Thursday, August 27, 2020

Protecs Innovation Center in Blue Bell Lands Two Life Sciences Tenants

Protecs Innovation Center, a two-story lab and life sciences building in Blue Bell, Pennsylvania, has picked up two tenants.

KorGene, which develops targeted and molecular diagnostics, is leasing 8,259 square feet at the building, while ThirdLaw Technologies, which specializes in synthetic and computational chemistry, is taking 4,808 square feet at the 50,000-square-foot building at 512 Township Line Road.

Christopher R. DiPaolo, principal of 4 Valley Square Group, is also the president and founder of Protecs LLC, a national design/build firm and construction management firm focused on providing regulated high-tech industries with professional services for research and development and manufacturing operations.

"The suburban Philadelphia life sciences real estate market has remained very strong during the COVID-19 pandemic. These two tenants were attracted to the existing lab infrastructure and required quick occupancy of the space, a trend we are seeing more of during the pandemic."

The landlord is planning a capital improvement project for the Blue Bell building, which includes modernizing common areas and updating its facade and hardscaping. Renovations are set to be completed by the end of the quarter. It is also planning to building speculative lab space at the Protects Innovation Center in Blue Bell to accommodate fast-moving, turnkey requirements.

"The limited supply of lab space in the region, coupled with the increasing demand from life sciences occupiers bodes well for this asset going forward."

In addition to the Blue Bell location, Protecs has another Innovation Center in King of Prussia and two others in Plymouth Meeting that total 120,000 square feet and contain 16 technology and life sciences companies.

Canadian Joint Venture Pays $39 Million for South Jersey Industrial Site

 By Rachel Whaley CoStar Research

Toronto-based WPT Industrial Real Estate Investment Trust and Investment Management Corporation of Ontario purchased an industrial land parcel in Mansfield, New Jersey, for $39 million.

The 61-acre site is located off Route 206 and is about two miles from the New Jersey Turnpike and Interstate 295.

The joint venture plans to develop about 772,000 square feet of modern distribution and logistics space at the site. A timeline for the development project has not yet been disclosed.

Tuesday, August 25, 2020

ShipHero Subleases 150K SQFT Lehigh Valley Warehouse

 ShipHero has subleased a warehouse facility at 6736 Tilghman St. in Allentown, Pennsylvania.

The U.S. multinational e-commerce logistics company is taking the entire 150,0000-square-foot industrial building called Iron Run Distribution Center II. It is subleasing the space from True Value.

ShipHero will use the Lehigh Valley warehouse as a fulfillment center. It will be the company's ninth location in the country.

The 150,000-square-foot building was developed in 1975. Prologis acquired the property in January as part of the Black Creek Group portfolio deal.

Wednesday, August 19, 2020

Pandemic May Deliver Final Blow to Struggling Malls- Including Montgomery Mall North Wales, PA

 by Cheryl Miller

The impacts of COVID-19 stay-at-home orders and business restrictions may seal the fate of regional malls that were already struggling before the pandemic, a report by  DBRS Morningstar concluded.

The credit rating agency’s CMBS Weekly Chronicle notes that CBL Properties recently announced in its second-quarter financials that it is preparing to turn over to lenders three properties with secure commercial mortgage-backed securities loans: Burnsville Center in Burnsville, Minn.; Eastgate Mall in Cincinnati, Ohio; and Hickory Point Mall in Forsyth, Ill. 

Those developments are not surprising given historical performance trends for those malls, the report concluded.

“The effects of the pandemic have exacerbated the existing stresses for underperforming regional mall properties, further diminishing the prospects for a turnaround for weaker performers in CMBS,” the report said. “As such, the likelihood of default and losses to the respective trusts are generally higher, particularly for less well-capitalized owner/operators such as CBL, The Pyramid Companies (Pyramid), and Washington Prime Group (WPG).”

According to a DBRS platform, approximately 70 loans and loan pieces backed by approximately 50 regional malls have transferred to special servicing since the pandemic began.

“While some of those transfers appear to be performing loans in need of temporary relief, many are loans that showed significant performance declines before the onset of the pandemic,” the DBRS Morningstar report said.

The report highlighted a number of malls at risk of “respective borrowers turning over keys.”

The loan on Simon Property Group-owned Montgomery Mall in North Wales, Penn. transferred to special servicing in July, according to the report. The special servicer cited imminent default due to COVID-19 effects as the reason for the loan’s transfer.

Occupancy at the CBL Properties-operated Southpark Mall in Colonial Heights, Va. dropped to 64.1% in 2018 after the Sears store there closed. The loan on the property was transferred to special servicing in March and an application for pandemic-related relief was ultimately withdrawn, according to the report.

The loan on the Washington Prime Group-Operated Oak Court Mall in Memphis, Tenn. is coming due in April 2021. “Given the weaker financial position of the loan sponsor, WPG, and the performance declines from issuance, we believe it will be significant[ly] difficult to obtain a replacement loan,” the report said. The loan transferred to special servicing in May and was more than 90 days delinquent as of July. The leases for 34 tenants expire in either 2020 or 2021.

Regency Centers Sees Grocery-Anchored Retail Remaining Essential Post-Pandemic (Video)

COPT’s Defense-Related Tenant Base Insulates REIT from COVID-19 Market Uncertainty. Talks about New Design for Offices & Furniture (Video)

Tuesday, August 18, 2020

How Demographics Can Reshape the Commercial Real Estate (Video)

Mall REIT Federal Realty CEO talks increasing the company's dividend payout (Video)

Modular Rentals in Philadelphia Draw Strong Interest

 by John Dougherty Costar

A pre-built modular apartment building in Philadelphia’s University City neighborhood has sold for $36 million.

The property at 4125 Chestnut St., known as LVL 4125, was acquired by a New York City-based family investment office. The seller was CRP Builders, also of New York.

The six-story, 141-unit building opened last year and is within walking distance of Drexel University, the University of Pennsylvania and that institution’s medical school and medical center. The fully leased complex was developed by Philadelphia-based Alterra Property Group in partnership with the Carlyle Group institutional investment firm.

Although it’s not dedicated student housing, the property is home to many graduate students, faculty and staff of the nearby schools.

Modular apartments — units that are prefabricated off site and then assembled at the new location — are a small segment of the overall multifamily market.

But they do provide some big advantages: The units assemble quickly, and developers do not have to rely on the vagaries of the local labor market during development.

Sellers conducted 40 tours despite the coronavirus pandemic and received 15 offers.

The property has central air-conditioning, granite countertops, washers and dryers in the units, a fitness center and a roof deck.

How the Pandemic has Hit Commercial Real Estate (Video)

Wednesday, August 12, 2020

Top Industrial Leases Recognized for Philadelphia Area

 Prominent industrial leases signed by Target, Geodis and FedEx negotiated by top dealmakers from Cushman & Wakefield of New Jersey, JLL and ProVenture are among the second quarter industrial leases recognized by CoStar.

As big ticket items involving sizable investments, commercial property transactions often have a wider impact within the community. 

TOP LEASE: 2858 US Route 322, Logan Township, NJ

Space Leased: 1,105,000 SF

Deal Type: New Lease

Sign Date: April 23, 2020

Size: 1,105,000 SF

Tenant: Target

Deal Commentary: Target signed the Philadelphia market's largest industrial deal of the second quarter when it agreed to lease a 1.1 million-square-foot distribution center currently underway in the new Logan North Industrial Park. Expected to create approximately 1,300 jobs, the facility will serve as a flow center to fulfill online orders and restock retail stores. Construction of the new warehouse is currently scheduled for completion in summer 2021.

TOP LEASE: 951 Willowbrook Road, Northampton, PA

Space Leased: 1,031,524 SF

Deal Type: New Lease

Sign Date: April 20, 2020

Size: 1,031,524 SF

Tenant: Geodis

Deal Commentary: Transport and logistics leader Geodis is slated to expand its U.S. footprint by taking just over 1 million square feet of distribution space at Rockefeller Group Logistics Park before the end of the year. The property, which offers immediate adjacency to the largest FedEx ground hub in the country and is less than two miles from Lehigh Valley International Airport, is owned by New York City-based firm Rockefeller Group.

TOP LEASE: 2400 South Weccacoe Ave., Philadelphia, PA

Space Leased: 283,500 SF

Deal Type: New Lease

Sign Date: June 8, 2020

Size: 283,500 SF

Tenant: Amazon

Deal Commentary: Amazon has leased the SoPhi Logistics Center and will begin to occupy the property in December of this year. The site will serve as a last-mile distribution center for the retail giant.

TOP LEASE: 180 Kost Road, Carlisle, PA

Space Leased: 487,080 SF

Deal Type: New Lease

Sign Date: April 4, 2020

Size: 487,080 SF

Tenant: Georgia Pacific

Deal Commentary: Georgia Pacific, maker of tissue, pulp, packaging, building products and related chemicals, expanded in the Philadelphia market with a lease to take all 487,080 square feet at a new warehouse owned by New York Life Real Estate Investors.

TOP LEASE: 2834 Schoeneck Road, Macungie, PA

Space Leased: 270,000 SF

Deal Type: New Lease

Sign Date: May 7, 2020

Size: 270,000 SF

Tenant: Silgan Plastics

Deal Commentary: The Lehigh Valley Crossings industrial park has a new tenant after Silgan Plastics, a packaging company serving the plastic bottling industry, leased the distribution center at 2834 Schoeneck Road in Macungie, Pennsylvania. The building has been empty since The Lehigh Group vacated in late 2018.

TOP LEASE: 2251 Newlins Mill Road, Easton, PA

Space Leased: 233,438 SF

Deal Type: Renewal

Sign Date: April 1, 2020

Size: 281,473 SF

Tenant: II-VI Advanced Materials

Deal Commentary: II-VI Advanced Materials, an engineered materials and optoelectronic components manufacturer, signed an expansion to occupy the remaining space at 2251 Newlins Mill Road in Easton, Pennsylvania. The space was previously home to Neovia Logistics.

TOP LEASE: 2525 Monroe Blvd., Norristown, PA
Space Leased: 172,649 SF

Deal Type: New Lease

Sign Date: May 6, 2020

Size: 211,000 SF

Tenant: Caesarstone USA

Deal Commentary: Caesarstone, a manufacturer of premium quartz surfaces used in both residential and commercial projects, signed a lease to occupy the entire 211,000-square-foot distribution center at 2525 Monroe Blvd. in Norristown, Pennsylvania. The company is expected to occupy its new space in November.

TOP LEASE: 280 Daniels Way, Burlington, NJ

Space Leased: 208,476 SF

Deal Type: New Lease

Sign Date: May 13, 2020

Size: 416,744 SF

Tenant: Burlington Stores

Deal Commentary: Burlington Stores, an off-price department store retailer formerly known as Burlington Coat Factory, signed a sublease for the remaining 208,476 square feet of space at 280 Daniels Way in the Haines Industrial Center. The Haines Center sits on more than 700 acres just off the New Jersey Turnpike.

TOP LEASE: 2070 Center Square Road, Logan Township, NJ

Space Leased: 126,117 SF

Deal Type: New Lease

Sign Date: May 13, 2020

Size: 126,117 SF

Tenant: Astral Diagnostics

Deal Commentary: Astral Diagnostics, a manufacturer of high-quality diagnostic stains and laboratory reagents, will occupy the newly built warehouse at 2070 Center Square Road in Logan Township. Exeter Property Group completed the project in December 2019.

TOP LEASE: 6923 Schantz Road, Allentown, PA

Space Leased: 100,000 SF

Deal Type: Renewal

Sign Date: May 21, 2020

Size: 100,000 SF

Tenant: BMS Logistics

Deal Commentary: BMS Logistics renewed its 100,000-square-foot lease at 6923 Schantz Road in Allentown. The contract packaging solutions provider agreed to a five-year extension.

Boston Company Buys Southern New Jersey Warehouse for $23.2 Million

 by Linda Moss Costar

Boston-based High Street Logistics Properties has purchased a 432,000-square-foot industrial facility in Southern New Jersey for $23.2 million.

Vineland Construction sold the property at 3100 N. Mill Road in Vineland.

Built in 1989 and expanded in 1997, the warehouse is currently 100% occupied by Ardagh Glass, a provider of sustainable packing products. The tenant’s customers include Coca-Cola, Heineken, NestlĂ© and Bacardi, among others. Earlier this year, Ardagh Glass committed to a 10-year lease extension through early 2030.

The building has clear ceiling heights of 28 to 34.5 feet, a cross-docked configuration, 40-by-50 column spacing, 24 dock doors, 18 trailer parking spots and 54 car parking spaces.

The warehouse is part of the Vineland Industrial Park, which includes 43 buildings totaling over 2.7 million square feet. The industrial park is located directly off Route 55.

“Although Vineland is a relatively small industrial market, it continues to be a strong submarket with minimal availabilities, great labor, low direct vacancy, good build-to-suit activity and Class A rents north of $5 per square foot."

Large Office Portfolio Trades in Lehigh Valley

By Ben Atwood Costar Market Analysts

Lehigh Valley’s office investment market starts the third quarter surprisingly strong thanks to a single purchase in late July.

The deal contained nearly half a million square feet in 13 offices, and included assets in neighboring Pittston and Phillipsburg.

Hammes Properties spent just over $137 million on the deal. The firm specializes in healthcare related real estate and owns properties across the country.

The assets were acquired from the former CEO of Coordinated Health, Emil DiIorio. Coordinated Health was acquired by the Lehigh Valley Health Network in late 2019, and they have taken over much of the space that Coordinated Health had leased within these properties. A mixture of other tenants in the medical field take up the remaining space in the properties, which are largely fully occupied and range in size from 10,000 to 100,000 square feet.

The financial issues of Coordinated Health do somewhat obscure the insight this sale can offer, but even as a distressed sale, it is interesting to dissect. The coronavirus has upended the commercial real estate world and investors are, for the large part, holding on to their cash. The office sector has been profoundly impacted by the virus and the general consensus is that total office demand will be reduced in the near future as remote working becomes more and more viable.

The properties sold for close to $300 per square foot, well above the market average. But Lehigh office is a relatively slow investment market. That average can be somewhat skewed by a lack of deals and this is one of the larger sales in recent years. Out-of-state money coming into the market is not unheard of, but it is uncommon.

That the properties catered to medical tenants was almost certainly a draw and many of the properties were well-positioned. The largest cluster of properties was off North Cedar Crest Boulevard, just outside the city of Allentown and well-positioned near large retail and residential areas.

But even healthcare tenants are subject to virus disruption and it could also be that Lehigh Valley itself is a draw. The market is one of the fastest growing in Pennsylvania and is well-positioned to endure the coronavirus and perhaps come out on top.

Don Cunningham, president and CEO of the Lehigh Valley Economic Development group, believes the deal is a source of optimism for the market.

"We are fortunate that even during these challenging times commercial and industrial properties in the Lehigh Valley do not stay dormant for too long, particularly in the health care sector," Cunningham said. "The Hammes purchase of the Coordinated Health properties is an indicator of the strong health care and medical office space market in the region."

Tuesday, August 11, 2020

Top Philadelphia Commercial Real Estate Leases and Sales

 Top Property Sales Recognized for Philadelphia

TOP SALE: 1901 Market St., Philadelphia, PA

Sale Price: $360,000,000

Sale Date: June 25, 2020

Size: 801,000 SF

Buyer: Independence Health Group, Philadelphia, PA

Seller: Piedmont Office Realty Trust, Atlanta, GA

Deal Commentary: Piedmont Office Realty Trust exited the Philadelphia market with the $360 million sale of 1901 Market St. as the company looks to focus on the Sun Belt region. Independence Health Group seized the opportunity to reacquire the 45-story tower that houses the headquarters of its Philadelphia-based subsidiary, Independence Blue Cross.

4200 Braden Blvd. E, Easton, PA

Sale Price: $62,500,000

Sale Date: June 4, 2020

Size: 475,800 SF

Buyer: Black Creek Group, Denver, CO

Seller: Dermody Properties, Reno, NV, and PCCP, Los Angeles, CA

Deal Commentary: Black Creek Group finalized a deal in early June to acquire the Easton warehouse of e-commerce services provider, Radial. Dermody Properties developed the 475,800-square-foot property, named LogistiCenter at 33, in 2016, and sold the complex along with its partner, real estate finance and investment management firm PCCP, for $62.5 million. Radial has fully leased the property since late 2019.

TOP SALE: Portfolio of 7 Properties

Sale Price: $42,925,000*

Sale Date: April 10, 2020

Size: 107,168 SF

Buyer: Endurance Real Estate Group, Radnor, PA, and PCCP, Los Angeles, CA

Seller: Novaya Real Estate Ventures, Boston, MA

Deal Commentary: The Southern New Jersey Core Infill Portfolio attracted its new owner because of its desirable location with historically high occupancy and its rapid rent growth. The portfolio is also consistent with the venture's investment strategy. *Part of a portfolio sale

TOP SALE: Portfolio of 3 Properties

Sale Price: $27,025,000

Sale Date: April 24, 2020

Size: 380,274 SF

Buyer: Brennan Investment Group, Rosemont, IL

Seller: The Magellan Group, Los Angeles, CA, and Drake Real Estate Partners, New York, NY

Deal Commentary: Betting on the continued resilience of the industrial sector and strength of the Lehigh Valley industrial market, new owner Brennan Investment Group acquired a three-building, fully leased portfolio in Lehigh Valley Industrial Park II to increase its Northeast holdings to nearly five million square feet.

TOP SALE: 405 North King St., Wilmington, DE

Sale Price: Not disclosed

Sale Date: May 8, 2020

Size: 155,000 SF

Buyer: Amtrak, Philadelphia, PA

Seller: The Commonwealth Group, Wilmington, DE

Deal Commentary: Amtrak reached a deal in May to acquire the Renaissance Centre in Wilmington, Delaware, where the railroad service had occupied space as a tenant. With its lease set to expire, Amtrak elected to buy the building outright and expand its footprint to 79,465 square feet. This was a strategic move by Amtrak to reduce costs by having employees work out of owned property.

TOP SALE: 518 Township Line Road, Blue Bell, PA

Sale Price: $24,850,000

Sale Date: April 2, 2020

Size: 123,087 SF

Buyer: AFA Real Estate Partners, Yardley, PA

Seller: Kairos Real Estate Partners, Blue Bell, PA, and Artemis Real Estate Partners, Chevy Chase, MD

Deal Commentary: AFA Real Estate Partners added Blue Bell Plaza to its portfolio. This investment was attractive due to the updated building amenities and quality of tenants including accounting firm RSM, developer Skanska USA and Blue Bell Surgery Center.

TOP SALE: 1240 McKee Road, Dover, DE

Sale Price: $21,347,000

Sale Date: June 3, 2020

Size: 42,140 SF

Buyer: Anchor Health Properties, Charlottesville, VA, and Harrison Street Capital, Chicago, IL

Seller: MedCore Partners, Dallas, TX.

Deal Commentary: MedCore Partners sold the newly completed and fully leased Post Acute Medical Rehabilitation Center in Dover, Delaware, to a joint venture between Anchor Health Properties and Harrison Street Capital.

TOP SALE: 824 North Market St., Wilmington, DE

Sale Price: $16,550,000

Sale Date: April 8, 2020

Size: 207,005 SF

Buyer: Chopp Holdings, Lakewood, NJ

Seller: Ellington Management Group, Old Greenwich, CT

Deal Commentary: Chopp Holdings scored a value-add investment with its $16.55 million purchase of 824 N. Market St. in downtown Wilmington. The 10-story property is 67% leased with the U.S. Bankruptcy Court occupying more than 65,000 square feet.

TOP SALE: Portfolio of 3 Properties

Sale Price: Not disclosed

Sale Date: June 12, 2020

Size: 78,194 SF

Buyer: The Leser Group, Brooklyn, NY

Seller: Rockland Capital, Philadelphia, PA

Deal Commentary: Rockland Capital sold a portfolio of office and retail properties in Philadephia, totaling 78,194 square feet, to Brooklyn-based investor The Leser Group in June. The new owner has real estate development and property management experience and focuses on commercial and industrial properties.

TOP SALE: 1 Storm St., Stroudsburg, PA

Sale Price: $15,180,000

Sale Date: June 26, 2020

Size: 37,976 SF

Buyer: IRA Capital, Irvine, CA

Seller: Doctors Investment Group, Stroudsburg, PA

Deal Commentary: IRA Capital bought the Pocono Ambulatory Surgical Center in Stroudsburg because it fits the company's investment criteria, which is primarily focused on healthcare real estate. This acquisition further expands the equity firm's national footprint, which currently spans across 25 states and exceeds 6 million square feet of property.

Top Retail Leases Recognized for Philadelphia

TOP LEASE: 104-108 Bartlett Ave., Exton, PA

Space Leased: 37,275 SF

Deal Type: New Lease

Sign Date: April 22, 2020

Size: 79,601 SF

Tenant: Lidl

Deal Commentary: German discount supermarket chain Lidl is continuing its U.S. expansion spree with the signing of a 37,275-square-foot deal in Exton, Pennsylvania. The grocer is filling a void at Main Street at Exton that was previously left when Toys R Us went bankrupt a few years prior.

TOP LEASE: 871 East Lancaster Ave., Downingtown, PA

Space Leased: 37,126 SF

Deal Type: New Lease

Sign Date: June 2, 2020

Size: 140,858 SF

Tenant: The Edge Fitness Clubs

Deal Commentary: Continuing its East Coast and Midwest expansion plan, The Edge Fitness Clubs has signed its sixth deal in Pennsylvania with a 37,126-square-foot deal at Ashbridge Square.

TOP LEASE: 1301-1325 Churchmans Road, Newark, DE

Space Leased: 22,000 SF

Deal Type: New Lease

Sign Date: June 15, 2020

Size: 256,119 SF

Tenant: Ross Dress for Less

Deal Commentary: Opening its third location near Christiana Hospital, Ross Dress for Less signed a deal to take over space previously left dark by Babies R Us in late 2018. Ross will join center anchor Home Depot and other stores and restaurants.

TOP LEASE: 770 State Road, Lehighton, PA

Space Leased: 25,700 SF

Deal Type: New Lease

Sign Date: June 10, 2020

Size: 42,502 SF

Tenant: Harley-Davidson

Deal Commentary: Harley-Davidson leased back space at 770 State Road until its new location at 2800 Eberhart Road in Whitehall Township opens in fall 2020.

TOP LEASE: 180 Susquehanna Blvd., Hazleton, PA

Space Leased: 24,072 SF

Deal Type: New Lease

Sign Date: June 12, 2020

Size: 32,968 SF

Tenant: Geisinger Health Systems

Deal Commentary: Geisinger Health Systems is expanding its 65 Forward program with a new health center located in a former Staples store in Hazleton. Forward 65 is a holistic approach to senior primary care created exclusively for people 65 and older. Geisinger is also building a new 65 Forward center in downtown Wilkes-Barre.

TOP LEASE: 832-880 Plaza Blvd., Lancaster, PA

Space Leased: 14,400 SF

Deal Type: New Lease

Sign Date: April 15, 2020

Size: 143,275 SF

Tenant: Just Furniture

Deal Commentary: Just Furniture is opening a new 14,400-square-foot location at Parkview Plaza where the retailer will offer affordable home furnishings to residents in the Lancaster area.

TOP LEASE: 3285 Black Gap Road, Chambersburg, PA

Space Leased: 31,080 SF

Deal Type: New Lease

Sign Date: April 4, 2020

Size: 31,080 SF

Tenant: Sportsman's Warehouse

Deal Commentary: Sportsman’s Warehouse took over the 31,080-square-foot building at 3285 Black Gap Road. The property had been vacant since late 2019 when Gander Mountain moved out.

TOP LEASE: 7700-7780 Crittenden St., Philadelphia, PA

Space Leased: 6,510 SF

Deal Type: New Lease

Sign Date: June 11, 2020

Size: 47,739 SF

Tenant: Anytime Fitness

Deal Commentary: Anytime Fitness renewed its lease at Market Square in Chestnut Hill. The fitness chain, with over 3,000 locations, has occupied space at this center since 2014.

TOP LEASE: 125-131 Shoemaker Road, Pottstown, PA

Space Leased: 12,280 SF

Deal Type: New Lease

Sign Date: June 26, 2020

Size: 48,239 SF

Tenant: Harbor Freight

Deal Commentary: Harbor Freight, a provider of quality tools for over 40 years, will join Ollie’s Bargain Outlet at West Pottstown Shopping Plaza after signing a 12,280-square-foot lease. With the lease, the retailer adds another location to its existing 1,000-plus stores.

TOP LEASE: 4321-4403 Swamp Road, Doylestown, PA

Space Leased: 7,200 SF

Deal Type: New Lease

Sign Date: June 29, 2020

Size: 152,468 SF

Tenant: FiveBelow

Deal Commentary: Five Below signed a lease for 7,200 square feet to open a new location at Cross Keys Place. The value-driven retailer, known for offering a variety of products at a cost of $5 or less, will add another location to its existing 950-plus stores across 38 states.

Wednesday, August 5, 2020

Will Downtown Office Towers Continue to Command Top Rents?

By Paul Leonard CoStar Advisory Services
For those living in one of America’s largest cities and working downtown, the daily commute not too long ago probably involved crowding onto trains that were over capacity during peak hours and often operated with outdated ventilation systems. Commuters then flowed into enclosed transit stations before exiting and facing the last gauntlet of the commute, riding a crowded elevator up to the final floor.

This typical journey to work for millions of Americans was mildly unpleasant before the pandemic, but is now shaping up to be borderline unbearable when commuting to the office eventually resumes. The logistical nightmare of getting workers safely from their homes to the office is keeping a lot of mayors, governors, CEOs and office landlords and managers up at night. Fear of crowding in subways, office lobbies and other public gathering spots threatens to upend the three-decade trend towards the reurbanization of America’s cities.

When we eventually resume life as we knew it, larger cities with longer commutes and a dependency on public transit will face unique challenges that smaller, more car-dependent cities will largely avoid. Compounding this threat is the fact that the metropolitan areas that are most reliant on transit and that have the longest commutes also have the highest office rents in the U.S. This raises an important question of whether these larger cities will continue to see such disparity in rent premiums after the pandemic.
Top-tier markets such as New York, D.C., Boston, Chicago, Los Angeles, San Francisco and Seattle are the most challenged by this trend. Companies located in these markets are likely to face the most pressure from employees to continue to work from home or have more flexible schedules in the future.

But while top-tier markets collectively face enormous challenges, New York City stands out as being far and away the most acutely impacted by transit concerns associated with virus transmission risks. According to the U.S. Census Bureau, 31% of New York's metropolitan workers commute via mass transit to work, and this number is far higher for commuters whose destination is Manhattan. San Francisco is in a distant second place at 17%, and only four other markets are above 10% — all of them top-tier markets.

This past April, when New York City was the epicenter of the COVID-19 pandemic, ridership on New York’s subways dropped an unprecedented 92% compared to April 2019. But in the months since, ridership has only recovered to a 77% deficit compared to last year.
In addition to having long, transit-dependent commutes, these top-tier markets also have the greatest share of office space located in mid- and high-rise buildings necessitating an elevator ride. Nearly half of all office inventory in tier-one markets is above the fourth floor. That compares to a little more than one-third of the office space located in tier-two markets and only about a quarter of the office inventory in tier-three markets. In addition to mass-transit concerns, these high-rise cities face another hurdle in the logistics of getting workers from the ground to their floor without crowding in the lobby and the elevators.
If we focus within these markets, we find that 75% of the four- and five-star office space in central business districts nationally is located above the fourth floor versus just 31% of office inventory outside of the central business districts. New York is not alone in facing challenges presented by elevator queues and crowding. There are 28 cities in the U.S. with central business districts where 70% or more of the four- and five-star office space is located above the fourth floor.

In addition to longer, transit-dependent commutes and the prevalence of high-rise towers, nearly all central business districts command a rent premium compared with their surrounding markets. Once again, this premium is highly correlated to the market tier. Among the tier-one markets, there is a 72% rent premium, led by New York’s 125% rent premium for downtown office space compared to its suburbs.

The average rent premium falls to just 30% in tier-two markets and to just 15% in tier-three markets. The question remains, will office buildings in central business districts be able to maintain the same rent premiums after the pandemic?
Commuting activity may return toward previous levels once a vaccine for the new virus is developed and immunity levels eventually increase. This has historically been the case after other health scares or shocks, such as 9/11, that also prompted employers to reconsider downtown locations. In the past, initial concerns subsided over time once the general public perceived the threat had passed or had been addressed.

But that, of course, will take time. For investors concerned by the short-term implications posed by interrupted commuting patterns, there are a few office markets that have less dependency on mass transit. In addition to suburban markets generally, Sun Belt areas such as Phoenix, Arizona; Austin, Texas; Orlando and Tampa, Florida; and San Diego, California, are the least impacted by this trend, as they are far more dependent on cars with a relatively low share of high-rise office inventory.

Tuesday, August 4, 2020

More Renters Are 'Ghosting' Landlords, Apartment REIT Complains

By Marissa Luck CoStar News
Apartment renters in California are proving to be something of a frustration when it comes to paying rent, according to a national apartment landlord.

Its tenants in California, where the unemployment rate is 14.9%, are more likely to struggle to pay rent, with many "ghosting" their landlords by cutting off all contact, executives at real estate investment trust Camden Property Trust told investors. California has regulations in place to prevent tenant evictions, a move that the apartment industry says has the unintended effect of providing a disincentive for some to pay who otherwise would.

“If you’re a resident in California and you listen to the mayor of L.A. or the governor, their messaging is, ‘don’t worry, you don’t have to pay,’ and the limitation of late fees, the limitation of [not] being able to evict somebody creates what we call ghosting, which is they just don’t show up,” Camden's CEO Ric Campo said in discussing the company's second-quarter earnings.

He added that some renters “know they don’t have any negative recourse; you’re not charging them interest or late fees and they know they can’t be evicted and so you just have this ghosting scenario that happens out there.”

The deferred rents, higher expenses and lack of payment reduced profits for Camden in the second quarter, which saw its net earnings fall almost 60 percent to $17 million from $43 million in the same quarter last year. Camden's challenges provide one look at the national apartment market as federal aid programs begin to run out and unemployment remains high.

The Houston-based developer and owner has a portfolio of 56,112 apartment units across 164 properties, offering a glimpse into multifamily markets in a variety of cities. The difficult quarter came after Camden launched a $10.4 million cash-grant renter relief program for struggling tenants and after Camden saw its lowest renter turnover rate in its history in the first quarter, with tenants not moving out.

Delinquency rates among Camden's renters in California are hovering at about 3.6%, said Alex Jessett, Camden’s chief financial officer, during the call. The national apartment REIT said it has about 4,200 apartment units across 12 properties in the Golden State.

Across its portfolio, Camden saw its delinquency rates hit about 1.2% in the second quarter, on par with the 1.4% seen during the same time last year. However, about 1.1% of tenants deferred rent or made some rental payment plan, while virtually no tenants deferred rent the same time last year.

Orange County in California had the lowest collection rates for rents, with Camden able to collect about 92% of its rental income in the second quarter, said CEO Ric Campo on the earnings call. Other cities nationally had rent collection rates between 95% to 98%..

There's a debate between the apartment industry, which says the tenant protections in California don't provide enough monthly revenue protections for landlords to collect enough money to be able to pay their own costs such as mortgages, and lawmakers, who say there's a societal need to prevent large numbers of evictions as they point to rent collection rates above 90% to argue that landlords are still collecting the majority of rent revenue.

Sun Belt Payments

Residents in Sun Belt states where unemployment is comparatively lower seemed to be better at paying rent on time, he said. Before the pandemic, California had been a bright spot for Camden’s growth, and company officials said they still think it’s a good long-term investment.

“I think California will always be a market that people want to be in. It’s one of the biggest economies in the world,” said Jessett. “To me, I know that there’s a lot of people piling on to California, New York and Seattle and some of these other markets. They’re not going away, there will be good, long-term markets and hopefully the pandemic moves through fast and we’ll get back to good growth.”

Even in the Sun Belt, some areas showed weakness in the apartment market, particularly in economically harder-hit areas such as Houston and southern Florida, Camden officials said.

Houston’s apartment market is facing challenges on multiple fronts. Beyond the double-whammy of the coronavirus pandemic and the oil industry downturn, Houston also is seeing a big wave of newly built apartment units hitting the market.

“Houston continues to be one of our weaker markets,” Campo said, adding that the downtown and midtown areas have some of the biggest challenges with too much supply.

Renters in southeast Florida also are struggling more than other markets, Camden officials said. After Orange County, the market that saw the lowest rental collection rates was Southern Florida, where rent collections were about 94%, said Keith Oden, executive chairman at Camden, in the earnings call. Florida’s unemployment rate has hit 13.7% as the hospitality industry took a major hit from the pandemic. Renters in this market seem slower to jump onto Camden’s virtual leasing and tours platform, Oden said.

Across its portfolio, Camden saw its renewal rates stay essentially flat in the second quarter compared to growing 5.7% in the same quarter last year. Its new lease rates dropped by 2.8% compared to growing 4% in the second quarter last year.

Overall, Camden saw expenses from the coronavirus pandemic sink its profits by 59% to $17 million last quarter, compared to $43 million during the same time last year. Its profits were dragged down by about $14.4 million in one-time coronavirus-related expenses, including the company’s contribution to its renter relief fund and employee assistance fund and one-time employee bonuses.

It also saw its property-related expenses rise by roughly 9% year-over-year. And property revenues dropped roughly 2% to $250.6 million in the second quarter, compared to about $255 million the same time last year.

On the development side, Camden has about $1.9 billion of new apartments representing 1,939 units in the construction pipeline. In Houston, it has started leasing up Camden Downtown I, a 271-unit, $132 million apartment project that is now about 24% leased, according to its earnings report.

It also recently started leasing up Camden Cypress Creek II, a 234-unit, $32 million apartment project it developed in a joint venture in the north Houston suburb. In the second quarter, Camden also recently completed construction a 441-unit, $98 million apartment project in Phoenix called Camden North End I, which is now about 89% leased.

Campo said he was optimistic about the prospects for America’s multifamily market, as demand for apartments is still strong despite the 11.1% national unemployment rate. Camden still has a relatively strong occupancy rate of 95% and its turnover rate is down somewhat from last year.

“Camden’s geographic and product diversification has continued to lower the volatility of our rents and occupancy. Camden’s Sun Belt market have fewer job losses than close to markets in the U.S. overall,” Campo told investors. “Our product mix that offers varying price points in urban and suburban locations continues to work for us."

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Apartment Construction Starts Slowed Nationwide, but Some Southern Cities Bucked the Trend

By David Kahn and Sam Tenenbaum
CoStar Analytics

The onset of the coronavirus pandemic caused multifamily owners, lenders and developers to take a pause in the second quarter of 2020 as uncertainty led to firms taking stock of their own portfolios rather than looking to add to them with either new construction or acquisitions.

It’s been well documented that sales volume, both in multifamily and the other commercial property types, fell off a cliff in the second quarter of this year. But investment through sales only tells part of the story. Analyzing the trends in construction starts throughout the country can help paint a fuller picture because development often poses greater risk than acquiring an existing asset.

Perhaps most important, construction starts indicate sentiment about the future – investors won’t break ground on a new project if they don’t feel that demand will be sufficient in the six to eight quarters following the groundbreaking, when the project is completed and begins to lease up. Therefore, looking at which cities saw the largest and smallest drop-offs in apartment groundbreakings in the second quarter may serve as an early signal for how confident multifamily owners, lenders and developers are in a given city, relative to the nation as a whole.

CoStar Market Analytics looked at which cities saw the largest and smallest drop-offs in groundbreakings compared to its prior five-year trailing quarterly average. Using a five-year quarterly average is advantageous for one key reason: Quarter-over-quarter or even year-over-year groundbreaking figures are exceptionally volatile, even on a metro level. Additionally, the analysis included only markets that broke ground on at least 2,000 units in 2019. This data set shows that apartment construction was down almost 50% from its five-year average nationally.

Plenty of cities saw no properties break ground in the second quarter, including Las Vegas, Nevada; Palm Beach, Florida; and Charleston, South Carolina. Those cities all rely heavily on tourism, a factor that may have temporarily spooked investors and dissuaded developers during the height of the pandemic last quarter.

In terms of markets that did see units break ground, the biggest drop off from the five-year trailing average was Fort Lauderdale, Florida. This makes sense, considering the city’s tourism-dependent economy and typically robust multifamily construction pipeline. Furthermore, Fort Lauderdale delivered nearly 3,000 units in the second quarter alone, representing more than 2% of its existing inventory opening in a single quarter.

Other large drop-offs were seen in New York and Los Angeles, the two largest metropolitan areas in the country and two locales typically viewed as safer from an institutional capital perspective. Other slower-growth, legacy cities including Philadelphia, Chicago and Boston saw drastic drop-offs in construction starts last quarter.

Austin, Texas, with its typically robust construction pipeline, saw groundbreaking activity slow in the second quarter as well. That’s largely the result of a high historical average, rather than a drop in the market, as roughly 750 units still broke ground, compared to a more than 2,500-unit historical average for the market.
Only a handful of metropolitan areas saw an uptick in groundbreakings in the second quarter compared to their five-year trailing quarterly average. Three of the fastest-growing Sun Belt markets saw an increase in new construction starts in the second quarter of 2020. Raleigh, North Carolina; San Antonio, Texas; and Nashville, Tennessee, all saw more groundbreakings than respective five-year quarterly averages, with Raleigh nearly doubling its typical quarterly figure.

All three of those cities have seen explosive demographic growth over the past decade, and many developers and owners feel confident that those long-term trends will outweigh any near-term coronavirus concerns.

Other Sun Belt cities saw slowdowns in groundbreakings last quarter, but not quite to the extent as the rest of the country. Construction starts in Atlanta, Houston, Phoenix, Dallas-Fort Worth and Charlotte all held up relatively well compared to recent history. In fact, Dallas-Fort Worth led the country in terms of the nominal number of units breaking ground in the second quarter, with about 4,500. And even tourism-dependent Orlando, a city with an already robust pipeline and falling rents, saw a shallower drop-off in groundbreakings compared to the national benchmark.

Aside from tourism-dependent Orlando, these Sun Belt locales have all performed better than the nation in terms of job losses since the onset of the pandemic. And long-term demographic growth throughout the region continues to boost developer confidence in many traditionally fast-growing southern cities. However, with cases rising throughout the country, and especially in the south, future construction activity will likely be tied to the relative economic recoveries of these cities over the next few months.

Many of the projects that began construction in the second quarter will deliver in the second half of 2021 or the first half of 2022. If the economy does not return to pre-COVID employment levels by then, those projects could face a more difficult leasing environment.

$103M Construction Loan Secured for NJ Industrial Park

By Ingrid Tunberg
$103.5 million in construction financing was secured for two industrial buildings in Logan Township, NJ, as the exclusive adviser to Advance Realty Investors and Greek Development.

The loans, provided by Wells Fargo and Provident Bank, are designated for buildings H and E within the planned 3.2-million-square-foot, class A industrial site, Logan North Industrial Park.
Building H will serve as Logan North Industrial Park’s first asset to be developed out of ten total planned sites. The property is 100% pre-leased to Target, which will utilize the building as a flow center to fulfill online orders and restock retail centers. The facility, 60% of which will service retail stores and 40% will service for e-commerce needs, is estimated to create 1,300 jobs. Wells Fargo provided a $69 million construction loan for the development of building H.

Building E’s construction will commence immediately after building H’s development. The built-to-suit cold storage facility is pre-leased to the cold storage operator, Lineage Logistics, and will be operated by Lineage Logistics’ subsidiary, Preferred Freezer Services. The 189,889-rentable-square-foot site will offer 103 parking spaces, 44 trailer spaces and 20 dock doors. The property received $34.5 million construction loan from Provident Bank.

“With these two assets pre-leased, encompassing the first 1.3 million square feet of Logan North, our partnership is currently constructing Phase II of the development to meet continued demand in Southern New Jersey,” states David Greek, Greek Development’s director of acquisitions.

Cushman & Wakefield’s equity, debt and structured finance team, comprising John Alascio, Sri Vankayala, Chuck Kohaut, TJ Sullivan and Maya Steinberger, represented the borrower.

“It is a true testament to Wells Fargo and Provident Bank in understanding the vision and value proposition of Logan North in our uncertain economic environment,” states Alexander Cocoziello, Advance Realty Investors’ managing director of capital markets. “Our team could not be more pleased with the execution of Cushman & Wakefield and the broader sponsor team in these two deals.”