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.

Bob Sulentic discussed the commercial real estate outlook on CNBC (Video)


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.

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.

Hospitality and Hotel Industry Performance (Video)


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.

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.