Friday, February 22, 2019

Office Design Trends and Tenant Strategies (Video)

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Christiana Care Health System, Chemical Firm Solenis Commit Major Office Moves to Former AstraZeneca Campus in North Wilmington

Two major Delaware employers have signed long-term leases to move their respective headquarters to Avenue North, the redevelopment of the former AstraZeneca corporate campus in suburban Wilmington.

The two companies, Christiana Care Health System, Delaware's largest hospital operator, and specialty chemical producer Solenis Inc., which recently completed a merger with BASF to combine their paper and water chemicals businesses, agreed to lease two large blocks of office space in the $350 million redevelopment located along U.S. 202 .

Delaware-based Delle Donne & Associates purchased the 80-acre property in 2017 from drugmaker AstraZeneca and is in the process of redeveloping it into a high-end, mixed-use complex. The developer plans to add more than 300 residences, approximately 200,000 square feet of retail space and a 200-room hotel-conference center in addition to new and existing office space.

AstraZeneca agreed to leaseback approximately 400,000 square feet encompassing two buildings for its U.S. headquarters when it sold the property.

Christiana Care will lease the entire 386,460-square-foot Center Building, while Solenis will occupy the Pavilion Building , which measures 104,488 square feet. These two leases fill the largest remaining blocks of existing office space in northern New Castle County, according to JLL Senior Vice President Jamie Vari, who helped procure the two tenants on behalf of Delle Donne.

Vari said the early leasing success of the Avenue North project bringing thousands of jobs to the site reflects the scale and expected quality of the proposed mixed-use project.

"Within 18 months of acquiring the site, Delle Donne & Associates, Inc. and their extended team executed on a marketing approach which secured three major Delaware users," Vari said in a press release announcing the two latest lease commitments. "The goal of the plan is to create the new benchmark of high-end development along the Route 202 corridor."

For Solenis, which had considered relocating out of state, the new lease confirms the headquarters of the $3 billion specialty chemical company employing over 5,200 people worldwide will remain in Delaware. CBRE assisted the chemical firm in its site selection.

The company expects to relocate to its new location in the first quarter of 2020. Last November, Delaware approved a $3.9-million taxpayer-funded grant as an incentive for the company to keep its headquarters in the state.

Christiana Care said it plans to relocate much of its administrative and support services to the Avenue North location, freeing up more space at its hospitals in Wilmington and Stanton.

"Avenue North creates an opportunity for Christiana Care to consolidate many of these offices together, reducing costs and increasing efficiency," said Sharon Kurfuerst, the chief operating officer of the health system in a statement.
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Thursday, February 21, 2019

PNL Companies Sells Suburban Philadelphia Office Building for $15.5M

PNL Companies, a full service investment firm headquartered in Dallas, sold a 91,190-square-foot office building in Malvern to a private investor. Malvern Executive Center sold for $15.5 million, or about $170 per square foot.

The three-story structure at 100 Deerfield Lane was built in 2003 and renovated in 2015. The 4-Star property spans nearly an acre less than 25 miles from Philadelphia International Airport.

The Class A building is 73 percent leased to ten tenants including Fox & Roach and USA Technologies.

The property provides both a current, stable cash flow and substantial value-add opportunity through the lease-up of existing vacancy,
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Office Sector Update from RC Analytics (Video)

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Ballinger Renews Lease in Downtown Philadelphia

Local architecture firm Ballinger renewed its 78,951-square-foot lease at HCP’s Class A office building in Philadelphia.

The 708,361-square-foot building at 833 Chestnut St. was built in 1926 and renovated in 2006. The 14-story, 4-Star property spans 1.6 acres across from the 8th and Market Street train station.

HCP originally purchased the building, which is managed by Lincoln Harris CSG, in April 2015, CoStar data shows.
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Self-Storage Stands on Its Own Square Feet As the US Population Grows

From New York City to Chicago to Los Angeles, some newly renovated multistory buildings with city views aren't housing people. They're holding their stuff.

America's obsession with possessions is fueling unprecedented interest by investors and developers willing to pay increasing prices for buildings and land on which to create self-storage units.

Long considered an unglamorous subset of industrial real estate, self-storage is coming into its own in the United States. The nationwide growth of residential real estate prices has pushed more of the population to living in smaller places where they don’t necessarily have the space for off-season clothing, gear and supplies for their hobbies.

Storage and warehouse leasing has grown 2.5 percent since 2014 to become a $37 billion industry this year, according to market research company IBISWorld. The number of storage businesses has grown 2.4 percent and their workforce has climbed 2 percent in that time.

“Storage is a beneficiary as long as there’s population growth,” said Charles Byerly, president and chief executive of Irvine, California-based U.S. Storage Centers, which owns and operates self-storage facilities across the country. “As long as the economy is not stagnant, storage will do well.”

The U.S. population has grown 3.3 percent from 2013 to 2018, and the economy is in the midst of what could be the longest economic expansion in U.S. history come July. It follows, then, that spending on self-storage construction grew about $1 billion to more than $4.5 billion in October last year from the year earlier, according to data compiled in December by website SpareFoot, which tracks the self-storage industry.

The abundance of self storage now is inspiring not just reality shows in which people bid for the contents of abandoned storage units, but also a Netflix series called "Tidying Up With Marie Kondo" that goes the opposite way by teaching people how to pare their possessions.

The industry is even drawing attention from high-profile investors beyond real estate. Japanese conglomerate and investor SoftBank, a backer of ride-sharing app Uber and coworking firm WeWork, said Wednesday its Vision Fund made a $200 million infusion in Clutter, the Los Angeles-based startup that allows users to summon a crew to their homes to pick up items and haul them to a storage facility. Fast-growing Clutter in December agreed to lease 462,000 square feet of industrial space for storage.

Added Demand

Major commercial real estate companies have taken note of the increased demand for self-storage and are directing their dollars accordingly too, while companies that have existed in the space for years look for ways to protect their territory.

Companies such as Nuveen Real Estate, the investment management arm of financial services giant TIAA, have taken notice. Nuveen last month acquired a 90 percent interest in a 21-property portfolio totaling 1.3 million square feet in nine cities through a partnership with Morningstar Storage, a Matthews, North Carolina-based self-storage company.

Houston developer Hines in 2018 launched an effort of its own to invest in high-end storage facilities in the southwest and began construction on a self-storage facility in Phoenix. The company said it plans to build as many as three to five more projects a year in areas with growing populations and high incomes.

In addition to being in high demand, self-storage is also seen as a relatively safe investment, as it fared comparatively well during the recession, said Walter Brower, vice president of capital markets specializing in self-storage properties at Los Angeles commercial real estate firm CBRE Group Inc.

Like all real estate types, self-storage properties suffered during the recession, but they still made money. They paid dividends at a time when few other property types did, thanks to a diverse tenant base and short lease terms, Brower said.

After the recession ended, Brower said, private equity started flowing into the industry.

The combination of capital and demand inevitably leads to development, which is happening in major markets across the country at varying levels, with bigger, denser cities getting more attention from developers.

Self-storage units today are built vertically, a departure from the short, broad structures from previous decades. In particularly dense, expensive areas like Brooklyn, New York, self-storage projects can reach 12 and 13 stories tall, with units starting at $300 for each month.

But in spite of the common perception that self-storage is an inexpensive property type, building in these areas is neither cheap nor easy, Brower said.

Pricey Bet

“In Los Angeles, $6 million per acre pricing for prime, infill self-storage locations is not unheard of,” said Brower. By comparison, the average acre of U.S. farmland was about $3,080 in 2017, according to the United States Department of Agriculture.

Land costs are just one of the many challenges that the industry’s growth presents for long-time self-storage operators, U.S. Storage’s Byerly said.

The influx of capital has made it difficult to do deals, added Byerly, because the presence of motivated and deep-pocketed investors in the industry has caused valuations to go up and overall make the industry a more expensive place.

U.S. Storage, which earlier this month purchased a 1,269-unit self-storage facility in Las Vegas, has properties in 16 states and in most of the major coastal cities.

The market nationwide is at a heightened level of supply, Byerly said, because so many companies started building self-storage so quickly after the recession. But slow entitlement processes, larger and more complicated facilities that include components like climate-controlled storage, and construction labor shortages have slowed down the construction process and pushed back the time frame for most new development.

Another challenge is increased overheard and operations costs, Byerly said. Property taxes and insurance costs are up, and minimum-wage laws enacted in many states mean that employees have to be paid more. Marketing self-storage is also more difficult because of increased competition in the space.

In spite of these challenges, growth in the industry is expected to continue, at least as long as the American population keeps growing.

“During even the downturn, one thing continued,” Brower said. “U.S. population growth.”
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Wednesday, February 20, 2019

New Jersey Awards Pennsylvania Company $39.6 Million to Open Camden Site

A Pennsylvania company was awarded nearly $40 million in tax incentives from New Jersey to build an administrative-office outpost on Camden's waterfront, bringing 200 jobs to a city that's been mounting a comeback.

The state Economic Development Authority approved the $39.6 million tax package, which spans 10 years, for Elwyn, a nonprofit. The company, founded in 1852 and based in Middletown Township, Pennsylvania, provides services to children and adults with intellectual, developmental, physical, medical, emotional and behavioral health challenges.

At the meeting, the EDA's managing director of business development, Paul Ceppi, told the agency's board that Elwyn was looking to take new office space for its administrative functions by either building a 53,425-square-foot facility at 2 Penn St. , which is part of a huge $1 billion redevelopment on the Camden waterfront, or else lease an existing 57,000-square-foot building in Wilmington, Delaware.

Elwyn will be bringing 167 new jobs to New Jersey, and Camden, as well as transferring 33 jobs that are now at its location at 1667 East Landis Ave., Vineland, New Jersey, to the city on the Delaware River, for a total of 200 jobs.

"These positions are all headquarter-related, dealing with payroll processing, insurance processing and the like," Ceppi said, adding that Elwyn plans to make a $39.6 million capital investment in Camden.

An EDA memorandum said that Elwyn's proposed project on Penn Street "represents a significant step forward for Camden's redevelopment efforts" and would have a net benefit to the state of $88,310 over a 35-year period. Elwyn will complete its capital investment by Feb. 1, 2021, according to the memo.

Camden has struggled, and made some strides, to overcome its economic woes, according to officials like former Gov. James Florio. Econsult Solutions Inc. released a report in January on the city's status and progress. It credited state tax incentives as being crucial in helping the city to rebound.

"Camden faced more than 50 years of economic decline, a decline that had a dramatic impact on the quality of life, health and well-being of its residents," the report said. "By the early 2000s, it was facing crises of fiscal health, public safety, and K-12 education. Through collaboration and commitment, Camden’s state and local government entities, business leaders, and community stakeholders have driven improvements across social determinants of health citywide. Crime is at a historic low, with murders down by 60 percent over five years, and violent crime down by 40 percent. New, state of the art of schools are open across the city, and test scores are rising. And most importantly, economic development is helping create jobs for Camden residents."

But the report cautioned that the city's economic recovery still needs assistance.

"Camden has made tremendous progress in a short period of time, but these changes are not yet secure, and continued investments by the private and public sectors, including the state of New Jersey, are necessary to ensure that Camden’s emerging platform for growth is not compromised," the report said. "The social determinants of health -- and the city's future -- require it."

Jeremy Sunkett, Elwyn's vice president of strategic real estate, attended the EDA session.

"It's been a long process and we're really happy with the results," he told the agency.

After the meeting, Sunkett said that redeveloper Liberty Property Trust owns the vacant site where Elwyn's office building is planned, nestled behind a new American Water headquarters.

"It's an expensive place to develop in general, Camden," Sunkett said. "And obviously it's distressed. It's a difficult set of circumstances. And you're also talking about riverfront construction for it, which puts a premium on the cost to build it."

With the move to Camden, Elwyn can move out of three different buildings at two locations, consolidating and going from about 130,000 square feet to 54,000 square feet, according to Sunkett.

At its meeting the EDA also approved a memorandum of understanding for a data-sharing agreement between it and the state Deportment of Labor and Workforce Development. The purpose of the agreement is "to promote additional compliance with the rules and regulations of the job-based incentive programs" within the EDA, according to the agency.

EDA Chief Executive Tim Sullivan talked about the agreement with state labor officials last week when he testified before a joint legislative hearing on New Jersey's tax incentive programs. An audit by the State Comptroller found that the EDA had “improperly awarded, miscalculated, overstated and overpaid” $11 billion in granted corporate tax breaks, in part finding there wasn't proper verification of jobs that were supposed to be created by some award recipients.

With its memorandum of understanding in place, the EDA said it will be able "to cross-reference the employment information provided by our applicants with data submitted" to the state labor department. The EDA will reimburse the department no more than $5,000 a year for the data-sharing.
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Hospitality and Hotel Industry Performance (Video) Pt 2

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Linlo Acquires Mechanicsburg, PA, Office Assets in Sale-Leaseback Deal for $10.3

by Steve Lubetkin Globest.com
Linlo Properties acquired two office buildings totaling 76,972 square feet in the Rossmoyne Business Park, in Mechanicsburg, PA. Members 1st Federal Credit Union has leased back a portion of both buildings as it begins due diligence phases for a new corporate headquarters.
The two office buildings are located at 4999 Louise Drive and 5053 Ritter Road and are 56,494 square feet and 20,478 square feet, respectively.

“Here at Linlo we could not ask for a better acquisition pairing to start 2019,” says Sarah Gates, Linlo portfolio manager. “We continue to see the strength of the Rossmoyne Business Park and feel that these assets complement our existing offering well. We thank Members 1st for the opportunity and for their professionalism throughout the entire deal process.”
Members 1st is exploring the option to consolidate operations into one facility at a new corporate headquarters in Hampden Township, although details have not been finalized.

“We are approaching nearly 70 years of proudly serving members, associates and the community,” says Mike Wilson, chief marketing officer at Members 1st Federal Credit Union. “In addition to significantly expanding our offerings of extremely competitive products and services in the marketplace, we have also grown as an employer of choice. Maintaining the costs associated with multiple buildings is neither efficient, nor conducive to a collaborative organization with nearly 500 associates who serve 400,000 members from our headquarters each day. It has been great to partner with Linlo Properties as we begin the due diligence phases of consolidating into one cohesive, collaborative facility in a fiscally responsible manner.”
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Tuesday, February 19, 2019

Once Again, Cheap Apartments Show Big Appeal

In another sign that investors see big value in cheaper apartments, Morgan Properties has struck a deal to buy 15 older rental complexes in the suburbs around Philadelphia, Baltimore and Washington, for $1.4 billion.

Morgan, of suburban Philadelphia, has been one of the most aggressive buyers of “workforce housing” in the Mid-Atlantic in recent years. Now, they’ve struck a $1.4 billion deal for 6,696 apartments, mostly of 1960’s and 1970’s vintage.

That’s Morgan Properties’ specialty – “workforce housing” that caters to mid-income renters and has the potential for higher rent growth than the newer, higher-rent rentals in those markets. With cheaper rents than the fancy new developments popping up in those markets’ downtowns, the older communities have a natural pool of potential tenants among lower-income renters.

And by making modest improvements to the apartment interiors and the community amenities, Morgan could raise rents to boost their own returns on the investments. The strategy is becoming increasingly popular, as very little of the tsunami of new apartment development is aimed at middle-income renters.

The deal is the biggest single pick-up ever for Morgan, an apartment management and investment firm founded in 1985. But the company has shown an appetite for big deals, especially those involving Class-B properties with upside potential.

Since 2013, the company has picked up about $3 billion in apartments before the Lone Star deal. The vast majority of Morgan's rentals are in the Mid-Atlantic, but the company has acquired rentals in Tennessee and as far west as Nebraska, and as far south as South Carolina. The firm now owns more than 30,000 apartments.

Just two weeks ago, Harbor Group International made a similar big investment in workforce housing. The Norfolk, Virginia-based shop paid $380 million for a six-property, 1722-apartment portfolio in suburban Massachusetts. They too appeal to the renter priced out of the gleaming towers now littering downtown Boston and its close-in suburbs. And they too offer their new owners the potential for larger rent increases through property upgrades.

The deal with Lone Star has yet to close and details could change, last minute. But market players familiar with the deal say Morgan is under contract for the portfolio and will pay slightly more than $210,000 per unit.

Morgan’s new portfolio will include the 1,387-unit Mount Vernon Square Apartments, at 7429 Vernon Square Drive in Alexandria, Virginia. It was developed in 1965, and is the largest in the portfolio acquired from Lone Star. The Home Properties of Bryn Mawr, at 105 Charles Drive, in Bryn Mawr, Pennsylvania, is the oldest property. That 316-unit property was built in 1940.
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Bob Sulentic discussed the commercial real estate outlook on CNBC (Video)

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McLaren Engineering Group Triples Office Space in Lehigh Valley Expansion

by Steve Lubetkin, Globest.com
McLaren Engineering Group is expanding its Lehigh Valley location. The full-service engineering firm will now occupy 2,700 square feet at 5100 West Tilghman Street in Allentown—tripling the amount of space of its previous location, which opened in 2016. The move allows the McLaren team to grow from six to 16 employees.

“Due to the region’s business growth, proximity to talent and affordable costs, our Lehigh Valley office is well-positioned to continue its growth trajectory,” says Malcolm McLaren, CEO of McLaren Engineering Group.

McLaren’s Lehigh Valley office provides services to the steel industry and specializes in aluminum paneling design work for office towers, mixed-use complexes and university buildings across Pennsylvania, New Jersey, and New York.

“Since we opened three years ago, we’ve continued to expand due to the Lehigh Valley’s exceptional business climate and access to talent,” says Matthew B. Kawczenski, P.E., S.E., F.SEI, Pennsylvania regional director who leads the Lehigh Valley office. “One of our largest clients, BAMCO Inc., trusted us in designing significant projects that include American Water’s new headquarters in Camden, NJ, The View II tower in Philadelphia, and One Willoughby Square, a 34-story project in Brooklyn.”

Additionally, McLaren’s Lehigh Valley office engineered the steel egress stairs, railings and interior glass guardrail systems for Lafayette College’s Rockwell Integrated Science Center, opening this year in Easton, PA. The office has also provided a range of engineering services for projects in Philadelphia and the surrounding region.

The Lehigh Valley office has strategic relationships with Lehigh University, Lafayette College, and Bucknell University’s engineering schools, which provide a steady pipeline of engineering talent. Kawczenski and his team are also regular speakers within Lehigh and Bucknell’s engineering programs.
“It’s important for engineering students to take engineering principles learned in school and apply them to real-world projects,” says Kawczenski. “We provide a pathway for graduates in our region to become experts in our increasingly complex field—which continues to evolve based on changing architectural requirements.”

Kawczenski notes that comprehensive knowledge of design standards and codes is crucial within the space, as there have been measurable shifts in design work over the past decade. The regional director notes that straight, flat aluminum panels have given way to more complex designs—and these architectural requirements are accommodated by the Lehigh Valley staff.
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Freedom Credit Union Leasing in Morrell Plaza in Philadelphia

by Steve Lubetkin, Globest.com
Freedom Credit Union has leased 2,000 square feet at Morrell Plaza in Philadelphia, becoming the latest business to join the tenant mix at this 103,250-square foot shopping destination. Located directly on Frankford Avenue/Route 13, Morrell Plaza is exclusively leased and managed by North Plainfield, NJ-based Levin Management Corporation.

 Freedom Credit Union is a community-based, full-service financial institution that offers a banking alternative to consumers. Anyone who lives, works, worships, performs volunteer service or attends school in Bucks, Chester, Delaware, Montgomery or Philadelphia counties is eligible for membership.

“The presence of a high-volume grocer, exceptional demographics and a visible location—in the retail heart of a busy Northeast Philadelphia neighborhood—makes Morrell Plaza an attractive place to conduct business. Freedom Credit Union will bring a new retail category for the center, and its presence undoubtedly will enhance Morrell Plaza’s co-tenancy as we continue to expand the property’s retail offerings. We are confident this organization’s professional financial services will be a valuable resource for its members.”

Morrell Plaza is anchored by a 63,000-square-foot, newly renovated ShopRite supermarket and a 12,700-square-foot Rite Aid drugstore. The tenant roster includes a mix of national, regional and local retailers and service providers including T-Mobile, Supercuts, Dunkin’, and Yamato Sushi & Hibachi, among others. The property serves a five-mile residential population of more than 399,800 and its daily traffic count exceeds 36,000 vehicles.
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Hospitality and Hotel Industry Performance (Video)

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Commercial Real Estate Loan Growth Plateaus

Investors and lenders dove into apartment and industrial mortgages in the final three months of last year while retail and office property lending slowed, setting a pattern industry executives expect to extend into 2019.

Total commercial and apartment mortgage origination for 2018 rose 3 percent, after a 14 percent surge in the fourth quarter, according to preliminary estimates from the Mortgage Bankers Association.

Origination for apartment properties increased 22 percent for the year, with loans from government-sponsored enterprises leading the surge. Loans made for industrial properties rose 12 percent for the 12 months, while those for hotel properties climbed 5 percent.

Last year "ended on a strong note for commercial mortgage borrowing and lending, with fourth-quarter origination 14 percent higher than a year earlier, despite the broader market volatility," said Jamie Woodwell, Mortgage Bankers' vice president for commercial real estate research.

However, Woodwell added that "the market as a whole ended the year roughly flat compared to 2017, continuing a plateau we've seen in mortgage borrowing and lending since 2015" as a result of moderation in both property value growth and building net operating income. The trend is expected to continue this year.

Typical of the apartment surge were results recently released by Freddie Mac, which set a record with $77.5 billion in loan purchase and guarantee volume for 2018, and $500 million in low-income housing tax credit investments. The $78 billion in total production bested the company's prior record of $73.2 billion set in 2017.

Life insurance companies boosted their loan origination by 10 percent in 2018 over 2017. Typical of that was PGIM Real Estate Finance, which originated its own record $18.1 billion in financing in 2018, up from $14.8 billion in 2017. Record production in multifamily and core-plus lending led the boost. PGIM Real Estate Finance is the commercial mortgage finance business of PGIM Inc., the $1 trillion global investment management business of Prudential Financial Inc.

PGIM Real Estate Finance has as much as $18 billion available for financing in 2019 and said it will again look to target growth in apartment and industrial loans.

However, the stepped up lending from government-sponsored enterprises and life insurance companies was offset by decreased loans from banks and conduit lenders feeding the mortgage securities markets. Loans for commercial bank portfolios decreased 10 percent and loans for CMBS fell 26 percent.

By property type, office property origination was down 7 percent, retail properties declined 13 percent and healthcare properties decreased 16 percent.

Commercial and multifamily mortgage origination is expected to remain roughly on par with the volume in the past two years, according to the Mortgage Bankers. The association projects commercial and multifamily mortgage origination to total $530 billion in 2019, essentially flat from last year's $526 billion, and the record $530 billion in 2017.

Mortgage banker origination of just multifamily mortgages are forecast to rise 1 percent this year to $264 billion, with total multifamily lending at $315 billion. The association expects the origination total to extend into 2020.

"Slowing global and domestic growth may have an impact on overall demand, but readily available equity and debt for commercial real estate should support transaction volumes," Woodwell said.
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Monday, February 18, 2019

CAI Signs Office Lease in Newark, Delaware

CAI, a privately-held global IT corporation, signed a 32,521-square-foot lease at BPG Real Estate Services’ Class A office building at Iron Hill Corporate Center in Newark, Delaware.

The 105,475-square-foot, three-story structure at 700 Prides Crossing was built in 1992. The building spans nearly two acres less than two miles from the Fairplay train station.
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Friday, February 15, 2019

Duke Acquires LV Market's Wind Gap Logistics Center from Petrucci and Davis

by Steve Lubetkin, Globest.com

Duke Realty Corporation has acquired Wind Gap Logistics Center—a 349,012 square-foot class A warehouse/distribution facility located at 1380 Jacobsburg Road in Wind Gap, PA, from JG Petrucci Company and The Davis Companies for $41.3 million, or $118 per square foot, according to Real Capital Analytics, a proprietary research database that tracks commercial real estate transactions,.

Wind Gap Logistics Center, a joint venture between Petrucci and Davis, was completed in 2018. Designed and built by Petrucci, the precast construction features: 36-foot clear height with 54-foot-x-54-foot columns; 60-foot deep loading bay; ESFR sprinkler system; and 9,400 square feet per door loading ratio. Wind Gap Logistics Center was designed by Cerminara Architect and constructed by Petrucci’s in-house construction firm, Iron Hill Construction Management Company.
With the increased focus on the supply chain and need to efficiently move goods into major northeast metro areas, the joint venture believed the project provided a unique opportunity. The location has a significant competitive advantage within the established Lehigh Valley distribution market, because it is close to PA Route 33 and has equidistant access to both I-78 and I-80, the two main highways to the ports of New York/New Jersey and the MSAs of New York and Philadelphia. This strategic location allows tenants to avoid reliance exclusively on I-78.

“Wind Gap Logistics Center represents the idyllic formula for success throughout the critical logistics corridor in Eastern Pennsylvania. Premium specifications, flexible design, institutional development management and immediate highway interchange access combined to fully capitalize on the Lehigh Valley-foots evolving symbiotic relationship with the New York Metropolitan region and its ports.”

Shortly after construction of the property finished, Teva Pharmaceuticals signed a long-term lease for 54% of the building, demonstrating the strong demand for this state-of-the-art, well located class A distribution facility.

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Value-Add MF, Workforce Housing Attractive, Says Dealmaking Panel

by Steve Lubetkin, Globest.com
Value-add multifamily and workforce housing are attractive sectors for lenders in the current market, but Opportunity Zones may not live up to their promise for real estate, according to participants in the “Deep Dive in Deal Making” panel at ALM’s GlobeSt.com Philadelphia Conference this week at the Crystal Tea Room.

“We really like value add multifamily,” says Christophe Terlizzi, senior vice president & market leader for commercial real estate lending, KeyBank. “We see that as being one of the safest bets for balance sheet lending, and it also drives permanent loan business through our off-balance-sheet channels.”

Terlizzi described a recent deal involving a workforce housing project of 210 units where the sponsor wanted to buy out his equity partners and needed to recapitalize the transaction, but the property’s rents were about $250 a month below the market because other more modern properties attracted a higher rent.
“We structured a loan that provided him with 98% of the capital to buy out his equity,  and we structured a deal with 100% of the renovation costs, to be advanced over basically a four-year period,” says Terlizzi. The financing included two one-year extension options and a principal guarantee. Despite complex tax issues because of foreign investor participation, Terlizzi says Key was able to close the deal in 45 days.

“I’m seeing a lot of clients leaving New York, and taking that money and bringing it over to Philadelphia and New Jersey,” says Amanuel Mekonen, director, Greystone & Co. “We are in love with affordable housing and workforce housing. I really think you can’t go wrong. Anytime we see developers looking into affordable housing or workforce housing, we’re going to be excited about it.”

Mekonen’s firm provides bridge financing to developers working on zoning approvals and converts that to FHA construction loans after land is acquired and approved, he says.
“Last year, I didn’t see a lot of that,” he says. “This year, I’m getting a lot of requests and spending a good amount of time on that. And we closed around $1.8 billion last year, so I can see that really gearing up.”

Opportunity zones could provide an extra incentive for developers to look at affordable housing developments in a city like Philadelphia, Mekonen says.

“I think that only adds to the flavor, because if you can underwrite it right and the deal works, it’s only going to get better,” he says.

But Terlizzi and panelist Leo Addimando, co-founder and managing partner, Alterra Property Group, were not as sanguine about Opportunity Zones.

“I’m a big believer in the notion that you have to have a market,” Terlizzi says. “You can subsidize whatever you want, but if there’s no market, there’s really no value to be created. There are some opportunity zones that, if one scrutinized the locations, really didn’t need to be opportunity zones. So if you’re in one of those and you’re a developer, you’re going to get a bonus because there is a market, and the tax-advantaged equity that you can attract is going to be financially attractive to you.”

“If the real estate deal makes sense, the opportunity zone is just an extra sweetener, but I’m very skeptical about making real estate deals that only work because of the opportunity zone program,” Addimando says. “I don’t think it’s the big windfall that that people are predicting it’s going to be.”

In a discussion of complex structures, panelist Jacqueline Buhn, principal and CEO, AthenianRazak, described her firm’s master lease on most of the retail space in Philadelphia’s Suburban Station commuter rail hub, owned by the Southeast Pennsylvania Transportation Authority, known as SEPTA.

“SEPTA likes to master-lease retail for good reasons,” Buhn says. “It’s not their core business, and they’re also constrained in a number of ways by what kind of deals they can do, so they put an intermediary in, and we can do anything the market can do.”

Suburban Station has long suffered from a perception among commuters of a dingy, unpleasant concourse with limited retail options, but Buhn’s firm has been attacking that perception with a rebranding effort, she says.

“We determined early on we had to do something fairly dramatic to begin to recognize the value in the station,” she says. Hesitation by SEPTA to permit bank financing of a retail redevelopment has limited the focus to what Buhn calls “the Gold Coast,” retail locations facing commuters as they descend stairs into the rail station.

Describing an adaptive reuse deal involving a former department store chain’s warehouse property for a combination of retail space for a Target store and office space upstairs, Terlizzi says the client wanted to take advantage of credit tenant lease financing that “would provide an advance rate that would not be available under a typical financing.”

The bank arranged a 20-year credit tenant lease loan, the proceeds of which were pre-funded by the permanent lender into a deposit account at the bank, Terlizzi says.

“If that had been done by two separate lenders, there would have been an issue with respect to resolving inter-creditor issues and so forth,” he says. “Instead, we were in a position to do both executions, because we have the investor placement program that accesses the credit tenant lease proceeds, as well as the balance-sheet funding."
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There Opportunities for CRE in Philly's Distressed Neighborhoods

by Steve Lubetkin Globest.com
Philadelphia’s diversity is driving commercial real estate activity in the city, according to Maria Gonzalez, president and CEO of HACE, a community development organization working to make its core neighborhoods a place of choice for a mixed income, ethnically diverse population.
Gonzalez, the keynote speaker at ALM’s GlobeSt.com Philadelphia Conference on Wednesday, February 13, at the Crystal Tea Room, told about 300 commercial real estate market participants that three primary waves of immigrants have expanded the city’s population mix, followed by millennials and their rising interest in urban living.

“We have seen the growth of people coming from Africa, that have settled in neighborhoods in South Philadelphia, West Philadelphia, and Southwest Philadelphia,” she says. “We have experienced a large group of immigrants from Latin America Asia and the Caribbean,” she says. “Philadelphia saw a 41 percent increase in millennials—the largest percentage of any top 10 most populous city in the US.”
Millennials “are better educated and they are wealthier, so they drive a lot of the commercial development that it’s happening in our neighborhoods,” she says. “They’re attracted by affordable rental and home ownership housing.”

Efforts to enhance Philadelphia’s walkability have also attracted baby boomers, who as empty-nesters are more interested in downsizing and enjoying an urban lifestyle with the cultural, dining, and shopping advantages that involves, she says, all of which is pushing housing prices ever higher.

Gonzalez recalled buying her first home in 1996. “I bought my house for forty thousand dollars in South Kensington,” she says, “And now the home prices in that area have been skyrocketing, where new construction homes are going for $350,000.”
Rents in the city are rising but still affordable compared to New York and Washington, DC, she says. But the city is struggling to balance rising gentrification of older neighborhoods with extreme poverty found just a few streets away.

“We see in Philadelphia a tale of two cities, where many neighborhoods are gentrifying and you see robust growth, but also we have one of the highest poverty rates in the nation, next door to all these gentrifying areas,” Gonzalez says. “Organizations like HACE are looking to work to make sure that there is equitable development in our communities.”

Gonzalez says you’ll get different answers depending on whom you ask about gentrification’s benefits.

“On the upside in gentrifying neighborhoods, we can see increased goods and services and jobs. We can see reduced vacancies where new businesses are popping up and absorbing vacant storefronts, or they’re buying our businesses that are retiring that have been here for many, many years. And also it’s great for many of our neighborhoods where you see new capital investments in our communities that benefit long term and also new residents,” she says. “The downside can be a reduced demand for existing services. So maybe not everybody wants to see a bodega. They want to see more cafes or different type of businesses. So that may create some type of displacement, and vacant properties may sit for a longer period of time.”

HACE has developed a neighborhood plan in the predominantly Latinx communities it serves, Gonzalez says. It works closely with the City Commerce Department and the Philadelphia Development Corporation to provide incentives to local businesses to set up shop in their neighborhoods. HACE’s sidewalk cleaning program and other incentive programs are an effort to create pride and confidence in its neighborhood community.

HACE’s achievement is to “really build an infrastructure in our neighborhoods and the support system to be able to manage some of that growth as it comes into our neighborhoods,” she says. “One of the things that we set about to do is create an identity for our neighborhoods, where we work with our elected officials and all the stakeholders to make sure that we branded the community. We were able to build assets in our neighborhood, to have more stability, both for the commercial district and also for that residential area.”

The federal Opportunity Zone program will also have strong benefits for development in HACE’s operating areas, Gonzalez says. “That may be another potential avenue to be able to attract new investments into our neighborhood,” she says.

Gonzalez made a pitch for the 300-plus investors, developers, and market participants to consider investing in some of the city’s distressed neighborhoods.

“The city’s real estate remains a solid value proposition for investors and homeowners,” she says. “We’re hopeful that many of you consider investing in our neighborhoods and work with the organizations that are in there serving that community, because together we can also help the long term residents avoid displacement, and we can be more welcoming so that there is a symbiotic energy to our growing neighborhoods.”
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Keystone Lofts in NE Philly Trades for Almost $8M

by Steve Lubetkin, Globest.com
The sale of the Keystone Lofts in the Tacony/Lower Mayfair neighborhood in Northeast Philadelphia recently traded. The property, which is located just a 20-minute drive from Center City Philadelphia, sold to an international buyer at more than $140,000 per unit, a record price for Northeast Philadelphia.
“We are seeing more foreign capital purchase assets in the Philadelphia region, which is driving up pricing. We successfully closed this transaction at a record price per unit for the neighborhood on behalf of the sellers, Liss Property Group, who are one of the largest owners in the Northeast with over 1,500 units.”

The property was originally built as a warehouse in 1923 and was converted into apartments in the late 1980s. It now contains 55 apartments and 1 commercial unit. There are two freight elevators primarily used for tenant move-ins/move-outs. Every floor plan is unique with features that include ceilings up to 30 feet high, sweeping views and distinguished hardwood floors. Keystone Lofts is located on approximately 2.8 acres of land with more than 100 parking spaces secured by an electronic security access gate.
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Wednesday, February 13, 2019

Hunter Truck Takes Philadelphia Warehouse

Hunter Truck, a family owned and operated network of truck dealerships, leased an 81,226-square-foot warehouse in Philadelphia.

Hunter plans to hire nearly 50 employees and open a full service commercial truck dealership at the facility.

The single-story structure at 2811 Charter Road comprises two loading docks equipped with two levelators, four drive-in bays, 20- by 60-foot column spacing and a 36-foot clear ceiling height. Built in 1969, the 4-Star property spans nearly 10 acres less than 25 miles from Philadelphia International Airport.
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Monthly Economic Outlook — February 2019 (Video)

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2019 Economic Outlook: Commercial Banking | J.P. Morgan (Video)

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Six New Leases Signed in Spring Arts of 22K SF Worth More Than $3M

by Steve Lubetkin, Globest.com
Six lease agreements totaling 22,113 square feet of office space in two buildings situated within the Spring Arts Neighborhood were recently arranged. The space contracts have a combined aggregate rental of $3.2 million and were arranged for the building owners.

In the largest of the agreements, Ameribest expanded its existing offices with the lease of another 6,924 square feet on the second floor of 990 Spring Garden. With that expansion planned for the third quarter of this year Ameribest will occupy 17,330 square feet in the structure.

Elfant Wissahickon is moving into 5,534 square feet on the seventh floor of 990 Spring Garden Street when it opens a new office there in the fall.

Joining the firm on the seventh floor this summer is the National Clearinghouse for the Defense of Battered Women which has leased 3,172 square feet. National Clearinghouse is presently located at The Sheridan Building in Philadelphia.

Moving to some 3,000 square feet on the fourth floor is Creative Characters. Creative Characters is now located at The Sheridan Building and will move to 990 Spring Garden in the weeks ahead as soon as interior renovations are completed.

Independent Vets is moving to 2,000 square feet on the fourth floor. SA 990 Spring Garden is the private investment partnership that owns the building. Independent Vets is presently located on S. 20th Street  and is scheduled to relocate to 990 Spring Garden Street by May 1.

At 448 N. 10th Street, Hightop Washington is expanding its offices with the lease of an additional 1,483 square feet on the third floor in an agreement.
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Tuesday, February 12, 2019

Coworking Company Spaces Leases A Second Philadelphia Location

by Steve Lubetkin, Globest.com
Spaces, the coworking brand of IWG that originated in the Netherlands, is leasing 48,069 square feet at 1626 Locust Street in Philadelphia, its second location in the city. The building’s owner is Cross Properties.

Spaces’ first Philadelphia location is at the Hale Building, where it occupies 37,735 square feet.
“Rittenhouse Square is an ideal place for Spaces to open their second Philadelphia location. Their unique coworking environment provides a strong collaborative workplace for the many entrepreneurs and corporate users in Center City.”

“Our community of achievers are looking for a unique and inspiring workplace that fosters work-life integration,” says Michael Berretta, vice president of network development for IWG. “Our expansion in Philadelphia is yet another example of the rising demand from businesses of all sizes for flexible workspaces.”

Over the past two years, 550,000 square feet of new coworking and incubator spaces have been added to the Center City market. Spaces’ new lease will bring the city of Philadelphia’s total coworking footprint up to more than 900,000 square feet, spread between 22 different providers. Yet coworking space still only represents less than two percent of the total Center City office inventory, indicating great opportunity for continued growth.
Spaces will occupy all of 1626 Locust and is expected to move into the new location at the end of 2019.
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Monday, February 11, 2019

Central PA Labor Shortage Pushes Class A Industrial Searches Toward Shenandoah Valley

by Steve Lubetkin, Globest.com
A tight labor pool in central Pennsylvania is challenging developers of logistics space to think about pushing the corridor further south into Maryland and even Virginia.

Central PA’s strong industrial demand and stagnant population growth has drained its labor pool: industrial inventory has grown 37.5% since 2008, while its working age population has grown just 5.0%, says.

In 2008, Carlisle, PA, had 58 workers per every 10,000 square feet of warehousing; that ratio has since plummeted to 43.9. Conversely, Hagerstown, MD, has 50.8 workers per 10,000 square feet of industrial warehousing, a 15.7% advantage.
As a result, requirements tied to I-81 in Central PA are looking at options farther south where occupiers can pull labor from either MD, WV, or VA while still maintaining access to New York via a one-day truck turn, the report concludes.

In response to the industrial growth, Interstate 81 is experiencing more wear and tear than ever. At the intersection of I-81 and I-70 in Hagerstown, average daily traffic counts have jumped from 59,020 to 79,202 since 2012, a 34.1% increase. Residents and industrial users recently have increased pressure on lawmakers to explore infrastructure investments for the highway.

Traversing through rural Appalachia, Interstate-81 runs just 75 miles west of I-95 and gives distributors a less congested and toll-free route to move goods up and down the East Coast.
The Lehigh Valley, outside Philadelphia, has long been established as a core industrial market due to its connectivity to New York and Washington, regional growth has pushed through Central PA and into the Mid-Atlantic’s Shenandoah Valley. This concludes that Hagerstown (MD), Martinsburg (WV), and Winchester (VA) are maturing into viable markets for tenants in need of bulk space and proximity to the region’s ports and population centers.

More than 46.5 million square feet of industrial space sits along I-81 between Hagerstown and Winchester.

With an additional 1.5 million square feet under construction, the I-81 Corridor has more industrial development underway than all of Metro DC.

The current developments are the just latest iteration of the market’s growth: since 2008, supply has grown 24.4%, driven by 7.7 million square feet of new class A inventory.

The class A development, a mix of both build-to-suit and speculative, has attracted global brands to the market. Procter & Gamble, McKesson, and Home Depot have all expanded their operations farther south along I-81.

The largest proposal to date has come from the Virginia legislature: a $2 billion-dollar plan to improve the safety and traffic flow for the 325 miles of I-81 in Virginia. I-81 is currently toll free, yet that may change to finance the investment. The current proposal would charge $50 for trucks and $25 for cars in certain sections of the highway.

Maryland is currently underway with “Phase 1” of its I-81 investment, a $100 million project to expand the Potomac River Bridge to six total lanes.

In 2018, the state submitted two applications to the US Department of Transportation for infrastructure grants to fund “Phase 2”; both were rejected, but a third application is expected to be submitted.

In September, West Virginia approved a $49 million expansion to expand a much smaller section of the highway in Martinsburg. Recently, this section of the highway has seen an increase in traffic due to Procter & Gamble’s 2.8 million square-foot manufacturing facility delivered last year.

This concludes that the region’s availability of land “will lead to further growth.”

Currently, 2,951 acres of industrial zoned land are being marketed for development or sale. Assuming coverage of .25 FAR, an additional 32 million square feet of proposed industrial space could be built out in the long run. Totaling more than 77 million square feet of industrial space if fully built out, the I-81 corridor could rival the current size of Prince George’s County and the BW Corridor combined (83.7 million square feet).
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Friday, February 8, 2019

Community Healthcare Associates Completes Purchase of Salem County Hospita

Community Healthcare Associates, which has a successful track record turning around troubled medical properties, won final state approval to complete its acquisition of a South New Jersey hospital that it plans to rebrand and spend $30 million to improve.

The Bloomfield, New Jersey-based company acquired what was once named Memorial Hospital of Salem County at 310 Woodstown Road , Mannington, New Jersey, from Community Health Systems Inc. of Franklin, Tennessee. Community Healthcare has already rechristened the almost 100-year-old hospital as Salem Medical Center.

Terms of the deal weren't disclosed, but NJ Advance Media reported the sale price at $3 million.

In a statement, Community Healthcare said the acquisition will give it the chance to reposition a fully operational acute care hospital, modernizing it. The developer said it plans to renovate a large portion of the existing hospital’s physical plant, to consolidate and expand various medical programs, and to upgrade the hospital’s medical equipment and IT systems.

That effort will be helped with the assistance of two recent additions to Community Healthcare's management team, veteran hospital administrators Ellsworth Havens and Paul Goldberg, according to the company.

“Our plan to retain and expand the delivery of quality health care services in Salem County has been carefully crafted, presented, reviewed, and updated by key stakeholders, including current medical staff, current hospital leadership, community advocates, and others, all of whom are integral to the hospital’s success,” Bill Colgan, Community Healthcare's managing partner, said in a statement.

The company aims to expand the hospital’s existing relationships with local healthcare providers, including Cooper University Health Care, a Southern New Jersey provider of comprehensive healthcare services, medical education and clinical research services. Community Healthcare is in talks with that entity for an expansion of its services to transform Salem Medical Center into a teaching hospital, and for Southern New Jersey Family Health Care to establish a new Federally Qualified Health Center within the hospital facility.

In addition to those short-term plans, Community Healthcare's long-term goals for Salem Medical Center include reopening the now-closed ambulatory surgery center on the hospital’s campus, and to expand medical services to attract gynecological, interventional radiology, urology, endocrinology, vascular and cardiac services. The hospital is now licensed for 114 medical-surgical beds and 12 intensive-care beds.

Although under its new ownership Salem Medical Center status will change to that of a non-profit, it will operate under a lease from a for-profit company and therefore remain a local tax rate property, according to Community Healthcare. Under the terms of an agreement between the hospital's ownership and the township of Mannington, the facility will generate about $3.3 million in property tax revenue over the next 30 years, according to Community Healthcare.

Community Healthcare's strategy is typically to convert shuttered hospitals into community-based healthcare facilities, including the former Barnert Hospital in Paterson, New Jersey, the former Greenville Hospital in Jersey City, New Jersey, and the former William B. Kessler Memorial Hospital in Hammonton, New Jersey. The firm's most current hospital conversion project, of the former Muhlenberg Regional Medical Center in Plainfield, New Jersey, is undergoing extensive renovations now.

In March last year Memorial Hospital of Salem County announced that there was a deal for Community Healthcare to acquire it, pending state regulatory approvals. New Jersey Department of Health Commissioner Dr. Shereef Elnahal recently approved a certificate of need application that permitted transfer of the facility to Community Healthcare at the end of January.
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An Attorney's Perspective on Retail CRE (Video)

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Comcast Spectacor Bringing $80M Office Tower to the Philadelphia Sports Complex

by Steve Lubetkin Globest.com
Comcast Spectacor and The Cordish Companies will build Pattison Place, an $80 million, new construction class-A office tower in the heart of the Philadelphia Sports Complex. Adjacent to Xfinity Live!, Pattison Place will offer an incredible office location amid the home venues of Philadelphia’s beloved professional sports teams, near the redeveloped office campus at The Navy Yard.
Designed by Beyer Blinder Belle and Philadelphia based BLT Architects, Pattison Place will incorporate 200,000 square feet of new construction, class-A office space featuring a grand 4,000 square-foot lobby with 35-foot ceiling heights, including 20,000 square feet of ground-floor retail. With 12-foot floor-to-ceiling windows, Pattison Place will offer one-of-­a-kind panoramic skyline views of downtown Philadelphia, the surrounding Sports Complex and neighboring Navy Yard.

“We’re thrilled to partner with The Cordish Companies and launch the next phase of development within the Philadelphia Sports Complex,” said Dave Scott, chairman and CEO, Comcast Spectacor. “Pattison Place presents a unique and compelling opportunity in the Sports Complex and builds on the continued success of Xfinity Live!. We’re looking forward to making additional announcements as our growing neighborhood expands in new and exciting directions.”
Pattison Place will be within walking distance to SEPTA, near interstates I- 95, I-76 and I-476, and minutes away from both Center City and the Philadelphia International Airport. The tower will feature first class amenities including exterior signage, roof decks, fitness facilities, and on-site parking.

“It is incredibly exciting for The Cordish Companies to grow our partnership with Comcast Spectacor to deliver a signature, class-A office tower, ” says Blake Cordish, principal of The Cordish Companies. “Pattison Place will offer first class amenities in an unparalleled location amid Philadelphia’s professional sports teams.”

Details for Pattison Place arrive at an exciting time as the Wells Fargo Center is conducting an extensive, $250 million multi-year transformation.
Pattison Place will create 1,670 new jobs and generate $295 million in economic benefits to the city and state over a 30-year period.

Pattison Place is the first of several announcements for the expansion of Xfinity Live!. Since opening in 2012 in partnership between Comcast Spectacor and The Cordish Companies, Xfinity Live! has been a prominent dining, entertainment and hospitality anchor for the region, dramatically changing the fan experience for Flyers, Eagles, Phillies and 76ers fans, as well as out of town guests. Welcoming millions of visitors a year, Xfinity Live! has energized South Philadelphia and the surrounding sports complex via year-round events and experiences including concerts, festivals, family fun days, community functions, charity events, and watch parties.
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Thursday, February 7, 2019

Economic Impacts of Commercial Real Estate, 2019 Edition (Video)

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Retail Gaming Experience Coming to Philadelphia's New Fashion District

by Steve Lubetkin, Globest.com
Fashion District Philadelphia, a joint venture partnership between PREIT and Macerich, is expanding dining and entertainment concepts at the redeveloped shopping complex, with a dedicated third-floor entertainment zone that will include AMC Theatres and the newly signed Round One Entertainment.
“To execute our vision for creating an engaging shopping and social experience for Philadelphians, we’re delivering high quality retail, dining and entertainment tenants to enhance the suite of options for a day or night out in the downtown area,” says Joseph F. Coradino, CEO of PREIT. “Fashion District is well-positioned to cater to the evolving needs of consumers in a growing market and we continue to introduce desirable and first-to-Philadelphia brands—such as Round One Entertainment—to expand the Fashion District experience.”

Occupying more than 60,000 square feet, Round 1 provides a party and event space offering bowling, arcade games, billiards, karaoke and more, along with food and beverages.
PREIT says Fashion District will offer a variety of dynamic tenants and community programming across four key pillars – Style, Dining, Entertainment, and Arts & Culture.

Further strengthening Fashion District’s entertainment pillar, AMC will feature in-theater dining, reclining seats, and a bar—marking Center City’s first movie theater to open since 2002.

“Round One Entertainment is proud and excited to announce its third store in Pennsylvania, following the Exton and Erie locations. Fashion District Philadelphia will be the first location nationwide in which we’re opening a store in a non-regional mall, and we hope to continue our growth in similar retail environments across the country,” says Shane Kaji, executive vice president. “Round 1 will strive to make this store a great destination for entertainment and family gatherings when in downtown Philadelphia.”
Set to open in September 2019, Fashion District will offer an array of unique and dynamic concepts for shopping, dining, socializing and playing. Other previously announced dining and entertainment tenants include City Winery, a culinary and cultural wine experience offering fine dining, classes, concerts, and private events; Dallas BBQ and Market Eats as well as an array of quick serve dining options throughout the property.

Offering a variety of options for a diverse shopper base, Fashion District will feature in-demand brands including Nike, H&M, Forever 21, Columbia, Levi’s, ULTA Beauty, and Digitally Native Vertical Brands as part of Brand Box, local entrepreneurs as part of Uniquely Philly and others—joining Burlington and Century 21.
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Greater Philadelphia CRE Sectors on Track for Strong 2019

by Steve Lubetkin, Gobest.com
Greater Philadelphia’s commercial real estate market posted strong fundamentals in 2018, with rental rates up and vacancies down, and these are on track to continue in 2019.

The annual report covers the office, retail, industrial and investment sectors in 68 markets, including the Greater Philadelphia’s tri-state area.
“Greater Philadelphia registered a very solid 2018, and we’re positioned for another strong year in 2019. Unemployment is down, job growth is up. Philadelphia over the years has really become more of a knowledge-based economy, and with the universities and other education and healthcare and pharmaceuticals, there’s a lot of vibrancy going on.”

As the report notes, Greater Philadelphia is a broad market encompassing Southeast Pennsylvania, Southern New Jersey and Northern Delaware. With more than 1.5 million people, the tri-state region holds the title of third largest regional economy in the Northeast.

Office

Despite a slow leasing environment, vacancy hit a 17-year low – at 9.7 percent as of the third quarter of 2018 – and was below that of other major US markets. Class A office space represented nearly half of total inventory (48.5 percent, or 117 million square feet) and achieved its highest average rental rate ($25.74 per square foot) in five years during the third quarter. Center City submarkets, as well as prominent suburban submarkets, also saw increases in rental rates year over year.

“Vacancy is down and there’s not a tremendous amount of spec or new construction. So rates are going up and vacancy is coming down, and I also believe that helps attract outside investors to Philadelphia. Philadelphia traditionally has not been what I would call an investment grade environment, but I think that’s changing.”

As of the end of the third quarter, there were slightly more than one million square feet of construction in the pipeline due to complete in 2019. Availability rates also remain low, suggesting the area’s office market will tighten. Rental rates are projected to rise, with office vacancy rates expected to drop to 9.1 percent.

Industrial

Thanks to abundant land in northeast Philadelphia and excellent access to highways, Greater Philadelphia’s industrial market remains active. Inventory totaled 317 million square feet, with vacancy at 5.5 percent – down 20 basis points year over year.

“It’s a combination of how people shop and that last mile distribution requirement,” Fahey says. “I think another driver is that the typical warehouse distribution is along the New Jersey Turnpike at Exit 8A. As matter of fact, there’s not a lot left there. There’s approximately four million square feet of spec industrial warehouse space being built in southern New Jersey.”

Retailers’ need to optimize their supply chains, plus Philadelphia’s convenient location, sets up the area’s industrial market for a promising 2019. Nearly 5 million square feet remain under construction, as total industrial inventory is expected to grow to 324 million square feet in 2019. Industrial vacancy rates, meanwhile, are projected to tick a bit higher to 6.6 percent in 2019.

Retail

The closures of such well-known stores as Kmart, Sears and Toys ‘R’ Us throughout the Philadelphia area hampered shopping centers in 2018, but the market held on through the increasing emergency of grocers, fitness centers and more experiential retail stores. At the end of the third quarter, retail space totaled 327 million square feet, with another 1.15 million under construction.

Moving forward, the redevelopment of the 800,000-square-foot Gallery Mall into the new upscale Fashion District of Philadelphia is expected to complete by September. The project features such experience-oriented tenants as a City Winery, an AMC Theater and a wide range of traditional-mall tenants, including Burlington Coat Factory, Polo Ralph Lauren and Guess.

Investment

The first three quarters of 2018 saw $5.8 billion in transactions — about $9.6 million more than the same period a year earlier. Office sales made up the largest portion of market activity at $2.5 billion, or 43 percent of the area’s total sales during the first three quarters of 2018.

Investors outside the market are expected to remain interested in Philadelphia’s relatively high cap rates, indicating that the area’s investment market should remain strong in 2019, pulling continued interest from New York and Washington, DC.

“With cap rates being low in those markets, I believe that investment is more about asset preservation. And I think here in Philadelphia you can still get yield. So I believe that’s a factor in money being drawn to Philadelphia.”

The overall US market

“The US market continued to provide fairly predictable returns to investors in 2018 despite some turbulence, both economically and geopolitically. The strong correlation between job growth and real estate value was again demonstrated in 2018 as the US added more than 2 million jobs which, in turn, bolstered occupancy levels as well as consumer confidence. Vacancy rates across all property types remain low when compared with historically similar market cycles. Capital flows into commercial property in 2018 remained roughly equivalent to those of the prior year, and foreign investors continued to be significant investors across all US property types, especially office and industrial.”

“The property markets continued to perform well in 2018, demonstrating resilience in the face of substantial development, and total sales were on track to outpace the 2017 total volume after declining for two years from a peak in 2015."

46 US office markets totaling 5 billion square feet of inventory were tracked. As year-end 2018 approached, overall national vacancy was 12.1 percent. San Francisco (3.5 percent), Charleston (7.1 percent), Nashville (7.1 percent) and Columbus (7.7 percent) recorded the lowest vacancy rates.

“Co-working operators are dominating US office markets as tenants pay up for term flexibility, amenities and the ability to shift long-term lease obligations off their books. Landlords are feeling pressure to renovate older properties to compete; as a result, plug-and-play speculative suites and tenant amenities, such as conference centers and lounge areas, are becoming ubiquitous. Ultimately, there will be some shake-out in the category; however, co-working will remain part of the real estate lexicon.”

The report goes on to say that retail continues to be the asset type most affected by change even though consumer spending increased in 2018—and experiential and service retail outlets are blossoming. E-commerce sales grew by 14.5 percent year-over-year. Looking forward, online grocery sales and related home-delivery services represent a nascent opportunity for both e-commerce and industrial logistics.

The 10.7-billion-square-foot industrial market inventory increased by two percent after almost 200 million square feet was delivered in 2018, but strong leasing demand held vacancy flat at five percent. Distribution-logistics and e-commerce demand led to upticks in construction and speculative development in many key US markets, including Atlanta, Chicago and Dallas—with each having more than 18 million square feet underway. Overall, the US construction pipeline near the end of 2018 was 19 percent larger than at year-end 2017, and projects underway were 32 percent preleased.

Beyond distribution, core data center markets are expanding to prepare for the arrival of 5G networks; increased cloud usage by consumers and Big Data suppliers; and higher blockchain and AI adoption levels in such markets as Northern Virginia, Phoenix, Chicago, Reno and Dallas. Construction starts are cooling in some metros that are critically land-constrained such as San Jose and West Palm Beach, but most markets feature burgeoning industrial-property- development pipelines. Industrial vacancy is expected to rise slightly by year-end 2019.

Investors remained steadfast in their support of the US commercial real estate market in 2018. Sales were led by the multifamily and office sectors and foreign capital continued to flow into the US. Canada was again the top source of foreign capital, accounting for more than $40 billion of transactions and doubling its investment in comparison with 2017. France ($8.7 billion), Singapore ($6.3 billion), China ($5.6 billion) and Germany ($4.9 billion) rounded out the top five sources of foreign investment in 2018. Foreign and private capital will continue to sustain the US investment market in 2019.

“Even though year-over-year volumes were fairly consistent in the US, activity was uncharacteristically weighted towards the early part of 2018. This situation was largely a product of the broader economic volatility, and we anticipate that early 2019 will bring an uptick in transactional activity, particularly with fresh lender allocations and the availability of transitional debt. Expect to see institutional investors buy smaller properties than they typically have been investing in, thereby putting pressure on the private investors who have been dominating the under-$30-million market segment.”

“Our outlook for 2019 remains consistent with that for the prior year. Modest interest-rate increases by the Federal Reserve are expected, but at a much-decreased pace. The US economy is strong overall; and with continued job-growth-related occupancy levels healthy, that strength should be maintained. However, the supply of labor, especially skilled labor, will have an impact on operating costs as well as the cost of new construction. Technological innovation — in procurement, occupancy optimization, workplace strategy, supply-chain management and many other areas — will continue to keep our industry in an evolutionary mode.”
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Wednesday, February 6, 2019

Liberty Property expects to sell upwards of $650M in office properties this year

by Natalie Kostelni Reporter Philadelphia Business Journal
Liberty Property Trust plans to accelerate its exit from owning office properties and anticipates completing that process over the next 12 to 18 months.

In a conference call with analysts on Tuesday, Bill Hankowsky, CEO of the Wayne-based real estate investment trust, said significant inroads were made last year in the company’s transition into owning just industrial properties. For years, Liberty had owned and developed a combination of office and industrial buildings, but in October announced it would shed the remaining office properties it owns. It expects to continue making progress on that front this year, and is seeking to sell this year most if not all of the office buildings it owns and be done with that line of business.

As part of reaching that goal, it sold last year $795 million of office assets totaling 3.4 million square feet and has another estimated $700 million to $800 million of wholly owned properties left to sell. Liberty (NYSE: LPT) also owns properties through joint ventures in which the real estate company has minority interests and plans to initially focus on selling the wholly owned properties over the next 12 to 18 months.
Full Story: https://www.bizjournals.com/philadelphia/news/2019/02/06/liberty-property-expects-to-sell-upwards-of-650m.html

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Brixmor Sells Bethlehem Square Shopping Center for $40.9M

New York-based real estate investment trust Brixmor Property Group sold a 389,450-square-foot, grocery anchored shopping center in Bethlehem, Pennsylvania, to The Klein Group. Bethlehem Square sold for $40.91 million, or about $106 per square foot.

Located at 3926 Linden St., the Class B center was built in 1987. The property spans 48 acres less than 11 miles from DeSales University.

Christopher Munley and Michael Dicosimo at HFF represented the seller, which originally purchased the property as part of a portfolio in June 2011, CoStar data shows.

Headquartered in New York, Brixmor owns and operates a portfolio comprising 475 properties across 36 states, according to its website.
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Zep Manufacturing Renews Deal in Breinigsville, Pennsylvania

Zep Manufacturing, an Atlanta-based cleaning solutions company, renewed its 98,246-square-foot lease at Liberty Property Trust’s Class A warehouse at the Lehigh Valley West industrial park in Breinigsville, Pennsylvania.

The 607,608-square-foot, single-story structure at 860 Nestle Way comprises 119 loading docks with 64 levelators, two drive-in bays, 42- by 50-foot column spacing and a 36-foot clear ceiling height. Built in 2003 and renovated in 2008, the 4-Star property spans 53.4 acres less than 15 miles from Lehigh Valley International Airport.
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Lidl Inks Deal in Royersford, Pennsylvania

Lidl, a German global discount supermarket chain, preleased Commonwealth of Pennsylvania’s 25,656-square-foot building under construction at the Shoppes at Upper Providence shopping center in Royersford, Pennsylvania.

The single-story structure at 1839 E. Ridge Road is slated to deliver by the third quarter of 2019. Spanning four acres, the property will be less than six miles from Philadelphia Premium Outlets.
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Major Changes in Commercial Real Estate in the Past Decade (Video)

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Southern Land Company Sells 25% of The Laurel, 48-Story Luxury Tower

by Steve Lubetkin Globest.com
Southern Land Company says 25% of the units in The Laurel, its 48-story luxury residential tower, have been sold, just three months after breaking ground ahead of schedule in fall 2018.
The project also has selected a debt consolidation partner and is slated to close on the transaction in spring 2019. The Laurel is the last undeveloped parcel on Rittenhouse Square, and once completed, will be the tallest all-residential building in Philadelphia.

Construction of the luxury tower is also moving ahead of schedule. With site utility work currently nearing completion, construction of the foundation is expected to begin in March 2019. The Laurel is scheduled to start deliveries in 2021.
Designed by Solomon Cordwell Buenz, the $300 million, ultra-luxury mixed use tower will include condominium residences, and long- and short-term residences with separate lobbies and entrances. The project also includes the preservation of the adjoining historic Warwick Apartments and Rittenhouse Coffee Shop.

Based on demand for larger residences, the condominium count has been reduced from 74 to 60. The Laurel will feature 24,000 square feet of high-end retail that wraps around Walnut, Sansom, and 20th Streets. The floor plan features expansive corner residences, offering unparalleled panoramic views of the City and Rittenhouse Square.

“The strong demand at this early stage speaks volumes about The Laurel, which offers residents the final opportunity to buy a new residence in this incredible location,” says Brian Emmons, who is overseeing the development of The Laurel. “With the debt closing and upcoming pouring of the foundation this spring, we are thrilled to report The Laurel is moving ahead of our sales schedule.”
Amenities planned for the property include valet parking, indoor pool and hot tub, five-star fitness center with luxury locker room, steam room and sauna, yoga and Peloton room, Club Room and terrace overlooking Rittenhouse Square with bar and catering kitchen, conference room, and dog spa.  Residents can also take advantage of the rental suite for out of town guests and luxury car service.

The Laurel will offer residences with prices starting around $2.5 million. Full-floor penthouses are also available.
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Tuesday, February 5, 2019

IMC & BET Fast-Tracks Healthy Living Mixed-Use in Upper Dublin

by Steve Lubetkin Globest.com
IMC Construction has begun work on a one-million-square-foot apartment and retail complex in Dresher, PA.
The Promenade at Upper Dublin, a $120 million project developed by BET Investments, will bring 402 luxury apartments, a 500-car garage and 150,000 square feet of town center shops to a 25-acre site in eastern Montgomery County. It is expected to be complete in the last quarter of 2020.

“Although the sheer size and complexity of the project would typically carry a longer schedule,” says Mike Ryan, IMC Construction’s vice president of preconstruction, “we used our BIM technology and project planning to fast-track the schedule and compress it to under two years of construction, with early occupancies in less than eighteen months.”
Clad in brick, metal and other upscale finishes, the Promenade is composed of the East and West buildings, connected by an enclosed pedestrian bridge at the second level. Ground-floor retail will be topped by four levels of apartments and extensive amenity spaces, including media and game rooms, fitness room, dog wash and doggie day care. A resort-style pool highlights the private outdoor space of the West building, while an adjacent park connects with walking trails and bike share. The complex has on-street parking in addition to the garage.

Environmental strategies include a green roof on a segment of the East building for stormwater management.

The Promenade team includes construction manager IMC Construction; architect Bernardon; interior designer Design Works; structural engineer Baker, Ingram & Associates; m/e/p Advanced Engineering; and civil engineer Gilmore & Associates
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Friday, February 1, 2019

Equity Commonwealth Has Deal to Sell Its Last Remaining Philadelphia Office Tower for $451.6 Million

Equity Commonwealth, the Chicago-based real estate trust controlled by investor Sam Zell, announced it has a deal to sell the 54-story BNY Mellon office tower at 1735 Market St. in Philadelphia's Center City for $451.6 million.

With the sale, which is expected to close March 27, Equity Commonwealth will have sold the last office property it owns in the Philadelphia market. At one time, the real estate trust owned four office towers in Philadelphia, making it one of the biggest office landlords in the city.

The buyer of 1735 Market St. was not disclosed, although according to the Philadelphia Inquirer and other unconfirmed reports, a joint venture between Manhattan-based Silverstein Properties Inc. and the Arden Group of Philadelphia are believed to have the 1.3 million-square-foot office tower under contract.

Equity Commonwealth announced last year that it was putting its last property in Philadelphia on the market and hired an investment sales team from HFF led by senior managing directors Doug Rodio and Coleman Benedict to sell the building.

Completed in 1990, the building stands as the fifth-tallest tower in Philadelphia and is distinguished by its trademark pyramid-crowned top. The building is approximately 95 percent leased. Major tenants include law firm Ballard Spahr LLP, Public Financial Management, GSI Health, CDI, BNY Mellon, Raymond James, UBS Financial Services and Goldman Sachs.

Equity Commonwealth's previous holdings include the former PNC Bank Building at 1600 Market St., Centre Square at 1500 Market St. and the former One Franklin Plaza building at 200 N. 16th St., which previously housed GlaxoSmithKline's North American headquarters.
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Opportunity Zone Parcels To Watch In Philadelphia in 2019

Looking to capitalize on the emerging tax benefits by investing in Philadelphia-area Opportunity Zones in 2019?

As it stands, the U.S. Department of Treasury's new Opportunity Zone program is far from a silver bullet for quickly transforming most of Philadelphia's economically distressed neighborhoods.

The federal government is still hammering out its final guidelines for investing in qualified opportunity funds. While still unofficial, a host of proposed regulations signal that investors will likely be required to undertake steep upfront development costs in Opportunity Zone properties -- either through new construction, use conversion, or major capital improvements -- while reductions in their taxable basis in these projects only begin to accrue in year five of the investment.

This means that only Philadelphia's best-positioned opportunity zone sites -- whose eventual rents and sale prices stand the greatest chance of justifying significant upfront construction costs -- are likely to attract serious interest from opportunity zone funds in the year ahead.

Using CoStar's database of more than 300 commercial properties currently listed for sale within Philadelphia's Opportunity Zones, we have identified which development sites within these listings have the highest median household incomes within a one- to three-mile radius.

These three sites may be worth watching as investors are expected to increasingly turn their attention to opportunity zone investments in 2019:

900 Spring Garden Street
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Of all the opportunity parcels in Philadelphia listed for sale on CoStar, 900 Spring Garden -- in the emerging Spring Arts District -- ranks highest for median household income within a one mile radius, at just over $70,000. In true Spring Arts District fashion, there are already three different breweries up and running within three blocks of this site.

1314-1332 Spring Garden Street

Median household income of $67,000 within a one mile radius of 1314-1332 Spring Garden rank the property second under this metric among Philadelphia's opportunity zone parcels available for sale. The site is less than one block from the Spring Garden stop on the Broad Street Line and is a 10-minute walk from the Center City teaching hospital of Drexel University's College of Medicine.

3114 Gray's Ferry Avenue

Thanks to its proximity to Philadelphia's healthcare employment engine in University City, and to the pricey Southwest Center City neighborhood, this site -- which consists of a mix of industrial properties, housing and land -- has the highest median household income within a three-mile radius of any development site listed for sale on CoStar and located within a Philadelphia Opportunity Zone. As a bonus, its location also provides quick access to I-76 for residents looking to get a head start on Philadelphia's notorious reverse commute.
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New Develop Luxury Senior Living Coming to Upper Dublin, PA

by Steve Lubetkin, Globest.com
South Bay Partners, in a joint venture with LAMB Properties has purchased approximately 7.9 acres and will break ground in February 2019 on Sage at Mattison Estates, a four-story class A luxury rental senior living community. Sage at Mattison Estates will be “next stage senior living” with a focus on holistic aging.
The community will be comprised of 156 independent living units, 62 assisted living units and 32 memory care units with secure, structured parking. As previously reported by GlobeSt.com, a joint venture of the Goldenberg Group and Guidi Homes recently acquired a 50-acre tract encompassing the Mattison Estates, and plans to develop luxury townhomes and carriage houses on a portion of the property.

Sage at Mattison Estates will include extensive amenities and community spaces for its residents including an indoor pool, fitness center, yoga studio, several bar and lounge areas, two theaters, outdoor garden, dog wash and dog run, art studio, multiple indoor and outdoor dining venues and courtyard areas with barbeque grills, fire pits, seating areas, a putting green, etc. Residents will enjoy easy access to the shops and restaurants of downtown Ambler and Spring House Village; all within 2.5 miles of Sage at Mattison Estates.
“We are excited to bring upscale senior living to the dynamic growth of Upper Dublin Township,” says Joel Sherman, chief investment officer for South Bay Partners.  “We believe there is tremendous demand for upscale, amenity-rich rental senior housing in suburban in-fill locations. The community will offer an active, engaged lifestyle to the seniors of Upper Dublin Township and neighboring communities.”

Sage at Mattison Estates will open in spring of 2021 with pre-leasing starting in spring of 2020.  SageLife will manage Sage at Mattison Estates. The locally based company’s stated mission is to encourage, empower, and celebrate successful aging.

“Sage is unique in that we go where our residents take us,” says company president Kelly Andress. “Our communities always reflect the priorities and preferences of the people who make their homes in them.”
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ICS Leases 52,000SF in the Lehigh Valley

by Steve Lubetkin, Globest.com
Innovative Control Systems, a provider of technology solutions for the car wash industry, is expanding its operations with a new manufacturing location in Bethlehem, PA.  ICS will occupy a 52,000 square-foot building at 16 South Commerce Way in the Lehigh Valley Industrial Park IV, owned and operated by J.G. Petrucci Co. It’s the second project that the two companies have partnered on over the last 15-years.

“We are excited to be working with the J.G. Petrucci team again,” says Kevin Detrick, founder and president of Innovative Control Systems. “J.G. Petrucci really understands our requirements and was able to provide us with multiple, attractive, building options to accommodate our expansion need. Ultimately, we were attracted to 16 South Commerce Way because of its excellent highway access, open layout, loading capabilities, and climate controlled environment.”

Designed to accommodate the current and future needs of ICS, 16 South Commerce Way provides direct access to Route 512 and 22 and is surrounded by restaurants, retail and entertainment.
“It was a pleasure working with Kevin and his team on this transaction,” says Tom Shaughnessy, director of business development at J.G. Petrucci. “Our building provided ICS with the space and location that they needed.”

J.G. Petrucci’s relationship with ICS began in 2003, when the firm was searching for a full-service development company that would enable its real estate vision to come to fruition in Wind Gap, PA. J.G. Petrucci worked with ICS to gain all development approvals and complete the design/build construction of its 24,800 square-foot office and warehouse facility on Jacobsburg Road.

“Our top priority in any project is to earn the trust and respect of our clients,” says Jim Petrucci, founder and president of J.G. Petrucci. “A substantial amount of our business has been with repeat clients and we are pleased that ICS has continued to trust us to create a platform for their business success as they continue to grow.”
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