Tier REIT Exits Philadelphia with $95M Sale of the Three Parkway Office Bldg

Washington, DC-based real estate developer MRP Realty, along with Barings Real Estate Advisers, a Hartford, CT-based global asset management firm on behalf of an institutional investor, have closed on the acquisition of the Three Parkway office tower at 1601-1645 Cherry St. in Philadelphia, PA.

TIER REIT, Inc., a self-managed, Dallas-based real estate investment trust, sold the asset for $95 million, or about $169 per square foot.

"As we have announced, we have embarked this year on the recycling phase of our strategic plan," stated Scott Fordham, president and CEO of TIER REIT, which acquired the asset in 2006 from Amstar for approximately $90 million, according to CoStar data. "We intend to utilize the proceeds to repay borrowings outstanding under our credit facility and for strategic reinvestment in our target growth markets."

TIER REIT, which sold a 60-percent stake in the 1.3 million-square-foot Wanamaker Building to Rubenstein earlier this year as well as the Buena Vista Plaza in January, has effectively exited the Philadelphia market with this sale. MRP meanwhile continues to aggressively pursue opportunities in the City of Brotherly Love, progressing on what has been a two-year value-add search for the company. The firm added three office buildings and a parking garage when it closed on Kaiserman's Independence Portfolio in early 2016, and more recently acquired three apartment buildings across the city. See CoStar COMPS #1153752,
#3809234, #3809493 and #3508282.

"MRP’s acquisition of Three Parkway is an exciting addition to our growing portfolio in Philadelphia," said Charley McGrath, managing director of MRP. "Since its completion more than four decades ago, Three Parkway has been the premier local address for some of the Nation's most influential organizations and we are committed to continuing to attract high caliber tenants by providing the best space and amenities possible."

Three Parkway is a 20-story, 561,631-square-foot, 4-Star office building originally constructed in 1970 on one acre in the Market Street West submarket of Philadelphia.

At the time of sale the asset was 86 percent occupied with a weighted average lease term of 6.5 years, anchored by Drexel University and excelleRX, with IBM, Enclara Pharmacia, Reliance Insurance and Strayer University taking space there. The building was renovated in 2005, but MRP reports it has planned extensive additions to common areas as well as the addition of a brand new fitness center and a tenant lounge. Asking rents at the tower were in the $26-$29 per square foot range, though average 4- and 5- Star office asking rents in the submarket top $30 as of the fourth quarter, 2016.

"The market will increasingly be about haves and have-nots. You’re going to see a tale of two cities, and that tale is going to be who has amenities and who’s easy to get to on transit lines." noted McGrath, speaking on a panel forum at the Bisnow 2017 State of the Philadelphia Office Market event. "We’re approaching office like we’ve approached residential, and we have been for some time. You put in a fitness center people want to go to. You put in a roof deck so that if someone is in the office and they need to call their wife, they can step out of the office and sit down and enjoy a 15-minute conversation. It’s the touch and feel that all of us want, and making sure you’re buying the asset at the right number so you can provide it."

The building, designed by Kneedler Mirick Pearson Bachelor & Ivonen with Allabach & Rennis on structural design and Pennell & Wiltberger on mechanical and electrical, consists of a full basement, 20 floors of rentable office space and two mechanical floors. The ground floor is occupied by a cafeteria and dining facility, while the basement houses a gym, storage space and a production studio. Base building systems were upgraded in 1997 under an $11 million capital improvement program that included three new 500-ton Carrier chillers and three-cell tower with automated system, a new plate and frame heat exchanger, building-wide water loop, the installation of sprinklers, a fire alarm system, emergency generator and circuit breaker panels on 19 upper floors, computer-control elevator conversion and restroom renovations on 18 floors.

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