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The Good, the Bad, and the Unbelievable: How the Pandemic Has Forever Changed Industrial Real Estate

Posted on October 13, 2020 by Mike Kushner in Blog, Industrial, Trends No Comments

Industrial real estate had been booming for the last five years, mostly propelled forward by e-commerce and changes in consumer behavior. If that wasn’t enough for industrial real estate owners to adapt to, a global pandemic hit and impacted the way just about everything worked previously. As we adjust to this new reality, there’s one looming question: can industrial success last in the age of COVID-19?

While every sector of the market has challenges right now, there’s good reason to think industrial will continue to thrive. But tenant demands will continue to shift under the mounting pressures of the pandemic. From understanding the current state of leasing activity and e-commerce to getting in front of emerging trends like grocery deliveries, there are a lot of things that need to be considered, monitored, and adjusted.

Here are the main areas impacted by COVID-19 and what industrial owners need to know to meet tenant demand now and into the future. Take a look!

Construction Delays

Construction delays caused by COVID-19 are becoming increasingly common and many industrial real estate owners are having trouble securing permits. That’s ultimately forcing a slowdown of expansion efforts, something that needs to be overcome considering the continued growth of e-commerce.

The industrial sector ended Q1 of this year at a high point with near record lows hovering below 6%, and rents growing 8.8% year-over-year while leasing velocity accelerated. There’s no doubt the pandemic has slowed markets down, but experts anticipate the trends supporting them to stay fundamentally intact.

That’s not to say the industrial sector isn’t experiencing headwinds. Across the market, industrial owners recognize that many tenants are still facing serious risks, and bankruptcies are expected. As a starting point to protecting themselves against risk, some owners are considering COVID-19 clauses in future leases to help them navigate these situations again in a possible future outbreak.

Accelerated E-commerce Growth

E-commerce is one of the few sectors of the market to actually benefit from COVID-19, and it’s well-positioned to lead the recovery. That’s according to JLL’s report COVID-19: Global Real Estate Implications, which said the pandemic will likely boost demand for manufacturing and logistics facilities that e-commerce needs to continue expanding. The report also said the pandemic will accelerate many existing trends, including the growth of online retail as more of the economy moves to online sales.

In our new economy, a retailer might not necessarily need a storefront to succeed anymore, but it does need a robust supply chain strategy. To meet the growth in demand, industrial owners in major metro areas will likely have to look further afield for suitable sites as demand outpaces local supply levels. This isn’t anything new for industrial markets, but the trend is only going to accelerate.

Increase in “Safety Stock”

It’s expected that e-commerce demand is growing given that people are looking for the safest and most convenient shopping options that allow for social distancing, but the pandemic has caused something else unexpected. Many occupiers of industrial spaces are planning a 3-5% increase in their safety stock levels to help safeguard against the rampant supply shortages experienced at the start of the pandemic. These measures will add additional demand for warehouse space to keep larger quantities of key items in storage.

Unprecedented Demand for Food Storage

While still a relatively foreign concept to much of America, COVID-19 is driving major demand growth for online grocery orders. In early May, CNBC reported that only 3-4% of grocery spending in the U.S. was online before the pandemic, but now online grocery orders have surged to account for between 10-15% of all grocery spending. While online grocery orders are expected to recede after the worst of the pandemic subsides, experts expect U.S. online grocery sales to stay between 5-10% moving forward.

This is a huge opportunity for industrial owners. But to really capitalize on the trend, owners need to invest big in cold storage. A challenge is that this niche is operationally complex and requires specialized knowledge to succeed. Because most first-generation facilities are designed, owned, and already in use by grocery and foodservice companies, second-generation spaces offer the biggest opportunities for industrial investors.

A Local Perspective

It comes as little to no surprise that Central Pennsylvania experienced a sharp drop-off in absorption, which is what we are seeing everywhere. According to CoStar, Harrisburg has a slight uptick in vacancies, but that’s not troubling because there was spec space coming online and leasing activity has slowed. See below for the local probability of leasing commercial space a few months from now, which helps to show how quickly properties are likely to lease in the region moving forward.

It’s also worth noting that there is no negative absorption in Harrisburg through 2020. This is a positive sign for the local commercial real estate market because it means major tenants have not left, or if they did leave, the vacated space was instantly filled. That’s not normally much of a win, but in Coronatimes is a big deal.

And then there’s construction. Specifically, in Central PA there has not been a surge in construction in the region, but there are still millions that broke ground after the pandemic began, which testifies to the level of confidence in the local shipping market because most elsewhere construction has flatlined.

Looking Ahead

The industrial real estate market has been a remarkable success story both in Central Pennsylvania and beyond. And while the near future is likely to carry its fair share of challenges as the market faces tenant bankruptcies and construction delays, this sector is well-positioned to emerge from the pandemic less unscathed than others in the commercial real estate industry. Owners and investors who successfully navigate these challenges while getting ahead of evolving tenant demands, like grocery delivery and cold storage, will be the strongest moving forward.

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Central PA’s Growth in Commercial Construction Creating Workforce Challenges

Posted on December 19, 2019 by Mike Kushner in Blog, Construction, Local Market, Trends No Comments

With new commercial construction projects popping up all across Central Pennsylvania, it may appear as though it’s a great time to be in the industry. A demand for more commercial construction usually means businesses are growing or moving into the area, bringing with them jobs and economic growth. But there’s one looming challenge that stands in the way of this growth having only upside, and that’s the lack of commercial construction workers to take on this work.

According to Commercial Observer, this workforce challenge is not limited to the Central Pennsylvania region. Rather it’s a nationwide issue that could have wide-spread impact. A serious gap exists between the upcoming demand for labor and the number of available workers with the skills needed to fill those positions.

How does this gap in skilled laborers stand to impact the commercial real estate construction industry? And what, if any, solutions exist? For further input on this issue, Omni Realty Group turned to Dave Sload, President and CEO of ABC Keystone.

ABC Keystone was established in 1959 with the mission of advancing and defending the principles of free enterprise in the construction industry. Today, the organization is a powerhouse with 69 chapters and over 21,000 members. It is one of the leading organizations representing America’s business community and the construction industry.

“The construction industry is already in a critical state when it comes to finding skilled workers. They simply are not out there and it is forcing companies to pass on some projects,” says Sload.

Commercial construction companies being stretched so thin on labor that they decline work illustrates the severity of the labor shortage and the ominous threat it poses on the industry. The real struggle is construction spending is not predicted to subside. In fact, growth over the next two years is substantial.

According to FMI’s 2019 Industry Outlook, total construction spending in the Mid-Atlantic region, which includes Pennsylvania, New York and New Jersey, should increase 5 percent year over year, from $153.6 billion to $161.3 billion. It is predicted that this trend will hold in coming years, with anticipated spending increasing at a rate of 4.5 percent between now and 2022.

Combine this with the fact that the construction industry unemployment has dropped to an 18-year low, and you have the recipe for a sustained labor shortage that will lead to higher labor costs, longer project schedules, and inevitably quality and safety issues that will result from understaffed crew and under-qualified workers.

Sload adds, “Things will only get worse in the future. 40% of the construction workforce will retire over the next ten years. It will not be just the skilled workers we lose but also decades of institutional knowledge.”

Construction jobs are a cornerstone of our local economy, with thousands of well-paying jobs created every year. The latest job openings data from the Bureau of Labor Statistics suggests that since 2014, while the number of jobs openings has almost doubled, the number of hires has increased by just 14 percent. This underlines the fact that it is not a lack of jobs, but a lack of laborers to hire for such jobs.

Sload continues, “If that is not enough, this country is in desperate need of infrastructure legislation to update our highways, airports, wastewater treatment plants and water systems. Should an infrastructure bill pass in the range of what has been proposed, we would immediately be another 500,000 skilled workers short.”

All of this begs the question, “What is the solution?” Construction business owners and other hiring entities have started exploring all viable options for employing and retaining qualified workers. Possibilities include increasing and improving recruiting efforts; retaining qualified workers during periods of slow work so they are more readily available; investing in skills training and continued education programs; and working harder to nurture internal talent, especially to retain institutional knowledge.

While none of these solutions may be the “silver bullet” the industry needs right now, it’s evidence that the issue is not being ignored, and companies are willing to get creative and collaborative with whatever combination of solutions prove to move the needle.

Have you felt the impact of workforce challenges, either personally or within your business? Or do you have a different opinion as to how the commercial construction industry may address this issue?

Join in the conversation by leaving a comment below.

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4 Reasons Why 2019 Was a Great Year for Commercial Real Estate

Posted on December 8, 2019 by Mike Kushner in Blog, Commercial Real Estate, Trends No Comments

For various reasons, 2019 proved to be a year of advancement and change. This was the year that the driverless revolution finally hit the road, China accomplished the first landing on the far side of the moon, and many other social and political issues advanced. We also lost legends like Doris Day and Karl Lagerfeld.

Beyond the tech, science, social, and political advancements, there were many other industries that were significantly shaped by 2019. Particularly for commercial real estate, there are four things that took place this year that changed the CRE industry for the better. Here’s why 2019 should be considered a great year for commercial real estate.

Low Interest Rates

An increased capital flow in the U.S. has helped to keep interest rates low despite an optimistic economic outlook. Additionally, the Federal Reserve issued three rate cuts in 2019, twice amid trade tensions with China. Economists predict that interest rates will remain low by historical standards for at least the near term. Additionally, multifamily originations are projected to hit an all-time high in 2020.

Despite the dip in mortgage rates, cap rates have stayed relatively flat, at 5.6% during the first half of 2019. Cap rates across all major segments, except for the retail sector, which has seen some cap rate expansion, have been largely unaffected by interest rate fluctuations and remain a favorable asset class. It’s expected that the hunt for yield will continue to drive more capital into real estate acquisitions in the near future.

Good GDP Growth

The United States kicked off 2019 with growth of 3.1% in the first quarter, the growth then slowed into second quarter. Ultimately GDP growth went on to exceed what was initially expected in the third quarter. The economy expanded by 2.1% between July and September, more than the initial reading of 1.9%, and more than the 2% growth rate in the second quarter. The last time it grew at a pace of less than 2% was in the final quarter of 2018.

Manufacturing, both in the U.S. and globally, was hit hard by the on-going trade war with China. On top of that, the positive effects from the 2017 tax reform (see below), which gave the economy a boost, also tapered off this year. Though economists are still expecting economic growth to slow further in the near-term, that slowdown appears to be more modest than initially expected

2017 Tax Reform*
It has been expressed that commercial real estate was the real “winner” of the tax reform of 2017. The new tax benefits these changes brought to commercial real estate investing include:

Individual tax rate – The tax changes made in 2017 included tax rate cuts across the board with corporate rates being slashed to 21% (which received most of the publicity). The individual rate reductions were not as dramatic, but do provide relief especially with the wider tax brackets.
Depreciation – The 2017 tax reform brought back 100% bonus depreciation through 2022, meaning the cost may be fully expensed in the year placed in service for qualifying property.
Interest expense limitation – As part of the 2017 tax reform, there is a new limitation that restricts the ability to deduct interest expense in certain situations. Fortunately, commercial real estate should not be impacted in most scenarios. The deduction for interest expense is limited to 30% of taxable income before interest, depreciation and amortization deductions.
Like-kind exchanges – Fortunately, the impact on like-kind exchanges on commercial real estate was minimal. Real property for real property exchanges are still allowed, meaning there is not a requirement to exchange into the same asset type. Meaning an apartment complex can be exchanged into a commercial property.
Tax-exempt Taxpayers – For tax years starting after January 1, 2018, losses from any CRE investment activity are only allowed to offset income or gains from that activity. Though this will likely accelerate tax liabilities for tax-exempt investors that have multiple investments generating unrelated business income, they can protect themselves by using an IRA to make additional investments in commercial real estate.

*The full details of the 2017 tax reformed are quite complex and beyond the scope of this article. As always, investors are encouraged to discuss the potential impact of this limitation with their tax advisor.

Low Unemployment

Historically low unemployment rates were an earmark of 2019. Contributing to this was a boom in CRE construction which created an increased demand for commercial construction workers. To put the current state of real estate growth into perspective, demand over the past five years has exceeded housing inventory by 1.4 million units, and vacancies are at their lowest levels since 1984. All of this demand for more real estate creates a demand for new construction, and more construction workers to complete it.

While (most) growth is a good thing, there’s a flip side to every coin. The nationwide shortage of construction workers posed significant challenges for the commercial construction industry, including struggles to meet deadlines, raised costs to complete projects, and firms having to ask their existing skilled laborers to do more work. While there is no quick solution to resolve this in the near-future, those in the field are making efforts to resolve the problem while keeping their CRE projects on deadline.

What Can We Expect In 2020?

The commercial real estate industry has benefited from the unusually long length of the current expansion cycle. But more than 10 years in, while growth in many fundamentals has slowed, the cycle marches on. Many experts believe we’ve entered a new kind of cycle marked by prolonged periods of low growth, low inflation, and low interest rates. Such an environment would prove favorable for continued stability in the commercial real estate sector for the foreseeable future.

Which of these four changes in 2019 do you believe to be most powerful? How will any of these also impact your industry? Join in the conversation by leaving a comment.

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Ancillary Income Opportunities for Commercial Real Estate Property Owners

Posted on November 12, 2019 by Mike Kushner in Blog, Commercial Real Estate, Guest Blogger, Local Market No Comments

When businesses and individuals consider commercial real estate development as an investment opportunity, often the primary focus is on the potential income from tenants who will lease the space. However, given the growing demand for outdoor advertising and the increased revenue opportunities that digital billboards can provide landowners in terms of rent, there is an extra revenue opportunity that should not be overlooked.

To further explain, Omni Realty Group spoke with Pat Lyons, Owner of Premier Media and a leader in developing outdoor advertising income opportunities for commercial landowners. Headquartered in Harrisburg, Pennsylvania, Premier Media assists real estate investment trusts (REITs) and landowners grow ancillary revenue streams by identifying, permitting, building, and managing outdoor advertising assets within their company portfolio.

When we asked Pat to share with us how he works with commercial real estate properties to develop streams of ancillary income, here’s what he had to say.

Omni: Describe the core services do you provide to commercial real estate clients.

Pat Lyons: There are four main components to the services Premier Media provides and they’re designed to flow in a process. First is asset review. We approach every new project with a complete asset review of the client’s property portfolio conducted by our fulltime team of researchers who do a comprehensive review of both the local and state sign ordinances and provide a full on-site evaluation.

Once we identify opportunities within the property owner portfolio, we present them with a proposal of what they can expect in land lease revenue from a digital unit on sites that we feel are potential candidates to move through the permitting process for approval. If our proposal is accepted, then we move to a signed land lease agreement. In essence, Premier Media leases a portion of the property that is mutually agreed upon by both parties for the billboard installation.

Next is permitting. We work through all aspects of researching and securing the appropriate local and state permitting applications necessary to build the desired advertising displays. This includes all engineering, survey work, building permits, electrical permits and sign permits.

Once permits are secured, we assume the responsibilities of marketing and operating the billboard displays or work to find a regional or national billboard operator as a credit tenant for the property. This revenue stream is truly ancillary revenue for our clients and adds additional lease and sale value to the property itself. We can permit, build, and operate the advertising unit. Simply put, landowners receive increased property value and ancillary income in the form of monthly or yearly lease payments on a long term, secure lease.

Omni: What type of clients do you most commonly work with?

PL: Though we have and will serve a wide variety of clients, we tend to focus on clients with industrial space, such as large warehouses and distribution centers along the highway. These are very desirable locations for digital displays because they are highly visible and in many cases zoned Industrial, which is also a common zoning for billboards. Another core client group is commercially zoned real estate investment trusts (REITs).

Omni: What is the general range of ancillary income your commercial clients receive from the signage you place?

PL: As you might imagine, this is extremely subjective to each and every client, depending upon their property, how it’s zoned and the terms of the agreement. To give you some rough estimates, the base income for our clients is $10,000 per year, growing up to $200,000+ per year in some cases! I would say average is about $30,000 per year. What’s most important to keep in mind is that this comes with no capital expenditure and no upfront cost. Plus, we typically sign 20-25 year land leases, with income increasing every 5 years.

Omni: Let’s debunk the biggest myths or misconceptions that hold clients back from embracing these ancillary income opportunities you offer.

PL: Honestly myths or misconceptions that actually prevent businesses from taking advantage of this new income opportunity is rare. Once they understand the agreement and the potential value to their property, it’s a no-brainer. However, if I had to think of a few it would be potential tenant restrictions in their own tenant leases regarding billboards and competitive language. Most of these concerns however can be alleviated in the billboard lease agreement.

Also people mistakenly think once a billboard is placed they can never relocate it. Again, that is all addressed in the lease agreement. A final misconception is that placing digital signage could be a detriment to the value of the property. This couldn’t be further from the truth as we have seen a tremendous increase in property value due to the long-term lease agreements and higher rents for digital billboards.. In reality, digital billboards create a great opportunity where landowners have the flexibility to use some of this ad placement to promote their tenants, advertise available space for rent – or to donate it to local nonprofits as pro bono advertising.

Omni: In your opinion, how has the outdoor advertising industry changed since the introduction of digital signage?

PL: Digital billboards give commercial landowners the ability to earn exponentially more on these types of investments. Where some real estate investment deals may be seen as only marginally profitable on what you’ll make off of traditional tenants, leasing part of your property for digital displays explodes your income potential as well as the value of the property overall while only using a 42” diameter portion of the property to place the pole.

Omni: Do you have any other advice you’d give to REITs or CRE property owners/investors?

PL: The best advice I have for commercial landowners is to think outside the box with your investment. Whether you own one property or have a large portfolio, ancillary income opportunities like digital billboard displays can open up a significant revenue stream for you and greatly increase the value of your property. And it truly is ancillary. If you work with a company like Premier Media, we handle absolutely everything from start to finish with transparency and a partnership mentality throughout the entire process. Simply put, there’s nothing to lose and everything to gain.

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Omni Realty Group is very grateful for Pat’s insight into this fascinating industry. One of the smartest things any business owner can do is to seek opportunities for ancillary income. Not only does this grow profits needing minimal or no additional resources, it also greatly increases the overall value of your business in the eyes of prospective buyers.

No matter the industry in which you work, what ancillary income opportunities could be available to you right now?

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How Central PA’s Growing Population Impacts Local Businesses

Posted on October 25, 2019 by Mike Kushner in Blog, Local Market, Trends No Comments

According to a 2018 report from the Pennsylvania Data Center, Pennsylvania’s population is expected to grow approximately 1% from the 2010 to the 2020 population, which is 1% better than no growth or a loss. What’s even more remarkable, is Pennsylvania’s growth is focused in about 16 counties, 14 of which are in Pennsylvania’s South Central Region, South East Region and Lehigh Valley, including Pennsylvania’s fastest growing county population in our own Cumberland County, here in South Central PA.

Furthermore, estimated population growth in those 14 counties is about 3.8%, which is driving Pennsylvania’s overall modest population growth, while counties in Pennsylvania’s West and Northern Tier are losing population with only Butler and Centre Counties showing expected population growth.

All of this data raises a very important question…

How does Central Pennsylvania’s changing population stand to impact the economic development of our local businesses?

To help answer this, we asked David Black, President and CEO of the Harrisburg Regional Chamber and CREDC, to weigh in from his perspective and the changes he is seeing taking place in Central Pennsylvania. Here is what he shared.

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Focusing on South Central Pennsylvania, which includes Adams, Cumberland, Dauphin, Franklin, Lancaster, Lebanon, Perry and York, it’s pretty good news for us. Population growth drives demands for products, services and community amenities – quality of life factors. The quality of life factors – everything from good restaurants, entertainment, quality public education, exceptional health care, transportation access and cost of living – are in part driven by more people paying more taxes and needing more services that feed into our positive economic cycle.

Given our region’s transportation advantage via highways, rail and air and other amenities, South Central Pennsylvania is a great place to live, raise a family and have fun, plus we are close enough that if large metros like Washington, Baltimore, Philadelphia or New York is your thing, just a few hours will get you there. Quality of life issues help to attract and retain workforce, which is the business community’s number one issue these days, due largely to the fact that 10,000 baby boomers nationwide are retiring each and every day, leaving workforce challenges in many industries.

People want to live in vibrant communities. Some people prefer urban lifestyles, some are suburbanites while still others prefer the more natural rural lifestyles. Guess what? South Central Pennsylvania has it all. You can live on your 10 acres in Perry County and be to work in 30 minutes in downtown Harrisburg or walk to your job in center city Harrisburg from your apartment downtown, or your own home in Midtown, or commute 10 or 15 minutes from your suburban community to your job.

Population growth helps to drive business growth, it helps to drive additional growth in our region. While we think of ourselves as Harrisburg or Lancaster or York, commuting patterns show us that people commute from county to county to work because they can. I have a theory, with no disrespect to Lebanon County, that everyone in the Palmyra area actually works in Dauphin County at someplace with Hershey in the name! Businesses provide jobs, but people with the ability to spend drive local economies while our strategic location and transportation advantage help to connect us to the global economy and make South Central Pennsylvania such a special place to call home.

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To offer additional insight, specifically on working age population growth in Pennsylvania, we asked Ben Atwood of CoStar, a national commercial real estate research firm.

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One of Costar’s recent articles entitled “Latest Census Data Shows Lehigh Valley Leading Pennsylvania in Working-Age Population Growth” stated that the latest data from the Census Bureau shows Pennsylvania continues struggling to lure in new industries and working age residents. The U.S. population aged 20-64 increased by 0.25% last year, but of Pennsylvania’s 67 counties, only seven surpassed this growth rate and 55 experienced net declines.

Harrisburg and its satellite markets are pretty underdeveloped (excepting Lancaster), relatively speaking. And the lack of modern office supply and relatively stagnant population growth means there likely won’t be major companies relocating into the area. Right now, that capital investment would have to be largely local, and how much are people locally willing to risk?

Central PA is in the position to grow in ways other areas in the state aren’t, but that doesn’t mean that growth will be rapid, or even guaranteed. The new developments will be riskier, hampering investor interest. This combined with stagnant, even waning growth in working age population can be cause for concern both near and long-term.

To some extent, the optimism about population growth is misplaced because it could just mean these areas will have a slightly easier go of it over the next few decades, as automation continues to eat away at blue collar jobs in retail, shipping, and professional services in the Commonwealth’s smaller markets.

Things change and evolve, and no one can predict the future, but a lot of growth in these areas is in transportation and manufacturing, industries with long term automation risks, and there’s plenty of reasons to believe automation will expand into white collar employment in the near future.

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Omni Realty Group is very grateful for David and Ben’s expertise and input. It’s fascinating, yet not surprising that population growth can have such a profound impact on quite literally everything else. Here in Central Pennsylvania we have a valuable opportunity to harness this growth and use it to fuel our economy. This further emphasizes the point that there are many unique benefits to live, work, and play in this region. Whether you call Central Pennsylvania home, are employed in the region, or simply enjoy visiting to experience its social offerings, you are playing an important role in the growth of our economy.

How else do you feel that our region’s changing population stands to impact local businesses? Join in the conversation by leaving a comment below.

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Beyond the Bio with Mark Disanto from Triple Crown

Posted on October 21, 2019 by Mike Kushner in Blog, Guest Blogger No Comments

For more than four decades, Triple Crown Corporation has shaped Pennsylvania real estate through construction, land acquisition, and residential and commercial property management. The company has built an impressive portfolio of properties ranging from warehouses, office and retail space, rental communities, and even vacant lots that can be developed into just about anything to need.

At the heart of Triple Crown Corporation is its people. As part of the senior leadership team, Mark Disanto, the company’s CEO offers valuable insight into the industry, and the vision for the company. Mark has built a successful career from a blend of hard work, knowledge, and experience. But beyond his professional resume, there is a lot we can learn from Mark on a more personal level.

Take a look as Omni Realty Group goes “beyond the bio” and asks Mark for answers to questions you’re not likely to read on his Linkedin profile.

Omni: Describe a “typical” work day for you.

Mark Disanto: A typical day for me starts around 5:30 or 6:00 AM. I either exercise at home or play tennis in the morning. I am usually at the office between 7:00 and 8:00 AM and very rarely leave before 6:00 PM. Throw in a couple nighttime meetings with municipalities and extra time on Saturdays and in the evenings and the work week is usually 60 to 70 hours.

Omni: What is the best part of your job?

Mark Disanto: I have great flexibility in my job. I have time in the office. I have time inspecting job sites and looking at new acquisitions. I like the flexibility. However, the best part of my job is watching the company grow and seeing the new leadership expand the company both in the property management and construction divisions as well as our geographical footprint.

Omni: What has been the most difficult part of your job?

Mark Disanto: The continued regulation of our industry is probably the most troublesome and difficult part of our business. There are so many regulations in the building codes, the land development and subdivision codes, other state permitting processes, as well as federal regulations. None of these take into account the reasonableness of the burdens placed upon the builder and developer, cost versus benefit and time delays. We continue to hear about a shortage of affordable housing and the reason for this is strictly due to the regulatory environment we live in today.

Omni: If your career never took you into real estate, what else would you likely be doing?

Mark Disanto: I would probably be on Wall Street running a hedge fund and giving Ray Dalio a run for his money.

Omni: What has been your favorite Triple Crown project, and why?

Mark Disanto: I think I have two. The first was done about 17 years ago in Silver Spring Township. Georgetown Crossing was our first large apartment community containing 400 townhome and flat stack apartments. It is a beautiful property off route 114 in Silver Spring Township and our premier community. We still own it and will probably never sell it.

More recently Blue Ridge Village tops the list. This is an exciting mixed use community in lower Paxton Township that combines retail, commercial, apartments, townhomes and single-family homes along with a 32 acre park. This is a true livable, walkable community. The approval process was collaborative and respectful of the community and the Township. It took a lot of effort on our part, but I can assure the residents that this will be a premiere community that will significantly enhance the township.

Omni: What project has been your biggest failure or disappointment?

Mark Disanto: We bought a property out of market about 20 years ago at an auction and did not have sufficient due diligence completed upon it. When we went to the township for the first time it was like walking into a hornets’ nest. We eventually decided to cut our losses and re-sold the ground at auction for a loss. Out of the hundreds of developments and projects that we have done, we’ve only lost money on two deals. We are pretty proud of this.

Omni: What motivates you?

Mark Disanto: I just like to be engaged and like to see the company and the employees succeed. We set our strategy for three-year time frames and have quarterly meetings with our strategy review team and make sure we are all rowing the ship in the same direction. When everybody has purpose and they are all heading to the same goal line and supporting one another along the way, it makes for a very fun journey. I don’t need to work as hard as I do, I just have too much enjoyment with it to slow down.

Omni: Do you have any pet peeves?

Mark Disanto: I don’t think so. I get very frustrated when my volleys are not crisp on the tennis court!

Omni: When you’re not in the office, where can you most likely be found?

Mark Disanto: When I am in Harrisburg, it is usually with the family which includes the five grandkids, or working around the house and in the garden in the summertime, or in a tree stand in the fall trying to find the elusive big buck, or on the tennis court 2 to 4 days a week. If out of Harrisburg it could be anywhere in the world!

Omni: And finally, what career advice would you give to your younger self?

Mark Disanto: I would say, do not doubt your abilities. If you have an idea you want to execute then write it down and write a plan on how to achieve it. Review the plan both upstream and downstream with your staff. If you don’t have a staff, take it to people you respect and really try to poke holes in it. Once it’s well vetted, then work diligently and hard at it. A lot of people say this person was “lucky.” That’s usually not the case; a lot of strategic thought and hard work creates what people call luck.

Omni Realty Group thanks Mark for such candid and thoughtful answers to these questions. There is a lot of inspiration that can be found “beyond the bio” and on a more personal level. You can learn more about Triple Crown Corporation and its services by visiting them at https://www.triplecrowncorp.com or on Facebook and Twitter @TripleCrownCorp.

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Power Landlords Part II: Who Owns the Most Industrial Space in Central PA?

Posted on July 8, 2019 by Mike Kushner in Blog, Industrial, Local Market No Comments

You might think that Central Pennsylvania is defined by its natural resources or agriculture, or maybe you don’t think we’re known for much of anything. The truth is that there is a lot this region brings to the economy with our industrial market being one of the country’s top core industrial markets.

If this surprises you, consider the following. This particular region is well positioned along the nationally-recognized I-81 transportation corridor with immediate connections to I-78, I-76, I-83 and I-80, as well as immediate access to major deep-water ports at New York/New Jersey, Philadelphia and Baltimore. With our ability to provide manufacturers and distributors access to nearly 70% of the total consumer markets in North America within one day’s drive, the region has benefitted from significant demand, especially most recently with the emergence of the e-commerce which promises customers even faster ship times.

Additionally, nearly 8 million square feet of new Class A regional and super regional distribution facilities are under construction. Even with this much new space entering the market, vacancy rates remain right around 5% which is well below the historical market standard of 7%. Combine all of this with a backlog of millions of square feet of new tenant requirements in the market, and you can see why Central PA’s industrial real estate market is ripe for opportunity among investors and landlords.

So, who owns the most industrial space in the market? The combined square footage of the top 5 landlords in Central PA is 32,820,237 square-feet of space. Moreover, the combined vacant square-footage for all of this space is just 2,448,898 square-feet or 7%. So, who are these power landlords and what buildings account for most of this space? Let’s take a deeper dive.

Prologis Inc.

It should come at no surprise that Prologis Inc. tops this list with its portfolio of 22 industrial buildings. Combined, this accounts for 11,242,938 square-feet of real estate. The largest building, which is Key Logistics Park located at 950 Centerville Road in Newville, is home to 1,170,000 square-feet of industrial space.

Global Logistics Properties, Ltd. (GIC Real Estate)

Next on the list is Global Logistics Properties, Ltd. with 19 buildings and 7,075,922 square-feet of real estate. The largest of these buildings is Lemoyne Industrial Park located at 221. S. 10^th Street in Lemoyne which is 885,802 square-feet of industrial space.

Clarion Partners

With 10 buildings totaling 5,676,191 square-feet, Clarion Partners ranks number three on our list of “Power Landlords” in Central PA. Their largest building, located at 1 True Temper Drive in Carlisle, is 1,226,525 square-feet in size.

First Industrial Realty Trust, Inc.

At number four we have First Industrial Realty Trust, Inc. Their portfolio of 15 buildings accounts for 4,804,210 square-feet of industrial real estate. The largest building, 1,100,000 square-feet in size, is located at 5197 Commerce Drive in York.

Liberty Property Trust

Coming in at number five on the list is Liberty Property Trust with 7 buildings totaling 4,020,976 square-feet of industrial space in the Central PA region. Their largest building, which is the Carlisle Distribution Center located at 40 Logistics Drive in Carlisle, is 972,000 square-feet.

It can be hard to wrap your head around these numbers and the amount of industrial space that is located right here in Central PA. Often, these are huge buildings we drive by daily but fail to notice unless we pay attention. The products that are made in and shipped from these facilities impact the global economy and provide us with every item imaginable, from basic essentials to toys and tools to match a wide variety of hobbies. So the next time you drive by the Key Logistics Park in Newville or the Carlisle Distribution Center, you now have a little more intel into who the power landlords are behind these massive facilities.

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How Opportunity Zones Could Impact Central PA Real Estate

Posted on December 26, 2018 by Mike Kushner in Blog, Commercial Real Estate, Construction, Guest Blogger, Local Market, Trends No Comments

Note: This article was published by the Central Penn Business Journal. Click here to read the original version.

Opportunity Zones are being referred to as “real estate’s most exciting new investment vehicle,” but what are they and can they really live up to this title?

How this type of investment works and why it stands to be so beneficial is essentially this: capital gains are invested in Opportunity Zones, taxes are deferred, the basis is lowered, taxes are then paid in 2026 (at the same nominal value as in 2018), and after 2028 the Opportunity Zone holding can be sold with no capital gains tax due.

Better yet, there are very few restrictions on the properties in which one can invest. It’s estimated that there are $2.3 trillion worth of unrealized capital gains in the U.S. Even if only 15 percent of this is invested in Opportunity Zones, this will exceed the 2017 corporate income tax revenue and almost match the Medicaid spend of that same year.

The potential benefits don’t stop there. Opportunity Zones can also provide a tax deferral on gain that investors invest in a fund, and the elimination of gain in the new Opportunity Zone investment if it is held for more than 10 years.

This should paint a clearer picture as to why Opportunity Zones have real estate investors abuzz. To answer the most essential questions related to Opportunity Zones, and specifically how they stand to impact Central Pennsylvania real estate, Omni Realty has asked Silas Chamberlin to share his expertise and insight on this topic.

Silas Chamberlin, PhD is the Vice President, Economic & Community Development at York County Economic Alliance. Prior to joining YCEA in fall of 2018, he served as CEO of Downtown Inc. Chamberlin has also served as executive director of the Schuylkill River National Heritage Area, an organization promoting economic revitalization in five counties of southeastern Pennsylvania. And he has held leadership positions in the non-profit sector and state government. Throughout his career, Chamberlin has focused on helping communities leverage their unique assets to create opportunities for economic development and a higher-quality of life.

Mike Kushner of Omni Realty and Silas Chamberlin jump right to the meat of things starting with the local impact of Opportunity Zones, using the Greater York Area as a sampling.

Omni: How many census tracts in York County were approved for the Opportunity Zone program? And where?

Silas Chamberlin: York County has five designated tracts. All tracts are located in the City of York and are the tracts which encompass most of the city’s brownfield sites. Tracts in Hanover and Wrightsville were eligible for designation, but were not selected by the state.

Omni: Specifically, how will this program benefit the Greater York Area and how soon do you expect to see an initial impact?

SC: Opportunity Zones will attract additional investment to qualified projects in our five opportunity zones. The tax break should help draw investors’ attention to projects that have not benefited from private investment in the past. YCEA is a working partner to help identify viable projects within the zones to market to Qualified Opportunity Fund investors. We are also vetting the creation of local and regional funds focused on the city’s zones.

In theory, we could see funds begin investing in qualified projects at any time. Opportunity Zones are intentionally driven by the free market and individual investment decisions, so it is difficult to tell how much investment will end up in York. Observers at the national level have noted that there may be more private capital available than viable projects, so York should certainly position itself to take full advantage.

Omni: Are the tax breaks provided through this program enough to incentivize private investors and spur activity?

SC: The short answer is yes. But it would be inaccurate to view Opportunity Zones as a panacea that will turn vacant buildings into viable investment opportunities overnight. The most competitive projects will be those that are already viable without Opportunity Zone funds, but would benefit from additional investment.

Unlike New Markets Tax Credits or other popular programs, Opportunity Fund investments are unlikely to subsidize a project because the project must be able to grow in value and return an investment to the fund. YCEA’s strategy is to identify viable projects within Opportunity Zones and then use the designation to attract investors’ attention. We see this as yet another tool in our economic development financing toolbox.

Omni: Are there any drawbacks to the Opportunity Zone program?

SC: Opportunity Zones rely on a self-certification process for creating a fund, which means that investors have lots of autonomy. This also means that economic development organizations and municipalities may not always be aware of investments being made in their zones. Because the zones are distressed areas by definition, there is a higher risk that outside investment could change neighborhoods and business districts without any local engagement or controls. There are potential controls that could help guide development in Opportunity Zones—such as zoning overlays—but these tools are not yet well developed, especially in smaller cities.

Finally, there is the risk for disappointment. Opportunity Zones absolutely provide another tool to attract investment, but there is a risk in promoting them as transformational and raising the hopes of residents and developers that untapped capital will begin flowing into the census tracts that need it the most. While there is reason to be hopeful, the reality of matching qualified investors to viable projects may narrow the scope and impact of the tax break.

The Bottom Line

Experts predict that after an initial wave of Opportunity Zone fund offerings in early 2019, there may be a pause that coincides with the issuance of additional regulations during which market participants will evaluate fund and project structures. After that, barring the rise of general economic headwinds, it should be full steam ahead for Opportunity Zone funds moving forward.

From a real estate perspective, Opportunity Zone projects need to be viewed as development projects because the requirement is to create new property or substantially improve property. To reemphasize Silas Chamberlin’s point, there is surely reason to be hopeful that Opportunity Zones will flow capital into census tracts that need it the most. But we must remain cautiously optimistic about how quickly and substantially this capital will come about. Much like anything related to real estate, and especially real estate investment, most outcomes remain at the mercy of the market and ever-changing government regulations.

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In the Wake of the Failed Merger, 6 Ways PinnacleHealth and Hershey Medical Center Can Harness New Growth

Posted on November 3, 2016 by Mike Kushner in Blog, Healthcare, Local Market No Comments

As shared by the Central Penn Business Journal, the Hershey-Pinnacle merger was recently opposed by the Federal Trade Commission (FTC) and the Pennsylvania Attorney General’s Office. The reason for this decision was explained as the Dauphin County-based hospitals are direct competitors, and that their union would eliminate competition in the Harrisburg region. For Harrisburg area residents and employers, a reduction in (or elimination of) competition may result in lower quality and higher cost health care.

While this ruling is a huge blow to what PinnacleHealth and Hershey Medical Center surely felt was a smart business move, it’s not likely stop the two entities’ from pursing alternative business growth opportunities.

The ACA has made the healthcare environment a market share game. So health systems are pursuing volume drivers for their systems, which means putting primary care and urgent care clinics in strategic locations. Among the popular pathways to growth for hospitals and health systems, we expect to see Pinnacle Health and Hershey Medical Center employ some or all of the following opportunities in the near future.

Increase in ambulatory care facilities (i.e. freestanding urgent care, outpatient surgery and imaging centers and emergency care centers). Out-patient centers are an important and cost-effective alternative to higher cost inpatient-focused acute strategies. A health system can greatly increase the number of patients it can see and treat in a day through the operation of freestanding urgent care locations. This follows the trend of the new hub and spoke healthcare delivery model where the hub of a single network branches out into various locations to increase accessibility and efficiency.
Recruitment or acquisition of medical groups that are in-market, but not fully aligned with the hospital. As healthcare reform continues, the number of insured patients seeking access to care will also increase. Therefore, it’s important for a health system to have the added capacity to monetize this growth. Additionally, patients often choose to follow their physicians regardless of hospital affiliation, meaning those with the most aligned physicians will grow the most.
Clinical program development and service expansions or extensions. Health systems that actively seek opportunities to expand the scope of services they provide, such as adding new procedures, diagnostic categories, or subspecialties into their portfolio, are well positioned for growth. The complexity of healthcare and health insurance incentivizes patients to seek all of their care from a single organization, when possible. The more services a health system provides, the less likely a patient will seek care from a competing network.
Geographic market expansion to establish additional locations of care. More and more, healthcare is beginning to look and act like typical retail marketplaces. One example is a preference for convenient venues and access locations. Health systems that extend their reach geographically can raise their growth trajectory. Most importantly, each location should consider its targeted populations so that the services provided meet the most common demands of that specific area.
Merger or acquisition of another hospital or health system (including assets, “book-of-business,” and affiliated provider network). Establishing new locations through merger or acquisition is a fast track to growth. While the Hershey-Pinnacle merger was shot down, it’s not unlikely that they will seek out other possible mergers that do not conflict in the same way. Let’s face it, mergers provide a lot of benefits, including access to efficiencies through combining resources, and the opportunity to grow market position in key centers of excellence, institutes or hallmark clinical programs.
Joint ventures. When market entry or start-up costs pose challenges, joint ventures remain a viable pathway to growth. While the legal nuances are about as complex as a merger or acquisition, with careful evaluation, the benefits can outweigh the effort. One of the biggest advantages of a joint venture is that it creates shared obligation among the parties involved so that everyone is working toward its sustainability and success.

Some Final Thoughts

Due to the changes imposed by the ACA, healthcare is moving toward a new kind of hub-and-spoke model where the focus is for more care to be delivered in the outpatient setting where costs can be reduced, access can be increased and preventative and post-acute care can be administered in a more efficient manner.

While other health systems have successfully teamed up to expand their reach, such as Penn Medicine and Lancaster General Health; Johns Hopkins Children’s Center and WellSpan Health; and Holy Spirit and Geisinger Health System, these partnerships cover entirely separate markets, unlike the proposed merger between PinnacleHealth and Hershey. If there’s anything that can be learned from the failed merger, it’s that an emphasis needs to be placed on better defining geographic markets to avoid the perception of conflict in the future.

What are your thoughts on the failed Hershey-Pinnacle merger and how this will impact their growth strategy for the future? Join in the conversation by leaving a comment!

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Central PA Welcomes More Office Space, Rising Rental Rates

Posted on April 11, 2016 by Mike Kushner in Blog, Local Market, Trends No Comments

Overall, 2015 has proven to be an active and eventful year for Central PA office real estate. Six new buildings were delivered into the market with four more under construction. The vacancy rate rose slightly, but remains lower than it has been in recent years. Additionally, net absorption dropped by nearly 175,000 square-feet, though it still remains in the black.

How has this activity impacted the market? And how do we anticipate it will reflect on the local economy? Let’s first take a look at the numbers to help guide our predictions for the market’s performance in 2016 and beyond.

Select Year-to-Date Deliveries:

Six of the top 15 Select Year-to-Date Deliveries are within the Central PA submarket. Looking at just those that were delivered specifically in fourth quarter 2015, there are two worth noting. Coming in at number three on the CoStar list is the office building at 1250 Camp Hill Bypass. This building has an RBA of 82,000 square-feet and is 100% occupied. It broke ground in fourth quarter 2014 and was delivered one year later. Next is the Cornwall Health Center coming in at number five on the list. Located at 1701 Cornwall Road in Lebanon, this building has an RBA of 54,234 square-feet and is 100% occupied. This multi-million dollar project is estimated to bring a burst of new jobs to the area.

Vacancy:

This quarter, we saw the vacancy rate rise ever so slightly from 7.5% to 7.7%. This returns the market closer to where it began the year, but is still lower than where we were one year ago at this time when the vacancy rate was 8.0%. Still, the overall trend is a decrease in vacancy rates. Comparatively to 2013 and prior, the vacancy rates were consistently at 8.0% or greater.

Absorption and Demand:

Net absorption took a major hit this quarter, dropping from 189,032 square-feet in Q3 to 15,921 square-feet in Q4. This is the lowest the absorption rate has been since one year ago at this time when it was negative 90,015. Overall, absorption rates in the Central PA office submarket have been volatile and hard to predict, often increasing or decreasing by more than 100,000 square-feet each quarter and dipping into the red a total of five times since Q1 2013.

Image from CoStar

Rental Rates:

The quoted rental rates increased ever so slightly this quarter by $0.07 to $17.22. This continues a steady climb in rates that began at the start of 2013. Since that time, they have increased by a total of $1.11. This is also the highest rental rate we have seen in the Central PA submarket since prior to Q1 2012.

Image from CoStar

Our Summary/Analysis:

Looking to the future, we can expect even more square footage to be added to the local market in 2016 as four buildings, currently under construction, will be delivered between the first and third quarters. Combined, these new buildings will contribute 277,590 square-feet of office space. This will have an impact on nearly all aspects of the market including net absorption, existing inventory, delivered inventory and vacant square-footage.

As for the health and strength of the Central PA submarket, the seemingly ever-increasing rental rate is a sign that businesses are demanding more space and willing to pay for it. And with the majority of year-to-date deliveries and under-construction projects nearly fully occupied, new office space continues to be in-demand.

What fourth quarter 2015 market trend do you find most interesting or impactful? Share your insights by commenting below!

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