Friday, February 24, 2017

Fully leased and ready to sell: 2300 Chestnut St. hits the market

by Natalie Kostelni, Reporter, Philadelphia Business Journal
With a long-term lease with Vanguard Group secured and demand for creative office space high, the owner of 2300 Chestnut St. in Philadelphia has decided to put the building up for sale.

When Paul V. Profeta bought the 103,905-square-foot building in May 1987, he paid $1.13 million for it and spent another $4 million on renovations that turned an industrial loft structure into multitenant office space and re-branded it the Philadelphia Design Building. The building has come a long way since and with Vanguard recently signing a 10-year lease on 16,000 square feet with options to expand, the building is now 100 percent occupied.

“How many investors hold onto a property for 30 years?” Profeta said in a recent interview. “I’ve loved the building. It hasn’t been a chore owning it and I don’t think it is going to be worth more than it is right now. It’s full, it has the cachet of Vanguard and is a millennial building.”

Profeta believes the building could trade for as high as $30 million, or more than $290 a square foot, though it can be tricky to pin down what an investor will actually pay for the structure. What it does sell for will be telling for the investment market and whether buildings such as these—older, smaller but packed with tenants with a creative bent—will trade at a premium.

While Vanguard is paying rents at $32 a square foot, most tenants are paying about 21 percent below market or about $22 a square foot, giving a buyer an opportunity to boost rents and net operating income as tenant leases come due.
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