Tuesday, March 10, 2015

Beds and Meds Show Strong Deal Flow in Philadelphia

by Steve Lubetkin, Globest.com

Deal flow in the healthcare and multifamily sectors has been robust, particularly in the University City area of Philadelphia, according to the Deal Flow Panel at the ALM Media RealShare Philadelphia conference held February 10 at the Union League.

The University City submarket west of 30th Street is experiencing strong demand, according to Paul Garvey, senior director, Cushman & Wakefield. In particular, Garvey points to 3535 Market Street, with Children’s Hospital of Philadelphia and the University of Pennsylvania as primary tenants, which was acquired by an out-of-market purchaser of medical buildings up and down the east coast.

“It’s a 1970s vintage building that’s had one renovation,” says Garvey. “It sold for above $300 a square foot, even with the building facing 150,000 square feet of empty space when Penn and CHOP vacate the property in 2017. That speaks to the health of that market.”

Garvey also pointed to 3737 Market Street, which broke ground two years ago and was delivered in July 2014. The 350,000 square foot building is now fully leased for $30-36 a square foot on a triple-net basis, he says. The University of Pennsylvania is a major tenant, and Garvey  is particularly excited about Spark Therapeutics, a medical technology startup that focuses on eye diseases, which took 30,000 square feet.

Suburban medical office and single tenant medical office is also doing well, says Benjamin Appel, associate director, Healthcare Real Estate Group / Net Leased Properties Group, Marcus & Millichap. “We have one of the largest concentrations of healthcare institutions and teaching hospitals in the country,” Appel says. “We’ve seen in the last year, cap rate compression of 40-45 basis points in suburban product. We’re beating the US on a comparative basis by 30-35 basis points. Still, it’s tenant-specific, it’s market-specific, and it’s what landlords are doing to differentiate themselves.”

Some healthcare is moving off-campus, says Appel, as an aging population finds it more convenient to access healthcare at suburban medical offices closer to their homes.

Increased activity with new companies locating in and around the Philadelphia market is leading to strong demand for multifamily residential properties as well, says Mark Thomson, senior managing director, HFF. HFF is financing a residential development at 2116 Chestnut Street, which he says is “right smack in the middle of everything that’s developing.”

“To see the growth in the eds and meds, on the brokerage side we’ve been using as our sales pitch for years, it’s actually happening, and we can quantify the multiple millions of square feet of office space being developed, the number of jobs that’s going to create,” he says. “The multifamily arena is booming.”

HFF has closed more than $250 million in Philadelphia multifamily deals in the last two months, and expects to close an additional $120 million in March, he says.


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