Monday, July 30, 2018

PREIT Signs 1776 To Lease For Incubator Space In Cherry Hill Mall

Matthew Rothstein, Bisnow Philadelphia

The changing retail landscape and the explosion of coworking have collided in South Jersey.

PREIT has signed coworking and incubator operator 1776 to an 11K SF lease in Cherry Hill Mall for what the latter is calling more of an incubator than a pure coworking location, the Philadelphia Inquirer reports. It is the first lease 1776 has signed in a retail location, and the first coworking tenant PREIT has signed at any of its 21 malls. 1776 expects to the location to open in November.

 Based in Philadelphia after a merger with Philly-based Benjamin's Desk, 1776 seeks to stand apart from the more straightforward coworking operators by focusing on building a network of entrepreneurs and collaborators with potential investors and/or partners. Originally founded in Washington, D.C., 1776 hopes to curate a mix of retail-focused endeavors in Cherry Hill and give them direct access to retailers and consumers for their ideas.

Calling the lease "a wave of the future," PREIT CEO Joe Coradino told the Inquirer that it speaks to the "complete transformation" of what tenants are acceptable within the mall ecosystem. The deal isn't quite the first of its kind, as Bespoke has operated a space within the Westfield San Francisco Centre since 2015, but it is on the bleeding edge of creative uses for otherwise tough-to-fill mall space.

The 1.3M SF Cherry Hill Mall, with its 96.5% occupancy, is among the three best-performing malls in the Greater Philadelphia area, along with the King of Prussia Mall and Christiana Mall in Newark, Delaware, giving PREIT the comfort level and the draw with potential tenants to test out such a concept, though Coradino told the Inquirer it is far from done. “Coworking and business incubation will become a regular part of our business going forward,” Coradino said.

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Thursday, July 26, 2018

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Airbnb Model to Help the Shortage of Industrial Warehouse Space?

Chuck Sudo, Bisnow Chicago
With e-commerce exploding — it accounted for nearly 13% of total retail sales last year and is expected to grow to 17% by 2022 — it may seem like a sure bet to get into the space. List goods online, find a warehouse, ship to your customers, money rolls in, right? Not so easy if you are a small e-tailer. The majority of e-commerce distribution is dominated by Amazon and other e-tailers capable of absorbing scale, while smaller companies can be stuck scrambling for ways to fulfill their orders. Most often, these small companies find themselves distributing their inventory to fulfillment centers controlled by the big e-commerce companies, which increases costs that are passed down to the consumer. Can the sharing economy provide an answer?

The impact of e-commerce on the performance of industrial real estate is in the numbers. Q1 2018 National Industrial Market report revealed 5.2% overall vacancy, and over 101M SF of new warehouse construction brought to market in 2018’s first half. Nearly 1B SF of new warehouse supply has entered the market from 2014 through the end of the year, yet analysts believe demand will continue to outstrip supply.  "There is a sea change in the way companies are implementing their distribution business, and it's requiring additional warehouse space, which is really being driven by the Amazon model. This has had a direct impact on the demand for space." There are too many tenants and not enough property. One solution may be to bring the Airbnb model to the $163B warehousing business. Startups like Flexe and Stord connect businesses in need of warehouse space with warehouses with excess capacity. There is room in the warehousing industry for startups like Flexe and Stord. Flexe commissioned a survey of over 100 warehouse executives across a variety of businesses — of which 63% earned over $100M in revenue — to determine the percentage of actual utilization of space versus occupancy.

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Monday, July 23, 2018

New York Becoming Biomedical R&D HUB

Drugmaker Pfizer Inc.'s plans to relocate its headquarters to New York's Hudson Yards neighborhood in coming years is clearing space near Grand Central Station for a fast-growing yet little-noticed sector of New York real estate: laboratory space for medical and biotechnology research.

A lack of available, well-located lab space outside of a limited number of buildings has led to pent-up demand from the life sciences industry in the largest U.S. city, according to Jonathan Schiffrin.

"New York City has all of the demand drivers to create a vibrant life sciences cluster including a highly-educated workforce, government support, existing buildings with permissive zoning and lab conversion potential, and life science venture capital firms," Schiffrin said. "As Boston’s lab market, specifically Cambridge, is at capacity for both wet lab space and highly-skilled talent, landlords and tenants have had no choice but to look to other cities in order to expand."

Life science companies are making moves in a still tiny but surging sector of demand for Manhattan commercial real estate that analysts say has been under the radar.

These tenants currently occupy about 303,483 square feet of space in Manhattan, according to CoStar research, with nearly 40 percent, or 119,807 square feet, of those leases signed since 2015. By comparison, Manhattan has almost 564.8 million square feet of total office space and more than 298.4 million square feet of retail space, a disparity that analysts say indicates huge untapped potential space for the life sciences industry in coming years.

The small amount of research space can't keep up with demand from New York City’s well-known biomedical institutions and research centers: Cornell Weill Medicine; Rockefeller University; Memorial Sloan Kettering; and New York University, said William Hartman, executive managing director at real estate services firm Cushman & Wakefield. "It is a very different environment compared to five years ago," he noted.

Hartman added that for life-sciences, "At the moment there is nowhere for them to go, so everyone is trying to answer that. In New York City, we are in the second inning of a nine-inning game. We expect it will lead to internal growth for the city."

That demand can be seen in Pfizer's relocation to the Hudson Yards neighborhood. The biopharmaceutical giant sold both sets of buildings that comprise its global headquarters, at 219 and 235 E. 42nd St. in the Grand Central submarket, for $365 million, according to CoStar data.
Following Pfizer’s exit from 219 E. 42nd St., the building will be transformed into a life-sciences center, said John H. Cunningham, executive vice president and New York City regional market director at Alexandria Real Estate Equities Inc.

Cunningham said the REIT has been working "to attract entities from all over the world to New York City and to provide these companies with affordable, high-quality laboratory and office space."

Specializing in life-sciences and technology campuses, the REIT is responsible for the Alexandria Center for Life Science in Manhattan, an office park comprising two towers at 430 and 450 E. 29th St.

Hartman said that a decade ago, then-Mayor Michael Bloomberg kicked off efforts to lure more labs by issuing a request for proposals for development of the site on East 29th Street that Alexandria won.

"People thought they were crazy at the time, because life-sciences tenants had been going to Boston and San Francisco because those cities had the infrastructure and talent to support development of the sector," he explained.

Now the buildings, which span about 738,000 square feet, are fully-leased to research and development, manufacturing and pharmaceutical tenants, according to CoStar data. The New York University Proteomics Laboratory, Eli Lilly & Co. and Kadmon Pharmaceuticals are among the center’s largest tenants.

Since The Alexandria Center opened, major Manhattan developers have targeted science and technology tenants with projects in the works, brokers say. These tenants need a particular class of space, with large, column-free floorplates, that is difficult to find in Manhattan and in most cases needs to be repositioned or built new.

Developers Taconic and Silverstein Properties are teaming to reposition a 10-story office building at 619 W. 54th St. into the Hudson Research Center, which will result in 150,000 square feet of office space for research laboratories.
And developers Related and Vornado are reportedly considering a life sciences project for the Farley Station project called the Moynihan Research Center. Janus Property Co. is building a 300,000-square-foot, LEED-certified office building focused on innovative businesses at the site of the Taystee bread factory in West Harlem.

"In New York City, it is still early on because this space is expensive to build and hard to build," said Hartman. "The ceiling heights are very high and require heavier floorplate loads, plus the HVAC and electricity have to be upgraded. Most office buildings in New York City have 12-foot ceilings but a modern lab building has ceiling heights of 14 feet-plus."

Building out this class of space is capital intensive, but landlords have become comfortable with this use because of other advantages to labs and research space, said Schiffrin. Rents and concessions are higher to offset increased infrastructure costs and, "Not only do life science installations have high residual value, but corresponding tenants tend to be 'sticky' in their spaces because of the high installation costs," he said.

Recently opened life science incubators such as Johnson & Johnson’s JLabs, Biolabs and Alexandria’s LaunchLabs, comprising about 100,000 rentable square feet of incubation space, will begin to cultivate maturing companies that will soon need space in New York City, added Schiffrin.

Meanwhile, Cornell is building a 12-acre Tech Campus on Roosevelt Island for graduate students in the fields of research, technology and computer science, as well as the Tata Innovation Center – a 240,000-square foot office property catering to both startups and established science and technology tenants. And a 126-room hotel is even in the works to accommodate business and university travel.

On July 19, New York Gov. Andrew Cuomo said IndiBio, a San Francisco-based life sciences accelerator, would open in New York City in 2019 with both state and city funding. And New York State’s fiscal 2018 budget includes a $620 million initiative to spur the growth of "a world-class life science research cluster in New York."

Funding by the National Institutes of Health (NIH) to medical and research institutions in Manhattan’s congressional districts 12 and 13 has totaled more than $1 billion annually since 2013, and is increasing. New York State has seven of the top 50 U.S. biomedical research institutions.

NIH funding can indirectly increase demand for space, said Hartman. Recent examples in the city include leases and expansions in New York City by medical institutions including the Hospital for Special Surgery, Mount Sinai and New York Presbyterian.

Venture capital firms have also been willing to invest in life-science businesses, Hartman noted. "It is an exciting time to be in the business because it is growing, with the emergence of new technologies and treatments in oncology, neuroscience, medicine, for instance," he said.

Sunday, July 22, 2018

China's Commercial property market (Video)

CBRE on China's property market from CNBC.

Brandywine picks up another site in University City

Natalie Kostelni Reporter Philadelphia Business Journal
Brandywine Realty Trust took another step forward on its Schuylkill Yards project by adding to its portfolio of properties in the University City neighborhood of Philadelphia by paying $20.9 million for 3025 John F. Kennedy Blvd.

The Philadelphia real estate investment trust bought a leasehold interest in the 1-acre parcel and additional development rights, it said in announcing its second quarter earning results.

The property is now a surface parking lot and will be part of the first phase of Schuylkill Yards, a $3.5 billion new neighborhood it is developing in partnership with Drexel University. The development is expected to be constructed over the next two decades and aims to create a community focused on innovation.

Brandywine has been picking up properties in that part of University City during the last couple of years. Earlier this year, it acquired a leasehold interest in another 1-acre lot located at 3001-3003 John F. Kennedy Blvd. for $24.6 million. That site is also a parking lot. 

Full story:

Falls Center hits a major benchmark for Iron Stone

Natalie Kostelni Reporter Philadelphia Business Journal
When Iron Stone Real Estate bought the former Medical College of Pennsylvania at 3300 Henry Ave. in the East Falls neighborhood of Philadelphia, it envisioned filling its five main, empty buildings totaling 700,000 square feet with office and medical uses.

That was a big lift but when the real estate company switched its focus to mixed-use, it found the burden was a bit easier to tackle though it took some time and patience. It’s been 12 years and what is known as Falls Center has reached a major milestone in its repositioning.

“We are nearing 100 percent occupancy,” said Jason Friedland of Iron Stone. “This will be the first time but for some small space, it is full.”

While the company was able to successfully attract a mix of tenants to the space, significant inroads were made in 2009 when Iron Stone was able to take 180,000 square feet and convert it into student housing for Philadelphia University. When the school was acquired last year by Jefferson University, the school gave notice it no longer needed the student housing. This gave Iron Stone a chance to renovate the space into 131 market-rate apartments and brand it as the Preston at Falls Center. That project is costing $3 million and will be completed this summer.
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Friday, July 20, 2018

Net Lease Investors Drive $129M In Q1 Q2 2018 Property Sales

Passive investors attracted to the low-risk profile of net lease investments helped Mid-Atlantic Net-Lease brokerage notch sales of 58 properties during the first half of 2018, totaling more than $129.7 million

The 58 properties, most classified as “net lease”, were a mix of restaurants, convenience stores/gas stations, discount stores, daycares, auto parts stores, bank branches and drug stores spanning across 10 states, including 39 properties in Pennsylvania and seven in New Jersey.

“The appetite for net lease assets remains strong even as the market is in flux because this product type is still the safest bet for low-risk passive investors.
Closing transactions in current market conditions requires an excellent job of educating clients, keeping them in tune with the market and allowing them to make informed business decisions. Being able to do these things effectively is what sets us apart from the competition.”

Notable transactions included a $10 million-dollar sale of a Capital One Bank branch in Brooklyn, NY; a 13-property sale/leaseback portfolio totaling $41,675,000; a $6 million-dollar sale of a new construction Wawa store on South Street in Philadelphia, PA; and a $5 million-dollar Outback and Carrabba’s property in Turnersville, NJ.

 The team specializes in the marketing and sale of single and multi-tenant net-lease investment real estate. In their thirteen-year history, the team has sold more than $1.75 billion in net lease properties nationwide.

H. Katz JV of PA has purchased more than $1B in properties since November 2014.

by John Jordan,
Coastal Ridge Real Estate continues its expansion of its Florida student housing/multifamily portfolio with the purchase of the Coastal Village Apartments complex here. The deal puts the Columbus, OH-based firm over the $500-million threshold in deals over the past 12 months.
The company’s latest purchase was conducted with joint venture partner H. Katz Capital of Southampton, PA. The partners acquired the 200-unit, 800-bed student housing community at 19401 Skidmore Way in Fort Myers for $44 million. The 21-acre property was sold to the Coastal Ridge/H. Katz venture by an undisclosed seller, which was represented by Kevin Larimer, Greg Gonzales, Jason Stanton and Cole Whitaker of Berkadia.

The Coastal Ridge/H. Katz joint venture has purchased more than $1 billion in properties since its inception in November 2014.
Built in 2004, Coastal Village Apartments offers 200 four-bedroom/ four-bathroom units with rents ranging from $575 to $645 per unit. The property is located minutes from Florida Gulf Coast University. The community features a lakeside pool, barbeque and picnic area, clubhouse with media room, 24-hour fitness center, 24-hour resident lounge, sand volleyball court and 24-hour computer lab. Fully furnished unit amenities include private bathrooms, private room locks, washer and dryer, patios and balconies, large closets, high speed internet and lake views.

“Coastal Ridge has continued to strategically grow its portfolio in Florida,” says Patrick McBride, managing partner of Coastal Ridge Real Estate. “Coastal Village Apartments provided us the opportunity to acquire a value-add community in a supply constrained market where the student population is expected to grow for years to come.”

The Coastal Ridge/H. Katz Capital joint venture has been very active in the Florida market this year. In March, Coastal Ridge and H. Katz Capital acquired Spectra, a 324-unit Class A multi-family community located on 32.5 acres at 5500 Spectra Circle in Fort Myers from Stock Development for $71 million.

The deal was the 20th joint venture acquisition by the Coastal Ridge and H. Katz Capital partnership. The acquisition came a little more than a week after the joint venture acquired Campus Lodge, a 360-unit, 1,115-bed student housing community in Gainesville, FL.

Last October, Coastal Ridge, in partnership with H. Katz Capital, acquired The Preserve at Forest Creek, a 414-unit, Class A apartment community located at 9230 Thornbury Boulevard in Memphis from LivCor, a wholly owned subsidiary of Blackstone, for approximately $56.6 million. The deal marked Coastal Ridge’s first acquisition in Tennessee.

Dalzell Capital Adds Waverly Court to Growing Portfolio of Philadelphia Apts.

Dalzell Capital Partners, a Westport, Connecticut-based real estate investment and management firm led by former Starwood Capital Group executive Christian Dalzell, acquired Waverly Court Apts. in Philadelphia from Yess Properties for $21 million, or approximately $344,262 per unit.

Located on the southwest corner of 13th St. and Waverly Court in the Washington Square West submarket, the 60,000-square-foot complex includes 61 loft-style apartments and a 2,800-square-foot restaurant space leased to Urban Outfitters-owned Amis Trattoria. Kenneth Mallin of MPN Realty represented Yess Properties in the transaction.

Waverly Court is Dalzell Capital’s third acquisition in the Center City Philadelphia area in less than a year and its largest deal to date. The firm has acquired several smaller apartment properties in the market, including the 35-unit 1430 South St. for $10.8 million in August 2017, and 514 South St. a 33-unit multifamily property for $10.35 million in December 2017.

"We believe the strengthening Philadelphia job market and accelerating household growth, combined with our differentiated product and service-oriented offering, will generate consistently high occupancies, sticky tenancy and above average rent growth," said Christian Dalzell, Dalzell Capital Partners’ managing member, in a statement announcing the acquisition.

Dalzell Capital also controls and manages apartments in Norwalk and Glastonbury, Connecticut, and recently acquired partial interest shares in three properties located in the Greensboro/Winston-Salem region of North Carolina.

Capital Markets Not Ignoring the Retail Sector

While office and hotel properties have been favorites in the capital markets this year, the turbulent retail sector has not been left out. That's been the case this week with details emerging on major mall refinancings from two retail real estate investment trusts.

GGP, formerly General Growth Properties, has completed a $500 million refinancing of Christiana Mall in Delaware; and details on a $450 million refinancing of the Macerich-owned Broadway Plaza have also come to light.

Out of 50 single-borrower, mortgage-backed bond deals totaling $25.8 billion issued this year, retail properties account for $4.45 billion, or 17 percent, according to CoStar data.

The property sector has accounted for even bigger share in multi-borrower deals issued this year, almost 26 percent of more than $13 billion, according to Kroll Bond Rating Agency, known as KBRA.

GGP is the latest to take advantage of interest in securitizing single-borrower deals. Institutions including Barclays Bank, Deutsche Bank, and Société Générale provided $550 million in financing on GGP's interests in 533,772 square feet of Christiana Mall, a mostly single-story, 1.3 million-square-foot, super-regional mall located directly off Interstate 95 in Newark, Delaware, 40 miles southwest of Philadelphia's central business district. The fixed-rate loan requires interest-only payments and has a 10-year term.

GGP owns the mall in a joint venture with Morgan Stanley Prime Property Fund.

The mortgage loan was used to refinance $226.3 million of existing mortgage debt that was previously securitized in a 2011 bond offering and coming due in 2020. The new loan also returned $309.8 million of equity to GGP and Morgan Stanley.

Anchoring the mall are Nordstrom, Cabela's, Target, Macy's, JCPenney and a 12-screen Cinemark Theater. They make up most of the remainder of the square footage.

Christiana Mall is a major mall between Philadelphia and Baltimore, and a dominant mall in Delaware. As a result, the asset can attract more than 20 million visitors annually, with an estimated 50 percent from out of state. The mall's location, about 10 miles from three different state lines, allows out-of-state shoppers to benefit from Delaware's tax-free retail shopping.

A $400 million portion of the loan is being securitized in a new bond offering.

KBRA is one of the agencies rating the bond offering. The results of its analysis yielded a KBRA net cash flow of $42.5 million. To value the property, KBRA applied a capitalization rate of 7 percent to arrive at a value of $606.9 million.

Meanwhile, Macerich turned to life insurers to refinance its Broadway Plaza, an open-air lifestyle retail center in Walnut Creek, California.

MetLife Investment Management and Northwestern Mutual provided $450 million in financing for the 958,000-square-foot retail hub anchored by Nordstrom, Neiman Marcus and Macy's. The mall is 98 percent leased with sizeable new additions under development. The center is in close proximity to some of the most affluent neighborhoods in the San Francisco Bay Area.

The 12-year loan bears interest at an effective rate of 4.19 percent and matures in April 2030. Macerich used its share of the proceeds to pay down its line of credit and for general corporate purposes. An affiliate of Northwestern Mutual Life is a joint venture partner in the mall.

Wednesday, July 18, 2018

Air Products will move HQ

by  Andrew Wagaman Contact Reporter Of The Morning Call

ith facilities in 50 countries around the world, Air Products truly has a global footprint.

As for that new corporate headquarters? The Trexlertown industrial gas company will build it on a property it once owned, about 2,000 steps away from its sprawling 235-acre campus.

Air Products told employees Tuesday morning that it will build an approximately 10-story office building, an enclosed parking garage with a running track on the roof, and a research and development facility on 53 acres along Mill Creek Road in Upper Macungie Township.

The announcement officially reaffirms the Fortune 500 company’s commitment to the Lehigh Valley 70 years after it arrived in the region

The site, which developer David Jaindl owns under agreement with Liberty Property Trust, is bounded by Grange Road and the Route 222 bypass to the north and is just east of the Uline industrial complex on Mill Creek and Uline Way. It’s one mile east of Air Products’ campus at 7201 Hamilton Blvd.

The company expects to break ground in March and hopes to occupy the complex by summer 2021. The company did not disclose a cost estimate for the project Tuesday.

"The decision to leave our current headquarters location, with its rich history, was not one we made lightly,” President and CEO Seifi Ghasemi said in a news release. “But we believe our new location will afford us a special opportunity to modernize and optimize our office space and R&D facilities and invest in a work environment that motivates and energizes our employees.

“As a global company operating in more than 50 countries, this new headquarters will reflect the safety, speed, simplicity and self-confidence that move us forward as a world-leading industrial gas company,” he said.

Employees will continue to work on its existing campus during construction and completion of the new facilities, but the company also will put the Trexlertown campus up for sale.

The company has about 2,250 employees in the Lehigh Valley, and most of them are based at the Trexlertown campus. The new location will be the base for about 2,000 employees, with “capacity for growth,” the company said.

Air Products employs about 15,000 people worldwide.
We’re obviously elated,” said James Brunell, chairman of the Upper Macungie Township Board of Supervisors. “They’ve been an excellent resident in the township and we are ecstatic that they have decided to stay in the township.”

Township Manager Robert Ibach said Air Products has not yet submitted official development plans.

Construction of the existing campus began in the mid-1950s after founder Leonard Parker Pool relocated the company from Chattanooga, Tenn. He began the company in 1940 in Detroit.

Ghasemi said its headquarters, with 1.5 million square feet of office space and labs, is old and expensive to maintain — more than $20 million annually, according to an interview last year. A big believer in culture and perception, he also dislikes all the empty space in the administration building, given Air Products’ reputation as a “progressive company” that designs state-of-the-art facilities for clients around the world.

“We should have a headquarters that reflects the technology of today,” he said last October. “The environment subconsciously affects your sense of pride in the company, and that’s very important to maintain.”

Air Products told employees it was exploring options for a modernized headquarters in the Lehigh Valley in April 2017. The company considered renovating its campus, building on a nearby site, relocating to a property surrounding the Promenade Shops in Upper Saucon Township and moving to the Neighborhood Improvement Zone in downtown Allentown.

In December, it eliminated Allentown as a potential location because executives decided no sites had the right space for its research labs.

Regardless of the site, Ghasemi indicated the headquarters design would feature consolidated operations in a taller office building. In February, Upper Macungie’s Board of Supervisors adopted a rule allowing developers to construct office buildings as tall as 150 feet, triple the previous limit of 50 feet, in the township’s light industrial park and limited light industrial park zoning districts.
Full story:

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Monday, July 16, 2018

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Philly & S NJ See Moderate Gains In Q2 2018

by Steve Lubetkin,
The Southern New Jersey market remains in good shape, making moderate gains and showing strong fundamentals. The firm believes the market may be poised for strong growth as benefits of the new tax law begin to materialize.
“Our market continues to show quiet strength and may take off as consumers and businesses feel the effects of lower tax rates. We expect the new law to be a net positive for overall economic growth in 2018 and be especially beneficial to the commercial real estate industry.”

There were approximately 303,656 square feet of new leases and renewals executed in the three counties surveyed (Burlington, Camden and Gloucester), a gain of about 10% over the previous quarter. Leasing picked up, and the sales market stayed active, with about 1.46 million square feet on the market or under agreement and an additional 317,961 square feet trading hands.
New leasing activity accounted for approximately 61.4% of all deals. Overall, net absorption for the quarter was in the range of approximately 253,000 square feet.

Other office market highlights from the report:

  • Overall vacancy in the market is now approximately 10.4%, which is nearly one point better than the previous quarter.
  • Average rents for class A and B product continue to show strong support in the range of $10.00-$15.00 per square foot triple net or $20.00-$25.00 per square foot gross for the deals completed during the quarter. These averages have stayed near this range for most of 2018, though they are trending a bit higher.
  • Vacancy in Camden County improved dramatically, to 11.6% for the quarter.
  • Burlington County vacancy was at 9.2%, which was also lower than the first quarter.

The Southeastern Pennsylvania reports on transactions, rates, and news from Philadelphia and the suburbs. Highlights from the second quarter in Pennsylvania include:

  • Philadelphia’s office market vacancy rate was unchanged during Q2 2018, though positive absorption was 547,339 square feet, a 20% improvement over the first quarter. Vacancy rates for class A properties stood at 10.5%, while class C properties had vacancy of 5.5%.
  • Average asking rent across all office property classes in the Philadelphia market was $22.72 per square foot in the second quarter. Within the CBD it was $29.64 per square foot.
  • There are about 3.8 million square feet of office space currently under construction in Philadelphia. During the second quarter 590,632 new square feet became available via completed new construction.
  • Philadelphia’s retail market is moving in the right direction. Average asking rents have jumped the past few quarters, net positive absorption was 909,884 square feet, and retail vacancy rates ticked down to 4.4%.
  • Industrial vacancy in Southeastern Pennsylvania was down to 5.6%. The market saw positive net absorption of more than 6.6 million square feet.

The Southern New Jersey and Philadelphia retail market highlights. The second quarter saw a drop in consumer confidence as well as a generally positive outlook for consumer spending, buoyed by a strong job market. Other highlights from the retail section of the report include:

  • Retail vacancy in Camden County stood at 7.7%, with average rents in the range of $13.75 per square foot triple net.
  • Retail vacancy in Burlington County stood at 9.8%, with average rents in the range of $14.59 per square foot triple net.
  • Retail vacancy in Gloucester County stood at 7.4%, with average rents in the range of $14.74 per square foot triple net.

Sunday, July 15, 2018

Repeat Institutional Borrowers Heating up Commercial Mortgage Bond Market

The commercial mortgage backed securities (CMBS) market has heated up since summer kicked off, with 39 new deals emerging since June 1. In a recent twist, the market is seeing institutional investors packaging property loans in a new CMBS to refinance portfolios that had been previously financed in the CMBS market.

Private-label, single-borrower deals backing portfolios from Workspace Property Trust and Millennium Partners are the two latest examples of the trend this week. They join deals backing Greenfield Partners and Brookfield Asset Managementproperties, which we reported on in the past two weeks.

In June, CMBS private-label pricing volume totaled $11.5 billion, the highest monthly volume the market has seen since February 2015, according to Kroll Bond Rating Agency (KBRA). June's robust volume brings the year-to-date total to $40.3 billion, up 18.4 percent year-over-year.

"Based on the forward pipeline, it doesn't look like the CMBS market will be on summer break for the next few weeks," KBRA analyst reported. "We are aware of as many as a dozen single-borrowers, including several single-asset deals and up to six conduits that are expected to announce through the first week of August."

There is not much visibility of deal flow through the remainder of August, KBRA reported, adding that perhaps that is when deal flow could cool off.

Morningstar CMBS analysts reported this week that borrowers seeking to lock in low rates are one source for the increased activity. In addition, a growing number of yield-hungry investors tied to large projects that may be viewed as too capital-intensive by bank lenders have turned to the CMBS market -- or in the case of Workspace Property Trust and Millenium Partners, turned to it again.

Last month, Morgan Stanley originated a $710 million fixed-rate debt package on eight retail and office properties owned by a joint venture led by Millennium Partners. The investment banker is securitizing a portion of the long-term debt, which will likely hit the market this month: Morgan Stanley Capital I Trust 2018-MP.

The financing was used to pay off debt on the similarly named Morgan Stanley Capital I Trust 2014-MP, a $463.9 million deal.

At the time of KBRA's last review of the offering in September 2017, the portfolio's value was estimated at $639.6 million and generated annual net cash flow of about $47 million.

J.P. Morgan Chase Commercial Mortgage Securities this week filed preliminary paperwork for a new CMBS offering backing a package of loans on 147 office, flex and retail properties in four states owned by Workspace Property Trust.

Late last month, Workspace Property Trust, a private real estate investment firm led by former Mack-Cali Realty executives Thomas Rizk and Roger Thomas, lined up $1.275 billion in portfolio financing from JP Morgan Chase Bank.

The proceeds from that financing were used to pay off a CMBS loan backed by 108 of Workspace's properties. As of September 2017, KBRA valued that portfolio at $689.9 million and calculated net cash flow at $66.9 million.

New Jersey's Empty Office Park Glut Eases With Merck Headquarters Sale

New Jersey will soon have one less giant, empty suburban office park.

Unicom Corp., a Beverly Hills, CA-based IT company that's part of Unicom Global, said it agreed to buy the former Merck headquarters complex in the Whitehouse Station section of Readington Township, NJ, from Merck Sharpe & Dohme Corp. for an undisclosed amount. It concludes a move started in 2012, when Merck said it was leaving the hexagon-shaped complex spanning 1.24 million square feet on a leafy 1,100-acre campus.

Merck's former headquarters site is one of a number of large suburban office parks, and corporate headquarters, to be left vacant in the past decade in New Jersey. Industry consolidation, rising state and local taxes, and the growing popularity of urban living have driven a number of corporations out of the state -- and helped make office vacancy rates rise. Some of these properties have new owners and tenants, while others sit empty.

"It’s exciting because there’s not a speculative purchaser but basically a corporate user, so it’s pretty good for New Jersey, a really big win.  My God, that’s going to give the economy in western New Jersey a big boost."

Drugmaker Hoffmann-La Roche left its 116-acre campus on the border of the New Jersey communities of Nutley and Clifton, and the site is now a redevelopment called ON3. That mixed-use project has the state’s first private medical school in more than half a century, and other tenants such as retailer Ralph Lauren Corp., medical services provider Quest Diagnostics Inc. and biofabricator Modern Meadow Inc.

And Bell Labs’ 2 million-square-foot former research facility in Holmdel, NJ, has also been transformed into a mixed-use complex called Bell Works.

In contrast, the former headquarters of chemical company BASF Corp. in Mount Olive, NJ, remains vacant. And retailer Toys R Us, which has gone out of business and is liquidating its assets, is putting its headquarters in Wayne, NJ, up for sale.

As for Unicom, the firm did not specify on Thursday how many employees it plans to move to Whitehouse Station. Unicom put the property under contract and initiated due diligence last December and the sale is expected to close in October. The property will be renamed Unicom Science Park I & II and will be used as the company's headquarters for its New York and New Jersey operations.

"We presently have offices in Parsippany and Princeton, so it will be nice to have everyone under one roof," Russ Guzzo, Unicom vice president of sales and marketing, said in an email. "It is unclear the number of employees that will be coming over to the new site at this time, but we have big goals as far as new hires."

Unicom Global consists of more than 40 corporate entities encompassing a range of businesses. It has acquired a number of products and business lines from technology company IBM, including System Architect, Focal Point, PurifyPlus, solidDB and the PowerHouse programming language. It is also the parent company of the former GTSI, now named Unicom Government, which it acquired in June 2012. Other major business units include Unicom Systems, offering IBM mainframe software products, and systems integrator Unicom Engineering, formerly NASDAQ: NEI.

The complex consists of 1 Merck Drive, a 992,476-square-foot hexagon-shaped building, and the smaller 2 Merck Drive, a 223,357-square-foot structure, according to CoStar.

James Hughes, professor and dean emeritus of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University, said Bell Lab’s former facility in Holmdel and the Merck former headquarters are both "iconic structures" architecturally.

Merck’s former main headquarters is clad in Spanish granite and features natural light. The building also has a 1,900-vehicle underground garage, Hughes said.

Merck transplanted the site's trees during construction and they are now fully grown in an open area in the hexagon’s center, Hughes said.

"There’s a mature forest in the middle of it," he said.

While studies show millennials are attracted to workplaces located in urban settings near public transit, Hughes said a California-based company like Unicom may be accustomed to its employees commuting to work in cars, or to providing shuttle transportation to workers, making a location in rural Whitehouse Station seem like less of a drawback.

Thursday, July 12, 2018

Logistics Property Construction Surges on a Global Scale

Prologis Inc. said it completed 16 construction projects totaling almost 6.3 million square feet in the first six months of the year, including almost 1.4 million square feet of new logistics space for two tenants at the developer’s 1,800-acre master-planned industrial park in California’s Central Valley.

However, the bulk of the developer’s activity in the first half of the year was outside the United States. Prologis said it finished a new distribution center for Amazon in Mexico City totaling almost 1 million square feet, and a nearly 610,000-square-foot facility in Paris for Cultura, and wrapped up other large projects in Poland, Czech Republic, Italy, Spain and The Netherlands.

In the U.S., the San Francisco-based real estate investment trust, which is the world’s largest owner and developer of logistics buildings, wrapped up a 708,080-square-foot distribution center for Switzerland-based Lindt Chocolate and a 664,000-square-foot warehouse for San Leandro, CA-based mattress maker Zinus, both within its Prologis International Park of Commerce in Tracy, CA.

Prologis also finished construction on a 504,428-square-foot regional distribution building for Home Depot in Cranbury, NJ, and an 80,000-square-foot warehouse for JAS Forwarding in Chicago.

The company expects its development pipeline will flow steadily for the near future. Prologis this week reported started new projects totaling more than 6.2 million square feet with a total expected investment of $475 million in the first six months, including a 567,870-square-foot facility for an unidentified tenant in Tracy and three buildings totaling about 480,000 square feet for tenants in Dulles Commerce Center in Virginia.

Most of the new construction starts are for customers occupying multiple Prologis sites in the U.S. or around the world, the company said.

"Our multi-site customers, many of whom are focused on e-commerce, continue to drive strong results in our build-to-suit business," said Prologis Chief Investment Officer Michael Curless. "Our development activity is focused in major population centers because our customers need facilities close to their end consumers."

In addition to its development projects, Prologis was also active in the mergers and acquisitions during the first half as well, announcing an $8.4 billion merger with Denver-based DCT Industrial Trust Inc. in April. DCT shareholders will vote on the transaction, recommended by the company’s board, at a special meeting scheduled for Aug. 20.

Healthcare Real Estate Strategies (Video)

Wednesday, July 11, 2018

Unique Senior Housing Underway In Cherry Hill

by Steve Lubetkin,
Multifamily developer Pennrose Properties and the Jewish Federation of Southern New Jersey kicked off construction of a novel combination community for seniors and developmentally disabled adults to be called The Commons at Springdale in Cherry Hill, NJ.
Located at 1721 Springdale Road, the project will include 160 new units of high-quality, affordable rental housing for older adults and adults with special needs.

Construction will begin with an initial 80 rental units. Twenty percent of the total units will be designed to support individuals with special needs by creating four smaller “cottages” out of four 1-bedroom units. The cottages will contain a shared common space where individuals can receive access to services and community programming in a safe setting. All units will be set at or below 60 percent of the area median income (AMI), with at least 40 percent set at or below 50 percent of AMI and at least 10 percent set at or below 30 percent of AMI.
Phase one of the project is anticipated to open in the summer of 2019.

The creative use of tax-credit financing plays an important role in making the dual-purpose communities work, according to Jacob Fisher, regional vice president with Pennrose Properties.

“It can take anywhere from 2-1/2 years and up to get a project started,” he says. “The key to this is putting together all the financing pieces and the Low Income Housing Tax Credits, which is a competitive resource allocated by the New Jersey Housing and Mortgage Finance Agency. Pennrose is committed to improving communities and transforming lives with high-quality, affordable housing.”

The Commons at Springdale Road will offer supportive services to residents and programming options available to residents, such as health and wellness, recreational, and arts and culture programs.

“What we didn’t have was housing for special needs adults over 21,” says Brad Molotsky, a partner with the Duane Morris law firm and former executive vice president and general counsel of Brandywine Realty Trust. Molotsky, a Federation vice president, is the father of an adult special needs son. “Once you’re out of the school system when your kid is 21, that whole support structure is gone. If they can’t work, what are they doing other than sitting around watching TV and eating pizza? And so how do you structure a day, and a week, and then a month, and a life for somebody?”

The project required close cooperation between the nonprofit Federation, developer Pennrose, and county and local government.
“This has been something that we’ve been working on for a number of years, looking to provide housing for those with special needs and seniors in one development,” says Cherry Hill Mayor Chuck Cahn. “When you have supportive services like Jewish Federation provides, you can live together, and those that have special needs can live independently, with dignity, as people age in place.”

“The Jewish Federation believes in affordable housing for all and are committed to the independence and support of individuals in need,” says Jennifer Dubrow Weiss, chief executive officer at the Jewish Federation of Southern New Jersey. “We are so excited to offer this type of living for older adults and adults with special needs – it’s the first of its kind in our area – and will promote the relationships and strengths that each bring to our community. The Jewish Federation is so very appreciative of the support of Cherry Hill Township, Camden County, and the overwhelming positive response from our community.”

Financing for the Springdale Road development came from a variety of sources, including $2.407 million in conventional financing, $1 million in Township Affordable Housing Trust Funds, $500,000 in Camden County HOME funds, $1.58 million in Federal Home Loan Bank Affordable Housing Program funds, $1.25 million from the Jewish Federation, and $12.6 million in equity from the sale of 9% Low-Income Housing Tax Credits.

The project sends an important message to the community about policy choices in terms of housing and care projects for seniors and developmentally disabled adults, says Rabbi Lawrence Sernovitz, whose nine-year old son is one of less than 640 people worldwide diagnosed with a rare genetic disorder, familial dysautonomia.

“It’s about making sure that what we do, and the way that we respond is not just local and statewide, but federal policies that are reflective of the diversity of needs in our community,” Sernovitz says. “Let’s make sure that the policies are reflective of the needs and the diversity in our communities.”

Tuesday, July 10, 2018

Duke Realty Experiences High Demand for Properties

In recent times, the demand for modern distribution facilities have been getting a significant boost as the companies are compelled to enhance and renovate their distribution, and production platforms to support the e-commerce business and address a large customer base. Services like same-day delivery are gaining traction and last-mile properties are witnessing a solid increase in asset values.

Duke Realty Corp.’s solid capacity to leverage on this favorable trend has helped it to achieve full occupancy across a number of its properties. Recently, this industrial real estate investment trust (REIT) announced that it completed the leasing of the third building at 33 Logistics Park in Lehigh Valley, PA.

Notably, the property’s strategic location worked on the company’s advantage and thus, Duke Realty could achieve 100% occupancy for this development, spanning 2.7 million square feet. The property is on the east of Lehigh Valley, with access to the highway. Also, it could be connected to I-78, I-81 and I-80 very easily.

33 Logistics Park has three buildings. Out of which, the other two got leased as soon as the construction was completed, one in early 2016 and another in July 2017. All the buildings have been leased by e-commerce and logistics companies.

Duke Realty has another spec industrial building under construction, Central Logistics Park 53, which is located at the west of Lehigh Valley. It is expected to be completed by July 2019.
On the other hand, Sysco Guest Supply and Genera Corporation have renewed leases in Illinois with Duke Realty. With this, the buildings occupied by them, enjoy full occupancy. Specifically, with the renewal, Sysco will continue occupying 93,880 square feet in Carol Stream 370, which is situated at 370 Kimberly Drive. Genera will also continue working from 4220 Meridian Parkway, which is a 192,600-square-foot building in Aurora.

Industrial REITs are sure to scale new heights, with a recovering economy and job market gains, as well as elevated consumption levels. Moreover, with a healthy manufacturing environment and high business inventories, the demand for warehouse and logistics real estate is anticipated to be high, giving significant impetus to industrial REITs like Duke Realty, Prologis Inc. and Liberty Property Trust to flourish.

Per a study by the commercial real estate services firm, in first-quarter 2018, availability fell for 31 straight quarters to 7.3% for the U.S. industrial market. Moreover, with demand surpassing new supply, net asking rents moved up 1.9% in Q1 to $7.01 per square foot, denoting the highest level since 1989.

Moreover, it should be noted that Duke Realty has resorted to the sale of sub-urban office assets and medical-office buildings in the past to transform itself into a domestic-focused industrial property REIT. This augurs well amid the favorable market environment in this asset class.

Campus Apartments Sells 71-Building Student Housing Portfolio for $30.8 Million

Philadelphia-based student housing firm Campus Apartments sold its 71-building Campus Hill Apartments student housing portfolio in Bethlehem, PA for $30.83 million, or about $80,000 per bed.

A private investment facility managed by Hong Kong-based Beacon Assets acquired the 383-bed portfolio from Campus Apartments, which originally acquired the buildings in 2015 for $22.28 million, according to CoStar data.

The buyer also secured $19.45 million in acquisition financing through Paris-based investment bank Natixis. It is a five-year, fixed rate acquisition loan on behalf of the borrower.

All 71 buildings located within the Campus Hill Apartments portfolio are scattered throughout Lehigh University. The student housing portfolio was near full occupancy during the last two academic years. Lehigh University has an enrollment of more than 7,000 students with a growth rate of 25 percent expected throughout the next seven years.

Nahla Capital JV Buys 2000 Market Street Philadelphia For $126M

by Steve Lubetkin,
New York-based real estate private equity firm Nahla Capital, in a joint venture with the merchant banking division of Goldman Sachs, is acquiring 2000 Market Street in Philadelphia, PA from Gemini Rosemont Realty for $126.4 million.
2000 Market Street is a 29-story, 665,000-square-foot class A office and retail building located in Philadelphia’s vibrant Market Street West neighborhood. The transaction adds to Nahla Capital’s growing portfolio of properties in strong urban markets throughout the United States. 2000 Market Street is the firm’s first investment in the Philadelphia market.

“2000 Market Street represents the best class of office space available in Philadelphia’s thriving Market Street West neighborhood and illustrates Nahla Capital’s commitment to expanding in major urban markets throughout the United States,” says Genghis Hadi, managing principal of Nahla Capital. “Philadelphia has become a true destination in recent years and we couldn’t be more excited about becoming a part of this flourishing city through this acquisition.”

2000 Market Street is ideally situated within Philadelphia’s city center as the pace of development accelerates west toward University City.  New ownership plans to upgrade building infrastructure and improve the overall tenant experience at the property.  The asset is more than 90% occupied with long term stable tenants.

Built in 1972, the building is near major transportation hubs including Amtrak’s 30th Street Station and Suburban Station. It is also walking distance to University City, Philadelphia’s culturally diverse academic neighborhood that encompasses some of the city’s best universities, including the University of Pennsylvania and Drexel University. In recent years the city has undergone a major development boom, resulting in the addition of the Comcast Technology Center and a second Comcast tower nearing completion, Cira Centre North and South, and the new Aramark headquarters. It has also become a hotbed for tech and biotech companies and startups, further illustrating the area’s desirability as a live-work destination.

Saturday, July 7, 2018

Recent Philadelphia Leasing Deals

by Steve Lubetkin,
Three office lease were arranged for approximately 11,045 square feet of downtown space with a combined aggregate rental exceeding $1.4 million.
Two companies will relocate to 1608 Walnut Street and a third firm to 1218 Chestnut Street. At 1608 Walnut, the Trust for Public Land has leased approximately 3,600 square feet on the third floor of the 19-story building in a relocation from 1501 Cherry Street. In the second lease at 1608 Walnut, SP Plus Corporation is moving from 1835 Market Street to 1,845 square feet on the eighth floor. At 1218 Chestnut Street. Blackfynn Apex Holdings expanded its offices to 5,600 square feet on the eight floor, from smaller offices at 121 South Broad Street. Blackfynn is a privately-owned life sciences company. SP Plus Corporation is a diverse provider of professional parking, ground transportation, facility maintenance, security, and event logistics services to real estate owners and managers in a wide array of markets.

2Q Philadelphia Office Market Report

by Steve Lubetkin,
The second quarter report on the Philadelphia office market, Market West emerged from the second quarter with net positive absorption, a welcome change from recent history, but largely the result of long-planned relocations of existing tenants.

1735 Market continued to backfill its large blocks: Montgomery McCracken settled in on three floors, opening up the high-rise at 123 South Broad, and Brandywine Global has begun its transition back across the Schuylkill, creating a large block at Cira Centre. Departures and downsizings continue to offset gains, with Four Penn Center now marketing five full floors in the wake of CHUBB’s departure and Equus decamping for Newtown Square’s Ellis Preserve.

In Market East, the Public Ledger Building is poised to reposition as the western portion of the building changes hands and the departure of Health and Human Services to 801 Market creates opportunities to attract a new tenant mix. It is likely that the eastern-facing portion of the building will be redeveloped into residential or hotel. A proposal from the Philadelphia Bar Association and other non-profit partners would bring a new 173,000 square foot office building to 8th and Vine to house the Equal Justice Center, offsetting any inventory reductions at Public Ledger and bringing new ground-up construction product to this part of the city for the first time in decades.

Multifamily Investors Are Getting Used to 'Normal'

It may sound like bad news for the apartment sector: rent growth may stay relatively flat in the second half as vacancies and interest rates climb.

But multifamily analysts insist the sector is going to remain strong over the long-term as investors search for properties to buy. The performance in apartments only seems disappointing, according to sector forecasters, when compared to the astounding numbers in recent years: razor-thin vacancy rates, double-digit annual rent increases, and an economy seemingly producing more well-heeled renters every month.

"There’s no question fundamentals are softening, but this is a return to a more normal market. With rent increases of 2 percent to 3 percent and vacancies rising to 5 percent from 3 percent, "everyone reacts as if that’s problematic. But it’s relative."

Preliminary sales numbers for the first half show that trades of large apartment properties nationwide dipped 7 percent to $67.5 billion from $72.7 billion for the first six months of 2017. Sales across all asset classes combined fell 13 percent.

In terms of pure dollars, sales volume would be expected to fall as investors turn away from high-priced core assets in urban downtown submarkets to smaller, Class-B suburban properties.

Those swank downtown developments have dragged down average occupancy and rent growth nationally in the past year or so. That wave of development is cresting this year, according to CoStar, and most markets are absorbing the new units, if slowly.

"Supply will certainly affect some submarkets, Long Island City, for example, but broadly, housing construction at large in the U.S. remains low, and still trails population growth. Ongoing deliveries of highly-amenitized, high-rent product will limit rent growth at the high end of the market, but older and more suburban product will continue to outperform."

Rents will rise at a modest rate similar to the national average of 2.6 percent in 2017, according to Affleck.

Investors in apartments seem to be making peace with the changed reality.

"At this point, it’s in everybody’s calculations. Multifamily is more stable and has better net cash flow than any other asset class. Investors are looking for that, not necessarily looking for a home run. They’re looking for reasonable, predictable returns and a long-term investment."

Investors still see the opportunity to pump a few thousand dollars into upgrades to apartment interiors and be able to boost monthly rents by $75 to $100.

The apartment sector has benefited in recent years from an influx of new money from large domestic and foreign investors who previously focused on other asset classes. Newcomers such as Singapore’s GIC, the APG Group of Amsterdam, and several Canadian pension funds have all become major players in apartments during this cycle.

Blake Okland, the head of brokerage Newmark’s Apartment Realty Advisors arm, said those investors will help drive sales in the second half.

"I wouldn’t be surprised at all if it was more like 2016."

He anticipates that by the end of 2018, sales of apartments will match or exceed last year’s total.

He said that’s partly because a large number of big-ticket portfolio deals that hit the market in the first half have yet to trade, but he expects those will close in the third quarter.