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Posts tagged "office"

Home» Posts tagged "office"

Top 10 Issues Affecting Real Estate – Part II

Posted on September 6, 2021 by Mike Kushner in Blog, Commercial Real Estate No Comments

In Part I of the “Top 10 Issues Affecting Real Estate” we covered topics 1-5 of the top issues we expect to have a lasting and immediate impact on real estate here in Central Pennsylvania and across the United States. If you missed it, start here!

Keep reading if you’re ready to dive deeper into issues #6-10 as we continue down the list of the most pertinent topics to real estate as they apply to various sectors.

#6 Housing Supply and Affordability

Decades of underinvestment and underbuilding have created a shortage of housing in America that is more dire than previously expected and will require a concerted, long-term nationwide commitment to overcome. As it stands, there are three things that most can agree on in the current housing market: 1) there is a tremendous need for affordable housing; 2) there continues to be a sentiment of a “Not in My Back Yard” mentality; and 3) there’s an ongoing supply deficit of market-rate housing.

A severe lack of new construction and prolonged underinvestment has led to an acute shortage of available housing to the detriment of the economy and certain segments of the public. This trend affects every region of the country, creating an “underbuilding gap” of 5.5 to 6.8 million housing units since 2001.

#7 Political Polarization

Simply put, we are squandering resources as we try to address problems that arise from the partisan divide, rather than problems confronting us as common issues. This hinders our productivity and therefore the nation’s economic strength. And the real estate industry’s well-being is a function of our economic growth. The economy and the real estate industry would be far healthier, as would American society, if the pattern of party-line voting in the halls of Congress could be transcended in favor of something very traditional: the defining of politics as the art of compromise.

#8 Economic Structural Change

What we’re seeing is many investors increasing their focus on property management aimed at retaining tenants and defending cash flow, while selectively seeking ‘value-add’ properties amenable to active asset management. The thinking is “focus on what you can control” during this period where macro-level uncertainty is the governing headwind at the policy level in terms of the structural problems in this economy. This is a significant economic structural change. Additionally, Cap rates ranging, on average, from 5% for apartments to 6.6% for offices are keeping pricing rich compared with the risk inherent in that underwriting uncertainty.

#9 Adaptive Reuse Reinvented

Adaptive reuse is not a new terminology but since COVID-19 it’s evolved into a re-examination of our suburban communities to reposition them for transformation before the opportunity for change passes them over. The trend we see now, and one that stands to have a large impact on commercial real estate is addressing the challenge of what to do with hundreds of defunct suburban malls and thousands of empty Big-Box retail stores that are surrounded by desirable and affordable neighborhoods. This makes it to the Top #10 list for four main reasons:

  1. Reconnecting our communities from what the Interstate Highway system divided from the 1950s to the 1980s
  2. Preventing blight that developed in our dense urban cities from flowing to the suburbs and secondary MSAs
  3. Restoring much-needed greenspace to our neighborhoods and cities that can germinate interaction of diverse demographic groups
  4. Promoting good ESG and diversity, equity, and inclusion policies

#10 Bifurcation of Capital Markets

Looking back over the last year and a half, what becomes clear is how different the market-changing event of COVID-19 was compared to prior market corrections. While transaction volume is slowly recovering, it’s still well below pre-COVID levels. Furthermore, the market has not seen the volume of expected distress sales, but there is plenty of capital ready to deploy! As we look to the remainder of 2021 and into 2022, performance will dictate the amount of distress and losses, and risk management should dictate markets, property types, leverage, loan structure, and pricing for mortgage debt.  The next year should also tell us if commercial real estate debt was too rich and whether perceived risk underestimated where pricing should have been.

*****

Among issues 6-10, which one do you believe will last the longest or have the greatest impact? Start a conversation by leaving a comment below!

And be sure to visit Part I to learn about issues #1-#5!

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Top 10 Issues Affecting Real Estate – Part I

Posted on August 23, 2021 by Mike Kushner in Blog, Commercial Real Estate, Local Market, Trends No Comments

We live in a rapidly changing world, and such changes impact every person, place, and industry either directly or indirectly. First, this was due to rapidly changing technology, which still has a profound impact on our daily lives. We live in a time where technology is changing more in a few months than it previously would in years or decades. This has led to great advancements, life-saving solutions, and modern conveniences, unlike anything the generations before us could imagine.

But in the shadows of the sudden onset of a global pandemic, some changes that have taken place recently were not so helpful or welcoming. Every business has felt the blow of COVID-19, and some did not survive the punch. For those who were able to adapt and survive, changes had to take place. Looking at commercial real estate, the most significant changes can be grouped into 10 core issues. Let’s take a look at the first five issues that have already and will continue to affect the real estate market for years to come.

#1 Remote and Flexible Work Environments

Over the summer, businesses began to return to in-person work environments, some partially and others fully. As of mid-June, it was estimated that 32% of United States businesses had reopened their physical office locations and employees were returning to (somewhat) normal work schedules. Nevertheless, commercial properties need to be prepared for lasting changes as the result, not only of this global pandemic but other factors that had been on the rise for quite some time.

Remote working, the acceleration of internet retail, and the demand for larger and more natural spaces and other pandemic-era behaviors have created the “perfect storm” to drive significant change in remote work and mobility in commercial real estate. One of the greatest lessons learned during COVID is the escalating demand for more flexible, easily adaptable, and sharable spaces and CRE professionals need to be prepared to make their spaces more conducive in order to meet these demands and remain competitive.

#2 Technology Acceleration and Innovation

Technology continues to hold its place high on this top 10 list, but this year for a slightly different reason. In the wake of COVID-19, more people than ever before had to rapidly adapt and accept technology (particularly those who allowed for remote interactions with the world) as a way of life. The question before us now is what new habits have formed as such, and how many people will revert to “old tech” ways of doing things. Our prediction is that a lot of the new technology people had been trained to use over the last 18 months will “stick” and as a result, there is a higher comfort level – especially among older generations – with using remote technologies to live, work, and entertain.

For commercial real estate, the biggest impact can be seen in cybersecurity, supply chain logistics, and price instability. None of these are new concepts, but in a span of months if not weeks in some cases, the world saw high profile hacks, shortages of resources like microchips, lumber and labor, and rising prices across the board. The accelerated upgrade of connectivity, security, and hosted processes mean utilization is being maximized and any place is now a potential workplace. This creates new pools of vacancy and pools of availability enabled by technology.

#3 Environmental, Social, and Governance Initiatives

Environmental, Social, and Governance (ESG) programs in real estate continue to be one of the best ways to reduce carbon emissions, accrete value, and demonstrate reputational value in the market. This was greatly accelerated during the onset of COVID-19. At the same time, workforce development, Diversity, Equity, and Inclusion initiatives, and recognition of the importance of health and wellness in commercial real estate are setting new expectations for building operations and how to engage stakeholders and the communities in which real estate owners and users invest.

The expertise, creativity, and innovation that the real estate (and finance) industry is well known for are highly valuable for assessing and mitigating risk and creating value for investors, occupants, and the capital markets that serve them. The biggest shift to note for this trend is an increased value that real estate professionals can bring to other markets that are creating and implementing ESG programs in an effort to be socially responsible and attract top talent.

#4 Logistics

Simply put, logistics is what makes our economy “work.” It’s at the epicenter of every product-based service and that has never felt more evident than during COVID-19 when so many goods were delayed across the globe, and even domestically. The supply-chain funnel is still recovering as we continue to experience shortages and delays. Logistics post-COVID-19 will disrupt commercial real estate models for years to come. We can expect disruption in commercial real estate capital allocation, with more funding to industrial property and less to retail. There will also be less dependency on physical stores and more on modern eCommerce warehouses that will be increasingly automated with less reliance on labor. The biggest takeaway for commercial real estate professionals is to keep a keen eye on the changing logistical strategies and solutions of the economy. As these cause shifts in the market, the demand for CRE will also shift. Where one sector will turn down, another will rise. We can expect the waves of change to continue to roll in, impacting real estate for years to come in big and permanent ways.

#5 Infrastructure: New Imperatives Emerge

Similar to issue #4, it takes infrastructure to support logistics. The government has turned a keen eye to allocating funding and initiatives to support improved roads, bridges, airports, ports, mass transit, and other traditional infrastructure needs. With billions of dollars in proposed funding, many new imperatives to improve our nation’s infrastructure have emerged. This includes the expansion of broadband, last-mile deliveries to homes and businesses, automation and optimization of systems, and an increased focus on renewables. This is a huge issue to tackle and it seems we’re falling behind the clock with every passing second.

To put this issue into perspective, the American Society of Civil Engineers gives U.S. infrastructure a score of C-, classifying it as “poor” and “at risk,” while the World Economic Forum’s Global Competitiveness Report ranks the U.S. 13th in the world. If the American economy is to remain top tier, we need to invest aggressively and strategically in the future of our infrastructure to keep up with the competition and demand. The funding coming in from Capitol Hill attempts to do this, but the question remains whether it will come quickly enough. Change and improvements take time, even more so when we’re talking about major infrastructure improvements. The United States is racing the rapid advancements of technology and the mindset of an “I want it now” world.

*****

Among these top 5 issues, which one do you believe will last the longest or have the greatest impact? Start a conversation by leaving a comment below!

And stay tuned for Part II of this topic where we dive deeper into issues #6-10!

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Commercial Real Estate’s Impact on Last Mile Logistics

Posted on July 15, 2021 by Mike Kushner in Blog, Commercial Real Estate, Industrial, Retail No Comments

Logistics is the relay race that materials and goods compete in every day moving across land, sea, and air cargo to the end-user, and commercial real estate is the field on which it all plays out.

The ability for the items we need to make it from the place in which they are created to where the end-user can access them is essential to our existence. When logistics are inefficient or disrupted on even the smallest scale, it takes virtually no time until the world feels the impact of delayed goods. At a minimum, it’s an inconvenience, but it can quickly escalate into a global panic where progress is delayed and prices skyrocket.

We need no better example as to how this plays out in real life than to look at the impact of COVID-19 on the world’s shipping and distribution, specifically here in the United States. The challenges we continue to face with shipping and receiving items overseas, combined with unprecedented labor shortages have caused scarcity, unlike anything our modern world is used to. And the ripples caused by this disruption left virtually no industry unscathed.

This also shines a spotlight on the importance of last mile logistics, which is the final step of the delivery process from a distribution center or facility to the end-user. Many items delayed by COVID-19 were within miles of reach, but without labor and infrastructure to deliver these items within their usual time frame, basic building materials and household items couldn’t be restocked fast enough to keep shelves full.

Shifting the Modern Logistics Model

How does this relate to commercial real estate? Redundancy and the ability to process disruption are two key elements required to support the fast-moving, high-volume requirements of modern-day logistics. And that is particularly true of the “shop-online-and-deliver-to-me” era in which we find ourselves.

Based upon the challenging lessons learned from the global pandemic, logistics are shifting toward a new model that replaces the decades-old “just-in-time” supply-chain model rooted in tens of thousands of physical retail stores in order to meet the demands of a “shop and take home” economy. Therefore, we should expect to see a disruption in commercial real estate demand and use.  There will be less dependency on physical stores and more on modern eCommerce warehouses that will be increasingly automated with less reliance on labor.

The Golden Triangle

We can then expect the rapid continuation of traditional retail big-box stores being replaced by hundreds of millions of square feet of eCommerce warehouses in an effort to follow the modern logistics infrastructure. These new eCommerce warehouse locations are being developed in what some economists have coined as the “Golden Triangle.” The Golden Triangle refers to an area of the East Midlands that has become renowned for its high density of distribution facilities and being home to some of the biggest names in retail.

The Golden Triangle is the epicenter of last mile logistics. This area that makes up the nation’s logistics infrastructure has never been more vital in a post-WWII era, and this includes a dependency on commercial real estate. As thousands of retail stores shutter their brick and mortar locations in the coming months, the demand for commercial real estate space shifts from retail to industrial with thousands of new logistics and eCommerce fulfillment warehouses opening and expanding within the Golden Triangle.

Impact of Current Events

These trends in commercial real estate and logistics will be further exacerbated by current events such as Biden’s plan for a “go-broad” infrastructure bill. This plan proposes a massive $2.25 trillion to fix America’s rundown infrastructure, “green up” the economy and invest in new technologies. Furthermore, there is the pending mega rail merger between Kansas City Southern and Canadian National that will create the first true Class 1 railroad in North America extending from the deep interior of Canada, down through the center of the United States, and on south to the most vital ports and manufacturing regions in Mexico.

And if that wasn’t enough to ensure massive changes coming down the line that will impact commercial real estate and logistics, there is also the industrial REIT merger between Monmouth MREIC and Sam Zell’s EQC in which he is trading in his office commercial real estate model for a new hybrid-powered industrial real estate model that is going all-in on logistics.

What we’re witnessing is a shattered economy that is rapidly adjusting in order to right the many ships that have veered off course in the wake of the pandemic. While there are many unknowns, what we can be sure to expect is widespread, lasting changes sweeping the commercial real estate market – some we’ve seen coming for quite a while, and others that will completely take us by storm.

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Economic Impact of Rising Commercial Construction Costs

Posted on July 14, 2021 by Mike Kushner in Blog, Commercial Real Estate, Local Market, Trends No Comments

When a global pandemic first hit, the main concern was rightfully on the health and wellbeing of our population. As we slowly gained knowledge and tools to bring the spread of this virus under control, something equally as powerful and disruptive was already burning through the economy like wildfire.

Ongoing pandemic-related disruptions in the supply chain of a range of construction materials are undermining project demand and this has trickled down to impact just about every industry imaginable. Most directly, the delays and cost increases fall on construction businesses, their workers, and their clients who are waiting on them to complete projects varying from a single-family home to mega complexes that have been in the works for years.

These mass shortages caused by the inability to ship or receive some of our economy’s most essential materials, such as lumber and steel, have the construction industry in between a rock and a hard place. And we can be sure that they will not be the only sector to feel the blow of delayed project timelines and skyrocketing costs. How does all of this stand to impact the progress and financial health of our economy? Keep reading for key insights.

Understanding the Impact

According to construction project estimators, one of the biggest reasons for material shortages is the inability to ship available materials by rail or truck. Due to container and trucking shortages being felt across the country, anything with significant shipping and logistics components is highly likely to cause lead time issues. If the easing of tariffs is put into place, pricing and availability should begin to return to normal levels, which would have a positive impact on current projects and the market as a whole. However, with the shipping container and freight backlog that currently exists, bringing in significant quantities of overseas material only adds to the current challenge.

GRAPH COURTESY OF AGC OF AMERICA

Shortages Drive Cost

While general contractors can usually protect against the expectation that costs will increase, the construction industry has not experienced such dramatic material cost increases in recent history. Material cost increases, coupled with the already existing labor and housing shortages, will continue to impact the industry, domestically and globally, for the foreseeable future. Such shortages could delay the start of new projects around the country and may trigger additional claims on projects that are currently underway.

These increases and challenges are cause for concern; it’s important for business owners to consider the types of materials that their project will require. While commercial construction material costs have risen as well, it is not to the extent that residential construction costs rose due to its heavy reliance on softwood lumber. For commercial construction, steel prices generally have a greater impact.

Delays Across the Board

Some material suppliers have completely canceled their bids or contracts due to the lack of materials. While others have indicated delays of six months or more and are currently quoting prices for materials (like engineered wood products) that will not ship until early 2022! Because of these setbacks, the industry can expect an increase in claims and disputes over material prices and associated delays.

Getting Creative with Contracts

Project participants might consider amending their contracts, incorporating new or modified cost-escalation provisions, or adding riders for adjustments to contract terms based on certain material cost increases, such as based on express percentage increases. Parties might also negotiate contract allowances for certain materials or incorporate cost-sharing for material price increases that exceed certain thresholds.

Push On or Wait?

Borrowing is very inexpensive right now, and even a slight increase in lending rates down the road could add hundreds of thousands of dollars in overall costs, depending on the length of the loan agreement. Project owners need to weigh the risks of waiting for material prices to come down against the probability of rising inflation and interest rates. Likewise, if waiting means you can’t expand your production capacity, grow your business, or address the needs of those you serve because of your facility’s limitations, the long-term implications could negate and even overshadow any potential savings.

What’s most important to keep in mind is that the market has demonstrated again and again that everything flows. Trends (and troubles) will come and go, and when the market experiences a negative impact caused by something else, it will look to correct itself almost immediately. To address the delay of construction materials and labor, and the rise in construction costs, as a result, we can see solutions already emerging. These range from using alternate materials, negotiating more flexible terms within a contract, phasing out projects, and getting creative with how and when to borrow money to take advantage of low-interest rates.

The commercial construction industry will rebound, if not even stronger than it was before the pandemic hit. The lesson here is to remain patient, seek innovative and collaborative solutions, and keep your eyes set on the long-term evening-out of any negative impact you may be experiencing today.

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Central PA’s Top Commercial Real Estate Sales in 2020

Posted on January 15, 2021 by Mike Kushner in Blog, Commercial Real Estate, Industrial, Local Market, Retail, Trends No Comments

2020 was quite the year, but even a global pandemic did not halt the exchanging of commercial real estate. In Central Pennsylvania, the sale of commercial real estate continued well through the end of the year with hundreds of millions of square-feet being bought and sold. As to be expected, the largest commercial real estate transactions in both  square feet and price was industrial space. More than 3.5 million SF of industrial space exchanged hands in 2020 with the most taking place in York and Carlisle which are major distribution destinations along the I-81 corridor.

The top 5 multifamily sales in Central PA ranged in price in location, from 160 Class A units in one transaction and 663 Class C units in a Manufactured Housing/Mobile Home Park in another. The largest exchange of space in a single transaction was 339,612 SF in a townhouse complex in Marietta.

Three of the top five office sales exchanged hands between the same two parties. AR Global purchased 50,800 SF of office space, primarily occupied by health centers, from RVG Management and Development Company. In retail sales, the Blackstone Group L.P. sold 274,764 SF of York retail space to a joint venture  between Triple Crown Corporation and J.C. Bar Properties, Inc. in three separate transactions.

Keeping reading for a full list of the top 5 commercial real estate transactions, for office, retail, industrial, and multifamily, that took place throughout Central Pennsylvania in 2020.

Top 5 Office Sales

#1 – 1171 S Cameron Street, Harrisburg, PA 17104

Olcam Corporation sold the 121,518 SF Class C Office Building built in 1989

to Boyd Watterson Asset Management on July 22, 2020 for $20,500,000 ($168.70/SF). At the time of sale, the property was 100% occupied by the Pennsylvania Department of Labor & Industry.

#2 – 300 Corporate Center Drive – Camp Hill Corporate Center, Camp Hill, PA 17011

LNR Partners LLC sold the 173,296 SF Class A Office Building built in 1989 (renovated in 2005) to Linlo Properties on July 6, 2020 for $14,394,731 ($83.06/SF). At the time of sale, the property was 62.5% occupied by Deloitte and Pennsylvania Health & Wellness, Inc.

#3 – 805 Sir Thomas Court – Arlington Place – Old English Gap Professional Park, Harrisburg, PA 17109

RVG Management and Development Company sold the 24,800 SF Class B Medical Building built in 1994 to AR Global Investments, LLC on January 16, 2020 for $7,812,000 ($315.00/SF). At the time of sale, the property was 100% occupied by Pennsylvania Spine Institute and PinnacleHealth Express.

#4 – 2140 Fisher Road, Mechanicsburg, PA 17055

RVG Management and Development Company sold the 15,000 SF Class C Office Building built in 1990 (renovated in 2016) on January 16, 2020 to AR Global Investments, LLC for $5,394,000 ($359.60/SF). At the time of sale, the property was 100% occupied by PinnacleHealth Shepherdstown Family Practice.

#5 – 5400 Chambers Hill Road – Swatara Medical Center, Harrisburg, PA 17111

RVG Management and Development Company sold the 11,000 SF Class B Office Building built in 1988 (renovated in 1993) to AR Global Investments, LLC on January 16, 2020 for $5,394,000 ($490.36/SF). At the time of sale, the property was 100% occupied by Chambers Hill Family Med Center and Select Physical Therapy.

Top 5 Retail Sales

#1 – 2449 E Market Street – Lowe’s – York Marketplace, York, PA 17402

The Blackstone Group L.P. sold the 125,353 SF Retail Freestanding (Community Center) Building built in 1955 (renovated in 2004) to Triple Crown Bar York Marketplace, LLC on November 3, 2020 for $13,916,926 ($111.02/SF). At the time of sale, the property was 100% occupied by Lowe’s.

#2 – 2415 E Market Street – Giant Food – York Marketplace, York, PA 17402

The Blackstone Group L.P. sold the 74,541 SF Retail Supermarket (Community Center) Building built in 1994 to Triple Crown Bar York Marketplace, LLC on November 3, 2020 for $11,939,079 ($160.17/SF). At the time of sale, this property was 100% occupied by GIANT.

#3 – 2501-2555 East Market Street – York Marketplace, York, PA 17402

The Blackstone Group L.P. sold the 74,870 SF Retail Storefront (Community Center) Building built in 1994 to Triple Crown Bar York Marketplace, LLC  on November 3, 2020 for $11,407,972 ($152.37/SF). At the time of sale, this property was 95.2% occupied by 13 tenants: Firehouse Subs; Gamestop; Kids First Swim School; Market Street Viet Thai Cafe; MyEyeDr.; Oreck; Pet Valu; PLCB Wine & Spirits Store; Red Lobster; Starbucks; Super Shoes; Verizon Wireless; VIP Nail & Spa.

#4 – 1360 Columbia Avenue – Stone Mill Plaza, Lancaster, PA 17603

Brixmor sold the 76,056 SF Retail Supermarket (Community Center) Building built in 1988 (renovated in 2007) to Tristate Ventures, LP on March 13, 2020 for $10,772,036 ($141.63/SF). At the time of sale, the property was 88.5% occupied by GIANT and Great Clips.

#5 – 1278 S Market Street – GIANT – Elizabethtown Shopping Center, Elizabethtown, PA 17022

Frist City Company sold the 65,146 SF Retail Supermarket (Neighborhood Center) Building built in 1982 to James Gibson on November 30, 2020 for $7,338,000 ($112.64/SF). At the time of sale, the property was 100% occupied by Citizens Bank, GIANT Food Stores of Carlisle, and Starbucks.

Top 5 Industrial Sales

#1 – 3419 Ritner Highway – Ritner Logistics Center, Newville, PA 17241

Artemis Real Estate Partners sold the 1,215,240 SF Class A Distribution Building built in October 2019 to Exeter Property Group on October 1, 2020 for $85,000,000 ($69.95/SF). At the time of sale, the property was unoccupied.

#2 – 4875 Susquehanna Trail – ES3 LLC Bldg 1, York, PA 17406

C&S Wholesale Grocers, Inc sold the 790,000 SF Class B Distribution Building built in 2002 to Ahold Delhaize on February 11, 2020 for $75,665,684 ($95.78/SF) as a sale leaseback. At the time of sale, the property was 100% occupied by ES3 (also the seller).

#3 – 4875 Susquehanna Trail – ES3 LLC Tower 2, York, PA 17406

C&S Wholesale Grocers, Inc sold the 705,000 SF Class B Distribution Building built in September 2009 to Ahold Delhaize on February 11, 2020 for $64,234,316 ($91.11/SF) as a sale leaseback. At the time of sale, the property was 100% occupied by ES3 (also the seller).

#4 – 192 Kost Road – Silver Springs Distribution Center, Carlisle, PA 17015

Black Creek Group sold the 422,400 SF Class A Warehouse Building built in June 2016

to Prologis, Inc. on January 8, 2020 for $30,218,510 ($71.54/SF). At the time of sale, the property was 100% occupied by Acme.

#5 – 100 Louis Parkway – Carlisle Distribution Center, Carlisle, PA 17015

Black Creek Group sold the 400,596 SF Class A Warehouse Building Built in 2006 to Prologis, Inc. on January 8, 2020 for $28,658,651 ($71.54/SF). At the time of sale, the property was 100% occupied by Overstock.

Top 5 Multifamily Sales

#1 – 2035 Patriot Street – The View at Mackenzi, York, PA 17408

Morgan Communities sold the 224 Unit, 242,323 SF Class B Apartments Building built in 2006 to Larken Associates on March 2, 2020 for $28,058,244 ($115.79/SF; $125,260/Unit). At the time of sale, units were 90.6% occupied.

#2 – 310 Honeysuckle Drive – The Villas of Castleton, Marietta, PA 17547

Keystone Custom Homes sold the 160 Unit, 339,612 SF Class A Apartments Building built in 2009 to Steinman Real Estate LLC on February 28, 2020 for $25,191,760 ($74.18/SF; $157,448/Unit). At the time of sale, units were 96% occupied.

#3 – Fox Run Road – Chesapeake Estates of Grantville, Grantville, PA 17028

David Sherrill sold the 663 Unit Class C Manufactured Housing/Mobile Home Park built in 1987 to RHP Properties on October 29, 2020 for $21,040,000 ($18,785.71/SF; $60,634/Unit).

#4 – 1 Chesapeake Estate – Chesapeake Estates of Thomasville, Thomasville, PA 17364

David Sherrill sold the 663 Unit Class C Manufactured Housing/Mobile Home Park built in 1986 to RHP Properties on October 29, 2020 for $19,800,000 ($19,800.00/SF; $62,658/Unit).

#5 – 200 South Court Street – Mulberry Station Apartments, Harrisburg, PA 17104

AION Partners sold the 100 Unit, 116,667 SF Class B Apartments Building built in 1987 (renovated in 2020) to Post Road Management on January 16, 2020 for $12,100,000 ($103.71/SF; $121,000/Unit). At the time of sale, the property was 100% leased.

In the coming months and years, it will be important to keep an eye on the top commercial real estate sales in the region. As office, retail, industrial, and multifamily real estate exchanges hands, the businesses who own this space, and their tenants stand to have a great impact on the local, and global economy moving forward.

Among all the top transactions that took place in 2020, which do you think will have the largest and most immediate impact on the Central PA region? Share your thoughts by leaving a comment below.

*Data of the top commercial real estate sales provided by CoStar.

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COVID-19 and Commercial Real Estate: Why Tenant Reps Are More Valuable than Ever

Posted on October 1, 2020 by Mike Kushner in Blog, Office Leasing, Tenant Representative/Buyer Agent No Comments

Now more than ever, if you are looking to lease commercial real estate, you need a tenant rep on your side. All of the services they provide, which include negotiations, market expertise, coordination, and strategic advice, have not changed. However, given the complexity of the during- and post-COVID economy and all of the changes that keep coming, such services have become more valuable than ever. Here are six reasons why working with a commercial real estate professional who exclusively represents is more important now than ever before.

  1. Your use of space has changed.

This spring, when basically all non-essentially businesses were forced to temporarily close or work remotely, how people used commercial spaces changed drastically. Even after people were able to slowly get back to business and reopen, there was a drastic shift in how much space was needed to accommodate needs. Some businesses decided to remain virtual and thus needed to get out of their commercial space entirely. Others needed more space or reconfiguration of space to accommodate for social distancing. Others still had to consider how they would replace communal spaces like conference rooms and kitchens.

Having a tenant rep on your side to help navigate all these changes is a huge benefit. First, they can help with lease negotiations if you need to break or change the terms of your lease. Next, they can also help you secure more or different space, if needed. Doing this on your own is a big undertaking and you don’t know what you don’t know. That’s where a tenant rep can step in to take this off your plate so you can focus on running your business.

  1. And the market has changed.

COVID turned everything on its head, which includes the commercial real estate market. It’s a new world out there, and the person who can best help you understand the changes and how they could be used to your benefit is a commercial tenant rep. It’s their job to monitor the market and help their clients adjust accordingly. With a tenant rep to guide you, the many unknowns of this market can start to make a little more sense.

  1. Getting to know a new market is challenging.

If your business needed to find a new space during the pandemic, particularly in a different city, this is where a tenant rep can really help you out. With travel restricted in so many ways, it’s virtually impossible to get to know a new market without living there or having visited it. It’s like real estate shopping with a blindfold. But when you can call upon a tenant rep who lives in your new desired market, you will benefit from all of their knowledge and expertise about that market. They can help you identify the right options for your commercial space, allow you to virtually tour it, and work on your behalf to negotiate a favorable lease.

  1. Not everything is represented online.

Another important consideration is what you see online isn’t the full picture. Many commercial properties cannot be found through an online listing. And with so many places to look, how can you be sure you didn’t overlook something. A tenant rep who knows the market knows what spaces are available, even if they’re newly listed and not represented online. They may even know of space that will soon be opening up and is not publicly known. All of this will work to your advantage to help you see your blind spots, and without having to take on the headache of this alone.

  1. Negotiation is at an all-time high.

Thanks to COVID, nothing is immune to change. This includes lease agreements. Many, many negotiations are taking place between tenants and landlords to adjust lease agreements because of the sudden change in how tenants are using (or not using) their space. A tenant rep is skilled in such negotiations and can step in on your behalf to arrive at a reasonable and favorable outcome for your lease agreement with the landlord. It also helps that they know the market and what other commercial spaces are charging per square foot and any COVID clauses that might exist.

  1. You need to protect yourself in lease agreements.

And finally, a tenant rep will be sure you are protected in your lease agreement for any future changes that might take place with your business. For example, does it make more sense for you to have a long-term or short-term contract? What should happen is you need to break the lease agreement? And what options are available to you should you need more or different space from the landlord? All of these unknowns should be addressed before you put your signature on anything and a tenant rep will be sure that all ground is covered.

Have you previously worked with a tenant rep to lease or purchase commercial real estate? If you have, what has been your experience? Do you agree that the role they play is more valuable than ever? Join the conversation by leaving a comment below.

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What Does ‘Back to Business’ Look Like Post-COVID? – Part II

Posted on July 13, 2020 by Mike Kushner in Blog, Commercial Real Estate, Local Market, Retail No Comments

This is Part II in a two-part series where we look at how commercial spaces must adapt and implement new policies to adhere to social distancing guidelines. We interviewed Matt Luttrell, Partner at ThYNK Design LLC for his input on this timely and important topic. In Part I we focused on the issue of square-feet per person requirements in buildings and how this will limit capacity. We also discussed how HVAC systems might be used to create fresh air and healthier work environments. Now, we’re going to shift our focus to other tools and tactics commercial spaces can use to keep the spread of COVID-19 down. Keep reading to find out what these are.

Omni: Aside from greatly adjusting the layout according to social distancing guidelines of commercial spaces, what other changes or precautions could be taken to adhere to revised distancing guidelines in a more efficient and effective manner?

ML: When possible, the ability to predict and schedule activities and users can be a great tool for optimizing the use of space. In K-12 educational environments, the circulation of students and faculty is highly planned and will become even more necessary to ensure that occupant use and density do not overwhelm resources and create unhealthy situations. Likewise, it appears that restaurants will need to enhance and promote reservation systems to manage seating and staff while using delivering and curb-side services for extended patron options. More movie theaters will use on-line reservations and pre-selection of seats. These commonplace practices can have long-term as well as short term benefits and will most likely become more prevalent in our daily experiences.

Omni: You talk about the importance of scheduling as a way for schools and businesses to manage capacity and social distancing. But what about when this is not an option?

ML: When scheduling or reservations are not an option, such as in retail or grocery store settings, human or automated occupancy counters are being used to limit the number of users at any given time. Employing staff to do this can be quite costly, and if we’re honest, not a desirable job. For automated options, there are many venders, such as Sensource, that provide hardware and software that can easily be set up and adapted to an organization or business’s specific needs.

Omni: Beyond limiting capacity in a space, what other precautions can businesses take?

ML: Thermal scanning of customers or guests determines if individuals have an elevated body temperature so that buildings can prevent a person showing symptoms from entering. This is another effective mechanism for controlling the spread of virus. There are readily available systems for small businesses that range from a $100 handheld scanner for checking individual temperatures to group and line screening systems for approximately $5,000. TEquipment.net provides an array of options for consideration.

Additionally, masks seem to be one of the more accessible and more effective tools for moving forward. While they are not 100% effective, it appears that they may significantly reduce transmission via air, which seems to be the primary source. No one seems to want to quantify how effective masks are, but based on common sense, the practice appears warranted. Given the ease, minimal costs, and purported effectiveness, masks seem to be the most readily available option for reopening our society without inundating our current resources.

No system is fail-proof, but simplicity and redundancy are always good principles when evaluating options.

Omni: In your opinion, can common areas like waiting rooms, break rooms, or lobbies realistically adhere to new CDC social distancing guidelines?

ML: These spaces are pinch points within every building. While they are designed to accommodate the building’s occupancy load, they are not intended to minimize interactions; they are generally shared spaces designed for efficiency and ease of use. Accordingly, each type of space has its challenges and should be evaluated for options, but these spaces are inherent barriers without actively implementing changes to a buildings configuration and/or user actions.

Reconfiguration can be a costly endeavor, especially if it is a short-term solution. Repurposing spaces may be a solution that allows for relief. Several areas traditionally found in a building, such as conference rooms and breakrooms, can be repurposed to address immediate needs. Breakrooms may be better utilized as an office or workspace for a limited number of employees, while employees are required to eat at their desks. Conference rooms could also become workspaces, or often, these rooms are located close to or adjoin lobbies/ waiting rooms and can become an extension of the room. These are potential short-term solutions and should involve an evaluation of HVAC, lighting, power, egress, and other potential code implications.

Omni Realty Group thanks Matt Luttrell for sharing this valuable insight to help us to better understand the challenges many business owners face when it comes to renovating and recreating commercial real estate space to accommodate social distancing and sanitization both now, and for what many feel will be long into the future. If you missed Part I of this two-part series, be sure to check it out here.

Do you own or work in a commercial space – office, retail, or industrial? What do you see being the biggest challenge related to COVID-19 required changes? Join in the conversation by leaving a comment below.

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What Does ‘Back to Business’ Look Like Post-COVID? – Part I

Posted on July 8, 2020 by Mike Kushner in Blog, Commercial Real Estate, Local Market, Retail No Comments

Based on the continually evolving data and recommendations, the efforts to mitigate the spread of COVID-19 while pursuing a more normalized personal and professional life has focused on separation, isolation, and decontamination. As things currently stand, it appears that the only potential remedy to return to a pre-COVID-19 environment is the development of a vaccine. In the meantime, business owners and professionals are faced with living with less than ideal situations. Some wish to persist with maximum isolation and separation; however, it appears that the majority have deemed the consequences of shutting down all interactions beyond a household as untenable, and have demanded that measures be developed to support an acceptable level of social and professional interaction. What is acceptable? Well, that is a matter of individual choice.

To help provide some insight on what options exist for businesses to re-open their doors to employees and the public we asked Matt Luttrell, Partner at ThYNK Design LLC, to weigh in. ThYNK Design, LLC is a modern architectural firm pursuing a better way to develop, deliver, and celebrate the immense value of good design. Given his experience and background, Matt shares some valuable information to help frame and evaluate some of the inherent issues in the built environment that conflict with the proposed social distancing guidelines. Here’s how he responded when Omni Realty Group asked him several key questions.

Omni: What industries are likely to be most impacted by the proposed revised building code distancing guidelines?

ML: The restaurant industry may face the greatest short-term and long-term challenges. The proposed social distancing guidelines directly conflict with historic planning principles as well as the industry’s business model. However, each restaurant, business, and building should be evaluated to determine what resources are available to develop an effective mitigation plan.

Omni: How will the introduction of new social distancing constraints impact the long-term viability of most existing buildings?

ML: With the recognition that the design and development of the built environment is in response to many considerations, including; user needs, business models, and building code requirements, the introduction of new constraints that directly conflict with established practices will challenge the long-term viability of most buildings. These challenges focus on developing an environment that effectively manages occupant density, frequency, and duration of interactions, surface contaminants, and air quality. To effectively manage these challenges, an inventory and understanding of the available resources and building configuration are required. These can include: building area, sizes of rooms, type, and capacity of HVAC system, operable windows, number of entry/ exit points from a space or building, quantity, and location of shared facilities (toilet rooms, break rooms, waiting areas) and flex spaces.

Each resource can impact the effectiveness of a mitigation plan and should be carefully considered, but the most significant challenge is how to overcome the area requirements per person. Expanding a building, reconfiguring interior spaces, and adding entry and exit points are not readily done. In addition to the expense, the required time frame for approvals and construction is prohibitive.

Omni: Can you provide more information to paint a picture of the potential magnitude of the problem you’re describing?

ML: The proposed social-distancing guidelines recommend a density of 1 person per 113 SF (area of circle with a 6′ radius) whereas standard planning practices include densities that are 2x to 10x higher.

Following are the maximum area allowances, per the 2015 International Building Code, for several of the more common functions included in buildings:

Assembly spaces:

  • -with concentrated chairs (lecture halls, waiting rooms, etc.):
    • One occupant per 7 SF
  • -standing room (lobbies, areas holding events such as cocktail hours):
    • One occupant per 5 SF
  • -unconcentrated chairs and tables (restaurants, breakrooms, open office)
    • One occupant per 15 SF

Business areas: One occupant per 100 SF

Classroom: One occupant per 20 SF

Exercise rooms: One occupant per 50 SF

Retail: One occupant per 60 SF

Compared to the recommended 113 SF (area of a circle with a 6 radius) per occupant you begin to see the potential implications. As an example, a worst-case analysis would provide the following reductions:

Example 1: For a restaurant with a dining area design occupancy of 100 (15 SF per occupant) the occupancy would be potentially reduced to 13 occupants at 113 SF per occupant. This is a worst case and does not consider that you may have a family grouped so that they are separated from other family groupings.

Example 2: A classroom designed for 25 occupants could have a reduced occupancy of 5.

As indicated by these examples, if we want to remain economically viable, then social distancing cannot be the only criteria for determining the use of a space.

Omni: How do commercial HAVC systems currently play into the issue, whether standing to hurt or help air sanitization and circulation in shared commercial spaces?

ML: For most people, the quality of a HVAC system is based on the system’s ability to control the temperature of a space. Only in the relatively recent past (10-20 years) has the industry focused on delivering improved air quality, increased fresh air, controlled humidity, and energy conservation within the typical system. Each of these four items should be evaluated as a potential resource or barrier for developing a mitigation plan. In the current environment, an incorrect understanding or use could potentially have disastrous consequences and it is highly recommended that a contractor or engineer be consulted to determine the full capability of your system.

Omni: Could you give a bit deeper into the impact of air quality on comfort and health?

ML: Air quality may be one of the more challenging issues when it comes to controlling a virus. One of the more prevalent components for managing air quality is the filter. The systems air-filter is rated according to the level of filtration needed/ desired for a given environment. According to Grainger.com, “What Is MERV Rating? Air Filter Rating Chart,” most commercial and residential buildings will have filters that range from a MERV 5 to MERV 12. A MERV 5 rating filters particles down to a 10.0 micron level and a 12 filters down to 1.0 micron level. A MERV 12 or higher, which is not very common outside of critical healthcare and clean-room environments, effectively filters pollen, dust mites, mold, and even cement dust.

However, according to various publications, the coronavirus average size is 0.125 microns. While this is substantially smaller than the particles that are filtered, it does not mean that these particles freely pass. This is due to a variety of reasons, but one of them has to do with humidity. Dry air allows particles to float freely/ unattached, while humid air promotes particles binding together. The larger particles are more readily filtered or trapped. A similar concept applies to our lungs. When we breathe air that is too dry it reduces the amount of mucus within our bodies; thus, part of our human filtration system is compromised.

Omni: Is there any research to back this up?

ML: A study conducted in Sydney, Australia indicates that the reduced humidity conditions associated with winter weather can lead to an increase in COVID-19 cases. The researchers identified that a 1% decrease in humidity could lead to a 6% increase in cases. So, what is the ideal relative humidity? In this case, it appears that the industry recommended RH of 40% to 60% corresponds with the current recommendations for mitigating COVID-19. Too little humidity and the filtration system is compromised, too much humidity and mold growth is supported.

Omni: So then, how is indoor humidity controlled?

ML: A/C systems are primarily designed for thermal control. Thus, most A/C systems control humidity by circulating warm, moist air over cold coils, which leads to condensation, which is collected and drained away. The key here is ensuring that the AC cycles the proper amount of time to allow the warm air to be adequately circulated over the coils and the moisture removed. This process relies on the A/C unit being correctly sized. This involves a variety of factors, including the number of people in a facility.

In essence, if a system is sized to provide cooling for 100 people, it accounts for the amount of energy/ heat and moisture generated by 100 people. Accordingly, it will work to get the temperature where it needs to be while accounting for the amount of humidity that needs to be removed. If the occupant load is reduced to 50, then the system is effectively oversized and will get the air to the desired temperature before it has a chance to remove the humidity. This leads to RH levels that can far exceed the recommended upper level of 60%.

Omni: What connection do you see between fresh air and healthier work spaces?

ML: Fresh air, or air that is not recycled, has become an integral component in the development of an HVAC system that supports overall occupant health. Sick building syndrome (SBS) developed following efforts to close-up buildings to establish greater energy efficiency, and a quick search will indicate that the SBS symptoms are frighteningly similar to COVID-19. The introduction of fresh air into a HVAC system does two things: it dilutes the air and pollutants, and it helps to pressurize a building. Diluting air is readily understood, but proper pressurization is equally as important. If a building is not properly pressurized, then air can start to stratify and pockets of dead-air form. This can allow areas of a building or room to be filled with contaminated air that can promote the spread of a virus. Most new systems include fresh air as required by the building code, but many older systems do not. A professional should be consulted to determine if your system incorporates fresh air or if it can be modified to do so. Simply put, a properly sized HVAC system that incorporates fresh air is a critical component in supporting occupant health.

As we move forward in this new environment, we seem to come across unforeseen challenges every day. But the response to all challenges is the same: assess, move-forward, reassess, move-forward… The one certainty is that we must be persistent in creatively evaluating the situation and developing solutions based on available resources. Stay tuned for Part II where Matt presents us with even more information on your topic!

Do you own or work in a commercial space – office, retail, or industrial? How do you feel like impact of COVID-19 will require changes be made to the configuration and functionality of your space? Please offer your comments or experiences in the comment section below.

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How Commercial Tenants Can Negotiate Rent Relief During COVID-19

Posted on June 18, 2020 by Mike Kushner in Blog, Commercial Real Estate, Local Market, Tenant Representative/Buyer Agent No Comments

 

Our world remains in a global pandemic and there is a long road to economic recovery. Seemingly overnight, our ways of working, living and playing drastically changed, and we were forced to sustain these changes for weeks and months on end. As a result, businesses closed their doors to the public, some temporarily and some permanently. This has led to the sudden need for these businesses to shed, or at least reduce, their commercial real estate overhead.

Think of it this way. When a business agrees to a rent amount, it does so with the expectation that it will have a certain level of income. All those expectations were upended with COVID-19, as many businesses have been forced to fully close for months or significantly reduce their use of their commercial space. Even though offices, restaurants, and stores are starting to reopen, their capacity for employees and customers — and, therefore, for revenue —remain diminished, making rent renegotiation necessary for staying afloat.

It’s important for commercial tenants who have lost the use of their spaces as a result COVID-19 to understand what options might exist for them to favorably negotiate some form of rent relief from their landlords. Take a look as we examine the key steps any commercial tenant or business owner should take when venturing down the path of lease negotiation.

Know the terms of your current lease.

Start with closely reviewing your current lease. What are the terms, conditions, and pricing you originally agreed to? What does it say about lease negotiations or early termination? Does it give conditions for if and when this would be considered? In order for your lease negotiation to be most effective, you must come armed with all the information related to your lease, and your leasing experience. Upon reviewing your lease, make note of the most important details and write or type those out on paper so that you can have it with you during your conversation. This will help to keep these details top of mind and easily accessible.

Seek representation and advice.

One of the most important things you can do is seek the representation and advice of a commercial tenant representative. This person is different than a real estate agent in that they exclusive represent the rights and interests of commercial tenants, not landlords. A tenant representative, like Omni Realty Group, would help review your current lease, advise you of your best plan for negotiating more favorable lease terms or even an early termination, and represent you at the meeting with your landlord. This not only provides peace of mind, but it gives you the best potential for a favorable outcome.

Be direct and professional with your request.

Schedule a meeting with your landlord and be direct that it’s to discuss your current lease terms. In your meeting, be clear and professional with your communication. Present your plan for new lease terms or early termination just like you would present a product or service to a client or customer. You want to sell your landlord on your plan; therefore, you need to make it clear why he or she should “buy” it.

Back your position with facts and data.

You can expect that your landlord will have questions and rebuttal. Why should he or she grant you new lease terms that are likely more favorable to you than they are to the landlord? Come armed with facts and data that support your plan. And also speak from a point of reason. Explain how your business was impacted by COVID-19. What were your losses or layoffs? How long were your doors closed to customers? And also look to other cities or states where possibly new laws are coming into place to offer rent relief for commercial real estate. This is taking place in California where a new bill, if it becomes law, allows businesses, particularly bars and restaurants, to terminate their lease agreements. While this may not be a law in your state, it’s worth discussing with your landlord how other places are approaching this difficult topic for perspective.

Finally, it’s worthwhile to research and consider how certain lease clauses could play in your favor and back up your position. Force majeure is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, like COVID-19, takes place. There is also the frustration of purpose doctrine, which comes into play when an unforeseen event undermines a party’s principal purpose for entering into a contract, such as how COVID-19 left many businesses without the need or ability to use their commercial space. And these are just a few examples. Upon more research and seeking legal counsel, there may be additional clauses and doctrines that could protect you in this situation.

Present the benefits of both parties.

Sure, the benefit to your business is clear. Shortening your lease terms or negotiating lower rent for less space will help your business stay afloat financially and shed overhead that is no longer needed as a result of COVID-19. Be sure to also make it clear what could be in the deal for your landlord. Could you recommend a new tenant, such as another business you know? Could you negotiate taking less space rather than leaving the building completely? Or could you reduce the length of your lease, but not terminate it immediately? Another option, if it’s of value to your landlord, is leaving behind desks, chairs, and other office furniture so that the space can be offered as fully furnished to new tenants.

Prioritize what’s most important, and be flexible with the rest.

Go into your discussion with your landlord knowing what you absolutely must accomplish in order for your lease to be sustainable for your business. Maybe this must be lower rent costs, or maybe you need to downsize your space. Try to pick your one most important thing, and then be prepared to make some concessions in other areas. If your landlord is willing to terminate your lease early, he or she may ask to keep your security deposit, or charge for one more month of rent. Or maybe they’re willing to let you downsize your space, but they need you to move to a different floor or location because it makes it more feasible for them to rent out other space. Be willing to listen and to negotiate.

Remember that you have options and support.

Omni Realty Group is working hard to address the ever-changing needs of businesses that have been impacted by COVID-19 and now need to rethink their commercial real estate leases. We want to help be a part of the solution. With the right strategy and presentation of your proposed changes to your lease, it’s reasonable and possible to find a favorable outcome with your landlord. Keep in mind that landlords have also been impacted by COVID-19 in ways you might not imagine. The right tenant representative can help guide you through the complexities of negotiating rent relief, share the most current updates on how they and/or others are addressing similar challenges, and provide the necessary thought leadership to help you make informed decisions.

Has COVID-19 impacted your business’s need for and use of its commercial real estate space? Are you considering asking for new lease terms as a result? If you have a question or need assistance, don’t hesitate to contact Omni Realty Group, Central Pennsylvania’s exclusive commercial tenant representative today.

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Commercial Spaces Likely to See New Requirements for HVAC Due to COVID-19

Posted on June 1, 2020 by Mike Kushner in Blog, Commercial Real Estate, Local Market, Trends No Comments

COVID-19 has changed life as we know it. The home office became the new workspace, video conferencing replaced in-person meetings, events shifted to virtual delivery, and parents became homeschool teachers while trying to balance career demands. It’s safe to say that the majority of people are looking forward to a time when they can return to work and feel a sense of normalcy again. One of the most important elements of this being possible in the near future is the ability for businesses to create a safe and sanitary work environment while adhering to CDC guidelines. The sooner this can be accomplished, the sooner commercial spaces can begin to reopen.

Some of the most important considerations are how to effectively filtrate, circulate and sanitize the air in shared and common spaces to reduce the spread of viruses. What options exist to improve air filtration and sanitization in shared office, retail, or industrial work spaces? And what new requirements might we expect commercial spaces will need to adhere to in order to ensure a safe work environment for their employees?

To lend some expertise on this topic, Omni Realty Group turned to John Gunning, who is the Senior Mechanical Engineer at McClure Company, based in Harrisburg, PA. Working within the Engineered Services division, he is responsible for the design of building mechanical systems for the commercial, educational and industrial markets. He is a licensed Professional Engineer in Pennsylvania and a LEED Green Associate. John is McClure Company’s in-house expert on the subject of ventilation and dehumidification and is frequently asked to speak at both technical and non-technical seminars regarding these subjects.

We asked John a series of questions related to how office, retail, and industrial spaces may need to adjust the functionality of their air filtration and sanitization in light of COVID-19. Keep reading to learn what he predicts to be the “new normal” of commercial HVAC requirements in Pennsylvania and beyond.

Omni: Prior to COVID-19, what was considered the standard level of air filtration in most office spaces?

JG: Pre-COVID we would expect to see 1-2” thick filters with a MERV 6 to MERV 8 rating. However, some systems may use lesser rated 1” filters, MERV 4 or less, with mesh or washable media.

Omni: As people return back to physical office spaces after stay-at-home orders are lifted, what changes do you anticipate businesses making to their office spaces to be more sanitary for their workers, particularly as it relates to HVAC and air-filtration considerations?

JG: With much of the discussion of the transmission of COVID revolving around the virus in aerosol form, we can anticipate businesses thinking of their HVAC system as more than just a tool to keep the space at the correct temperature. Building codes require outside ventilation air to be introduced into the building to dilute contaminants. Over time, outside air dampers may have been closed for reduced energy usage or for service and there may not be sufficient ventilation air being provided to the building. The American Society of Heating, Refrigeration and Air Conditioning Engineers (ASHRAE) has also issued this position document which includes recommendations for building owners. Among the recommendations are upgrades to a minimum MERV 13 filter and use of ultraviolet (UV) lights in the airstream. Previous studies have also shown that optimal humidity range for human health and reduced infection rates of seasonal Influenza and other viruses is 40-60% relative humidity.

Omni: What are the options available for a higher standard of air-filtration in commercial spaces?

JG: Most commercial HVAC equipment will except a 2” filter. A 2” filter can be manufactured with an efficiency rating up to MERV 13. However, there is a trade-off in both cost and in energy usage as the more efficient filter will have a higher air pressure drop. This higher pressure drop requires greater fan horsepower to move the same amount of air through the filter as compared to a lower efficiency filter.

Omni: In your opinion, what industries most need to make such improvements to air-filtration?

JG: At present, healthcare facilities and some manufacturing businesses are the industries whose filter requirements must meet or exceed the latest ASHRAE recommendations related to preventing the dissemination of airborne pathogens. Office, Retail, Education and Hospitality business are candidates for filtration upgrades as more people return to utilizing these spaces.

Omni: In addition to HVAC and air-filtration changes, what other improvements might you suggest to business owners to increase the cleanliness of their air quality?

JG: Active dehumidification is strongly recommended in order to keep the space’s relative humidity below 60 %. Limiting cooling season humidity can also reduce the risk of mold growth which can be a source of respiratory issues. On the other end of the spectrum, maintaining humidity levels above 40% is of equal importance. To that end, we expect more owners to consider the use of humidification in the heating season. Incorporating UV lights, in the supply air stream, is documented by ASHRAE as an effective method to deactivate genetic building blocks of viruses. While newer, bi-polar ionization shows potential as a technology capable of deactivating airborne viruses, it has yet to be recommended by ASHRAE. When outdoor conditions permit, increasing the use of outdoor air to dilute indoor contaminants is beneficial.

Omni Realty Group thanks John Gunning for sharing this valuable information and helping us to better understand the changes that may need to take place to improve air filtration and sanitization in commercial spaces as the result of COVID-19. During this unprecedented era in all of our lives –and the history of the world – it’s so important to arm yourself with knowledge and options that exist to continue to improve the health and safety of our communities where we live, work, and play. John’s insight and explanation of enhanced HVAC filtration requirements for commercial spaces should be helpful to all Central Pennsylvania businesses who are looking for additional health measures they can put in place for the safety of their workers.

Do you work in a commercial space – office, retail, or industrial? How do you feel like impact of COVID-19 will require changes be made to the air filtration and sanitization in your space? We welcome you to share your questions or reflections in the comment section below.

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