more than 600,000 residents and centrally located with easy access to major Pennsylvania thoroughfares. Near major shopping centers, houses of worship and excellent public schools and many universities, the properties offer resident amenities such as off-street parking, private entrances, fitness center, on-site leasing office, playground and laundry facilities.

“Berger Rentals owns properties in the Lancaster market and these two are close by, increasing their presence in the market. The loan amount was approximately $21 million; the purchaser paid $4.5 million above the existing loan.” Freddie Mac financing was assumed by Greystone.
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Q1 2018 trends in commercial real estate investment markets (Video)

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Monday, May 21, 2018

Mixed-use development in multifamily today (Video)

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Developers building industrial space on speculation

Natalie Kostelni Reporter Philadelphia Business Journal

About half a mile from I-95 in Marcus Hook, Anthony Diver has five-and-a-half acres in the Chichester Business Park and he knows exactly what he’s going to do with it. It’s something he hasn’t done in 12 years, but Diver is certain he and the market are ready for it.

The owner of West Chester’s Tamora Building Systems is going to develop a 63,000-square-foot industrial building on speculation — with no tenants lined up for it. He’s confident in his decision, which will cost about $5 million. “The vacancy is low and the market is strong,” he said.

Diver is hardly alone these days in striking now with a spec industrial building; such properties — used for manufacturing or to warehouse and distribute goods — are in high demand. The market for them is seeing all of the characteristics that fuel spec development. The overall vacancy rate in the Philadelphia metropolitan area stands at 5.9 percent and, in some submarkets, has sunk lower than that. While there’s ample demand, a limited supply is under development and rents are on the rise, according to CBRE Inc.’s first-quarter report.

These aren’t the big box warehouses that are 500,000 square feet up to 1 million square feet commonly found in the Lehigh Valley and central Pennsylvania and used by the likes of Amazon and Procter and Gamble. Rather, these are typically one- to two-story nondescript buildings ranging from 50,000 square feet to 250,000 square feet and used by an array of companies.

From Route 422 to Quakertown
Jay Bown, whose Industrial Investments Inc. owns 3.6 million square feet of such space in the counties surrounding Philadelphia, hasn’t seen a market quite like this in his 30 years in business. “This is the tightest I can remember,” Bown said. “We’re leasing things as soon as we have availabilities.”

While typical warehouse space runs about $5 to $6 a square foot, which is still pretty steep, some of Bown’s flex buildings are fetching rents as high as $10 to $12 a square foot.

He is embarking on his own version of spec space at 475 N. Lewis Road, a 169,000-square-foot building in Limerick. Industrial Investments paid $7.25 million for the property, banking that a company or two will want to occupy it once the existing tenant, John Middletown Co., moves out later this year.

“Right now, along the Route 422 Corridor down to King of Prussia, there are very few chunks of industrial space available,” Bown said. “You can’t find 50,000 square feet to 100,000 square feet.”

That’s hard to come by not only along the Route 422 Corridor but regionwide, and that’s a new reality for industrial brokers. Nick Adams of Jackson Cross Partners is seeing the issue manifest itself across most submarkets and, as a by product, has caused a new and heightened interest in Quakertown, Bucks County.

“There is a lack of inventory all over and so we’re seeing folks coming from the Lehigh Valley because they can’t find available land there and companies are moving up from Lansdale and Montgomeryville because they can’t find land or space there,” Adams said. “There is land in Quakertown and it’s right at the interchange of the Pennsylvania Turnpike.”

Gorski Engineering Inc. has been at the forefront of the development activity in Quakertown, having built out 50 acres of Milford Commerce North along AM Drive for Pulse Technologies, Celerity Integrated Services and Precision Finishing. Gorski has several projects in the works: in April, it submitted land development plans for 30 acres along New Road in Milford Commerce South, it aims to construct a 120,000-square-foot build-to-suit manufacturing building along Richland Commerce Drive in Northfield Business Campus and expects to add a 60,000-square-foot facility over the next 60 days, Kathy Gorski said. Separately, Nappen & Associates developing a parcel on AM Drive and seeking approvals to construct a 79,000-square- foot industrial building on spec at 2100 AM Drive. 

Full story: https://tinyurl.com/y7azus33
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Wednesday, May 9, 2018

Korean Investment Group Wins Bidding for GSK's Navy Yard Office Building in Philadelphia

Liberty Property Trust sold the 207,779-square-foot office building at Five Crescent Drive in Philadelphia's Navy Yard to a unit of Korea Investment Management Co. Ltd. for $130.5 million, or approximately $628 per square foot.

Designed by Robert A.M. Stern Architects, the building is leased in its entirety to pharmaceutical company GlaxoSmithKline through 2028.

With its joint venture partner, Synterra Partners, Liberty has developed 1.6 million square feet of office and industrial space at the massive Navy Yard redevelopment. The two firms are currently developing 1050 Constitution Avenue for Axalta Coatings Systems in the Navy Yards project.

This is the second major property acquisition for the Korean investment firm in Philadelphia, following its February 2016 purchase of the 870,000-square-foot Cira Square in University City.
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Grocery Outlet Leases Space in Easton

Discount grocert chain Grocery Outlet has signed a lease for about 21,146 square feet in the retail shopping center at 2429-2469 Nazareth Road in Easton, PA.

The shopping center, known as 25th Street Shopping Plaza, totals approximately 131,045 square feet and owned by The Lightstone Group, according to CoStar information. Other tenants in the center include Petco and Dollar Tree.

Grocery Outlet has more than 280 independently operated stores in California, Idaho, Nevada, Oregon, Pennsylvania, and Washington.
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Subaru HQ in Camden, NJ (Video)

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Wilder Buys Silver Spring Square in Harrisburg from DDR

The Wilder Companies, a Boston-based retail developer and manager, re-entered the Pennsylvania market with its recent acquisition of Silver Spring Square, in partnership with an institutional real estate fund.

DDR Corp. sold the 342,600 square-foot shopping center for $80.8 million, or about $235.87 per square foot.

Located on Carlisle Pike (Route 11), approximately 10 miles west of the state capital of Harrisburg, the 11-year-old center is anchored by a 126,240-square-foot Wegmans Supermarket and shadow-anchored by a 139,377-square-foot Target and an 87,000-square-foot Kohl’s. Other major tenants include Best Buy, Ross, Bed Bath & Beyond, Petco, Lane Bryant and Ulta, as well as seven additional pads sites.

The property was 98 percent occupied at the time of sale including a recent new lease signed by Old Navy for 12,295 square feet, taking a portion of the former space occupied by Office Max.

"Silver Spring Square fits perfectly into our acquisition platform targeting dominant grocer-anchored centers throughout the East Coast. We are excited to reestablish our expertise in the Pennsylvania market."

For Ohio-based DDR, the sale marked the completion of the first asset sale from its Retail Value Inc. (RVI) spin-off, which is expected to begin operating as a separate firm this july seeded with of 38 U.S. retail properties and all 12 of DDR's Puerto Rico assets.
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Tuesday, May 8, 2018

Cambria Inks Full-Building Lease in King of Prussia

Cambria Company, a supplier of engineered quartz surfaces for kitchens, baths and other uses, leased the entire 60,486-square-foot, warehouse-showroom building at 780 Third Ave. in King of Prussia, PA.

Based in Le Sueur, Minnesota, Cambria's new location will serve clients in the Mid-Atlantic region for the family-owned, American-made producer of natural stone surface products.

Endurance and its investment partner, Thackery Partners, acquired the 50-year-old building as part of a five-building portfolio acquisition in early 2017.

The Cambria lease brings its King of Prussia portfolio to full occupancy.

"We are thrilled to welcome Cambria into our portfolio.Their use is perfect for the asset, and this building should enable them to serve their customer base for many years to come."

Endurance has made six acquisitions in the past two years totaling nearly 1.8 million square feet of office, warehouse, distribution and flex space. Its recent buys include Penn Warner Industrial Park, a 240,358-square-foot light industrial complex in Bucks County, PA, and 2000 Bishops Gate Blvd. in Mount Laurel, NJ, a 309,250-square-foot industrial building.
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J. Alexander’s restaurant opens in King of Prussia

By Katie Kohler

J. Alexander’s first Pennsylvania location is in a prime spot. It is on the boulevard across the street from the King of Prussia Mall, which is the largest shopping mall on the East Coast and welcomes 25 million visitors annually. It is also in front of the shuttered Joe’s Crab Shack and next to the highly regarded Capital Grille, which shows that success by proximity isn’t guaranteed and competition is fierce.

The restaurant opened in April, and its owners believe it will be a welcome addition to the area’s dining scene as it focuses on providing high-quality food, outstanding professional service and an attractive ambiance.

“Guests in King of Prussia will dine in a restaurant characterized by a distinctive architecture and ambiance,” said President and Chief Executive Officer Lonnie J. Stout II. “In creating this ambiance, we are using European stemware for all of our wine service, high-quality plate ware, roomy seating packages, furniture-grade tabletops, commissioned artwork, and a high level of detail finishes in all areas of the restaurant.”

Seated on a comfortable bar stool, guests will notice that the restaurant minds every detail, including the ice cubes, which are large and clear. There are two separate ice machines, one of which produces larger cubes that are used for cocktails and bar guests.

“They last longer and they melt differently,” pointed out general manager Steve Borriello, a Penn State University graduate and King of Prussia resident.

Borriello might hail from Doylestown, but it is evident he has been schooled in the southern-charm of J. Alexander’s Nashville’s roots. He answers with “yes or no ma’am” while maintaining the hospitable, never stuffy air that permeates J. Alexander’s.

The menu features a wide selection of made-from-scratch American classics – hand-cut steaks, prime rib of beef, fresh seafood and sushi, along with a large assortment of interesting salads, sandwiches and homemade desserts. There is also a rotating selection of unique features, examples of which include Seafood Czarina, Tuscan Steak, Fresh Grilled Fish with Mango Papaya Salsa and Chicken Milanese. There is also a full-service bar with cocktails and a wide selection of award-winning wines by the glass and bottle.

The menu begins with deviled eggs, spinach con queso, and calamari, which shows J. Alexander’s desire, as Borriello says, to cater to everyone and touch every flavor palette.

Borriello’s menu favorite’s include baby back ribs, which are slow roasted in an Alto-Shaam oven, finished on a hardwood grill, then covered in Plum Creek BBQ sauce.

“The meat falls off the bone,” Borriello said

He also touted the prime rib, carrot cake, and the avocado bomb (ahi tuna and crab in a cappuccino cup lined with avocado served with warm tortilla chips), which is one of his best sellers.

“People will be interested when they come try us,” he said. “Being located near three hotels is great for us. We’ve developed relationships with them and are getting our name out in community. We are going to offer something that isn’t as necessarily as fine dining as the Capital Grille, but the food quality will be as good as Capital Grille and they won’t have to pay top dollar. The quality of the service, food and price point is something that is unique to us.”
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Ground broken for East Norriton luxury apartments

By Gary Puleo, The Times Herald
The mixed-used dynamics of Bentwood Executive Campus will get a sizable upgrade when The Residences at Bentwood debuts next spring.

Tornetta Realty has owned the property at 201 E. Germantown Pike near the Plymouth Meeting border since the early 1970s, when the term “mixed use” was as unfamiliar to folks as the words “social media.”

While the site has been anchored by a hotel (currently Hyatt House) for 18 years, the time has come for some intensive expansion into amenity-rich housing on the 25 acre-plus property, noted Brett Altman of Altman Management Company, which is collaborating with Tornetta on the project.

At a groundbreaking ceremony held on Thursday for the five-story building that will house 261 luxury apartments, a resort-style spa and fitness center, Altman noted privately that research indicated the market is ready for The Residences at Bentwood.
“We think there is a pocket here that will support what we have in mind,” he said. “We have a strong corridor that includes Einstein (Montgomery) and the exchange of the turnpike and 476, which includes Plymouth Meeting Mall and the office buildings. There is workforce housing along the corridor that is well served, but nothing at the next level. The quality of our product will rival what’s going on in King of Prussia or anywhere.”

Jay Tornetta, President of Tornetta Realty and Valley Forge Properties, who attended Thursday’s ceremony, along with East Norriton Township Board of Supervisors Chairman Dennis DeSanto, noted that “Altman and Tornetta are both committed to long-term investments, high quality and maintaining family-run cultures. We also share a vision for quality and creating a new lifestyle option for both legacy residents and new households moving to Montgomery County, so it is a great opportunity to work together.”

With financial backing from Bryn Mawr Trust, the Tornetta-Altman alliance was a natural one for two iconic organizations, Altman allowed.

“Tornetta has had this ground forever and they decided they were better off doing a multi-family development instead of commercial, so they wanted to partner with someone who does this, and this is what we do. We run about 12,000 apartments in Pennsylvania, New Jersey and Delaware. We’re a family business that started in 1948 and Tornetta started about the same time with what they’re doing. So we’re both multi-generational family-driven businesses.”

Working with the Altman Group on the luxury apartments are its affiliated companies Elon Development and general contracting firm Allied Construction Services, along with architectural firm Barton Partners, which created a structure described as a unique, serpentine-shaped structure that allows for common spaces.

“We always say all of our projects involved all four of our disciplines — land planning, architecture, interior design and landscape architecture. That’s the hallmark of our firm, and this project involves all of that,” said Bruce Adelsberger of Barton Partners.

An aesthetic highlight of The Residences will be the two courtyards, noted Barton project manager Laura Gamble.

“One courtyard will be very active, with a bocce court, pool deck, plantings all around, and outside will be more of a Zen garden that will be more of a quiet, tranquil place,” she explained.

Bob Bluth of Altman Management added: “Everything from the room layouts to the materials selection and even the color palette includes unique touches. Also, the amenities program is as extensive and thoughtful as a resort’s. The project will also feature a multi-tiered parking garage that will give residents private access to their corresponding apartment floor. We are eager to see the final product delivered.”

The first phase of The Residences at Bentwood is expected to be ready for occupancy in April, 2019, with the completion coming sometime in mid-summer.
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Virtual reality arcades opening around Philly region

by Connor Smith, Staff Writer Philly. com
At least nine virtual reality locations have opened in the greater Philadelphia region, from Langhorne and Glenside to Philadelphia and, soon, Ocean City, N.J.

Entrepreneurs are investing in high-end equipment and renting out their arcades to families, employers, and anyone else who wants to experience the cutting edge of virtual immersion, writes Connor Smith at philly.com.

At Liberty, the new VR arcade in Glassboro, you can stare up at the Eiffel Tower or roam the streets of Disney’s Magic Kingdom. “Elven Assassin” seeks to give you a true feel as you reach for your quiver, nock your arrow, and fire at hordes of orcs and trolls that rush toward your base. And games like “Fruit Ninja VR” can be an intense, fruit-slashing workout if you don’t mind flailing your arms like a fool.
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Monday, May 7, 2018

Real risk of recession in 2019: Dan Niles (Video)

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FedEx Freight Plans 25 Distribution Center Openings, Expansions Across U.S.

A company official for FedEx Freight, which just moved into a large new service center in the North Jersey Meadowlands, reported Wednesday that the company will be opening or expanding roughly two dozen more such facilities this year.

FedEx Freight and North Arlington, NJ, officials attended a ribbon-cutting ceremony and open house at the 140,000-square-foot distribution center at 38 Porete Ave. (pictured, above). The new building features 165 docking doors and sits on 45 acres, making it as one of the largest FedEx Freight terminals in the nation by acreage.

The service center, which employs 165 people, opened in January. It is just one part of the Memphis, TN-based freight carrier’s growth plans nationally this year, said Sean Healy, senior vice president of transportation, international, planning and strategy for FedEx Freight.

"In 2019 we will have over 1,500 dock doors throughout our network," said Healy of the company's plans to open or expand 25 facilities in fiscal 2018.

The new facilities will include one in Rockaway, NJ, and several in Long Island, NY. 

The debut of FedEx Freight's center in Bergen County is yet another sign that the demand for logistics and distribution space in the Meadowlands - with its available land and proximity to New York City and metro highways, ports and airports - isn’t waning.

The new facility that FedEx Freight is leasing, built on a former Bethlehem Steel site, is owned by Moishe Mana, the billionaire moving-company magnate and real estate investor.

He and his Jersey City, NJ-based company, Mana Fine Arts, are so bullish on the North Jersey industrial market that they just put the North Arlington property on the market for an asking price of $145 million., or $1,041 a square foot. That would, by a wide margin, top any other price paid in recent years for an industrial property in the Garden State.

Nir Eshed, a Mana Fine Arts executive who is also the sales broker on 38 Porete Ave., attended the ribbon-cutting, along with about 60 other people. Afterward, Eshed defended the high asking price for the property, citing the 20-year lease that FedEx Freight signed, backed by an investment-grade guarantee from its parent FedEx Corp., and the size of the tract, which is large enough to construct additional buildings.

As evidence of the strength of the Meadowlands market, Eshed said that Mana Fine Arts was in the process of selling two acres of a roughly 20-acre site it owns at 500 Schuyler Ave. in North Arlington, for $4 million, or $2 million an acre, to the utility PSE&G.

FedEx Freight relocated to North Arlington from a service center that it had outgrown in South Newark, according to Healy. 

"We had 50 less doors than here," he said. "We weren’t able to expand that facility and we needed more capacity. The yard was too small for the trucks we had in it."

The New York metro market is a crucial part of FedEx Freight’s network, and the new facility will help the company expand its presence there, said John Smith, senior vice president of operations for the company.

FedEx Freight already had eight New Jersey service centers in Delanco, Elizabeth, Farmingdale, Monmouth Junction, Vineland, Wayne and two in Newark, according to Smith. And it is in the process of trying to enlarge a facility in Middlesex County.

"There are some locations in New Jersey that we are looking to expand," Healy said. "We were at one today at South Brunswick. We’ve got about 110 doors in South Brunswick and we need to add probably 25 to 50 more doors there. So we’re working with the township and the council there to get approval to acquire some additional property that’s adjacent to our current facility."

The company is also already planning to expand the North Arlington facility, to add onto the building, a couple of years down the road, both Healy and Smith said. 

FedEx has more than 10,000 employees in New Jersey, said state Assemblyman Gary Schaer, D-36th District, who also spoke at the event.

FedEx Freight is one of three operating companies of FedEx Corp., with the other two being FedEx Express, for air-parcel delivery service, and FedEx Ground, for ground delivery, according to Healy. FedEx Freight offers Less-Than-Truckload (LTL) delivery service, with a typical load being two pallets weighing 1,000 pounds, he explained.
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Friday, May 4, 2018

Prologis to Acquire DCT Industrial Trust

Prologis Inc., the world's largest logistics property owner, has agreed to buy Denver-based DCT Industrial Trust Inc. for $8.4 billion in stock and assumed debt.

The boards of directors of both companies unanimously approved the all-stock definitive merger agreement in which Prologis will add DCT's existing 71 million-square-foot portfolio plus 7.1 million square feet of development and redevelopment projects and 195 acres of land, predominantly in Seattle, Atlanta, South Florida and Southern California, with development potential of 2.9 million square feet.

The merger also includes 215 acres of projects under contract or option for sale in New York and New Jersey, Southern California, Northern California and Chicago with build-out potential of more than 3.3 million square feet.

The portfolio bolsters Prologis’ (NYSE: PLD) presence in such high-growth markets as Southern California, the San Francisco Bay Area, New York and New Jersey, Seattle and South Florida. Prologis Chairman and Chief Executive Officer Hamid Moghadam said the San Francisco-based REIT has for some time considered DCT’s portfolio to be complementary in quality, market position and growth potential.

Gene Reilly, Prologis CEO of the Americas, noted that the company expects to sell off about $550 million of the DCT property over the next two years, less than 7% of the portfolio.

"This high level of strategic fit will allow us to capture significant scale economies immediately," Moghadam said. "What we're picking up is 71 million square feet of irreplaceable real estate and we're keeping 93 percent of it. It would have taken us years and years to [aggregate] this portfolio in this type of market."

Moghadam noted that the two companies' complementary portfolios in key submarkets, sometimes within the same business parks like DCT properties in Sumner, WA; Brisbane, CA in the San Francisco Bay Area and Miami's Beacon submarket, make the merger more valuable than the sum of its parts.

"Having that kind of share and market presence, the ability to move tenants around and the ability to understand tenants' options and be able to serve them better, those are all intangibles that we have certainly not factored into the economics of this transaction," Moghadam said.

Logistics Firms Join Lodging, Mall Cos. as M&A Targets
Analysts said to expect more consolidation activity this year among REITs and other real estate operators.

In addition to the proposed Prologis/DCT merger, Marriott Vacations Worldwide Corp. today agreed to buy ILG Inc. in a stock-and-cash deal valued at $4.7 billion, creating the largest luxury brand for timeshare vacation resorts. The pairings are the second and third notable real estate buyout transactions announced this year, in addition to mall owner GGP Inc.'s acceptence of a $9.25 billion cash-and-stock offer from Toronto-based Brookfield Property Partners L.P.

In the lodging sector, Pebblebrook Hotel Trust last week stepped up overtures to buy LaSalle Hotel Properties, upping its offer to $3.7 billion.The proposed $26.5 billion pairing of T-Mobile US and Sprint Corp. announced over the weekend could affect millions of square feet of commercial property.

With REITs trading at discounts to net-asset values in the mid-teens and the market awash in public and private capital, 2018 is positioned to be a year of consolidation, REIT analyst Mitch Germain said in a note to clients.

"We anticipate the potential for additional M&A activity as there are record levels of private-equity dry powder on the sidelines and debt financing is readily available," Germain said.

Logistics has been among the hottest property sectors as e-commerce growth has fueled demand for more distribution centers, including locations near population centers in the final link of the supply chain to ship online purchases quickly to consumers. The transaction is Prologis's largest since the $8.4 billion acquisition of AMB Property Corp. in 2011, at the time the second-largest industrial REIT behind Prologis.

John Guinee, analyst with Stifel, Nicolaus & Co., said investors should look for more mergers & acquisitions activity in the industrial REIT sector amid impressive operating and leasing conditions and stronger-than-expected e-commerce demand.

"While we do not expect a topping bid [for DCT], we do assume that the other industrial REITs will be fielding or fending off acquisition proposals sooner than later," Guinee said.

The merger reflects the frustration of many buyers and abundance of capital trying to compete for a very limited number of logistics assets coming to market, said John DeGrinis, senior executive vice president, North Los Angeles in Colliers International's Encino market.

"This doesn't surprise me," DeGrinis told CoStar News, adding he expects to see more M&A activity in the sector. "It was becoming very evident a year ago that these two REITs and 30 or 40 other companies are all trying to do the same thing, which is buy and lease industrial properties or buy land to build assets."

"Keep in mind that when a big portfolio comes to market, there are probably 100 entities that would love to buy it, but 40 guys that get the offering memorandum and only one wins," DeGrinis added. "It's so difficult that I was wondering when the REITs would start taking over one another as another way to amass assets."

Under the terms of the deal expected to close in the third quarter, DCT shareholders will receive 1.02 Prologis shares for each DCT share. The price represents a roughly 16% premium for DCT shareholders. Prologis expects DCT President and CEO Philip Hawkins to join the Prologis board of directors.

Matt Kopsky, REIT analyst with Edward Jones, said the merger is a good strategic fit, as DCT owns warehouses in high-growth markets, which overlap nicely with Prologis's portfolio.

"DCT has a robust development pipeline in core markets," Kopsky said. "While a lot of [the pipeline] is speculative, we believe there is strong demand in these markets to fill them quickly."

While the economic cycle is in its later stages, Kopsky said industrial property markets have strong staying power given the growth in e-commerce demand and the modernization of supply chains to accommodate that growth.

"Well-located industrial real estate has pricing power and we believe that Prologis paid a fair price to acquire more of this," Kopsky said.

J.P. Morgan is acting as financial advisor and Mayer Brown LLP serving as legal advisor to Prologis. BofA Merrill Lynch is serving as financial advisor and Goodwin Procter LLP as legal advisor to DCT.
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Stable CRE & Construction Market Conditions into 2020

Office completions are expected to peak this year and begin trending lower amid signs of a slowdown in U.S. office demand, a declining working-age population and an extended economic recovery entering the late stages.

That slowdown in construction is a good thing for office investors as it should keep supply in check and help extend the stable growth seen in office rents and sale prices.

Total office space under construction fell 7% in the first quarter of 2018 to 141 million square feet, down from 152 million square feet during the first quarter a year ago. The drop in construction occurred even as the national office occupancy rate continued to cruise in the first three months of the year at just under 90 percent, according to data presented at CoStar's First-Quarter 2018 U.S. Office Review and Forecast.

"It’s been a remarkable cycle, especially lately, with very little movement in occupancy over the past year," said CoStar Managing Consultant Paul Leonard, who presented the first-quarter office market analysis along with CoStar Portfolio Strategy Managing Director Hans Nordby.

With demand largely in check with supply in most metros, the national office market remains in a period of stability, Leonard said. While, annual rent growth has fallen well below the market peak of 5.6 percent, average office rents continue to increase at a healthy 2.1 percent clip.

"We're expecting very little rise in vacancy over the next few years, maybe one or two tenths of a percentage point through 2019," added Leonard. "That's why we're continuing to see good rent growth even though demand growth is beginning to slow."

While new construction is trending lower, office deliveries are expected to peak in 2018 as several large build-to-suit projects, such as Apple's mega campus in Cupertino, CA, reach completion. Office construction levels are expected to slow considerably in 2019 and 2020, Leonard added.

"Construction starts are down year-over-year and have been basically flat for two years," Leonard said. "Uncertainty in the remaining length of the cycle, coupled with diminished rent growth, will give enough developers pause, slowing the supply trend overall."

Despite the decrease in office construction activity, the level of speculative construction, which involves new development without a tenant commitment, is continuing to ramp up.

This is partly due to several high-profile built-to-suit projects reaching completion, resulting in a slow increase over the past year in the amount of space available for lease as a percentage of total office space under construction, Leonard said.

While the increase in speculative activity bears watching and certain markets, such as San Francisco, continue to see elevated office construction levels, the decline in new construction activity overall is good news for the market, Nordby said.

"The total amount of office space which is under construction is trending downward before the market hits the wall," Nordby added.
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JV Acquires, Will Recap 123 South Broad Street

by Steve Lubetkin, Globest.com
A joint venture of SSH Real Estate and Young Capital, in partnership with the real estate arm of Quilvest Private Equity, is undertaking a $100 million recapitalization of the 880,000 square foot 123 South Broad Street and Witherspoon Building complex. Located in the heart of Philadelphia’s Central Business District, the property consists of the entire block on Broad Street from Walnut to Sansom Streets.

“We are excited to partner with Quilvest, an institutional investor with international real estate acumen. Quilvest’s investment and the new financing will enable us to complete our vision to make 123 South Broad Street the premier historic office building in Philadelphia,” says Peter Soens, partner of SSH Real Estate. “The building’s unique footprint allows us to easily accommodate tenants of all sizes from pre-built, 1,000 square foot suites to as much as 100,000 square feet across multiple floors. With top floors – 24-30 – available in June, we are excited to be able to offer best in class beautiful high ceiling space with incredible views along the Broad Street corridor.”

SSH Real Estate and Young Capital purchased floors six through 30 of 123 South Broad Street in March 2008, and invested in a capital and leasing program, updating the building’s mechanicals to reduce operating costs and undertaking repairs to the façade and interiors to achieve class A standards.

Over a four-year period, the aggressive leasing strategy successfully repositioned the property and increased occupancy from 79 percent to 95 percent. Wells Fargo is the anchor tenant with 225,000 square feet of space across multiple floors. The building is the headquarters of SSH Real Estate’s 60-person team, and includes a diverse mix of more than 50 professional companies and non-profits.
Along with Quilvest—an international wealth manager and private equity investor with $36 billion in assets under management—the new partnership plans to invest capital to renovate the lobby and other common areas, create new best-in-class tenant amenities and accelerate the current leasing momentum.

Over the last year, 11 new tenants have leased space totaling more than 75,000 square feet, and the property continues to attract creative users, innovative technology firms and traditional office tenants, such as Finch Brands, Design Science and Neumann Finance Company.

With capital allocated for building and tenant improvements, including upgrading the lobby and commons areas, the partnership is also exploring repositioning the building’s two-story dramatic penthouse space—once home of the historic Midday Club—into a unique hub for business collaboration, signature events and socializing. A possible panoramic roof deck is also being considered.

“Center City Philadelphia represents a strong strategic growth market. SSH Real Estate has intimate knowledge of the building and a proven track record of leasing success and excellence in property management,” says Barry Hammerman, partner of Quilvest. “123 South Broad Street is a legendary building with an ideal location and strong tenant base. The property is now extremely well-positioned to capitalize on the robust leasing market by providing next generation office space within a Philadelphia landmark.”

The complex was previously split into two condominium units with separate ownership: Unit 1, composed of 255,000 square feet of the basement through fifth floors of both 123 South Broad Street and the Witherspoon Building and Unit 2, composed of floors six through 30 of 123 South Broad Street and six through 11 of the Witherspoon Building, totaling 625,000 square feet.

The new partnership acquired Unit 1 earlier this year. Now with Quilvest Real Estate’s investment in Unit 2, for the first time in 20 years, the 725,000 square foot 123 South Broad office building will be under common ownership. As part of the transaction, the partnership secured a loan facility from Guggenheim Commercial Real Estate Finance, which includes significant capital to complete the anticipated leasing and capital improvements planned for the building. HFF served as the broker for the financing.

Constructed in 1927, when it was the ninth largest building in the world, 123 South Broad Street is a pillar of the city’s rich business legacy. The building boasts a 405-foot Beaux-Art style limestone façade, a beautiful three-story marble lobby and a unique “H” floorplan that provides up to eight corner offices per floor, with industry-leading ceiling heights, tremendous natural light and unobstructed views of Philadelphia.

As part of the new transaction, SSH Real Estate and Young Capital acquired complete ownership of the Witherspoon Building, a boutique 155,000 square foot building with an entrance on Juniper Street. The partnership is evaluating the building for a residential apartment conversion.
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Thursday, May 3, 2018

Will WeWork Work?

WeWork, the darling startup that has helped landlords fill empty and spec office spaces across the U.S., is getting dinged this week.

On Monday, WeWork closed on a bond issuance that raised $702 million and increased the company's cash-on-hand to $3 billion. But the high price of the debt, which carries a 7.875 percent interest rate, and facts surrounding the capital raised are causing some in the financial market to question WeWork's business model.

Office owners are closely monitoring WeWork's financial health as co-working grows in importance to the commercial real estate industry. More than 28 million square feet of office space will be occupied by co-working companies by year-end 2018, up from 24.9 million square feet as of Dec. 31, 2017, according to CoStar Portfolio Strategy. The co-working industry has quintupled in size over the past 10 years.

Analysts are quick to point out that WeWork's lease obligations total $18 billion, including $3.8 billion over the next four years and confirmed by a copy of the prospectus obtained by CoStar News. That means its lease payments due through 2022 are higher than the $3 billion WeWork has in cash right now.

Several analysts questioned WeWork’s use in the prospectus of “community-adjusted EBITDA (earnings before interest, taxes, depreciation and amortization).” In WeWork’s case, community-adjusted EBITDA removes growth costs including those for office space, sales and marketing from a property’s earnings.

WeWork's bond offering is concerning on several levels, says Conor Sen, a portfolio manager at New River Investments, a Los Angeles-based registered investment advisor (RIA). "First, the financials they released showed a tremendous amount of cash-burn, and inventing metrics like 'community-based EBITDA' is usually a bad sign," said Sen, who also is a columnist for Bloomberg View. "Second, the pricing of the bond, close to 8 percent, implies an indicative credit rating deep into junk territory, far lower than what the rating agencies gave it.

"And third, from a broader-market standpoint, when cash-burning companies like Netflix and WeWork are issuing debt, it can be a sign of froth more generally."

Sen said the fact WeWork bonds issued at $100 and closed for $97 is "very weak for such a recent offering."

For its part, WeWork said Monday that its bond offering is a success and points out that it had to increase the initial planned offering of $500 million by more than 40 percent, due to demand. With the capital raise, WeWork is in its strongest-ever financial position and now has $3 billion cash-on-hand, the company tells CoStar News. WeWork said it plans to use the net proceeds for general purposes as it pursues "disciplined and focused global expansion." Currently, international markets account for two-thirds of WeWork's growth.

In a note to clients, Eastdil Secured says concerns about the bond offering are being blown out of proportion by the press. "What we have here is a failure to communicate," Eastdil Secured writes in a nod to the prison warden in the 1967 movie Cool Hand Luke. "[The media] focused on the $18 billion of future rent commitments. While that number is correct, as we all know WeWork's guarantee structure is capped and burns down. Their actual guaranteed rent liability is a tiny fraction of what the headlines showed."

And while co-working has grabbed national and local headlines for the past couple of years, it's a small player in the U.S. office market - for now.

Of the 24.9 million square feet currently occupied by co-working operators, WeWork accounts for 10.1 million square feet. Regus' International Workplace Group (IWG) is the largest with 14 million square feet. Combined, IWG and WeWork account for 71 percent of all co-working space, according to CoStar.


WeWork's model centers on the company committing to long-term leases on large chunks of office space at market rents. While WeWork's landlords throw in tenant improvement allowances, they do not cover the overall build-out costs. WeWork then subleases spaces for a healthy premium while also charging for some conference room use, copies and other expenses.

The model is profitable when the economy is growing and corporations expand and entrepreneurs start new companies that want flexibility and lack the "credit-worthiness" needed to commit to long-term leases. WeWork has been focusing more on attracting larger corporate clients, such as French auto and motorcycle maker Groupe PSA. The company chose Atlanta for its North American headquarters and is setting up shop at WeWork’s location at 1372 Peachtree St. in Midtown, developed by Lincoln Property Co. Southeast.

While any financial distress at WeWork will worry individual landlords, real estate watchers say co-working would not single-handedly imperil the current strong national office market. In fact, co-working remains only a small segment of office occupiers. Even in its largest market - New York City - WeWork, IWG and other co-working operators represent less than 1 percent of the market with more than 7 million square feet, according to CoStar Portfolio Research.

In no other market does WeWork and its competitors occupy more than 0.4 percent of the market's office inventory, according to CoStar.

In Atlanta, where WeWork has committed to two sites in Buckhead and two in Midtown, typically of about 50,000 square feet, at least one owner is not worried about the viability of WeWork's model. When asked whether North American Properties has any concerns about reports of WeWork's debt offering and financial obligations might have in its lease at Colony Square in Midtown, NAP Managing Partner Mark Toro said, "We do not."
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U.S. Office Market Performance and Economic Outlook (Video)

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Friday, April 27, 2018

Undisclosed Buyer to Pay $483M for SuperValu Distribution Centers

A single buyer is snapping up eight distribution centers totaling approximately 5.8 million square feet in a $483 million sale-leaseback deal with Eden Prairie-based grocery wholesaler and retailer SuperValu.

SuperValu announced the deal on Monday. The company did not disclose the buyer’s identity.

In early February, Supervalu announced that it had hired Los Angeles-based CBRE to market its properties, with the aim of using the proceeds from sale-leaseback arrangements to pay down existing debt.

The move to turn real estate into cash had been under discussion since at least December of 2017, though Supervalu did acknowledge that it was partly spurred to action by the threat of a proxy fight by an activist investor, Blackwells Capital of New York City. In a Feb. 6 letter to Supervalu’s board of directors, Blackwells estimated that the company’s portfolio could generate up to $1.8 billion if sold.

As of the company’s last full year report, issued on Tuesday, Supervalu owned 17 million square feet of industrial space, about 2 million square feet of retail and 345,000 square feet of office space at its headquarters.

A little less than half the sites included in the sale-leaseback transaction appear to be those once owned by two companies Supervalu acquired in 2017: Pompano Beach, FL- based Associated Grocers of Florida Inc., which Supervalu bought for $193 million, and Commerce, CA-based Unified Grocers Inc., which was purchased in a $390 million deal.

The properties included in the sale-leaseback deal are:
451 Joannes Ave. in Green Bay, WI;
5300 Sheila St. in Commerce, CA (Unified Grocers, Inc.);
1990 Piccoli Road in Stockton, CA (Unified Grocers, Inc.);
1141 SW 12th Ave. in Pompano Beach, FL (Associated Grocers);
2611 N. Lincoln in Champaign, IL;
501 N. Mallick Rd. in Ogelsby, IL;
2600 W. Haven Rd. in Joliet, IL, a 1 million-square-foot facility built in 2010 by Central Grocers Inc., which filed for bankruptcy in May 2017. Supervalu paid $60 million for the building in September 2017.
3700 - 3900 Industrial Rd. in Harrisburg, PA, a 750,000-square-foot distribution facility it purchased for $37.54 million in March 2017. In late March 2018, Supervalu and Pennsylvania Gov. Tom Wolf announced that the company would expand the facility in Harrisburg, an investment of $69 million on Supervalu’s part. As part of the sale-leaseback deal, the mystery buyer will put $20 million towards this project.

Supervalu estimates that the net proceeds of the sale-leaseback will total $445 million. Seven of the eight sales are expected to close by May. The eighth will close by October.
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New Federal Rule Exempts Nearly One-Third of Commercial Property Sales from Appraisals

A new federal rule doubling the threshold for commercial real estate deals requiring an independent appraisal will reduce the time, cost and regulatory burden associated with processing smaller real estate deals, banking and real estate analysts say.

The Federal Reserve Board, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency adopted new rules exempting commercial property sales of $500,000 or less from the appraisal requirement. Regulators originally proposed raising the minimum from the current $250,000 to $400,000 but bumped it up to $500,000 after determining the higher threshold posed "no material loss risk to financial institutions."

Under the new rule which used CoStar's comparable sales data and repeat-sale indices to track pricing changes and other sales metrics over time, financial institutions must still perform a property evaluation for deals of $500,000 and below, but do not have to engage an independent appraiser.

"Deregulation is a major theme of the Trump Administration and this updated regulation is a smart move," according to Justin Bakst, CoStar director of capital markets. "Moving the [sale] threshold up to $500,000 creates very little additional risk to the system," he added.


Comps Data Used to Track Smaller Deals
In determining the level of increase, the agencies considered the change in prices for commercial properties measured by the Federal Reserve's Commercial Real Estate Price Index (CRE Index). Since 2012, the CRE Index has been compiled using data from the CoStar Commercial Repeat Sale Index (CCRSI) as one of its data sources.

"The agencies examined data reported on the call report and data from the CoStar Comps database to estimate the volume of commercial real estate transactions covered by the existing threshold and increased thresholds," according to the final rule.

Bakst said the agencies determined the small transactions affected by the new threshold, while large in number, did not create the type of leverage and risk that contributed to the last financial crisis. Banks have healthier capital ratios today and commercial real estate leverage has largely remained well under control, he added.

Banks can perform acceptable loan evaluations in house using sources of comparable sales data like CoStar, Bakst added.

"Although the property sales total affected by this rule change is a drop in the bucket compared with overall commercial property volume, the cost savings are noteworthy," Bakst said. "For example, if we estimate appraisal costs at between $2,000 and $4,000 per transaction, this represents an aggregate savings of $300 million to $600 million."

Banking regulators carved out an exception for construction loans on one- to four-family residential properties, which will no longer be included in the same category as commercial property loans to avoid potential confusion with single-family permanent financing and as an added consumer protection for home buyers. The sale threshold for appraisals on those properties will remain unchanged at $250,000.


Lower Threshold Was a 1990s Relic
Financial industry analysts who commented on the rule change said that the previous commercial transaction threshold had not kept pace with the price appreciation of commercial property.

For example, the average price of a property valued at $250,000 when regulators set the previous minimum threshold 24 years ago in 1994 has now more than tripled to $760,000. Raising the threshold to $500,000 provides a recession-resistant buffer, Bakst said.

Under the new $500,000 threshold, 31.9 percent of property sales in the CoStar database would be exempt from the appraisal requirement. In terms of dollar volume, however, the properties now exempt from appraisals comprise just 1.8% of the overall dollar volume of loans in the CoStar database.

Before the final rule was approved, there were 13 different categories of loan transactions that qualified for exemption from the appraisal requirement, including a general exemption for all real estate-related transactions with a value of $250,000 or less. The new rule adds a 14th exemption for “commercial real estate transactions” not secured by a single 1-to-4 family residential property.

“For commercial real estate transactions exempted from the appraisal requirement as a result of the revised threshold, regulated institutions must obtain an evaluation of the real property collateral that is consistent with safe and sound banking practices," the new rule states.


Are Small Loans Risky for Small Banks?
Some critics, namely appraisers, take issue with the agency findings. James L. Murrett, president of the Chicago-based Appraisal Institute trade association representing nearly 19,000 appraisal professionals in about 60 countries, said raising the threshold is "confounding" given concerns expressed by the same agencies about commercial property pricing and loan risk management.

The OCC and Fed have warned that rapidly appreciating property prices in some commercial property segments and rising concentrations of commercial property loans, particularly among smaller banks with $1 billion to $10 billion in assets, could heighten risk to the nation's banking system.

"Without a doubt, the final rule increases risk to the commercial real estate lending system," Murrett said. “Seen through the lens of loosening regulations, the final rule may make sense. But from a safety and soundness perspective, the final rule raises significant concerns.”

Murrett said that an increase in property evaluations without appraisers will likely cause a return to the conditions during the run-up to the financial crisis, when "appraisal and risk management were thrust aside to make more, not better, loans."

Smaller institutions, which are less likely to maintain appraisal departments, are more likely to be susceptible to breakdowns in appraisal independence with fewer controls in place, he added.

Murrett said the decision increases the importance of modernizing the regulatory structure governing appraisals, including positioning appraisers to better offer evaluation services.

"Appraisers need to be nimbler in today’s marketplace - not only to compete, but to help maintain safety and soundness of the real estate financial system.”

Big Shops Don't Play in Small Loan Pools
Appraisal operations in the largest commercial real estate services companies likely won't be affected by the rule change since , their main business is more sophisticated and generally involves providing so-called broker opinions of value for complex property assets priced above $500,000, said John Busi, president of the valuation and advisory group at Newmark Knight Frank.

The appraisal world is getting faster and cheaper and this change creates efficiency for the banking regulators to be a little more nimble and relax some of the standards put in place after the financial crisis," Busi said.

"Of course appraisers are going to be upset by it because many have had business on commercial property under $500,000," said Busi. But he added that smaller appraisal shops should be nimble enough to adapt and bring in work without suffering a large decline in fees.

"We view the recent increases in thresholds for appraisal requirements as an opportunity for lenders, borrowers, and appraisers," added Chris Roach, CEO with BBG, one of the nation's largest pure-play valuation and appraisal companies with 27 U.S. offices.

Roach said BBG's valuation specialists have evolved from a traditional appraisal practice to a more diverse valuation practice for a variety of clients.

"We stand by our high-quality valuation products, no matter the size of the loan," Roach said. "But with these revised loan amount guidelines, we are well-positioned for growth in our evaluation product."
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Thursday, April 26, 2018

Apartment REIT IRET Focused on Operations Following MOB Sales (Video)

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Crux Fitness Leases Space in Lansdale

Crux Fitness has signed a 10-year lease for 25,000 square feet in the Lansdale Pavilion shopping center at 611 S. Broad St. in Lansdale, PA.

The 140,881-square-foot shopping center was constructed in 1940 and renovated in 1990. Crux Fitness would anchor the center in its own building within the center, which is also home to Dollar Tree, Hair Cuttery, Mattress Firm, Quest Diagnostics and Pets Plus Lansdale.
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Wednesday, April 25, 2018

CSL Behring leases 500 N. Gulph in King of Prussia

Natalie Kostelni Reporter Philadelphia Business Journal
Brandywine Realty Trust has leased 500 N. Gulph Road in King of Prussia to CSL Behring.

The biopharmaceutical company leased the 100,820-square-foot building because it needed room for expansion. CSL Behring is an existing tenant of Brandywine and occupies 257,000 square feet of space at 1020 First Ave., which is about a mile away from the Gulph Road building. 

In February, Brandywine initiated a $29.7 million redevelopment of 500 N. Gulph. The five-story building has essentially been vacant for years and ripe for redevelopment.

Full story: https://tinyurl.com/y9yqd9y8
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Barry Sternlicht: US real estate is my favorite asset class right now (Video)

Barry Sternlicht: US real estate is my favorite asset class right now from CNBC.

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Wilder Cos. Acquire Cumberland County Grocery-Anchored Center

by Steve Lubetkin, Globest.com

Boston-based The Wilder Companies, in partnership with an institutional real estate fund, have re-entered the Pennsylvania market, acquiring Silver Spring Square, a 342,600 square-foot dominant grocery anchored community center on Route 11 in Mechanicsburg, Cumberland County, PA.

“Silver Spring Square fits perfectly into our acquisition platform targeting dominant grocer-anchored centers throughout the East Coast,” says Shelley Anderson, director of new business development at Wilder. “We are excited to reestablish our expertise in the Pennsylvania market.” Wilder is a Boston-based real estate development, management, and leasing firm specializing in the positioning of retail properties. Privately held and owner managed, Wilder has developed, managed, and leased more than 20 million square feet of retail properties throughout the United States and Puerto Rico.

The seller was DDR Corp., and buyer came direct.

Built in 2007, the shopping center includes as tenants industry leaders and national brands, anchored by a 126,240-square foot Wegmans Supermarket. This is Wegmans only store serving the greater Harrisburg MSA.

The property is shadow-anchored by a 139,377-square foot Target and an 87,000 square foot Kohl’s, bringing the contiguous square footage to 568,977 square feet.

The grocer and anchor tenants are complemented by major national retailers including Best Buy, Ross, Bed Bath & Beyond, Petco, Lane Bryant and Ulta, along with seven additional pads sites leased to Advance Auto Parts, Longhorn Steakhouse, Chilis, PNC, Chick-Fil-A, Panera Bread and Wells Fargo Bank, making Silver Spring Square a one-stop shopping destination for the customer base that lives and works on the Western Shore of Harrisburg. The property is 98-percent occupied as of closing, including a recent new lease with Old Navy, which is taking 12,295 square feet in a former Office Max space.

Silver Spring Square is located along Carlisle Pike (Route 11), approximately 10 miles west of the Pennsylvania state capital of Harrisburg. This submarket has seen significant growth in retailer distribution centers / industrial warehousing because of its location in the I-78/I-81 corridor, which allows easy movement avoiding I-95 between major metropolitan areas like New York City, Baltimore, and Washington DC.
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PNC Wealth Management Leases Space in Cherry Hill

PNC Wealth Management, a financial services company, has signed a lease for 28,095 square feet in the office building at 200 Lake Dr. E in Cherry Hill, NJ.

The three-story building totals 76,352 square feet in the Woodland Falls Corporate Center office park. Prentiss Properties developed the property in 1989, and it is currently owned by Crown Properties, Inc.

PNC’s lease includes the entire third floor. Other tenants in the building include Maxim Health Services and Brandywine Realty Trust.
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Monday, April 23, 2018

SEC Working to Modernize and Streamline Real Estate-Related Disclosures (Video)

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FASB Reconsidering Capitalization of REIT Acquisition Transaction Costs (Video)

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North and West Philly among Pa. areas nominated for new-investment tax break

by Jacob Adelman, Staff Writer Philadelphia Inquirer
Investors with ventures along much of Market Street in West Philadelphia and Broad Street in North Philadelphia, as well as neighborhoods such as Mantua, Point Breeze, and Brewerytown, may be in for new tax breaks under a federal program designed to promote development in rural and low-income urban communities nationwide.

Gov. Wolf included the census tracts covering those areas in his list of nominees Friday to become so-called Qualified Opportunity Zones, which would make them eligible for incentives enacted as part of the tax-cut legislation signed into law in December.

The incentives offer deferral, reduction, and potential elimination of some federal taxes for capital gains from investing in businesses, real estate, and other ventures in low-income communities.

Also identified were tracts covering parts of Lansdowne in Delaware County, Norristown in Montgomery County, and Croydon in Bucks County, according to a map posted to the website of the Pennsylvania Department of Community and Economic Development.

The Philadelphia-area tracts are among 300 statewide that Wolf sent to the U.S. Treasury Department for consideration on Friday, the deadline to submit nominations for the program. The federal agency has 30 days to designate which tracts ultimately qualify.

Pennsylvania had 1,197 census tracts eligible for Qualified Opportunity Zone status and was given the opportunity to designate 25 percent, or a maximum 300 low-income community tracts as zones, the governor’s office said in a release.

Wolf said in the release that his nominations were submitted “after gathering input from individuals and organizations throughout the state and examining where the areas of need intersect with potential investment.”

“We are hopeful this new incentive will bring much-needed investment to many distressed areas across the commonwealth,” he said.

The Treasury Department has already designated areas of Delaware around Wilmington and parts of Camden in South Jersey as opportunity zones, according to online mapping service PolicyMap, which has been tracking the program. Officials from those states, and others, sent their tract nominations ahead of Wolf.

Full story: http://www.philly.com/philly/business/real_estate/commercial/qualified-economic-zones-tax-break-philadelphia-20180420.html
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