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Central PA’s Largest Commercial Real Estate Sales of 2019

Posted on January 27, 2020 by Mike Kushner in Blog, Commercial Real Estate, Industrial, Local Market, Office Leasing, Retail, Trends No Comments

There is much we can learn by analyzing a market’s largest commercial real estate sales in a given year. Looking at each the industrial, retail, and office sectors, it’s interesting to see the varying demand for size, price and class from sector-to-sector. This tells us a lot of about the direction of economic growth for a region; and for a real estate investor, it also showcases where the best investment opportunities for the future may lie.

Here is a look at the largest commercial real estate sales that took place in Central Pennsylvania in 2019, grouped by sector and sorted by highest sell price.

INDUSTRIAL

400-500 S. Muddy Creek Road – Albertsons Distribution Center (Lancaster County)

U.S. Realty Advisors purchased the Albertsons distribution facility for $117,050,000, or approximately $76 per foot for the 1,539,407-square-foot property on January 2, 2019. The subject Albertsons Industrial portfolio is comprised of a dry bulk/cold storage facilities in Denver, PA and in Melrose, IL. The sole tenant of the portfolio is Albertsons and they signed a 20-year lease with nine five-year extension options (and a one-year extension option) as part of the sale-leaseback transaction. Albertsons is under an Absolute Net lease paying $5/sf in base rent. Their lease requires that the tenant is responsible for operating expenses, real estate taxes, utilities, repairs, maintenance and capital expenditures, in addition to its obligation to pay base rent.

221 S. 10^th Street – (Cumberland County)

This 885,802 SF, class B industrial warehouse sold on September 26, 2019 to Blackstone Real Estate Income Trust for $84.8 million, or $96 per square foot. The sale is part of an industrial portfolio (see #4 below). At a total price of $18.7 billion, this sale of 179 million square feet of urban, infill logistics assets constitute the largest private real estate transaction in history. The portfolio includes high-quality logistics assets across 36 major U.S. markets that GLP aggregated over the past four years.

2601 River Road – Turkey Hill (Lancaster County)

W.P. Carey purchased the Turkey Hill food production and distribution facility for $70 million, or approximately $170 per foot for the 412,248-square-foot property on June 27, 2019. Built in 1980, Turkey Hill leased back the property for 25 years; the lease is triple net, with annual escalations. The buyer reported a weighted average cap rate of 7.1% for their acquisitions for the quarter, which totaled approximately $123.5 million, indicating this was probably priced in the 6s as the largest acquisition. The site was described as mission critical for the tenant, which has invested in many additions and improvements. It was noted that the site is powered through clean energy sources including wind turbines and hydroelectric energy. Turkey Hill had been a division of Kroger, but was sold earlier in the year to Peak Rock Capital.

21 Roadway Drive – (Cumberland County)

On September 26, 2019, Global Logistics Properties Ltd sold the class B industrial facility for $53.5 million, or $96 per square foot. The buyer was Blackstone Real Estate Income Trust. The 558,700 square-foot industrial facility was built on 36.16-acre site with an 8-acre pad site available to be developed into a 150,000 SF facility. The sale is comprised of an industrial portfolio totaling 64 million SF that Blackstone Real Estate Income Trust acquired located throughout the U.S. The sales price was reported at $5.3 billion. The portfolio was 95% leased at the time of the sale. The sale is part of a larger transaction in which Blackstone Real Estate Partners fund acquired 115 million SF for $13.4 billion; therefore, the overall sales price was reported at $18.7 billion for 179 million SF among two translations.

RETAIL

950 Walnut Bottom Road – Stonehedge Square Shopping Center (Cumberland County)

On November 25, 2019, this 88,657 square foot Giant anchored grocery center was sold for $30.7 million, or $346 per square foot to RW Partners, Inc.

2547 Brindle Drive – Shoppes At Susquehanna Marketplace (Dauphin County)

On April 1, 2019, The Shoppes at Susquehanna Marketplace in Harrisburg, PA were sold to an individual investor for $33.5 million, or $305 per square foot. The 110,000-square-foot shopping center was completed in 2004 and about 98% occupied by 25 tenants at the time of the sale. It was previously owned by a joint venture between Clarion Partners and Bayer Properties. The property was initially listed in January 2019 with an asking price of $38.17 million.

235-295 Cumberland Parkway – Parkway Plaza Shopping Center (Cumberland County)

On November 25, 2019, this 82,599 square foot Giant anchored grocery center was sold for $22.3 million or $270 per square foot. Parkway Plaza and Stonehedge Square (see #1) were part of a portfolio of Giant supermarket-anchored shopping centers in mid-to eastern Pennsylvania sold to RW Partners, Inc. for $127,000,000. The Giant grocery stores make up approximately 75% of this portfolio’s gross leasable area generate 80% of the portfolio’s revenue.

903-905 Loucks Road – Two Guys Commons (York County)

On August 19, 2019, Urban Edge Properties sold Two Guys Commons to Vastgood Properties, LLC for $13.15 million, or about $119 per square foot. At the time of the sale, the 110,980-square-foot retail property was fully leased to five tenants which included Crunch Fitness, Aldi, Ashley Furniture HomeStore, Tractor Supply, and Old Country Buffet. Based on in-place NOI, the transaction yielded a cap rate of about 7.5%.

OFFICE

100 Crystal A Drive – The Hershey Company (Dauphin County)

The three class B office buildings totaling 239,089 SF were sold on December 2, 2019 to the Penn State Medical Group for $28,445,835. Built in 1991, the buildings were sold by The Hershey Company for $118.98 per square foot. The seller was motivated to sell the property as they moved their operation into their corporate headquarters. The buildings will serve as Penn State Health headquarters and allow for moving some personnel from the Hershey Medical Center campus, creating space there to allow for expanded clinical services. Penn State Health leased office space in 2017 at that time The Hershey Company gave option purchase rights to the building. Penn State Health exercised their option to purchase the building.

425 N. 21^st Street – Plaza 21 (Cumberland County)

This 62,304 SF class B Office Building sold on September 16, 2019 to J & R Investments, Inc. for $9,300,000. Built in 1970 and renovated in 2009, this building was sold by Select Capital Commercial Properties for $149.27 per square foot. The building is leased to primarily to Geisinger System Services.

2400 Thea Drive – Synertech Building (Dauphin County)

On December 2nd, 2019, Istar Harrisburg LP sold the building in Harrisburg PA, to Real Capital Solutions, Inc for $9,100,000 or approximately $43.94 per square foot. The subject property is a 207,115, four-story class B office building located at 2400 Thea Dr in Harrisburg, PA 17110. The building sits on a 10.62-acre lot. It was constructed in 1999.

305 N. Front Street – (Dauphin County)

On July 17, 2019, this 120,000 SF office property was sold by Harrisburg Riverfront Development to Select Capital Commercial Properties for $7,950,000 or $65 per square foot. Built in 1989, this property sits on 1.2 acres

Closing Thoughts

In Central Pennsylvania and across the nation, it’s fair to say that the commercial real estate market delivered its fair share of ups and downs. Now that we’ve taken a closer look at the largest industrial, retail and office real estate sales of 2019, there are a few interesting points worth noting in each sector.

Industrial – Industrial real estate continues to lead all other real estate sectors with $1.2 billion in sales volume in 2019. The average price was $56.80 per square-foot, with the average property selling for $7.15 million.

Retail – A total of $200 million was invested in Central PA’s retail real estate market in 2019, a decrease from 2018. The average sale price was $142 per square foot.

Office – Annual volume levels for Central PA’s office real estate market stayed consistent with 2018 with $270 million in total sales. The average office property sold for $1.16 million. The average sales price was $102 per square foot.

What do you feel is the most important or interesting trend to emerge from the largest commercial real estate sales to take place in Central Pennsylvania in 2019? Share your thoughts by commenting below.

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Why Banks are Cutting Back on Commercial Real Estate Lending

Posted on January 17, 2020 by Mike Kushner in Commercial Real Estate, Construction, Guest Blogger, Local Market, Trends No Comments

Commercial real estate lending, the bread-and-butter business for many smaller and regional banks, could further decrease in 2020. The cause is a combination of a few different factors – intense competition from non-bank lenders and rising delinquency rates to name a few. Mortgage lending is also predicted to be impacted by rising interest rates and tight housing supplies in many major markets.

This trend is not new, but rather has been slowly creeping in for years. In 2017, U.S. banks reported that demand for commercial real estate loans weakened in the second quarter, though foreign banks reported strengthened demand. Furthermore, loan growth slowed to 4.2 percent in 2018, down from 5.6 percent in 2017, according to bank call reports and Federal Deposit Insurance Corp. data.

Why exactly are banks cutting back on commercial real estate lending? And should this call for concern that a potential economic downturn is in the near future?

Rory Ritrievi, President and CEO of Mid Penn Bank

To lend some expertise on this topic, Omni Realty Group turned to Rory Ritrievi. Rory has more than three decades of experience in banking, specifically in Pennsylvania. For the last 11 years, Rory has served as President and CEO of Mid Penn Bank. Under his direction, the bank has grown from $550 million in assets and 14 retail locations to over $2 billion in assets and 39 retail locations.

Throughout his banking career, Rory has gained deep insight into when and why banks provide commercial real estate loans – and when they do not. Let’s learn what he thinks is going on in the current market, and the pending economic impact.

Omni Realty: How has commercial lending changed in the last 5 years?

RR: In the last 5-10 years, we have seen, for the most part, a return to credit fundamentals that seem to have been abandoned in the years leading up to the Great Recession. Back then it seemed like almost any deal made sense to Bankers. Now, the focus has been returned to analysis of absorption rates, discounted cash flows, borrower experience, reasonable cap rates, and strength of guarantors.

Omni Realty: In your opinion, what are the main causes of these changes?

RR: Losses. Loan losses of 2008-2012 gave a renewed focus to bankers on the true meaning of credit fundamentals.

Omni Realty: What changes would need to take place in the commercial estate market, or economy as a whole, to further improve commercial lending?

RR: Lenders need to evolve their underwriting and analytics to keep up with the evolving demographics. Baby Boomers are aging out so there is a need for more senior housing, multifamily rentals, luxury apartments, and assisted living. Additionally, high student loan balances are making the need for affordable housing in urban areas more prevalent. There is also a growing focus on renewable energy and green spaces. Finally, work from home is more prevalent which challenges the demand for traditional office space. When we look to retail, the shift toward online decreases the demand for mall space, while increasing demand for warehouse space. And we can’t overlook technology. Bankers need to not only know about emerging technology that stands to impact the market, but they must embrace it as a highly valuable tool to help them “keep up.”

Omni Realty: What do you anticipate the trend to be for commercial lending in 2020?

RR: In my opinion, 2020 will be a positive year in the lending business, particularly in Central Pennsylvania. We are in a good credit cycle and the interest rate yield curve is in decent shape compared to last year. There are geopolitical issues such as the impact of the general election, instability in the Middle East, and trade with China but I do not believe any of those issues will halt the progress of our local economy in 2020. Challenge it, yes and maybe slow it a bit, but not halt it entirely.

Omni Realty Group thanks Rory for sharing this valuable information and helping us to further understand the factors impacting how banks view commercial lending. Though banks are, for the most part, treading lightly in the market since the Great Recession, it’s encouraging to hear their renewed commitment to credit fundamentals, and helping both individuals and businesses make well-educated lending decisions.

Amidst a year that will no doubt bring change, it’s important we remain aware of the lasting impact factors such as elections and geopolitical issues may bring to our economy, both immediately and for years to come. Rory provides sound reason as to why we should not fear such changes, but rather maintain confidence in the banking economy, particularly here in Central Pennsylvania.

Do you agree with these insights, or have others to share? We welcome your feedback in the comments below!

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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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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.

***

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.

***

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.

***

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.

***

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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Census Data: National and Local Trends You Need to Watch

Posted on June 3, 2019 by Mike Kushner in Blog, Commercial Real Estate, CPBJ Articles, Local Market, Trends No Comments

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

Census data provides a fascinating look into population growth trends that stand to have a profound impact on our economy, both locally and nationally. More than just being “interesting” data to study, population growth and decline points us to important trends that will reshape supply and demand in various industries, one of the most prominent being real estate.

Just last month, the US Census Bureau released new population estimates. These estimates account for and compare the resident population for counties between the dates of April 1, 2010 to July 1, 2018. The outcome? There are shifts in population taking place across the nation that may differ from what you might assume. Let’s take a look at some of the highlights from this data from a national and local level.

At a National Level

South and West Lead Population Growth

The census data confirmed that counties with the largest numeric growth are located in the south and the west regions. In fact, Texas claimed four out of the top 10 spots. Looking at population growth by metropolitan area, Dallas-Fort Worth-Arlington, Texas, had the largest numeric growth with a gain of 131,767 people, or 1.8 percent taking place in 2018. Second was Phoenix-Mesa-Scottsdale, Arizona which had an increase of 96,268 people, or 2.0 percent. The cause of growth in these areas is the result of migration, both domestic and international, as well as natural increase. In Dallas, it was natural increase which served as the largest source of population growth, whereas in Phoenix I was migration.

Fastest Growth Occurred Outside of Metropolitan Areas

Surprisingly, no new metro areas moved into the top 10 largest areas. Of the 390 metro areas within the US (including the District of Columbia and Puerto Rico), 102 of these areas, or 26.2 percent experienced population decline in 2018. The five fastest-decreasing metro areas (excluding PR) were Charleston, West Virginia (-1.6 percent); Pine Bluff, Arkansas. (-1.5 percent); Farmington, New Mexico (-1.5 percent); Danville, Illinois (-1.2 percent); and Watertown-Fort Drum, New York (-1.2 percent). The population decreases were primarily due to negative net domestic migration.

North Dakota Claims Fastest Growing County

Among counties with a population of 20,000 or more, Williams County, North Dakota claimed the top spot as the fastest-growing county by percentage. This county increased by 5.9 percent between 2017 and 2018 (from 33,395 to 35,350 people). The rapid growth Williams County experienced was due mainly to net domestic migration, 1,471 people, in 2018. The county also experienced growth between 2017 and 2018 by both natural increase of 427 people, and international migration of 52 people.

More Growth than Decline

Out of 3,142 counties, 1,739 (or 55.3 percent) gained population between 2017 and 2018. Twelve counties (0.4 percent) experienced no change in population, and the remaining 1,391 (or 44.3 percent) lost population. Between 2010 and 2018, a total of 1,481 (or 47.1 percent) counties gained population and 1,661 (or 52.9 percent) lost population. Though there has been more growth than decline overall, the numbers indicate that this can easily shift year over year.

At a Local Level

Dauphin County

Lancaster County

York County

Cumberland County

Cumberland, Dauphin, Lancaster and York Experience Consistent Growth

The most notable trend to take place between 2010 and 2018 in Central PA is that these counties all experienced consistent growth year-over-year. Moreover the growth occurred fairly evenly over the last 8 years. This provides consistency and enables the economy to respond to the growth over a reasonable amount of time.

Counties Also Maintain Same Order of Ranking in Population

Another trend worth noting is that the counties have maintained the same order of ranking based upon population for 8+ years. For example, in 2010 these counties in order of smallest population to largest population was Cumberland, Dauphin, York, Lancaster. This is the same ranking we see in 2018, and every year in between. No county surpassed another at any point.

Lancaster Remains Largest and Fastest Growing County

Lancaster County has a major lead in population over the others. At 984 square miles, it is also the largest of the 4 counties. Between 2010 and 2018 it also experienced the largest numeric growth at 24,112 people. Number two in numeric growth was actually the smallest of the four counties, Cumberland County, which grew by 16,017 people. York County grew by 13,301 people and Dauphin County grew by 8,997 people.

Overall, the latest US Census offers valuable and insightful information related to population growth between 2010 and 2018. Understanding the cause of either growth or decline provides framework for how these shifts may continue on their course, or change in the future.

A deeper dive into the census data reveals several demographic changes impacting commercial real estate development: household formations, aging baby boomers, growing millennials, women in the workforce, and migration toward the South.

Today’s demographic changes present challenges for commercial real estate developers, but they also offer lucrative opportunities to firms creatively adapting to new demands.

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Power Landlords: Who Owns the Most Office Space in Central PA?

Posted on May 30, 2019 by Mike Kushner in Blog, Commercial Real Estate, Local Market No Comments

These are buildings that you have likely passed countless times. Whether you live in Central Pennsylvania, or any other part of the world, real estate is all around us. Have you ever stopped to wonder who owns a particular piece of real estate? Maybe it’s the not the first question you’re asking on your morning commute, or when out running an errand, but the answer to this question may fascinate you.

Particularly the commercial real estate industry holds a lot of potential to impact economic development in a region. For entities who have made it a business to accrue large amounts of commercial real estate, they provide us with valuable insight into to the state of the economy, based upon their decision to buy or sell/lease space and at what price point. Knowing who the big players are can help keep us apprised of changes in the market that will ultimately trickle down to impact businesses far and wide.

So who are these businesses and how much property do they own? Among private, for-profit entities located in Central Pennsylvania, these are the top five “power landlords” who own the most office space in the region.

Linlo Properties

According to a CoStar Group analysis on April 5, Linlo Properties owns 745,349 square feet of space in Central Pennsylvania. Linlo’s assets include the AT&T Building, an 87,718 square-foot building at 2550 Interstate Drive; 4250 Crums Mill Road, a 75,000 square-foot building; Vista Plaza, a 71,800 square-foot building at 1215 Manor Drive; and Hillside Corporate Center, a 68,525 square-foot building located at 5001 Louise Drive.

Healthcare Trust, Inc.

Healthcare Trust, Inc., a non-traded traded real estate investment trust that focuses primarily on healthcare related assets, comes in second, per CoStar data, with all its 638,516 square feet purchased from UPMC Pinnacle (formerly Pinnacle Health) in 2014. The Landis Building, located at 2501 North Third Street (formerly part of Polyclinic Hospital) is its largest holding at 314,790 square feet.

High Associates

High Associates is the third-biggest property owner in the region with 561,276 square feet of commercial real estate. All their properties are in Lancaster County except 5000 Ritter Road, Mechanicsburg. 1853 William Penn Way, their largest holding, which is 82,331 square feet of space, is occupied by the High Companies.

Select Capital Commercial Properties

Fourth is Select Capital Commercial Properties with 544,599 square feet of commercial real estate. Select Capital’s holdings include 225 Grandview Avenue (the former HP/EDS building) with 214,150 square feet; 300 North Second Street (Commerce Towers) with 72,000 square feet; and 425 N. 21st Street (Plaza 21) with 62,304 square feet.

Hoffer Properties

Hoffer Properties ranks fifth with 531,741 square feet of space. Hoffer’s assets include 100 Sterling Parkway (the former PHICO building), a 220,000 square-foot building and 300 Sterling Parkway, the 129,000 square foot building built in 2016 for Deloitte.

These power landlords of Central PA hold a significant amount of commercial real estate assets. How they choose to use and further develop this space has the potential to shape the economy, locally and beyond, by attracting new businesses which brings new jobs. With the backing of these large entities who are continually investing in and improving commercial real estate, every business in the region benefits from the ripple of this economic impact.

It’s important to note that this list is limited to private, for-profit entities located in Central PA. Hbg. Realty Inc. (Harristown Development Corp.), PA Economic Development Agency, The Commonwealth of Pennsylvania, and Highmark, Inc. all rank higher than the top five on this list.

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Commercial Real Estate Appraisals in Central PA: Q&A with JSR Appraisal Group, Inc.

Posted on May 6, 2019 by Mike Kushner in Blog, Commercial Real Estate, Local Market No Comments

Appraising commercial real estate is a particularly unique process, and one that if not done carefully and correctly can have a profound impact on the value of a commercial property for many years to come. To dive deeper into the topic of commercial appraising, including the industry trends and challenges, Omni Realty Group enlisted the expertise of Judy Striewig and M. Shane Rorke, Certified General Appraisers and Co-Founders of JSR Appraisal Group, Inc.

JSR Appraisal Group, Inc. is a commercial appraisal firm located in Camp Hill, Pennsylvania, which serves the South Central Pennsylvania market. Together, Judy and Shane opened the firm on January 1, 2015. With 25 years of appraisal experience, Shane has appraised most all types of commercial real estate. In recent years he has focused on land subdivision appraisal work and has tracked many Central Pennsylvania markets for in-depth absorption analysis. Judy’s 15 years of appraisal experience began in 2004 when she entered the industry as an apprentice in the residential appraisal arena. In 2008 she made the move to appraise commercial real estate.

With Judy and Shane’s wealth of knowledge, Omni asked them to weigh in on the most essential questions surrounding the commercial appraisal industry. Here are their answers.

Omni: What do you view as the strengths of your commercial appraisal firm?

JSR: We track most all commercial sales in several markets in South Central Pennsylvania. This data is entered and tracked in our commercial sale database that provides both a detailed and summary picture of sale transactions. This enables us to analyze market transactions and keep an eye on what is happening in the market.

Second, while we are not a large firm, we have four staff members that work together sharing data and ideas on property types, trends, and other real estate issues. We regularly talk to brokers, developers and business owners to gain a pulse on market nuances and business trends.

Omni: How will automated valuation models impact the commercial appraisal process?

JSR: The commercial appraisal process has not been as impacted by automated valuation models as the residential appraisal process for several reasons. First, the quantity of data is much smaller than residential sales. Second, commercial properties are often bought based on the income they produce. This information is typically not available through public sources and is often confidential. And third, a valuation model may be appropriate for certain types of commercial properties like office buildings or warehouse facilities, assuming rental rates are ‘at market’. However the commercial real estate market has such a varied type of product with many specialized buildings, there may not be sufficient amount of data for a valuation model to be effective.

While my thoughts on using a packaged valuation model for commercial (and even residential) real estate are leery, I do believe analysis of large data sets would be helpful to the profession. The use of regression testing to provide rules of thumb to assist in making adjustments and decisions on comparing properties would be helpful. For example, we often consider making an adjustment for properties of different sizes (based on the economies of scale principle). I see a true benefit in models that use regression analysis to provide guidelines for different pricing based on size of a property and other similar property characteristics.

Omni: What are some of the recent regulatory changes on valuation rules and do you foresee this impacting your profession?

JSR: There have been two recent regulatory changes on valuation rules, but we don’t see either of these as having a significant impact. In June of 2018, Pennsylvania passed into legislation a law that allows State Real Estate Brokers, Associate Brokers and salespeople to provide Broker Price Opinions (BPO). Brokers are limited to performing BPO’s for financial institutions in conjunction with properties owned by the institutions that meet certain criteria. They remain prohibited from providing valuation services for mortgage financing, eminent domain, tax appeals and valuation scenarios. Additionally, the FDIC is contemplating raising the appraisal threshold from $250,000 to $500,000 for commercial real estate transactions, and $250,000 to $400,000 for residential real estate transactions.

Omni: What are some of the biggest challenges you face as a commercial appraiser?

JSR: Appraisals are often viewed as a necessary step or hurdle to obtain financing. (Yes, we know this.) And because of this the borrower often picks the ‘cheapest’ bid provided. The borrower has no idea how much experience the appraiser has with the specific property type or what due diligence will be performed in developing an opinion of value.

A second challenge is that the only part of the appraisal report that gets any attention from the borrower is typically the final value. The support and analysis that went into developing the value opinion are often not considered or read by the borrower. And, if a buyer really takes the time to review the report, there is a lot of pertinent information about the property within the report, other than the value opinion. In today’s busy times, I am not sure this will change anytime soon. However I would like to see the borrower use the document as a source of information about the property as well as an objective viewpoint in value.

Omni: What most often causes a disconnect between an appraiser’s and an owner’s opinion of value?

JSR: Often, a buyer’s business is interwoven with a commercial building. Take a well performing restaurant with good management and a well-known reputation. Most commonly when we appraise the property we are appraising the real estate only and not the business value. Our value opinion must isolate the real estate, and exclude any value attributed to the business which includes the reputation and operation. This sometimes results in a real estate value opinion lower than the opinion of the owner of the thriving business. We must look at a property as if that management and reputation were taken away, what would the real estate sell for on the open market.

There have been times when we are asked why we need leases or historical income and expenses to appraise a building. “Isn’t the value, the value?” we are asked. As mentioned earlier, commercial real estate is often valued by the income it produces and long-term leases have significant impact on value. Would you pay the same price for a building that produces leased income of $100,000 annually for the next 20 years or an identical building that produces leased income of $50,000 annually for the next 20 years?. While this may sound obvious, it often is not taken into consideration when a value differs from what an owner has in mind.

Omni: Is there anything else you wish to add that could offer insight into Central PA’s commercial real estate market right now?

JSR: While we do not have any earth shattering observations, we can share some of the trends we see, of which some are obvious.

Retail that can be purchased on-line is struggling, while retail that requires ‘hands on’ shopping is prospering.
The retail restaurant business has grown at a rapid pace in the last few years. Younger generations eat out much more frequently than previous generations, and this sector of retail is strong.
Because of our central location and access to highway systems, the South Central Pennsylvania Industrial Market is our strongest real estate market.
The apartment market in the City of Harrisburg continues to grow with new apartments being quickly absorbed as they come on-line. Rental rates for nicely renovated apartments are $700 to $800 for studios, $800 to $1,000 for 1-bedroom units and $950 to $1,250 for 2-bedroom units. Based on the rental rates and occupancy rates, these properties are yielding high values. However there has been no recent sales of these newly renovated apartments to truly gauge how investors look at renovated apartments in the City as pure investments.
There has been significant price appreciation in the professional office market for good quality, stabilized assets. Cap rates are below 8.00% with some recent transactions in the low 7.00% range that have long-term, credit rated tenants in place. Cap rates for single-tenant medical office buildings are sub 7.00%.

When working with a commercial real estate appraiser, there are several important things to keep in mind. Look for one who is experienced and reputable in your local market and who can demonstrate on-going, extensive research of market sales and lease activity. You also want to work with someone who encourages open dialogue and discussion to ensure the scope of work and appraisal assignment meets your expectations and needs. Omni Realty Group thanks Judy and Shane of JSR Appraisal Group, Inc. for sharing their insight and expertise in this blog. You can learn more about JSR Appraisal Group, Inc. at www.jsrappraisal.com.

Judy Striewig

M. Shane Rorke

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A Decline in International Students Will Hurt a Lot More than Colleges and Universities

Posted on March 22, 2019 by Mike Kushner in Blog, Community, Trends No Comments

According to a report by MarketWatch, the number of overseas students coming to the U.S. for grad school declined for the second year in a row. There is much speculation as to what could be causing this trend; however, one reappearing theme ties back to the current political climate here in the United States.

As you likely remember, President Donald Trump initiated a ban on people entering the U.S. from multiple Muslim-majority countries, all of which have a track record of sending students to America for higher education. It’s not difficult to see a near-immediate impact. For example, U.S. graduate school applications from Iran, one of the countries targeted by the travel ban, fell 27% between fall 2017 and fall 2018. The travel ban isn’t the only blamed culprit. President Trump has floated changes to student visas that would reduce the amount of time international students can stay in the U.S.

Naturally, colleges and universities in the U.S. who rely on international students to make up a significant portion of their admissions are concerned. If the U.S. continues to present hurdles that make it unappealing, if not impossible for certain international students to study in the U.S., our colleges and universities are not the only pillars of our community who should be concerned. A decline in international students will have a ripple effect on our economy which will flow into many different industries, including real estate.

How significant is this impact and what industries should be most concerned? Let’s take a closer look at the economic impact of fewer international students coming to the U.S.

International Students Drive Economic Growth

Simply put, international students are pivotal to our economy. First, they often pay the highest tuition rates which is why colleges and universities carefully account for enrolling so many international students to keep their budgets in line. Next, while international students are studying in the U.S., they are spending money on food, clothing, living essentials, as well as renting space to live. Many smaller colleges have built on-campus apartments primarily for the use of their international students. Compared to students that reside with their parents and commute to school, international students have a markedly different economic impact on the school and the surrounding community.

To put a value on this point, the Institute of International Education, an organization that promotes research and international study, estimates that international students contributed $39 billion to the U.S. economy in 2017. In fact, some colleges and universities rely so heavily upon their international students that they have gone as far as taking out an insurance policy to protect themselves against the drop in international enrollment!

A Local Look

The facts and stats reporting the decline in international students coming to the U.S. takes a national look, but what about locally here in Central Pennsylvania? Are we seeing the same trends? One of the area’s leading universities for international enrollment is Penn State Harrisburg. College Factual ranks Penn State Harrisburg as 114th out of a total 1,300 colleges and universities for popularity with international students. And the pool of international students is diverse. At least 50 countries are represented on the Penn State Harrisburg campus with the most being from China, India, and, South Korea.

Interestingly from 2011 to 2016, enrollment of international students has been steadily increasing with 716 international students being enrolled at Penn State Harrisburg in 2016. What this doesn’t account for is the most recent travel ban and change to student visas implemented in 2017-2018 that would not be reflected in this data; however, it is likely to be released soon. With international students making up about 14.2% of the student body at Penn State Harrisburg, should the University also experience the decrease in international enrollment that has been sweeping the nation, it will join the ranks of so many other educational institutions hurting due to this downward trend.

As It Relates to Real Estate

It’s clear how international students impact the colleges and universities in which they are enrolled, but what impact do they really have on real estate and is this decline enough to cause any significant changes to our residential and commercial real estate markets?

International students arriving in the U.S. to study are in immediate need of semi long-term housing, typically at least two years and up to 6+ years depending upon the type of degree they are pursuing. International students can technically choose to purchase real estate on their student visa, but mortgages and lending have a whole host of challenges, making cash to most desirable and feasible option for purchasing home a home. Most commonly, international students decide to rent real estate either from the college or university that they are attending or from a landlord in the community.

Depending upon the demand for off-campus student housing, some real estate investors have created a significant business around owning and renting out real estate to students, including international students. Should there be a severe enough decline in international students, this could cause a decrease in demand for real estate. Property owners will need to make a strategic decision to either ride this wave, with a decreased income for an unknown period of time, or sell off some of their properties if they feel this trend could last a while.

Additionally, should a decline in international students persist, colleges and universities whose campus housing is mostly occupied by international students are not likely to invest in renovating or adding to this real estate until the decline stabilizes and/or reverses.

Key Things to Keep in Mind

All-in-all, this trend in decreasing enrollment from international students is one we must keep an eye on for a variety of reasons. When our colleges and universities are economically impacted, it is highly likely that other businesses and the community as a whole will also feel an impact. Should this provide to be a short-lived trend that passes as the political climate changes, there is the probable outcome that things will return to normal and possibly better than before.

However, we would be shortsighted to not think beyond forces within the U.S. To compound the issue, other counties are also competing for international students and are surely making every effort to market themselves as the most attractive option. It will be a constant battle for the U.S. to retain and grow its international students. Given our country’s reputation for high-quality education, this is not an impossible feat, but we must remain strategic to stay ahead of the curve!

What do you feel are the most critical areas to be impacted by a decline in international students? Beyond colleges and universities what other industries will be most significantly impacted?

Share your ideas by leaving a comment below!

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Growing Demand for “Live-Work-Play” Communities in Central PA

Posted on December 4, 2018 by Mike Kushner in Blog, Commercial Real Estate, Community, Guest Blogger, Local Market, Trends No Comments

Photo: Walden in Mechanicsburg, PA

If you’ve been a resident of Central Pennsylvania for more than a few years, you’ve likely seen various live-work-play (LWP) communities – maybe you even live in one. What we’re talking about it mixed-use commercial and residential real estate where people have the opportunity to live, work and play (shop, dine, etc.) all in a relatively close distance to one another. A great example is the Walden community in Mechanicsburg, but there are many others that we will examine in this article.

To help us explore this growing trend, we turned to Chris LeBarton who is a Senior Market Analyst with CoStar Group. Chris covers commercial real estate data in Western Maryland, including the Baltimore metro area, up through Central Pennsylvania for CoStar’s Market Analytics platform.

Chris joins Mike Kushner of Omni Realty Group for a Q&A series where we specifically look at the growing demand for LWP communities in Central PA – and what this means for CRE professionals. Here is how Chris answers our most pressing questions.

Omni: When did the LWP trend begin and how has it grown?

Chris LeBarton: The earliest usage of LWP spaces I can find was in 2005. The trend really started to grow in popularity leading up to the market crash, but there’s no correlation between the two that I can see. The term “live-work-play” was very likely used prior to that, but I’m guessing the branding of mixed-use development really took off as concepts of ‘walkable urbanism’ and ‘Transit Oriented Development’ (TOD) exploded across the country.

According to the Urban Land Institute’s Mixed-Use Development Handbook, which was published in 2003, mixed-use development: provides three or more significant revenue-producing uses (such as retail/entertainment, office, residential, hotel, and/or civic/cultural/recreation); fosters integration, density, and compatibility of land uses, and; creates a walkable community with uninterrupted pedestrian connections.

Omni: Describe a LWP community in Central PA.

Chris LeBarton: First, let’s clarify what a LWP community really is, and what it is not. Some economic development entities and marketing types play pretty fast and loose with the term. An area can be a really nice place to live, work and play in, but if there’s over a mile or so between one element of the triad and the other two legs of the stool aren’t in the same building/development, it’s not really a LWP dynamic. Of course, the likelihood that most people who live in one of these communities also works in the same office/industrial park nearby is fairly low. But being able to do all three and be largely reliant on public transportation or your own two feet is really the spirit of the LWP concept.

Another key element to understand is that LWP is not at all relegated to a city environment. In fact, part of these projects’ collective appeal is that they can recreate a city environment without being in the hustle and bustle of a CBD. Specifically in Central Pennsylvania, there are a number of LWP developments. Here are just a few:

Lime Spring Square (Lancaster/Hempfield Township): A multi-phase, mixed-use campus being developed by Oaktree Development Group, the end result will include over 100,000 SF of retail, several hundred high-end apartments, and components of office, medical and industrial space. Penn State Health has a 76,000 SF medical office building there, while PDQ Industries is expanding operations into an 80,000 SF building.
North Cornwall Commons (Lebanon/North Cornwall Township): Another phased project that has been delayed off and on since being proposed in 2004, North Cornwall Commons is finally seeing movement at what would be the largest mixed-use development in Lebanon County history. A retail strip center with at least one confirmed tenant (a local coffee business) is underway at 148-acre site that includes plans for roughly 165 townhomes, office space and a hotel.
The 1500 Condominium (Harrisburg): An example of how you don’t have to have everything in one place, 1500 has 43 units (mostly rentals) that sit over top of two restaurants and is within walking distance to the Broad Street Market and several small-to-medium sized employers.
Wyomissing Square (Reading/Wyomissing Borough): A quintessential brownfield redevelopment, Wyomissing Square now consists of 250 4 Star apartments, a Courtyard by Marriott, small-scale retail, restaurants, and a 60,000 SF medical office building.

Omni: Who is the target demographic for this type of community?

Chris LeBarton: As with anything that deals with where people live, shop/eat or work, I think the answer is “All of the Above.” We hear all too often about Millennials, or Boomers, or Downsizers, or Divorcees. Honestly, the more conversations I have with leasing agents and brokers the more I’m convinced the rule is diversity and the exception is homogeneity. Granted, most of these LWP sites cater to the more upscale or educated among society, but that doesn’t mean there can’t be families with two working blue collar parents who make a decent living and who want to save money on a car/parking and live close to work.

Omni: What advice could help commercial real estate professionals capitalize on the LWP trend?

Chris LeBarton: I don’t give investment advice, but here are a couple thoughts. First, find a way to make it authentic. Be it the retail mix, or a unique concept to the green space, or simply having the “town center” not look boiler plate, be conscientious of that buzz word “place making.” If you’re going to basically spend the majority of your waking life in a small area, it can’t be boring or cookie cutter.

Next, think ahead. What will you need to provide 3-5 years from now? Who would have thought that cities would be crawling with scooters?! Or even just electric vehicles. People looking to walk or be publicly transported or drive as little/cheaply as possible will likely demand options and flexibility. Things to consider are multiple charging stations, bike share platforms, car-share parking lots, etc.

Finally, identify fairly gentrified but not-yet-there locations that are retail/grocery deserts. LWP in the middle of a depressed community won’t work in many places (there are exceptions, of course). But cool/changing areas that are the next ‘it place’ often still need the food and fun to complete the shift.

Omni: Looking to the future, how do you predict LWP communities to evolve in Central PA?

Chris LeBarton: I think you can expect to see more of these types of projects turn up around dying malls or outlet centers that have to repurpose big blocks of space. Another interesting new trend that I could see taking off is the rise of co-living and co-working spaces in the same building.

The LWP trend stands to have a significant impact on Central PA’s commercial real estate market. Because LWP communities rejuvenate the local community, drive business and create employment opportunities, Central PA should be encouraged that so many of these communities are popping up across the region. Additionally this type of real estate appeals to a wide variety of demographics, making it a valuable investment opportunity for commercial real estate professionals. Looking to the future, LWP communities could be among the most powerful tools to breathe new life into struggling areas, and spur a burst of new economic activity that is greatly needed.

What are your thoughts on the growing demand for live-work-place communities in Central Pennsylvania? Is this type of community attractive to you? Why or why not?

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6 Things in 2018 that Should Have Commercial Real Estate Agents Feeling Grateful

Posted on November 13, 2018 by Mike Kushner in Blog, Commercial Real Estate, CPBJ Articles, Local Market, Trends No Comments

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

It’s about that time when people start to reflect upon the last year, making note of progress that has been made, and milestones that have been achieved. In light of the Thanksgiving holiday, there are certain things that should have commercial real estate agents, in particular, feeling grateful for what 2018 has brought with it.

Here’s a look at six things that should have CRE professionals giving extra thanks this year – and looking to 2019 with high expectations.

Interest rates are still historically low.

Yes, interest rates are indeed rising and people are panicking over them reaching 6%, but keep in mind that we are still way below the average rate of the last 47 years at 8.35%. Furthermore, recent gauges of U.S. inflation signify little need for the Fed to change its slow-but-steady stance on interest rate hikes at this juncture, so we don’t expect this to jump up several points overnight. Plus, there are a lot of other factors working in the economy’s favor like…

Unemployment hit a 49-year low.

It’s the headline you’re seeing smattered across every major news publication – the U.S. unemployment rate reached 3.7 percent in September — the lowest it has been since December 1969. What’s more, the job market is so tight that the amount of available jobs far exceeds the number of people seeking employment! Employers reported more than 7 million unfilled jobs in August, the highest level since record-keeping began in 2000.

Demand for industrial space remains strong.

In Central PA, 2018 brought with it an increasing demand for industrial real estate. The third-quarter saw rent grow hit 6.9%. When compared to the historical average of just 1.9%, it’s easy to see how this boom in demand for industrial space is an exciting new trend for our local economy, particularly because we are poised to welcome more and more warehousing and distribution companies to the area.

Sales of multifamily real estate hits record high.

In the third-quarter, multifamily real estate sales set a new record with the all-time high of $160.6 million. This same sector set another record this year in the second-quarter with an all-time low vacancy rate of 4.3%. With just two numbers, 2018 paints the picture of Central PA’s thriving commercial real estate market, particularly in the multifamily sector.

The Fed raised short-term interest rates for a third time this year.

At its September policy-setting meeting, the Federal Reserve raised short-term interest rates for a third time this year. While to some a rate increase may not be something that has you feeling grateful, this is yet one more indication of a healthy, growing economy that can sustain such an increase. Furthermore, forecasters contend that unless inflation picks up or the economy starts slowing, the federal funds rate, which is currently between 2 percent and 2.25 percent, should continue to head higher.

New industries are expanding their commercial real estate.

The sixth and final thing that should have commercial real estate agents feeling grateful this year is healthcare mergers. Why? Because this is shaking up the way healthcare systems are approaching real estate. Across the region, the Commonwealth and nationwide we are seeing mergers taking place between healthcare systems small and large. All of this “teaming up” is causing a change in the way these organizations are using commercial real estate. In some instances, such mergers call for consolidating medical office space to reduce redundancy. In other instances, more space is needed to break into new markets or regions. This burst of acquisitions and activity spurs growth and fuels CRE sales.

Gratitude…and Caution

It’s important to note, this is the highlight reel from 2018. The CRE market has certainly experienced both its ups and downs in the various sectors of retail, office and industrial real estate. What’s most important is to take all good news, and bad news, with a grain of salt and know that what goes up, will eventually come down – whether that’s next quarter, next year or next decade.

For now, we can slide into the holiday season feeling grateful for these “gifts” the market has given us this year and enter 2019 cautiously optimistic.

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