Thursday, April 15, 2021

Keystone Property Group Lands Trio of Life Sciences Expansions at The Curtis

By Adrian Ponsen CoStar Analytics

Home to the country's first medical library and surgical amphitheater, Philadelphia has a long history of advances in healthcare research. But with some of the highest construction costs in the U.S., the city has also long been known as a challenging market for commercial development. Fast forward to 2021, and the combination of these forces has meant that the supply of modern lab facilities to accommodate the city’s growing life sciences industry has been falling short of tenant demand for years.

But the days of Philadelphia's lab space shortage could be numbered. The pandemic has dealt a serious blow to demand for traditional office space, as white-collar employers across a range of industries adapt to working from home. Meanwhile, recent leasing by a range of life sciences firms from Amicus to Zoetis has remained strong. Together, these trends have catalyzed a wave of conversions of traditional office buildings into lab facilities that can accommodate Philadelphia's growing roster of life science firms.

Across Center City and University City, at least 10 large office properties are planning conversions like these, with some of the largest renovations planned for The Curtis, 401 N. Broad St. and the Wanamaker Building. All eyes are on just how quickly these projects will lease and which will fill-up first.

Located less than five blocks from Thomas Jefferson University's fast-growing main healthcare campus and from Pennsylvania Hospital, one of the earliest established public hospitals in the U.S., Keystone Property Group's Curtis Center has scored some early wins.

At the beginning of the second quarter, Keystone announced three leases totaling 28,000 square feet with Imvax, Vivodyne and Applied Genetic Technologies.

The largest of these deals came from Imvax, which is pioneering treatments for brain cancer. The firm increased its existing space within the property from 15,699 to 21,066 square feet.

Vivodyne, which creates lab-grown replicas of human organs used for testing new drugs, took 6,230 square feet and will move from a smaller lab at the University of Pennsylvania. Florida-based Applied Genetic Technologies Corp. also opened its first Philadelphia office to be close to research happening at Wills Eye Hospital and took 1,000 square feet.

All of these leases were signed for spaces on three floors, where Keystone will also be opening INQ Labs in October 2021. At 23,362 square feet, INQ Labs will offer furnished suites with combinations of office and lab space for tenants from 3,500 to 6,000 square feet, allowing life science firms to occupy space quickly, with minimal upfront out-of-pocket expenses.

The Independence Hall area, where The Curtis is located, has been less of a magnet for traditional office users in recent years. But modern adaptations to older office buildings like these have potential to bolster the neighborhood’s economy significantly in the years ahead, especially as they tap into its long history of healthcare innovation, which dates back as far back as 1751 when Pennsylvania Hospital was founded.

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Tuesday, April 13, 2021

Biotech Company Secures 44,000-SF Lease in Philadelphia

By Ingrid Tunberg

The life science company, Biomeme has signed a 44,000-square-foot lease at Netrality Data Centers’ multi-use facility, located at 401 N. Broad St. in Philadelphia, PA.

Netrality Data Centers originally acquired the 11-story, 1.3-million-square-foot building in 2014, and has since invested more than $50 million in capital improvements at the property in effort to position and enhance the space for life science users.

As a manufacturer of portable, real-time polymerase chain reaction testing solutions, Biomeme will utilize the leased space as its new corporate headquarters and will occupy the space with lab, manufacturing and office operations.

Biomeme plans to relocate from its current space at 1015 Chestnut St. in the fall of 2021.

The new lease triples the size of Biomeme’s current space, and allows for expanded production of the company’s devices and products.

“Netrality is proud to bring Biomeme into our robust ecosystem of life science, digital health and tech-enable companies that are uncovering cutting edge solutions,” says Gerald M. Marshall, CEO of Netrality Data Centers. “As the epicenter of connectivity in Philadelphia, Netrality provides the foundational elements for life sciences and biotech companies, like Biomeme, to access mission critical infrastructure and continuous uptime as they continue advancing healthcare technology including the fight against COVID-19.”

“Biomeme’s decision to move to 401 North Broad is a game changer for the building as we move aggressively into the life sciences arena,” states Dyer. “Their commitment to the building, along with our recent signing of the Nerd Street Gamers headquarters and LocalHost facility, solidify 401 North Broad’s position as the Philadelphia’s hub for creativity, innovation and technology.”

Monday, April 12, 2021

Crow Holdings Plans Large 1.2M SF Industrial Park in Carteret, NJ

By Linda Moss CoStar News 

Looking to meet the demand created by the e-commerce boom, Crow Holdings Industrial plans to build a three-building, 1.2 million-square-foot logistics development in Carteret, New Jersey.

The Dallas-based industrial arm of Crow Holdings in a statement said it purchased a 126-acre site from Glen Rock, New Jersey-based Rahway Arch Properties for the redevelopment project, which is slated to break ground this summer. The property at 300 Salt Meadow Road is located just off of Exit 12 of the New Jersey Turnpike.

Crow acquired the site in November for $86 million, according to public documents.

Crow is building the industrial complex, to be called Crow Holdings at Carteret, on a speculative basis, with no tenants lined up yet for the buildings. A number of developers have taken that strategy in New Jersey, where the demand for distribution spaces has outstripped the supply as e-commerce shopping has taken off, especially amid the pandemic.

During most of the 20th century, the site was an industrial location for several manufacturing companies. The property was owned for years by American Cyanamid, which used it as a waste disposal site. Over the past decade, the property underwent environmental remediation through the leadership of Rahway Arch, ultimately receiving full approvals from New Jersey’s Department of Environmental Protection.

“The redevelopment of this site is good for the town as a tax ratable and because it brings more jobs,” Rinaldo D’Argenio, Rahway Arch’s managing member, said in a statement.

Crow expects to have the first building completed in the first half of next year. The three properties will range in size from 335,000 to 480,000 square feet. Each one will feature 40-foot clear ceiling heights and in aggregate will include 140 trailer parking spots, 174 dock doors and six drive-in ramps.

Tuesday, April 6, 2021

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Williams-Sonoma, FedEx Strike New Jersey Industrial Leases for 2.6 Million Square Feet

 By Linda Moss CoStar News

Retailer Williams-Sonoma and package-delivery giant FedEx preleased 2.6 million square feet of distribution space in New Jersey in the first quarter, with the industrial sector continuing to soar in the Garden State in the new year.

New Jersey's industrial market saw 15.7 million square feet of leasing in the first quarter, the highest level since the first quarter of 2016, when it topped out at 17.7 million square feet, John Obeid, senior director of research for real estate firm Colliers International, told CoStar News.

Williams-Sonoma and FedEx's activities have been huge drivers of logistics so far this year, according to Obeid's New Jersey market report, which was released Thursday. In what Obeid described as the "most notable transaction," Williams-Sonoma agreed to lease 1.2 million square feet at 3 Sigle Lane in Dayton, New Jersey. That site is owned by Heller Industrial.

FedEx, in turn, preleased 873,743 square feet at 173-268 Doremus Ave. in Newark, followed by 513,240 square feet at 39 Edgeboro Road in East Brunswick, for a total of about 1.4 million square feet, according to Obeid's report.

In a statement to CoStar News, FedEx, headquartered in Memphis, Tennessee, said it is "exploring opportunities to optimize our network in response to ongoing volume growth and is engaged in discussions with local officials for the potential leasing of package distribution centers in Newark and East Brunswick." The company, headquartered in Memphis, Tennessee, "does not disclose specifics of a project until all aspects have been finalized."

Williams-Sonoma is also likely trying to accommodate the rising tide of online orders by consumers. The company, based in San Francisco, didn't immediately respond to an email seeking comment.

The U.S. industrial real estate market had been skyrocketing because of the rise of e-commerce, and that trend was exacerbated by the pandemic last year, with individuals homebound and shopping on the internet. In New Jersey, the logistics sector last year was largely driven by e-commerce giant Amazon leasing a lot of large distribution sites, 7.5 million square feet, but it was not a player in the first quarter this year, according to Obeid.

Amazon has essentially taken a "pause" in leasing huge distribution hubs in New Jersey because its priority now is establishing smaller so-called last-mile delivery stations, Obeid said.

United Parcel Service was a player in the first quarter, by preleasing 880,000 square feet at 42 Military Ocean Terminal in Bayonne, New Jersey, a transaction previously reported by CoStar News.

In its most recent report on the Garden State's industrial market, CoStar wrote, "Demand has rebounded in Northern New Jersey, after recording a lackluster 250,000 [square feet] of net absorption in the first half of 2020."

As evidenced by Williams-Sonoma's and FedEx's actions, industrial preleasing has been a big factor so far this year in New Jersey. In total, users preleased 4.1 million square feet in development projects during the first quarter, according to Obeid.

"This dynamic has accelerated construction activity, driven by the lack of available space and tenant preference for Class A product," he wrote in his report.

Friday, April 2, 2021

Net Lease Cap Rates Hit Historic Lows

 By Les Shaver

In the first quarter, the single-tenant net lease sector reached historic lows for the retail and industrial sectors, according to new research from The Boulder Group.

In Q1, single-tenant retail cap rates compressed by nine basis points to 5.91%. Industrial cap rates fell four basis points to 6.71%, while office cap rates rose five basis points to 6.95%

For retail and industrial, the story of Q1 was strong demand with limited quality supply. “There is still this flight to safety,” Randy Blankstein, president of The Boulder Group, tells “The stock market is all over the place, as is the bond market. One minute everyone thinks interest rates are going up substantially, and the next moment they pull back. With all this uncertainty, there’s still a flight to safety, and everyone is trying to grab a safe yield.”

While there was an overall 9% increase in properties on the market, Blankstein says a lack of high-quality assets with long-term leases in the net lease market remains. Many passive investors shifted their focus to essential business-related tenants.

“Some of the essential business tenants commanded the most attention from investors and warranted the lowest cap rates in the sector,” says John Feeney, senior vice president, The Boulder Group.  “In the first quarter of 2021, 7-Eleven, CVS and McDonald’s cap rates were 4.90%, 5.00% and 4.00% respectively for assets that were recently constructed.”

While The Boulder Group didn’t have a final number on Q1 transaction volume, Blankstein thinks sales volumes will be lower year-over-year.

“It will be down slightly again because the stuff that is trading is all the good stuff—the Chick-fil-A’s, CVS’s and Starbucks,” he says.

Blankstein expects transaction volume to remain active as vaccinations continue and the economy continues to recover from Covid-19. Both 1031 investors and private capital investors will chase properties with long-term leases, strong tenants and top metro locations. This should keep cap rates at a low level.

Investors will continue to wait for non-essential retail, like fitness centers and movie theaters, to come back. “It’s a wait-and-see on what numbers they post in the second and third quarter,” Blankstein says. “If they’re good, people will be happy to get back in. But, it’s really hard to tell how many people have come back to the gym. Is it 95%? Is it 80%? There is a huge difference in profit margins between those two? Movie theaters have the same concerns.”

In the first quarter, Blankstein said that 1031 investors continued to be active bidders. “The 1031 market is starting to come back from a very quiet Q2 and Q3 last year,” he says.

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