Wednesday, July 18, 2018

Air Products will move HQ

by  Andrew Wagaman Contact Reporter Of The Morning Call

ith facilities in 50 countries around the world, Air Products truly has a global footprint.

As for that new corporate headquarters? The Trexlertown industrial gas company will build it on a property it once owned, about 2,000 steps away from its sprawling 235-acre campus.

Air Products told employees Tuesday morning that it will build an approximately 10-story office building, an enclosed parking garage with a running track on the roof, and a research and development facility on 53 acres along Mill Creek Road in Upper Macungie Township.

The announcement officially reaffirms the Fortune 500 company’s commitment to the Lehigh Valley 70 years after it arrived in the region

The site, which developer David Jaindl owns under agreement with Liberty Property Trust, is bounded by Grange Road and the Route 222 bypass to the north and is just east of the Uline industrial complex on Mill Creek and Uline Way. It’s one mile east of Air Products’ campus at 7201 Hamilton Blvd.

The company expects to break ground in March and hopes to occupy the complex by summer 2021. The company did not disclose a cost estimate for the project Tuesday.

"The decision to leave our current headquarters location, with its rich history, was not one we made lightly,” President and CEO Seifi Ghasemi said in a news release. “But we believe our new location will afford us a special opportunity to modernize and optimize our office space and R&D facilities and invest in a work environment that motivates and energizes our employees.

“As a global company operating in more than 50 countries, this new headquarters will reflect the safety, speed, simplicity and self-confidence that move us forward as a world-leading industrial gas company,” he said.

Employees will continue to work on its existing campus during construction and completion of the new facilities, but the company also will put the Trexlertown campus up for sale.

The company has about 2,250 employees in the Lehigh Valley, and most of them are based at the Trexlertown campus. The new location will be the base for about 2,000 employees, with “capacity for growth,” the company said.

Air Products employs about 15,000 people worldwide.
We’re obviously elated,” said James Brunell, chairman of the Upper Macungie Township Board of Supervisors. “They’ve been an excellent resident in the township and we are ecstatic that they have decided to stay in the township.”

Township Manager Robert Ibach said Air Products has not yet submitted official development plans.

Construction of the existing campus began in the mid-1950s after founder Leonard Parker Pool relocated the company from Chattanooga, Tenn. He began the company in 1940 in Detroit.

Ghasemi said its headquarters, with 1.5 million square feet of office space and labs, is old and expensive to maintain — more than $20 million annually, according to an interview last year. A big believer in culture and perception, he also dislikes all the empty space in the administration building, given Air Products’ reputation as a “progressive company” that designs state-of-the-art facilities for clients around the world.

“We should have a headquarters that reflects the technology of today,” he said last October. “The environment subconsciously affects your sense of pride in the company, and that’s very important to maintain.”

Air Products told employees it was exploring options for a modernized headquarters in the Lehigh Valley in April 2017. The company considered renovating its campus, building on a nearby site, relocating to a property surrounding the Promenade Shops in Upper Saucon Township and moving to the Neighborhood Improvement Zone in downtown Allentown.

In December, it eliminated Allentown as a potential location because executives decided no sites had the right space for its research labs.

Regardless of the site, Ghasemi indicated the headquarters design would feature consolidated operations in a taller office building. In February, Upper Macungie’s Board of Supervisors adopted a rule allowing developers to construct office buildings as tall as 150 feet, triple the previous limit of 50 feet, in the township’s light industrial park and limited light industrial park zoning districts.
Full story:

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Monday, July 16, 2018

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Philly & S NJ See Moderate Gains In Q2 2018

by Steve Lubetkin,
The Southern New Jersey market remains in good shape, making moderate gains and showing strong fundamentals. The firm believes the market may be poised for strong growth as benefits of the new tax law begin to materialize.
“Our market continues to show quiet strength and may take off as consumers and businesses feel the effects of lower tax rates. We expect the new law to be a net positive for overall economic growth in 2018 and be especially beneficial to the commercial real estate industry.”

There were approximately 303,656 square feet of new leases and renewals executed in the three counties surveyed (Burlington, Camden and Gloucester), a gain of about 10% over the previous quarter. Leasing picked up, and the sales market stayed active, with about 1.46 million square feet on the market or under agreement and an additional 317,961 square feet trading hands.
New leasing activity accounted for approximately 61.4% of all deals. Overall, net absorption for the quarter was in the range of approximately 253,000 square feet.

Other office market highlights from the report:

  • Overall vacancy in the market is now approximately 10.4%, which is nearly one point better than the previous quarter.
  • Average rents for class A and B product continue to show strong support in the range of $10.00-$15.00 per square foot triple net or $20.00-$25.00 per square foot gross for the deals completed during the quarter. These averages have stayed near this range for most of 2018, though they are trending a bit higher.
  • Vacancy in Camden County improved dramatically, to 11.6% for the quarter.
  • Burlington County vacancy was at 9.2%, which was also lower than the first quarter.

The Southeastern Pennsylvania reports on transactions, rates, and news from Philadelphia and the suburbs. Highlights from the second quarter in Pennsylvania include:

  • Philadelphia’s office market vacancy rate was unchanged during Q2 2018, though positive absorption was 547,339 square feet, a 20% improvement over the first quarter. Vacancy rates for class A properties stood at 10.5%, while class C properties had vacancy of 5.5%.
  • Average asking rent across all office property classes in the Philadelphia market was $22.72 per square foot in the second quarter. Within the CBD it was $29.64 per square foot.
  • There are about 3.8 million square feet of office space currently under construction in Philadelphia. During the second quarter 590,632 new square feet became available via completed new construction.
  • Philadelphia’s retail market is moving in the right direction. Average asking rents have jumped the past few quarters, net positive absorption was 909,884 square feet, and retail vacancy rates ticked down to 4.4%.
  • Industrial vacancy in Southeastern Pennsylvania was down to 5.6%. The market saw positive net absorption of more than 6.6 million square feet.

The Southern New Jersey and Philadelphia retail market highlights. The second quarter saw a drop in consumer confidence as well as a generally positive outlook for consumer spending, buoyed by a strong job market. Other highlights from the retail section of the report include:

  • Retail vacancy in Camden County stood at 7.7%, with average rents in the range of $13.75 per square foot triple net.
  • Retail vacancy in Burlington County stood at 9.8%, with average rents in the range of $14.59 per square foot triple net.
  • Retail vacancy in Gloucester County stood at 7.4%, with average rents in the range of $14.74 per square foot triple net.

Sunday, July 15, 2018

Repeat Institutional Borrowers Heating up Commercial Mortgage Bond Market

The commercial mortgage backed securities (CMBS) market has heated up since summer kicked off, with 39 new deals emerging since June 1. In a recent twist, the market is seeing institutional investors packaging property loans in a new CMBS to refinance portfolios that had been previously financed in the CMBS market.

Private-label, single-borrower deals backing portfolios from Workspace Property Trust and Millennium Partners are the two latest examples of the trend this week. They join deals backing Greenfield Partners and Brookfield Asset Managementproperties, which we reported on in the past two weeks.

In June, CMBS private-label pricing volume totaled $11.5 billion, the highest monthly volume the market has seen since February 2015, according to Kroll Bond Rating Agency (KBRA). June's robust volume brings the year-to-date total to $40.3 billion, up 18.4 percent year-over-year.

"Based on the forward pipeline, it doesn't look like the CMBS market will be on summer break for the next few weeks," KBRA analyst reported. "We are aware of as many as a dozen single-borrowers, including several single-asset deals and up to six conduits that are expected to announce through the first week of August."

There is not much visibility of deal flow through the remainder of August, KBRA reported, adding that perhaps that is when deal flow could cool off.

Morningstar CMBS analysts reported this week that borrowers seeking to lock in low rates are one source for the increased activity. In addition, a growing number of yield-hungry investors tied to large projects that may be viewed as too capital-intensive by bank lenders have turned to the CMBS market -- or in the case of Workspace Property Trust and Millenium Partners, turned to it again.

Last month, Morgan Stanley originated a $710 million fixed-rate debt package on eight retail and office properties owned by a joint venture led by Millennium Partners. The investment banker is securitizing a portion of the long-term debt, which will likely hit the market this month: Morgan Stanley Capital I Trust 2018-MP.

The financing was used to pay off debt on the similarly named Morgan Stanley Capital I Trust 2014-MP, a $463.9 million deal.

At the time of KBRA's last review of the offering in September 2017, the portfolio's value was estimated at $639.6 million and generated annual net cash flow of about $47 million.

J.P. Morgan Chase Commercial Mortgage Securities this week filed preliminary paperwork for a new CMBS offering backing a package of loans on 147 office, flex and retail properties in four states owned by Workspace Property Trust.

Late last month, Workspace Property Trust, a private real estate investment firm led by former Mack-Cali Realty executives Thomas Rizk and Roger Thomas, lined up $1.275 billion in portfolio financing from JP Morgan Chase Bank.

The proceeds from that financing were used to pay off a CMBS loan backed by 108 of Workspace's properties. As of September 2017, KBRA valued that portfolio at $689.9 million and calculated net cash flow at $66.9 million.

New Jersey's Empty Office Park Glut Eases With Merck Headquarters Sale

New Jersey will soon have one less giant, empty suburban office park.

Unicom Corp., a Beverly Hills, CA-based IT company that's part of Unicom Global, said it agreed to buy the former Merck headquarters complex in the Whitehouse Station section of Readington Township, NJ, from Merck Sharpe & Dohme Corp. for an undisclosed amount. It concludes a move started in 2012, when Merck said it was leaving the hexagon-shaped complex spanning 1.24 million square feet on a leafy 1,100-acre campus.

Merck's former headquarters site is one of a number of large suburban office parks, and corporate headquarters, to be left vacant in the past decade in New Jersey. Industry consolidation, rising state and local taxes, and the growing popularity of urban living have driven a number of corporations out of the state -- and helped make office vacancy rates rise. Some of these properties have new owners and tenants, while others sit empty.

"It’s exciting because there’s not a speculative purchaser but basically a corporate user, so it’s pretty good for New Jersey, a really big win.  My God, that’s going to give the economy in western New Jersey a big boost."

Drugmaker Hoffmann-La Roche left its 116-acre campus on the border of the New Jersey communities of Nutley and Clifton, and the site is now a redevelopment called ON3. That mixed-use project has the state’s first private medical school in more than half a century, and other tenants such as retailer Ralph Lauren Corp., medical services provider Quest Diagnostics Inc. and biofabricator Modern Meadow Inc.

And Bell Labs’ 2 million-square-foot former research facility in Holmdel, NJ, has also been transformed into a mixed-use complex called Bell Works.

In contrast, the former headquarters of chemical company BASF Corp. in Mount Olive, NJ, remains vacant. And retailer Toys R Us, which has gone out of business and is liquidating its assets, is putting its headquarters in Wayne, NJ, up for sale.

As for Unicom, the firm did not specify on Thursday how many employees it plans to move to Whitehouse Station. Unicom put the property under contract and initiated due diligence last December and the sale is expected to close in October. The property will be renamed Unicom Science Park I & II and will be used as the company's headquarters for its New York and New Jersey operations.

"We presently have offices in Parsippany and Princeton, so it will be nice to have everyone under one roof," Russ Guzzo, Unicom vice president of sales and marketing, said in an email. "It is unclear the number of employees that will be coming over to the new site at this time, but we have big goals as far as new hires."

Unicom Global consists of more than 40 corporate entities encompassing a range of businesses. It has acquired a number of products and business lines from technology company IBM, including System Architect, Focal Point, PurifyPlus, solidDB and the PowerHouse programming language. It is also the parent company of the former GTSI, now named Unicom Government, which it acquired in June 2012. Other major business units include Unicom Systems, offering IBM mainframe software products, and systems integrator Unicom Engineering, formerly NASDAQ: NEI.

The complex consists of 1 Merck Drive, a 992,476-square-foot hexagon-shaped building, and the smaller 2 Merck Drive, a 223,357-square-foot structure, according to CoStar.

James Hughes, professor and dean emeritus of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University, said Bell Lab’s former facility in Holmdel and the Merck former headquarters are both "iconic structures" architecturally.

Merck’s former main headquarters is clad in Spanish granite and features natural light. The building also has a 1,900-vehicle underground garage, Hughes said.

Merck transplanted the site's trees during construction and they are now fully grown in an open area in the hexagon’s center, Hughes said.

"There’s a mature forest in the middle of it," he said.

While studies show millennials are attracted to workplaces located in urban settings near public transit, Hughes said a California-based company like Unicom may be accustomed to its employees commuting to work in cars, or to providing shuttle transportation to workers, making a location in rural Whitehouse Station seem like less of a drawback.

Thursday, July 12, 2018

Logistics Property Construction Surges on a Global Scale

Prologis Inc. said it completed 16 construction projects totaling almost 6.3 million square feet in the first six months of the year, including almost 1.4 million square feet of new logistics space for two tenants at the developer’s 1,800-acre master-planned industrial park in California’s Central Valley.

However, the bulk of the developer’s activity in the first half of the year was outside the United States. Prologis said it finished a new distribution center for Amazon in Mexico City totaling almost 1 million square feet, and a nearly 610,000-square-foot facility in Paris for Cultura, and wrapped up other large projects in Poland, Czech Republic, Italy, Spain and The Netherlands.

In the U.S., the San Francisco-based real estate investment trust, which is the world’s largest owner and developer of logistics buildings, wrapped up a 708,080-square-foot distribution center for Switzerland-based Lindt Chocolate and a 664,000-square-foot warehouse for San Leandro, CA-based mattress maker Zinus, both within its Prologis International Park of Commerce in Tracy, CA.

Prologis also finished construction on a 504,428-square-foot regional distribution building for Home Depot in Cranbury, NJ, and an 80,000-square-foot warehouse for JAS Forwarding in Chicago.

The company expects its development pipeline will flow steadily for the near future. Prologis this week reported started new projects totaling more than 6.2 million square feet with a total expected investment of $475 million in the first six months, including a 567,870-square-foot facility for an unidentified tenant in Tracy and three buildings totaling about 480,000 square feet for tenants in Dulles Commerce Center in Virginia.

Most of the new construction starts are for customers occupying multiple Prologis sites in the U.S. or around the world, the company said.

"Our multi-site customers, many of whom are focused on e-commerce, continue to drive strong results in our build-to-suit business," said Prologis Chief Investment Officer Michael Curless. "Our development activity is focused in major population centers because our customers need facilities close to their end consumers."

In addition to its development projects, Prologis was also active in the mergers and acquisitions during the first half as well, announcing an $8.4 billion merger with Denver-based DCT Industrial Trust Inc. in April. DCT shareholders will vote on the transaction, recommended by the company’s board, at a special meeting scheduled for Aug. 20.

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Wednesday, July 11, 2018

Unique Senior Housing Underway In Cherry Hill

by Steve Lubetkin,
Multifamily developer Pennrose Properties and the Jewish Federation of Southern New Jersey kicked off construction of a novel combination community for seniors and developmentally disabled adults to be called The Commons at Springdale in Cherry Hill, NJ.
Located at 1721 Springdale Road, the project will include 160 new units of high-quality, affordable rental housing for older adults and adults with special needs.

Construction will begin with an initial 80 rental units. Twenty percent of the total units will be designed to support individuals with special needs by creating four smaller “cottages” out of four 1-bedroom units. The cottages will contain a shared common space where individuals can receive access to services and community programming in a safe setting. All units will be set at or below 60 percent of the area median income (AMI), with at least 40 percent set at or below 50 percent of AMI and at least 10 percent set at or below 30 percent of AMI.
Phase one of the project is anticipated to open in the summer of 2019.

The creative use of tax-credit financing plays an important role in making the dual-purpose communities work, according to Jacob Fisher, regional vice president with Pennrose Properties.

“It can take anywhere from 2-1/2 years and up to get a project started,” he says. “The key to this is putting together all the financing pieces and the Low Income Housing Tax Credits, which is a competitive resource allocated by the New Jersey Housing and Mortgage Finance Agency. Pennrose is committed to improving communities and transforming lives with high-quality, affordable housing.”

The Commons at Springdale Road will offer supportive services to residents and programming options available to residents, such as health and wellness, recreational, and arts and culture programs.

“What we didn’t have was housing for special needs adults over 21,” says Brad Molotsky, a partner with the Duane Morris law firm and former executive vice president and general counsel of Brandywine Realty Trust. Molotsky, a Federation vice president, is the father of an adult special needs son. “Once you’re out of the school system when your kid is 21, that whole support structure is gone. If they can’t work, what are they doing other than sitting around watching TV and eating pizza? And so how do you structure a day, and a week, and then a month, and a life for somebody?”

The project required close cooperation between the nonprofit Federation, developer Pennrose, and county and local government.
“This has been something that we’ve been working on for a number of years, looking to provide housing for those with special needs and seniors in one development,” says Cherry Hill Mayor Chuck Cahn. “When you have supportive services like Jewish Federation provides, you can live together, and those that have special needs can live independently, with dignity, as people age in place.”

“The Jewish Federation believes in affordable housing for all and are committed to the independence and support of individuals in need,” says Jennifer Dubrow Weiss, chief executive officer at the Jewish Federation of Southern New Jersey. “We are so excited to offer this type of living for older adults and adults with special needs – it’s the first of its kind in our area – and will promote the relationships and strengths that each bring to our community. The Jewish Federation is so very appreciative of the support of Cherry Hill Township, Camden County, and the overwhelming positive response from our community.”

Financing for the Springdale Road development came from a variety of sources, including $2.407 million in conventional financing, $1 million in Township Affordable Housing Trust Funds, $500,000 in Camden County HOME funds, $1.58 million in Federal Home Loan Bank Affordable Housing Program funds, $1.25 million from the Jewish Federation, and $12.6 million in equity from the sale of 9% Low-Income Housing Tax Credits.

The project sends an important message to the community about policy choices in terms of housing and care projects for seniors and developmentally disabled adults, says Rabbi Lawrence Sernovitz, whose nine-year old son is one of less than 640 people worldwide diagnosed with a rare genetic disorder, familial dysautonomia.

“It’s about making sure that what we do, and the way that we respond is not just local and statewide, but federal policies that are reflective of the diversity of needs in our community,” Sernovitz says. “Let’s make sure that the policies are reflective of the needs and the diversity in our communities.”

Tuesday, July 10, 2018

Duke Realty Experiences High Demand for Properties

In recent times, the demand for modern distribution facilities have been getting a significant boost as the companies are compelled to enhance and renovate their distribution, and production platforms to support the e-commerce business and address a large customer base. Services like same-day delivery are gaining traction and last-mile properties are witnessing a solid increase in asset values.

Duke Realty Corp.’s solid capacity to leverage on this favorable trend has helped it to achieve full occupancy across a number of its properties. Recently, this industrial real estate investment trust (REIT) announced that it completed the leasing of the third building at 33 Logistics Park in Lehigh Valley, PA.

Notably, the property’s strategic location worked on the company’s advantage and thus, Duke Realty could achieve 100% occupancy for this development, spanning 2.7 million square feet. The property is on the east of Lehigh Valley, with access to the highway. Also, it could be connected to I-78, I-81 and I-80 very easily.

33 Logistics Park has three buildings. Out of which, the other two got leased as soon as the construction was completed, one in early 2016 and another in July 2017. All the buildings have been leased by e-commerce and logistics companies.

Duke Realty has another spec industrial building under construction, Central Logistics Park 53, which is located at the west of Lehigh Valley. It is expected to be completed by July 2019.
On the other hand, Sysco Guest Supply and Genera Corporation have renewed leases in Illinois with Duke Realty. With this, the buildings occupied by them, enjoy full occupancy. Specifically, with the renewal, Sysco will continue occupying 93,880 square feet in Carol Stream 370, which is situated at 370 Kimberly Drive. Genera will also continue working from 4220 Meridian Parkway, which is a 192,600-square-foot building in Aurora.

Industrial REITs are sure to scale new heights, with a recovering economy and job market gains, as well as elevated consumption levels. Moreover, with a healthy manufacturing environment and high business inventories, the demand for warehouse and logistics real estate is anticipated to be high, giving significant impetus to industrial REITs like Duke Realty, Prologis Inc. and Liberty Property Trust to flourish.

Per a study by the commercial real estate services firm, in first-quarter 2018, availability fell for 31 straight quarters to 7.3% for the U.S. industrial market. Moreover, with demand surpassing new supply, net asking rents moved up 1.9% in Q1 to $7.01 per square foot, denoting the highest level since 1989.

Moreover, it should be noted that Duke Realty has resorted to the sale of sub-urban office assets and medical-office buildings in the past to transform itself into a domestic-focused industrial property REIT. This augurs well amid the favorable market environment in this asset class.

Campus Apartments Sells 71-Building Student Housing Portfolio for $30.8 Million

Philadelphia-based student housing firm Campus Apartments sold its 71-building Campus Hill Apartments student housing portfolio in Bethlehem, PA for $30.83 million, or about $80,000 per bed.

A private investment facility managed by Hong Kong-based Beacon Assets acquired the 383-bed portfolio from Campus Apartments, which originally acquired the buildings in 2015 for $22.28 million, according to CoStar data.

The buyer also secured $19.45 million in acquisition financing through Paris-based investment bank Natixis. It is a five-year, fixed rate acquisition loan on behalf of the borrower.

All 71 buildings located within the Campus Hill Apartments portfolio are scattered throughout Lehigh University. The student housing portfolio was near full occupancy during the last two academic years. Lehigh University has an enrollment of more than 7,000 students with a growth rate of 25 percent expected throughout the next seven years.

Nahla Capital JV Buys 2000 Market Street Philadelphia For $126M

by Steve Lubetkin,
New York-based real estate private equity firm Nahla Capital, in a joint venture with the merchant banking division of Goldman Sachs, is acquiring 2000 Market Street in Philadelphia, PA from Gemini Rosemont Realty for $126.4 million.
2000 Market Street is a 29-story, 665,000-square-foot class A office and retail building located in Philadelphia’s vibrant Market Street West neighborhood. The transaction adds to Nahla Capital’s growing portfolio of properties in strong urban markets throughout the United States. 2000 Market Street is the firm’s first investment in the Philadelphia market.

“2000 Market Street represents the best class of office space available in Philadelphia’s thriving Market Street West neighborhood and illustrates Nahla Capital’s commitment to expanding in major urban markets throughout the United States,” says Genghis Hadi, managing principal of Nahla Capital. “Philadelphia has become a true destination in recent years and we couldn’t be more excited about becoming a part of this flourishing city through this acquisition.”

2000 Market Street is ideally situated within Philadelphia’s city center as the pace of development accelerates west toward University City.  New ownership plans to upgrade building infrastructure and improve the overall tenant experience at the property.  The asset is more than 90% occupied with long term stable tenants.

Built in 1972, the building is near major transportation hubs including Amtrak’s 30th Street Station and Suburban Station. It is also walking distance to University City, Philadelphia’s culturally diverse academic neighborhood that encompasses some of the city’s best universities, including the University of Pennsylvania and Drexel University. In recent years the city has undergone a major development boom, resulting in the addition of the Comcast Technology Center and a second Comcast tower nearing completion, Cira Centre North and South, and the new Aramark headquarters. It has also become a hotbed for tech and biotech companies and startups, further illustrating the area’s desirability as a live-work destination.

Saturday, July 7, 2018

Recent Philadelphia Leasing Deals

by Steve Lubetkin,
Three office lease were arranged for approximately 11,045 square feet of downtown space with a combined aggregate rental exceeding $1.4 million.
Two companies will relocate to 1608 Walnut Street and a third firm to 1218 Chestnut Street. At 1608 Walnut, the Trust for Public Land has leased approximately 3,600 square feet on the third floor of the 19-story building in a relocation from 1501 Cherry Street. In the second lease at 1608 Walnut, SP Plus Corporation is moving from 1835 Market Street to 1,845 square feet on the eighth floor. At 1218 Chestnut Street. Blackfynn Apex Holdings expanded its offices to 5,600 square feet on the eight floor, from smaller offices at 121 South Broad Street. Blackfynn is a privately-owned life sciences company. SP Plus Corporation is a diverse provider of professional parking, ground transportation, facility maintenance, security, and event logistics services to real estate owners and managers in a wide array of markets.

2Q Philadelphia Office Market Report

by Steve Lubetkin,
The second quarter report on the Philadelphia office market, Market West emerged from the second quarter with net positive absorption, a welcome change from recent history, but largely the result of long-planned relocations of existing tenants.

1735 Market continued to backfill its large blocks: Montgomery McCracken settled in on three floors, opening up the high-rise at 123 South Broad, and Brandywine Global has begun its transition back across the Schuylkill, creating a large block at Cira Centre. Departures and downsizings continue to offset gains, with Four Penn Center now marketing five full floors in the wake of CHUBB’s departure and Equus decamping for Newtown Square’s Ellis Preserve.

In Market East, the Public Ledger Building is poised to reposition as the western portion of the building changes hands and the departure of Health and Human Services to 801 Market creates opportunities to attract a new tenant mix. It is likely that the eastern-facing portion of the building will be redeveloped into residential or hotel. A proposal from the Philadelphia Bar Association and other non-profit partners would bring a new 173,000 square foot office building to 8th and Vine to house the Equal Justice Center, offsetting any inventory reductions at Public Ledger and bringing new ground-up construction product to this part of the city for the first time in decades.

Multifamily Investors Are Getting Used to 'Normal'

It may sound like bad news for the apartment sector: rent growth may stay relatively flat in the second half as vacancies and interest rates climb.

But multifamily analysts insist the sector is going to remain strong over the long-term as investors search for properties to buy. The performance in apartments only seems disappointing, according to sector forecasters, when compared to the astounding numbers in recent years: razor-thin vacancy rates, double-digit annual rent increases, and an economy seemingly producing more well-heeled renters every month.

"There’s no question fundamentals are softening, but this is a return to a more normal market. With rent increases of 2 percent to 3 percent and vacancies rising to 5 percent from 3 percent, "everyone reacts as if that’s problematic. But it’s relative."

Preliminary sales numbers for the first half show that trades of large apartment properties nationwide dipped 7 percent to $67.5 billion from $72.7 billion for the first six months of 2017. Sales across all asset classes combined fell 13 percent.

In terms of pure dollars, sales volume would be expected to fall as investors turn away from high-priced core assets in urban downtown submarkets to smaller, Class-B suburban properties.

Those swank downtown developments have dragged down average occupancy and rent growth nationally in the past year or so. That wave of development is cresting this year, according to CoStar, and most markets are absorbing the new units, if slowly.

"Supply will certainly affect some submarkets, Long Island City, for example, but broadly, housing construction at large in the U.S. remains low, and still trails population growth. Ongoing deliveries of highly-amenitized, high-rent product will limit rent growth at the high end of the market, but older and more suburban product will continue to outperform."

Rents will rise at a modest rate similar to the national average of 2.6 percent in 2017, according to Affleck.

Investors in apartments seem to be making peace with the changed reality.

"At this point, it’s in everybody’s calculations. Multifamily is more stable and has better net cash flow than any other asset class. Investors are looking for that, not necessarily looking for a home run. They’re looking for reasonable, predictable returns and a long-term investment."

Investors still see the opportunity to pump a few thousand dollars into upgrades to apartment interiors and be able to boost monthly rents by $75 to $100.

The apartment sector has benefited in recent years from an influx of new money from large domestic and foreign investors who previously focused on other asset classes. Newcomers such as Singapore’s GIC, the APG Group of Amsterdam, and several Canadian pension funds have all become major players in apartments during this cycle.

Blake Okland, the head of brokerage Newmark’s Apartment Realty Advisors arm, said those investors will help drive sales in the second half.

"I wouldn’t be surprised at all if it was more like 2016."

He anticipates that by the end of 2018, sales of apartments will match or exceed last year’s total.

He said that’s partly because a large number of big-ticket portfolio deals that hit the market in the first half have yet to trade, but he expects those will close in the third quarter.