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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