Wharton Industrial sells Pennsauken portfolio for $195 million

 By Paul Schwedelson  –  Reporter, Philadelphia Business Journal

A joint venture between Wharton Industrial and Walton Street Capital has sold Twinbridge Industrial Park, a 1.3-million-square-foot industrial portfolio in Pennsauken, for $194.5 million, in one of the largest industrial deals in New Jersey this year.

An affiliate of New York-based DRA Advisors bought the 37-building portfolio. The average building is 35,000 square feet.

In 2020, New York-based Wharton and Chicago's Walton bought the portfolio from The Bloom Organization. At the time, it totaled 32 buildings and 1.16 million square feet. Wharton and Walton bought a few additional buildings since then to add to it. The site is 10 miles from Philadelphia's Center City.

“We really believed in the real estate close to Philadelphia,” Wharton Industrial Chairman Peter C. Lewis said. “It’s irreplaceable. You can’t build this anymore. There’s no more land left and you can’t get approvals. The proximity to Philadelphia is perfect."

The industrial park is close to routes 73,130, Interstate 295, and both the Betsy Ross and Tacony-Palmyra bridges into Philadelphia. PepsiCo leases space at 8275 N. Crescent Blvd. Rental car company Enterprise leases space at 9345 N. Crescent Blvd.

Properties also include three buildings totaling 153,400 square feet at 809 Hylton Road, 815 Hylton Road and 1045 Thomas Busch Memorial Highway that Wharton acquired with Walton Street in 2021.

Lewis declined to share how much Wharton Industrial paid for the Twinbridge Industrial Park portfolio. In recent years, the Philadelphia region’s industrial market has seen low vacancies and record rents, increasing the value of properties like the one Wharton just sold.

Wharton increased rents for tenants from $5 or $6 per square foot up to $12 per square foot, a testament to the high demand and low supply of the Philadelphia industrial market. The portfolio is now 97% occupied. On average, the 37 buildings were built in 1983.

Tenants include Lockheed Martin, Sprint, PepsiCo’s SodaStream and BlueTriton, which was previously known as Nestle Waters.

“It’s a mixture of credit, but a lot of it is decades-old companies or family businesses or small businesses that just pay their rent and they’re good tenants and they service the market,” Lewis said. “I love that kind of tenant.”

Wharton planned to sell the portfolio eventually, but Lewis wasn't sure of the timing. Given that high interest rates have limited buyer pools, Lewis initially thought of waiting. Once interest rates subside, there could be more potential buyers yielding a higher price.

But other sellers of comparable properties had a similar mentality. Since few comparable properties are selling, brokers convinced Lewis the portfolio could generate competition among buyers, making it an advantageous time to test the market. Lewis followed their advice and closed the deal despite the challenging financing environment. By being one of the few sellers in the market, Wharton was able to more easily attract the few buyers looking for deals.

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Despite Surge in Apartment Construction, Philadelphia Trails Other Major US Markets

By Brenda Nguyen Costar

Despite the unprecedented level of apartment construction underway locally, Philadelphia's multifamily development seems downright modest compared with several other top markets nationwide. As the seventh-largest metropolitan area in the U.S. by population, Philadelphia ranks 15th in total units completed in the past 12 months and units under construction.

The City of Philadelphia's rich history has shaped its core housing stock, largely comprised of row houses, townhouses and converted older buildings. The city’s density has limited the amount of land available for significant multifamily development. As a result, Philadelphia’s multifamily developments have mostly been limited to in-fill projects or warehouse-to-apartment conversions over the years.

Most cities leading in multifamily development nationally, including Dallas, Houston and Phoenix, also have a large inventory of available, developable land. Surging population growth has further fueled these Sun Belt metropolitan areas in recent years.

In the Philadelphia suburbs, it's not so much the availability of land that is impeding significant multifamily development so much as the prioritization of low-density residential development by many municipalities. These residential areas tend to focus on single-family homes on larger lot sizes, resulting in more restrictive zoning regulations. These regulations can be more confining compared to those in the city, making it challenging for developers to obtain permits and variances for large-scale multifamily projects.

The region’s slower pace of rental housing development is a decade-long trend that has led to a highly compressed multifamily market with a 5.7% vacancy rate – the fourth tightest of these 15 metropolitan areas. Only New York, Los Angeles and Miami have vacancy rates under 6% as of mid-2023.

Despite Philadelphia’s comparatively slow housing production, the record 22,000 units scheduled to be completed over the next 24 months should help to ease supply pressures stemming from decades of underdevelopment. Even with various efforts to increase construction levels and address the housing shortage, the market needs to work together to keep pace with other major markets. Moreover, balancing the need for affordable housing and the demand for higher-end units will be crucial in shaping the future of multifamily development in Philadelphia.

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Prologis to Acquire 14MSF Blackstone Industrial Portfolio in $3.1 Billion Deal

 Prologis, Inc. (NYSE: PLD) and Blackstone (NYSE: BX) today announced a definitive agreement for Prologis to acquire nearly 14 million square feet of industrial properties from opportunistic real estate funds affiliated with Blackstone for $3.1 billion, funded by cash. The acquisition price represents an approximately 4% cap rate in the first year and a 5.75% cap rate when adjusting to today's market rents.

"We're pleased to be working with Blackstone on this deal. These high-quality properties are complementary to our portfolio and fit perfectly into our long-term strategic plan for growth," said Dan Letter, president, Prologis. "The acquisition demonstrates our unique ability to add significant scale to our portfolio - expanding customer relationships and increasing opportunities for our growing Essentials platform."

Nadeem Meghji, head of Blackstone Real Estate Americas, said, "Where you invest matters, and this transaction demonstrates the exceptional demand for high-quality warehouses. With near record low vacancy, logistics remains a high conviction theme for us; we are proud owners of $100 billion of warehouses in North America and $175 billion in total around the world. And, of course, Prologis is a world-class company that knows this space as well as anyone."

Prologis and Blackstone have completed more than a dozen transactions together in the past 11 years. Leadership at each company values the relationship and the opportunities it creates to execute on their respective strategies across markets and cycles.

Prologis currently owns 1.2 billion square feet of logistics real estate in 19 countries. This acquisition expands the company's presence in key markets, including Atlanta, Baltimore/Washington DC, California (Southern California, Central Valley, SF Bay Area), Dallas, Las Vegas, New York/New Jersey, Phoenix and South Florida. The company plans to hold all of the properties acquired. This deal expands Prologis' relationship with 50 existing customers and adds 77 new customers.

The transaction is currently expected to close by the end of the second quarter.

Eastdil Secured, Barclays, BofA Securities, Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, PJT Partners and Wells Fargo acted as financial advisors to Blackstone, and Simpson Thacher & Bartlett LLP acted as legal advisor.

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Philadelphia’s Suburbs Outpace Urban Apartment Rent Performance

 

By Brenda Nguyen Costar

Apartment rent growth patterns have emerged between Philadelphia’s premiere urban and suburban neighborhoods in mid-2023. Rent performance in the top suburban neighborhoods surpassed the regional average growth rate of 2.6%, while rent growth in the most in-demand urban neighborhoods has lagged.

This analysis focuses on the top five suburban and top five urban multifamily districts by the highest rental rates, out of the 33 locales tracked by CoStar in the Philadelphia region.

Among these districts, the Conshohocken and Plymouth Meeting neighborhoods stand out with an average annual rent increase of 5.3%, twice the regional average. Following closely are the King of Prussia and Valley Forge neighborhoods, the Main Line and Lower Burlington County – all suburban districts logging between 3.2% and 4.3% rent increases in the past 12 months.

Meanwhile, North Philadelphia, which encompasses Fishtown, Kensington and part of the Delaware Waterfront, posted the lowest rent growth of the 10 districts at 0.6%. The remaining neighborhoods lagging the region’s 2.6% average growth rate are located in the City of Philadelphia, except for Upper Chester County.

The divergence in rent growth can largely be attributed to the completion of a large number of units in the past 12 months and ongoing construction projects in each district. The four suburban areas with the fastest rent growth saw very few project completions in the recent quarter and have fewer than 500 units under construction. King of Prussia, in particular, had no recent completions or significant multifamily development in progress.

Meanwhile, the six neighborhoods with slower rent growth have between 1,000 and 4,350 more units under construction. Over the past year, North Philadelphia has seen the highest number of construction completions, with 1,385 units delivered and another 3,500 units in progress. The Northern Liberties and Art Museum districts, which had the second-slowest rent growth, saw 990 completions during the same period. Another 4,350 units are in the pipeline to be completed here through early 2025, the highest concentration of development in the region.

Given the expected completion of substantial apartment construction projects in Philadelphia, it is anticipated that rent levels will continue to stagnate across these top urban neighborhoods. Conversely, supply-constrained suburban neighborhoods are likely to maintain solid rental performance in the foreseeable future.

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Mega Industrial Leases Drying Up Across the Philadelphia Region

 By Brenda Nguyen Costar

The Philadelphia region’s industrial market has experienced a significant shift in leasing trends. Historically, about five industrial leases exceeding 500,000 square feet were signed each year since 2015. But halfway into 2023, no industrial leases of that size cohort have been recorded.

Over the past six years, top retailers such as Amazon, Walmart and Burlington were responsible for the largest industrial leases in the region, with several lease deals surpassing 1 million square feet. In the past six months, however, retailers have applied the brakes on their leasing activity. Third-party logistics companies have become the primary renters of the largest spaces. Nevertheless, these leases have not reached the scale of the mega-warehouses seen in recent years.

The largest industrial lease signed so far in 2023 is for a modest 350,000 square feet. Barry Callebaut, a cocoa producer, signed a seven-year lease at the Delco Logistics Center. in Eddystone, Pennsylvania. The company aims to optimize its local production and distribution network with the new warehouse, near the Philadelphia International Airport.

Only three additional leases in the past six months have exceeded 250,000 square feet. YesWay Logistics, Champion Services and Dependable Express – all transportation and warehousing companies – leased approximately 250,000 square feet each in the region.

High interest rates and concerns of an impending recession later in 2023 have impacted the leasing environment, particularly for massive industrial spaces. However, leasing activity remains robust for small industrial spaces under 25,000 square feet, which aligns with previous years' performance.

Around 90% of the 380 industrial lease transactions in 2023 have been for spaces below 25,000 square feet, in line with historical trends. Despite the dominance of large leases in the news headlines, smaller industrial spaces have consistently accounted for 80% to 90% of total lease transactions since 2019.

The slowdown in demand for large spaces is expected to affect the leasing of the 16 ongoing industrial developments with at least 500,000 square feet available on the market. However, as the overall macroeconomic environment stabilizes, especially interest rates, it is anticipated that many of these large industrial projects scheduled to complete in the next 12 to 18 months will gradually lease up, albeit at a slower pace and with some short-term challenges."

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Dermody Properties Acquires Site for Industrial Development Outside Philadelphia

 By Linda Moss CoStar News

Dermody Properties is continuing to expand its logistics portfolio in New Jersey with its acquisition of an industrial development site in a suburb of Philadelphia.

Reno, Nevada-based Dermody has purchased the planned site of a 214,271-square-foot facility at 261 Swedesboro Paulsboro Road in Woolwich Township. The seller was owner Arbok.

Terms of the transaction weren't disclosed.

The industrial development is slated for 14 acres and, upon completion, will feature 40-foot-high-clear ceiling heights, two drive-in doors, 39 dock doors, 19 trailer stalls and 169 parking spaces. The facility is scheduled to be completed in mid-2024.

Dermody has been adding to its industrial holdings in the Garden State. For example, in May it paid $37.6 million to acquire two sites in southern New Jersey where it plans to develop two logistics facilities.

“The fully approved industrial development site is an ideal size to cater to the deepest pool of tenant demand and strategically located immediately off the New Jersey Turnpike, granting convenient access to major cities."

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One uCity Square now 90% leased after adding a pair of new life sciences tenants

 Paul Schwedelson Reporter - Philadelphia Business Journal

One uCity Square, a 400,000-square-foot life sciences building in University City, is nearly fully leased months after opening.

One uCity Square, a $300 million life sciences building in University City, is now more than 90% leased less than six months after it opened in January.

Engineering and scientific consulting firm Exponent moved into 32,000 square feet earlier this month, taking up a full floor in the new building at 25 N. 38th St. after previously occupying 20,000 square feet at 3440 Market St.

Massachusetts-based Charles River Laboratories is also taking a half-floor at One uCity Square, which has a total of 400,000 square feet of space across 13 floors.

“It’s pretty incredible,” said Pete Cramer, vice president of development for Wexford Science & Technology, which developed the property in partnership with Ventas Inc. and the University City Science Center. “I think it’s a testament to the market. We started this building on spec without any leases. … Seeing that progression of velocity and leasing building after building is why we love this market.”

Cramer said the leasing pace is faster than it was at 3675 Market St., which opened in 2018 and is also part of the uCity Square campus.

Exponent, which is based in California, signed a 10-year lease at One uCity through 2033. The company currently has 70 consultants and plans to add about 10 to 15 positions each year until it reaches 100 employees in the new space, Philadelphia Office Director Ryan Siskey said.

Exponent spent the last 10 years at 3440 Market St., where its space included 4,000 square feet of labs. It will have 6,500 square feet of lab space at One uCity Square.

Full story: https://tinyurl.com/3te3mb48

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Affinius Capital Secures $180 Million in Financing for South Jersey Logistics Park

 By Linda Moss CoStar News

Affinius Capital has secured a $180 million construction loan to finance the continued development of the Garden State Logistics Center, a 1.7 million-square-foot industrial complex in Pennsville Township, New Jersey.

The loan was made to a joint venture between Newark, New Jersey-based PGIM Real Estate and CTR Partners, a national industrial real estate investment and development company based in Newport Beach, California, and led by James Watson, Dominic Petrucci, and Carter Ewing, Affinius said Monday in a statement.

Despite a slowdown in industrial demand nationally, that sector in the Garden State continues to perform strongly. Vacancy rates remain low, and construction of logistics projects continues in both the northern and southern parts of the state.

In May last year, PGIM announced that it and its partner had acquired a 282-acre site at 373 N. Broadway, at the foot of the Delaware Memorial Bridge, for its two-building distribution center.

The Garden State Logistics Center, at the southern gateway to New Jersey on Interstate 295, is able to serve 66 million consumers in a day’s truck drive, according to Affinius, which is headquartered in San Antonio. It will have one building that's 1.2 million square feet and another that's 512,000 square feet. Both will feature 40-foot-high clear ceiling heights and either cross-dock or front-loaded building configurations. The site will also accommodate 2,568 car and trailer parking stalls, and a total of 276 dock doors.

Vertical construction has started and is expected to be completed in the fourth quarter this year.

"The property is strategically positioned along major thoroughfares that allow tenants convenient access to the country’s densest populations, including Philadelphia, Washington, D.C., and New York City," Affinius Managing Director David Greenburg said in the statement. "We expect the project to be well received by the market and look forward to our partnership with CTR and PGIM Real Estate on this venture.”

Affinius, previously known as USAA Real Estate and Square Mile Capital Management, has $34 billion in net assets under management.

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Velocity Venture Partners buys Quakertown shopping center, plans industrial conversion

 Paul Schwedelson Reporter - Philadelphia Business Journal

The 225,000-square-foot Richland Plaza is 90% vacant.

As tenants fled from the Richland Plaza shopping center in Quakertown, Velocity Venture Partners Founding Partner Zach Moore thought, “There’s got to be an opportunity here.”

At 90% vacant, Velocity acquired the 225,000-square-foot retail center for $16.7 million on Wednesday and plans to convert it into a multi-tenant industrial site. The entire project, combining the acquisition cost and construction costs would bring the project to $22 million, Moore said. He foresees a mix of warehouse distribution and specialty manufacturing tenants.

Bala Cynwyd-based Velocity has built its reputation on buying distressed assets and converting them to industrial space. The Richland Plaza purchase is particularly opportune because of certain elements already in place. It also represents the company’s first acquisition of a shopping center of this size. 

“The most exciting component of this project for us is that it’s incredibly unique and we’re the first do it,” Moore said. “… Our competitors are focused on sourcing true industrial products. We continue to find ways to source deals creatively.”

Velocity contacted the family that owned the Bucks County property, which was already considering selling the former mall in an online auction. The seller was APS Associates LLC. The entity purchased the property for $13.475 million in 2010.

Prior to purchasing the 20-acre property at 733 S. West End Blvd., Velocity worked with Richland Township to change zoning to allow industrial uses. That set the stage for the company to buy the property, built in 1975, with plans to convert its use. That alone helped increase the property’s value, Moore said.

The building is also shaped as a long and narrow rectangle, similar to how industrial buildings are built. Velocity plans to take down the existing drop ceilings but much of the space already has exposed ceilings and polished concrete, up to an industrial standard. The shopping center has air conditioning and heat, which Moore said is rare in industrial buildings of this size. The building also faces Route 309, providing a rare signage opportunity compared with industrial buildings tucked away into less busy areas.

Those key drivers give Moore optimism in the property’s future.

“Our focus today is getting it in a position where it’s leasable from the redevelopment, construction perspective,” Moore said. 

Moore lives in nearby Harleysville and Velocity has bought several properties in Quakertown. Vice President of Asset Management and Development John Fiore previously built several retail developments in the area and had experience working with Richland Township on zoning changes. That combination led to Velocity identifying the site as a valuable property and executing the deal.

Ollie's Bargain Outlet, Wells Fargo and Pearl Vision are the remaining tenants at the property. The 84,405-square-foot former Bon-Ton department store vacated the shopping center five years ago. A Redner's grocery store, the other property’s other anchor, closed in 2022.

“Over the last three years particularly, we’ve just seen that site crash from an occupancy perspective,” Moore said.

Velocity owns more than 8 million square feet of industrial space throughout the region spanning across 100 properties. About 60% to 70% of the properties Velocity has bought are existing industrial sites while the rest are a mix of office, retail and lab space. Velocity has bought retail properties around 20,000 square feet to 30,000 square feet. The Richland Plaza’s 225,000 square feet is a new type of property for Velocity.

Given how the retail and industrial markets have changed in recent years, Moore and co-founder Tony Grelli are looking for more opportunities to buy properties similar to the Richland Plaza.

“I think it’s going to be an incredible case study,” Moore said.

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