Wednesday, August 12, 2020

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."

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