Friday, December 2, 2011

Brisk sales for industrial buildings

by Natalie Kostelni

"Drew Court, King of Prussia is a 146,906-square-foot industrial complex here, has sold after being on the market for about six months.

Though the property lingered, it wasn’t for lack of interest. More than 20 groups took a look at it; 11 different offers were made.

Endurance Real Estate Group of Bala Cynwyd paid $9.25 million for Drew Court at 420 and 440-480 Drew Court. Ajax Partners of Lexington, Mass., was the seller. The property has eight tenants and is fully occupied.
“It’s stabilized and we thought we were getting a great asset at a great price,” said William A. White, CEO of Endurance.

Though not a tremendous amount of commercial real estate is trading these days, industrial is one property type that has seen steady activity. Investors view industrial buildings as stable, attractive commercial real estate that can provide steady long-term returns. One transaction had Industrial Income Trust buying a portfolio from TA Associates that included 13 buildings in Montgomery and Bucks counties for more than $36 million.

While real estate investors have driven the bulk of transactions, we have seen companies seize on some industrial properties for their own use.

“Interest rates are good, their business is good and they thought it was a good time to buy,” he said. “Prices are also down 10 to 15 percent from 2006 and 2007.”

For example, NCC Automated Systems, after renting for a number of years, bought a 27,900-square-foot building on 10 acres at 255 School Road in Souderton, moving out of 20,000 square feet it had been leasing. Volpe Enterprises was another firm that decided to buy. The home remodeling and roofing company bought a 40,000-square-foot property at 217 Church Road in North Wales for $1.8 million.
KSG Industrial is another example. The company had been leasing 8,000 square feet when a 12,500-square-foot building a block away at 837 W. Third St. in Lansdale came up for sale. KSG bought it for $650,000.

Investors, though, are scouring the market for good deals such as Drew Court, which marks Endurance’s third acquisition in the last 16 months.

“It’s highly functional real estate,” Hines said. “Even in the downturn, this property always leased.”

For a company that needs easy and quick access to major arteries, Drew Court’s location is highly desirable by tenants. It’s only a mile to two miles from any of the interchanges of Route 202, the Pennsylvania Turnpike and the Schuylkill Expressway. Because of this, occupancy has always been high at the property and rents strong.

None of the tenants’ leases expire until 2013, which was another feature that attracted Endurance to acquire the property. Some of the larger firms occupying space in the complex include Pinnacle Textile, OBO Bettermann and Shingle Belting. Rents have gone as high as $7.50 a square foot compared to an average of $5.06 a square foot for the suburbs.

Leasing activity for industrial space in the western suburbs has also picked up and that is also helping to propel the market.

The vacancy rate has dipped to 8.5 percent at the end of the third quarter from 9.2 percent at the end of last year and more than 1 million square feet has been absorbed. The tightest market is Chester County with 5.9 percent and that’s slightly up from the beginning of the year when it stood at 5.6 percent.
Companies have been “trading up” to better quality or better located buildings. For example, Reilly Foam subleased 145,000 square feet at 1001 Trooper Road in Lower Providence and is moving from Conshohocken. Lyon Conklin & Co. took 82,750 square feet at 550 S. Henderson Road in King of Prussia and is moving and expanding from 61,200 square feet in Montgomeryville. Centurion Medical Products leased 97,200 square feet at Gehman Road in Harleysville.

In South Jersey, more than 1.5 million square feet of lease deals have been sewn up, including 290,000 square feet at the Barrington Business Center by Computer Sciences.

“It has been a good six months and overall it has been a pretty good year across the region. It isn’t quite 2006 all over, but certainly an improvement over the last three years.”

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