Thursday, October 29, 2020

Owner-User Sales Boom Hits Mid-Atlantic Industrial Market

 By Adrian Ponsen CoStar Analytics

The coronavirus and its economic shock have slowed commercial real estate trading across all property types in the mid-Atlantic. Even in the industrial sector, which has benefited from the consumer’s accelerating shift to online shopping during the pandemic, property sales across Pennsylvania, New Jersey and Delaware are down roughly 50% on a year-over-year basis.

But one type of industrial transaction continues to reach new heights across the region: sales by individuals and owner-users. Within Pennsylvania, New Jersey and Delaware, sales volume of these transactions has reached an all-time high surpassing $2.5 billion over the past 12 months.

In many cases, these sales come at an opportune time for all parties involved. The pandemic has brought challenging times for most small- and medium-sized enterprises. By selling the industrial buildings they own and occupy, many businesses are able raise cash needed to survive the recession.

These trades also help investors increase their holdings in one of the few commercial property types with underlying demand drivers that appear well intact, even as the pandemic transforms how millions work and shop across the globe.

One of the region’s largest owner-user sales closed in June, when Big Lots sold its 1.3 million-square-foot Tremont, Pennsylvania, distribution center in a sale-leaseback deal with Chicago-based Oak Street Capital. Big Lots agreed to lease the facility for 20 years, with 2% annual escalations. The deal was part of a portfolio sale involving five buildings throughout the U.S., and the Tremont facility commanded $129.5 million, or $100 per square foot.

During August, the former owner of Jerith Manufacturing, which makes aluminum fencing products, sold the firm’s 445,000-square-foot distribution center in Northeast Philadelphia to Ivy Realty Services. The deal closed for $20 million, or $45 per square foot, at a 4.5% capitalization rate. Jerith’s lease was set to expire in two years, and the new buyer saw potential to raise the property’s below market rents.

That same month, Costume Gallery, a business that sells costumes to dance studio owners — and has presumably faced a challenging 2020 — sold a 72,000-square-foot flex property it had already vacated to California-based private REIT Metro Commercial Realty. The deal closed for $41 per square foot, and the new owner plans to convert the property to climate-controlled self-storage.

At a time when the coronavirus recession has left commercial brokers anxious for higher-level transactions to facilitate, these owner-user sales provide at least one persistent source of deal flow. These trades aren’t likely to grind to a halt anytime soon, given the clear benefits they offer to both the buyers and sellers involved.

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