Monday, April 1, 2024

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.

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