Tuesday, April 16, 2024

Philadelphia’s Multifamily Development Boom Starts To Cool


By Brenda Nguyen Costar

Philadelphia's apartment boom is cooling down after a record-breaking period of construction. As the spring leasing season kicks off, the number of new units under construction has shrunk by more than 30% compared to the peak in late 2022. This downshift reflects developers' and lenders' more cautious approach amid elevated interest rates, slowing rent growth and increasing supply-driven vacancies.

However, the recent pullback is not a complete halt. Current construction levels are still above the region's 10-year quarterly average of 12,800 units. While fewer new projects have broken ground in recent quarters, Philadelphia’s ongoing apartment development pipeline remains robust.

Between now and mid-2025, the region can expect between 2,000 and 3,000 units to be completed each quarter, with the majority located within the City of Philadelphia. The total in 2024 is expected to be the second-highest year of project completions, following last year's record, which will combine to produce plentiful new options in the market for renters.

Greater Center City continues to be a focal point for apartment development, boasting the region's largest multifamily project. Tower Investments' 1,111-unit cornerstone development, encompassing an entire city block just 12 blocks from City Hall, accounts for 6.5% of the region's units under construction. This mega-development ranks as the 11th largest ongoing apartment project across the U.S.

Beyond the city limits, Philadelphia suburban areas are also experiencing growth, albeit at a much slower pace. Cornerstone Tracy's 614-unit project at Oxford Valley Mall in Langhorne stands as the largest suburban development currently underway.

On the horizon, at least 17,200 units across 99 projects are in the proposal stage. Construction starts could pick up as interest rates stabilize, market confidence strengthens, and the surplus of units is absorbed. In the meantime, construction levels are rebalancing toward long-term market trends.


Thursday, April 11, 2024

Philadelphia’s Urban-to-Suburban Migration Hits a Three-Year Streak

By Brenda Nguyen Costar

The latest U.S. Census Bureau data reveals demographic shifts within the Philadelphia-Camden-Wilmington metropolitan area. While the overall region added more than 3,400 new residents between July 2022 and July 2023, closer analysis uncovers an urban-to-suburban migration trend.

Despite overall regional growth, the City of Philadelphia experienced another year of a shrinking population. The city's population declined by 1% in 2023, translating to roughly 16,300 residents for the third consecutive year, returning its population of 1.55 million to 2012 levels. This trend mirrors national population trends, reflecting a pandemic-induced migration from major urban centers such as New York City, Los Angeles, and Chicago.

While not exclusive to Philadelphia, a significant portion of former Pennsylvanians have relocated to other states such as Florida, New Jersey, New York, Virginia, and California.

Regionally, this urban out-migration has been offset by robust growth in the surrounding suburbs. The South New Jersey suburbs saw the most significant in-migration totals. Collectively they saw a 0.5% population growth in 2023, followed by Philadelphia's Pennsylvania suburbs at 0.3% growth. This suggests a growing preference for suburban living, driven by factors such as the cost of living, increased space, public safety, and the evolving work-from-home landscape.

Specific suburban counties showed particularly strong growth. Montgomery County in Pennsylvania led the region in adding nearly 3,700 new residents, reflecting a 0.4% increase. New Castle County in Delaware followed closely behind, welcoming over 3,330 new residents—a solid 0.6% year-over-year growth.

As a growing number of residents are opting for suburban life over urban living, the suburbs will continue to appeal to businesses, developers, and investors. This trend has already played out, as the suburbs have already seen stronger rent performance across all property types except offices in recent years.

Monday, April 1, 2024

Perceptions of the CRE Investment Market (Video)


Former GSK office building in Navy Yard set for sheriff's sale to satisfy $78M foreclosure judgment

By Paul Schwedelson – Reporter, Philadelphia Business Journal
One of the Philadelphia Navy Yard's signature office properties is scheduled to be sold at a sheriff’s sale in June.

Hailed for ushering in a new era of workspaces when it was built for pharmaceutical giant GlaxoSmithKline a little more than a decade ago, the building at 5 Crescent Drive is now mired in foreclosure procedures over its owner's unpaid $85 million mortgage on the property.

The 207,779-square-foot office building will go up for public auction on the online platform Bid4Assets on June 4 to satisfy a foreclosure judgment against owner Korea Investment Management Co. Ltd., according to documents filed with the Court of Common Pleas in Philadelphia.
The building has been vacant since early 2022, when GSK downsized and relocated its offices to the FMC Tower in University City. GSK (NYSE: GSK) continues to pay rent on the Navy Yard space despite no longer occupying the building. The company's 15.5-year lease on the entirety of 5 Crescent Drive, which was custom-built for the Big Pharma firm by developer Liberty Property Trust, does not expire until September 2028.

Korea Investment Management bought the building from Liberty Property Trust for $130.5 million in May 2018, with the price of $628 per square foot setting a record for Philadelphia office sales. The company's $85 million loan on the building was originated by Goldman Sachs the same month, and the debt was subsequently converted into a commercial mortgage-backed security (CMBS) and sold to investors.


Developer hopes planned 150,000-SF Northeast Philadelphia warehouse hits ‘sweet spot’

By Paul Schwedelson – Reporter, Philadelphia Business Journal

Crow Holdings Development has bought a 14.4-acre Northeast Philadelphia site for $8 million with plans to develop a 150,000-square-foot industrial building.

The Dallas real estate investment firm bought the site at 14515 McNulty Road from Philadelphia Authority for Industrial Development, a subsidiary of the quasi-public Philadelphia Industrial Development Corp.

Since most new industrial warehouses tend to be 300,000 square feet or larger, Crow Holdings Development Senior Managing Director Clark Machemer said he sees opportunity in a building with a smaller footprint at the site.

“You’re going to start to see some larger projects being delivered and soon to be delivered, which gets back to our thesis of the building size,” Machemer said. “We really find it attractive and feel like it’s a sweet spot in the market.”

While the building is being built speculatively without a tenant, Machemer said Crow Holdings has already had preliminary conversations with prospective tenants. That’s ahead of schedule since typically those conversations wouldn’t happen until walls of the building are constructed.

Crow Holdings came up with 150,000 square feet since it’s the largest size that could fit on the site, but Machemer believes the early tenant interest reflects how desirable a new building of this size could be.

In the fourth quarter of 2023, the vacancy rate of industrial properties in the Philadelphia market rose to 7.7%, according to brokerage firm CBRE. After staying below 4% from late 2020 through 2022, the vacancy rate of industrial properties has been rising as new buildings are completed and supply increases.

“When you go ahead and make that investment, you’re making a bet,” Machemer said. “We liked the bet of a building of that size.”

The building is being designed to fit two tenants if needed but Machemer said it’s more likely that one tenant would lease the entire building.

Including the $8 million land cost, Machemer estimated the project will cost between $35 million and $40 million. Site work began last week and the development is expected to take around a year to complete with a planned spring 2025 delivery date.

“The capital markets have been in disarray for the last 18 months. They’re starting to stabilize,” Machemer said. “A building of this size is attractive to lenders out in the market. Some of it was luck that when we went to capitalize the project, it was of the right size given the check is a little smaller than if you were doing a half-a-million or a million-square-foot building.”

The site sits south of I-276 between I-95 and Route 1 near the border between Philadelphia and Bensalem. The proximity to I-95 and nearby highways that access the Northeast corridor attracted Crow Holdings, Machemer said. The property is also in a business park, another perk, Machemer said, since trucks don’t need to drive through residential neighborhoods.

Nearby, New York-based Rockefeller Group and Los Angeles-based PCCP partnered to buy the 50-acre former Byberry State Hospital site at 15000 Roosevelt Blvd. for $44.8 million from Philadelphia Authority for Industrial Development in December. The joint venture plans to build two warehouses totaling 656,904 square feet.

Full story:  https://tinyurl.com/f6t49yba


BioTechnique Expands Manufacturing Operations in Central Pennsylvania

By Sam Bixler, Costar 

BioTechnique, a contract manufacturing organization that provides sterile injectable products and packaging services for liquid and lyophilized, or freeze-dried vaccines and medications. signed a lease to occupy a warehouse in the Orchard Business Park in York, Pennsylvania, owned by locally based Kinsley Properties.

The pharmaceutical manufacturing firm will occupy the entire 111,367-square-foot facility at 625 Willow Springs Lane situated just off I-83 north of York. The firm is currently located at 250 Cross Farm Lane in the Greenspring Industrial Park.