Friday, April 20, 2012

Brandywine to use land for projects beyond office buildings

by Natalie Kostelni
"Brandywine Realty Trust, which has traditionally focused on buying and developing office buildings, is looking to break ground in the next six to 12 months on two multifamily projects. While it continues to concentrate on owning office buildings in urban and suburban locations, the real estate investment trust has decided to use land it had been holding for future office development and delve into constructing other types of real estate, such as apartments, retail outlets and hotels.

Brandywine’s decision to venture into other property types comes as demand for new office construction continues to lag. “Our core product is office and that is where we focus and implicit in that is taking a look at other complimentary uses to our office properties,” said Jerry Sweeney, president and CEO of Brandywine Realty Trust. What Brandywine (NYSE:BDN) is doing isn’t unusual. In general, many publicly traded REITs have re-evaluated their strategies as commercial real estate markets continue to change.

Private office developers have also reassessed their land holdings and come to similar conclusions. For example, BPG Properties Ltd. of Philadelphia rezoned 15 acres at its New Britain Corporate Center in Bucks County to multifamily for the construction of a 230-unit apartment community. “What had been a bread-and-butter business of buying, leasing and owning suburban office and industrial assets now might look like ‘treading water,’” the report said. “What had been a plan for market diversification — with portfolio holdings in 5-10 separate markets — now may have become a logistics quandary and a drag on growth from the more sluggish markets.”

How a particular REIT may shift focus depends on the organization. For some, it may mean increasing concentration on urban markets or shedding office holdings in some markets to build up the number of industrial properties it owns, as Liberty Property Trust has done in select areas. Brandywine has about 2 percent of its total assets tied up in land, which as Sweeney said, doesn’t sound like a lot but equates to $100 million worth of real estate. By using the land for projects that would work well near existing office properties, the company is putting to work an asset that is otherwise sitting idle and costing the company. “It’s a way to optimize land values,” Sweeney said. To that end, Brandywine plans to construct a mid-rise apartment complex at 134 Plymouth Road in Plymouth Meeting on 20 acres the company had originally gotten zoned to construct between 500,000 and 1 million square feet of office space. Now it intends to construct 400 rental units.

In Center City, it is in the process of finalizing a development plan for 1919 Market St., where it will build a residential tower that would stand 25 stories or more and have between 250 to 275 apartments. A portion of the tower would be dedicated for retail uses and underground parking. Both projects would break ground by the end of this year or beginning of next year. When Brandywine embarks on an apartment project, it plans to enter into partnerships with experienced residential builders who would serve as codevelopers with Brandywine. Sweeney declined to disclose who the company might be partnering with on the two pending projects. “It’s the best model for us,” Sweeney said. “There are some tremendously talented and financially secure and strong residential companies out there that are very effective partners.” Brandywine is assessing a number of properties within its portfolio to determine where it might make sense to move forward with similar developments beyond its core office portfolio."
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