Thursday, March 25, 2021

Triple Net Lease Pros and Cons [What Investors and Landlords Need to Know] (Video)

Economic Insights – Commercial Real Estate (Video)

What Rising Inflation Means For Real Estate Investors (Video)

Here’s How the Pandemic Is Changing ‘Act of God’ Clauses in Real Estate Contracts

 By Randyl Drummer CoStar News

Attorney Zach Allen had never in his 20 years of practicing real estate law seen the possibility of a pandemic or epidemic included in a standard real estate lease as an "act of God" similar to a war, hurricane or earthquake. Until the past year.

The pandemic has fundamentally transformed how most attorneys and their clients consider force majeure, a lease clause that limits the liability or obligations of tenants and landlords in the event of such catastrophes, Allen said. Those clauses had formerly been “one of those often-overlooked boilerplate provisions,” he added.

“Most landlords and tenants had little cause to invoke it except for maybe the occasional weather-related delay,” Allen, a member of the real estate practice group at the Oklahoma-based Crowe & Dunlevy law firm, told CoStar News. “I've looked at a lot of lease agreements for national retail tenants," he said, and "I don't think I've seen one that actually anticipated a pandemic. We've never encountered a situation like this."

A year after the pandemic wreaked havoc on businesses ranging from stores, restaurants and movie theaters, force majuere clauses have become the most discussed portions of any new commercial real estate lease. They're also being modified or added to existing leases in anticipation of the next crisis or unexpected event. And major changes are underway to other general lease language on issues such as rent abatement and lease termination rights, according to real estate attorneys and brokers representing both sides of negotiations.

The change comes after the pandemic and government emergency orders forced businesses in shopping malls, restaurants and office buildings as well as other commercial properties to close or sharply limit occupancy. Many struggling tenants stopped paying rent or abandoned their space, causing high-profile fights between landlords and tenants. Some conflicts have escalated to lawsuits over who should bear financial responsibility for the disruption that has caused billions in lost sales and income and contributed to millions of lost jobs and a rising tide of business bankruptcies.

"We’re seeing language involving government-mandated shutdowns in virtually every new lease," said Scott Burns, retail brokerage lead in Los Angeles and managing director for JLL.

Almost one-third of leases signed between April 1 and Dec. 31, 2020, in the United States specifically listed a pandemic as a force majeure event, compared with just 4% of leases signed prior to the crisis in 2018 and 2019, according to a survey of more than 300 recently signed leases conducted by business and legal research firm LexisNexis.

In total, more than 60% of leases signed from April through December mentioned the pandemic, other public health crises, coronavirus-driven emergency shutdowns or laws that could effectively make it illegal to fulfill the lease terms, the survey found.

"Force majeure clauses went from being somewhat boilerplate prior to the pandemic to being one of the more negotiated provisions in a lease negotiation," Michelle McAteer, a real estate litigation attorney with Chicago-based Jenner & Block, told CoStar News.

Negotiating force majeure provisions has taken on a new sense of urgency as attorneys and their clients track the progress of the first wave of lawsuits from tenants that seek to excuse or delay their lease obligations amid extreme financial hardship, McAteer's Jenner & Block colleague on the litigation side, Abraham Salander, told CoStar.

In the early weeks of the pandemic, tenants, owners and their attorneys rushed to review their leases and push for new terms that include references to pandemics and civil unrest, he said.

"We immediately started seeing feuds between landlords and tenants from day one of the pandemic," Salander said. "My phone was ringing off the hook. Emails were blowing up from clients, other partners in the firm and outside lawyers were calling to discuss issues. Tenants said they couldn’t pay rent and didn’t have to, and landlords pushed back."

That burst of activity "has now swelled into this wave of ongoing issues that my clients are facing," Salander added.

Burns said what stuck out to him was that, although leases weren't much of a road map for navigating the crisis, most struggling retail landlords and tenants pulled together and worked out their own agreements on deferred or abated rent without needing to call in the lawyers.

"Landlords could see they were struggling and tried to become partners instead of playing hardball," Burns said.

New Lease Terms

Force majuere clauses in property leases signed before 2020 typically defined fires, labor strikes, war or acts of terrorism, government prohibitions, natural disasters or other uncontrollable circumstances as being events that could free landlords or tenants from being liable for lease terms. Few of the clauses mentioned pandemics and almost all did not allow the abatement, extension or deferral of rent or other payments required by either party.

Now, attorneys have to grapple with whether a tenant can get rent full abated if a government order closes the doors to the business or whether they can get rent partially deferred if their capacity is reduced. For example, Crowe & Dunlevy's Zack Allen negotiated changes to a lease between a hospital tenant and property owner that would require rent abatement if the owner receives forbearance from its lender in the event of a government-ordered lockdown of 10 or more consecutive days.

But many real estate attorneys are still trying to sort out exactly how force majeure clauses will change in coming months and years, said David Farren, an attorney with the Phoenix-based Jaburg Wilk law firm. The circumstances created by the pandemic have raised legal issues that are barely a year in the making and are difficult to analyze without the guidance of precedent-setting case law that hasn't yet been established.

“Unfortunately, the courts have not had time to catch up to the COVID-19 pandemic," Farren told CoStar News.

Many owners and tenants that haven't yet added such lease provisions plan to do so, according to the survey of more than 300 recently signed commercial leases obtained from private sources by LexisNexis legal publication Practical Guidance Journal.

More than half the respondents whose force majeure lease clauses did not already include mention of pandemic-related events reported that they planned to renegotiate their leases to include one or more of those events in their contracts.

Several cases working their way through U.S. federal and trial courts could define how judges interpret force majeure in light of a pandemic or government-ordered business closing. In addition to rent requirements in leases, the cases could help decide whether commercial insurers are obligated to cover business losses or buyers and sellers are required to complete property sales. Other cases could determine whether developers, contractors and lenders have to meet construction timetables on projects delayed or canceled by pandemic shutdowns.

Landlords have won some early victories on leases, with judges refusing to exempt tenants from paying rent based on their claims of force majeure and other legal arguments, according to Jenner & Block's Salander.

Judges in several cases have denied tenants’ force majeure claims under leases and casualty provisions, generally concluding that the premises were physically intact and the tenants were able to operate their businesses in some form, Salander said.

For example, U.S. District Judge Robert Scola denied a motion by Kirkland Stores Inc. to dismiss a lawsuit filed in April by Palm Springs Mile Associates, owner of the Palm Springs Mile shopping center in Hialeah, Florida, after the home decor and furniture chain stopped paying rent as the effects of the pandemic disrupted its business.

Kirkland argued that restrictions on its business operations constituted a force majeure event in the lease, according to the lawsuit. Scola rejected the motion in a September ruling, concluding that the tenant failed to explain “how the governmental regulations it describes as a force majeure event resulted in its inability to pay its rent."

Kirkland and Palm Springs Mile Associates did not response to requests to comment on the case.

Tony Natsis, an attorney with the Allen Matkins law firm in Los Angeles who represents landlords, has yet to see a case where a tenant successfully invoked force majeure or other common-law principles to forgo rent payments because of COVID-19.

"Exacting lease language that forgives a tenant from any rent is almost nonexistent," Natsis said. "Most leases in the history of real estate say that if there's a force majeure event, the tenant still has to keep paying rent."

He said that court cases until now have not given him or his landlord clients "anything to be afraid of."

While losses to retailers can be measured in lost sales, the financial impacts of pandemic shutdowns aren't as clear for office landlords and tenants, Burns said.

"In some cases, office landlords and tenants are in an even worse situation," he said. "It wasn’t even the fact that governments mandated closures, it was the fact that companies including landlords didn’t want their people coming back to office buildings, or those people refused to come back."

Bankruptcy Complications

Rulings in bankruptcy cases are also providing a glimpse into how judges view tenant arguments that force majeure provisions should allow them to withhold rent.

Movie theater chain Cinemex thought it had protection against any disaster in its standard commercial property lease. But what the lease didn't include was protection against an unprecedented health crisis that has sent most of the world into quarantine for a year.

​Cinemex learned the hard way like most tenants in the United States that the force majeure clause doesn't give it the right to avoid paying rent. The Miami-based parent of Mexico's second-largest movie theater chain, Cinemex Holdings USA, filed for Chapter 11 bankruptcy protection last April and sought to pay reduced rent to landlord Cobb Theaters at the Lakeside Village Shopping Center in Lakeland, Florida for the time that it was required to operate at 50% capacity when Florida Gov. Ron DeSantis closed movie theaters as part of precautionary measures to control the virus.

U.S. Bankruptcy Judge Laurel Isicoff of the Southern District of Florida ruled in January that no rent was due for the time period covered by the full shutdown, based on the force majuere lease provision excusing performance when it was impossible due to "acts of God [or] governmental action."

However, Isicoff noted that the provision did not fully excuse Cinemex's rent obligation. It merely extended the lease term for a period equal to the duration of the full shutdown orders. Cinemex Holdings ultimately renegotiated some leases and emerged from bankruptcy reorganization in November.

Cinemex and Cobb Theaters did not reply to requests for comment.

The decision reinforced the importance of concise and accurate force majeure lease provisions, Quinto Martinez, a real estate attorney for Orlando, Florida-based Lowndes law firm who was not involved in the case, said in an email.

"It's important to strategically negotiate the allocation of risk in a force majeure provision, but it's equally as important to carefully craft the provisions to ensure that the lease language makes the intent of the parties clear," Martinez said.

Many companies haven't yet started to negotiate new leases with language providing more clarity on short-term rent deferrals because of the pandemic and other issues.

"It hasn't crept into our lease negotiations" said Peter Mavoides, CEO of New Jersey-based Essential Properties Realty Trust Inc., a real estate investment trust that owns and manages single-tenant properties leased to retail and service-oriented companies.

Most of the 3% of uncollected rent due to Essential Properties is from five theaters leased to AMC, which has had to close hundreds of cinemas for months because of government mandates prohibiting public gatherings and it owes hundreds of millions in back rent, Mavoides said during a recent earnings call with analysts.

AMC did not respond to a request for a comment on the status of its leases with Essential Properties or other landlords.

Mavoides declined to comment on how much rent the REIT is collecting from the embattled theater chain or whether the tenant cited force majeure. But the CEO said that he wouldn't be surprised if more tenants start looking to share some of the risk of state-mandated shutdowns with landlords in future leases.

"Currently, the tenants bear those risks and are required to pay rent regardless of mandated shutdowns. That's why we were able to structure rent deferral agreements as opposed to tenants just being able to say 'force majeure' and not pay rents," Mavoides said.

Wednesday, March 24, 2021

Ensemble, Mosaic Launch $2.5 Billion Development Plan for Philadelphia's Navy Yard

By Clarice King CoStar Research

PIDC, the public-private economic development corporation and master developer of the Philadelphia Navy Yard, has executed an agreement that provides Ensemble Real Estate Investments and Mosaic Development Partners with the exclusive development rights for 109 acres in the high profile redevelopment project, launching a $2.5 billion development plan that's set to create thousands of construction and permanent jobs.

The $400 million first phase of Ensemble and Mosaic's development plan includes building two life sciences buildings followed by residential and hospitality initiatives at the Navy Yard. The first building planned by the developers will be a 100,000-square-foot speculative laboratory and office development at 1201 Normandy Place, with an anticipated delivery by the end of 2022.

The four-story building was designed by Digsau in collaboration with CRB to accommodate the preferred requirements of advanced therapy medicinal products and life science companies, including 30,000-square-foot floor plates with 16-foot floor-to-floor heights.

The joint venture will also market a second building at 333 Rouse Blvd., which the developers said can accommodate a 120,000-square-foot build-to-suit facility. The preliminary concept for the building includes a mix of office, laboratory, manufacturing, warehousing and conditioned indoor mechanical space for plant and critical utilities. The manufacturing area will support interior ceiling heights up to 16 feet and provide floor heights designed to facilitate current Good Manufacturing Practice manufacturing with walkable cleanroom ceiling systems.

According to Mark Seltzer, a senior vice president of development for Ensemble, the Navy Yard is expected to benefit from its proximity to University City, the center of cell and gene therapy research in the Philadelphia region and will enable life science companies to incubate, commercialize and manufacture within the complex and close to an international airport.

"Our new buildings will create much-needed inventory for the incredible demand for space in this sector," Seltzer said in a statement announcing the agreement.

Upon completion of these two buildings, the Navy Yard is set to eclipse 1 million square feet of life sciences space.

Ensemble and Mosaic ultimately envision about 3,000 residential units and nearly 3 million square feet of life science manufacturing, research and development, office, hotel and retail space when fully built out.

As part of the project, Ensemble and Mosaic said they are planning to deploy "a robust and novel approach to diversity, equity, and inclusion in all elements of the 109 acres in the agreement," according to a statement. The inclusion strategy, set to provide opportunities for minority- and women-owned business enterprise participation, will also include "diverse equity ownership with an innovative crowd-funding component, the firms said.

Ensemble and Mosaic were selected as the co-development team for this project in July 2020 after PIDC put out a call for prospective partners through a request for qualifications in September 2019.

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Neighboring Markets Might Be Siphoning Industrial Demand Away From Lehigh Valley

 By Ben Atwood CoStar Analytics

The Lehigh Valley, Pennsylvania, logistics sector has been successful for so long that it almost feels immune to risk. But things are starting to look interesting one quarter into the year.

Industrial demand within Lehigh Valley has cooled off somewhat in 2020. The market’s vacancies climbed by roughly 2% during the turbulent year, and in the past 12 months, more than 1 million square feet of industrial space has been put up for sublease.

Last year saw about 2.4 million square feet of net absorption, the difference between move-ins and move-outs. This isn't a freakishly low figure, but it is under the market's historic average and one of its weaker showings since 2010.

That is somewhat concerning because this curious softening of demand is also occurring at a time when some experts are beginning to caution about the risk of oversaturation. There's nearly 8 million square feet of speculative space on the way in the Valley, and the major projects that delivered in 2020 remain 50% unoccupied at the end of the first quarter.

In all likelihood, this lull is just a blip, and demand will soon bounce back. But what's interesting here is Lehigh's cooldown occurred as the national logistics market was exploding. Lehigh should have done very well last year, and what's even more intriguing is its neighbors are overperforming notably.

Both Scranton and Reading had banner years in 2020, each seeing over 4 million square feet of net absorption, some of the highest levels ever recorded for either markets. And neither market has slowed since the start of 2021. Multiple 1 million-square-foot deals have been inked in these two markets since January, while Lehigh has seen just a few leases over 200,000 square feet finalize in that same time.

Given the relatively slow pace of last year’s leasing, it looks possible that Lehigh’s vacancies could soften notably this year, but it's still far too early to say this is a trend. Large-scale projects in the Valley have leased up notably quicker than the national average over the past several years, and Lehigh's position on the supply chain is just too good to dismiss.

But it might mean that tenants are now more willing to sacrifice the perfect location for cheaper rents and more labor. When it comes to the all-important labor pool, Berks County has Lehigh beat outright. Rents in both markets are considerably cheaper, as well, something Scranton developers have been eager to point out.

For those looking to read the rapidly evolving world of central Pennsylvania logistics, Lehigh Valley is now a market worth monitoring closely.

Monday, March 22, 2021

Shorenstein Secures $223 Million Refinancing of 1818 Market St Philadelphia

 By Mark Heschmeyer CoStar News

Shorenstein Properties has tapped into the commercial mortgage-backed securities market to refinance its 1818 Market St. Class A office building in downtown Philadelphia, according to analysis of the loan being rolled into a new offering likely to come to market next week.

Barclays Capital Real Estate provided a two-year, floating-rate, interest-only loan totaling $222.9 million, according to S&P Global Ratings. The loan has three 12-month extension options. Barclays has contributed the loan to a CMBS deal, BSST 2021-1818.

The loan is secured by the 37-story, 999,828-square-foot multitenant building.

Shorenstein purchased the property in April 2015 for $184.75 million, or about $188 per square foot. Bank of America had provided $174 million in acquisition financing.

Since that deal, Shorenstein has spent $94 million through last month on renovations, tenant improvements and leasing costs, according to S&P Global. The property was appraised at $282.1 million for the purposes of the refinancing.

The refinancing returned about $44 million in equity to Shorenstein, S&P Global said.

The largest tenant in the property is WSFS Financial, after which the building is named, which occupies 96,800 square feet in a lease that runs through 2028. WSFS, which has it headquarters in Wilmington, Delaware, took over the space in its March 2019 purchase of Beneficial Bancorp, for which the building was previously named.

In its CMBS presale analysis, S&P Global said it believes there remains high, but moderating, uncertainty about the evolution of the coronavirus pandemic and its economic effects.

Shorenstein is facing at least one other major loan maturity this year. It has a $350 million CMBS loan coming due in November on its 1.1 million-square-foot 1407 Broadway office building in New York.

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Friday, March 19, 2021

TA Realty Buys Newly Built Lancaster County Warehouse for Over $23 Million

By Charlie Dettbarn CoStar Research

 TA Realty has purchased a newly built warehouse facility in Lancaster County, Pennsylvania, for $23.75 million.

The Boston-based investment firm acquired the property from High Street Logistics Properties.

Located at 601 Stony Battery Road in Landisville, the industrial facility totals 252,800 square feet and delivered this year. The warehouse is located within close proximity to U.S. Route 20, Pennsylvania Route 283 and U.S. Route 222, which gives it access to Pennsylvania's extensive interstate system.

Lancaster County has historically been one of the tightest industrial markets within central Pennsylvania, boasting a 2.4% vacancy rate across 23.5 million square fee of inventory as of the fourth quarter of 2020. CoStar data also unequivocally shows 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, despite some slight softening of occupancies over the course of 2020.

“Lancaster County is a burgeoning location for industrial development in Central Pennsylvania due to its abundant and highly skilled labor force as well as its accessibility to various transportation routes leading to multiple major cities within a 2-hour drive. The need for Class A distribution space that can conveniently service large consumer bases has been significantly magnified as shopping habits have shifted and online spending has considerably increased."

Tuesday, March 16, 2021

13M square feet and growing: Mapping Amazon's rapidly expanding real estate footprint across the Philadelphia region

Natalie Kostelni Reporter Philadelphia Business Journal

From Northeast Philadelphia to King of Prussia, Inc.’s real estate footprint continues to grow throughout the tri-state area and the company now occupies a tad more than 13 million square feet between expansive fulfillment centers and last-mile distribution facilities.

That figure doesn’t include the large warehouses or other properties the company leases in Central and North Jersey or out in the western part of Pennsylvania. For example, Amazon (NASDAQ: AMZN) operates a 1-million-square-foot fulfillment center in Findlay in Allegheny County and occupies several smaller buildings for last-mile distribution.

The Philadelphia Business Journal mapped Amazon's expansive footprint across the region using internal research and data from JLL and Colliers International.

The map doesn’t include Whole Foods locations or new Amazon grocery stores the company plans to open in the region. For example, the company has signed a lease on 40,000 square feet for one of its new grocery stores at a planned mixed-use project at 5th and Spring Garden streets the Northern Liberties neighborhood of Philadelphia. It has plans for several other stores in Bucks County.

The data does include a new 1-million-square-foot distribution center in Berks County that Amazon opened last November, adding to the 14 large fulfillment centers it operates across the state and bringing to more than 10,000 the number of people it employs in Pennsylvania, according to the state's Department of Community and Economic Development. At the new facility in Berks, the company expected to hire 1,000 full-time employees.

Full story:

Why York, Pennsylvania, Is an Industrial Market Worth Monitoring in 2021

By Ben Atwood CoStar Analytics

York, Pennsylvania’s industrial market finds itself is in an interesting place at the end of the first quarter.

Occupancies in this small central Pennsylvania market are close to 95%, a totally healthy figure, notable only because it has risen in the past two quarters.

That softening differentiates York from most of its neighbors along the North Atlantic trade corridor. Nearby markets such as Reading, Harrisburg and Lehigh Valley all saw overall vacancies decline or hold steady through 2020, even though these markets saw much heavier levels of new supply come online.

This is somewhat peculiar because on the face of it, York should have benefited from last year’s demand surge. It has a deeper labor pool than most of its neighbors, which is crucial for logistics tenants. It also offers quick access to Interstates 81 and 78. While York is not positioned as ideally as Lehigh Valley, Harrisburg or Scranton, these are the same routes which make these markets so prominent on the supply chain.

One of the reasons York's vacancies softened is because of its deep base of manufacturing. Close to 16.5% of the market's workforce is employed in that sector, compared to a statewide average of just 9%. This left York slightly more susceptible to downsizing within the market and multiple manufacturers reduced their shipping footprint due to the coronavirus.

These moveouts are partly why York's overall occupancies have softened, but this region also struggled somewhat in the years leading up to the coronavirus. Since 2018, developers were building heavily along I-83, just north of York proper and south of I-78. They added about 3 million square feet of logistics space during that time; but in March 2021, roughly 50% of it is unoccupied, and almost all of the space that delivered in 2020 remains empty.

This empty existing space is now competing with the 1.2 million square feet of speculative space that's currently underway. That's what makes 2021 such an interesting year for the market, even if it is not seeing the levels of construction that Lehigh or Reading is experiencing.

If demand for e-commerce continues to surge, as many believe it will, then these projects should quickly fill. But many are beginning to warn that central Pennsylvania markets are at risk of being overbuilt, and the recent data for York suggests the area might be susceptible to that.

While vacancies remain totally manageable, and industrial leasing shows no signs of slowing, this market, like nearby Reading, is now a barometer for industrial demand across central Pennsylvania. And its success or struggles will be well worth following in 2021.

Dollar Tree, Family Dollar To Open Four New Garden State Stores

 By Linda Moss CoStar News

Expanding Dollar Tree and its sister discount-variety chain Family Dollar have signed leases for four new stores in New Jersey, in two cases occupying former Pier 1 Imports locations.

Dollar Tree, headquartered in Chesapeake, Virginia, is the one moving into two vacant Pier 1 sites.

Earlier this month, parent Dollar Tree said it plans to open 600 new stores under its banner name and that of Family Dollar while renovating 1,250 Family Dollar locations. Of the debuting sites, 400 Dollar Tree stores are on the agenda for this year and 200 are slated as Family Dollar.

Dollar Tree executed a lease for a 9,200-square-foot free-standing building at Riverdale Crossing at 48 Route 23, near Interstate 287 in Riverdale in Morris County. The store is slated to debut in the second quarter in the former Pier 1 space at the 260,000-square-foot Riverdale shopping center, which is anchored by Walmart.

In Monmouth County, Dollar Tree signed a lease for a 9,460-square-foot end-cap store at The Orchards at Wall, at 2410 Highway 35 in Manasquan. That site is also scheduled to open in the second quarter at former Pier 1 space. Dollar Tree will join a Fred Astaire dance studio and Via Veneto Ristorante at the 22,504-square-foot center.

In addition, Family Dollar now has a lease for a 10,382-square-foot space at 490 Chamberlain Ave. in Paterson. The chain expects to open in the third quarter in the center's former Rite Aid space. Other tenants in the 23,800-square-foot Passaic County property include Valley National Bank, Dunkin' Donuts and a soon-to-open DaVita dialysis center.

Family Dollar will also be leasing 9,700 square feet at 217 Main St. in West Orange. That location, expected to open in October, will join CVS Pharmacy in the 24,200-square-foot property.

Mobile Health Solutions is also opening five additional Garden State sites for coronavirus-testing facilities for Mobile Health Solutions, an affiliate of Red Bank, New Jersey-based Immediate Care. They are located at municipal sites in Bayonne, Elizabeth, Jersey City — with two locations — and Plainsboro.

Housed in retrofitted shipping containers, 12 sites are now operating throughout central and northern New Jersey, with additional locations in the pipeline.

Cooper University Health Care To Open Outpatient Facility at Former Sears

by Linda Moss, Costar News

A hospital chain will be opening an outpatient facility at a large vacant Sears anchor store in New Jersey, another example of healthcare providers becoming a growing category of mall tenants.

Cooper University Health Care is taking more than 165,000 square feet at the former department store site at Moorestown Mall, which is located outside Philadelphia in Moorestown, New Jersey. Pennsylvania Real Estate Investment Trust, headquartered in the City of Brotherly Love, owns and is repositioning that retail center.

In January, PREIT, which emerged from Chapter 11 proceedings in December, said it was redeveloping Moorestown Mall and had approval to add about 1,000 apartment units as well as a hotel to its Garden State property. Like landlords across the country, the real estate investment trust is looking to create foot traffic and fill vacancies at its malls by adding nontraditional tenants, as brick-and-mortar sites are still reeling from the double punch of the coronavirus and the continuing escalation of online ordering. A record number of stores closed last year.

Heathcare, in its various forms, is a rising opportunity for mall landlords. For example, vacant Sears stores across the nation are being used as temporary mega coronavirus vaccine centers. On a more permanent basis, because of the aging U.S. population, healthcare providers are opening more locations — walk-in clinics, outpatient care and testing, rehab facilities and actual hospitals — in vacant retail space.

This intersection of retail and healthcare has been dubbed “medtail.”

PREIT Chairman and CEO Joe Coradino announced his company and Cooper University Health had executed a transaction for the outpatient location at the Moorestown Sears last week in a fourth-quarter earnings report. The CEO didn’t specify if Cooper University Health was leasing the vacant Sears, which closed roughly a year ago, or buying it.

“With this addition and the apartments and hotel plan for the site, the property will further evolve its mix to create a one-stop hub, including dining, entertainment, fitness, a broad array of retail options and now a premier outpatient healthcare facility,” Coradino told Wall Street analysts on a conference call.

Cooper University Health Care has the only state-designated Level I trauma center in South Jersey and is home to MD Anderson Cancer Center at Cooper and the Children’s Regional Hospital at Cooper. It also has a network of more than 100 medical offices and four urgent-care centers throughout the region.

Where Patients Live, Work

“More residents continue to place their trust in Cooper University Health Care, as the leading academic health system in the region,” the healthcare provider said in a statement. “With more than 1.6 million patient visits annually and over 100 locations throughout southern New jersey, Cooper is acquiring this additional office space to meet consumer demand for our expert specialists. The building formerly used by Sears at Moorestown Mall is a perfect location in close proximity to where many of our patients live and work.”

PREIT is reconfiguring and retenanting a number of its malls. The Moorestown Mall redevelopment is part of the company’s national strategy to add thousands of multifamily units to its malls.

“The PREIT team, and portfolio, proved to be resilient as we navigated uncertain terrain,” Coradino said in a statement on fourth-quarter earnings.

“Our targeted strategy of dispositions and anchor replacements over the past several years created a real estate portfolio of bulls-eye locations in high barrier-to-entry markets that stands the test of time,” he said. “Our portfolio is comprised of a differentiated mix of uses that attracts robust demand from a variety of non-retail uses, strengthening the company and fortifying our revenue stream. At the same time, we are well-positioned for a strong return to brick-and-mortar shopping and leisure as restrictions ease and vaccinations continue.”

PREIT was one of the first U.S. retail property owners to file for Chapter 11 bankruptcy protection during the COVID-19 outbreak. It came out of the proceedings after forging an agreement with Strategic Value Partners.

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Monday, March 15, 2021

Israeli Firm Has Deal for Five Shopping Centers in Greater Philadelphia

 By Mark Heschmeyer CoStar News

Medipower, a commercial real estate company traded on the Tel Aviv Stock Exchange, is resuming acquisitions of grocery-anchored shopping centers in suburban Philadelphia.

The company has agreed to acquire five centers in the market from Brandolini Companies, according to a Hebrew language copy of a presentation made to Israeli investors last week and filed in Tel Aviv.

In a separate Tel Aviv filing, Medipower said it was considering raising up to about $30 million of additional capital in Israel to complete the deal through the sale of debt.

It would be the company’s first such purchases since January of last year before the onset of the pandemic and signals a return to expanding its necessity-based retail property acquisitions.

The purchase price was not disclosed, but the centers totaling about 720,000 square feet were valued at $115 million, or about $160 per square foot.

Most of the tenants are nationwide or regional chains including grocery stores Aldi and Giant, which make up about 40% of the space. The supermarkets have an average of about 9.5 years remaining on their leases, according to the presentation. Other tenants include McDonald’s, Starbucks, Lowe’s and Fine Wine & Good Spirits.

Medipower officials did not respond to requests for comment from CoStar News. Fred Snow, president of Philadelphia-based Brandolini, declined to comment.

The properties to be acquired include:

  • Spring Towne Shopping Center in Reading, Pennsylvania.
  • Limerick Crossing Shopping Center in Limerick, Pennsylvania.
  • Lionville Shopping Center in Exton, Pennsylvania.
  • Marketplace at Westtown in Westchester, Pennsylvania.
  • Dreshertown Plaza in Dresher, Pennsylvania.

In the filing, Medipower said it was targeting further growth in the Northeast.

Medipower’s last purchase occurred in January 2019 when it acquired Crossroads Plaza, a 99,650-square-foot grocery-anchored shopping center in Lumberton, New Jersey, just 20 miles from Philadelphia.

Acquisition of the new assets is expected to be completed at the beginning of the second half of 2021.

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Friday, March 12, 2021

Everything You Need to Know about "NNN" (An Intro to Triple Net Leasing, Investing) -Video

Grocery Outlet Bargain Market opens store in East Norriton

 Natalie Kostelni Reporter Philadelphia Business Journal

Grocery Outlet Bargain Market has opened in East Norriton, becoming the newest supermarket to enter the Philadelphia area and adds to the growing competition throughout the region.

The Emeryville, California, chain, which is part of Grocery Outlet Holding Corp., joins other discount grocers that have expanded in the region including Lidl and Aldi in addition to other chains that have increased their presence such as Giant, Acme and Sprouts Farmers Markets.

Grocery Outlet is expanding throughout the mid-Atlantic, said Heather Mayo, chief operations and merchandising office for the Eastern division. “We think there is a ton of opportunity,” she said. “It’s limitless the number of stores we will open. There will be many more to come.”

The grocer has more than 375 locations throughout California, Idaho, Nevada, Oregon, Pennsylvania, and Washington. Of that total, 18 stores are along the East Coast and includes 13 locations that were originally Amelia’s Grocery Outlet, a Pennsylvania-based chain purchased by Grocery Outlet and rebranded.

The store in East Norriton at 2917 Swede Road totals 23,000 square feet of which 15,000 is the sales floor. A Genuardi's had once operated from the space.

Full story:

Thursday, March 11, 2021

Bucks County Distribution Center Leased by Amazon Sells for $21.3 Million

 By Rachel Whaley CoStar Research

Demonstrating continued demand for infill facilities across the greater Philadelphia region, a recently redeveloped last-mile distribution center fully leased by Amazon in Levittown has sold for $21.3 million, more than double the price it fetched when it last traded hands in 2019.

Alliance HP sold the 149,180-square-foot Bucks County facility at 6300 Bristol Pike to an undisclosed publicly traded real estate investment trust. The Bryn Mawr-based firm originally paid $8.35 million for the Bristol Pike facility in December 2019. 

Built in 1963, the last-mile distribution facility underwent a multimillion-dollar renovation between 2018 and 2019 to upgrade functionality. The renovated facility now features new exterior panels, new HVAC equipment, new car and trailer parking, expansion of vacant land for conversion to additional car and van parking, new LED lights and a new roof. Amazon leased the distribution center in October 2020.

The Amazon facility is situated on a 9.9-acre parcel that has immediate access to Interstates 95 and 476 and the Pennsylvania Turnpike, providing the e-commerce titan access to nearly 2 million people within a 30-minute drive.

“This property is uniquely positioned within the highly regarded Bucks County submarket. The asset provides great, in-place cash flow from a credit e-commerce tenant that will be servicing the heavy concentration of population in the nearby area. The combination of the strong in-place cash flow and irreplaceable, forever location makes this a great investment for both the near term and future."

Philadelphia's industrial market faces some challenges, from the region's recently pummeled economy and from speculative construction. But retailers' ongoing shift to e-commerce sales and faster deliveries have been driving industrial leasing as tenants store most of their inventory in local logistics centers as close to their customers as they can.

"Since the pandemic began, Amazon alone has signed at least six large leases in the Philadelphia metro area, totaling over 2.8 million SF and has announced plans to accelerate its expansion of its distribution footprint," Ponsen wrote. "Meanwhile, tenants such as Target, Premier Packaging, Utopia Fulfillment, and Misfits Markets have also been growing into both old and new properties."

Philadelphia's industrial vacancy rate, hovering around 5%, remains near 25-year lows. The vacancy rate is even tighter in Bucks County, sitting at about 3.8%, according to CoStar data.

"Any sharp upturn in vacancy looks unlikely for the foreseeable future as distributors continue to realize the strategic advantages of locating in the Philadelphia area: a large blue-collar workforce located squarely between New York and Washington, D.C., right in the middle of the largest cluster of purchasing power in the western hemisphere."

Corporate Suites, a New York coworking operator, takes space at 123 S. Broad

 Natalie Kostelni Reporter Philadelphia Business Journal

Corporate Suites, a coworking operator based in New York, has signed a 15-year lease on 24,000 square feet at 123 S. Broad St. in Center City, making its first foray into Philadelphia.

The firm will occupy the 15th floor of the office building and expects to be in operation by September.

Though co-working struggled during the pandemic with some operators such as WeWork closing locations and others, such as Regus, filing Chapter 11 bankruptcy protection on some spaces it leased, there is a belief coworking will regain some of its popularity as people seek alternatives to working from home as the pandemic dissipates.

SSH Real Estate, which owns 123 S. Broad, felt the building was lacking in not having a coworking tenant and had sought Corporate Suites as a tenant.

“The deal was in the works early last year but was delayed because of the coronavirus,” said Pete Soens, a partner at SSH Real Estate.

When talks picked back up, it became apparent to Soens that certain types of coworking will be in high demand as people get back to in-person work.

Full story:

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Monday, March 8, 2021

Massive Spec Distribution Facility Outside of Scranton Leases Quickly

The Scranton, Pennsylvania, industrial market received more good news last week when a 1 million-square-foot industrial lease closed at a recently built mega-warehouse within the Valley View Trade Center, a blossoming business park in Jessup.

Located right off of Interstate 81, Valley View offers access to nearly 100 million consumers within a single day’s truck drive. The Greater Scranton Chamber of Commerce is behind the 1,300-acre business park, which currently includes a mix of industrial and office.

"We buy the land, do the site work, connect the utilities and then sell the land to developers to build their projects," said Amy Luyster, vice president of the Scranton Chamber. "It helps keep costs low and facilitates business development."

The park itself is designated as both a Keystone Opportunity Zone and a federal opportunity zone, further reducing costs and risks. Some other notable companies are here, including online pet supplies retailer Chewy, which also distributes out of a large warehouse within the park.

Dallas-based developer Trammel Crow Co., in a joint venture with Diamond Realty Investments, was behind the massive distribution facility, which is now the park's largest. The property arrived in mid-2020 and features 160 loading docks, a 40-foot ceiling height and instant access to the Pennsylvania Turnpike.

Both the leasing representatives involved in the lease deal and the owner declined to identify the tenant as anything other than an "e-commerce" company, but whoever that firm happens to be, its arrival is yet another positive sign for the Scranton area's booming industrial sector.

The fact that this property filled within half a year speaks to the levels of demand for shipping centers, and data shows Scranton's logistics space is some of the most sought after in the state. This growth is being fueled by the ongoing pandemic and the region's prime location on the supply chain.

The coronavirus has caused e-commerce levels to surge, as stay-at-home orders and fear of infection accelerated consumer preference for shopping online. This has been a boon for the industrial sector, and across the country, 2020 saw some of the highest levels of industrial leasing ever recorded.

For logistics tenants looking to keep pace, Scranton is an ideal spot. The market is about two hours from Philadelphia and New York City and can reach 60% of the nation's population within a single day’s drive.

Scranton posted some of the state’s strongest levels of net absorption last year, filling just over 4 million square feet of industrial space. These are some of the highest levels of absorption the market's ever recorded in a single year, and the logistics capabilities are also bringing in some international manufacturers such as Nexii and Canpack.

"Our main goal at the end of the day is to attract, grow and sustain community investments," the Scranton Chamber's Luyster said.

International firms such as Nexii and Canpack indicate that the chamber is having some success, and the activity at the Valley View Trade Center indicates that Scranton’s momentum is carrying over into the new year.

Scrub Daddy Picks New Jersey for New HQ

by Linda Moss Costar News

Scrub Daddy, touted as a major success story emerging from the “Shark Tank” TV show, is packing up its smiley-faced sponges and relocating to New Jersey from Pennsylvania. It's a property switch that shows what can happen when a high corporate profile and unexpected demand combine.

The growing cleaning-goods company bought a 116,284-square-foot industrial building at 1700 Suckle Highway in Pennsauken, for $10.7 million from Seyon Group of Boston.

Scrub Daddy will be relocating its headquarters to that Garden State property from two buildings in Folcroft, 6 Horne Drive and 4 Horne Drive, which total roughly 52,400 square feet in the neighboring state. The company sold those properties and bought the Pennsauken location as part of a 1031 exchange that lets a taxpayer defer recognition of capital gains and related federal income tax liability. The relocation is expected to be complete by Sept. 1.

Scrub Daddy saw its growth, already strong, surge during the pandemic and it needed more space, according to Aaron Krause, the company’s president, CEO and self-proclaimed “Daddy of Scrub Daddy.” The firm will be consolidating operations from the two buildings it owned in Pennsylvania and another one that it leases, with all its 65 employees to be located at one site.

“It just made the business really rangy and difficult for me to manage everything going on in all three buildings,” Krause said. “What I really wanted was everybody back under the same roof.”

Scrub Daddy’s South Jersey location will include space for light manufacturing, offices, a 1,500-square-foot TV studio, a retail Smile Shop store and a small museum outlining the company’s history and rise to fame via ABC’s “Shark Tank” and QVC, the home shopping network based in West Chester, Pennsylvania.

Scrub Daddy will spend $2.5 million to $3 million to renovate its new headquarters, Krause said.

‘Shark’ Greiner Buys In

In 2012, he started selling his Scrub Daddy scouring pads, with the original version shaped like a yellow smiley face, on QVC. But his product gained national notoriety, and financial backing and double-digit sales growth, later that year when he appeared on “Shark Tank,” where budding entrepreneurs pitch their inventions to a panel of potential investors. These “Sharks” then vie to offer funding, and secure ownership stakes, in the fledgling businesses.

In Krause’s case, “Shark” Lori Greiner, an inventor who had been selling her own merchandise on QVC for years, became his investor and business partner.

While some companies struggled financially during the coronavirus outbreak last year, Scrub Daddy’s fortunes soared. Its sales had been on pace for 20% annual growth, but it saw a nearly 30% gain in 2020, according to Krause.

“Last year with COVID we got classified as an essential business because we’re in the cleaning category and we’re in the manufacturing category,” he said. “We got letters from Walmart and Target saying, ‘You are not to close. We’re selling out of cleaning products. We can’t keep them in stock.’ And cleaning has changed forever.”

With the surge in orders, Scrub Daddy needed more space. With the new location it will also now have the opportunity to create a fully equipped studio facility to remotely broadcast live appearances on QVC and to create content for social-media platforms such as YouTube, TikTok and Instagram, Krause said.

Krause had been doing several appearances a week for Scrub Daddy on QVC, but with the coronavirus the home shopping channel told guests they could not come into the studio but instead would have to appear remotely to pitch their wares. So Krause set up a kitchen studio set in Scrub Daddy’s headquarters to demonstrate his products. He added equipment such as three digital high-definition cameras to do his appearances.

Of course, there are still potential risks. Demand for its cleaning products could slow as public health authorities say the rollout of coronavirus vaccines may ease the threat. And businesses can often face financial risks when they expand and their overhead rises, while competition from rivals also poses a threat.

Scrub Daddy faces formidable competitors owned by conglomerates with deep pockets. They include Mr. Clean, a unit of Procter & Gamble that has a product line that includes the Magic Eraser sponge, and Scotch-Brite, which manufactures sponges and other cleaning supplies and is owned by 3M.

But Scrub Daddy sees added potential in boosting its reach to overseas markets. In New Jersey, Scrub Daddy will create a well-equipped studio area where the company can not only do shows for domestic QVC but its international networks in places such as Germany and England, according to Krause.

“We’re going to do the full studio,” he said. “We’re going to hang the QVC-style lights from the ceiling. We’re going to set up a kitchen set, a bathroom set, a living room set and an outdoor set. ... So I’ll just walk out of my office and be doing live shows all over the world.”

Scrub Daddy will also use those studio facilities to demonstrate new products for buyers and retailers such as Walmart, he said.

Jersey Solar

The company is also beefing up its social-media presence, and will use the studios to set up a cleaning-TV channel that will offer tips on how to remove different kinds of stains — using Scrub Daddy products — that will be available on various platforms, according to Krause.

There were a couple of reasons why Krause decided to move his headquarters to New Jersey. The main one was the state’s generous intermediate transition solar incentive program, known as TRECs, which will be expiring in a few months, according to Krause. The Pennsauken building has a new roof that offers “120,000 square feet of flat, unencumbered, unrestricted” space, he said.

“We’re going to be putting about $1 million of solar on the roof, powering,” Krause said. “We’re going to be completely off the grid. Scrub Daddy will be running the entire company on its own solar.”

He also wanted a new headquarters site within 15 miles of the old one, so Scrub Daddy wouldn’t lose any employees. The New Jersey location is 14 miles from the Pennsylvania headquarters. Krause added that he and several of his workers live in the Garden State, as well.

Scrub Daddy’s physical expansion will also help it accommodate its pipeline of new products, which includes mops, microfiber towels, soap dispensers and dish wands, according to Krause.

“Just like you talk about Mr. Clean, you’ll be taking about Scrub Daddy,” he said.

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Friday, March 5, 2021

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More Multifamily Development Coming to White-Hot Allentown, Pennsylvania

 By Ben Atwood CoStar Analytics

Last month, City Center began demolition work an aging hotel in downtown Allentown, Pennsylvania, in order to make way for a brand new 250-unit luxury apartment complex.

The local developer hopes to have The Hive completed by mid-2022, and the project is set to include a mix of studio, one- and two-bedroom units, with some retail space on the ground floor.

The Hive will be the group’s fifth multifamily development inside the heart of Pennsylvania’s third-largest city, with its most recent project coming online last October.

City Center is one of the most prolific builders within Allentown's Neighborhood Improvement Zone, a tax incentive plan unique to Allentown with which they hope to create a 24/7 live-work-play environment in the city.

The area had quite a bit of momentum before the coronavirus pandemic struck, but interestingly, the shutdown has not had any noticeable impact on Lehigh apartment demand. In fact, it might have boosted it.

Downtown Allentown's overall vacancy rate is near zero, and City Center’s most recent project is filling remarkably fast.

"Our last community, the City Center Lofts, was 75% preleased before it delivered in October," said Zack Sienicki, vice president of City Center Residential. "We were over 90% filled by the start of February and think we’ll be fully occupied by April."

Sienicki said that’s two months faster than what City Center projected when planning the project, and it speaks to a curious strength of demand for downtown Allentown living.

"We're seeing a lot of people move into the area and the city itself," Sienicki said. "It's almost like a tale of two cities with how well Allentown demand is keeping up compared to elsewhere."

The demand boost within is likely coming from the Neighborhood Improvement Zone. City Center has spent over $1 billion developing modern office and multifamily within the Hamilton District in the heart of downtown Allentown. These developments helped strengthen the city's retail scene before the pandemic and kept many chains afloat through stay-at-home orders.

But this is also a market sandwiched between Philadelphia and New York City, which is why the area is so hot for logistics. The massive suburbias of these two cities are filled with office tenants now reexamining how remote working might change their footprint in the coming years.

Many experts believe that a hybrid of remote/in-person working is how the office world will evolve, and if that happens, Allentown could become a natural landing pad for those looking for urban life on a smaller and more affordable scale.

Thursday, March 4, 2021

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Pregis Signs 7-Year Lease for 304,000SF in Bethel Township, PA

 By Jan Goodwin Muscarella CoStar

A little over a year after completing the project, Dermody Properties has secured a tenant for its speculative warehouse development in Bethel Township, Pennsylvania.

Pregis, a provider of packaging and protective products, signed a lease to take all 304,000 square feet at LogistiCenter at Midway South at 9024 Old Route 22. The expansion will allow the company to add more capacity to its e-commerce product line, Elizabeth Kauchak, chief operating officer at Dermody, said in a release.

“We’ve seen an unprecedented amount of growth in e-commerce over the past year, which has significantly driven up the demand for Class A, state-of-the-art distribution and logistics facilities,” Kauchak said.

The facility is adjacent to Interstate 78, one of Pennsylvania’s main trade arteries. It offers direct access to all major markets along the North Eastern Shore, and from this location Pregis can reach 36% of the United States and 60% of Canada’s population, Gene Preston, East region partner at Dermody Properties, said in a statement.

Over the past 12 months, more than 3.5 million square feet of Berks County industrial space has been occupied, some of the highest levels of demand that the Reading area, which includes Bethel, has ever experienced, according to CoStar information. What remains to be seen is if this hot streak is sustainable, or just a flash in the pan.

Industrial developers have added more than 7 million square feet in Reading since 2015, expanding the local inventory by nearly 20%. Until 2020, demand did not kept pace. Reading’s vacancies were near 15% at the start of the coronavirus pandemic, and the region still has several properties that, despite being completed years ago, remained unleased.

“Reading really popped off in 2020. This is definitely Pennsylvania’s most interesting industrial market right now. It did so well last year, but there’s still a lot of supply underway and existing projects that haven’t filled. Their success or troubles will tell us quite a bit about how the supply chain is responding to COVID-19.”

Wednesday, March 3, 2021

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PhilaPort to start work on new $42M warehouse

Natalie Kostelni Reporter Philadelphia Business Journal

PhilaPort plans to break ground on Thursday on a new $42 million, 201,621-square-foot distribution center that is part of a broader capital investment program at the port.

The building at 445 Pattison Ave. will be leased to Holt Logistics Corp. as part of the company's lease at the Packer Avenue Marine Terminal. The facility will have 32 loading docks and provide storage for dry cargo arriving at that terminal. PhilaPort also intends to leverage the facility to attract new ocean lines and other business to the port. Once operational, it is expected to create 200 to 300 jobs.

A second phase totaling 217,000 square feet could eventually be built that would incorporate refrigerated warehousing.

In late 2016, the state announced it would invest more than $300 million in infrastructure, warehousing, and equipment at the port. The work aimed to double container capacity and position it for future growth at its Packer Avenue Marine Terminal, its automobile-handling operations, and the Tioga Marine Terminal.

Full story:

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DNA Motoring Leases 300,700 SF in Southern NJ

 by Linda Moss Costar News

An automotive supplier has leased a 300,700-square-foot warehouse that developer Black Creek Group is building in New Jersey.

DNA Motoring, headquartered in City of Industry, California, will be the tenant at 839 Railroad Ave., a Class A industrial facility in Florence that’s expected to be completed before midyear.

DNA Motoring will now have distribution facilities not only in New Jersey but Texas and California, according to a statement on Tuesday from Lee & Associates, which represented Denver-based Black Creek in the transaction.

The tenant provides a range of products serving the automotive and trucking industries including exhaust systems, lighting components, radiator and cooling systems, and parts such as running boards and hitches. DNA Motoring expects to take occupancy of the Florence building this summer.

Black Creek has acquired a number of industrial properties in New Jersey in the past year or so. Last May, the developer paid $14.75 million for the 31-acre site in Florence. The building has 36-foot ceilings, 37 doors and parking areas that accommodate 354 cars and 118 trailers. The office space will be built to suit DNA Motoring.

The building is adjacent to Route 130 and is located less than 1 mile from Interstate 95, with immediate access to interstates 276 and 295 and the New Jersey Turnpike. Philadelphia is less than 30 miles from the site, and the ports of Wilmington and Elizabeth are about 60 miles away.

“DNA Motoring continues to gain market share in the rapidly growing automotive and trucking sectors, and this site will support its existing operations in New Jersey to supply products to dealerships and customers throughout the East Coast and Midwest sections of the country,” Tony Rod, a principal at Lee & Associates of Eastern Pennsylvania, said in a statement.

“Black Creek Group’s vision to speculatively develop this best-in-class warehouse/industrial building was driven by the continued demand among end-users involved in the manufacturing, distribution and logistics sectors,” Rod said.