Friday, February 26, 2021

Real Estate Investing: Real Estate Investing Goals (Video)

3 Steps To Overturn Your Commercial Real Estate Property Tax Assessment (Part 1&2)

In the spring of 2020, commercial real estate properties were shuttered as the COVID-19 pandemic erupted across the United States. As the year wore on, some of these facilities became lightly occupied but many remained largely empty. The effects on commercial property owners varied. Some reported a significant decline in operating expenses because their buildings were sparsely occupied, but others lost tenants, causing occupancy and net income to decline.

As property owners reconcile their financial data, some are concerned that the unique conditions and dynamics that occurred in 2020 may not be fully or even partially reflected in the assessed value of their properties.

To explore these issues, LoopNet spoke with Martin Lutsky, a real property tax expert at management consulting and CPA services firm Clearview Group, about real property tax assessments during the COVID era. He drew on decades of experience working in government and private industry, including 18 years with The Rouse Company as director of property tax for the U.S.

Challenges Facing Both Owners and Assessors

Lutsky began by discussing the assessment process and some of the conditions he is currently encountering in jurisdictions conducting assessments. Although based in Maryland, Lutsky has worked in more than 40 markets across the U.S. during his career, and he believes property assessment conditions and processes in Maryland are generally analogous to those across the country.

Lutsky explained that there are three general approaches to valuations. “It's either an income model, sales model or a cost model. For a commercial property, the assessors typically utilize an income model,” Lutsky said. This approach considers a building based on its physical characteristics such as location, as well as the quality of the design and materials used. However, most of the assessed value is derived from the income flowing through the property.

Lutsky noted that 2020 was an unprecedented year for property owners. Midway through 2020, a number of businesses downsized or failed, causing office, retail, restaurant, multifamily and even industrial tenants to walk away from their leases or to not renew them. The magnitude of these conditions is significant. Consider the lodging industry. Hotel room demand across the U.S. declined by 35.7% last year, resulting in significant revenue losses, according to CoStar's hospitality analytics firm, STR. For context, this is the biggest one-year decline in demand ever recorded in the STR dataset that began in 1990.

These conditions represent abrupt declines in income for commercial property owners. But will these declines be adequately reflected in 2021 property tax assessments? To find the answers, one first must understand the basics of the assessment practice which include the following:

• Properties may not be assessed every single year.

• Assessments are based on historical data.

• Standard, not individualized assessments are the norm.

The good news is that there are proven methods to account for sudden changes in occupancy and the resulting difference in net income that both property owners and assessors are comfortable with. A numerical example is provided below.

Properties May Not Be Assessed Every Single Year

The timing or intervals at which assessments are completed play a role in determining the accuracy of the property tax assessment. “The interval of the assessment varies by geography. Some jurisdictions reassess annually, others every two years, some every three years,” said Lutsky. “The assessors send out, depending on the cycle, what they call an income questionnaire. Returning the income questionnaire gives property owners the opportunity to convey the property’s performance over the financial period requested, but also allows them to identify negative trends a property may be experiencing.”

In Maryland, real property is assessed on three-year cycles and assessors examine three previous consecutive years of income and expenses. So, properties reassessed for 2021, and probably 2022, will likely have experienced declines in rental income resulting in reduced valuations.

2021 assessments will likely pose the biggest problems. Why? Because 2020 was the beginning of the “transitional” period when the economy shifted, causing income streams for many property types to decline and assessors to abruptly reconfigure their models to recognize these radical changes.

For context about the magnitude of this change, consider the office market. According to CoStar data, during the Great Recession just one year of negative net absorption was posted; in 2009, 50 million square feet of office space was returned to the market. So far during the pandemic, 2020 recorded 75 million square feet of negative net absorption and in just one month (January 2021) 33 million square feet of negative absorption has already been posted.

Assessments Are Based on Historical Data

When the 2020 income data (reflecting underperformance) is combined with the 2018 and 2019 income data (exhibiting stronger performance), the three-year average income figure will decline, but it may not adequately reflect the drastic and sudden drop in net income reported by a property in 2020 and potentially continuing into 2021.

In Maryland, Lutsky said property owners submit three prior years of financials by April 15, so an assessor can value the property eight months later. However, since much of the country went into lockdown around that time in 2020, first quarter financials might not be representative of the full year and how businesses were later impacted by the pandemic. “So, I can say to an assessor, ‘wait a minute, you increased the assessment by X percent, yet tenants have vacated, I lost my restaurant … and my occupancy is half of what it used to be.’” Thus, when Lutsky presents an argument to an assessor he is given the opportunity to present all of the year’s financials, not just the ones from the first quarter of 2020.

“I think the real issue is we're just now finding out what really happened in 2020 and how badly it's affected real estate,” said Lutsky.

The CRE appeals process (to be discussed in part two of this series) centers on an owner’s ability to document where occupancy, rents and income have declined and/or expenses have risen — adversely affecting the bottom line and therefore the value of the property. Illustrating the degree to which conditions declined and income fell will support an owner’s case.

In terms of timing, however, the bottom line seems to be that with rolling averages “fair and reasonable” valuations tend to work themselves out over time. In 2021, the proposed assessment may be too high because it is based on previous years of stronger income plus one year of pandemic income. But, if market conditions improve by 2023, the assessment for that year will be below market because it will be based on three previous years of very weak income.

In general, simply relying on historical data means “the assessment assumptions and valuation models can be a little dated,” said Lutsky.

Standard, Not Individualized Assessments Are the Norm

Assessments are conducted using income and expense assumptions for categories of property types, meaning that income and expense data specific to a property may not be considered by assessors when issuing an assessment.

Assessors do not have the manpower to conduct detailed assessments for every property within their jurisdiction, so they often use benchmark figures based on a sampling of properties to create valuation models for similar property types. This approach is necessary in typical years, but even more so in transitional years when more appeals are filed, generating additional work for assessors.

“I’ve talked to the assessors in Anne Arundel County, which is where Annapolis, Maryland is located. There are two commercial assessors there and they had 700 appeals this past year. That is a monumental amount of work,” for just two assessors, said Lutsky.

“[Assessors are] working to understand all these arguments that people are presenting, trying to figure out if these numbers are right, wrong or indifferent,” said Lutsky. Additionally, in the summer they need to plan for the beginning of a new cycle. “So, I tend not to fault the assessment process because I believe that sometimes they don’t have the resources needed to assess each property independently, so they create standard models for general categories,” Lutsky added.

To illustrate this mass appraisal approach, consider the following: Assessors understand that overall hotels are suffering. After examining a series of budget hotels, they may conclude that within their jurisdiction net operating income for budget hotels has declined by 60% during 2020 and they may apply a standard percentage value adjustment to those types of properties.

“I have started reviewing assessment notices for clients. I find it interesting that in Baltimore City, Maryland they are taking what I would say is a conservative approach. If you had a property that was stable relative to its true peers [i.e., had similar occupancy, income and expense figures] in this last year, you're probably going to get the same value that you had before, or they might slightly increase it,” said Lutsky.

But according to Lutsky, they have not increased it significantly, by say 20% to 25%, an increase one might see for an assessment conducted every three years, which amounts to an increase of roughly 8% per year. “In restaurants, they've actually either held the number or they've reduced it a little bit. On hotels I see in Baltimore City, they reduced the assessments, I would say substantially; I am seeing 10%, 15%, 20% deductions [in assessed values.] They are recognizing that hotels have suffered. They're recognizing that restaurants have suffered. They're not adjusting at the same levels for apartment buildings.” Those valuations seem to be flat, said Lutsky.

He said that by comparing the standards used by the assessors to the particular data of a building, one may find significant discrepancies. “I may look at it and go … that's not the read I make. My operating expense was this, my building is 34 years old, it's not in the neighborhood that you think it's in.” When those differences are identified, property owners have a solid case for appeal. The greater the divergencies, the stronger the case.

How to Account for Changes in Occupancy: An Example

If, however, the owner and assessor agree that the building characteristics such as age, condition, location, income, expenses, etc. are accurately reflected in the assessment, there is a way to account for sudden declines in occupancy and income, explained Lutsky. “I recently presented an office building appeal based on [that scenario],” said Lutsky.

The appeal was for a 34-year-old, Class B office building consisting of 46,285 rentable square feet (RSF) located between Baltimore and Washington, D.C., which had posted several years of vacancy exceeding 50%.

“This office building was 50% occupied and we were able to build a pretty good case. We developed our value estimate based on a stabilized value which we adjusted, in this case discounted, for the lease-up costs the owner will incur to re-lease the building.”

A first-level appeal was filed for 2020 to argue against a proposed reassessed value of $7,085,000. Following a review and analysis of the physical property, three years of financial history (2017, 2018, and 2019), and the submarket’s trends and statistics, Lutsky and his team concluded a stabilized value of $5,395,000. This opinion was based on 85% occupancy, asking rents of $19.50 per RSF and operating expenses of $7.50 per RSF.

However, the actual occupancy in December 2019 was 48% or 39,525 RSF, meaning the owners had to lease 17,205 RSF to reach that stabilized goal. To do so, they would incur costs for items such as tenant improvements and leasing commissions, in addition to experiencing a period of lost revenue.

“Our estimated lease-up discount amounted to $1,206,650 based on basic tenant improvements of $25 per RSF, leasing commissions of 6%, and lost revenue during what we believe to be an extended lease-up period. Our opinion of the market value, effective January 2020, amounted to $4,188,350,” said Lutsky.

This discounted value opinion was further supported by comparable sales in the preceding three years within this submarket, several of which also reported high levels of vacancy. By figuring out the costs incurred to reach 85% occupancy, one can adjust or discount the stabilized value for the “as is” assessment.

Part 2 COVID-19 Commercial Property Tax Assessments: Brace for Impact

Three Levels of Appeals

Lutsky outlined the three levels of appeals common to Maryland counties and across the U.S. He also highlighted what it takes for a property owner to succeed at each level of the process and ultimately win an appeal in court. The three levels he discussed are:

1. Supervisor or informal review.

2. Assessment appeals board.

3. Tax court or general court.

“The first [level] is an informal meeting to learn how the assessor arrived at the property value, the second involves a citizen board that reviews the property owner’s case and the third is a hearing before a judge,” in tax or general court Lutsky said.

Before Taking a Case

Before agreeing to take a case, Lutsky conducts an initial assessment to determine if the appeal has merit.

Opportunity Review. “The first thing I do is what I call an ‘opportunity review,’” said Lutsky. During this phase he gathers information about the subject property and compares it to market trends. “I look at the history of your income and operating expenses and see how that history flows.” If overall market trends have negatively impacted the property, and the documentation he gathers supports this, he will agree to argue the case.

Operating History of the Asset. To understand the operating history of an asset, Lutsky typically conducts a detailed review of the operating statements for three prior consecutive years and also examines rent rolls or occupancy reports, recent leases and renewals, capital expenditures or replacement reserves, recent sale history and submarket trends. “Our review of the operating statements is typically line-by-line, identifying trends and abnormalities and comparing them to percentage or dollar benchmarks for similar properties. All of this is compared to market or submarket trends and comparable sales to identify how this property compares,” Lutsky said.

Level 1: Supervisor or Informal Review

Once he believes the case has merit, Lutsky works on filing a first-level review. “After I understand your property, I connect with the Maryland Department of Assessments and Taxation (SDAT) to file a first-level review. I want to learn how the assessor developed your value. The objective here is to identify and focus on the metrics where you disagree, which may help you prove your point,” said Lutsky. “Part of that has to do with determining if the assessor understands the nuances of the property, its location or issues, because these nuances will build and support the case.”

Independent valuation and document collection. During this phase, Lutsky focuses on two key tasks. First, he sets out to value a property independently and develop a professional opinion about what it’s worth. Second, he concentrates on gathering information from the assessment department, such as a record card, worksheet, workpapers, etc., so he can compare his analysis to theirs. He may find that he agrees with their revenue assumptions, but not their operating expenses. At this point, “I need to go in there and discuss why my operating expenses are what they are.”

It is during this first-level review that the hard work of gathering documents is carried out. Meaningful documents that property owners should have available include site plans and leasing brochures, operating statements, rent rolls, recent lease abstracts and both prior and planned capitalized expenditures. The objective is to paint an honest picture of both the past and the future expenses and revenue related to the property.

Securing a hearing with an assessor. A hearing with an assessor is typically scheduled four to six weeks after filing, but during the pandemic the lead time has been two to three months or more and hearings have generally taken place over the phone. A session with a supervisor usually lasts 20 to 30 minutes and an agenda is normally followed. First, there is a discussion about the specifics of the property, including the physical condition (i.e., size, age, quality and design), the location, financial history and trends. These factors are compared to market trends such as occupancy, rental rates and upcoming lease expirations that could lead to increased vacancy. “The discussion will then focus on where we agree and certainly where we disagree with the assessor’s workpapers,” Lutsky said.

For example, “let’s say they valued the property at $10 and I say $8. After I file the first-level review, they come back at $8.25. I may not chase that last $0.25. I’ll tell the property owner that we were able to reduce the assessed value by 18% and that's a pretty good number.”

“Our target is always a ‘fair and reasonable’ valuation,” Lutsky said. To achieve this goal at every level of the process, the assessors “must recognize that you're being honest and forthright,” Lutsky said. “If you raise too many issues that don't have value, your argument may become diluted and you start losing everything.”

Generally, 60% to 70% of well-documented appeals can be resolved at the first level, said Lutsky.

Level 2: The Assessment Appeals Board

If the property owner disagrees with the outcome of the supervisor hearing, the appeal continues to the Property Tax Assessment Appeals Board (PTAAB). These boards, located in each county throughout Maryland, consist of county residents. “The best you can hope for is they have experience and knowledge in real estate. I feel sometimes with these boards, because they are residents, they think that if they reduce commercial assessments, their own taxes could go up,” Lutsky said. However, for the most part he finds them to be fair when reviewing the data and information presented.

But Lutsky stresses that the burden of proof is on the property owner because the assessor is deemed to be correct. “I have to really prove that he was totally wrong or that I'm at least 70% plus correct.” It is critical for the tax consultant to argue a very strong case when going before a local board. “To do this, they need to be very clear on the issues and focus on the two or three reasons the assessment should be adjusted. Provide facts, include support, document your work and stress you are looking for a fair and reasonable outcome — not shooting for the moon,” Lutsky said.

Composition of appeals boards. Appeals boards vary in size; for example, in Maryland, they generally comprise three members, with an alternate, while in Virginia such boards could include up to nine members.

At this level Lutsky said that “appeals cases rejected by a supervisor but overturned by an appeals board might occur because the supervisor was overwhelmed with too much work or lacked experience with the property type in question. Outliers that supervisors might not be familiar with include a sale/leaseback (link) transaction, a manufacturing plant versus an industrial/warehouse building, affordable housing versus market rate communities, a marina, a restaurant or a hotel, since these are operating businesses versus pure real estate.”

Typical steps involved with an appeals board. In Maryland, and in most states, the argument at the first and second levels is about the valuation and legal counsel is not necessary at the second level. States like New Jersey and Pennsylvania are exceptions; legal counsel is required at the second level, but the argument still centers on valuation.

The basic chronology with a review board differs slightly throughout the country. Generally, in Maryland, the taxpayer presents and the board asks questions; the assessor then presents and the board may ask questions for clarification; the taxpayer gets to rebut and close, and the board might ask additional questions or close.

Level 3: Tax Court or General Court

If a property owner is not satisfied with the findings of the appeals board, they have a final chance to revise the assessed value in court. Lutsky explained that the type of court that hears the appeal differs from state to state. In some states, the appeal is heard in general court, and in others, like Maryland and New Jersey, it is tried in tax court. In states like Virginia, appeals are heard in circuit court. Lutsky said a major challenge in circuit court is that “the judge has heard a robbery right before he hears my appeal … and he might not have the knowledge in real estate to understand what we're presenting.” In places with tax court, “you have judges that understand what you're talking about,” so presenting the case is more straightforward.

In tax courts, judges often hold hearings related to tax matters beyond real estate, examining personal property and sales and tax issues as well. Because they specialize in tax assessment topics, they are often able to focus on the core issues of the argument more quickly than judges without this body of knowledge.

“I have been fortunate to have worked around the country enough to understand that it's localized and I've got to learn and understand the rules before I show up,” Lutsky said. “For instance, I cannot directly represent you in Pennsylvania. I need the owners to engage an attorney, and I will work with them directly, but they [and their attorney] will present before the judge.”

But that hand off to the attorney can cause problems, because when they are speaking extemporaneously before a judge, they may not be as familiar with the specifics of the case as the consultant that built it from the ground up and they may not emphasize the elements the tax consultant believes should be highlighted.

Professionals presenting on behalf of the municipality. Presenters will vary depending on the location. In Maryland, there are state attorneys and/or assistant attorney generals that represent the SDAT before the tax court. In other states, they rely on city or county counsel. The formality differs not just by state but also by municipality or jurisdiction, so there are many variations.

Both sides are represented by counsel and the hearing becomes a typical “court case” with both sides presenting their experts, evidence and opinions. The length of the hearing differs depending on the complexity of the case. A straightforward appeal about an office building might take one day, while a more complex case, like one involving a hotel, could take several days.

Winning the appeal in court. Lutsky said that if your argument is well presented and documented, the assessors may be more agreeable and that will carry forward to review boards and courts. He emphasized that clear documentation relating to the asset in question is powerful evidence. For example, owners that present actual cost figures for operating expenses will likely prevail over assessors that use standard ratios. For a marina, or any other operating business like a restaurant, hotel, golf course, nursing home, etc., you need to value the operating entity and then allocate or separate that value into the components of real estate, personal property and any intangibles or enterprise value.

Lutsky summarized that “for a successful outcome, property owners need to provide complete and accurate data to their consultant, allow time for the process, and be reasonable in their expectations.”

The Guide to Wholesaling Commercial Real Estate (Video)

Keystone Property sells stake in new AmerisourceBergen HQ for nearly $340M

Natalie Kostelni Reporter Philadelphia Business Journal

Keystone Property Group has sold a preferred equity stake in a new 429,122-square-foot headquarters built for AmerisourceBergen Corp. to a Washington, D.C., real estate firm in a deal that sources say is valued at tad less than $340 million.

Terms of the transaction weren’t disclosed and neither Keystone nor PRP Real Estate Investment Management, the firm that made the acquisition, would comment on the financial details of the deal. PRP acquired an 89% interest in the Conshohocken building, leaving Keystone to control the remainder.

In addition to value-add apartment properties, PRP buys office buildings leased to single tenants or that serve as a headquarters for a company. This is the firm’s first office acquisition in the Philadelphia area.

“It was one of the most complicated deals we have done,” said Paul Dougherty, president of PRP. “The pricing we needed to achieve to make the numbers work with the lenders and getting a loan capitalize like this in Covid isn’t that easy. We put together a syndication of four lenders to fund the debt. To get that done in this environment is easier said than done.”

The project is part of the bigger Sora West mixed use development in Conshohocken. PRP first became involved in trying to work out a deal in September. By November, the firm was fully engaged in hammering out the transaction.

Part of what made the deal so complex is the project has a $39.5 million EB-5 mezzanine loan and the building is still under construction though nearing completion. “We needed to ensure the EB-5 mezzanine loan stayed in place yet we were coming into it during construction,” Dougherty said. “No lender wants to come in mid-stream in construction. It was not an easy process.”

Full story:

Wednesday, February 24, 2021

Morgan Properties makes $1.75B acquisition of apartment portfolio

 Natalie Kostelni Reporter Philadelphia Business Journal

Morgan Properties has paid $1.75 billion for a portfolio of 48 apartment communities, adding 14,414 units across 11 states.

The King of Prussia company bought what is referred to as the North Star Portfolio in partnership with Olayan America, which is part of Olayan Group, a family-owned international investment firm. The Saudi Arabian conglomerate has been valued at more than $10 billion by Bloomberg.

Plans involve investing another $100 million in upgrades to the properties.

The Class B portfolio was sold by Star Real Estate Ventures, a joint venture between El-Ad National Properties, and Yellowstone Portfolio Trust. As a result of the transaction, Morgan enters five new states including Florida, Texas, Georgia, Louisiana and Michigan. Other properties in the portfolio are in Illinois, Maryland, Ohio, South Carolina, North Carolina and Indiana.

The largest concentration of apartments is in suburban Baltimore, with 2,566.

Full story:

Will Commercial Real Estate Values Rise in 2021? (Video)

Dermody To Develop 1.2 Million-Square-Foot Logistics Park in South Jersey

by Linda Moss Costar

Looking to take advantage of the still-rising demand for industrial space, Dermody Properties is slated to begin construction this spring on a roughly 1.2 million-square-foot logistics park on a 154-acre site in South Jersey.

Dermody, based in Reno, Nevada, plans three buildings at its LogistiCenter at Woolwich development, which is located in Woolwich Township in Gloucester County. When completed, the properties will have 262,200 square feet, 552,585 square feet and 336,700 square feet available for leasing. Their addresses are 2057 Route 322, 2120 Route 322 and 2062 Route 322, respectively.

Demand for industrial space had been skyrocketing, driven by e-commerce, in New Jersey even before the pandemic last year. Stay-at-home orders and store closures gave online buying another boost, and the need for logistics space exploded. But there is scant vacant space available to build such projects in North Jersey, so distribution and warehouses are being constructed farther south in the Garden State.

The Class A, state-of-the-art facilities in Woolwich will each feature a 36- to 40-foot clear height, build-to-suit office space, 50 to 110 dock-high doors, drive-in doors and ample trailer and car parking. LogistiCenter at Woolwich is located at the intersection of U.S. Route 322 and Locke Avenue, and Dermody said it will make significant improvements to that junction as it develops its new park.

“Southern New Jersey remains a valuable alternative for many customers looking to be along Interstate 95, and the location offers tremendous access to New York City, Philadelphia, Baltimore and Washington, D.C., all within a two-hour drive via major arterials,” Gene Preston, Dermody East region partner, said in a statement. “The market continues to attract top-tier companies looking for Class A warehouse space that has become too rare to find or too expensive in central and Northern New Jersey.”

There is a good balance of residents with manufacturing or distribution experience, recent high school graduates looking for entry-level roles and college graduates looking for advanced or leadership roles all within a 30-minute drive of the Woolwich location, according to a labor study done by CBRE in conjunction with Dermody.

The real estate firm isn’t a stranger to South Jersey. It developed the LogistiCenter at Logan, a Class A business park with more than 5.5 million square feet of warehouse, distribution and manufacturing space that’s located in Logan Township.

Founded in 1960, Dermody has invested in more than 89 million square feet of industrial space.

 J.G. Petrucci Co. is also building Port Logistics Center at Logan, Building A, a 1.1 million-square-foot speculative project located in a four-building industrial campus currently under development. Construction of the logistics center in Logan Township, which will have 1.9 million square feet when completed, has already begun.

Friday, February 19, 2021

Opportunities Abound for Growing Office Users Amid Pandemic’s Disruption

By Adrian Ponsen CoStar Analytics

 Across the mid-Atlantic, available office space is piling up at the fastest pace in two decades.

Unlike America's previous two economic downturns, the coronavirus-induced recession hasn't fallen particularly hard on most white-collar employers. But office tenants across a range of industries are still shedding space, as the pandemic forces many business owners to learn the hard way that their firms can still run effectively with large numbers of employees working from home.

Still, amid this challenging backdrop, predictions of the death of the modern office as we know it also seem greatly exaggerated. Law firms still need office space to meet with clients, medical office users can't provide their full range of services online, and new hires in most industries need more than just a Zoom conference call to master the tricks of the trade and learn from their colleagues.

Putting the office sector’s uncertain future aside, one thing is clear: Office users still willing to think proactively and make long-term commitments to new offices are in control in today’s market. Many even face enormous money-making opportunities.

As the pandemic continues to fuel more work-from-home arrangements and drive up office vacancies, investors are becoming increasingly skeptical about the re-leasing potential for occupancy-challenged properties. Average pricing on distressed office sales in the mid-Atlantic has already fallen more than 20% since late 2019 and is back down at the lowest levels in five years.

In contrast, after making big gains in 2019, pricing for fully leased office properties has held strong in recent months. This comes as lower interest rates have left investors desperate for income-producing assets of all shapes and sizes.

With yields disappearing in the bond market and stocks' price-to-earnings ratios soaring, income-seeking investors are more than happy to continue paying up for well-leased office properties, regardless of any long-term risks to office occupancy that the pandemic might have created.

In fact, the pricing premium that well-leased properties are commanding — in other words, the difference between the red and blue lines in the previous chart — is also at the highest levels since the years immediately following the global financial crisis.

Office tenants who can acquire low-occupancy properties and then offer them up sale with their own long-term leases in place can exploit this market dislocation.

CoStar Group pursued a similar strategy in 2010 when it purchased the Mortgage Bankers Association’s former Washington, D.C., office for $41 million, only to sell the property one year later in a sale-leaseback for $101 million. CoStar Group is the publisher of CoStar News.

While too little time has passed since the pandemic began to single out properties that have followed a similar path following the recent crisis, there is evidence that investor appetite for sale-leasebacks remains strong.

One of the country's largest office sales so far in 2021 involved Thrivent Financial's sale-leaseback of its newly built headquarters in Minneapolis for $130 million, or about $542 per square foot at a 4.25% capitalization rate.

New Jersey's largest sale-leaseback last year closed just outside of Trenton during December when Investors Bank sold its 47,000-square-foot facility at 2300 Route 33 in Robbinsville and then leased the property back from the buyer, Realty Management Systems, through 2034. The deal closed for $20 million, or about $424 per square foot, 11% above its initial asking price and only five months after being listed for sale.

As appetite for office investment thaws further in the months ahead and the pandemic abates, many more sale-leasebacks like these may follow. For office users with the financial wherewithal to take ownership of their next space, there is no time like the present to start shopping.

Real Estate SPACs To The Moon? What You Need To Know (Video)

Lessons Learned From A $4 8 Million Cash Raise for Commercial Real Estate Development

Philadelphia Medical Office Campus Trades for $53M

By Ingrid Tunberg

BG Capital has sold its medical office campus in Philadelphia’s Port Richmond neighborhood for $53.1 million.

The campus, comprising three medical office buildings, was purchased by the New Jersey-based commercial real estate company, the Hampshire Cos., and its international investment partner, Arbah Capital.

The sale resulted in BG Capital BG Capital has sold 90% equity ownership to the Hampshire Cos. for the three properties.

The campus’ three assets consist of a renovated 200,000-square-foot, multi-tenant office building, located at 2301 E. Allegheny Ave., a renovated 30,000-square-foot, single-tenant medical office building, and a new 16,000-square-foot, ground-up recreational facility for a medical office tenant.

BG Capital originally acquired the formerly-distressed campus properties in 2017. The company then completed a renovation program for more than 230,000-square feet of medical office space.

The firm coordinated a full lease-up of 100% occupancy with existing anchor tenants and new healthcare providers and users at the renovated buildings.

The campus is currently tenanted by Temple University Health Systems, Pediatric Dental Advisors, Ambrosia Treatment Centers and others.

Additionally, BG Capital and the Hampshire Cos. have recently formed a strategic joint-venture partnership to develop 7.1 acres of land, located near the campus at 2201 E. Allegheny Ave.

We are very proud to revitalize a large Medicare facility in our home city of Philadelphia,” states Joseph Byrne IV, managing partner of BG Capital. “The jobs that were saved, and the additional jobs that were created in this process, along with the new and existing services provided to the community, truly define the success of this project. Our firm’s new strategic partnerships established with both domestic and foreign investors, are a testament to what has been and can be accomplished moving forward on future development projects.”

“The execution of a complex transaction of this magnitude in the middle of a global pandemic is an incredible representation of the proficiency and fortitude of our team here at BG Capital,” says Tyler Huffman, senior associate at BG Capital. “We are extremely excited to build off the relationships, knowledge and experience we have acquired through the development of this project to help propel the company moving forward into larger endeavors and deal sizes. In the end, being able to help bring additional healthcare services to a facility and area in need is an exceptionally rewarding project for all that were involved.”

Thursday, February 18, 2021

Top Industrial Leases & Property Sales in the Philadelphia Area

 Top Property Sales

One uCity 225 N. 38th Street Philadelphia, PA

Sale Price: $636,356,206 (allocated)*

Sale Date: November 20, 2020

Size: 852,000 SF

Buyer: GIC Real Estate, Singapore and Ventas, Chicago, IL

Seller: Ventas, Chicago, IL and Wexford Science & Technology, Baltimore, MD

Details: This transaction involves the formation of a new joint venture between Ventas and GIC, a Singapore sovereign wealth fund to recapitalize a portfolio of four university-based research and innovation projects that are currently under construction in two states. The properties will total 1.4 million square feet when completed. Under this agreement, Ventas contributed its ownership interest in the initial four properties and will own a majority interest in the new joint venture. GIC will own a 45% interest, and Ventas’s exclusive development partner and subsidiary, Wexford Science & Technology, remains a minority partner. *Part of a portfolio sale

Lebanon Valley Distribution Center 139 Fredericksburg Road Fredericksburg, PA 

Sale Price: $243,721,969 (allocated)*

Sale Date: December 20, 2020

Size: 2,108,868 SF

Buyer: GLP, Englewood, CO and State of Utah, Salt Lake City, UT

Seller: USAA Real Estate, San Antonio, TX

Details: USAA Real Estate, the real estate investment platform for the San Antonio-based financial services company, sold the Lebanon Valley Distribution Center in a year-end deal. The four-property industrial portfolio totaling 3,714,429 square feet was part of a portfolio involving properties in three states. The portfolio was acquired by Singapore-based GLP, a global investment manager with US$97 billion in assets under management in real estate and private equity funds. *Part of a portfolio sale

Arborcrest Park

Sale Price: $225,000,000

Sale Date: December 2, 2020

Size: 852,803 SF

Buyer: Sidra Capital, Jeddah

Seller: Spear Street Capital, San Francisco, CA

Details: A Saudi Arabia-based investment firm acquired a majority stake in this Philadelphia life science campus, part of a broader trend of Saudi capital flowing into the U.S. tech, life sciences and health care industries. Sidra Capital acquired a 90% ownership stake in the Arborcrest Corporate Campus, an 855,600-square-foot suburban office campus spanning five buildings in the northern Philadelphia suburbs. San Francisco-based Spear Street Capital sold the stake while keeping a 10% ownership interest. *Portfolio of 5 Office Buildings

12 Tradeport Road Hanover Township, PA 

Sale Price: $194,600,000

Sale Date: December 22, 2020

Size: 2,004,080 SF

Buyer: Granite REIT Holdings, Toronto, ON

Seller: NorthPoint Development, Riverside, MO

Details: Missouri-based NorthPoint Development sold a two-property industrial portfolio in the Hanover 9 Industrial Park to Granite REIT Holdings of Ontario, Canada, for $194 million in a year-end trade. The properties encompass approximately 2,000,000 square feet of industrial distribution space completed in 2019. Granite has pursued an investment strategy of acquiring and developing industrial properties in major e-commerce and distribution markets in North America and Europe.

111 Logistics Drive Hamburg, PA

Sale Price: Not disclosed*

Sale Date: December 3, 2020

Size: 1,900,000 SF

Buyer: Stockbridge Capital Group, San Francisco, CA and National Pension Service of Korea (NPS), Songpa-qu

Seller: Hillwood Development, Dallas, TX

San Francisco-based Stockbridge Capital Group purchased a national portfolio of industrial distribution facilities totaling approximately 14.3 million square feet as part of a joint venture with the National Pension Service of Korea and an undisclosed institutional investor. *Part of a portfolio sale

Keystone Industrial Port Complex 

Sale Price: $160,000,000

Sale Date: December 23, 2020

Size: 840,879 SF

Buyer: NorthPoint Development, Riverside, MO

Seller: United States Steel, Pittsburgh, PA

Details: Missouri-based NorthPoint Development acquired a large East Coast remediation site near Philadelphia where it plans to build a massive warehouse and distribution campus. The year-end sale involved the Keystone Industrial Port Complex, a former steel plant known as the Fairless Works in Bucks County. After cleaning up the site, NorthPoint is planning to develop a bulk logistics center containing an estimated 10 million square feet of industrial space to be called the Keystone Trade Center. The developer expects to begin the first phase of the project, totaling approximately 3 million square feet, in the spring of 2021.

D&H Distributing Harrisburg PA

Sale Price: $121,964,592 (allocated)*

Sale Date: December 11, 2020

Size: 1,577,582 SF

Buyer: Kohlberg Kravis Roberts & Co., New York, NY

Seller: High Street Logistics Properties, Woburn, MA

Details: High Street Logistics Properties sold an industrial portfolio of roughly 9.7 million square feet across 100 properties in seven major markets in the U.S. to private equity firm KKR. This recent acquisition brings KKR’s total industrial portfolio to about 30 million square feet. *Part of a portfolio sale

1900 River Road Burlington, NJ

Sale Price: $110,500,000

Sale Date: December 28, 2020

Size: 1,050,266 SF

Buyer: Clarion Partners, New York, NY and MRP Realty, Washington, DC

Seller: Stag Industrial, Boston, MA

Details: Stag Industrial Inc divested this industrial property measuring more than 1 million square feet on a 117-acre site in Burlington County to a joint venture between Clarion Partners and MRP Realty. The buyers plan to demolish the existing structure to make way for two new distribution buildings.

Interstate Distribution Center Pittston, PA

Sale Price: $96,000,000

Sale Date: October 29, 2020

Size: 1,078,200 SF

Buyer: Ball, Broomfield, CO

Seller: Endurance Real Estate Group, Radnor, PA and Blue Vista, Chicago, IL

Details: Ball Corp., a Colorado based aluminum packaging manufacturing company, acquired a new distribution center in Pittston, PA. The building was delivered in shell condition and Ball Corp. plans to retrofit the facility as an aluminum beverage packaging plant set to open in mid-2021.

899 Cassatt Road, Berwyn, PA 

Sale Price: $91,318,251 (allocated)*

Sale Date: December 20, 2020

Size: 695,211 SF

Buyer: Davidson Kempner Capital Management, New York, NY

Seller: Brandywine Realty Trust, Philadelphia, PA

Details: In another year-end trade, Brandywine Realty Trust sold a majority stake in multiple office parks totaling over one million square feet. The properties involved included Berwyn Park, Southpoint and Westlakes Office Park in Berwyn, Pennsylvania, and Research Office Center 270 in Rockville, Maryland. The sales price was a reported $154,239,135 for the 80% interest. Brandywine retained a 20% interest in the joint venture with the New York-based asset management firm and will provide management, leasing and construction management services to the joint venture. *Part of a portfolio sale

Top Industrial Leases 

4255 North Valley Drive, Schnecksville, PA

Space Leased: 1,326,994 SF

Deal Type: New Lease

Sign Date: October 9, 2020

Size: 1,326,994 SF

Tenant: United Natural Foods

Details: Black Creek Group’s North Valley Trade Center 1 building landed a major tenant in the fourth quarter. United Natural Foods, a premier wholesale food and meat distributor, agreed to occupy over one million square feet in this new Lehigh Valley development set to deliver in the third quarter of 2021.

1 Walnut Bottom Road, Shippensburg, PA

Space Leased: 1,100,500 SF

Deal Type: New Lease

Sign Date: October 28, 2020

Size: 1,100,500 SF

Tenant: Lowe’s Home Improvement

Details: Home improvement retail giant Lowe’s secured this new distribution center at Commerce Park, the 300-acre planned industrial development located in the southern I-81 corridor. Lowe's signed a 10-year deal with Equus Capital Partners to occupy an entire 1.1 million-square-foot distribution facility within the Shippensburg 81 Logistics Center as part of its plans to to significantly expand its supply chain to improve same-day and next-day fulfillment options for customers and speed up e-commerce shipping across the country. Last August, the North Carolina-based retailer unveiled plans to open 50 cross-dock terminals, seven bulk distribution centers and four e-commerce fulfillment centers over the next 18 months.

Penn Commerce Center, 951 Centerville Road, Newville, PA

Space Leased: 807,998 SF

Deal Type: New Lease

Sign Date: November 2, 2020

Size: 807,998 SF

Tenant: FedEx
Details: Fedex signed a full-building lease with Ridge Development for the first building in the Penn Commerce Center. The new Cumberland County warehouse facility totals more than 800,000 square feet and is located along I-81 just west of Harrisburg, Pennsylvania. Ridge Development is the industrial development arm of Transwestern Development Co.

Mansfield Logistics Park, Columbus, NJ

Space Leased: 710,368 SF

Deal Type: New Lease

Sign Date: November 10, 2020

Size: 710,368 SF

Tenant: Elogistic

Details: Building 2 of this Class-A industrial logistics park owned by Clarion Partners was leased by Elogistic, a New Jersey-based company specializing in global logistics fulfillment. The newly delivered facility includes 710,368 square feet of space. a 40’ minimum clear height, 107 dock doors and four drive-in doors on grade.

151 Commerce Drive, Hazleton, PA

Space Leased: 440,504 SF

Deal Type: Renewal

Sign Date: October 1, 2020

Size: 440,504 SF

Tenant: Corrugated Supplies

Details: Currogated Supplies Co., a large manufacturer and distributor of currogated cardboard sheets, renewed its lease in the Cabot Properties' Humboldt East Industrial Park. CSC selected the Hazleton facility as its seventh U.S. location in 2019 to serve its northeastern customers. Cabot purchased the single-tenant distribution building last November for just under $42 million.

Barrington Business Center, 1 Commerce Drive, Barrington, NJ

Space Leased: 285,253 SF

Deal Type: Renewal

Sign Date: December 15, 2020

Size: 931,682 SF

Tenant: PAE

Details: One of Barrington Business Center’s largest tenants, Pacific Architects and Engineers, renewed its lease for just over 285,000 square feet in the fourth quarter. PAE is a defense and government services contractor that has been a tenant in the building since 2017.

9801 Blue Grass Road, Philadelphia, PA

Space Leased: 282,800 SF

Deal Type: New Lease

Sign Date: December 1, 2020

Size: 282,800 SF

Tenant: The TJX Companies

Details: TJX, the parent company of retailers T.J. Maxx, Marshalls and Home Goods, signed a fourth quarter lease for a build-to-suit distribution facility to be constructed in northeast Philadelphia. TJX is set to occupy an entire 282,800-square-foot facility that will be located on 21 acres 9801 Bluegrass Rd. The property is owned by DH Property Holdings and Bridge Development is serving as the developer for the project.  

9747 Commerce Circle, New Smithville, PA

Space Leased: 211,134 SF

Deal Type: Renewal

Sign Date: October 26, 2020

Size: 384,835 SF

Tenant: Allen Distribution

Details: This Class-A Industrial building developed by Higgins Development Partners and owned by Prologis saw Allen Distribution renew its lease for over 211,000 square feet in a fourth quarter lease transaction. Built in 2007, the 384,835-square-foot building sits on over 25 acres and features 28 docks with a 32’ clear height.

2650 Oldmans Creek Road, Logan Township, NJ

Space Leased: 194,072 SF

Deal Type: New Lease

Sign Date: December 9, 2020

Size: 194,072 SF

Tenant: Ginsey Industries

Details: Plumbing supplies manufacturer Ginsey Industries agreed to lease this entire industrial warehouse in the LogistiCenter at Logan complex. The facility was built in 2019 and features 36 loading docks and a 32-foot clear height. The property is owned by DWS Group, a New York-based asset manager.

1070 Horsham Road, Montgomeryville, PA

Space Leased: 164,740 SF

Deal Type: New Lease

Sign Date: October 30, 2020

Size: 164,740 SF

Tenant: Jillamy

Details: Jillamy, a third-party logistics and supply chain provider, leased just shy of 165,000 square feet last October in this recently renovated and climate-controlled space in Montgomery County, Pennsylvania owned by Nappen & Associates. With its latest lease, Jillamy now has over 1.2 million square feet of warehouse space across Philadelphia, Bucks and Montgomery counties.

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Thursday, February 11, 2021

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Granite Completes US$195 Million Industrial Deal in Pennsylvania

 By Garry Marr CoStar News

Toronto-based Granite Real Estate Investment Trust closed on buying two industrial properties in Pennsylvania for 194.6 million U.S. dollars, moves that come after the REIT raised 288 million Canadian dollars in late 2020.

Granite has not disclosed its latest purchase, but CoStar data shows it bought properties with more than 2 million square feet of space at 12 Tradeport Road and 250 Tradeport Road in Nanticoke, Pennsylvania, about 120 miles northwest of Philadelphia, from NorthPoint Development.

Granite officials would not comment on the transaction, but in a securities filing for an equity raise in November, the REIT said it was "engaged in discussions with respect to the possible acquisition and financing of new assets," without offering specifics.

CEO Kevan Gorrie did offer some clues during a third-quarter conference call about where the REIT was looking to expand.

"Well, we're looking in Canada, but I think, rightly so, we're being very selective about what we're doing in Canada. We still are seeing superior returns in the U.S. and Europe. So I would say the bulk of our acquisitions, including development sites that we would look to acquire, would occur in Europe and the U.S.," said Gorrie.

The REIT is scheduled to release its fourth-quarter results March 3.

A new report suggests tenant demand for industrial real estate in Canada did not let up, with the vacancy rate dipping to 2.7% at the end of 2020 and rents in Toronto up 15.3% from a year ago.

Monday, February 8, 2021

New Warehouse Campus Coming to Hazelwood, Pennsylvania

by Ben Atwood Costar Analytics

Earlier this week, Luzerne County officials in Pennsylvania approved a 10-year tax incentive plan for a 5.5 million-square-foot industrial park in Hazelton.

The 400-acre tract, upon which the project will be built, has sat unused for decades, as it was historically used for coal mining and landfill purposes. With the tax abatements now set, the developer, a Bethlehem-based group called Hazelton Commerce Center Holdings, plans to develop five warehouses atop the land and will be marketing the space to national e-commerce firms.

The project will cost $500 million and will showcase the level of confidence in the Scranton market and the logistics sector as a whole.

E-commerce levels have skyrocketed thanks to the coronavirus, as sheltering in place to stop the spread has fueled a surge of online shopping. This has spiked demand for logistics space across the country and this impact has been particularly strong in the Scranton market.

Through 2020, the region saw some of the state’s highest levels of industrial net absorption, which was driven almost entirely by logistics tenants. Scranton ended last year with over 4 million square feet of positive absorption, more than nearby Lehigh Valley and Harrisburg, which typically outperform Northeastern Pennsylvania markets.

What’s even more telling about this development is that an outside firm was behind the project. Because of the region’s mountainous terrain, the development of large warehouses can be tricky and nearly all of the market’s major development has been done by Mericle, a local firm specializing in logistics facilities.

The arrival of an out-of-market developer such as Hazelton Commerce Center Holdings indicates that even with the development barriers, demand is anticipated to be strong enough to make the project worthwhile.

International manufacturers have been scouting out the Scranton region, and Hazelton in particular, for some time. Their interest in the region stems from its labor pool and logistics capabilities.

More warehouses could help bring in more manufacturers and strengthen a market that has struggled for generations to overcome the decline of manufacturing and coal.

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Taking a Closer Look at the Strong Lancaster Industrial Real Estate

by Ben Atwood Costar Analytics  

Despite some slight softening of occupancies over the course of 2020, data unequivocally shows that the industrial market in Lancaster, Pennsylvania, remains on rock-solid ground at the start of the new year, indicating growth could be on the horizon.

This is due in large part to the surge in e-commerce generated by the coronavirus. As the country sheltered in place to stop the spread, the number of consumers buying goods online skyrocketed, fueling unprecedented demand for logistics space.

So, even though Lancaster’s industrial market saw negative absorption over the course of 2020, it’s not troubling locals at all.

“We’re still in a great place,” said Bill Boben, a senior vice president at developer High Associates. “Because of our agrarian roots, Lancaster is sort of the mini-breadbasket of the mid-Atlantic, so there is plenty of food production and processing here.”

Central Pennsylvania’s location and distribution capacity have made it a national player in the snack food industry. It’s why brands like Utz, Snyder’s and Hershey’s are household names, and Boben believes that food distribution is playing a key role in keeping the local industrial sector stable.

Lancaster’s industrial assets are over 97% occupied, especially impressive considering it's a smaller market with a hefty amount of local manufacturing. This meant it was somewhat exposed to risk at the start of the pandemic, which is why absorption took a hit. But with the worst of the disruption likely out of the way, Lancaster now looks primed for growth.

What is particularly interesting here is that this development might not resemble what is seen in the other markets within the North Atlantic Trade Corridor. From any warehouse within these seven Pennsylvania markets, more than 60% of the country’s population is within a single day’s drive, and that level of access has fueled more than 100 million square feet of warehouse and distribution space since 2010.

Only 5 million of that was in Lancaster, but developers haven’t been sleeping. Around 33 industrial assets have delivered here since 2010, double what delivered in nearby Lebanon and roughly the same number of properties that arrived in York and Scranton.

What’s curious about this is that the total square footage delivered in each of those markets exceeded what arrived in Lancaster, indicating that in other regions, larger assets are the demand drivers. This makes sense because these markets have better access to major interstates, something Lancaster lacks.

Instead, the suburbs of Philadelphia could be Lancaster’s great strength. Most of its newest buildings are close to smaller routes like Interstate 30 and Interstate 222, which run directly into Philly suburbs like Kennett Square, West Chester and Exton.

Last-mile delivery into these expansive suburbs could be pushing demand, and there is some data to back this up. Lancaster industrial demand comes from small leases. In fact, just over 20% of the total number of leases signed for 50,000 square feet or less across the North Atlantic Trade Corridor was in Lancaster. This is the third-highest total, just behind Harrisburg at 21% and Lehigh Valley at 23%. That figure is even more impressive considering that the inventories of those two markets dwarfs Lancaster’s.

The local market could get even tighter in the near future. Though nothing has been finalized, local news has been reporting for several months that a major e-commerce firm is looking to fill a vacant 415,000-square-foot warehouse in Mount Joy.

This seems plausible given the acceleration of e-commerce and Lancaster’s prime position near Philadelphia’s suburbs. Even if it falls through, with occupancies as tight as they are, a slight uptick in demand could justify more development.

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Thursday, February 4, 2021

JV to Develop $287M Mixed-Use Tower in Philadelphia

 By Ingrid Tunberg

Brandywine Realty Trust and a global institutional investor are partnering to develop a 570,000-square-foot, mixed-use tower in the University City neighborhood of Philadelphia, PA.

The tower will be the first vertical development within the $3.5 billion, 14-acre Schuylkill Yards innovation neighborhood, which is being developed by Brandywine and Drexel University.

The property, located at 3025 JFK Blvd., will cost $287 million and will deliver a mix of residential, office, life science and retail space. The tower will feature 326 luxury rental residences, 200,000 square feet of life science and innovative office space, 29,000 square feet of indoor and outdoor amenity space and 9,000 square feet of retail.

Construction on the tower is slated to commence in March 2021. The project is expected to be completed in October 2023.

“As true believers in the promise of Philadelphia, we are pleased to continue partnering with one of the world’s top real estate investors who sees the same tremendous opportunity we do,” states Jerry Sweeney, president & CEO of Brandywine Realty Trust. “This announcement furthers our expansive portfolio of outstanding joint-venture relationships and signifies our deep-seated commitment to the vision we are bringing to life at Schuylkill Yards. With this partnership, we are poised to deliver a market-leading mixed-use tower within a city that is gaining significant momentum as a world-class life science hub.”

The tower has been designed by its executive architect, HDR, alongside the Practice for Architecture and Urbanism, as well as a team of nationally recognized engineering firms.

Titled the West Tower at Schuylkill Yards, the development will incorporate health and wellness, technology and integrated work/life experiences. Featuring 29,000-square-foot flexible floorplates, the tower’s ninth floor will host a 29,000-square-foot lifestyle club, which will feature indoor and outdoor lounge spaces, conference spaces, co-working spaces, a fitness center, a terrace, a lap and recreational pool, cabanas and grilling stations.

The tower’s residential component is being developed in partnership with the Gotham Organization. The property’s residences will range in size from studios to duplex three-bedroom units. The units will feature flexible layouts and an array of amenities.

“The addition of this highly-anticipated tower is a pivotal moment for both Philadelphia and University City, bringing Schuylkill Yards one step closer to realizing Drexel and Brandywine’s vision of a world-class setting for work and living, learning and innovation, socializing and making meaningful community connections,” says John Fry, president of Drexel University.

The West Tower at Schuylkill Yards will eventually be joined by the neighboring East Tower. The two properties will be linked together by a pocket park, titled the Highline Park.

The project serves as Gotham Organization’s first Philadelphia-based development.

“We are excited to have been chosen by Brandywine to develop our first luxury residential building in Philadelphia,” states David Picket, CEO of Gotham Organization. “We have been enamored by the growth and diversification of the residential marketplace and fascinated by the new neighborhoods popping up all over the City. Philadelphia is a city on the rise and deserving of what we believe will be a unique and inspiring living experience at the West Tower at Schuylkill Yards.”

For the project, Brandywine has additionally partnered with the community development corporation, Mount Vernon Manor, as part of its larger $16.4 million neighborhood engagement initiative for the Schuylkill Yards neighborhood. The initiative aims to prioritize apprenticeship training, local sourcing, capacity building, business development and more.

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Monday, February 1, 2021

Life After Kmart for Three Philly-Area Retail Properties

 By Adrian Ponsen CoStar Analytics

The coronavirus has brought plenty of headaches for Philadelphia retail landlords, many of whom were already facing intense competition from Amazon even before the pandemic got underway.

But anyone who has been to a crowded local supermarket, fast-food drive-thru or home improvement store recently can easily confirm that despite rising e-commerce sales, most Philadelphians haven't given up on leaving their homes to buy things. Far from it.

While some retailers are struggling and closing locations, others are thriving. The latter group's resilience, and their customers' willingness to turn out and support them, even amid a deadly pandemic, is a testament to consumers' enduring preference for browsing at certain brick-and-mortar retailers over buying goods online.

The stark contrast between winners and losers among retail tenants also highlights the scale of opportunity in today’s market for investors who can re-tenant low occupancy shopping centers.

Kmart is one down-and-out retailer whose former locations are being repurposed at a particularly fast clip. It’s worth examining a few recent examples as templates for how today’s growing number of vacant retail spaces can be brought back to life.

713 E. Baltimore Ave., Clifton Heights, Pennsylvania

This 93,000-square-foot property in Delaware County was occupied solely by Kmart until late 2019. But even amid the pandemic, Gator Investments' decision to subdivide the building helped secure leases from Big Lots and Lidl for well over half of Kmart’s former space.

Meanwhile, most of the remaining square footage is being marketed as industrial space. The owners are also seeking tenants for a planned 3,800-square-foot outparcel with optional drive-thrus. As this repositioning takes shape, the loss of the property's former anchor may have only accelerated the property’s evolution into a more bustling retail destination than it was before.

7101 Roosevelt Blvd., Philadelphia

This former Kmart, located along the arterial roadway of the most ethnically diverse corners of Philadelphia, closed its doors in early 2019. One year later, an entity taking title as Hengda Investment Properties LLC purchased the 70,000-square-foot property for $10.3 million, or about $148 per square foot, according to Philadelphia real estate records.

The buyer’s address is recorded as 4429 N. American St., which is the site of King Seafood, a wholesale seafood distributor in the Juniata neighborhood. The buyer's plans for the former Kmart site have not yet been disclosed, but moving King Seafood to this new Roosevelt Boulevard address, or opening a similar business in the new location, could fit well with No. 1 Asian Supermarket and the handful of Chinese and Vietnamese restaurants that are all located on the adjacent parcel.

3205 E. Lincoln Highway, Thorndale, Pennsylvania

This 103,000-square-foot former Kmart property sold at the tail end of 2020 for $4.15 million to Thorndale Realestate LLC, according to public real estate records. The buyer's recorded address is 230 N. Dupont Highway in New Castle, Delaware, which is where the Airbase Carpet & Tile Mart is located.

Chester County, where Thorndale is located, has the highest average household income of any county in Pennsylvania, and no shortage of large, single-family houses over 2,000 square feet. When combined with the region’s fast-rising homeownership rate, these features could prove to be fertile ground for a growing flooring business.

It’s difficult to pinpoint what exactly makes former Kmart locations particularly compelling properties for growing retailers in today’s environment, though their ample parking certainly doesn’t hurt. They also tend to offer large spaces in dense, low- and middle-income areas, where residents have been slower to adopt online shopping. And since most Kmarts were built as standalone properties, these locations also offer retailers the rare opportunity to secure a large footprint, without sharing a parking lot with powerhouse national chains.

Regardless, it will be worth watching how these properties evolve as this could be a trend that likely won’t stop, given there are more than 10 other recently shuttered Kmart locations in the Philadelphia metropolitan area alone.