Monday, December 30, 2024
Thursday, December 19, 2024
King of Prussia Mall adding 14 new stores, including 8 making Philadelphia-area debut
By Paul Schwedelson – Reporter, Philadelphia Business Journal
The King of Prussia Mall is adding 14 new stores, including eight that are new to the region, in the coming months.
At 2.7 million square feet, it is one of the largest shopping malls in the country and as such is able to attract high-end retailers and other concepts that don't often have another location in Greater Philadelphia.
Headlining the 14 new editions in 2025 are Netflix House and Italian food emporium Eataly. The location of the former will be one of the concept's first two sites. Netflix House is also planning to debut a Dallas outpost in 2025. Eataly currently operates 10 other U.S. locations, with the next nearest outposts in North Jersey and New York.
The concepts are part of a new wave of retail that's centered around experiences that go beyond traditional shopping.
Other highly anticipated brands opening soon at King of Prussia Mall include popular cooler and drinkware brand Yeti; luxury clothing and outerwear brand Moncler; Australian fashion concept Princess Polly; and eatery Lazy Dog Café. For each, it will mark their first foray into the Philadelphia market.
“These additions are prime examples of the elevated shopping experience we strive to provide for visitors and retailers alike,” Todd Putt, the mall’s marketing director, told the Business Journal.
The new stores add to a robust lineup at the mall, which as of February was 96% leased, according to a filing with the Securities and Exchange Commission.
Here are the stores set to open heading into 2025:
New to Greater Philadelphia:
- Amorino: The French chain, known for its Italian-style gelato, is set to open at the end of December.
- Aroma 360: The scent company makes products for homes and businesses.
- Eataly: The Italian food emporium is taking 23,000 square feet on two floors and will have an exterior entrance.
- Lazy Dog Café: Previously planned to open in 2024, the Southern California-based chain restaurant serves a menu with twists on comfort food that highlight seasonal ingredients.
- Moncler: An Italian luxury fashion brand specializing in outerwear.
- Netflix House: The retail, dining and live entertainment venue will occupy the former Lord & Taylor store.
- Princess Polly: An Australia-based women’s clothing company touting its trendy, quality fashion.
- Yeti: An Austin, Texas-headquartered cooler and drinkware brand.
Full story: https://tinyurl.com/329avkya
Wexford Science & Technology investing $29M to renovate University City life sciences building
By Paul Schwedelson – Reporter, Philadelphia Business Journal
As Wexford Science & Technology stares down 80,000 square feet of vacant space in one of its University City buildings, the firm is doubling down on Philadelphia’s life sciences sector by investing $28.5 million to renovate the property.
The renovations at 3711 Market St. are planned to begin within the first two months of 2025 and be completed before the end of the year. The goal in updating the 16-year-old, 10-story, 150,000-square-foot building is to boost occupancy, which currently sits at 45%.
“Despite some of the challenges over the last 12 to 18 months in the market, we believe strongly in the depth and the trajectory of life sciences in Philadelphia,” said Pete Cramer, vice president and market executive for Wexford.
While tenant demand among life sciences companies has slowed since 2023, industry experts believe leasing will pick up in the coming year. Wexford’s renovations are intended to lure tenants to a space that's competing with new buildings.
To do so, Baltimore-based Wexford and Chicago-based development partner Ventas, Inc. (NYSE: VTR) are planning upgrades including a renovated lobby to facilitate meeting and collaboration among building tenants, increased HVAC and backup power capacity, and move-in ready lab and office suites.
Current tenants at 3711 Market St. – part of Wexford’s uCity Square campus, which spans One uCity Square and 3675 Market St. – include Eli Lilly and Co. (NYSE: LLY), Spark Therapeutics and Good Molecules.
Cramer sees the move-in ready suites as an advantage to attracting tenants. Those are especially attractive to life sciences companies that often need new space very quickly after new discoveries are made and prefer not to wait for space to be built out.
Cramer said 3711 Market St. can accommodate tenants wanting to take as little as a move-in ready suite, which span 3,000 to 12,00 square feet, to as much as a full floor. The building has 35,000-square-foot floor plates and nearly 15-foot ceiling heights.
Full story: https://tinyurl.com/2epujv27
Real Estate: Several levers could determine the direction of industrial in 2025
By Ashley Fahey – Editor, The National Observer: Real Estate Edition, The Business Journals
Suppliers who've flocked to places like the Austin, Texas, metro area are in a holding pattern as the semiconductor industry goes through a bit of a down period.
Lofty projects that were expected to debut this year are delayed, putting groups like parts makers in limbo as they wait for the facilities that drew them to the area to become operational.
"The only thing really keeping us alive is that we have a large customer base of different customers that are making different kinds of chips," Ulysses Schussler, a senior director at KoMiCo Technology Inc., told Justin Sayers at the Austin Business Journal.
Semiconductors have been a big target of massive federal investments, such as the CHIPS and Science Act passed in 2022.
Lots to watch in 2025 for industrial real estate
With the prospect of significant tariffs looming during President-elect Donald Trump's incoming administration, some industrial real estate-using groups are trying to plan ahead and stockpile goods from abroad that could become more expensive next year.
Meanwhile, as leasing activity stabilizes from the frenetic pace observed during the Covid-19 pandemic, some oversupplied markets are catching their breath.
There's a mixed — but overall optimistic — outlook for industrial real estate in 2025, although there are several levers that could influence the direction of the market.
One key factor: More than 27% of current industrial leases, as tracked by CompStak Inc., are expected to expire in 2025 and 2026. While some of those expirations may include short-term deals signed since the pandemic, others will be pre-2020 lease terms, Alie Baumann, director of real estate intelligence at CompStak, told me. In fact, according to the firm, the average rent among leases expiring in 2025 is 75.7% below current market rate.
Those lease renewals are coming at a time when industrial groups — much like their office counterparts — are prioritizing the newest, and even amenitized, warehouses for their industrial real estate. CBRE Group Inc. recently found industrial buildings built before 2000 accounted for more than 100 million square feet of negative absorption this year while properties built after 2022 saw more than 200 million square feet of positive absorption.
FULL STORY: Tariffs, lease expirations and flight-to-quality: Here's what to watch in the 2025 industrial market
Changes could be coming to federal eco-devo
Like many other things, economic-development coalitions and initiatives are facing an uncertain future with the change in White House administration next month.
Billions in grants, subsidies and other incentives have been passed as part of sweeping federal measures in recent years — among them, the Inflation Reduction Act, the CHIPS and Science Act, the Regional Technology and Innovation Hubs program, and the Infrastructure Investment and Jobs Act. Although passed during the administration of Democratic President Joe Biden, the efforts largely had bipartisan support.
Adding it up: A recent Brookings Institution report found, as of September, a little more than $40 billion in place-based funding authorizations have been allocated or awarded.
What changes might be coming to those programs from the federal government under President Donald Trump's second term is the big question.
"These big investments ... have stimulated a lot of excitement and creation of really important, more coherent [economic-development] strategies for places," Mark Muro, senior fellow at Brookings Metro, told me. "The election creates a new level of uncertainty around this."
Data-center needs rev up in core markets
There doesn't seem to be an end in sight to the nation's data-center boom, especially as artificial intelligence takes center stage and reliance on digital infrastructure continues to grow.
In fact, data-center development in Virginia — where much of the boom has occurred — is outpacing electric-power infrastructure and will likely lead to increased costs for non-data-center customers, according to a recent Joint Legislative Audit and Review Commission analysis, reports Dan Brendel at the Washington Business Journal.
In places like Virginia, legislators will have to weigh data centers' energy implications against their economic and fiscal benefits. Although not huge job generators, data centers tend to be big taxpayers. Loudoun County, Virginia, for example, gets about a third of its local tax revenue from data centers.
According to JLARC, data centers are currently paying their full cost of service, but growing energy demand is likely to increase other customers’ costs. A typical Dominion Energy Inc. customer could see their costs increase by an estimated $14 to $37 monthly by 2040, not accounting for inflation, according to the study.
Full story: https://tinyurl.com/4k49fzcd
Tuesday, December 17, 2024
Monday, December 16, 2024
Wednesday, December 11, 2024
King of Prussia hotel sells for nearly $14M, new owner plans upgrades
By Emma Dooling – Reporter, Philadelphia Business Journal
A Lehigh Valley hospitality group has acquired a King of Prussia hotel and plans to undertake a renovation of the property in 2025.
Bethlehem-based Steel Hospitality purchased the 129-room Hyatt Place Philadelphia King of Prussia for nearly $14 million in early October, CEO Adam Patel told the Business Journal. The sale breaks down to roughly $108,527 per key.
Steel Hospitality takes over ownership of the Hyatt Place from Los Angeles investment firm Gehr Hospitality. The company bought the property for $12.67 million in 2019 in partnership with investment advisory company Oakhurst Advisors. The sale price broke down to $98,178 per key.
The Hyatt Place was put up for online auction on real estate platform RI Marketplace over the summer with a starting bid of $3.5 million. Steel Hospitality entered into the deal to purchase the hotel prior to the completion of auction.
Steel Hospitality's acquisition of the Hyatt Place includes the property improvement plan, or the agreement through which the company will renovate the hotel to bring it up to date with Hyatt Hotels Corp.'s (NYSE: H) latest design and quality standards for the select-service Hyatt Place brand.
Patel said the first phase of the renovations will likely begin in March, while the second phase is expected to get underway next fall. The project will include updates to the guest rooms and the flooring throughout the hotels, as well as repainting the property.
The 14-year-old hotel was last renovated in 2018, according to Patel.
Full story: https://tinyurl.com/ajuucz98
Tuesday, December 10, 2024
Pair of Institutional Investors exchange Trader Joe’s-anchored retail center
By Lauren Diggs CoStar Research
A pair of institutional investors exchanged a Trader Joe's-anchored retail center in the North Penn Valley borough of North Wales, a suburb of Philadelphia.
Global investment management firm Nuveen Real Estate bought the retail center for an undisclosed price from fellow global investment manager MetLife Investment Management after a seven-year investment hold.
MetLife paid $57 million, or about $552 per square foot, in 2017 when it purchased the 103,029-square-foot Shoppes at English Village at 1460 Bethlehem Pike.
The center was 95% leased at the time of sale. In addition to the anchor tenant Trader Joe's, the center includes several other national retail tenants, including LensCrafters, Athleta, CycleBar, Hallmark, CHOPT and Talbots.
"The Shoppes at English Village perfectly aligns with our grocery-anchored neighborhood strategy and investment criteria. The addition of English Village further diversifies our Northeast exposure and adds yet another premier grocer to the portfolio," said Ryan Boan, U.S. head of retail transactions at Nuveen Real Estate, in a statement announcing the purchase.
US office market vacancy rate dips — and 2025 could be volatile
By Ashley Fahey – Editor, The National Observer: Real Estate Edition, The Business Journals
The U.S. office vacancy rate has begun to stabilize — and dip ever so slightly, according to some industry trackers — but it's still not likely to hit bottom for another several quarters.
The nation's office vacancy rate declined to 20% in the third quarter, down just barely from 20.1% the previous quarter, according to Moody's Analytics Inc. While the quarterly decline may be a positive indicator for the market, the national vacancy rate is predicted by the firm to move up and down more before settling into a new normal.
More precisely, Moody's is forecasting the national office market won't hit bottom on a vacancy basis until late 2025 or early 2026.
Matt Reidy, director of commercial real estate economics at Moody's, said office vacancy tends to move more slowly than other market metrics because of how long most office leases are — 10 or more years, in many cases. That means a significant share of leases haven't matured since the Covid-19 pandemic upended the office market.
"We’re still seeing some companies just now getting their first [lease] rollover since the pandemic and turning some of that space back over," Reidy said.
And while the vacancy rate could rise in the coming quarters, there are a number of counterbalancing forces to help keep the rate from growing too much, Reidy said. That includes a slowdown in new office construction, which is likely to continue next year, as well as gains in office-using employment.
The third quarter saw a dip in office vacancy nationally because net absorption turned positive — with more than 5 million square feet of absorption tracked by Moody's — after seven consecutive quarters of decline.
Speculation has been rampant about whether more return-to-office efforts in 2025 — fueled by Amazon.com Inc. CEO Andy Jassy's announcement this fall that the tech giant's employees would be required in the office five days a week starting in January — will turn into more space demand.
But it's tough to say beyond a few headline-grabbing moves whether many more companies will be going back to the office more days per week in 2025, Reidy said.
"We’ve seen those [announcements] coming in fits and starts since the pandemic, where you'll get several companies that will announce pretty close to one another that they’re either going fully in-office or hybrid or fully remote," he said. "It’s difficult because employees have made their feelings heard: They have a strong preference for at least having flexibility in a hybrid environment."
And as long as the labor market remains strong, employees still have some leverage when it comes to hybrid-work arrangements, Reidy said.
One potential factor to watch next year is whether the federal government — the nation's largest office occupier — pares back its real estate. Elon Musk and Vivek Ramaswamy, who've been appointed to lead a new Department of Government Efficiency within the incoming Trump administration, have talked about instating full in-office work requirements for the federal workforce, in addition to significant job cuts.
Any reduction in the federal workforce likely will mean less office-space needs for the federal government. The General Services Administration, which oversees the federal government's real estate portfolio, currently leases more than 363 million square feet of office space nationally.
"If there’s a mass wave of government layoffs, clearly that’s going to cause a lot of additional vacancy," Reidy said, although he added there's typically a fairly long lead time on GSA's real estate planning.
Additionally, other Trump economic policies could influence the direction of the economy and, by extension, how companies think about job growth and their real estate requirements. It remains too soon to say with certainty what impact those policies might have.
Full story: https://tinyurl.com/yafps8yr
Monday, December 9, 2024
Friday, December 6, 2024
Industrial sales power Pennsylvania capital's real estate market
Pennsylvania's capital has experienced significant growth in its commercial real estate market over the past decade, with total commercial sales volume increasing from approximately $501 million in 2014 to $861 million so far this year. After adjusting for inflation, this represents a growth of over 30% during this period for Harrisburg.
However, the industrial sector continues to dominate the local landscape. That area has led sales totals over the past decade, averaging more than $300 million annually. In contrast, retail sales have averaged $158 million, office sales at $147 million and multifamily sales at $82 million.
Already this year local industrial sales hit an annual record, partly thanks to EQT Exeter’s acquisition of Building 1 at Core5 in Middletown for $170.5 million — the highest single-building transaction in Harrisburg’s history. Institutional players like EQT Exeter have played a pivotal role in the city's industrial rise. Other prominent national players, such as Prologis, GIC, Blackstone, Brookfield and XPO, are among the most active buyers in the traditionally tertiary market.
Meanwhile, private buyers and owner-users have led retail, office and multifamily transactions. While institutional investors can access vast pools of pension funds, endowment money and other institutional capital at relatively low costs, private buyers typically rely on traditional bank financing and personal wealth, which comes with higher interest rates and more stringent lending requirements. Subsequently, private buyers typically need more upfront capital to close on nine-figure deals.
For instance, in Harrisburg’s retail market, the highest-valued transaction in the last five years was locally based Prasavi Group’s mid-2021 acquisition of the Camp Hill Shopping Center, valued at $89.7 million — only 53% of the value of EQT’s recent industrial purchase.
For the office market, the highest-valued sale was the University of Pittsburgh Medical Center’s acquisition of the Tech Park Office Center in Mechanicsburg, valued at $45 million.
And for multifamily, Philadelphia-based Westover Companies’ $23 million acquisition of Shippensburg Village Townhomes, a 174-unit garden-style student housing complex, was the largest apartment sale in the last five years.
As investment continues to flow into this tertiary market, Harrisburg has an opportunity to highlight its retail, multifamily and office segments. The adage "location, location, location" is particularly relevant here, as the city's placement between major Northeast markets has the potential to draw more attention from national retailers, white-collar companies and prospective residents.
Thursday, December 5, 2024
Universe Holdings enters greater Philadelphia apartment market
By Jon Leckie CoStar News
A Los Angeles-based multifamily investment firm is reaching beyond its West Coast roots with a deal that expands the company’s portfolio into the greater Philadelphia market for the first time.
Universe Holdings has purchased Mi-Place at West Rancocas in Mount Holly, New Jersey for $33.6 million from Fernmoor Homes, the first of a two-property deal valued at $93.5 million. The second half of the transaction is expected to close in early 2025; details of that property weren't disclosed.
“We have been in the New Jersey market for several years and believe in its stable long-term viability,” Henry Manoucheri, chief executive at Universe Holdings, said in a statement. “We have boots on the ground … and our plan is to acquire additional assets that will fortify our position in the market.”
Mi-Place at West Rancocas consists of 108 units including 12 three-bedroom townhouses with the remaining units evenly split between one- and two-bedroom apartments with individual balconies, according to news release announcing the sale. The project was completed in 2022, the statement said.
Universe Holdings cited a small-town environment, strong school system, and proximity to job centers in Philadelphia that are reachable by commuter train or car as consistent demand drivers in the area.
Under the terms of the deal, Universe Holdings will assume a $24.25 million bridge loan from Dwight Capital that it plans to refinance into a fixed-rate loan through the U.S. Department of Housing and Urban Development.
The deal comes as overall multifamily investment in the Philadelphia area has declined 96% since the third quarter of 2022 as institutional buyers have shied away from the market due to decelerating rent growth and elevated interest rates, a CoStar analysis showed.
“We believe that the best time to buy is on weakness while everyone else runs for cover,” Manoucheri said.
Expanding portfolio
The acquisition also marks Universe Holdings' third acquisition on the East Coast.
In December 2023, the firm purchased a 250-unit multifamily property in Tampa, Florida, built in 2016 for $66 million from Passco Companies. It made its first East Coast purchase in May 2021 with the $60 million acquisition of 226 units in Toms River, New Jersey, roughly an hour east of Philadelphia from Morgan Properties.
In addition to one property in Las Vegas, Nevada, the remainder of Universe Holdings' 72 properties run from Ventura to San Diego in California, according to CoStar data.
Since its founding in 1994, Universe Holdings has completed multifamily transactions involving more than 7,500 units. The privately held investment and management firm focuses on value-add and off-market transactions aimed at long-term appreciation.
Tuesday, December 3, 2024
What's in store for CRE investment in 2025
By Joshua Mann – Editor, The National Observer, The Business Journals
Welcome to The National Observer, a roundup of top business news and actionable insights from across The Business Journals' network of publications. Today we're looking at what Walmart's CEO had to say about expansion plans, a $1.4 billion deal between two lenders and a multibillion-dollar federal loan to support a new manufacturing plant in Georgia. First, however, we'll dig into the cautious optimism being felt in the commercial real estate sector.
Get more stories like these every day in your inbox by subscribing to The National Observer newsletter.
CRE investors express cautious optimism
As 2025 fast approaches, executives are zeroing in on possible targets for their respective businesses in the coming year. For commercial real estate investors, there’s an expectation new opportunities might come available despite a slowdown in transaction activity year-to-date this year.
Ashley Fahey, editor of The National Observer: Real Estate Edition, reports the national commercial real estate market saw $40.1 billion in transactions in the third quarter, down from $43 billion in Q2 and $44.4 billion in Q3 2023, according to Altus Group research. While transaction activity slowed, the rate of the slowdown has moderated, especially on a yearly basis. Additionally, 10 of the 15 property types tracked saw a quarterly uptick in Q3 in price per square foot, including mixed-use, manufacturing, automotive and office properties.
QUOTABLE: "Transaction activity effectively begets transaction activity," said Cole Perry, associate director of research at Altus Group. "What I’m seeing is really more of the same: There is still slow transaction activity, it's declining year over year, price discovery remains pretty challenged — but I think it’s picking up a bit."
Perry said the market is in a new normal of transaction activity, with buyers and sellers learning how to deal with a lack of comparable sales. Industry players also are trying to anticipate what President-elect Donald Trump's policies and a Republican-controlled Congress could mean for the economy. While most are optimistic the incoming White House administration will mean deregulation or tax cuts, there's also concern policies around immigration and tariffs that were signature aspects of Trump's campaign will result in more inflation and economic uncertainty.
Walmart CEO on expansion plans, new-look Black Friday
Black Friday will be a lot different for Walmart Inc. this year than in years past. The retail giant’s stores will be different, too.
Chandler France of the Houston Business Journal reports that Walmart made a significant financial investment to renovate 650 locations this year and build or convert an additional 150 stores over the next five years. That follows the company in October 2023 reopening 117 remodeled stores across 30 states — an investment of more than half-a-billion dollars.
But as Walmart U.S. President and CEO John Furner told France during a site visit Tuesday, customers who visit one of those remodeled stories on Black Friday won’t be the only ones seeing a new-look Walmart. The company also has worked to enhance its online-shopping service — with the growth of e-commerce having “bifurcated” the traditional Black Friday experience, Furner said.
QUOTABLE “Competition makes you better,” Furner said. “A phrase I think about a lot is, ‘Loyalty in retail is the absence of something better.’ If we’re not the brand that’s providing the best choice for our customer, then someone else will happily come serve them for you.”
Full story: https://tinyurl.com/2s3sesms
Empty office space is costing Philadelphia big money
Monday, December 2, 2024
Wednesday, November 27, 2024
Philadelphia-area industrial tenants face some of the highest rent hikes at renewal
In the past five years, Philadelphia’s industrial rent growth saw cumulative gains of 57.6%, surpassed only by Phoenix and Atlanta. This growth rate is nearly 16 percentage points higher than the national average of 41.7%. The surge in local rents can be attributed to the demand during the booming years of 2021 and 2022 when the supply of available industrial space hit a record low. New demand formation has made it competitive for businesses seeking locations, driving rents upward.
While landlords are still reaping the benefits of this demand, tenants nearing the end of their leases are facing significant increases in rental costs. For instance, a tenant who signed a lease for a 25,000-square-foot warehouse at $6 per square foot in 2019, paying a base rent of $150,000 annually, could see the rent spike closer to $235,000 if the existing landlord brings the rent to market rates.
Philadelphia's rent gains have surpassed those of nearby Northeast markets such as Boston and New York, reinforcing its position as a vital logistics hub within the regional corridor. Despite the recent performance, Philadelphia's average rent of $11 per square foot is still more affordable than that of Washington, D.C., at $17; New York and Boston at $16 each; and northern New Jersey at $15.50.
Several factors have fueled this remarkable rise in the industrial market, including land availability, lower operating costs and a strategic location within a day's drive of over 40% of the U.S. population.
Additionally, the ongoing expansion of the Port of Philadelphia has significantly contributed to this growth. The modernization and deepening of the Delaware River channel have both enabled larger vessels to dock and increased cargo volumes, thereby driving demand for warehouse space near the port. In mid-2024, the port reached a new record of 750,000 twenty-foot equivalent units. TEU is used to meausre the capacity of container ships and ports. This port in particular forecasts cargo volume to double to more than 1.5 million TEUs by 2040.
Looking ahead, Philadelphia's industrial market shows no signs of slowing down. With an annual growth rate currently at 4.1%, it ranks fourth among the top U.S. markets for rent growth. The ongoing expansion of logistics infrastructure combined with its advantageous location and relative affordability indicates Philadelphia will maintain its competitive edge in the national logistics network for years to come.
Walmart closing South Jersey fulfillment center
By Ryan Mulligan – Reporter, Philadelphia Business Journal
Walmart is shuttering a South Jersey warehouse in a move that will impact 113 workers.
The warehouse at 200 Birch Creek Road in Swedesboro is a fulfillment center for Walmart's (NYSE: WMT) Sam's Club brand. It will close operations by March 7, according to a Worker Adjustment and Retraining Notification Act filed with the New Jersey Department of Labor and Workforce Development.
Walmart says it is relocating operations from the Swedesboro location to other fulfillment facilities. Impacted employees will be offered a $7,500 transfer bonus and relocation benefits to move to Walmart's newly opened next-generation fulfillment centers like the one in Greencastle, Pennsylvania.
They are also eligible for relocation to nearby warehouses in Smyrna, Delaware; and Westampton and Pedricktown, New Jersey. Impacted employees are able to transfer to Walmart stores and Sam's Club outposts as well.
"We’re continuously evolving our fulfillment network to improve service for our customers and members as their needs change," a Walmart spokesperson said in a statement.
The timing of the decision was driven by Walmart's lease commitments, according to the company.
The move comes after Walmart closed another fulfillment center in nearby Pedricktown in May impacting 271 workers, one of multiple warehouses the retail giant has at the Salem County site.
In that wave of terminations, Walmart also offered identical bonuses to transfer to the tech-forward Greencastle facility.
The 113 impacted workers represent the full workforce at the Swedesboro warehouse. The building at 200 Birch Creek Road spans nearly 600,000 square feet. It's unclear how much space Walmart occupies at the site.
Full story: https://tinyurl.com/2d962h76
$172M Center City apartment sale signals more deals are on the way
By Paul Schwedelson – Reporter, Philadelphia Business Journal
The $172 million sale of a high-rise development in Logan Square marks one of the largest Center City apartment transactions in recent years and could indicate more deals are on the way.
New York investment firm Briar Capital Management acquired the 572-unit NorthXNorthwest from Boca Raton, Florida-based apartment owner Mill Creek Residential, according to industry sources. The Arizona State Retirement System bought a 50% stake in Mill Creek Residential in 2018.
The development, at 450 N. 18th St., includes two towers and 16 townhomes with a combination of studios, one- and two-bedroom apartments. It was 95% leased when the property was put up for sale in early February.
The property was most recently assessed at $104.4 million.
While suburban multifamily portfolios have sold for higher prices, this sale is one of the largest recent deals in Center City and Philadelphia overall. The 45-story building at 1500 Locust St. sold for $233 million in late 2021. The St. James, a 45-story, 304-unit apartment building in Washington Square West sold for more than $220 million in 2022. Outside Center City, the four-building, 1,015-unit Presidential City property along City Avenue sold for $357 million in 2022.
This year, aside from several local properties being part of Blackstone's $10 billion acquisition of AIR Communities in June, there have been few Center City apartment building transactions as interest rates forced a slowdown in sales volume.
According to CoStar, Blackstone's acquisition included four multifamily buildings in and around Center City. Though the price of each is unclear given the nature of the acquisition, the portfolio included 534-unit Sterling at 1815 John F. Kennedy Blvd., which was most recently assessed at $185 million.
Earlier this year in Center City, the 151-unit Packard Motor Car Building at 317 N. Broad St. sold for $39.7 million and a nine-story, 54-unit building at 1530 Chestnut St. sold for $12.3 million. Neither of those deals came close to the price of NorthXNorthwest.
A 34-story, 321-unit building at 2116 Chestnut St. was put up for sale more than a year ago but hasn’t been sold.
The last major institutional Center City apartment acquisition was in July 2022 when Sentinel Real Estate Corp. bought The Republic at 1930 Chestnut St. and The Broderick at 400 Walnut St. for a combined $68.5 million. That was in the early months of the Federal Reserve's interest rate hikes — and institutional buyers have pulled back since.
Industry experts believe the sale of NorthXNorthwest could be a sign of more transactions in upcoming months. Institutional investors' return to quality properties typically signals market confidence, CoStar Associate Director Brenda Nguyen said. Since institutional buyers usually wait until interest rates stabilize and prices reflect market conditions, Briar Capital Management's purchase could foreshadow how other similar buyers might soon act.
"We are either at or have passed the cyclical market bottom," Nguyen said.
The NorthXNorthwest property encompasses two towers. The 17-story, 286-unit northwest tower has 13,000 square feet of commercial space and was built in 1987.
Cleveland-based Forest City Residential Group doubled the residential complex in 2017 when it completed the 16-story, 270-unit north tower. The $110 million second phase included 16 townhouses and a 400-space parking garage, according to the Center City District. Forest City Residential Group was bought by Brookfield Asset Management Inc. in 2018 for $11.4 billion.
NorthXNorthwest, originally known as Museum Towers II, was the only Philadelphia property in Mill Creek Residential’s portfolio. Briar Capital Management doesn’t list its properties on its website.
Full story: https://tinyurl.com/5n8726nz
$21M sale of Bala Cynwyd site paves way for apartment development
By Paul Schwedelson – Reporter, Philadelphia Business Journal
Plans for more than 400 apartments near City Avenue in Bala Cynwyd are moving forward at the site of a former office building that has recently been demolished.
Houston developer Hanover Co. recently purchased the 8.5-acre site at 111 Presidential Blvd. for $21.3 million from Amerimar Realty Co., according to Montgomery County property records. Demolition of Bala Pointe Office Center, the 172,710-square-foot office building that previously stood on the site, was completed this fall.
While Hanover Co. declined to comment, the demolition and sale show the firm’s project is making progress.
In September 2022, the Lower Merion Township Board of Commissioners approved Hanover Co.’s preliminary land development plan for a five-story, 425-unit apartment building with 25,564 square feet of ground-floor commercial space and a 676-spot parking garage in the building.
Renderings of the project presented to Lower Merion Township show a walkway connecting the two sides of the building. Commercial office or retail space would be situated along Presidential Boulevard. The plan included public gathering space and streetscape improvements.
The building is just west of I-676, near the City Avenue exit.
The development continues the trend of suburban office buildings being torn down for new uses.
In Dresher, BET Investments is demolishing three interconnected office buildings totaling 861,000 square feet at the former Prudential Insurance Co. campus. The developer is planning to build more than 900 residential units and 100,000 square feet of retail space and more. BET is also planning to tear down two or three one-story office buildings in Conshohocken, where it would build up to 200 apartments and more than 20,000 square feet of retail.
Next to the Cherry Hill Mall, mall owner PREIT is demolishing the nine-story, 116,742-square-foot One Cherry Hill office building and has submitted an application to Cherry Hill Township to build a 120,000-square-foot sporting goods store in its place.
Hanover Co.’s project lies within the City Avenue District, a business improvement district that has emphasized more connectivity between properties along City Avenue. Long known as an auto-centric thoroughfare, the City Avenue District released a master plan this past spring that called for a more walkable area with seamless connections.
Full story: https://tinyurl.com/msbzcx6v
Tuesday, November 26, 2024
Monday, November 25, 2024
PREIT demolishing high-profile Cherry Hill office building
By Paul Schwedelson – Reporter, Philadelphia Business Journal
A nearly 50-year-old high-profile office building on the doorstep of the Cherry Hill Mall is being demolished as the beleaguered office market continues taking hits.
The nine-story, 116,742-square-foot building — known as One Cherry Hill — is owned by Philadelphia mall owner PREIT.
The building at 1 Mall Drive is in the Cherry Hill Mall’s parking lot. PREIT has made an effort in recent years to position parcels of land adjacent to its malls for residential or other development.
PREIT confirmed its plans to demolish the building but declined to comment on the future of the site. Cherry Hill Township officials didn’t immediately respond to a request for comment. The demolition was first reported by 42freeway.com.
One Cherry Hill was more than half empty earlier this year before the entire building was vacated.
The vacancy rate of office buildings in Camden County in the third quarter was 15.9%.
As the office market has dealt in recent years with tenants downsizing and more chunks of vacant space, developers have floated the idea of demolishing office buildings. The land itself, they argue, is as valuable or more valuable than the structure on top of it.
By demolishing One Cherry Hill, PREIT will have the opportunity to develop that section of the property or sell it as a development site. PREIT CEO Jared Chupaila, who began his role in April, has said the company’s top priority is creating liquidity.
Elsewhere in its portfolio, PREIT is adding new uses to traditional mall properties. At the Moorestown Mall, PREIT sold a 6.3-acre portion of the parking lot for $11.8 million to developer Bel Canto Asset Growth Fund, which is now planning to build 375 residential units at the site. Cooper University Health Care opened a $150 million, 166,000-square-foot outpatient campus at the Moorestown Mall in late 2023. A 100,000-square-foot family entertainment center reported as Parky’s is also being planned at the mall property.
At the Plymouth Meeting Mall, PREIT is looking to sell a piece of the parking lot where a developer could potentially build up to 275 residential units.
Full story: https://tinyurl.com/z64vzx5u
Thursday, November 21, 2024
E-commerce delivery firm, Veho, leases entire industrial building in Philadelphia
By Lauren Diggs CoStar Research
A delivery firm serving e-commerce companies has signed a lease for 148,611 square feet in Philadelphia.
The property at 4501 Richmond St., for which Veho inked the deal in June with a move-in date of Oct. 1, features a one-story distribution center situated within the Bridge Point Industrial Park. Bridge Industrial owns the property, which was built in April.
Bridge Industrial bought the site in 2022 for about $24 million after it was remediated following its use as gas manufacturing site in the 1920s. The property was also used from 1929 to 1982 to make metallurgical coke as part of steelmaking.
Bridge Industrial is a privately owned real estate manager operating in Chicago, Miami, Los Angeles, San Francisco, Seattle and London, as well as New York and New Jersey.
'The market is picking up': Philadelphia industrial real estate sees jump in leasing activity
By Paul Schwedelson – Reporter, Philadelphia Business Journal
The vacancy rate of industrial properties in the Philadelphia region just dropped for the first time in two years, partly the result of an uptick in tenant demand.
Much of that industrial demand has come from third-party logistics companies, specifically those based in Asia, that had previously been priced out of the Northeast market, according to real estate services firm CBRE. As vacancies increased and conditions favored tenants, third-party logistics companies made up almost 80% of leasing activity in the region in the third quarter, CBRE reported.
“Speaking with our brokers lately and listening to the market activity, there is a noticeable uptick in activity and requirements and tours in the market,” CBRE Director of Research Joe Gibson said. “So I believe the demand part is going to come back to some sort of equilibrium state.”
In the third quarter, the region’s industrial vacancy rate fell from 7% to 6.5%, the first time it dropped since late 2022, according to brokerage firm Colliers. It’s a vacancy rate that more closely resembles those seen during the period from 2016 to 2019 rather than the record lows of around 2% posted during the Covid-19 pandemic.
Developers rushed to construct new industrial buildings to meet demand from e-commerce companies and other industries boosted by the pandemic, and the projects completed in the years since have significantly grown the supply of industrial space in the Philadelphia area.
That’s opened opportunities for third-party logistics companies like California-based Lecangs, which signed a lease to take the entirety of an 845,280-square-foot building at 1900 River Road in Burlington, New Jersey, and Netherlands-based Cirro, which leased a recently built 806,000-square-foot warehouse at 1183 Florence Columbus Road in Bordentown, New Jersey.
“Companies had been taking a really long time to make decisions and they’re finally starting to move,” Colliers Market Research Director Rose Penny said. “We’ve been having an increase in tours and interest in buildings.”
Chicago-based Bridge Industrial is in the middle of developing 1.4 million square feet of warehouse distribution space in Philadelphia. Third-party logistics company Veho recently signed a lease for 148,611 square feet to fully occupy a new warehouse at 4501 Richmond St. in Philadelphia’s Bridesburg neighborhood.
Connor Milanaik, director of investments for Bridge Industrial, said volatility in interest rates forced companies to hesitate before making real estate decisions. With the Federal Reserve now beginning to lower rates, “we do expect that’s going to allow more certainty from a tenant demand perspective,” Milanaik said. “That is what we’re seeing.”
Full story: https://tinyurl.com/37t3adap
Brandywine CEO Sweeney says 'greed will start to overtake fear’ in office sales market
By Paul Schwedelson – Reporter, Philadelphia Business Journal
Brandywine Realty Trust CEO Jerry Sweeney expects office sales to pick up in 2025, after years of a frozen market and uncertainty swirling around interest rates.
With rates projected to continue stabilizing and possibly dropping further, Sweeney said the increasing access to capital will lead to more sales opportunities.
“The market has been really — fear has driven everything,” Sweeney said. “All the investment decisions, development decisions, capital allocation decisions. I think we’re getting to a point now, with visibility of the interest rate climate, that greed will start to overtake fear.”
Philadelphia-based Brandywine (NYSE: BDN) is the city’s largest office landlord. Speaking at the Urban Land Institute’s 2025 Real Estate Forecast event Tuesday at the Bellevue Hotel, Sweeney noted the volume of office transactions have been at a historic low, around 60% to 70%.
A key factor in the slowdown has been not just interest rates, but also widespread concerns about the office market as companies settle into their long-term remote and hybrid work routines. Sweeney highlighted the dichotomy in the office market, however, in which high-quality buildings are almost entirely leased and performing well. Meanwhile, low-quality buildings face significant challenges as occupancy drops and loan payments come due, setting up potential foreclosures.
Sweeney said the average sale price of large-scale office buildings has been well below $100 million, which he attributed to debt capital markets that “have not been open.”
“You’re starting to see beginning signs of the debt markets recovering,” Sweeney said. “I think debt has been the gating issue for a lot of transactional buying, particularly in office and some of the other sectors as well.”
Wayne Avenue Enterprises President Bill Hankowsky echoed Sweeney and said the overall lending environment has a lot to do with availability of capital, not just the amount of the loan. Hankowsky was previously CEO of Liberty Property Trust, which developed Comcast Center and Comcast Technology Center, and he's also on the board of Citizens Bank.
Hankowsky cited three recent regional bank failures that led to increased regulation for lenders. As a result, banks have lowered their exposure to commercial real estate, Hankowsky said. But a shift could take place in 2025.
“I think what will happen in ‘25, I think it’ll still take probably two more quarters for banks to get their CRE exposure and their portfolios to the levels they want,” Hankowsky said. “But then I think they will reopen for business.”
In Philadelphia, five Center City office sales combined to wipe out $151 million of value based on the properties’ assessed value, a 61% decrease. The sales, though, were largely caused by decreasing occupancy or an upcoming loan maturity.
Well-performing office buildings have yet to trade since the office market is at or near the bottom of its cycle after values have dropped dramatically. If the debt market loosens like Sweeney predicts, the Philadelphia office market could finally have a sale that isn’t for a struggling building.
Buildings that have recently sold, and are now being planned to be converted to other uses, means there’s less overall office space available.
Full story: https://tinyurl.com/2a8rmu72
Wednesday, November 20, 2024
Spending on industrial property in Pennsylvania capital sets new record
A Pennsylvania industrial real estate market experienced unprecedented growth in 2024, with year-to-date sales volume hitting $740.6 million.
This amount for the Harrisburg area is already more than double last year's total of $328.1 million, setting a new record for the market. Recent performance builds upon a decade of steady growth, transforming the region into a major Northeast distribution hub.
Over the past decade, industrial sales averaged over $330 million annually, notably outpacing office, retail and multifamily properties by significant margins.
The upward trajectory of industrial growth reflects Harrisburg's geographic advantages. Located at the intersection of major highways, including interstates 81 and 83, the region offers superior access to Northeast population centers while maintaining operating costs lower than primary markets.
The area's extensive transportation infrastructure, including Norfolk Southern's intermodal facility and major ports, also draws in national and international capital.
In August, EQT Exeter acquired Building 1 at Core5 in Middletown for $170.5 million. The single-tenant, 1.2 million-square-foot distribution facility built in 2023 was occupied by Amazon at the time of sale. The company's lease expires in October 2034.
And last month, EQT Exeter acquired a portfolio consisting of three buildings at Carlisle Distribution Center for $210 million. The two single-tenant buildings, constructed in 2006 and 2009, were fully occupied by decor retailer At Home and supply chain specialist Geodis. Meanwhile, the multitenant building was 55.5% leased at the time of the sale. This portfolio sale is Harrisburg’s largest industrial acquisition in history.
Recent sales volumes indicate a shift in market perception, with institutional investors increasingly viewing Harrisburg as a prime industrial market rather than a secondary location. The region's success in attracting major distribution facilities has created a network effect, drawing additional industrial users and investors to the market.
With year-to-date volume already exceeding the combined total of office, retail and multifamily sales, industrial has become the defining feature of Harrisburg's commercial real estate market.
National law firm fuels Philadelphia growth with office expansion
By Katie Burke CoStar News
National law firm Polsinelli is making good on its ambitious growth plans in the Philadelphia area with a deal to roughly double its office space to accommodate its expansion.
Within a few months of making its regional debut, the Kansas City, Missouri-based firm signed a deal to take over two floors at the Three Logan Square tower, Polsinelli confirmed. The expansion means it can grow its 60-person regional workforce to about 120 employees.
The long-term deal with Brandywine Realty Trust totals about 40,800 square feet across the 11th and 12th floors of the building at 1717 Arch St. Polsinelli earlier this summer made its debut in the Philadelphia area, where it has been working from about 21,650 square feet on a higher level within the more than 1 million-square-foot tower.
The firm's growth in the area meant it soon outgrew the space, and Polsinelli began looking for alternatives both within the Brandywine-owned building as well as elsewhere across the Philadelphia-based landlord's portfolio.
The law firm expects to shift to the expanded space by mid-2025 once finish-out work wraps up.
The legal industry collectively signed on for about 17 million square feet nationally in 2023, according to a recent Cushman & Wakefield report, an assertive rebound from the early years of the pandemic when law firms were pulling back on deals or hesitant to take on new space.
The burst of new leases has also pushed the legal sector to the forefront of the national office market as other industries remain wary about making long-term commitments to office space.
Legal boost
Law firms' emphasis on space in high-end buildings has helped prop up leasing activity across the United States, as many have prioritized office decisions in the nicest and newest properties.
Some major law firms have increasingly used office space as a tool to attract and retain talent, often moving into newer, higher-quality space in a boost to landlords of top-tier buildings. While some law firms have opted to reduce their real estate portfolios and hop to smaller spaces in newer properties, other firms have signed some of the country's largest deals in the past couple of years.
Law firms across the country "are expected to continue to be in the market for office space given their proclivity for in-office work and apprentice-based business model," according to the Cushman & Wakefield report.
Law firms accounted for roughly 9% of all office leasing activity last year in the country's largest legal markets, including Boston, Philadelphia, Chicago and Atlanta, according to Cushman & Wakefield. That's almost double the share that law firms accounted for in 2022.
For Brandywine, more than 60% of the new leases it signed in the third quarter account for what CEO Jerry Sweeney attributes to the "flight to quality" trend.
The landlord's Three Logan Square tower is already home to a party of law firms that have expanded to the downtown tower in recent years. National law firms Post & Schell, Barnes & Thornburg and Flaster Greenberg have all recently relocated to or expanded within the building, according to CoStar data.
Once it moves into its newly expanded space, Polsinelli will be one of the tower's largest tenants.
Tuesday, November 12, 2024
After Montgomery County debut, more Dill Dinkers indoor pickleball sites planned in region
By John George – Senior Reporter, Philadelphia Business Journal
The region's first Dill Dinkers pickleball complex officially opened its doors in Lansdale on Friday, and its operator said more clubs are on the horizon.
Andrew Wakefield, who with his father serves as regional developer of Dill Dinkers sites in Bucks, Chester and Montgomery counties, said he is hopeful their second location in Hatboro will open later this year, followed by additional outposts.
"We hope to add another three places next year," Wakefield said. "We've been out scouting sites, and we have some promising ones."
He declined to disclose exactly where they are looking for competitive reasons. Wakefield said the plan is to own and operate two of those planned pickleball centers and bring in a franchisee for the third.
The Wakefields added Bucks County to their territory earlier this year after originally obtaining the rights to Chester and Montgomery counties from Maryland-based Dill Dinkers.
Husband and wife Jim and Mia Cassady signed a deal to be Dill Dinkers regional developers for Delaware County and northern Delaware this summer.
The debut of the Wakefield's first Dill Dinkers site, which spans 37,000 square feet at Velocity Station at 1180 Church Road, comes several months later than initially expected. They had hoped to open the complex over the summer but ran into construction delays.
"Our customers have been pretty understanding," Wakefield said. "Construction delays happen in everything from pickleball centers to skyscrapers."
The Lansdale Dill Dinkers, created at what was once a Merck training facility, includes 11 indoor courts, a pro shop, event space that can accommodate up to 80 guests and ball machines for practicing.
The next Dill Dinkers will span 48,000 square feet at Hatboro's Station Park, a mixed-used commercial building at 330 Warminster Road. It will feature 18 courts.
Velocity Venture Partners of Bala Cynwyd is the landlord for both properties.
Full story: https://tinyurl.com/4r7dnysk
Tuesday, November 5, 2024
Office sublet space shrinks as Philadelphia office tenants give back less space
By Brenda Nguyen CoStar Analytics
After seven consecutive years of increasing availability of office sublease space, Philadelphia's office market is showing early signs of recovery.
The proportion of sublet options across the total available office inventory decreased to 15.1% in late 2024, down from a peak of 16.8% in mid-2023. This marks a notable shift following a continual increase in sublet availability since 2017, suggesting that the worst of the demand contraction may be behind the Philadelphia office market.
Over the past year, 66 office sublet leases were executed, totaling 470,000 square feet. The latest annual figure is comparable to 2023 when 68 office sublet leases were recorded. They involved more space, for a total area of 730,000 square feet.
Among the largest sublet agreements signed so far this year are PassageBio’s 15,850-square-foot sublease at 1835 Market St. in Center City and PetroChoice’s 14,500-square-foot sublease at 933 First Ave. in King of Prussia.
The relative persistence in sublet leasing activity suggests that the reduction in the share of sublet space can be attributed to two factors.
First, fewer tenants have listed office space on the sublease market in 2024, reducing the number of available options.
Second, several previous sublet listings have converted to direct leases as their lease terms expired, further diminishing the sublet share of available office inventory.
Despite the conversion to direct space, the overall amount of available office space in Philadelphia has shifted downward from an all-time peak of 50.8 million square feet in early 2024 to 49.4 million square feet in October, which means approximately 1.4 million square feet of office space was taken off the market throughout the year.
Although early signs are encouraging, the Philadelphia office market still faces challenges, as approximately a quarter of office leases signed before April 2020 have yet to expire. However, recent trends suggest the uptick in vacancy will be at a slower pace than years prior.
Monday, November 4, 2024
Rubenstein signs 131,000 SF of new leases at Chesterbrook campus
By Paul Schwedelson – Reporter, Philadelphia Business Journal
Rubenstein Partners has signed leases totaling 131,000 square feet since the summer at its Chesterbrook office campus. The deals are highlighted by a 36,000-square-foot lease signed by a government defense contractor and a financial services company taking an entire 35,000-square-foot building.
The deals bring Chesterbrook’s occupancy to 62%.
Rubenstein Vice President of Asset Management Brian Simel attributed the recent leasing to the location between I-76 and Route 202 near King of Prussia combined with renovations the real estate firm recently completed.
“I think we’ve got something compelling,” Simel said. “That’s what the leasing says about it.”
Arcfield, the government defense contractor, is taking 36,000 square feet at 1400 Morris Drive, the first tenant to move into the building since Cencora, formerly AmerisourceBergen, vacated in 2021.
Philadelphia-based Rubenstein bought the 14-building, 1.1 million-square-foot campus for $148.5 million in 2019 and was aware of then-AmerisourceBergen’s intention to depart for Conshohocken. With 1400 Morris Drive fully vacant, Rubenstein renovated the lobby and entrance.
Arcfield’s 11-year lease brings the four-story, 92,459-square-foot building to 39% occupied.
“It’s an important indication we’re on the right track,” Simel said. “It’s a 1 million-square-foot campus so we’re going to keep working and try to win even more of these. It’s a big lease. It’s a great tenant.”
Full story: https://tinyurl.com/4xedjn4b
Friday, November 1, 2024
BET Investments pays $17M for Conshohocken office campus, plans mixed-use redevelopment
By Paul Schwedelson – Reporter, Philadelphia Business Journal
BET Investments has purchased a six-building corporate campus in Conshohocken for $17 million and plans to redevelop the property with a mix of apartments and retail space, while maintaining a portion of the existing offices.
The Dresher-based developer is planning to build up to 200 apartments and between 20,000 and 30,000 square feet of retail space on the 16-acre site at 625 W. Ridge Pike, known as Conshohocken Ridge Corporate Center.
The property is currently home to one 91,700-square-foot, four-story office building and five one-story office buildings, each roughly 25,000 square feet. Together, they total around 200,000 square feet and are 62% occupied. As part of the redevelopment, BET would tear down two or three one-story office buildings to make way for new uses.
BET closed on the property in August, buying it from Radnor-based EQT Exeter.
The property is just south of the intersection of I-476 and West Ridge Pike on the northern edge of Conshohocken. It's also less than two miles from I-276 and three miles from I-76.
“As far as raw, centrally located real estate in the region, it’s probably one of the best pieces of real estate I’ve ever purchased,” BET Investments President Michael Markman said. “… The key for us is we look at things a lot differently than everyone else. This particular property is screaming out for a redevelopment.”
BET specializes in suburban mixed-use developments that incorporate apartments and retail space.
Full story: https://tinyurl.com/59y4a539
Thursday, October 31, 2024
Wednesday, October 30, 2024
Philadelphia REIT positioned for post-pandemic office rebound as leasing demand regains momentum
Office landlords across the country are still facing a myriad of headwinds when it comes to the market's post-pandemic recovery, but for one Philadelphia developer, the gradual uptick in leasing has bolstered its optimism for the years ahead.
Brandywine Realty Trust, a real estate investment trust based in Philadelphia, reported a pickup in touring and leasing activity across its United States office portfolio as companies become more confident in expanding their real estate footprints. Most importantly, CEO Jerry Sweeney said the positive trajectory is expected to continue as the market rebounds back to pre-2020 levels.
"The key takeaways for us is that the overall market dynamics in our sector continue to improve," Sweeney told analysts on the company's earnings call Wednesday. "The overall market has been improving, albeit slowly, but our portfolio remains in solid shape, and we've got room for improvement over the next few years as we will — hopefully — see continued acceleration for leasing activity and continue to improve our market position."
In a sign of renewed tenant demand, tour activity across Brandywine's office portfolio jumped about 30% through the third quarter ended Sept. 30 compared to what it reported prior to the pandemic.
The landlord signed nearly 300,000 square feet in deals through the three-month period with another 185,000 square feet of new leases expected to commence before the end of the year. All of that has helped boost Brandywine's year-to-date total to roughly 820,000 square feet.
The REIT's portfolio includes roughly 65 properties that collectively span 12.2 million square feet is now about 88.7% leased.
Recognizing reality
Demand for office space across the country has dwindled in the years since the COVID-19 pandemic's 2020 outbreak. Tenants have collectively handed back more than 210 million square feet since the beginning of 2020, according to CoStar data. The national office vacancy rate has soared to a record high of nearly 14%, and increased financial pressure on landlords has helped result in plummeting property valuations.
For Brandywine, those widespread challenges pushed it to recently offload a suburban Philadelphia office portfolio for about $60 million, a price Sweeney said wasn't fantastic, but was in line with where the market stands today.
"We're at a time in the market where we really do need to recognize reality, even if it's something we don't particularly like," the CEO said. "To help us recognize that reality, we have to look at the net present value of holding a single asset and come up with a range for what the real value is. If we take it to market and get an offer that lands within that strike zone, we'll sell it. Even if it's a price we don't particularly like, it's the right financial decision for the company."
Some of those lingering challenges have also pushed Brandywine to gradually pull the plug on its presence in Washington, D.C., a market Sweeney said has long taken a back seat to its focus on Philadelphia and Austin, Texas. The landlord owns a handful of properties in the area that, once the investment market improves, it plans to eventually sell.
Brandywine posted a net loss of about $157.5 million for the third quarter, largely a result of impairment costs the landlord incurred through the period.
Despite the loss, the REIT boosted its outlook for the remainder of the year, largely due to the pickup in leasing activity it has experienced across its portfolio.
"Our existing portfolio remains in very solid shape," Sweeney said. "We're positioned to be a strong participant in the market's eventual recovery."
Tuesday, October 29, 2024
Monday, October 28, 2024
Why EQT Exeter, joining other property investors, says it’s a ‘compelling time’ to buy
By Andria Cheng CoStar News
To get a sense of why commercial real estate deals have been picking up this year, take a look at EQT Exeter, the real estate arm of Swedish investment giant EQT AB and one of the world's largest industrial property owners. It's been leaning into acquisitions as the impact of higher borrowing costs led the Federal Reserve to cut its benchmark interest rate last month.
Henry Steinberg, a longtime company veteran and former president of EQT Exeter North America who was promoted last month as global head of EQT Exeter, said the firm is “rapidly accelerating” its capital deployment.
"We have this unique opportunity right now where there's some level of distress in the market. ... You have owners of real estate that need to sell," he said in an interview. “We think it's a compelling time to invest in real estate after a couple-year period of rapidly increasing and higher interest rates.”
The strategic shift is significant because EQT AB is ranked, in terms of money raised, as the third-largest private equity firm worldwide by Private Equity International magazine this year, just after Blackstone and KKR. EQT AB has the equivalent of about $265 billion in assets under management, a company spokesperson said, adding Radnor, Pennsylvania-based EQT Exeter's assets under management totals about $31 billion.
In a sign of EQT Exeter opening its wallet again, a $5 billion U.S. industrial flagship fund that "largely sat out all of 2023" has quadrupled spending from the first quarter through the third quarter, Steinberg said in the interview this week at EQT AB’s first U.S. capital markets event in New York.
As to EQT Exeter’s investment focus, Steinberg said industrial property, which makes up about 95% of its portfolio, remains a big growth opportunity despite some recent signs of a market slowdown.
“We've seen the bid-ask spread between buyers and sellers close, and it didn't close because our bids went up. Our math is the same, but now we're winning a lot more deals."
That's because owners facing maturing loans and still elevated interest rates were more willing to sell at lower prices than they would have wanted, he added.
"We're investing some of our flagship funds now at what we think are compelling risk-adjusted returns, at a significant discount to peak pricing," he said. "Sellers' pricing expectations came down, and where they were willing to transact is actually where the math makes sense based off of the higher cost of capital."
Time to buy
EQT Exeter's position reflects a shift in commercial real estate sentiment. U.S. commercial real estate investment sales in the second quarter rose quarter-over-quarter and annually, the first such increase since the second quarter of 2022, according to the brokerage Colliers' second-quarter capital markets report released in September.
"Major investors are back in the market, bidding on properties and acquiring portfolios," the report said. "Statements from investors support the idea that now is an ideal moment to acquire commercial real estate. At the same time, private investment has kept the market moving. Near-record reserves are waiting to be deployed, with investors looking across the capital stack on both the debt and equity sides."
Among the major property types, the return of institutional investors seems most "prevalent" for industrial properties, according to Colliers.
The CEO of the world's largest commercial property owner, Blackstone's Stephen Schwarzman, recently said the Fed’s “easing the cost of the capital" will be "a catalyst for transaction activity.”
Prologis, the biggest global warehouse owner and developer, this month said it's "scouring the market for opportunities” as it sees a "very attractive market for acquisitions."
Still, there's some caution among investors. Even though the Fed cut its benchmark rate by a half percentage point, leading to real estate “valuations to bounce off the bottom a little bit,” there's a sign the market is still in distress, Steinberg said.
He pointed out the 10-year Treasury yield, which he described as “the barometer that everyone in real estate uses to measure returns against,” has remained over 4%. That rate, after dropping to about 3.6% in September, has moved up to about 4.2%. Higher Treasury yields signal higher borrowing costs with commercial real estate asset values remaining pressured, industry professionals have said.
“Long-term rates have held consistently higher,” he said. “We believe that higher-for-longer trends is going to last. There's still going to be those pressures on owners of real estate to sell when their debt matures. … We think it’s a buying opportunity.”
For example, the newly unveiled EQT Exeter Real Estate Income Trust this month said it bought a last-mile delivery center leased by Amazon in the Seattle region’s biggest industrial property sale ranked by price in nearly two years. The brokerage JLL later said EQT Exeter picked up a four-building industrial portfolio near Columbus, Ohio, where CoStar data shows Amazon is a tenant. In August, EQT Exeter REIT announced two other industrial acquisitions totaling over $245 million.
Rising vacancy
Industrial properties, despite a promising long-term outlook, have suffered a recent setback, according to analysts.
The U.S. market has seen nine consecutive quarters of rising vacancy "because of new developments delivering vacant," said Adrian Ponsen, director of U.S. industrial market analytics at CoStar Group, the publisher of CoStar News. The industrial vacancy rate has risen to at least a 10-year high of 6.79%, sending the market asking rent to rise at its slowest pace in at least 10 years, CoStar data shows.
“Once interest rates started to rise in 2022 the spigot for speculative construction completely stopped," Steinberg said. "This is true in both Europe and the United States. … We’ve come a little bit off the line in terms of demand, because companies took down so much space during the pandemic. They have capacity in their supply chains. [But] we don't think the long-term trend of e-commerce is changing. We think that the next generation is going to order more online than the current generation, and that's going to continue to drive demand in the long run."
The long-term industrial outlook in Europe may be even more favorable as the adoption of e-commerce there is behind the United States, according to Steinberg.
“It's an older society, meaning that from a land development perspective, it's been much harder to acquire property and build speculatively in Europe than in the United States," he said. "Other than a handful of pockets, Europe is generally structurally undersupplied. The industrial stock is extremely old and, in many cases, functionally obsolete. … You have a really unique opportunity in Europe where we think demand is going to increase rapidly, and supply is, by nature, constrained, and the existing stock is not a modern stock.”
Steinberg said he also sees big growth to come in data centers needed to handle rising demand for artificial intelligence and cloud computing.
EQT Exeter is looking beyond industrial properties too. Like its larger rival Blackstone, the firm is also betting on multifamily investments globally as Steinberg sees the property type as “undersupplied.”
As to the office sector, Steinberg said while EQT Exeter has “historically” done “very well in office,” he said “office, particularly in the United States, is a very challenged space.”
“At the moment, I don't see the return justifying the risk,” he said. “The pandemic accelerated functional obsolescence in office space. … If you don't have the best building with the best amenities in the market, it's hard to predict if you can ever lease your office building again.”
Friday, October 25, 2024
GSK plans $800M expansion of Pennsylvania drug manufacturing facilities
By John George – Senior Reporter, Philadelphia Business Journal
GSK, the London-based Big Pharma company that has operations in Philadelphia and Montgomery County, said Thursday it plans to invest up to $800 million to expand its manufacturing operations in Pennsylvania.
The company said the spending on a new "multi-purpose facility" at its campus in Marietta, Lancaster County, represents its largest-ever U.S. manufacturing investment. The project is expected to create 200 new jobs.
Pennsylvania is investing $21 million in the project, making it the largest state-supported economic development project in the history of Lancaster County. The state funding package includes $18 million in a Redevelopment Assistance Capital Program (RACP) grants, a $2.35 million Pennsylvania First grant, and a $645,000 WEDnet grant to train employees.
Rick Siger, secretary of the Pennsylvania Department of Community and Economic Development, said the GSK project is an example of the state's focus on growing the life sciences industry under Gov. Josh Shapiro's 10-year economic development strategy.
"The Commonwealth is home to nearly 3,100 life sciences firms," Siger said in a statement. "We will continue to make bold investments like this one to further boost the industry."
GSK (NYSE: GSK) said a new 300,000-square-foot plant will be designed to manufacture sterile liquid vaccines and medicines, and will also house a research and development pilot plant to manufacture medicines for clinical trials.
Additionally, GSK plans to establish a new vaccines drug substance plant at the site, dedicated to manufacturing products based on the company’s novel MAPS (multiple antigen presenting system) technology, subsequent to future regulatory submissions and approvals.
The project will also involve renovating existing buildings on the Marietta campus at 325 North Bridge St.
"This landmark investment will establish Marietta as an innovation and manufacturing hub capable of delivering next generation medicines and vaccines to people around the world," said Regis Simard, GSK's president for global supply chain, in a statement.
Full story: https://tinyurl.com/42y9jn3n
Brandywine Realty Trust sells 5-building office complex for $65.5M
By Paul Schwedelson – Reporter, Philadelphia Business Journal
A partnership that made a splash in the suburban Philadelphia office market a year ago has made another, purchasing Plymouth Meeting Executive Campus at a discount.
Eatontown, New Jersey-based FLD Group and New York’s Adjmi family bought the five-building Class A office complex for $65.5 million from Brandywine Realty Trust (NYSE: BDN). The campus totals 521,288 square feet, meaning the buyers paid $126 per square foot.
When it was put on the market in early 2023, industry sources estimated Plymouth Meeting Executive Campus could sell for more than $100 million.
The acquisition comes a year after the same partnership bought the five-building Bala Plaza in Bala Cynwyd for $185 million. The owners are planning a major redevelopment of the 1.1 million-square-foot office complex with residential, retail and a hotel.
Bobby Adjmi,principal of A&H Acquisitions, said there are no redevelopment plans at Plymouth Meeting Executive Campus. The five office buildings were 77% occupied when the sale closed on Sept. 26, Brandywine reported.
"We thank Brandywine for maintaining and keeping the asset in pristine condition," Adjmi said in a statement to the Business Journal. "As we look forward to rebranding and providing our clients with improved amenities and attentive service that a first class office campus deserves, we wholeheartedly expect our companies to want to grow in place with us and we welcome new business partners to join."
Adjmi said he was attracted to the portfolio's quality, occupancy and proximity to highways.
Plymouth Meeting Executive Campus spans 22 acres and was built in the mid-1980s and early '90s. Brandywine, Philadelphia’s largest office landlord, bought four of the buildings in 2002 for $67.2 million, according to filings with the U.S. Securities and Exchange Commission. It added the fifth for $9.1 million in 2012, filings show, putting the combined acquisition cost at $76.3 million.
The price paid by FLD Group and the Adjmi family is a drop of $10.8 million, or 14%, and less than what Brandywine paid for four of the five buildings more than two decades ago.
"If we go to the marketplace and the marketplace gets within that strike zone we typically will sell," Brandywine CEO Jerry Sweeney said Wednesday during the company's earnings third-quarter call, "even if we don't necessarily like where the price was versus our previous expectations, it's the right financial decision for the company."
The five buildings are:
600 W. Germantown Pike — 89,626 square feet;
610 W. Germantown Pike — 90,088 square feet;
620 W. Germantown Pike — 90,183 square feet;
630 W. Germantown Pike — 89,870 square feet;
660 W. Germantown Pike — 161,521 square feet.
Full story: https://tinyurl.com/44thufcn
Tuesday, October 22, 2024
Nucleus RadioPharma to Located to Spring House Innovation Center Montgomery County PA
By John George – Senior Reporter, Philadelphia Business Journal
A Minnesota radiopharmaceutical contract development and manufacturing organization has selected Montgomery County as the site of a new 48,000-square-foot facility.
Nucleus RadioPharma's plant will located at the Spring House Innovation Park in Lower Gwynedd. It will house research, development and commercial production under one roof.
The company's expects to create 50 new local jobs. Nuclear RadioPharma declined to disclose the cost of the project.
The Spring House Innovation Park, previously home to a Rohm & Haas complex, has been transformed and is being managed by a joint venture involving MRA Group and Beacon Capital Partners.
Nulceus RadioPharma will occupy building 14B in the business park located off Norristown Road.The building was stripped down to structural steel and concrete and is being completely redone.
It's one of two new projects announced Monday by Nucleus RadioPharma. The company is also opening a 53,000-square-foot research and development and manufacturing site in Mesa, Arizona. Nucleus RadioPharma expects the two plants to be completed by the middle to end of 2026 and increase the company's production capacity by 200%.
Nucleus RadioPharma CEO Charles C. Conroy told the Business Journal the company picked the Montgomery County site because of "strong partnerships in the area," most notably Fox Chase Cancer Center. He also said the location gives them "great access" to the northeastern portion of the country and allows for international shipping to Europe.
Full story: https://tinyurl.com/33zksjfk
Monday, October 21, 2024
October brings increased apartment specials for renters in Philadelphia's Center City
By Brenda Nguyen CoStar Analytics
Midwood Investment & Development’s 210S12 apartment building, which added 378 units, is offering two months of free rent on a 13- to 16-month lease and up to two and a half months for longer leases. This was the largest new high-rise multifamily development in Center City since Jessup House, a 399-unit high-rise apartment completed in mid-2023. A year after its completion, Jessup House still offers up to two and a half months of free rent on an 18-month lease.
A few blocks away, Lubert-Adler completed the first phase of its conversion of The Bellevue, which included 155 units. The Residences at the Bellevue is currently offering specials that include one month of free rent and a free sporting club membership plan, which begins at $195 per month.
Southern Land Co.’s Josephine, which has 254 units, is offering two months of free rent on a 14-month lease in addition to waived application and amenity fees.
With another 1,185 units currently underway across six other multifamily developments, concessions will likely persist into the spring leasing season of 2025 as developers contend with the expanding supply competition.
