by Joseph N. DiStefano Philadelphia Inquirer
Bill Glazer, owner of Keystone Development + Investment, is one of the Philadelphia area’s busiest redevelopers. Since 1991, his Bala Cynwyd-based firm has updated or repurposed 10 million square feet of office space and other commercial property along the East Coast, including the old Scott Paper and Curtis Publishing headquarters in Philadelphia, the new AmerisourceBergen headquarters complex in Conshohocken, and dozens of suburban office buildings, sometimes replacing offices with apartments or biotech labs.
He took questions from The Inquirer on how builders are dealing with higher interest rates and bank troubles. Answers edited for clarity and brevity.
How’s business?
Commercial real estate today is facing a triple threat: interest rate increases, which for us are unprecedented — over 5 [percentage points] within one year; lending and capital availability, which is down; recession and revenue pressures [which discourage tenants, making projects unattractive].
This is the real estate circle of life. We are in a cyclical business. We are now in this part of the cycle. The same stresses we’ve seen in the banking industry are playing out in real estate.
Which sector is getting hit hardest?
Every asset class is facing pressures. We are seeing universally that capital availability is being pulled back for every class. Not the least in retail — Bed Bath & Beyond just said they will not be reopening any of their stores in their bankruptcy. Warehouses, too.
Every time this happens, there is a flight to quality, to the projects most likely to succeed. Lenders face stresses from regulators, from markets, from their funding sources, and that will flow through to commercial real estate loan availability. They are looking for the best [developers, clients and] properties.
What kinds of projects are getting canceled?
You know that Toll Bros. was unable to pull off their condominium project. They demolished [part of Jewelers Row in Philadelphia], but they did not build. They sold the ground to Pearl Properties. You read that the big Durst project on the waterfront stalled.
Most new, ground-up projects are being shelved or paused or sidelined. The contractors are still finishing up jobs in their pipeline. But it’s coming. The Fed, in tamping down inflation, is adding so much pressure to the [borrowing] costs of new construction, there will be far fewer new construction starts. That will translate to fewer cranes.
Biotech, too? All those labs proposed across the Philly area?
There’s a burning need for their science in the marketplace. But the life science community and venture capital are going under a lot of capital stress right now. Anyone who needs to raise money for those projects is going to feel that pressure.
We’re having an investor day for BioLabs, our tenants at the Curtis Center. There’s about 300,000 square feet there of life science space and another 150,000 square feet left to lease. I wish I had more space in that building to convert into life science space.
We are fully capitalized and made at least $40 million in investment in mission-critical infrastructure such as backup power generation, exhaust, redundant power — the baseline requirements for Biosafety Level 2 labs and [FDA-rated] Good Manufacturing Practice labs. Ceiling heights at least 12 feet, we have 14. Floor load capacity, 200 pounds per square foot. Vibration tolerance. Engineering tolerance. Curtis was built for heavy printing presses.
Full story: https://tinyurl.com/ydb5ths2
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