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Sale and Leaseback of Commercial Real Estate

Sale and Leaseback of Commercial Real EstateLet’s explore the sale and leaseback of commercial real estate. With COVID-19 affecting so many businesses many may be looking at their real estate holdings to see if they should entertain a sale-leaseback transaction with a nonprofit real estate foundation for a particular property to free-up cash tied up in their real estate. For mission critical buildings that are being leased from non-profit or for-profit landlords, they may consider negotiating with the property’s owner for a sale-leaseback with a nonprofit real estate foundation, attempting to reduce rent expense. A nonprofit real estate foundation is a third-party nonprofit entity that sources low-cost capital to acquire or develop properties used by hospitals in furtherance of their charitable mission. The sale-leaseback option for so monetizing these non-core assets will work as well with traditional sources like insurance companies, REITs and other institutional investors.

Confer with the professionals at WCRE or ask us for a seasoned real estate or tax attorney but here’s one technique Abo has seen work well with business clients. Although real estate is generally thought of as an illiquid asset, some liquidity can be achieved by taking out a loan backed by the property. Alternatively, a sale and leaseback may be used effectively if a company’s balance sheet is burdened with excessive debt or just having difficulty in obtaining new capital. Typically, the transaction involves the company owned property being sold to a third party and then leased back to the company under a long-term lease.

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Sale and leaseback transactions may be on the rise but clients need to be aware that the IRS often focuses on transactions between closely-held corporations and their controlling shareholder to make sure that these transactions benefit the company as well as the shareholder. In one common type of sale and leaseback transaction, the company sells the land with a building on it to the shareholder and, in turn, the shareholder leases it back to the company. Some of the financial and tax benefits we’ve seen have included:

The rental deductions the company could take might be significantly larger than the former depreciation deductions if the property had been in service for many years.

After the sale and the leaseback transaction, the shareholder’s basis in the property will be its fair market value which is usually greater than the price paid for the property by the corporation. Thus, the shareholder’s depreciation deduction would be much greater than what was previously available to the corporation (also still need to consider the tax consequences of the sale to the corporation).

The sale and leaseback may enable the shareholder to generate passive rental income that could be offset
against passive losses of the shareholder.

The IRS would obviously be concerned that these transactions have economic substance and that they are
based on reasonable market conditions, and not just designed to generate larger tax deductions. Thus, for
a sale to be valid, the controlling shareholder should have taken an equity interest in the property and also
assumed the risk of loss. For the leaseback to be valid, four tests come to mind that really should be met:

1. The useful life of the property should exceed the term of the lease.

2. Repurchase of the property by the corporation at the end of the lease term should be at fair market value and not at a discount.

3. If the leaseback allows for renewal, the rate should be at a fair rental value (speak to WCRE, not necessarily the accountant).

4. The shareholder should have a reasonable expectation that he or she will generate a profit from the sale and leaseback transaction based on the value of the property when it is eventually sold and the rental obtained during the lease term.

I suspect one of the biggest risks for the seller-lessee is the loss of a valuable asset that could have substantially appreciated over its useful life. Also, the rental market could drop, leaving the seller locked into a rental rate in excess of fair value. On the other side of the table, the seller could move or default, leaving the buyer with unattractive real estate in a soft market.

Even if there are no other problems, the benefits of the deal could be substantially reduced if the IRS deems that it is merely a “financial lease.” In that case, the IRS will treat the seller-lessee as the true owner of the real estate, with all the appropriate tax assessed, and the buyer-lessor will be treated as a lender-mortgagee.

Since sale and leaseback transactions can be quite complicated and also have to pass IRS muster, as I stated earlier, whether you are a buyer, seller or investor, you are well advised to consult with WCRE and seasoned real estate/tax counsel about your financial and tax consequences and the manner of structuring and implementing them to withstand possible IRS challenge.

FOR MORE INFORMATION:
Martin H. Abo, CPA/ABV/CVA/CFF is a principle of Abo and Company, LLC and its affiliate, Abo Cipolla Financial Forensics, LLC, Certified Public Accountants – Litigation and Forensic Accountants. With offices in Mount Laurel, NJ and Morrisville, PA, tips like the above can also be accessed by going to the firm’s website at www.aboandcompany.com.

 

Martin H. Abo, CPA/ABV/CVA/CFF
307 Fellowship Road, Suite 202
Mt. Laurel, NJ 08054
(856) 222-4723
marty@aboandcompany.com
For more information, contact:

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More Positive Developments in Allentown’s Neighborhood Improvement Zone

It was a busy week for the commercial property market in downtown Allentown, Pennsylvania.

For those tracking the growth and development occurring within the unique tax-incentive program contained entirely within Pennsylvania’s third largest city, the past 10 days have offered plenty of reasons for optimism.

The biggest news is the Jaindl Group’s announcement that it will be proceeding with construction on a 125,000-square-foot Class A office on Allentown’s riverfront before the end of the year.

Last week, the local developer told the Neighborhood Improvement Zone authority it would soon break ground on the first project on its long-planned Riverfront development.

Jaindl, one of the region’s largest land owners, has long had big plans for the riverfront, but redevelopment proved trickier than anticipated. It has put more than $18 million into getting the infrastructure set in the 26-acre site, which sits alongside the Leigh River.

If Jaindl fully follows through with its current plans, it will put more than $425 million into the Waterfront development before it’s all said and done. That would bring 690,000 square feet of premium office space, 165,000 square feet of retail and more than 550 units of four-star multifamily to Allentown’s 6th Ward.

Jaindl will have some help from the state of Pennsylvania. The entirety of the Waterfront is contained within Allentown’s “Neighborhood Improvement Zone,” which incentivizes developers to build within the city by offsetting the financial risk of doing so.

So far, only one group has taken advantage of this plan. City Center, another local developer, has put more than $700 million building modern offices, apartments, and retail in the Hamilton District. These projects have been largely successful at lease-up, and the firm recently notched up another pair of wins.

In the past 10 days, the group has filled nearly 20,000 square feet at Five City Center, its newest four-star office. One of those firms to take space, Raymond James and Associates, consolidated three regional offices across the Lehigh Valley for city space.

*Article Courtesy of CoStar

For more information about Allentown office space, Allentown retail space, and Allentown industrial space or other Allentown commercial properties, please call 215-799-6900 to speak with Jason Wolf (jason.wolf@wolfcre.com) at Wolf Commercial Real Estate, a leading Allentown commercial real estate broker that specializes in Allentown office space, Allentown retail space, and Allentown industrial space.

Wolf Commercial Real Estate, a full-service CORFAC International brokerage and advisory firm, is a premier Allentown commercial real estate brokerage firm that provides a full range of Allentown commercial real estate listings and services, property management services, and marketing commercial offices, medical properties, industrial properties, land properties, retail buildings and other Allentown commercial properties for buyers, tenants, investors, and sellers.

An Allentown commercial real estate broker with expertise in Allentown commercial real estate listings, Wolf Commercial Real Estate provides unparalleled expertise in matching companies and individuals seeking new Allentown office space, Allentown retail space, or Allentown industrial space with the Allentown commercial properties that best meets their needs.

As experts in Allentown commercial real estate listings and services, the team at our Allentown commercial real estate brokerage firm provides ongoing detailed information about Philadelphia commercial properties to our clients and prospects to help them achieve their real estate goals.  If you are looking for Allentown office space, Allentown retail space, or Allentown industrial space for sale or lease, Wolf Commercial Real Estate is the Allentown commercial real estate broker you need – a strategic partner who is fully invested in your long-term growth and success.

Please visit our websites for a full listing of South Jersey, Philadelphia, and Allentown commercial properties for lease or sale through our Philadelphia commercial real estate brokerage firm.

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Gap Inc. to Close 350 Stores by 2023 as Clothing Retailer Retools Real Estate Footprint

Iconic retailer Gap Inc. said it would close 350 stores by 2023 across its namesake and Banana Republic brands, a decision that is expected to reduce its mall-based locations by an estimated 80%. 

The nation’s largest apparel retailer said Thursday at least 225 of those locations are expected to close before the end of the year, with an additional 75 closures scheduled for 2021. As the company pulls back on locations for its unprofitable brands, it said it plans to move forward with openings for its successful ones — Athleta and Old Navy — as the two steadily contribute a larger portion of the company’s total revenue.

The drastic changes to its brick-and-mortar footprint, which were announced at a virtual investor event, come as the San Francisco-based company scrambles to retool its real estate portfolio amid a yearlong slump in sales and the ongoing coronavirus pandemic. 

“We were overly reliant on low productivity, high-rent stores,” Mark Breitbard, Gap’s new president and CEO, told investors. “We will be shrinking our North America footprint and getting out of mall-based locations, and by 2023, we will have reduced our store fleet by 35%. The goal is to create a new operating model in a cost-effective way, and all of the changes will help us become a digitally-led brand.”

Gap Inc. oversees brands including Gap, Banana Republic, Athleta, Old Navy, Janie & Jack, and Intermix. Its latest announcement is the retailer’s most aggressive push in its decades-long history to shift its Gap and Banana Republic business away from brick-and-mortar stores. The company had been struggling long before the pandemic against steep revenue declines, rising e-commerce competition, and declining mall traffic, which sent the number of Gap and Banana Republic stores nosediving over the past half-decade.

The company has shrunk Gap and Banana Republic’s footprint to what is expected to be fewer than 1,420 by this year’s end, from 1,843 stores in 2018. At the beginning of this year, the company had planned to close 90 Gap and Banana Republic locations. 

The firm’s dramatic increase in closings for those brands is another sign of how much retailers nationwide are struggling right now. The industry is responding to the financial distress of the pandemic by cutting back on real estate expenses and closing locations at a pace that is expected to make 2020 a record year for store closings, according to a CoStar Market Analytics report on the national retail real estate market. 

Gap’s retreat from mall-based locations could be a hefty blow for retail landlords already struggling with declining foot traffic. 

The chain plans to use the current healthcare and financial crisis as a springboard for its real estate restructuring plans. 

Gap Inc.’s Chief Financial Officer Katrina O’Connell told investors that the brand had “not had great execution over the past several years,” but the company will use current market conditions to reallocate its fixed expenses in rent and shift its resources to the retailer’s growing digital operations. 

Retool, Reset Future Growth

In the early stages of the virus’ outbreak across the United States, the retailer said it was forced to push most of its business to digital operations as a result of lockdowns and in-store restrictions. Most of the company’s 3,000 stores have since reopened, but after reporting a 165% leap in e-commerce sales compared to last year, Gap Inc. plans to continue to shift most of its future growth to expanded digital operations. 

A majority of Gap Inc.’s anticipated closures will be timed with lease expirations, but the retailer estimates it will have to spend about $210 million to buy out some of those agreements. O’Connell said the company is also aggressively renegotiating lease terms for stores that will remain open, a move that will save the company about $45 million annually. 

“Lease buy-out costs and rent reductions are all specific to our real estate restructuring efforts,” the CFO said, adding that the company is also exploring whether it should exit the European market entirely or shift its locations there over to a franchise model. 

But the company’s plan to shrink its real estate costs has already hit a few brick walls. The company has been tangled in several lawsuits over the past five months with prominent landlords including Simon Property Group, which is Gap’s largest landlord, and Brookfield over its rental obligations. Simon is suing for $65.9 million in unpaid rent and has countersued Gap’s request for renegotiated rental terms for “taking opportunistic advantage” of the coronavirus’s devastating economic effect.

Gap’s store closure roadmap has already resulted in permanently vacating its 29,043-square-foot San Francisco flagship at 870 Market St. Back in August, the company confirmed it had emptied more than 47,230 square feet of retail space in the city after closing the flagship as well as other locations at the outdoor Embarcadero Centre and indoor Stonestown Mall

Gap Inc.’s shift from physical space to stronger e-commerce growth will coincide with another transition over the next three years: Old Navy and Athleta’s increasing prominence as the company’s most profitable brands. 

Since the pandemic’s outbreak in March, Old Navy has benefited from customers looking for lower price points, while Athleta’s athleisure and loungewear clothing has fueled the brand’s plan to more than double its current $1 billion in annual revenue by 2023. 

Shawn Curran, the retailer’s chief operating officer, said Thursday that the company would be shifting its brick-and-mortar footprint to more Old Navy and Athleta locations over the next several years. By 2023, the two companies will make up about 70% of Gap Inc.’s total revenue, a significant increase from their current 55% annual contribution. Revenue from all of the company’s brands last year totaled $16 billion. 

While the pandemic has slowed down Old Navy’s store expansion plans, the brand expects to open about 30 to 40 new stores each year through 2023. It currently operates about 1,200 locations. 

“Stores matter and will remain an important underpinning to our business,” Old Navy CEO Nancy Green said, adding that “current market conditions will slow the brand’s opening pace. We’ll target new stores in smaller markets as an alternative to big-box competitors, and opening in smaller markets will minimize cannibalization of other locations.”

Athleta, which currently operates a “highly profitable fleet” of 200 stores,” will also continue to expand its brick-and-mortar footprint. 

Mary Beth Laughton, the brand’s CEO, didn’t include details as to where and how many, but said physical locations were “top customer acquisition and brand-awareness vehicles that serve as an important role in local communities,” adding that the brand has an “under-penetrated real estate footprint.”

*Article Courtesy of CoStar

For more information about Philly office space, Philly retail space, and Philly industrial space or other Philadelphia commercial properties, please call 215-799-6900 to speak with Jason Wolf (jason.wolf@wolfcre.com) at Wolf Commercial Real Estate, a leading Philadelphia commercial real estate broker that specializes in Philly office space, Philly retail space and Philly industrial space.

Wolf Commercial Real Estate, a full-service CORFAC International brokerage and advisory firm, is a premier Philadelphia commercial real estate brokerage firm that provides a full range of Philadelphia commercial real estate listings and services, property management services, and marketing commercial offices, medical properties, industrial properties, land properties, retail buildings and other Philadelphia commercial properties for buyers, tenants, investors and sellers.

A Philadelphia commercial real estate broker with expertise in Philadelphia commercial real estate listings, Wolf Commercial Real Estate provides unparalleled expertise in matching companies and individuals seeking new Philly office space, Philly retail space or Philly industrial space with the Philadelphia commercial properties that best meets their needs.

As experts in Philadelphia commercial real estate listings and services, the team at our Philadelphia commercial real estate brokerage firm provides ongoing detailed information about Philadelphia commercial properties to our clients and prospects to help them achieve their real estate goals.  If you are looking for Philly office space, Philly retail space or Philly industrial space for sale or lease, Wolf Commercial Real Estate is the Philadelphia commercial real estate broker you need – a strategic partner who is fully invested in your long-term growth and success.

Please visit our websites for a full listing of South Jersey and Philadelphia commercial properties for lease or sale through our Philadelphia commercial real estate brokerage firm.

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Who Owns the Fixtures at Lease Expiration

Who Owns the Fixtures at Lease ExpirationLet’s examine who owns the fixtures at lease expiration. In order to facilitate a smooth transition between commercial tenants, it is important for landlords to understand their rights regarding items attached to their property. Generally, a lease will govern these rights. However, if the lease is silent on the issue, articles annexed to the property deemed “fixtures” must stay with the property, while articles deemed “trade fixtures” may be removed by a vacating tenant.

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In New Jersey, a fixture is an object that “become[s] so related to particular real estate that an interest… arises under real estate law.” N.J.S.A. 12A:2A-309(1)(a). In contrast, an article may be considered to be a trade fixture if: (1) the article is annexed to the property for the purpose of aiding in the conduct of a trade or business exercised on the premises; and (2) the article is capable of removal from the premises without material injury thereto. Handler v. Horns, 2 N.J. 18, 24-25 (1949). As such, an important distinction between fixtures and trade fixtures is whether removal of the item will cause material injury to the premises. See e.g.
GMC v. City of Linden, 150 N.J. 522, 534 (1997). In applying this test, courts infer that if removal of an article would cause material injury to the premises, the parties must have intended for the article to remain beyond the lease term. Id.

A typical conflict involving this nuanced distinction may involve a vacating tenant removing an item from the leased premises under the assumption that it was (1) attached to the premises for the purpose of conducting a trade or business; and (2) capable of removal without material injury to the premises. A landlord may dispute one or more of these assumptions, arguing that the article was not used in the conduct of business (that it was in fact attached to improve the structure) or is not capable of removal without material injury to the premises.Over the years, vacating tenants have attempted to remove countless items from leased premises, including air conditioning systems, irrigation systems, bolted down light fixtures and even circuit breaker panels, by arguing these items were trade fixtures. See e.g. In re Jackson Tanker Corp., 69 B.R. 850 (Bankr. S.D.N.Y. 1987).

However, it isn’t difficult to imagine a hypothetical where the traditional landlord and tenant arguments are reversed – that is, where the tenant argues that the article must remain with the property and the landlord argues that the tenant is responsible for its removal. This unusual fact pattern may especially arise where the tenant’s business is specialized in nature, and where equipment is not easily removed from the premises.

For example, Landlord rents out space to Tenant, who plans on operating a restaurant. The lease does not specifically address what does and does not constitute a trade fixture. Tenant plans on installing a walk-in freezer and other specialized, complex systems. After several years of operating, Tenant declines to renew the
lease, closes, and vacates the premises. Tenant removes the furniture, appliances not fixed to the premises and other items it deems to be trade fixtures and leaves the walk-in freezer infrastructure. Tenant refuses to remove the walk-in freezer, arguing its removal will cause substantial damage to the premises. Unable to re-let the premises to a restaurant tenant, Landlord is left with a walk-in freezer occupying a substantial portion of the premises. It is important that during the lease negotiation, landlords think carefully about the business their prospective tenant is in, the kinds of equipment the tenant will install and what will happen to that equipment upon termination of the lease. This same thought process applies when landlords receive requests for alterations. In the above hypothetical, Landlord could have avoided being left with a walk-in freezer and a less than desirable space if it addressed the issue during negotiation of the lease. A discussion with prospective tenants concerning the specific kinds equipment the tenant will install is always a good idea, followed by specifications and drawings for approval. Landlords are wise to reduce these conversations to writing, and specifically address each party’s expectations regarding the disposition of specific equipment when the lease inevitably comes to an end. As always, an ounce of prevention is worth a pound of cure.

The contents of this article are for informational purposes only and none of these materials is offered, nor should be construed, as legal advice or a legal opinion based on any specific facts or circumstances.

William F. Hanna, Esquire
Hyland Levin Shapiro LLP
hanna@hylandlevin.com
Hyland Levin Shapiro LLP
6000 Sagemore Drive, Suite 6301
Marlton, NJ 08053-3900
(p) 856.355.2900

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WCRE Appointed Exclusive Agent to Market Florence L. Walther Elementary School Property 

Florence L. Walther Elementary SchoolWolf Commercial Real Estate (WCRE) is pleased to announce that it has been appointed exclusive agent to market for sale and lease the Florence L. Walther Elementary School, located at 56 Chestnut St. Lumberton, New Jersey.

This new listing opportunity adds to WCRE’s growing number of assignments of educational and institutional properties in the Philadelphia and Southern New Jersey region.

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The Florence L Walther consists of 2 buildings with a total 55,806 square feet and is situated on an approximate 4.07 Acre site offering an excellent location near heavily traveled Route I-295 and Route 38 in Lumberton, New Jersey.

The Florence L Walther School is planning to close at the end of June. This highly visible property has a campus-like atmosphere with the main building offering 53,406 square feet. Additionally, the Lumberton Extended Daycare building offers 2,400 square feet of space with a vast playground next to the site. The school has been well maintained and is available for immediate occupancy.

Mark Leung, School Business Administrator and Board Secretary for Lumberton School District said, “We had a need for commercial real estate professional services and put out a request for qualifications. WCRE’s response exhibited extensive experience working with schools, coupled with their breadth of knowledge of the local real estate market, made them the obvious choice.”

WCRE’s institutional specialist team of Chris Henderson and Phil Costa said,

“WCRE is proud to partner with Lumberton Township Board of Education as our latest institutional relationship in Southern New Jersey. We look forward to applying our WCRE 360 marketing approach to find a new user for this highly-desirable property.”

A marketing brochure is available upon request.

About WCRE

WCRE is a full-service commercial real estate brokerage and advisory firm specializing in office, retail, medical, industrial and investment properties in Southern New Jersey and the Philadelphia region. We provide a complete range of real estate services to commercial property owners, companies, banks, commercial loan servicers, and investors seeking the highest quality of service, proven expertise, and a total commitment to client-focused relationships. Through our intensive focus on our clients’ business goals, our commitment to the community, and our highly personal approach to client service, WCRE is creating a new culture and a higher standard. We go well beyond helping with property transactions and serve as a strategic partner invested in your long-term growth and success.

Learn more about WCRE at www.wolfcre.com, on Twitter & Instagram @WCRE1, and on Facebook at Wolf Commercial Real Estate, LLC. Visit our blog pages at www.southjerseyofficespace.com, www.southjerseyindustrialspace.com, www.southjerseymedicalspace.com, www.southjerseyretailspace.com,

www.phillyofficespace.com, www.phillyindustrialspace.com, www.phillymedicalspace.com, www.phillyretailspace.com.

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Despite Bleak Near-Term Outlook, Philadelphia Economy Should Survive Coronavirus

The coronavirus spread has reintroduced factors absent from in the national and Philadelphia commercial real estate markets economy for almost a decade: widespread fear and uncertainty.

As we are early in the onset, and short on government data points collected after the virus’ spread, any market analyst in the U.S. commercial real estate market – including Philly office space, Philly retail space and Philly industrial space –  worth his or her salt will admit there will be a deluge of question marks hanging over the economic outlook during the next month or two.

However, it’s still constructive to take stock of what we do know, in order to build up as clear a picture of the road ahead as possible for U.S. and Philadelphia commercial real estate listings.

This CoStar Realty Information Inc. report involving U.S. and Philadelphia commercial properties is being made available through Philadelphia commercial real estate broker Wolf Commercial Real Estate, a Philadelphia commercial real estate brokerage firm.

First off, a painful near-term decline in Philly’s economic figures in relation to national and Philadelphia commercial real estate properties is all but certain for this spring. To curb the virus’ spread and prevent hospitals from being overwhelmed with patients, Pennsylvania and New Jersey governors both ordered all nonessential businesses to close on March 16.

How long are these monumental measures likely to stay in place? China’s aggressive lockdown measures lasted about two months. The CDC recently recommended cancelling or postponing any gatherings of 50 scheduled through mid-May. Johns Hopkins University School of Medicine’s infectious disease expert Morgan Katz expects meaningful improvements by early May.

Meanwhile, Treasury Secretary Steven Mnuchin is at the center of the White House’s economic response to this crisis and says Republican senators’ proposed Coronavirus Relief Bill, now under debate in the Congress, aims to cushion businesses for 10-12 weeks of serious disruption. That would take us through early- to mid-June.

Regardless of how long these shutdowns last, the leisure/hospitality sector and retail trade sectors in the U.S. commercial real estate market – including Philly office space, Philly retail space and Philly industrial space – will likely be some of the worst-affected major industries. They represent 10 percent and 8 percent of Philadelphia total employment, respectively.

Hit by department store closures and the shift to automated or online checkout, Philadelphia’s retail employment already was on the decline before the onset of the virus. Considering how many national retailers’ balance sheets had already been eroding prior to the onset of this crisis, the road ahead looks like a painful one for the retail markets related to national and Philadelphia commercial real estate listings.

Leisure and hospitality employment, supported mostly by restaurants, bars, and hotels, had been one of the metropolitan area’s fastest-growing employment sectors. Center City’s blossoming nightlife has been a key ingredient to Philadelphia economic revival over the past 15 to 20 years. The fact that the industry is now at such high risk is probably the biggest existential threat posed by the coronavirus to Philadelphia’s ongoing revival.

But overall, the coronavirus and its accompanying economic shock do not pose major threats to the fundamental drivers of Philadelphia’s economic renaissance over the past 15 to 20 years.

Philadelphia’s industry mix positions it better than most major U.S. cities to weather the negative economic impact of the coronavirus. Very few major U.S. markets have higher concentrations of the sector including healthcare, professional and business services which will likely remain most resilient in the months ahead.

Meanwhile, Philadelphia has relatively lower concentrations of the sectors now most at risk such as leisure and hospitality, retail and oil and gas extraction.

The city’s status as a powerhouse of healthcare innovation only gains renewed importance as a result of the current tragedy and will be a key economic benefit as the number of U.S. residents aged 70 and older grows by 40 percent over the course of this new decade.

Meanwhile, the cost of living differential between Philadelphia and its nearby competitors, New York, Boston and Washington, D.C., remains massive. Philadelphia will continue to attract large net inflows of college-educated young adults moving from these places in search of more spacious housing and higher savings/disposable income.

In other words, for firms able to remain on offense during what will undoubtedly be challenging months ahead, Philadelphia remains an attractive destination for real estate investment capital seeking stable long-term growth, especially when stacked against other major metropolitan areas in the U.S. uncertainty. – By Adrian Ponsen, CoStar Analytics.

For more information about Philly office space, Philly retail space, and Philly industrial space or other Philadelphia commercial properties, please call 215-799-6900 to speak with Jason Wolf (jason.wolf@wolfcre.com) at Wolf Commercial Real Estate, a leading Philadelphia commercial real estate broker that specializes in Philly office space, Philly retail space and Philly industrial space.

Wolf Commercial Real Estate, a full-service CORFAC International brokerage and advisory firm, is a premier Philadelphia commercial real estate brokerage firm that provides a full range of Philadelphia commercial real estate listings and services, property management services, and marketing commercial offices, medical properties, industrial properties, land properties, retail buildings and other Philadelphia commercial properties for buyers, tenants, investors and sellers.

Wolf Commercial Real Estate, a Philadelphia commercial real estate broker with expertise in Philadelphia commercial real estate listings, provides unparalleled expertise in matching companies and individuals seeking new Philly office space, Philly retail space or Philly industrial space with the Philadelphia commercial properties that best meets their needs.

As experts in Philadelphia commercial real estate listings and services, the team at our Philadelphia commercial real estate brokerage firm provides ongoing detailed information about Philadelphia commercial properties to our clients and prospects to help them achieve their real estate goals.  If you are looking for Philly office space, Philly retail space or Philly industrial space for sale or lease, Wolf Commercial Real Estate is the Philadelphia commercial real estate broker you need – a strategic partner who is fully invested in your long-term growth and success.

Please visit our websites for a full listing of South Jersey and Philadelphia commercial properties for lease or sale through our Philadelphia commercial real estate brokerage firm.

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U.S. Economy Records Another Month of Job Growth

For the second month in a row, U.S. firms active in the national and Philadelphia commercial real estate markets blasted past hiring expectations, adding 273,000 net new jobs in February according to last week’s national employment report released by the Commerce Department.

The unexpectedly strong report, culled from a variety of corporations in the U.S. commercial real estate market – including Philly office space, Philly retail space and Philly industrial space –  was further bolstered by revisions to December and January payroll data that added an astounding 85,000 jobs in those months combined, bringing the three-month average job gain to 243,000 per month, a rate not seen since September 2016. Meanwhile, the unemployment rate ticked back down to its 50-year low of 3.5%.

This CoStar Realty Information Inc. report involving U.S. and Philadelphia commercial properties is being made available through Philadelphia commercial real estate broker Wolf Commercial Real Estate, a Philadelphia commercial real estate brokerage firm.

The survey of employers related to U.S. and Philadelphia commercial real estate listings used to compile this data was administered in the second week of February before it became apparent that the coronavirus outbreak in China had spread throughout much of the globe, including the U.S. A potential preventative vaccine is at least a year or more away, according to health officials, and therapeutic treatment remains uncertain and probably won’t be available until late spring at the earliest.

To avoid widespread transmission, factories in China and other Asian nations had halted operations and workers were isolated or quarantined. Several nations have closed their borders to visitors from impacted areas, and many national and international companies involved with national and Philadelphia commercial real estate properties now are restricting business travel.

This has led to interrupted supply chains for manufacturers serving the U.S. commercial real estate market – including Philly office space, Philly retail space and Philly industrial space and a drop-off in demand for transportation services as well as travel and tourism-related services. In the U.S., as people avoid large public gatherings and events, leisure and hospitality, live entertainment and retail sectors are likely to be impacted.

While the economic impact of the virus remains unknown, the February jobs report offers insight into the underlying strength of the labor market before impacts from the virus begin to be reflected in the economic data related to national and Philadelphia commercial real estate listings. This may suggest the economy’s resilience amid continued uncertainty. – By Christine Cooper, Managing Director and Senior Economist for CoStar Market Analytics, Los Angeles.

For more information about Philly office space, Philly retail space, and Philly industrial space or other Philadelphia commercial properties, please call 215-799-6900 to speak with Jason Wolf (jason.wolf@wolfcre.com) at Wolf Commercial Real Estate, a leading Philadelphia commercial real estate broker that specializes in Philly office space, Philly retail space and Philly industrial space.

Wolf Commercial Real Estate, a full-service CORFAC International brokerage and advisory firm, is a premier Philadelphia commercial real estate brokerage firm that provides a full range of Philadelphia commercial real estate listings and services, property management services, and marketing commercial offices, medical properties, industrial properties, land properties, retail buildings and other Philadelphia commercial properties for buyers, tenants, investors and sellers.

Wolf Commercial Real Estate, a Philadelphia commercial real estate broker with expertise in Philadelphia commercial real estate listings, provides unparalleled expertise in matching companies and individuals seeking new Philly office space, Philly retail space or Philly industrial space with the Philadelphia commercial properties that best meets their needs.

As experts in Philadelphia commercial real estate listings and services, the team at our Philadelphia commercial real estate brokerage firm provides ongoing detailed information about Philadelphia commercial properties to our clients and prospects to help them achieve their real estate goals.  If you are looking for Philly office space, Philly retail space or Philly industrial space for sale or lease, Wolf Commercial Real Estate is the Philadelphia commercial real estate broker you need – a strategic partner who is fully invested in your long-term growth and success.

Please visit our websites for a full listing of South Jersey and Philadelphia commercial properties for lease or sale through our Philadelphia commercial real estate brokerage firm.

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Grocers, Gyms, Discount Apparel Keeping Philly Retail Space Market Afloat

Store closures reached a record-high nationally in 2019, and the Philadelphia commercial real estate market was not spared from the fallout.

Sears and Kmart alone shuttered eight stores in the Philly retail space market, resulting in 1 million square feet of new retail vacancy. Market-wide net absorption, the difference between move-ins and move-outs, ended the year slightly in the red.

This CoStar Realty Information Inc. report involving Philadelphia commercial properties is being made available through Philadelphia commercial real estate broker Wolf Commercial Real Estate, a Philadelphia commercial real estate brokerage firm.

The latest Philadelphia retail market video update from Adrian Ponsen at CoStar Analytics examines these trends in more detail to help investors understand the challenging and fast changing retail market they face in 2020. Please click here to view the video.

Market trends in the Philly retail space market, however, would have been far worse if not for the range of tenants that faced less pressure from Amazon and continued to expand.

More than 12 new grocery store locations opened in the Philadelphia area last year, along with several new fitness centers. In addition, discount clothing retailers, such as Burlington, Marshalls, TJ Maxx and Old Navy, also continue to grow their store counts in the Philly retail space market. Despite competition from online clothing sellers, many budget-conscious shoppers still find that it’s simply quicker and more cost effective to visit brick-and-mortar locations and try clothes on, rather than ordering online and risk having to make returns.

For more information about Philly retail space or other Philadelphia commercial properties, please call 215-799-6900 to speak with Jason Wolf (jason.wolf@wolfcre.com) at Wolf Commercial Real Estate, a leading Philadelphia commercial real estate broker that specializes in Philly retail space.

Wolf Commercial Real Estate, a full-service CORFAC International brokerage and advisory firm, is a premier Philadelphia commercial real estate brokerage firm that provides a full range of Philadelphia commercial real estate listings and services, property management services, and marketing commercial offices, medical properties, industrial properties, land properties, retail buildings and other Philadelphia commercial properties for buyers, tenants, investors and sellers.

Wolf Commercial Real Estate, a Philadelphia commercial real estate broker with expertise in Philadelphia commercial real estate listings, provides unparalleled expertise in matching companies and individuals seeking new Philly retail space with the Philadelphia commercial properties that best meets their needs.

As experts in Philadelphia commercial real estate listings and services, the team at our Philadelphia commercial real estate brokerage firm provides ongoing detailed information about Philadelphia commercial properties to our clients and prospects to help them achieve their real estate goals.  If you are looking for Philly retail space for sale or lease, Wolf Commercial Real Estate is the Philadelphia commercial real estate broker you need – a strategic partner who is fully invested in your long-term growth and success.

Please visit our websites for a full listing of South Jersey and Philadelphia commercial properties for lease or sale through our Philadelphia commercial real estate brokerage firm.

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Retail Pop-Ups Evolve as Landlords Seek Fresh Appeal

The bright neon sign declares “You are magic!” as a room fills with a rainbow of lights activated by a couple, Jaime Martinez and Cristina Cave, clasping hands while touching sensors.

The two wriggle their bodies and twist their arms up, activating more lights, all while a camera behind them discreetly snaps photos of their colorful dance. Within minutes, the camera creates an Instagram-ready graphic that is emailed to their inbox for social media sharing.

Cave and Martinez are among hundreds of people who visited Color Factory, an interactive pop-up art exhibit in a former 20,000-square-foot furniture store in Houston on a recent winter afternoon. Families, couples, and children crowded the sold-out exhibit that day, jumping into the NASA-themed plastic ball pit, drawing on walls with three-foot long blue pens, munching on macarons and mochi ice cream, and sniffing works of art that have been infused with scents of freshly cut grass and butter popcorn.

Color Factory represents an increasingly important new breed of retail tenant that could provide one answer to the struggle retail property owners in national and Philadelphia commercial real estate markets have as they search for ways to lure in customers as online shopping grows. So-called pop-up shops, defined because they have temporary leases, have been around for years mostly as seasonal retail strategies around Halloween or Christmas.

This excerpt from a CoStar Realty Information Inc. report by Marissa Luck involving U.S. and Philadelphia commercial properties is being made through Philadelphia commercial real estate broker Wolf Commercial Real Estate, a Philadelphia commercial real estate brokerage firm.

This new wave of pop-up stores in the U.S. commercial real estate market – including Philly retail space – is a radical departure from the traditional seasonal model, and they are breaking into hybrids, according to a recent report. Many of the concepts like Color Factory don’t even bank on selling visitors goods and instead rely on admission costs and social media attention for their bottom line.

Pop-up retail is estimated to be a $50-billion-and-growing industry in the U.S. commercial real estate market – including Philly retail space – and, according to industry sources, the number of pop-ups in New York City doubled in 2019 and is now right around 200.

The pace of the pop-up boom among national and Philadelphia commercial real estate properties is expected to continue in 2020. Experts expect pop-up leases to further entrench themselves in major metropolitan cities and expand out across the country into more medium-sized cities. Though temporary in nature, the pop-up lease could become a permanent piece of commercial real estate, though the form is changing.

The rise in pop-ups is a response to the retail apocalypse as a record number of storefronts close amid changing consumer habits and the rise of online shopping, leaving millions of square feet of retail space vacant across the country. While pop-ups aren’t expected to be the solution to the rising tide of retail vacancies, they do represent an increasingly innovative way for landlords to generate income and create foot traffic at a property. – By Marissa Luck, CoStar Realty Information Inc.

For more information about Philly retail space or other Philadelphia commercial properties, please call 215-799-6900 to speak with Jason Wolf (jason.wolf@wolfcre.com) at Wolf Commercial Real Estate, a Philadelphia commercial real estate broker that specializes in Philly retail space.

Wolf Commercial Real Estate, a full-service CORFAC International brokerage and advisory firm, is a premier Philadelphia commercial real estate brokerage firm that provides a full range of Philadelphia commercial real estate listings and services, property management services, and marketing commercial offices, medical properties, industrial properties, land properties, retail buildings and other Philadelphia commercial properties for buyers, tenants, investors and sellers.

A Philadelphia commercial real estate broker with expertise in Philadelphia commercial real estate listings, Wolf Commercial Real Estate provides unparalleled expertise in matching companies and individuals seeking new Philly retail space with the Philadelphia commercial properties that best meets their needs.

As experts in Philadelphia commercial real estate listings and services, the team at our Philadelphia commercial real estate brokerage firm provides ongoing detailed information about Philadelphia commercial properties to our clients and prospects to help them achieve their real estate goals.  If you are looking for Philly retail space for sale or lease, Wolf Commercial Real Estate is the Philadelphia commercial real estate broker you need – a strategic partner who is fully invested in your long-term growth and success.

Please visit our websites for a full listing of South Jersey and Philadelphia commercial properties for lease or sale through our Philadelphia commercial real estate brokerage firm.

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Commercial Real Estate Tax Deduction Restrictions

commercial real estate tax deduction restrictions.It’s 2020! Let’s take a quick look at some recent tax law changes affecting commercial real estate tax deduction restrictions. Below please find some insight into recent tax changes affecting commercial real estate tax deductions.

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Here are some items that come to mind:

(1) The Tax Cuts and Jobs Act enables investment real estate owners to still defer capital gains taxes using section 1031 like-kind exchanges. There were no new restrictions on 1031 exchanges of real property made in the law. However, the new law repeals 1031 exchanges for all other types of property that are not real property. This means like-kind exchanges of personal property will no longer be allowed after 2017 for collectibles, franchise rights, heavy equipment and machinery, collectibles, rental vehicles, trucks, etc. The rules apply to real property not generally held for resale (such as lots held by a developer).

(2) The capital gain tax rates stayed the same so a real estate owner selling an investment property can potentially owe up to four different taxes: (1) Deprecation recapture at 25% (2) federal capital gain taxed at either 20% or 15% depending on taxable income (3) 3.8% net investment income tax (“NIIT”) when applicable and (4) the applicable state and local tax rate.

(3) The tax law creates a new tax deduction of 20% for pass-through businesses. This gets tricky but here goes. For tax years 2018-2025, an individual generally may deduct 20% of qualified business income from a partnership, S corporation, or sole proprietorship. The 20% deduction is not allowed in computing Adjusted Gross Income (AGI), but is allowed as a deduction reducing taxable income. 

Restrictions on Tax Deductions

(1) Mostly, the deduction cannot exceed 50% of your share of the W-2 wages paid by the business. The limitation
can be computed as 25% of your share of the W-2 wages paid by the business, plus 2.5% of the unadjusted basis
(the original purchase price) of property used in the production of income.

(2) The W-2 limitations do not apply if you earn less than $157,500 (if single; $315,000 if married filing jointly).

(3) Certain personal service businesses are not eligible for the deduction, unless their taxable income is less than
$157,500 for singles and $315,000 if married. A “specified service trade or business” means any trade or business involving the performance of services in the fields of health, law, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners, or which involves the performance of services that consist of investing and investment management trading, or dealing in securities, partnership interests, or commodities. (It appears President Trump liked real estate people but did not like professionals like lawyers, doctors, accountants and other consultants).

(4) The exception to the W-2 limit and the general disallowance of the deduction to personal service businesses is phased out over a range of $50,000 of income for single taxpayers and $100,000 for married taxpayers filing
jointly. By the time income for a single taxpayer reaches $207,500 or $415,000 for a married-filing-jointly
taxpayer, the W-2 limitation will apply in full (i.e. personal service professionals get no deduction).

(5) The new tax law increased the maximum amount a taxpayer may expense under Section. 179 to $1,000,000 and increased the phaseout threshold to $2,500,000. Interestingly, the new law also expanded the definition of Section. 179 properties to include certain depreciable tangible personal property used predominantly to furnish lodging. It also expanded the definition of qualified real property eligible for Section 179 expensing to include the following improvements to nonresidential real property: roofs; heating, ventilation, and air-conditioning property; fire protection and alarm systems; and security systems

(6) State and local taxes paid regarding carrying on a trade or business, or in an activity related to the production of income, continue to remain deductible. A rental property owner can deduct property taxes associated with a business asset, such as any rental properties. Don’t confuse such with the itemized deduction for your personal residence or vacation home which is now limited.

(7) While the prior law generally allows a deduction for business interest expenses, the new tax act limits that deduction to the business interest income plus 30% of adjusted taxable income. However, taxpayers (other than tax shelters) with average annual gross receipts for the prior three years of $25 million or less are exempt from this limitation. Real estate businesses can elect out of the business interest deduction limitation, but at the cost of longer depreciation recovery periods—30 years for residential real property and 40 years for nonresidential real property. If a real estate business does not elect out of the interest deduction limitation, then residential and nonresidential real property depreciation recovery periods are maintained at 27.5 years and 39 years, respectively.

Phew-there you have taste of what we’re going or at least as we see general changes directly or even indirectly
affecting real estate peeps. As you can see, the new law will bring a lot of changes (both good and bad) to individual and business taxpayers. On the plus side, this means more planning opportunities for many although looking for answers can be problematic as we all try to navigate through uncertain territory. These comments only touch the surface of one of the biggest tax overhauls in the nation’s history. Stay tuned and do stay close to your tax attorney and accountant.….

 

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New Census Figures Show Rise in College Educated Renters in Philly

Just before the start of 2020, the U.S. Census Bureau released a treasure trove of its most recent demographic data from 2018.

While the census’ data releases are slightly dated, the bureau still provides far and away the most granular insights available on changes in long-term demographic trends that offer a view of the national and Philadelphia commercial real estate markets.

For the U.S. commercial real estate market – including Philly retail space – one of the most important takeaways from the recent release was the continued surge in Philadelphia’s population of college-educated renters.

This CoStar Realty Information Inc. report involving U.S. and Philadelphia commercial properties is being made available through Philadelphia commercial real estate broker Wolf Commercial Real Estate, a Philadelphia commercial real estate brokerage firm.

The year-end tally of overall renter households in Philadelphia County wasn’t particularly noteworthy. At 287,500, the figure was almost unchanged compared to 2013 levels. (See Chart “New Households Moving into Philadelphia County”)

But the slow-growing headline masks dramatic changes in the demographic makeup of Philadelphia’s renter population. With rents having risen for 10 years straight, low income renters are being priced out of Philadelphia at an alarming rate.

The number of renter households without a college degree declined by almost 20,000, or 13 percent over the past five years, more than 10 times the national rate of decline in this cohort. Conversely, the number of renter households with bachelor’s or graduate degrees jumped to 97,000 in 2018, an acceleration over the 5.4 percent annual growth the figure has averaged during the past five years. (See Chart “Renter Households With Bachelors Degrees or Higher”)

In line with these shifts, Philadelphia’s share of renter households earning over $75,000 has now doubled from 10 percent in 2010 to 21 percent in 2018, with most of the gains accruing during the second half of the decade. (See Chart “Percentage of Renter Households Earning $75K+”)

Why is Philly experiencing such rapid growth in high income renters? Increasing affordability barriers to homeownership (which will be covered in a future Costar Research update) are keeping more high-income residents living near U.S. and Philadelphia commercial real estate listings in the renter pool well into their 30s.

However, even greater affordability challenges in nearby New York and Washington, D.C., are sending residents to be closer to national and Philadelphia commercial real estate properties. As housing costs have skyrocketed in those locations during recent years, the number of college-educated migrants arriving in Philadelphia annually has grown by more than 50 percent since 2012.

This influx has been offset by Philadelphia’s continued losses in low- and middle-income renters. Census data suggests that in many cases, these renters are moving to some of the lowest-cost corners of the Philadelphia metropolitan statistical area, including Delaware County, Pennsylvania, and New Castle County, Delaware, which both saw their tallies of non-college educated renters rise by more than 4,000 over the past five years. However, others continue to leave national and Philadelphia commercial real estate properties seeking the mix of lower housing costs and better blue-collar employment prospects offered in the southern U.S. (See Chart “Total Renter Households”)

The overarching takeaway from the 2018 census release is that while Philadelphia’s renter population is growing more slowly than it was five years ago, it continues to gentrify at a rapid pace – By Adrian Ponsen, CoStar Realty Information Inc.

For more information about Philly retail space or other Philadelphia commercial properties, please call 215-799-6900 to speak with Jason Wolf (jason.wolf@wolfcre.com) at Wolf Commercial Real Estate, a leading Philadelphia commercial real estate broker that specializes in Philly retail space.

Wolf Commercial Real Estate, a full-service CORFAC International brokerage and advisory firm, is a premier Philadelphia commercial real estate brokerage firm that provides a full range of Philadelphia commercial real estate listings and services, property management services, and marketing commercial offices, medical properties, industrial properties, land properties, retail buildings and other Philadelphia commercial properties for buyers, tenants, investors and sellers.

Wolf Commercial Real Estate, a Philadelphia commercial real estate broker with expertise in Philadelphia commercial real estate listings, provides unparalleled expertise in matching companies and individuals seeking new Philly retail space with the Philadelphia commercial properties that best meets their needs.

As experts in Philadelphia commercial real estate listings and services, the team at our Philadelphia commercial real estate brokerage firm provides ongoing detailed information about Philadelphia commercial properties to our clients and prospects to help them achieve their real estate goals.  If you are looking for Philly retail space for sale or lease, Wolf Commercial Real Estate is the Philadelphia commercial real estate broker you need – a strategic partner who is fully invested in your long-term growth and success.

Please visit our websites for a full listing of South Jersey and Philadelphia commercial properties for lease or sale through our Philadelphia commercial real estate brokerage firm.

 

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Job Growth, Consumer Spending Bode Well for CRE in 2020

The longest economic expansion since World War II in the national and Philadelphia commercial real estate markets shows indications of staying solid in 2020, extending the record bull run for U.S. commercial real estate despite some risks that could eventually move the country toward a recession, according to CoStar economists.

Trade wars and a slowdown in the U.S. manufacturing sector as well as around the globe last year roiled equity markets and rattled businesses in the U.S. commercial real estate market – including Philly retail space, CoStar economists say in the “2019 Year in Review of the U.S. Economy” video (available by clicking here). This robust job growth has, the CoStar experts said, extended the spending power of American consumers, the heart of the nation’s economic engine.

This CoStar Realty Information Inc. report involving U.S. and Philadelphia commercial properties is being made available through Philadelphia commercial real estate broker Wolf Commercial Real Estate, a Philadelphia commercial real estate brokerage firm.

“Our growing economy still bodes well for demand for commercial and multifamily real estate,” said Christine Cooper, managing director and senior economist from CoStar’s Los Angeles office. “Expanding payrolls will continue to fuel demand for office space, while rising incomes and consumption will boost demand in industrial and retail sectors. As job growth continues, consumers appear quite optimistic and unconcerned by the trade war and any economic slowdown abroad.”

Trade tensions caused markets dominated by U.S. and Philadelphia commercial real estate listings to swoon, resulting in distress and uncertainty for businesses dealing with disruptions to their supply chains and higher costs. That made firms cautious in their plans for expansion and private business investment, which has been slowing since mid-2018, said Galina Alexeenko, managing director and senior economist from CoStar’s Atlanta office.

“The business sector’s mood soured in 2019 as uncertainty reigned, costs rose, profit margins compressed and earnings growth slowed,” Alexeenko said. “Falling exports and the pullback in business investment have been a drag on economic growth.”

Migration of workers from the Northeast and Midwest – as well as throughout national and Philadelphia commercial real estate properties as well – continued to bolster surprising strength in labor markets, with job growth fueling real estate demand in the South and U.S. West, said Alexeenko. The Federal Reserve Bank faced rising trade uncertainties, slowing inflation and a global economic slowdown, the analysts said in the video.

“Going forward into this new decade, we expect economic growth to slow somewhat as the labor market cools, consumer spending loses some momentum and persistent global and trade policy headwinds weigh on business sentiment and investment,” Cooper said. – By Randy L. Drummer, CoStar Realty Information Inc.

For more information about Philly retail space or other Philadelphia commercial properties, please call 215-799-6900 to speak with Jason Wolf (jason.wolf@wolfcre.com) at Wolf Commercial Real Estate, a leading Philadelphia commercial real estate broker that specializes in Philly retail space.

Wolf Commercial Real Estate, a full-service CORFAC International brokerage and advisory firm, is a premier Philadelphia commercial real estate brokerage firm that provides a full range of Philadelphia commercial real estate listings and services, property management services, and marketing commercial offices, medical properties, industrial properties, land properties, retail buildings and other Philadelphia commercial properties for buyers, tenants, investors and sellers.

Wolf Commercial Real Estate, a Philadelphia commercial real estate broker with expertise in Philadelphia commercial real estate listings, provides unparalleled expertise in matching companies and individuals seeking new Philly retail space with the Philadelphia commercial properties that best meets their needs.

As experts in Philadelphia commercial real estate listings and services, the team at our Philadelphia commercial real estate brokerage firm provides ongoing detailed information about Philadelphia commercial properties to our clients and prospects to help them achieve their real estate goals.  If you are looking for Philly retail space for sale or lease, Wolf Commercial Real Estate is the Philadelphia commercial real estate broker you need – a strategic partner who is fully invested in your long-term growth and success.

Please visit our websites for a full listing of South Jersey and Philadelphia commercial properties for lease or sale through our Philadelphia commercial real estate brokerage firm.

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