Friday, April 27, 2018

Undisclosed Buyer to Pay $483M for SuperValu Distribution Centers

A single buyer is snapping up eight distribution centers totaling approximately 5.8 million square feet in a $483 million sale-leaseback deal with Eden Prairie-based grocery wholesaler and retailer SuperValu.

SuperValu announced the deal on Monday. The company did not disclose the buyer’s identity.

In early February, Supervalu announced that it had hired Los Angeles-based CBRE to market its properties, with the aim of using the proceeds from sale-leaseback arrangements to pay down existing debt.

The move to turn real estate into cash had been under discussion since at least December of 2017, though Supervalu did acknowledge that it was partly spurred to action by the threat of a proxy fight by an activist investor, Blackwells Capital of New York City. In a Feb. 6 letter to Supervalu’s board of directors, Blackwells estimated that the company’s portfolio could generate up to $1.8 billion if sold.

As of the company’s last full year report, issued on Tuesday, Supervalu owned 17 million square feet of industrial space, about 2 million square feet of retail and 345,000 square feet of office space at its headquarters.

A little less than half the sites included in the sale-leaseback transaction appear to be those once owned by two companies Supervalu acquired in 2017: Pompano Beach, FL- based Associated Grocers of Florida Inc., which Supervalu bought for $193 million, and Commerce, CA-based Unified Grocers Inc., which was purchased in a $390 million deal.

The properties included in the sale-leaseback deal are:
451 Joannes Ave. in Green Bay, WI;
5300 Sheila St. in Commerce, CA (Unified Grocers, Inc.);
1990 Piccoli Road in Stockton, CA (Unified Grocers, Inc.);
1141 SW 12th Ave. in Pompano Beach, FL (Associated Grocers);
2611 N. Lincoln in Champaign, IL;
501 N. Mallick Rd. in Ogelsby, IL;
2600 W. Haven Rd. in Joliet, IL, a 1 million-square-foot facility built in 2010 by Central Grocers Inc., which filed for bankruptcy in May 2017. Supervalu paid $60 million for the building in September 2017.
3700 - 3900 Industrial Rd. in Harrisburg, PA, a 750,000-square-foot distribution facility it purchased for $37.54 million in March 2017. In late March 2018, Supervalu and Pennsylvania Gov. Tom Wolf announced that the company would expand the facility in Harrisburg, an investment of $69 million on Supervalu’s part. As part of the sale-leaseback deal, the mystery buyer will put $20 million towards this project.

Supervalu estimates that the net proceeds of the sale-leaseback will total $445 million. Seven of the eight sales are expected to close by May. The eighth will close by October.

New Federal Rule Exempts Nearly One-Third of Commercial Property Sales from Appraisals

A new federal rule doubling the threshold for commercial real estate deals requiring an independent appraisal will reduce the time, cost and regulatory burden associated with processing smaller real estate deals, banking and real estate analysts say.

The Federal Reserve Board, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency adopted new rules exempting commercial property sales of $500,000 or less from the appraisal requirement. Regulators originally proposed raising the minimum from the current $250,000 to $400,000 but bumped it up to $500,000 after determining the higher threshold posed "no material loss risk to financial institutions."

Under the new rule which used CoStar's comparable sales data and repeat-sale indices to track pricing changes and other sales metrics over time, financial institutions must still perform a property evaluation for deals of $500,000 and below, but do not have to engage an independent appraiser.

"Deregulation is a major theme of the Trump Administration and this updated regulation is a smart move," according to Justin Bakst, CoStar director of capital markets. "Moving the [sale] threshold up to $500,000 creates very little additional risk to the system," he added.

Comps Data Used to Track Smaller Deals
In determining the level of increase, the agencies considered the change in prices for commercial properties measured by the Federal Reserve's Commercial Real Estate Price Index (CRE Index). Since 2012, the CRE Index has been compiled using data from the CoStar Commercial Repeat Sale Index (CCRSI) as one of its data sources.

"The agencies examined data reported on the call report and data from the CoStar Comps database to estimate the volume of commercial real estate transactions covered by the existing threshold and increased thresholds," according to the final rule.

Bakst said the agencies determined the small transactions affected by the new threshold, while large in number, did not create the type of leverage and risk that contributed to the last financial crisis. Banks have healthier capital ratios today and commercial real estate leverage has largely remained well under control, he added.

Banks can perform acceptable loan evaluations in house using sources of comparable sales data like CoStar, Bakst added.

"Although the property sales total affected by this rule change is a drop in the bucket compared with overall commercial property volume, the cost savings are noteworthy," Bakst said. "For example, if we estimate appraisal costs at between $2,000 and $4,000 per transaction, this represents an aggregate savings of $300 million to $600 million."

Banking regulators carved out an exception for construction loans on one- to four-family residential properties, which will no longer be included in the same category as commercial property loans to avoid potential confusion with single-family permanent financing and as an added consumer protection for home buyers. The sale threshold for appraisals on those properties will remain unchanged at $250,000.

Lower Threshold Was a 1990s Relic
Financial industry analysts who commented on the rule change said that the previous commercial transaction threshold had not kept pace with the price appreciation of commercial property.

For example, the average price of a property valued at $250,000 when regulators set the previous minimum threshold 24 years ago in 1994 has now more than tripled to $760,000. Raising the threshold to $500,000 provides a recession-resistant buffer, Bakst said.

Under the new $500,000 threshold, 31.9 percent of property sales in the CoStar database would be exempt from the appraisal requirement. In terms of dollar volume, however, the properties now exempt from appraisals comprise just 1.8% of the overall dollar volume of loans in the CoStar database.

Before the final rule was approved, there were 13 different categories of loan transactions that qualified for exemption from the appraisal requirement, including a general exemption for all real estate-related transactions with a value of $250,000 or less. The new rule adds a 14th exemption for “commercial real estate transactions” not secured by a single 1-to-4 family residential property.

“For commercial real estate transactions exempted from the appraisal requirement as a result of the revised threshold, regulated institutions must obtain an evaluation of the real property collateral that is consistent with safe and sound banking practices," the new rule states.

Are Small Loans Risky for Small Banks?
Some critics, namely appraisers, take issue with the agency findings. James L. Murrett, president of the Chicago-based Appraisal Institute trade association representing nearly 19,000 appraisal professionals in about 60 countries, said raising the threshold is "confounding" given concerns expressed by the same agencies about commercial property pricing and loan risk management.

The OCC and Fed have warned that rapidly appreciating property prices in some commercial property segments and rising concentrations of commercial property loans, particularly among smaller banks with $1 billion to $10 billion in assets, could heighten risk to the nation's banking system.

"Without a doubt, the final rule increases risk to the commercial real estate lending system," Murrett said. “Seen through the lens of loosening regulations, the final rule may make sense. But from a safety and soundness perspective, the final rule raises significant concerns.”

Murrett said that an increase in property evaluations without appraisers will likely cause a return to the conditions during the run-up to the financial crisis, when "appraisal and risk management were thrust aside to make more, not better, loans."

Smaller institutions, which are less likely to maintain appraisal departments, are more likely to be susceptible to breakdowns in appraisal independence with fewer controls in place, he added.

Murrett said the decision increases the importance of modernizing the regulatory structure governing appraisals, including positioning appraisers to better offer evaluation services.

"Appraisers need to be nimbler in today’s marketplace - not only to compete, but to help maintain safety and soundness of the real estate financial system.”

Big Shops Don't Play in Small Loan Pools
Appraisal operations in the largest commercial real estate services companies likely won't be affected by the rule change since , their main business is more sophisticated and generally involves providing so-called broker opinions of value for complex property assets priced above $500,000, said John Busi, president of the valuation and advisory group at Newmark Knight Frank.

The appraisal world is getting faster and cheaper and this change creates efficiency for the banking regulators to be a little more nimble and relax some of the standards put in place after the financial crisis," Busi said.

"Of course appraisers are going to be upset by it because many have had business on commercial property under $500,000," said Busi. But he added that smaller appraisal shops should be nimble enough to adapt and bring in work without suffering a large decline in fees.

"We view the recent increases in thresholds for appraisal requirements as an opportunity for lenders, borrowers, and appraisers," added Chris Roach, CEO with BBG, one of the nation's largest pure-play valuation and appraisal companies with 27 U.S. offices.

Roach said BBG's valuation specialists have evolved from a traditional appraisal practice to a more diverse valuation practice for a variety of clients.

"We stand by our high-quality valuation products, no matter the size of the loan," Roach said. "But with these revised loan amount guidelines, we are well-positioned for growth in our evaluation product."

Thursday, April 26, 2018

Apartment REIT IRET Focused on Operations Following MOB Sales (Video)

Crux Fitness Leases Space in Lansdale

Crux Fitness has signed a 10-year lease for 25,000 square feet in the Lansdale Pavilion shopping center at 611 S. Broad St. in Lansdale, PA.

The 140,881-square-foot shopping center was constructed in 1940 and renovated in 1990. Crux Fitness would anchor the center in its own building within the center, which is also home to Dollar Tree, Hair Cuttery, Mattress Firm, Quest Diagnostics and Pets Plus Lansdale.

Wednesday, April 25, 2018

CSL Behring leases 500 N. Gulph in King of Prussia

Natalie Kostelni Reporter Philadelphia Business Journal
Brandywine Realty Trust has leased 500 N. Gulph Road in King of Prussia to CSL Behring.

The biopharmaceutical company leased the 100,820-square-foot building because it needed room for expansion. CSL Behring is an existing tenant of Brandywine and occupies 257,000 square feet of space at 1020 First Ave., which is about a mile away from the Gulph Road building. 

In February, Brandywine initiated a $29.7 million redevelopment of 500 N. Gulph. The five-story building has essentially been vacant for years and ripe for redevelopment.

Full story:

Barry Sternlicht: US real estate is my favorite asset class right now (Video)

Barry Sternlicht: US real estate is my favorite asset class right now from CNBC.

Wilder Cos. Acquire Cumberland County Grocery-Anchored Center

by Steve Lubetkin,

Boston-based The Wilder Companies, in partnership with an institutional real estate fund, have re-entered the Pennsylvania market, acquiring Silver Spring Square, a 342,600 square-foot dominant grocery anchored community center on Route 11 in Mechanicsburg, Cumberland County, PA.

“Silver Spring Square fits perfectly into our acquisition platform targeting dominant grocer-anchored centers throughout the East Coast,” says Shelley Anderson, director of new business development at Wilder. “We are excited to reestablish our expertise in the Pennsylvania market.” Wilder is a Boston-based real estate development, management, and leasing firm specializing in the positioning of retail properties. Privately held and owner managed, Wilder has developed, managed, and leased more than 20 million square feet of retail properties throughout the United States and Puerto Rico.

The seller was DDR Corp., and buyer came direct.

Built in 2007, the shopping center includes as tenants industry leaders and national brands, anchored by a 126,240-square foot Wegmans Supermarket. This is Wegmans only store serving the greater Harrisburg MSA.

The property is shadow-anchored by a 139,377-square foot Target and an 87,000 square foot Kohl’s, bringing the contiguous square footage to 568,977 square feet.

The grocer and anchor tenants are complemented by major national retailers including Best Buy, Ross, Bed Bath & Beyond, Petco, Lane Bryant and Ulta, along with seven additional pads sites leased to Advance Auto Parts, Longhorn Steakhouse, Chilis, PNC, Chick-Fil-A, Panera Bread and Wells Fargo Bank, making Silver Spring Square a one-stop shopping destination for the customer base that lives and works on the Western Shore of Harrisburg. The property is 98-percent occupied as of closing, including a recent new lease with Old Navy, which is taking 12,295 square feet in a former Office Max space.

Silver Spring Square is located along Carlisle Pike (Route 11), approximately 10 miles west of the Pennsylvania state capital of Harrisburg. This submarket has seen significant growth in retailer distribution centers / industrial warehousing because of its location in the I-78/I-81 corridor, which allows easy movement avoiding I-95 between major metropolitan areas like New York City, Baltimore, and Washington DC.

PNC Wealth Management Leases Space in Cherry Hill

PNC Wealth Management, a financial services company, has signed a lease for 28,095 square feet in the office building at 200 Lake Dr. E in Cherry Hill, NJ.

The three-story building totals 76,352 square feet in the Woodland Falls Corporate Center office park. Prentiss Properties developed the property in 1989, and it is currently owned by Crown Properties, Inc.

PNC’s lease includes the entire third floor. Other tenants in the building include Maxim Health Services and Brandywine Realty Trust.

Monday, April 23, 2018

SEC Working to Modernize and Streamline Real Estate-Related Disclosures (Video)

FASB Reconsidering Capitalization of REIT Acquisition Transaction Costs (Video)

North and West Philly among Pa. areas nominated for new-investment tax break

by Jacob Adelman, Staff Writer Philadelphia Inquirer
Investors with ventures along much of Market Street in West Philadelphia and Broad Street in North Philadelphia, as well as neighborhoods such as Mantua, Point Breeze, and Brewerytown, may be in for new tax breaks under a federal program designed to promote development in rural and low-income urban communities nationwide.

Gov. Wolf included the census tracts covering those areas in his list of nominees Friday to become so-called Qualified Opportunity Zones, which would make them eligible for incentives enacted as part of the tax-cut legislation signed into law in December.

The incentives offer deferral, reduction, and potential elimination of some federal taxes for capital gains from investing in businesses, real estate, and other ventures in low-income communities.

Also identified were tracts covering parts of Lansdowne in Delaware County, Norristown in Montgomery County, and Croydon in Bucks County, according to a map posted to the website of the Pennsylvania Department of Community and Economic Development.

The Philadelphia-area tracts are among 300 statewide that Wolf sent to the U.S. Treasury Department for consideration on Friday, the deadline to submit nominations for the program. The federal agency has 30 days to designate which tracts ultimately qualify.

Pennsylvania had 1,197 census tracts eligible for Qualified Opportunity Zone status and was given the opportunity to designate 25 percent, or a maximum 300 low-income community tracts as zones, the governor’s office said in a release.

Wolf said in the release that his nominations were submitted “after gathering input from individuals and organizations throughout the state and examining where the areas of need intersect with potential investment.”

“We are hopeful this new incentive will bring much-needed investment to many distressed areas across the commonwealth,” he said.

The Treasury Department has already designated areas of Delaware around Wilmington and parts of Camden in South Jersey as opportunity zones, according to online mapping service PolicyMap, which has been tracking the program. Officials from those states, and others, sent their tract nominations ahead of Wolf.

Full story:

Brandywine moves forward with land acquisitions for Schuylkill Yards plan

by Jacob Adelman, Staff Writer Philadelphia Inquirer
Brandywine Realty Trust is on track to acquire control of land totalling two acres currently used as parking behind 30th Street Station for its first phase of ground-up construction as part of its Schuylkill Yards development plan in University City.

The company paid $24.6 million on March 22 for a 99-year lease to an acre of land at 3001 and 3003 John F. Kennedy Blvd., with plans to acquire another long-term lease for second one-acre parcel adjacent to the west at 3025 J.F.K. Blvd. for $20.5 million before the end of June, it said in a financial report this week.

Brandywine chief executive Jerry Sweeney said in a conference call with analysts Friday that the acquisitions will allow the company to complete design work for the tract, but won’t begin construction until tenants are secured for much of what’s expected to be a 700,000-square-foot tower planned.

The building is expected to be one-half occupied with offices, with the other half being used for residential units or life-science labs, Sweeney said.

The $3.5 billion Schuylkill Yards plan is slated to eventually involve 8 million square feet of development over 14 acres. Much of the land, including the J.F.K. Boulevard parcels now being acquired, is owned by Drexel University.

Brandywine began work last late last year on its first stage of the project, a1.3-acre landscaped park at 30th and Market Streets, between the train station and the former Bulletin newspaper building. The former Bulletin building, now known as One Drexel Plaza, is also to be developed during the early phase.

Schuylkill Yards is one of three sites in central Philadelphia mentioned as a potential location for Inc.’s planned second headquarters in the city’s proposal to the e-commerce giant.
Full story:

Duke Realty Completes 33 Logistics Park in Easton

Duke Realty Corp. has completed its third, and final, distribution building at 33 Logistics Park at Chrin in Easton, PA.

Duke Realty broke ground on the single-story, 1,015,740-square-foot structure at 1620 Van Buren Rd. in August 2017. The single-tenant building comprises 120 manual overhead doors, four automatic drive-in doors, 54x50-foot column spacing, a 36-foot clear ceiling height and parking for 245 trailers and 472 automobiles.

33 Logistics Park is occupied by Amazon, at a 1.1 million-square-foot building at 1610 Van Buren Rd., and XPO Logistics, which signed a 628,475-square-foot lease at an adjacent warehouse last year.

The industrial park is adjacent to PA-33, near I-78, and located within an 800-acre center which will include a mix of office, retail and industrial development.

Philly’s Outer Suburbs Leading in Apartment Rent Growth

by Adrian Ponsen, Costar market economist covering Philadelphia Metro Area.

Just three or four years ago, most investors never would have expected that submarkets such as Upper Montgomery County, Upper Bucks County and Lower Chester County were positioned to surge ahead of Center City, University City and the Main Line in apartment rent growth. However, that is exactly the scenario that has played out in late 2017 and early 2018.

With apartment construction at the highest level in more than three decades, the supply of 4 & 5 Star apartment units has more than doubled over the past five years in prime Philadelphia-area submarkets including Center City, University City and the Main Line.

As newly delivered apartments compete for lease-up, asking rent growth has slowed to less than 2.5 percent year-over-year in all of these locations.

Meanwhile, apartment development has been restrained in submarkets more than 25 miles from Center City, and after more than eight years of uninterrupted rent growth in the market as a whole, most renters are competing for the most affordable units available.

Apartment communities in Upper Bucks County, Upper Montgomery County and Lower Chester County are reaping the benefits. All of these submarkets have hosted year-over-year rent growth of over four percent.

It is still up for debate whether these submarkets’ impressive rent growth is a temporary statistical blip or part of a more lasting trend. But with the massive millennial cohort now aging into their late 20s and early 30s and increasingly starting families, renter demand for large, affordable apartments in suburban communities with high-performing public schools could certainly continue to surprise on the upside in the coming years.

Friday, April 20, 2018

Charter School Leases Space in Egg Harbor Twp - Repurposing Shopping Centers

International Academy of Atlantic City Charter School has signed a five-year lease for 27,000 square feet in the Cardiff Shopping Center at 6718 Black Horse Pike in Egg Harbor Township, NJ.

The 351,466-square-foot shopping center was originally built in the 1970s on almost 30 acres in the Atlantic City / Hammonton submarket of South Jersey. It is currently owned and managed by Pagano Real Estate. Other tenants in the center include Big Lots, 99-cent Store and Bank of America.

What is a REIT - How Interest Rates Affect REITs (Video)

Wednesday, April 18, 2018

2018 Outlook for Commercial/Multifamily Real Estate Finance (Video)

Dranoff Exits Philadelphia Rentals With Sale To Aimco

by Steve Lubetkin,

Dranoff Properties is exiting its Philadelphia multifamily rental properties, selling them to Denver-based Apartment and Investment Management Company for $445 million in cash and equity. According to local news site, the equity will make Dranoff Properties founder and CEO Carl Dranoff the largest non-institutional shareholder in Aimco.

The portfolio includes six properties, totaling 1,006 existing apartment homes, 110 apartment homes under construction, and 185,000 square feet of office and retail space.

The Dranoff portfolio includes Locust on the Park in the Fitler Square neighborhood, 777 South Broad and Southstar Lofts on the Avenue of the Arts, The Left Bank in University City, The Victor in Camden, NJ, and One Ardmore Place in Lower Merion Township.

“Over the past twenty years, we’ve developed and assembled a portfolio of rental properties that has redefined luxury living in the Philadelphia region,” says Carl Dranoff, founder and CEO of Dranoff Properties. “With a pipeline of new and exciting projects on the horizon, the timing is right to sell six of our premier properties to Aimco and become a major investor in the company. Aimco’s expansion and commitment to Philadelphia make them ideal stewards of these trophy assets that we carefully built, owned and managed. I am incredibly enthusiastic about the future of Dranoff Properties as we begin our third decade. Propelled by a strong capital base, powerful brand and deep talent pool, we look forward to delivering a fresh new generation of transformative projects in the Philadelphia region and beyond.”

“We are thrilled to acquire these well-located communities in Philadelphia, a market we know and like,” says Aimco chairman/CEO Terry Considine. “I appreciate the significant investment in Aimco made by highly regarded local developer Carl Dranoff and the faith he has in our ability to manage these assets, guarding their quality and providing excellent service to their residents. Carl and his talented team have transformed residential living in Philadelphia. I wish them continued success.”

The acquisitions from Dranoff Properties are expected to close in the second quarter, except for the purchase of One Ardmore Place, which is expected to close in first quarter 2019, after completion of construction.

“We continue to be bullish on Philadelphia whose stable and diversified economy is enjoying a growth spurt,” says Aimco executive vice president Wes Powell, who led the Aimco acquisition team. “Center City and University City’s ‘eds and meds’ rival Cambridge and Palo Alto with their highly educated workforces and the city provides a cost-effective alternative to the other Northeastern hubs of Washington D.C., New York, and Boston.”

Earlier this year, in an exclusive interview with, Dranoff also expressed optimism about Philadelphia’s prospects.

“Things are booming in Philadelphia,” Dranoff told at the time. “The rental market is good, there are new skyscrapers, millennials are graduating from our universities and staying, Comcast is adding thousands of jobs, office users are coming into Center City because it’s where the workers are, and we have baby boomers too, that are moving back to the city.”

Dranoff is turning his focus to his luxury apartment and condo developments, including the nearly completed One Theater Square apartments adjacent to the New Jersey Performing Arts Center in Newark, NJ.

Correction, 4/17/2018, 4:37 p.m.: Because of editing errors, a headline on an earlier version of this article suggested that Dranoff Properties was exiting completely from Philadelphia. The portfolio sale only includes multifamily rental properties in the market. Also, an earlier version of the article incorrectly described the project in Newark, NJ as the “Theater Lofts.” The property is actually called One Theater Square, and is a rental property, not condominiums.

Tuesday, April 17, 2018

Wells Fargo Monthly Economic Outlook — April 2018 (Video)

Office Availability Rates in Philadelphia Suburbs Among the Lowest in Northeastern U.S.

The vacancy rate for high-end office properties located along the stretch of the Pennsylvania Turnpike and 202 from Malvern to Exton rose to almost 25 percent in the wake of the Great Recession, with pharmaceutical firms including Pfizer and Endo Health Solutions downsizing their footprints and putting large blocks on space on the market for lease.

But these same office properties have seen average vacancy rates decline steadily since 2011, and are down below five percent to start the second quarter of 2018 – the lowest level in more than 15 years.

Another way to gauge the tightness of Malvern and Exton’s high-end office market is by comparing its availability rate (the percentage of office space listed as available for lease on CoStar), with availability rates in major office markets nearby. By this measure, Malvern / Exton is one of the tightest suburban office nodes throughout the entire Northeast region.

What explains the dramatic recovery in occupancies in these office properties located more than 25 miles from Philadelphia’s CBD?

For starters, recent infrastructure improvements have played a key role. In 2016, the Pennsylvania Department of Transportation completed a three-year project widening Route 202 to six lanes between Conestoga Road and Route 30. This project, combined with an earlier installation of a new interchange between the Pennsylvania Turnpike and Route 29, have made Malvern and Exton more accessible to commuters coming in from nearby areas such as King of Prussia, Downingtown and Phoenixville.

By locating in Malvern or Exton, office tenants can also remain close to highly-educated workers in and around the Upper Main Line, while paying lower office rents than tenants in competing suburban submarkets closer to Philadelphia.

For example, at the start of the second quarter, the average listed rent for 4 & 5 Star office space in Malvern and Exton was about $24.00 per square foot, 20 percent below listed 4 & 5 Star rents in King of Prussia and 30 percent below listed 4 & 5 Star rents in Conshohocken.

All of these selling points have helped coax firms in information technology, pharmaceuticals and finance to either move into Malvern or Exton, or to expand their existing offices within the area, in recent years.

Vacancy rates would likely need to tighten significantly in nearby competing suburban submarkets before Malvern and Exton’s year-over-year rent gains could sustain four- to five-percent growth for more than just a few quarters. However, by offering lower rents than most suburban office nodes in Philadelphia in recent years, Malvern and Exton office properties have clearly been standouts within the region for their ability to garner tenant interest and high occupancy rates.

Monday, April 16, 2018

Southern NJ And Philly CRE Markets See Moderate Gains In 1Q2018

by Steve Lubetkin,
The Southern New Jersey market is, for the most part, in good shape, with moderate gains in leasing activity and strong fundamentals. The Burlington County firm believes the market may be poised to take off as benefits of the new tax law begin to reverberate in personal and corporate checkbooks.

“Our market appears to have picked up steam, with a healthy pace of business growth and continuing new investment. Despite corrections ending a long winning streak in the financial markets, the benefits of the new tax law should shore up commercial real estate, especially industrial and office demand.”

There were approximately 272,550 square feet of new leases and renewals executed in the three counties surveyed (Burlington, Camden and Gloucester), which was a gain of 23 percent over the previous quarter. Leasing picked up, and the sales market stayed active, with about 1.63 million square feet on the market or under agreement, and an additional 320,691 square feet trading hands. The sales figure is a 36 percent increase over the previous quarter.

New leasing activity accounted for approximately 77.2 percent of all deals. Overall, net absorption for the quarter was in the range of approximately 105,250 square feet. Both figures represent large increases over the fourth quarter.

Other office market highlights from the report:

  • Overall vacancy in the market is now approximately 2 percent, which is more than a full point higher than the previous quarter. This may be attributed to large blocks of space returning to the market.
  • Average rents for class A and B product continue to show strong support in the range of $10.00-$14.50 per square foot triple net or $20.00-$24.50 per square foot gross for the deals completed during the quarter. These averages have stayed within this range for most of this year.
  • Vacancy in Camden County improved steadily last year but jumped nearly a point to 12.5 percent for the
  • Burlington County vacancy was at 9 percent, which was also higher than the fourth quarter.

Since expanding into southeastern Pennsylvania, rates, and news from Philadelphia and the suburbs.

Highlights from the first quarter in Pennsylvania include:

  • Philadelphia’s office market saw a decrease in vacancy in the Central Business District during 2017 and Q1 2018, as demand for office space continues to be Still, the firm says it sees increasing employment and new construction, both of which bode well for continued strength.
  • Comcast’s second office tower, the Comcast Innovation and Technology Center, is a 59-story (1,121 feet), LEED Platinum certified skyscraper developed by Liberty Property Trust. The development, positioned in the heart of the CBD, will also include a Four Seasons Hotel. The project is estimated to cost $1.2 billion, is expected to be the tallest building in the United States outside of New York and Chicago and will be the largest private development project in the history of Net of the hotel, the property is planned for 1,336,682 square feet of office space. (As previously reported by, David Cohen, senior executive vice president of Comcast, has joked that despite the massive amount of office space, the building will have no “offices,” as the space will be designed for open, collaborative workgroups.) Comcast has signed a 20-year lease for 98 percent of the building, with the remainder available for lease. However, Comcast may fill the remaining space themselves.
  • At 2400 Market Street, the new Aramark Headquarters is utilizing the former Philadelphia Market Design Center and will comprise the entirety of floors 5-9 on a long-term lease. Thus, the expansion (new inventory) is effectively 100 percent pre-leased. Estimated delivery is early
  • The Philadelphia Planning Commission has approved zoning changes to an area west of 30th Street Station, where Brandywine Realty Trust and Drexel University plan their Schuylkill Yards redevelopment project, a 14-acre district of labs, offices, residences and There is not a definitive timeline for the project. According to Brandywine, the master plan will comprise a total buildout of 2.8 million square feet of office, 1.6 million square feet of residential, a 247,000 square-foot hotel, a one million square-foot of lab, and 132,000 square feet of retail space. This reflects the bulk of proposed inventory in the Center City submarket.
  • Developer Oliver Tyrone Pulver Corp. is proposing a 38-story office tower on a long-empty lot east of City Hall at 1301 Market Street. It will include 841,750 square feet if developed, once a lead tenant is secured. The tower would tentatively open in
  • Demand for multi-family product is demonstrating significant growth, with nearly 2,800 units recently completed, 1,250 units under construction, and 3,200 units proposed in the Pennsylvania Within the Center City market, there are 2,200 units under construction with an additional 6,300 units proposed. Market participants are questioning whether these units will continue to be absorbed. Many high-end apartment complexes are facing concessions and compression in rental rates.
  • Quarter-over-quarter, industrial vacancy in Southeastern Pennsylvania was flat at 6.8 percent. The market’s largest yearly occupancy gains were recorded in Bucks County, where positive absorption totaled 709,530 square feet, and Delaware County, where 233,633 square feet was absorbed. The year’s largest moves were Almo and Amazon occupying 300,000 and 104,000 square feet of warehouse space along Cabot Boulevard in Bucks County in the second
  • Philadelphia County recorded 169,134 square feet in negative yearly absorption. The increased demand for warehouse and distribution space from e-commerce firms has focused on larger scale properties and newer buildings, both of which are in low supply. E-commerce and logistics warehouses may require anywhere between a few hundred thousand square feet to more than a million square feet, but the tightness of Philadelphia’s industrial market means that many companies are starting to look outside the city to fulfill their space

Apollo Partner Warns Of US Asset-Price Deflation

by Steve Lubetkin,

Asia presents better risk-adjusted returns than the US right now, and asset-price deflation is likely in the US, a partner with Apollo Global Management told members gathered in Philadelphia earlier this month for the firm’s annual leadership summit and a global look at the economic factors driving the market around the world.

“In all candor, we see more opportunity in Asia for risk-adjusted returns than we do here,” says keynote speaker Philip Mintz, partner and CIO with Apollo Global Management’s US and Asia real estate equity business, based in New York. “I just see a correction coming with asset-price deflation as part of that trend in the US.”

Mintz compared the outlook for the US economy with Japan’s, during that country’s dive into deflation in the 1990s. Mintz, an Asia investment expert, lived in Japan while working for Asia Pacific Land as the chief investment officer and earlier as a partner with Warburg Pincus focused on Asian real estate investing, and before that as the chief executive officer of General Electric Real Estate Asia.

Mintz predicted a significant correction in U.S. asset prices of both commercial and especially residential real estate prices.

Some of his bullish position on Asia comes from the fact that there are very few firms in Asia that do the type of business the real estate arm of Apollo does—structured credit with $275 billion in assets under management.

When one of the moderators suggested that there is an abundance of capital on the sideline to be deployed in a variety of asset classes, including commercial real estate, Mintz responded with a warning that “when the markets compress, that dry powder will get scarce.”

Wealth inequality in the US will affect business in the future, Mintz says.

“The inequality of wealth in the US is going to be destabilizing for a long time,” he says.

While Apollo is currently a net seller of industrial property in the US—the firm recently sold industrial assets in Atlanta and is in the process of doing the same in other markets, Apollo is not sour on all aspects of the global economy, or real estate investing. The firm recently acquired a manufactured home community in Morgantown, West Virginia, and Mintz says that Europe is in the best shape that it has been in years, particularly Germany.

“Money is made in markets where people have extreme informational value and granular expertise,” he says.

The recently passed tax reform legislation is the most significant in more than two decades, says guest speaker Bill Burns, tax office managing partner with BDO United States. Burns provided an overview of the recent tax code changes in the US and what it means to commercial real estate investors and operators.

The Trump administration’s mandate to federal agencies that they eliminate two regulations for every new regulation is delaying the IRS from issuing guidance on the new tax code. “Essentially, the IRS is working to identify which regulations in the tax code to release as new regulations are added.”

Andy McCulloch, managing partner with Newport Beach, CA-based Green Street Advisors, was the other keynote speaker during the Global Market Outlook session of the conference. He, too, was a bit bearish and thinks asset values will fall but not by much. He said the growth in jobs has not yet translated into meaningful income growth, but it will, and be fueled by the tax reform, which “is good news for the economy, individuals and real estate.”

Approximately 80-90 percent of individuals will get a tax cut.

In terms of asset values, over the last year the winners have been:

  • Industrial property +11 percent
  • Manufactured homes +10 percent
  • Apartments + 4 percent

And the losers were:

  • Storage – 1 percent
  • Office -1 percent
  • Strip malls -5 percent
  • Malls -11 percent

Speaking of malls, McCulloch says that the e-commerce disrupter and its impact on real estate is only in the “3rd or 4th inning and that we have too much retail real estate, some of which needs to go away.” He believes about half of the 1,200 malls in the US will be shuttered or substantially repurposed in the next 20 years.

McCulloch also observed that “low supply has been one of the defining positive characteristics of this cycle.” He says supply has mostly been concentrated in high-barrier, gateway cities, but is making its way to secondary and tertiary markets.

By asset class, new industrial developments tend to be absorbed quickly while multifamily may have reached a point in which it is getting over-built in select markets, he says.

How Long Should I Sign a Commercial Property Lease for? (Video)

Friday, April 13, 2018

Granite Pays $34.8M for 432,000-SF Greencastle Warehouse

Toronto-based Granite REIT (NYSE: GRP.U) acquired a 432,000-square-foot warehouse in Greencastle, PA from a joint venture between Chesapeake Real Estate Group and Atapco Properties. The complex traded for $34.8 million, or about $81 per square foot.

Located within the Antrim Commons Business Park at 181 Antrim Commons Dr., the industrial building was constructed in 2017 and is fully leased to Eldorado Stone for 15 years. The facility also has direct access to the Norfolk Southern rail line and boasts 36-foot clear heights, according to CoStar data.

Recently, Granite also acquired a 597,000-square-foot warehouse in the Indianapolis suburbs for $39.3 million, or about $66 per square foot. Similar to the Greencastle warehouse, the Plainfield, IN facility was built last year and is fully occupied by a single tenant, Geodis.

Granite’s international portfolio consists of more than 30 million square feet of warehouse and logistics space in North American and Europe, according to the REIT’s website.

Thursday, April 12, 2018

Role of Appraisals in Commercial Real Estate via Appraisal Institute (Video)

Modus Hotels Secures Financing for Pod Hotel Concept Philadelphia

Meridian Capital Group Arranges $53.5M in Senior, Mezzanine Financing on Hospitality Concept
Modus Hotels secured a $53.5 million loan for construction of its proposed pod hotel in Philadelphia, PA, at 31 S. 19th St.

The new pod hotel will have 252 rooms across 11 stories. It will be located in Center City, next to Rittenhouse Square.

Chelsea & Village Associates Pays $31.5M for Philadelphia High-Rise

Chelsea & Village Associates acquired the office building at 1760 Market St. in Philadelphia, PA from Stockton Real Estate Advisors and Alterra Property Group LLC for $31.5 million, or about $249 per square foot.

The 14-story, 126,309-square-foot office building delivered in 1980 to the Market Street West submarket. It is home to Spring, Philadelphia Trust Company and Security Risk Advisors, among others.

Mobius Pays $31.4M for 4-Bldg New Jersey Office Portfolio

Somerset Properties, a Philadelphia-based, full-service real estate firm, sold an office portfolio comprised of Marlton Executive Park I and II in Marlton, NJ, as well as the two-building Horizon Corporate Center in Mount Laurel, NJ.

Mobius, an owner and developer of multifamily properties, acquired the portfolio for $31.4 million, or about $103 per square foot.

Marlton Executive Park is located at 701A and 701C Route 73 in Marlton. Horizon Corporate Center is located only four miles away at 3000 Atrium Way and 2000 Crawford Pl. in Mount Laurel. The deal totals 304,763 square feet, with individual buildings ranging between 27,813 and 108,416 square feet. The portfolio features access to Route 70, I-295 and the New Jersey Turnpike.

The buyer financed the acquisition in-part with a new $24.28 million mortgage from Wells Fargo Bank. Ryan Ade and Neil Campbell with Holliday Fenoglio Fowler (HFF) LP's debt placement team arranged the financing on behalf of the borrower.

Realtor Land Institute (RLI) Highlights 2018 (Video)

Monday, April 9, 2018

Economy, Jobs and International Affairs via Dr. Mark Dotzour (Video)

Aging U.S. Industrial Space Can't Meet Booming Demand For E-Commerce Facilities

Taylor Jacoby
Senior Research Analyst, CBRE
An aging U.S. warehouse inventory that does not meet the needs of today’s logistics tenants is creating new development opportunities nationwide. Although 1 billion sq. ft. of modern warehouse space was built over the past 10 years, it accounts for only 11% of the country’s total warehouse inventory (9.1 billion sq. ft.), which is becoming increasingly obsolete at an average age of 34 years. Nearly 1 billion sq. ft. of total warehouse inventory is more than 50 years old and has clear heights of less than 20 feet—well below logistics tenant requirements. Warehouses built since 2008 are generally three times larger than older ones and account for only 4% of the nation’s total number of buildings.

Markets with the newest warehouses tend to have ample developable land and are near major population centers, while markets with the oldest warehouses tend to serve heavy industrial and shipping centers. Given the low share of modern warehouse space and the rise of e-commerce, there’s ample opportunity to develop new warehouses and rebuild physically obsolete ones in the best infill locations.

CBRE Research: Old Storage: Warehouse Modernization in Early Stages | U.S. MarketFlash
CBRE Research: Old Storage: Warehouse Modernization in Early Stages | U.S. MarketFlash

Full story:

Could Industrial Real Estate Get Caught in Trade War Crossfire?

Larry Callahan heads one of the largest developers of industrial real estate in the Southeast, with projects located from Tennessee to Florida.

As the chief executive of Patillo Industrial Real Estate in Georgia, Callahan leads his family-owned business in developing and managing warehouse-distribution projects for businesses as varied as compressor creator Bitzer U.S. Inc. to King’s Hawaiian Bakery.

Like the rest of what is known as the industrial real estate market, the hottest asset class in all of commercial real estate for the past two years, Callahan’s business has been booming.

Right now, he’s not too worried about the impact of President Donald Trump’s posturing on trade.

"I do not believe that the first impact of tariffs (and retaliatory tariffs) has been fully priced into assets like industrial real estate," he said. "And I would argue that the impact of a first round of tariffs on the pricing of industrial real estate is minimal."

But late yesterday, President Trump escalated the risk of a trade war by further increasing proposed tariffs by $100 billion on a number of Chinese products as the two countries continue to exchange threats. The change from campaign rhetoric to trade policy has caught some by surprise.

This morning, Chinese officials threatened further retaliation if the U.S. moves forward with new tariffs.

If fears of a full-scale trade war come to fruition, Callahan sees a different story unfolding. He said the risk to industrial real estate becomes worrisome if a full-scale trade war erupts and slows down the overall economy.

"A no-growth economy hurts everyone," said Callahan.

Callahan echoes what many in the industrial real estate market are saying now about how rising protectionism and a threat of trade war are affecting the U.S. industrial real estate market.

"It would have to be a pretty massive trade war for it to impact industrial real estate directly," said Rene Circ, director of U.S. industrial research for CoStar, adding that anything that impacts the entire economy would certainly affect industrial real estate.

Conditions in the industrial real estate market remain strong - with vacancy at historically low numbers across the nation - but the threats have prompted fears of an all-out trade war between the U.S. and China have left some industrial real estate stakeholders watching events unfold with anticipation.

"If these tariffs become real, they would have an enormous impact," said Richard Green, director and chairman at the USC Lusk Center for Real Estate at the University of Southern California. "If consumer goods become more expensive, people will buy them less and that’s not good for industrial real estate and the warehouses that hold [those goods.]"

Last month, President Trump authorized increases on tariffs on steel and aluminum imports and is considering more in response to China's industrial and technology policies. China retaliated this week by proposing a 25 percent increase on 106 U.S. goods including on such items as soybeans, automobiles, aircraft and orange juice.

The tariffs on steel and aluminum imports prompted dire warnings from architects, contractors, REITs and real estate lobbying groups who said the tariffs could put more pressure on already rising building costs and cause developers and investors to postpone, cancel or steer clear of new projects.

This week, Real Estate Roundtable President and CEO Jeffrey DeBoer said the new proposed tariffs, coupled with the earlier tariffs on steel and aluminum and the ongoing dispute with China, could have "unfortunate and unintended effects on the U.S. economy by raising construction costs and reducing jobs in real estate development."

Everything from consumer goods to physical container traffic could be hit by the tariffs and that could have a domino effect.

"It has been on investors’ minds since Trump took office because there has been discussion about trade wars and what happens if," said Mike Kendall, Western region executive managing director of Investment Services for Colliers International in Irvine, California. "There should be an impact eventually in industrial, but it hasn’t happened yet. The real estate market is not like the stock market. The stock market is real time. In real estate, it takes a lot longer to find its way into the process and pricing. Since it [threat of trade war] is so new, we haven't seen it yet."

A more immediate concern is rising construction materials and development costs, since most of our steel and aluminum is imported from Canada, Mexico and South Korea.

Jeff Givens, senior vice president at Los Angeles office and industrial developer and owner Kearny Real Estate Co., said he has colleagues who already are hitting pause on new development projects.

"I’ve heard from others who are in the bidding process [for a new project], with their different subcontractors involved in steel and other commodities that are being discussed [for increased tariffs]," he said. "They have pulled their current bids and are reevaluating, I have a colleague who was ready to go forward on a big-box warehouse and the steel providers said the bid we gave you six months ago is no longer valid; we’ll get back to you."

That kind of uncertainty has an effect beyond just proposed projects. Bret Hardy, who focuses on institutional industrial investment sales as executive managing director of the Western region capital markets team at Newmark Knight Frank, said while it’s still too early to fully understand the result of the steel tariffs, he's heard estimates that steel costs could increase by as much as 30 percent.

"When you are looking at the infill industrial real estate market in Los Angeles metro that is priced to perfection, any incremental cost of construction could have an equal impact on the value of the land and the value of the projects," he said. "So steel costs are a concern right now."

To be sure, industrial construction doesn’t appear to be slowing down. More than 2.3 million square feet are under construction in the Los Angeles metropolitan area alone, the largest industrial market in the country, according to CoStar Group data. In the industrial market around the Ports of L.A. and Long Beach, the vacancy rate is below 1 percent - and brokers report few signs of pullback.

In neighboring Inland Empire, one of the nation's largest industrial and logistics markets, two deans of the industrial real estate brokerage market agreed that the current atmosphere of protectionism and the prospects of a trade war haven’t been a factor among logistics occupiers, owners and developers. At least not yet.

"There has been no real chatter among warehouse developers or investors out here," said Paul Earnhart, senior vice president with Lee & Associates, who has completed over 1,000 transactions for a combined $4 billion in deal value over more than 30 years in the Inland Empire.

A prolonged conflict with China or worse, a collapse of the current NAFTA treaty affecting two of America's strongest trade partners, Mexico and Canada, could change that over the next year.

"The possibility of a long trade war has been on the mind of most of these logisticians to some extent," acknowledged Chuck Belden, executive vice president with Cushman & Wakefield's Ontario office since 1984.

Late last year, the possibility of a tariff on appliances, combined with fears of the demise of Sears and JCPenney during the holiday shopping season, actually created a temporary bump in demand for Inland Empire warehouse space. LG, Samsung and other appliance makers stockpiled inventory and scooped up space where they could find it in anticipation of the tariff, combined with their reluctance to ship product without prepayment to the two financially ailing department store chains, Belden said.

But recently, the prospect of new tariffs has not had the same effect.

"I haven't seen any pullback in the number of property tours or interested parties," Belden said, adding that most logistics companies and distributors are more concerned about finding available labor, especially drivers. "I've seen a slight pullback in consummated transactions, but that may be a function of a lack of available inventory."

"But if Trump blows up NAFTA, everything I just said goes out the door," Belden said.

Should a proper trade war break out, the impact among industrial real estate may vary by city.

"Population markets have insulation versus a market that is more about serving the population elsewhere," Kendall said. "Some of these markets like Memphis that are big hubs for UPS and FedEx that service national distribution, they may feel more of an impact than primary markets."

Take Southern California, the country’s largest industrial market, for example.

Earnhart noted that one local client, a well-known car windshield installation company, told him late last year that its Chinese supplier, which had previously shipped windshields from China to Southern California, had recently purchased a former auto manufacturing plant in his hometown of Dayton, OH.

Now, 60 percent of the local company's windshields come to its Inland Empire distribution center from Dayton.

"No matter where those windshields are made, they're being warehoused here because this is where all the people live," Earnhart said.

Not everyone is worried about tariffs. Some are optimistic that domestic production picks up where foreign production drops off. Others are betting that the threat of tariffs is just a negotiation strategy that won’t become reality.

For now, Kendall agrees, most industrial real estate stakeholders will take a measured approach, as he recalled discussion of a trade war that never came to fruition last year.

"We have seen this enough before where there’s an overreaction to what happens," he said. "People are almost getting jaded by all this news and are thinking I just need to focus on what actually happens. Until we see an impact, we aren’t going to change our business plans."

As for Callahan, he agrees: "There are always issues to deal with, but we are optimistic about the future."

Neumann Finance Company Leases Space on Philadelphia's Broad Street

Neumann Finance Company has signed a 10-year lease for 21,695 square feet in the office building at 123 S. Broad St. in Philadelphia, PA.

The 30-story building totals 892,282 square feet in the Market Street East submarket. The property delivered in 1927, with a renovation completed in 1989.

Neumann’s lease includes the 17th floor. Other tenants in the tower include Wells Fargo, SSH Real Estate and Hill & Associates.

Sly Fox Brewing to open new Berks County location

By Donna Rovins, The Mercury
 Sly Fox Brewing Co. is expanding again — this time into Berks County.

The company announced Wednesday that it will be opening a third location in Wyomissing, in a renovated building that was formerly part of the VF Outlets.

The newest Sly Fox outpost will be located at 801 Hill Ave. in a building that most recently housed a Dooney & Bourke retail store.

“It’s very exciting. We think it’s going to be a great set-up,” John Giannopoulos, Sly Fox Brewing Co. president said in an interview Wednesday. “We want to further enhance our brand and get people more familiar with it. We look forward to immersing ourselves in the community. I feel really good about the area.” He added that Sly Fox plans to work with local charities and will create activities at the new location.

Philadelphia-based Equus Capital Partners purchased the 24-acre center from Vanity Fair Corporation at the end of 2016 with the intention of redeveloping it as a mixed-use campus. Equus has committed more than $70M into Phase I of the Knitting Mills, and Phase II, a 20-acre site north of the main campus, has already attracted corporate tenants interested in new construction build-to-suit offices, according to a press release.

In addition to retaining the retail outlets and McDonald’s, the campus will be anchored by a new Wawa and corporate office users such as UGI Services’ regional headquarters and Tower Health’s corporate offices.
Full story:

PREIT CEO says diversified shopping Malls are Key (Video)

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3 NJ Industrial Buildings Recently Trade for $7.6M

by Steve Lubetkin,

  • 9240 Commerce Highway, Pennsauken, NJ was sold for $3.25 million to a private investor. The building is a 67,600 square foot multi-tenant warehouse.
  •  6995 Airport Highway Lane, Pennsauken, NJ, a 60,800 square-foot manufacturing facility, was sold for $2.74 million to Heat Makers Sense, a Brooklyn, NY, hair care products distributor
  • 9265 Commerce Highway, Pennsauken, NJ, a 33,500 square-foot single tenant warehouse purchased for $1.69 million by Draco Broadcast. Draco Broadcast, based in Silicon Valley, CA, is expanding and wanted an East Coast Operation. They provide professional-grade equipment for the video and broadcast industry. The building features 5 loading docks, 3 drive-in doors and 18’-20’ ceilings.

Wednesday, April 4, 2018

NJ Industrial Vacancies At Historic Lows

by Steve Lubetkin,

The Northern and Central New Jersey industrial market started red hot once again in 2018, with continued robust demand, healthy development activity, and further occupancy gains.

“As the New Jersey industrial market lies within the largest consumer base and one of the busiest ports of entry in the United States, market fundamentals should remain strong throughout the year. We anticipate that leasing totals will remain on pace with previous recent quarters, as some large deals are expected to close in the coming months, helping to further bolster absorption. And while some geopolitical issues are evident, demand for space is so robust that the local industrial market may see even more growth in 2018.”

Due to strong leasing activity throughout most of the key submarkets, overall vacancy in Northern and Central New Jersey fell another 20 basis points to 3.6 percent. For warehouse space, vacancy reached another historic low of 3.5 percent, down 90 basis points year-over-year. Many of the primary Turnpike submarkets south of Exit 13 experienced quarterly declines in vacancy, while Exit 8A’s vacancy for warehouse and development (W/D) space ticked lower by 40 basis points to 1.5 percent, with the Lower 287 Corridor’s vacancy rate falling 140 basis points since the end of 2017. And the Upper 287 Corridor now boasts a vacancy rate 0.7 percent for warehouse space, the lowest in the Garden State (down 610 basis points over the last two years).

The industrial market posted another 3.9 million square feet of net absorption during the Q1, marking the fourth straight quarter in which New Jersey has experienced more than 3.8 million square feet of net occupancy gains.

The robust absorption totals for Q1 stem not just from healthy demand within existing product, but also the deliveries of leased up new construction, with much of the positive quarterly absorption concentrated in Central New Jersey. The Lower 287, Exit 8A, and Upper 287 markets accounted for 3.2 million square feet of the total.

Price says that another 2.5 million square feet of industrial product was delivered in Q1 — predominantly in Central New Jersey — with 68 percent of the new product already leased. The largest project was a 305,020-square foot warehouse in Exit 8A by Adler Development. Meanwhile in Northern New Jersey, Snow Joe recently committed to a full-building lease of the newly constructed 271,195-square foot warehouse at 100 Performance Drive in Mahwah.

Even with these new deliveries, another 8.5 million square feet of industrial product is under construction, of which 54 percent has already been leased up. The bulk of the new developments (4.7 million square feet) are in traditional industrial corridors — Exit 8A or Upper 287 — but with space being gobbled up in those areas, two large developments have now broken ground further west. More than 515,000 square feet is under construction in Totowa at 150 Totowa Road, while more than 510,000 square feet is being built in Hillsborough at the Midpoint Logistics Center. Both projects are being built on spec.

Approximately 6.4 million square feet of new transactions were completed in the first three months of the year, with Exit 8A and the Lower 287 Corridor (exits 10-12) both recording sharp quarterly increases in tenant demand (at 1.2 million square feet and 1.4 million square feet, respectively). Interest in the Upper 287 submarket remained healthy as another 646,000 square feet of industrial space was leased up, bringing its total for the last year to almost 3.0 million square feet.

Meanwhile, the Meadowlands submarket remained a premier destination due mainly to its proximity to New York City, having recorded 760,000 square feet of transactions during Q1, on par with the previous few quarters.

Eight new leases greater than 200,000 square feet were signed throughout New Jersey this quarter, much of which occurred between Exit 8A and Exit 14. Logistics companies represented many of the larger transactions, as they expand in the area to help support the growing eCommerce boom.

The largest deals inked during Q1 included:

  • TJ Maxx’s 459,000-square foot at 50 Bryla Street in Carteret
  • Asian eCommerce solutions provider 4PX Logistics’ 354,302-square foot lease at 1000 High Street in Perth Amboy
  • US E Logistics’ 340,000-square foot lease at 100 Cranbury South River Road in South Brunswick
  • XPO Logistics’ 8A expansion, leasing 296,000 square feet and 175,453 square feet at Buildings 1 and 3 at Park 130
  • Hall’s Warehouse’s full-building 278,000-square foot lease on Access Road in Piscataway

Because of robust demand and dwindling supply, asking rents once again ticked even higher. New Jersey experienced a 9.2 percent increase in average asking rents for industrial space over the last year, ending Q1 at $8.21 per square foot, another historical high. For warehouse space, the annual increase was even more notable, at 14.3 percent, bringing rents to $7.93 per square foot, new heights for W/D space. In addition, the Meadowlands rents ticked nominally higher to $10.41 per square foot since the close of 2017, while the Port Region, Upper 287 Corridor, Lower 287, and Morris County all experienced quarterly rises in average asking rents for warehouse space.

Barring unforeseen events, the overall Northern and Central New Jersey industrial market is poised for another banner year, although the rate of growth may temper slightly.

“Despite some large blocks of space potentially becoming vacant later in the year, demand should offset much of the new availabilities and speculative development,” he says. “And while asking rents in the core submarkets are projected to rise further, they could begin to grow at a more moderate pace due to the lack of available, modern, class A space. Finally, developments will persist along the NJ Turnpike and a little further west. The strong appetite for modern warehouse space will likely continue to keep occupancy rates high in newly built facilities.”

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