Friday, January 18, 2019

The Rise of Secondary and Tertiary Markets in Commercial Real Estate (Video)

Why buy real estate over other investments offering similar cash on cash returns? (Video)

Kline Plaza Shopping Center Sold in Harrisburg

by Steve Lubetkin,
Nassimi Realty LLC purchased the Kline Plaza Shopping Center, a 214,628-square-foot shopping center in the heart of Harrisburg, PA, from Brixmor Property Group for an estimated $8.7 million. The transaction value was reported by Real Capital Analytics, a proprietary research database that tracks commercial real estate transactions.
The seller was Brixmor.

The shopping plaza, located at South 25th and Market Streets, is anchored by Giant Food Stores, Citi Trends and Family Dollar.
“The demand for grocery-anchored shopping centers remains extremely competitive throughout the region, and that was highlighted throughout this process. Giant’s commitment to the shopping center was highlighted by its recent long-term renewal.

Thursday, January 17, 2019

Ashley HomeStore Signs Lease in Delran, New Jersey

Ashley HomeStore, a furniture store chain with more than 800 locations worldwide, signed a 25,904-square-foot lease at the Greenleaf at Delran shopping center in Delran, New Jersey.

The 171,449-square-foot center at 5011 Route 130 was built in 1972. Spanning nearly 36 acres, the Class B property is less than 14 miles from downtown Philadelphia.

Denver-based Black Creek Group Buys Allentown, Pennsylvania, Warehouse

Black Creek Group, a Denver-based investment, management and development firm, purchased a 153,600-square-foot warehouse at Iron Run Corporate Center in Allentown, Pennsylvania, from High Street Realty Company for $15.3 million, or about $100 per square foot.

The fully leased, single-story structure at 7055 Ambassador Drive comprises 18 loading docks, one drive-in bay, 40- by 40-foot column spacing and a 26-foot clear ceiling height. Built in 1991, the 4-Star property spans 15 acres less than 12 miles from Lehigh Valley International Airport.

During its 25-year history, Black Creek Group has bought or built more than $18.5 billion of investments, including office, industrial, retail and multifamily properties, according to its website.

HomeGoods Inks Deal in East Stroudsburg, Pennsylvania

HomeGoods, a brick and mortar chain of discount home furnishing stores, signed a 15,000-square-foot lease at Kimco Realty Corporation’s Pocono Plaza in East Stroudsburg, Pennsylvania.

The 169,381-square-foot center at 300 Lincoln Ave. was developed in 1977. The Class B property spans 15 acres across from East Stroudsburg University of Pennsylvania.

Multifamily Update 2019 (Video)

GR8 People Relocated to New HQ in Yardley PA

by Steve Lubetkin,
GR8 People, a technology firm offering an HR talent platform for the enterprise, has relocated to a new corporate headquarters within The Tannery, 19 W. College Ave., Yardley, PA.
The company says moving into what’s considered “Bucks County’s most unique office space” is an ideal fit. GR8 People says it is revolutionizing the way organizations attract, engage and hire the world’s best talent with its one-experience talent platform.

“GR8 People is unique in our industry and that’s always been true of the offices we’ve selected for our incredible team to call home base,” says Diane Smith, CEO of GR8 People. “Our new space is a dramatic renovation of a turn-of-the-century former industrial facility. It’s unique, ultra-modern and collaborative and expansive. Our team is thrilled to work together in such an inspirational setting that’s a direct result of our shared success.”

The company entered new global markets as a result of major customer wins driven by growing enterprise adoption of GR8 People’s talent platform. Following strong expansion in its business and another record year, GR8 People increased headcount by 40% and continues to add new key roles to propel growth into 2019 and beyond.
With more than triple the square footage, the new headquarters matches the increased requirements of its expanding business.

According to its website, The Tannery was formerly the Century Leather Enameling Company—established in 1902. It was a processing plant where goat and sheepskins were converted into patent leather. The redeveloped property is owned by ML7, a family of private real estate investment, development, management and construction companies with offices in Princeton, New Jersey and New York City. Class A, finish-to-suit office spaces ranging from 2,000 to 31,000 square feet are available. The property includes onsite power backup, high-efficiency lighting and HVAC. It is two blocks from a SEPTA Regional Rail Station, adjacent to the Yardley Country Club, and offers easy access to US 1 and Interstate 95.

Two Lehigh Valley Commercial Land Sales Trade for Development

by Steve Lubetkin,
Two property sales recently totaling more than 35 acres traded in Bethlehem and Easton, PA.

The first transaction involved 29.5 acres of land in Bethlehem Township, PA. The team represented both the buyer, River Hills Estates, affiliated with Cahill Properties, and seller Joanne Turocy in the sale of the parcel. The land is accessible to Route 33, I-78 and Route 22 and is just minutes to St. Luke’s 500-acre Anderson Campus which features a 108-bed hospital, state-of-the-art cancer center and medical office building. The site allots multiple uses under zoning and future plans for the site have not been finalized.

The second transaction involved the last remaining 6.6 acres of raw industrial-zoned land known as Conroy Place Lot 6 in the Forks Industrial Park IV on Conroy Place and Uhler Road in Easton, PA. The buyer was Triple Net Investments LII and it sold for $625,000 sale. Triple Net will construct a build-to-suit industrial facility for a future occupant on the site.

With construction of the property, the park will be considered fully built-out. Tenants include Martin Guitar, Easton Coach, Daniels Health, Kensington Home Fashions, TorcUP Inc., Kadco Ceramics and Curries. The site is just two miles from the Charles Chrin Interchange and the adjacent Chrin Commerce Centre, an area economic driver that is home to Amazon, Mondelez, Porsche, FedEx and others.

Wednesday, January 16, 2019

1000 Madison Drive Norristown Sells for $17.5M

 The sale of 1000 Madison Avenue  transacted for $17.5 million. It is a 102,894-square-foot, three-story office building located in the Valley Forge Corporate Center in Norristown, PA. The property sold for $17.5 million.
“This is a stabilized office investment property with zero vacancy, occupied by strong credit tenants with long-term leases."

"There were seven offers from a mix of local, national, and international investors, which created a competitive bidding environment."

Located four miles from the King of Prussia Mall, the property is immediately accessible from the Pottstown Expressway, Route 422, the Pennsylvania Turnpike, Interstate 276, and the Schuylkill Expressway, Interstate 76. The Valley Forge Casino Resort is within three miles, and Philadelphia International Airport is 30 miles away.

At the time of the sale, the property was 100 percent occupied by five tenants, including the Commonwealth of Pennsylvania, which occupies 37 percent of the building. Built in 1990, 1000 Madison has 14 corner offices per floor, an atrium lobby and 469 surface parking spaces.

4Q Report: Moderate Growth in South Jersey and Philadelphia Markets

by Steve Lubetkin,
The Southern New Jersey and Southeastern Pennsylvania markets continued to show overall solid fundamentals, buoyed by new investments from outside the region and economic inflows to support local expansions. Leasing, sales, net absorption, and prospecting activity all were up in the fourth quarter 2018.
“Although the financial markets were highly unpredictable, commercial real estate performed the way it has for most of the past several years – with steady growth supported by strong fundamentals."
There were approximately 336,466 square feet of new leases and renewals executed in the three counties surveyed (Burlington, Camden and Gloucester), an increase of 18.3% vs. the previous quarter. The sales market stayed active, too, with about 1.4 million square feet on the market or under agreement, while actual sales were active at $28.5 million, totaling approximately 316,476 square feet.
New leasing activity accounted for approximately 36% of all deals for the three counties surveyed. Overall, gross leasing absorption for the fourth quarter was about 286,215 square feet.
Other office market highlights from the report:
  • Overall vacancy in the market is now approximately 10.95%, an improvement of 35 basis points over 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 stayed near this range throughout 2018.
  • Vacancy in Camden County increased to 11.5% for the quarter, an improvement of nearly a point compared to the third quarter.
  • Burlington County vacancy stayed at 10.4%, unchanged.
Highlights from the fourth quarter in Pennsylvania include:
  • The vacancy rate in Philadelphia’s office market was 7.8%, a slight improvement over the previous quarter. Demand for office space continues to be strong.
  • Net office space absorption in Philadelphia was 1,224,697 square feet for the quarter.
  • The industrial sector is as strong as ever in Philadelphia. The fourth quarter saw a small decrease in vacancy rates, to 5.3%, but a jump of about one million square feet in net absorption quarter over quarter, to 7.1 million square feet.
  • Philadelphia retail was the lone true weak spot in Q4. The vacancy rate ticked up two tenths of a point, to 4.5%, while net absorption was negative for the second straight quarter, at -611,261 square feet.
In the Southern New Jersey retail market, the fourth quarter saw the contrast of a spending surge that propelled holiday sales to their best season in six years and at the same time, consumer confidence inching downward as the year ended. The job market has stayed remarkably strong, with low unemployment supporting consumer spending and reverberating through other indicators. Other highlights from the retail section of the report include:
  • Retail vacancy in Camden County stood at 7%, with average rents in the range of $16.19 per square foot, triple-net.
  • Retail vacancy in Burlington County stood at 6.7%, with average rents in the range of $13.11 per square foot, triple-net.
  • Retail vacancy in Gloucester County stood at 8.6%, with average rents in the range of $13.76 per square foot, triple-net.

Tuesday, January 15, 2019

CCIM Institute Chief Economist on the Next Commercial Real Estate Finance Disruption (Video)

Full Report

Monthly Economic Outlook — January 2019 (Video)

Cardone sells 1.3M SF distribution center in Philadelphia

Natalie Kostelni Reporter Philadelphia Business Journal
Cardone Industries has completed the sale of a 1.3 million-square-foot building that it has been using as a distribution center and has plans to lease it back.

NorthPoint Development of Kansas City, Mo., bought the building at 5501 Whitaker Ave. in Philadelphia for an undisclosed amount though the property was listed for $34.5 million. Public records of the sale weren’t yet available. 

The building, which sits on 63 acres, has several addresses associated with it: 5501 Whitaker; 5400 Langdon St.; 5401 Whitaker; and 5401 R. Whitaker. The property is most often referred to as 5501 Whitaker though that isn’t what it is associated in Philadelphia property records. Colliers International arranged the transaction.

Cardone is a Philadelphia-based auto parts remanufacturer. The sale of the Whitaker Avenue property was part of an overall evaluation of Cardone’s real estate that involved several different actions. For example, the company signed a long-term lease last year to relocate some corporate operations to 15 Kings Grant Drive, a 53,920-square-foot office building in Bala Cynwyd. About 120 employees will work from that location.
Full story:

2019 Commercial Real Estate Forecast (Video)

PwC's Mitch Roschelle on 2019 Now (Video)

Monday, January 14, 2019

Office properties traded at a strong clip in 2018

Natalie Kostelni Reporter Philadelphia Business Journal
Suburban office sales in 2018 totaled $863.6 million, which was nearly double the $447.4 million laid out to buy office buildings in Philadelphia’s Central Business District.

That’s in contrast to 2017 when office properties totaling $929 million traded in the CBD compared with $864 million in the suburbs. What the 2017 figures show is that suburban office sales were gaining on downtown transactions in terms of dollar volume and that trend was solidified last year.

The commercial real estate investment market was healthy last year across the region. A total of $1.6 billion in 18 office transactions valued at $25 million or more were recorded for the Philadelphia suburbs and Center City combined. Other data, which calculates properties sold that were 25,000 square feet and greater regardless of the transactional amount, showed 92 transactions totaling $1.8 billion were logged last year throughout the region. That outstripped 2017 when 47 deals totaling $1.5 billion were completed.

Sales on a price per square-foot basis also improved.  data show the average office sale price was $180 a square foot compared with $173 a square foot. The occupancy of the properties sold averaged 93 percent, according to Real Capital, and proved money was flowing into lower risk, stable assets. 

While the suburbs experienced the most sales by dollar volume, three suburban submarkets ruled. King of Prussia, Malvern and Conshohocken were the top markets to get investor attention, according to the research. Those three markets accounted for $777 million in sales, according to Real Capital. In Conshohocken, Eight Tower Bridge and 161 Washington St. were among those properties that traded while several properties put up for sale by Liberty Property Trust in Malvern and King of Prussia also sold.
Full story:

Turn5 transforms former supermarket into expanded call center

By Michelle Caffrey  – Reporter, Philadelphia Business Journal
A former supermarket in Montgomery County is now home to a fast-growing e-commerce company. Turn5, which focuses on aftermarket auto products for niche brands, opened a new contact center in Pottstown last week.

Triple the size of its previous facility in the same town, the new 15,000 square-foot center provides more space to the 80 employees based there and offers room to grow, said CEO Steve Voudouris.

“We were busting at the seems,” he said.

To transform the former grocery store on Robinson Street into an office where staff can chat or talk to customers and reflective of its brand took a lot of work.

Turn5’s online brands sell aftermarket parts for American muscle cars, trucks and Jeeps – though a big part of their work involves filming installation tutorials and reviews. Its headquarters in Paoli has ample garage space to do so, and the contact center in Malvern is equipped with its own garage to give customer service employees hand-on experience.

Now the new Pottstown facility also has a garage, a change from the former call center, as well as a video production set, a product lab, an open-office plan and huddle spaces.

Voudouris said when Turn5 took over the building, it had to dial back the intense lighting left over from the building’s grocery store days. Then the company added its own twist, including a handmade light fixture suspended from a tire. To pay homage to both its past and future, the company had a 10-foot-tall, street-legal shopping cart vehicle on hand at its ribbon cutting event last week.
Full story:

U.S. REITs 2019 Outlook (Video)

Should you invest in commercial real estate in 2019? (Video)

Chief Economist Ryan Severino on 2019 Now (Video)

Office Vacancy in Philadelphia Remains Flat, CBD Lease Rates Reach All-Time High

by Steve Lubetkin,
Lease rates for class A office space in Philadelphia’s central business district reached an all-time high of $33 per square foot per year in 2018, fueled largely by investors seeking to recoup the money they invested in fancier amenities.

Office sales volumes in the fourth quarter were nearly double the third quarter, with trophy buildings like Eight Tower Bridge in Conshohocken selling for $313 per square foot, and 1735 Market Street in the CBD going on sale.

Liberty Property Trust continues to unload its office portfolio, with several prominent sales in Malvern, west of the city, as part of a publicly announced rotation out of the office sector in favor of increased investment in industrial properties.
Tenant improvement allowances continued a rising trend since 2010, reaching $4.72 per square foot per year.

Despite the rising rents, vacancy rates remained stable at about 14.5%. Although class A vacancy rates declined from the third quarter. Occupancy gains from a new headquarters opened for food and venue services firm Aramark were offset by some large office relocation and downsizing activities, such as software company Optymyze’s move from Chester, PA into 1700 Market Street in Center City.

The pipeline of new office construction is mostly empty, except for build-to-suit properties that won’t contribute much to availability. Like Brandywine Realty Trust, which is renovating its office property at 500 N. Gulph Road in King of Prussia, landlords are likely to continue renovating existing assets to keep them competitive.

Foreign Investor Buys Old City Mixed-Use Property

by Steve Lubetkin,
The sale of 248 Market Street in the Old City neighborhood of Philadelphia, PA, to a buyer it described as an overseas investment group with local ties. It sold for $3.7 million.

“We are seeing more and more international buyers get aggressive in buying core assets in Center City."

The property, which consists of six residential apartments and two ground floor commercial units, traded for more than $450,000 per unit.

The residential units were recently updated and feature granite countertops and stainless-steel appliances in the kitchens, vaulted ceilings, oversized windows, walk-in closets, in-unit washers and dryers and controlled building access.

The property is located on the bustling corner of 3rd Street and Market Street, convenient to Old City’s historic and tourist destinations, as well as a great variety of popular restaurants, shops, and entertainment options.  The property is also located one block from SEPTA’s Market Frankford train line.

“Recently we have seen a surge in interest in the Old City sub-market, which makes sense given its accessibility and proximity to the CBD. Old City also has great mixed-use building stock.”
The commercial units were leased to Color Inc., a retail/souvenir shop, and Car-Tel Communications, Philadelphia’s largest AT&T retailer.

“The stable retail leases on the ground floor helped to add value in this transaction."

Petrucci Expands Lehigh Valley Real Estate Holdings

by Steve Lubetkin,
“We have a long history of providing turnac-key real estate solutions throughout the Lehigh Valley and New Jersey,” says Jim Petrucci, founder and president of J.G. Petrucci Co. “As the region continues to grow and attract businesses, these strategic acquisitions will enable our company to offer clients an extensive menu of flexible properties available for lease.”

2147 Avenue C, located in Bethlehem, PA, is a 32,000 square-foot industrial flex building with a secure, gated, storage yard and excellent access to all major roadways.

In Forks Township, PA, Petrucci purchased a 6.6-acre site that is ideal for small industrial flex users seeking easy access to New Jersey. The property is located less than 2-miles from the Charles Chrin Interchange and just minutes from New Jersey.

Petrucci has plans to construct a 55,000 square-foot building at the property. The company has a wealth of experience developing properties in Forks Township for food manufacturing users such as Bethlehem Sausage Works and Norac Group, USA; and the design/build construction of a specialized perlite manufacturing facility for Silbrico Corporation.

Jefferson Health Negotiating Purchase of Fox Chase Cancer Center from Temple University

by Steve Lubetkin,
Thomas Jefferson University is continuing an aggressive acquisition strategy with the announcement that it has entered an agreement with Temple University for exclusive talks that could sell Fox Chase Cancer Center to Jefferson.
The move opens the door to bring together significant complementary expertise in cancer treatment and breakthrough research to improve patient outcomes across the greater Philadelphia region and beyond.

Leaders from Jefferson, home of the NCI-designated Sidney Kimmel Cancer Center, and Temple, home of Fox Chase, an NCI-designated Comprehensive Cancer Center, have agreed to exclusively negotiate the potential for a transaction over the next 90 days. The intent is to determine if the acquisition of Fox Chase will better serve the needs of cancer patients, the community and each other’s strategic goals. The due diligence period will also include evaluation of the sale of Temple’s interest in Health Partners Plans, a Philadelphia-based managed care health insurer.

“This negotiation period will allow us to better understand how partnering could improve lives for patients throughout Philadelphia and far beyond,” says Stephen K. Klasko, MD, MBA, president of Thomas Jefferson University and CEO of Jefferson Health. “Just imagine the potential of combining the stellar researchers and clinicians of Fox Chase Cancer Center with the outstanding experts at Sidney Kimmel Cancer Center at Jefferson. This could save – and change – lives forever.”

For Temple, this agreement represents the next step in finding a partner that can enhance Fox Chase’s future growth, while strengthening Temple University Health System’s core mission of providing outstanding clinical care to its North Philadelphia community and beyond and maintaining its unique research and educational mission.

“Temple and Jefferson share a home city, a mission and a commitment to caring for cancer patients throughout the region, and Jefferson is an outstanding potential partner,” said Temple president Richard M. Englert. “We are both dedicated to quality health care, safety, service, medical education, research and discovery, and we support the idea of two great Philadelphia institutions coming together to do what’s right for the patients we proudly serve.”
Jefferson and Temple would also enter into a long-term oncology-related academic affiliation agreement that would expand access for Temple residents, fellows and students to academic and research resources.

If the organizations reach agreement, the deal will require federal and state regulatory approval.

Jefferson Health is the largest provider of healthcare in Philadelphia. Its recent acquisitions have included Einstein Health and Kennedy Health in South Jersey.

Friday, January 11, 2019

Lehigh Valley industrial property growth hits record

By Brian Pedersen
The region’s growth of industrial properties along the Interstate 78-81 corridor hit a record-breaking number of new deliveries.

Lehigh and Northampton counties captured much of that growth, but experts say the market is expanding beyond those borders and further into Berks County and north toward the Wilkes-Barre/Scranton region.

“The market is really pushing the borders. There’s a bunch of development along the Route 33 corridor. You will see additional sites on Route 33.”

Notable deals in 2018 included:

• QVC, which signed a lease for a 1-million-square-foot facility in Bethlehem;

• UPS, which signed a lease for space in a more than one-million-square-foot building in Palmer Township off Route 33;

• Liberty Property Trust, which leased part of a 1.1-million-square-foot-building it owns in Lower Macungie Township.

Throughout the I-78 and I-81 corridor, developers added another 17.6 million square feet of new supply to the inventory, with 16.7 million square feet of occupancy gains during 2018, the report said. That figure represents a record-breaking amount of new product for the corridor.

The previous record of construction completions that were recorded was in 2016, when the market added 16.9 million square feet.

Last year saw more 1-million square-foot warehouses completed compared to any other year, the report said. Right now, there’s enough future demand to continue that trend.

“We see the I-78 corridor as very popular. There, we see the boundaries of what we consider the core Lehigh Valley [begin to] stretch.”

Heading north, there are some viable sites along the Route 33 corridor, he said.

As an example, American Tire Distributors opened a 1-million-square-foot build-to-suit facility in Blakeslee, Monroe County in November, helping boost absorption levels in the Northeast Pennsylvania market.

Depending on the users of these facilities, they still tend to focus on the New Jersey or New York market, including those industrial properties along Route 61 in Berks County..

Average asking rents in the Lehigh Valley are closer to $6 per square foot.

Outside the valley, average asking rents are closer to $5 per square foot.

“Lehigh Valley tends to be a more expensive market."

Though industrial buildings may appear larger, there’s still a lot of deals in this market in the smaller range, he added. These include some of the larger manufacturers who are driving the need for new facilities by adding production lines into their buildings.

“As they need more capacity, they push warehousing out to other buildings.".

Although developers added more than 4-million-square-feet of new product to the corridor’s inventory in the fourth quarter, market vacancy remained stable, quarter over quarter, at 6 percent. Surging demand throughout the year kept pace with the arrival of new supply in the corridor, the report said.

Overall, he expects this strong development to continue, particularly in the Lehigh Valley section of the corridor.

Developers broke ground on more than 9 million square feet of new product in the fourth quarter and of that total, five properties were one million square feet or larger.

“I think the valley will remain strong. In the last downturn, we never really bottomed out. Tenants who want to be here need to be here, so I think there’s great demand.”

Thursday, January 10, 2019

Flexible, shared workspaces are here to stay (Video)

Flexible, shared workspaces are here to stay: JLL from CNBC.

Columbia Property Investors Buys MOB in Lehigh Valley

by Steve Lbuetkin,
Columbia Property Investors acquired a 12,000-square-foot medical office building in the Philadelphia suburb of Hellertown, PA.
Located at 708 Main St., the medical office building was completed as a build-to-suit for Lehigh Valley Health Network, a regional healthcare provider. Lehigh Valley Health Network has leased the entire property for 15 years on a net lease basis.

Lehigh Valley Health Network is a regional healthcare provider that has a network of more than 1,340 primary care and specialty physicians, with hospitals on eight campuses throughout the Lehigh Valley of Philadelphia and New Jersey. The network features the LVHN Cancer Institute, the LVHN Heart Institute and the LVHN Institute for Special Surgery.

“We are pleased to have completed this accretive acquisition and appreciate Bear’s relentless effort to keep the deal on track throughout the entire process,” says Michael Hanson, manager of Columbia Property Investors. “This medical office building is an excellent addition to our investment portfolio, as it features a long-term net lease with a quality tenant in an excellent location.”

The seller was Ashley Development Corporation.
Ashley Development Corporation is a real estate development firm specializing in mixed-use projects in urban areas and the adaptive re-use of existing structures. Founded in 1989, the firm focuses on both residential and commercial projects.

Foxfield Industrial of Atlanta Pays $26.8M for Eddystone Industrial Park by Philadelphia International Airport

Foxfield Industrial, an investment firm headquartered in Atlanta, purchased four warehouses totaling 465,680 square feet in Eddystone, Pennsylvania, from Gateside Corporation. Eddystone Industrial Park sold for $26.75 million, or about $57 per square foot.

The single-story buildings at 1001 Industrial Highway were built in 1974 and renovated in 1998. Spanning nearly 44 acres less than six miles from Philadelphia International Airport, Eddystone Industrial Park comprises clear heights ranging from 18 to 60 feet, 52 loading docks and 16 drive-in bays.

Foxfield Industrial, a joint venture between Novaya Real Estate Ventures (Novaya) and Foxfield Ventures, secured $23.58 million in financing for the acquisition of the center.

Jeff Harper, principal of Foxfield, said in a statement, “We are really excited about the value-add facets of Eddystone Industrial Park. The vacancy and development parcels provide meaningful upside to the otherwise stable returns driven by long term, credit tenancy.”

Foxfield and its affiliates currently manage over $160 million in existing assets and development projects, according to its website.

Wednesday, January 9, 2019

Brixmor Exceeds 2018 Expected Disposition Volume by 30-40% (Video)

Pennsylvania Real Estate Investment Trust Subsidiary Inks Deal in Philadelphia

PREIT Associates, a local firm that operates as a subsidiary of Pennsylvania Real Estate Investment Trust, signed a 44,057-square-foot lease at Brandywine Realty Trust’s One Commerce Square office tower in Philadelphia.

The Class A, 41-story structure at 2005 Market St. was built in 1987 and renovated in 2013. The 4-Star, 1.02 million-square-foot tower is one block from the 22nd Street light rail station.

Toll Brothers Inks Deal in Fort Washington, Pennsylvania

Toll Brothers, a local home construction company, signed a 167,300-square-foot lease at Greenfield Partners’ Class A office building in Fort Washington, Pennsylvania.

The 680,000-square-foot, two-story structure at 1100-1140 Virginia Drive was built in 1964 and renovated in 2017. Spanning north of 67 acres at Fort Washington Technology Center, the 4-Star property is less than 10 miles from Northeast Philadelphia Airport.

Tuesday, January 8, 2019

CCIM's Outlook of 2019 Now (Video)

Apple Automotive Buys Former Dick's Sporting Goods York PA for $6.25M

by Steve Lubetkin,

SP Middletown Land Holdings, an entity closely related to Apple Automotive Group, has acquired a 55,200 square-foot building, formerly occupied by DICK’S Sporting Goods, on 9.35 acres at 1313 Kenneth Road, York, PA, for $6.25 million.

The one-story, masonry and steel building is heated and sprinklered throughout and offers ceiling heights from 12 feet to 14 feet clear, tailgate loading, mostly 30-foot by 36-foot column spacing, and parking for 205 automobiles.

The property is about two  miles from Interstate 83 at the intersection of Kenneth Road and US Route 30 (Loucks Road), and offers convenient access to the Pennsylvania Turnpike (Exit 242/Harrisburg West) and Interstate 81.  The property is just 35 minutes from Harrisburg, two hours from Metropolitan Philadelphia and three hours from New York.
Apple Automotive Group is a leader in the automotive industry in Central PA for sales, service, parts, collision repair and carwash services. Founded in 1976, Apple has nearly 20 locations throughout York, Red Lion and Hanover.

Monday, January 7, 2019

The tech boom in corporate real estate (Video)

Will REITs shine in 2019? (Video)

Top 10 CRE Predictions for 2019

by Joseph Ori
If you are looking for predictions for 2019 for the commercial real estate market, you aren’t alone.

1. Industrial markets will continue to sizzle.
The industrial real estate market will continue to be the favored real estate sector with robust demand, growth and investor capital. This boom has been the result of strong economic growth, record consumer optimism, low-interest rates and the growing demand for products by e-commerce next day delivery. Average rent growth during the last two and a half years through Q-2 2018 was a strong 7.8%. In 2018, industrial cap rates fell by .5% to 1% to a national average of about 6.25% and through the first six months of 2018, 128 million square feet of industrial space was absorbed.

2. Apartment rents will continue to moderate.
Apartment rents that have increased by 50% during the last few years in some hot markets on the West Coast and Northeast, will continue to moderate with national rent increases in the 1%-2.5% range. Per, the Q-3 YoY national rent increase was only 1.2%. Many more markets will begin offering “free rent” as the more than 1.5 million new units built during the last five years begin to further soften markets.

3. More net asset value REITs will hit the private market.
The moribund non-traded REIT sector was brought back to life in 2017 with the introduction of the Blackstone REIT. This private open-end REIT was one of the first to allow investors to buy shares in the REIT at a monthly net asset value per share rather than the standard $10 per share initial offering price. The net asset value is calculated monthly by using financial metrics including cap rates and discounted cash flow rates. Blackstone has raised over $3 billion through Q-3 2018 and will probably raise at least $10 billion in the REIT. Due to its success in raising capital with real-time NAV pricing, other players are bringing similar REIT funds to the market including; Nuveen, Starwood Capital, and Jones Lang LaSalle.

4. Interest rates will continue to rise.
Although interest rates have dropped the last two months, with the 10-Year Treasury sliding from 3.22% in September to 2.90% in December, we continue to believe the trade skirmish with China will be settled, stock market volatility will subside, and the economic boom will continue. The Federal Reserve may pause on raising rates in 2019, but the long end of the curve will increase with the 10-Year TNote at over 3.5% by the summer of 2019.

5. Opportunity zones will draw billions in capital.
Opportunity zones which were created in December 2017 as part of the Tax Cut and Jobs Act, will continue to flourish with billions of capital invested in individual opportunity zones and opportunity zone funds. This is the first part of the current administration’s infrastructure spending policy that will benefit many blighted urban areas with new low and moderate-income development. Treasury Secretary Steven Mnuchin estimated as much as $100 billion in private capital could be invested in opportunity zones.

6. Public REITs will generate sold returns.
Public REITs which will end 2018 with about a 5%-6% total return (including dividends) will post higher returns in 2019, estimated at 10% with 4% in a dividend and 6% in price appreciation. Even though we here at VOM expect long-term interest rates to increase in 2019, which will hurt REIT net asset values in the short run, the longer-term outlook is positive for public REITs. The average annual return for the FTSE-NAREIT All Equity Index was 11.69% during the last 10 years per NAREIT.

7. Class B malls will generate robust returns.
The class B mall sector has been battered the last four years, especially in the REIT space, with many public REITs like CBL, DDR, Brixmor and Washington Prime Group, selling well below private market net asset values. Many class B malls are trading at 7%-10% cap rates, which are deep value plays in this market. With most retail bankruptcies in the rear-view mirror and less competition among large national retailers for consumer dollars, retail tenants and their landlords should see higher rents, sales per square foot, occupancies and CRE values.

8. Shadow CRE lenders will increase market share.
The shadow or non-bank CRE lending market should see increased activity and deal flow in 2019. This sector includes public and private mortgage REITs, private funds, mortgage bankers and CMBS conduits. These lenders will benefit from slower loan growth by commercial banks as they become more risk averse due to pressure from the various regulatory agencies to temper CRE lending. According to the Mortgage Bankers Association, non-bank CRE loan volumes were $32 billion in 2016, $52 billion in 2017 and $23 billion through Q-2 2018. Some of the largest non-bank lenders include; Blackstone Mortgage Trust, Apollo Commercial, KKR Real Estate Finance, Mesa Capital and Hunt Mortgage.

9. Consolidation of CRE brokers will increase.
There are currently six large publicly traded CRE brokers that control approximately 60% of large (over $10 million) commercial real estate transactions and further consolidation among these and smaller brokers will continue. These firms will need to ramp up their growth and one easy way to do this is to acquire smaller local or larger regional firms. Many brokerage mergers and acquisitions will be strategic with the target providing a unique client base or a specialized service and skill set. The CRE brokerage industry will be structured like an hourglass, with a few large firms at the top, many smaller firms at the bottom and a few midsized firms in the middle.

10. Tech slowdown will lead to lower Northern California housing prices
The median price of a single-family home in San Francisco was $1.45 million at the end of November 2018. This is a reduction in the price of $265,000 or 15.5% from the bubble peak hit in February of $1.7 million. During the last five years housing prices in San Francisco and Silicon Valley have doubled, but they are beginning to come back down to earth. There are two primary reasons for the price declines, higher interest rates and a slowdown in the growth of technology stocks, which are the economic engine for Northern CA. As tech growth slows, the stock prices decline and the firms from Google to Facebook to Square, pull back their hiring quotas. For example, let’s say Facebook is still in a high growth mode and plans to hire 20,000 employees in 2019, with 15,000 in No CA. If their growth is slowing, then they will reduce the new headcount to 12,000, with only 10,000 in No CA. The effect of this is less demand for office space and apartments and less disposable income, which affects housing prices. We don’t think there will be a crash in Bay Area housing prices, but they can certainly decline about 20% during the next few years.

Morgan Properties Buys Creative Office Complex for $52M

Morgan Properties will pay $52 million to acquire Millennium I, II and III, a three-building creative office complex totaling 196,769 square feet in Conshohocken, PA, northwest of Philadelphia.

The seller was Stabilis Capital Management. “Millennium offers significant near-term upside for an experienced owner like Morgan Properties to take advantage of all that Conshohocken has to offer. I’m very excited to see what happens at the property in the coming years.”

Completed between 2000 and 2003, Millennium I, II and III includes three purpose-built, creative office buildings in one of Greater Philadelphia’s most desirable locations. The properties are situated at 20 Ash Street and 225 and 227 Washington Street, on the banks of the Schuylkill River in Conshohocken, a northwestern suburb of Philadelphia. The property has convenient access to Interstates 476 and 76, which provide access to the entire Philadelphia region, as well as being located across the street from Conshohocken Station, which offers SEPTA’s regional rail service for commuters.

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Friday, January 4, 2019

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West Chester, PA Frozen Food Plant Sold to JV

by Steve Lubetkin,
A joint venture of Concord, ON-based Infinity Asset Solutions and New Mill Capital Holdings of New York has acquired the former Hain Celestial frozen food production plant in West Chester, PA. The acquisition includes the real estate as well as all cold storage equipment and infrastructure.

Designed, built and occupied exclusively for frozen food production, the 134,010 square foot facility provides immediate capacity for refrigerated or frozen food manufacturing. The plant offers significant infrastructure including an ammonia refrigeration system with nine compressors, 11,900 square feet of -20 degrees Fahrenheit-capable frozen storage, nearly 58,000 square feet of refrigerated production space and bulk dry ingredient storage with three silos.
“This acquisition is in line with our strategy of identifying underutilized, high quality food processing facilities that can be retrofitted for modern users,” says Leslie Amoils, president of Infinity Asset Solutions. “The West Chester plant represents a compelling opportunity to restart food production and storage in a strategically located area. Potential users will be attracted to the area’s strong labor force and easy access to highways and rail systems in a property that can be acquired significantly below replacement cost.”

The JV partners and its affiliates have acquired and repurposed numerous food and beverage production plants throughout the US and Canada including assets on behalf of General Mills, Kraft Heinz, Unilever, Sunny Delight, Flowers Foods, Aryzta, Bob Evans, Sara Lee, Smithfield Foods, and many others.
“Our venture specializes in identifying excess corporate real estate and equipment assets and providing streamlined solutions to bring those assets back to life,” says Tom Murray, principal of New Mill Capital Holdings. “As we begin making improvements and marketing the property, I am confident that prospective tenants will see the value and functionality of this plant and location.”

Wednesday, January 2, 2019

REITs Performed Better Than S&P 500

Shares in real estate investment trusts, long considered a solid standby for conservative investors, are heading into 2019 after outperforming the overall market in a year marked by drops in big-name companies such as Facebook and General Electric.

After equities trading ended for 2018 on Monday, the Standard & Poor’s United States REIT index had a negative total gross return, or performance before expenses, of 4.06 percent, a smaller decline than the 6.2 percent drop for the entire S&P 500.

While both indices were in negative territory after a fourth quarter in which the S&P 500 zigzagged between positive and negative territory, REITs ended the year ahead largely because of increased confidence in real estate amid overall economic uncertainty.

The overall S&P 500 spent most of 2018 outpacing REIT stocks after eclipsing REITs halfway through 2017 following years of the market trailing REITs since the end of the recession, according to S&P Dow Jones Indices.

When the dust settled late Monday, 2018 was the worst year for stocks since 2008, based on the annual performance of the S&P 500 index. Several factors to a selloff across equities markets, including concern over the dollar and tariffs, the potential for further interest rate increases by the Federal Reserve and economic concerns about countries such as China, Great Britain and Saudi Arabia.

REITs, the publicly traded owners of finance income-producing properties, own real estate rather than run consumer-product or service businesses so they are often better positioned to weather economic fluctuations.

Overall, leverage ratios, or the amount of debt an organization is using to make deals, are at a record low for REITs, according to an analysis by Nareit, the industry association for REIT professionals. These companies have relied on equity more than loans or other forms of debt to make their investments in the past decade, reducing debt exposure and better insulating them from interest rate changes, Nareit said.

Among REITs, those with a residential focus performed best in 2018, according to Nariet. Manufactured home REITs returned 10.45 percent through Dec. 28, with apartment REITs returning 3.08 percent.

Several high-profile multifamily REITs were busy in 2018, including real estate mogul Sam Zell’s Equity Residential, which made several large acquisitions over the year and in high-yield apartment markets. The company’s stock ended the year up almost 4 percent.

Equity Residential re-entered the Denver market with two of the city’s largest apartment deals of the year, totaling almost $275 million. The Chicago company also brought on a new chief executive in 2018 and is heavily invested in Southern California and Washington, D.C., both hot markets with tremendous growth potential for apartments. Technology companies are driving rents up in California while the D.C. area prepares for the arrival of its half of Amazon HQ2.

Industrial REITs, boosted by another year of heavy interest in the industrial market as e-commerce dominates, posted a decline in total returns to a negative 3.2 percent, according to Nareit.

The biggest industrial REIT, San Francisco-based Prologis, bet big on the industrial market in 2018, paying $8.5 billion to acquire DCT Industrial Trust, adding 71 million square feet to its already huge portfolio. The deal is the second-largest on record for mergers and acquisitions involving REITs.

Showing more weakness are office REITs, which fell 15 percent through Dec. 28, while shares of retail REITs slid 13 percent, according to Nareit.

Aside from standouts, such as Boston Properties Inc., which over the summer completed a $616 million deal for Santa Monica Business Park in Los Angeles, office REITs have struggled this year.

Office REIT performance often tracks with job growth, which has been strong across the United States. However, the office development boom that has occurred in many of the country’s growth markets, and in some coastal cities where office REITs are often concentrated, are either having or expecting weaker demand, creating a supply-demand imbalance, according to an analysis by Hoya Capital Real Estate, a Connecticut-based registered investment adviser.

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Caesars, VICI REIT Complete Harrah's Philadelphia Sale-Leaseback

Real estate investment trust VICI Properties Inc.'s purchase and lease back of Harrah’s Philadelphia, a 2 million-square-foot casino in Chester, Pennsylvania, from Caesars Entertainment Corp. gives it 21 hotel and gaming properties leased to Caesars, marking a bet the value of such properties will outperform other specialty real estate.

New York City-based VICI paid almost $242 million for a deal that included the property at 777 Harrah's Blvd. in Chester as well as lease modifications valued at almost $160 million. The sale is part of a larger transaction between the companies in July to buy and lease back the 23-story, 1.2 million-square-foot Octavius Tower at Caesars Palace Las Vegas for almost $508 million in a complex deal that both firms described as a win-win.

Caesars agreed to cut the price allocated to the Philadelphia Harrah's property by $159 million to $82.5 million cash to account for the value of a master lease agreement that will increase rent payments to VICI in the early years of the leases of the properties in Las Vegas, Joliet, Illinois, and Chester, Pennsylvania, while decreasing Caesar's payments in the later years of the leases.

"The completion of this transaction with VICI provides Caesars with financial flexibility and reduces the volatility of our future rent payments, demonstrating our commitment to creating value for our shareholders while maintaining financial discipline," Caesars Chief Executive Mark Frissora said in a statement. Caesars has previously stated that the transactions "unlock more than $500 million in value from Caesars' real estate assets."

Companies frequently use sale-leasebacks, in which a business sells the property it owns and occupies but stays on as a tenant under the new owner, to extract value from their real estate assets. It often provides an immediate infusion of cash to a company to use elsewhere in its business.

In November, Caesars Entertainment signed a 15-year agreement to be a partner on the $1.8 billion Las Vegas football stadium, planned as the future home of the National Football League's Raiders team. The company plans to brand one of the entrances to the stadium.

Caesars agreed to pay $21 million in rent for the first year for Harrah’s Philadelphia property, with future rent increases included in the lease contract. The casino was built in 2006 and upgraded in 2017 and now includes 2,450 slot machines, 110 table games, several bars and restaurants and parking garages.

Caesars also agreed to pay $35 million a year in rent for a separate ground lease at the Octavius Tower in Las Vegas.
The purchase and lease agreements increase VICI's gaming real estate holdings and presence in the growing Mid-Atlantic casino market while changing leases to improve future rent growth to protect against future income volatility, VICI Chief Executive Edward Pitoniak said in a statement.

Most importantly, Pitoniak said, the deal provides an incentive for Caesars to "invest capital into the real estate to grow and strengthen their own business."

VICI Properties was spun-off in late 2017 as the owner of a number of Caesars gaming facilities stemming from the bankruptcy reorganization of Caesars Entertainment Corp. VICI and Penn National Gaming announced in November they're teaming up to purchase the Greektown Casino-Hotel in downtown Detroit from billionaire Dan Gilbert's Jack Entertainment for $1 billion in a sale expected to close in mid-2019.

Investor demand has placed gaming and leisure-focused real estate investment trusts among a select group of specialty property sectors whose shares are trading at a higher prices than their net asset values this year. Other specialty REITs trading at high prices compared with their asset values include self-storage and manufactured housing companies.

Penn National Gaming started the casino industry's first REIT, Gaming and Leisure Properties Inc., in 2013. Gaming and Leisure acquired most of Penn National’s properties and leased back to Penn in what has been a model for gaming ownership and management.

MGM Growth Properties and VICI Properties were spun off recently from MGM Resorts International and Caesars Entertainment, respectively. Both companies' shares have performed well in 2018.

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