Thursday, December 30, 2021

KKR Expands Pennsylvania Industrial Portfolio With Lehigh Valley Purchase

By Rachel Whaley CoStar Research 

KKR, a New York-based global investment firm, has purchased a two-building, about 1.5 million-square-foot distribution complex in Allentown, Pennsylvania.

KKR acquired the two-building portfolio through its core plus real estate strategy from GLP Capital Partners. Financial terms of the sale were not disclosed.

Completed in 2019 and 2020, the two buildings feature a 36-foot clear height, 190-foot truck courts and large loading areas. Both buildings are fully leased by Keurig Dr Pepper, according to CoStar data. Both the tenant and prior ownership had invested significant capital into the two-building complex.

The property is located off Industrial Boulevard in the heart of the Lehigh Valley adjacent to Interstate 78, providing access to major East Coast metropolitan areas; New York, Washington and Philadelphia are within a one- to three-hour drive.

This purchase bolsters KKR's industrial real estate portfolio in Pennsylvania to just over 3 million square feet.

"We are excited to grow our portfolio in one of the country’s top distribution markets with this high quality asset," Ben Brudney, a director in the real estate group at KKR who oversees the firm's industrial investments in the United States, said in a statement. "We believe that state-of-the-art distribution centers in highly infill locations with strong demand and barriers to new supply will continue to benefit from the acceleration of e-Commerce penetration."

KKR has acquired about 47 million square feet of industrial space in strategic locations across major metropolitan areas in the United States across its funds. Since launching a dedicated real estate platform in 2011, KKR has grown real estate assets under management to about $36 billion across the U.S., Europe and Asia as of September 2021.

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Thursday, December 23, 2021

Spark Therapeutics To Build $575 Million Gene Therapy Center on Drexel's University City Campus

 By Carlos Likins CoStar News

Spark Therapeutics plans to invest $575 million to build a new gene therapy innovation center on Drexel University's campus in Philadelphia's University City neighborhood.

Through a 99-year ground lease of Drexel University's F Lot, the new gene therapy center will be located at the intersection of 30th and Chestnut streets. The 500,000-square-foot, multistory facility is set to be a part of Spark's now projected 1 million-square-foot campus in Philadelphia.

"Through this significant investment and plans to more than double our physical footprint, we’re poised for continued growth as we seek to develop the next generation of genetic medicines as a member of the Roche Group," Jeff Marrazzo CEO and co-founder of Spark Therapeutics, said in a statement. "Since founding Spark eight years ago, Philadelphia has been part of our company’s DNA and we’re proud to continue to call Philadelphia home for many years to come."

Spark Therapeutics is currently headquartered at 3737 Market St. in University City. Spark was acquired by Swiss multinational pharmaceutical company Roche in 2019, but it continues to operate as an independent company in Philadelphia.

"Since founding Spark, we knew Philadelphia had the potential to be the life sciences hub it is becoming today," said Marrazzo. "From our prestigious universities and hospitals, to the investments poured annually into scientific research and the sheer volume of medical professionals that receive training here, Philadelphia has every ingredient necessary for life sciences companies to succeed. We’re honored to be part of Philadelphia’s success story and proud to feature the city in the next chapter of Spark’s story with our colleagues at Roche."

In addition to its physical expansion, Spark Therapeutics is entering a long-term partnership with Drexel University to advance life sciences research and innovation in University City, according to the university's president, John Fry.

"This partnership will generate unparalleled opportunities for our students and faculty to participate in groundbreaking research and to help create and sustain the workforce that will make West Philadelphia a leader in the life sciences revolution," Fry said in a statement.

Construction on Spark's new gene therapy innovation center is anticipated to begin in the fourth quarter of 2022.

Wednesday, December 22, 2021

Demand for commercial real estate over the longer-term appears to be pretty favorable (Video)

MM Partners planning $31M mixed-use development in heart of Norristown

 Natalie Kostelni Reporter Philadelphia Business Journal

MM Partners, a Philadelphia real estate company known for its development in Brewerytown, is planning a $31 million apartment complex in the heart of Norristown.

It will stand as an unprecedented amount of private investment in the Montgomery County seat and could prompt other developers to explore opportunities in the borough, which is trying to undergo a revitalization.

The development will consist of a seven-story building with 111 market-rate apartments and 12,000 square feet of commercial space at the intersection of Main Street and DeKalb Street.

“What’s intriguing about Norristown is its location,” said David Waxman, co-founder and managing partner at MM. “It’s well served by transportation, the courthouse is being redone with a massive park and you have a history there. Like Brewerytown, it’s surrounded by good neighborhoods and it’s a hole in the doughnut. We think we can take some of the plays from the same playbook we used in Brewerytown and apply them here.”

MM Partners ventured into Brewerytown roughly 20 years ago when the neighborhood wasn’t attracting much investment. The firm converted old factories into apartments and bought buildings along West Girard Avenue, renovating the upper floors into residential and leasing the retail space to tenants. It used both the residential and retail along with other placemaking efforts to activate the neighborhood.

Rebecca Swanson, executive director at the Montgomery County Redevelopment Authority (RDA), was familiar with MM Partner’s work in Brewerytown, having served six years with the Philadelphia Department of Licenses and Inspections. About a year ago, the RDA issued a request for proposals for developers to respond with ideas for the highly visible site in Norristown.

“It’s a big opportunity,” Swanson said. “We wanted someone who has familiarity with vertical and urban development. We really wanted active ground floor commercial space with retail, restaurants and amenities for everyone who lives and works in Norristown.”

The RDA received four proposals, of which three were strong and from Philadelphia developers who have done large projects, said Swanson. She declined to disclose the names of the other developers.

For MM Partners, though Norristown was outside of Philadelphia, where it had focused much of its development activity, it didn't seem like too much of a stretch. “When I reviewed the RFP, I fell in love with it,” said Joe Zimatore, a partner at MM Partners. Waxman and Zimatore walked the site and the surrounding area in November 2020 with Swanson and other Norristown officials, who wanted hear what they envisioned for such a high-profile location in the community.

“Norristown is a great opportunity,” Zimatore said. “From a location standpoint, you can’t get a better location. Its proximity to King of Prussia, Conshohocken and even Philadelphia. It’s close to SEPTA. It’s next to a distillery and the county buildings.”

Full story:

Friday, December 17, 2021

Equus Capital Partners sells Microsoft-anchored office building in Malvern for $36.3M

 Natalie Kostelni Reporter Philadelphia Business Journal

Equus Capital Partners Ltd. has sold 45 Liberty Blvd., a three-story, 136,977-square-foot office property in Malvern, for $36.3 million.

FLD Group, a real estate company from Lakewood, New Jersey, bought the property that was 95% occupied and Microsoft Corp. is an anchor tenant. This is the second building FLD has purchased in the Great Valley Corporate Center. In 2019, it bought 100 Deerfield Lane, a 91,190-square-foot office building, for $15.5 million.

Full story:

Warehouse Tenants Face Price Shock as US Industrial Rents Soar

 By Randyl Drummer CoStar News

Warehouse tenants are bracing for the kind of sticker shock already familiar to shoppers buying everything from ribeye steaks to used cars.

Logistics tenants that signed five-year leases with standard 3% annual rent increases in 2016 are at the end of their terms and are facing a situation in which they must renew or move at a time when rents are on average 25% higher across the country than they were a half-decade ago. Research also shows steep increases in rents.

The rent increases are significantly more pronounced in some coastal markets, ranging from 50% to 64% higher than five years ago in Southern California's Inland Empire, Philadelphia and Central Jersey. It said the highest increases were in Central Jersey, where rents were on average 64% higher in that time.

In all, eight California markets are experiencing rent increases above the national average. Rents are up significantly over the past five years in industrial markets in the Inland Empire, with a 61.7% increase, as well as Sacramento's 52.9%, Orange County's 46.6%, the Central Valley's 43.6%, Oakland's 39.4%, Walnut Creek's 36.6% and greater Los Angeles' 33%.

That data is roughly in line with findings by CoStar research, which tracked rent increases of 52.7% over the past five years in the Inland Empire, including a year-over-year gain of 11.3% this year. Industrial rents rose 7.2% in 2020, the first year of the pandemic.

The increases come as the construction of new warehouse and logistics space has failed to keep pace with demand during the pandemic, sending vacancy rates to all-time lows. In the Inland Empire, which has an industrial base of 700 million square feet, landlords have reacted by increasing asking rents nearly 16% in the third quarter from the same point in 2020. New space is either preleased or occupied within a few weeks of being finished, the brokerage reported.

"The bottom line is that rents have doubled within the last 18 months. With construction not keeping up with demand, tenants are realizing that their first priority is securing space at almost any price."

Demand Drives Prices

The increase in demand comes as logjams in global supply chains have slowed delivery of a range of products, from microchips used in automobiles to the steel used to construct warehouses. As a result, consumer prices have been on the rise, with used car prices climbing 40% since the early days of the pandemic in March 2020 and the price of steak rising 25% over the past year.

A lack of available buildings is affecting even the world's largest warehouse landlord and developer. Thomas Olinger, chief financial officer for San Francisco-based Prologis, recently said the firm's buildings are “effectively sold out” as businesses race to lease a diminishing supply of warehouse space during a global supply chain bottleneck.

Tenants that once began renewal negotiations six months before their leases were to expire are now starting talks up to two years in advance for some large buildings in the Inland Empire.

"We're seeing our tenant clients or others in the market get out in front of lease decisions far earlier than they used to in order to navigate the challenges of limited supply of existing and new buildings," who has represented such industrial occupiers as Millennium Distribution and Smart Turn Logistics.

"With the exorbitant rent growth we're seeing, landlords don't want to commit to an agreed-upon rent too early, because they're concerned they may leave income on the table."

"Owners and tenants are finding that the market blows by them as soon as they sign a lease. The owner feels regretful and the tenant feels lucky to have made the deal, even though they thought they were paying through the nose."

Wednesday, December 15, 2021

Gattuso Development Begins Construction on New Life Science Facility at Philadelphia’s Navy Yard

 By Spencer Billups CoStar Research

Gattuso Development Partners has started construction on a flex production facility in Philadelphia's Navy Yard as it responds to the skyrocketing demand for life science development, particularly for cell and gene therapy research and manufacturing space.

Located at 2500 League Island Blvd., the 130,000-square-foot facility is set to feature 30-foot clear heights,14 loading bays and 360 surface parking spaces. The new building, which follows earlier Gattuso-led life science Navy Yard projects including WuXi AppTec, Adaptimmune and most recently Iovance Biotherapeutics, is the latest indication of the city's emergence as a leader in the life science industry, particularly for cell and gene therapy.

"There is incredible demand for space, and companies are conducting national searches for new locations as this sector expands," John Gattuso, principal and founder of Gattuso Develoment Partners, said in a statement. "As a result, this facility is designed to help meet the pressing need for current Good Manufacturing Practices (cGMP) lab and production space that will allow this ecosystem to grow."

Gattuso Development secured construction financing from Citizens Bank and joint venture equity with Boston-based The Baupost Group for the project . JLL's Ryan Ade and Brett Segal arranged the financing and equity.

"The evidence is clear that if we can meet the demand for cGMP lab and production space, Philadelphia can become a critical epicenter for an industry that many see as the future of modern medicine," Segal said in a statement. "Thanks to the research and innovation cultivated at Penn, Jefferson, Temple, Drexel and Children’s Hospital of Philadelphia, we are clearly positioned for significant growth in the years to come – if we can provide the research, lab and production space that the life sciences industry is demanding."

The project is set to deliver in the fourth quarter of 2022 and is targeting LEED Silver certification. Sitio designed the facility.

Thursday, December 9, 2021

Cordish to Sell Live! Casino Philadelphia and Two Other Casinos for $1.81 Billion

By Mark Iovanisci CoStar Research

The Cordish Cos. has agreed to sell three of its casinos to Gaming and Leisure Properties in a $1.81 billion deal it said will also establish a binding partnership between the two firms on future casino developments.

The Baltimore company behind the Live Casino brand, Cordish said it will sell Live Casino & Hotel Maryland, Live Casino & Hotel Philadelphia and Live Casino Pittsburgh, as well as the long-term ground leases, to GLPI.

Concurrent with the sales, Cordish will lease back the properties and continue to own, control and manage all gaming operations at each casino, the company said. Cordish will enter into a new triple-net master lease for Live Casino & Hotel Philadelphia and Live Casino Pittsburgh, and a single-asset lease for Live Casino & Hotel Maryland.

The Maryland sale is expected to close by year end, while the Pennsylvania transactions are expected to close early next year. All three deals still must receive state regulatory approvals and clear other financing and closing hurdles before being finalized.

David Cordish, chairman of the global real estate development firm that dates back to 1910, said the partnership will provide opportunities for Cordish to grow the Live brand while aligning two recognized leaders in their respective industries. The firm has developed and operates destination resorts and entertainment spots across the country including the Hard Rock Hotel & Casino Hollywood, Hard Rock Hotel & Casino Tampa, Power Plant Live in Baltimore and Bally Sports Live in St. Louis.

For GLPI, the pending acquisitions and subsequent leases will provide strong rent coverage at an accretive capitalization rate, or rate of return, while continuing to expand and diversify its portfolio, Peter Carlino, chairman and CEO of Pennsylvania-based GLPI, said in a statement.

GLPI disclosed in a separate release on Monday that it plans to sell 7.7 million shares of common stock that has been valued at about $344.6 million to partially finance the purchase of the three casinos, though it will use the proceeds as working capital, including to buy and develop other properties, if the Cordish deal were to fall through.

The deal will include $323 million in newly issued operating partnership units that GLPI said will economically align the two companies for future collaboration and potential financial partnerships in other areas of Cordish’s property and business portfolio. 

The awaiting transactions set up a larger partnership between the two companies after the firms agreed to collaborate on a range of future real estate and development opportunities. That includes a partnership where GLPI would co-invest with Cordish on any new gaming development project for a period of seven years following the sale of the two Pennsylvania properties. As part of the agreement, GLPI would invest in 20% of Cordish’s portion of the equity in the project throughout the life of the development.

Additionally, GLPI would also have a right of first offer and right of first refusal on any sale-leaseback or similar transactions that Cordish pursues.

Following the sale of the three casinos, Cordish will enter into the new leases that are set to have an initial term of 39 years with a maximum term of 60 years. The initial annual rent for all three properties will be $125 million, representing an implied capitalization rate of 6.9%, GLPI said. The leases also have a 1.75% fixed yearly escalator that will start in the second year.

Wells Fargo Securities is acting as financial adviser to GLPI on the transaction.

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Monday, December 6, 2021

Philadelphia Based Five Below Sticks to Target of More Than Doubling Store Count to 2,500

 By Linda Moss CoStar News

Five Below, the hands-on retailer that caters to kids, tweens and teens, said it's keeping to its target to more than double its number of stores to 2,500.

The Philadelphia-based chain now has 1,190 brick-and-mortar retail locations in 40 states as it continues its national expansion, moving westward from the East Coast. The company has also been bolstering its distribution network with new warehouses in Arizona and Indiana.

Counting store debuts in the fourth quarter, Five Below completed 170 net new openings for the year, CEO Joel Anderson said during a fiscal third-quarter call.

“As we look ahead, we are confident that we will continue to drive sustainable long-term growth while realizing our 2,500-plus store potential in the U.S.,” he said in a statement.

While some retailers that serve the younger set have struggled — most notably Toys R Us, which is attempting yet another comeback after the chain was liquidated — Five Below has been in a super-growth mode. The retailer’s stores offer children and tweens — generally considered those 9 to 12 years old — an array of toys, candy, sports items and other merchandise that they can play with and “experience,” priced from $1 to $5. Officials boast that Five Below offers parents a place to take their kids to have a fun time at a minimal cost.

"You shouldn't expect our growth engine around new stores to slow down," Anderson told Wall Street analysts. “There is no other national retail out there that is specifically targeting teens and tweens and kids, and Toys R Us went out three years ago. And we do it with a great shopping experience, and it's all about value. [And] as long as I'm here, we're going to keep investing for the future.”

Five Below's competition may be heating up, as WHP Global, now majority owner of the Toys R Us brand, recently said it was opening up a flagship for the once-defunct toy store at the American Dream mega mall in East Rutherford, New Jersey, later this month. Toys R Us shop-in-shop locations are also open in Macy's.

Five Below is experimenting with two new store prototypes, including one that incorporates higher-priced items in a section called "Five Beyond," according to Anderson.

"I will tell you that we're extremely bullish about Five Beyond," he said. "It's in about 30% of the chain today. It will be in roughly about half the chain at the end of next year."

Rapidly expanding its store fleet — particularly into California, Florida and Texas — means that Five Below has had to open more logistics facilities, according to Christopher Giannini, the retailer's senior director of property management and development.

It has more than 5 million square feet of distribution space, with almost 4 million square feet of that developed over the past three years, he said during a panel last month at NAIOP I.CON East, the nation’s largest gathering of industrial real estate professionals, in Jersey City, New Jersey.

Five Below's first major distribution center was in Pedricktown, New Jersey, and the company has since opened warehouse facilities outside Macon, Georgia, and in Conroe, Texas, according to Giannini. It also recently debuted one in Buckeye, Arizona, one of the country's fastest-growing suburbs, and has construction of one underway in Indianapolis, he said.

Five Below typically owns its warehouses rather than leases them, and they are generally 700,000 to 1 million square feet, with the ability to expand, Giannini said. For example, the one being built in Indianapolis will be 1 million square feet, but it is on an 85-acre site, which will permit the building to expand to 1.3 million square feet, he said.

Referring to Five Below's retail openings, Giannini said, "We want to double the amount of stores and then some, so we built in some flexibility [in warehouses] to continue to grow that.”

For its stores, Five Below leases space, taking on average 9,000 square feet with a 10-year lease with options to extend the deal.

The company’s net sales rose 27.5% to $607.6 million from $476.6 million in the third quarter of fiscal 2020, while comparable sales increased by 14.8% versus the third quarter of fiscal 2020.

Friday, December 3, 2021

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REIT Acquires Two Shopping Centers Along I-95

 By Ingrid Tunberg

United Hampshire US REIT, a Singapore REIT sponsored by UOB Global Capital and the Hampshire Cos., has acquired two grocery-anchored shopping centers along the Interstate 95 corridor.

The acquired properties comprise the 258,494-square-foot center, Penrose Plaza, located at 2900 Island Ave. in Philadelphia, PA, and the 168,326-square-foot center, Colonial Square, located at 3107 Boulevard in the Richmond, VA suburb of Colonial Heights.

The two transactions serve as UHREIT’s first post-IPO acquisitions, and represent UHREIT’s first acquisitions in the respective states.

The transactions bring UHREIT’s total number of assets to 24, representing more than 3.6 million square feet. The REIT currently has 20 grocery-anchored and necessity-based properties and four modern self-storage facilities along the Interstate 95 corridor.

Penrose Plaza is currently 94% leased and is anchored by ShopRite. The shopping center is tenanted by an array of tenants including dd’s Discounts, Dollar Tree and Citi Trends. The property offers access to More than 20,000 businesses and 581,000 residents are located within a five mile radius of the property.

Colonial Square is currently 99% leased and is anchored by Publix. The property is also leased to Locke Supply Co., Wells Fargo and Dollar General, and is situated near 87,400 residents in the immediate vicinity and Richmond metropolitan area.

“Strong annual GDP growth and an improving economy have continued to power a robust necessity-based retail real estate market across the eastern U.S.,” says Robert Schmitt, UHREIT’s CEO. “The acquisition of these two properties represents a significant opportunity to tap into this continued strength by adding two high-quality, resilient and stable income-producing grocery-anchored and necessity-based properties to our already robust portfolio of high performing assets.”

Derek Gardella, Head of Investments of the UHREIT added, “With highly favorable demographics, strong population density and strong buying power in the eastern portion of the U.S., the overall grocery-anchored real estate market has shown remarkable resilience throughout all stages of the pandemic,” states Derek Gardella, UHREIT’s head of investments.

“As we look to 2022, we remain optimistic about the broader market’s long-term prospects and look forward to identifying further opportunities to acquire grocery-anchored and necessity-based retail properties in the eastern half of the country to continue to grow the UHREIT and tap into continued demand.”

Thursday, December 2, 2021

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Kohan Picks Up 1.1 Million-Square-Foot Montgomery Mall Near Philadelphia

 By Mark Heschmeyer CoStar News

Kohan Retail Investment Group, a specialist in investing in troubled malls and shopping centers, has acquired the six-property, 1.1 million-square-foot Montgomery Mall in North Wales, Pennsylvania.

The purchase starts a new chapter for the mall that was owned by Simon Property Group through the first half of 2021.

Kohan bought the mall from LNR Partners, a commercial mortgage-backed securities special servicer that took possession of the property in July through a negotiated foreclosure with Simon, according to CoStar CMBS data. LNR then put the mall up for auction in August.

Kohan was selected as the preferred buyer and paid $55 million, or about $56.50 per square foot, in late November. The mall was appraised at $195 million when it was refinanced with $100 million in CMBS financing in 2014.

The super-regional mall located halfway between Philadelphia and Allentown, Pennsylvania, was among the centers nationwide hard hit by the COVID-19 pandemic. Simon defaulted on loan repayments in summer 2020 and worked with LNR for a year on the eventual outcome, according to CMBS data.

Bond rating analysts from DBRS Morningstar visited the mall twice in July and noted on both occasions that there was minimal activity, except near a Wegman’s supermarket and a Dick’s Sporting Goods store.

“The exterior is dated, and parts, especially around the now-vacant Sears, are fairly desolate. Foot traffic in the inline space was virtually nonexistent,” DBRS analysts noted in a surveillance report published July 30. “There are large swaths of vacant space along the inline space and among the kiosks. A number of the vacant inline spaces now have vending machines stationed in front of them.”