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Brandywine CEO Jerry Sweeney Sees Signs of a Big Year for Owners of High-End Commercial Real Estate

Covid-19 sent shockwaves through the commercial real estate market in 2020. Jerry Sweeney now sees opportunity. 

“I think everybody who’s in our business should be incredibly enthusiastic about what could happen in 2021,” said the CEO of Brandywine Realty Trust, the largest landlord of Class A office space in the Philadelphia region. “The greatest economy in the history of the world was on hold for 10 months. We’re beginning to creep our way back. I think there will be a lot of pent-up demand. I think the standards will be even higher. So if you’re a very high-quality landlord, I think you’re going to benefit from the emerging trend lines.” 

Brandywine’s (NYSE: BDN) footprint totals more than 24 million square feet of space across the Philadelphia, Washington, D.C., and Austin, Texas, markets. Local properties include Cira Centre, 1900 Market St. and the Radnor Financial Center. The company is also spearheading the proposed $3.5 billion Schuylkill Yards development in University City. 

Sweeney, who describes real estate as a business “where you’re always focused forward,” recently sat down for an interview with Philadelphia Business Journal Reporter Natalie Kostelni as part of the 2021 Economic Forecast series. 

Below are Sweeney’s views on the future of offices, shifting tenant needs, demand for space and what a new White House administration could mean for real estate. The interview has been edited and condensed for clarity.

On Brandywine’s 500,000 square feet of early renewals

A lot of those renewals were essentially two- to three-year deals. Our approach was really, with a lot of things happening in everybody’s business, not everybody thinks about real estate every day like we do. They’re actually running businesses. Our approach was to make sure that they knew that we were willing to do short-term accommodations to help them really think through the impact of the pandemic, not just on their physical platform but also on their business. And we had a lot of tenants respond very favorably to that. They all renewed in the same amount of square footage at very good economic terms for us and for the tenant. And again, that’s part of that granting and earning of trust that basically we weren’t going to wait until the last minute to jam somebody on a renewal. We were proactive in getting out there and talking to them. 

On the future of the workplace

I think what the pandemic really did was accelerate this trend line that’s been going on for 20 years about the impact of technology on the workplace. Companies really start to recognize that the office isn’t a finished product. It’s a work in progress. It’s where things happen. And I think it’s where you celebrate, where you collaborate, where you learn, where you grow, you celebrate birthdays, you plan. A lot of the feedback I’ve gotten from kind of the C-level executives from many of our larger tenants is 2020, and going into the early part of 2021, has really been a year of business triage. They’re jumping back and forth. The Zoom calls – they’re walking around with the dress shirts on, but pajama bottoms. They’re kind of managing projects, but I think there’s a real growing expectation with the economic recovery underway and hopefully accelerating. It’s really a time to get back to business, and the ability of a physical platform to be a springboard for business growth I think is really going to come home as a point of focus for a lot of our tenants as 2021 progresses. 

On the state of the downtown office market vs. the suburbs

It’s not a big difference at this point. You know the public policy guidelines are different in the city than out in the suburban counties in terms of return to work. As you would expect, activity levels are lower than they would historically be. Although I will tell you our pipeline of deals is still north of 1.5 million square feet. So while it’s been slow, there have been a lot of tenants in the market and their decision timelines have become more protracted. But we’ve certainly seen an uptick in activity even within the last couple of weeks. But we haven’t really seen a big divergence of the main drivers between the city and the suburbs. I think that was part of the national pundit view: The urban areas will suffer. The suburban areas will prosper. And honestly, I don’t know if they will or not. But I think from what we’re seeing, it’s simply too early to tell. We’ve not had any tenant in our portfolio say, ‘Hey, I want to leave the city.’ We haven’t had any tenants in the suburbs saying, ‘Hey, I want to move into the city.’ I think people are just really focused more on their short-term horizons. 

On if tenants are seeking to sublease portions of their space

We’ve always seen that throughout the different cycles. And each market is different. In Philly where it’s more of a slower growth, moderate paced, financial service, law firm, consulting service-type of environment — a lot of those companies really haven’t been high-growth in terms of dramatically expanding their square footage requirements. As a result, I think the subleased inventory really is tracking still below 3% in the Greater Philadelphia area. And we really haven’t seen a big push to put space back on the market. Where we actually have seen that, they’re not even sure the tenure in which they want to sublease. So I have a lease that goes out through 2025, I don’t think I need 10,000 square feet, let me put that on the market, but I’m not sure where that will be, I’m not sure what deal I want for that. 

Conversely in Austin, Texas, where we have a lot of inventory, that market’s dominated by high-growth tech companies. And a lot of those companies have tremendous expansion plans, both near-term and longer-term. So a lot of those companies did take down a lot of space that they were anticipating to grow in very quickly. And with the pandemic, some of those growth expectations have been a bit tempered. In Austin we have seen a larger uptick in sublease space, particularly in the Central Business District market. But again, a lot of that space is available for a year or two; not sure what the tenant improvement allowances will be. So whether it’s actually translatable into executed subleases I think remains to be seen. 

On the demand for office space going forward

There’s a general expectation that at least short term there’ll be lower demand for office space. Those numbers range from anywhere from 10% to 15%. I think it’s going to be geographically unevenly distributed, and I think it’s going to be a function of individual market conditions. But that being said, we’ve seen a couple of trend lines that I think are very positive. One, there is no question that there’s going to be a push toward higher quality office buildings. I think Brandywine is really well positioned for that. We’ve invested a lot of money in our buildings. We have great HVAC, fresh air — all the things that used to be on page 27 of a brokerage RFP are now page one. I think we fare very well in that. We’ve certainly pivoted our marketing platform to amplify that competitive advantage we have. So I think to some degree whatever demand decline we may see market-wide, the owners of higher quality space will be able to have a move up addition to their inventory.

On planning out space for tenants 

We’re definitely seeing a reversal of the densification of previous years — many more requesting for partition walls, higher profile workstations, reducing density of conference rooms, reconfiguring the stairwells to provide for easier access between floors. I think it really is a mixed bag. What’s going to be interesting as we think about it is as the work-from-home dynamic continues, what will be the overall demand impact there? 

We’re really going through a lot of post-Covid design issues, which I think generally could have the impact of requiring more space per employee, greater circulation areas, maybe instead of one kitchen, a couple of satellite kitchens, more conference rooms, more private work areas. But honestly I think that’s all kind of to be determined. You’re going to see larger companies deal with it differently than smaller companies. And until the next couple of months go by, I think it’s still going to be a question more for all of us in this business. 

On the biggest difference between Austin and Philadelphia

Well, I don’t think it’s just necessarily the weather because I will tell you having been in Austin it gets awfully hot down there in July and August as well. So they tend to be more temperate. Look, I think a lot of it relates to the the tax structure, the political leadership. I think that’s one of the great reasons why Austin, Texas, is now known as Silicon Valley East. They had a very dynamic group of business leaders working hand-in-glove with the local political leaders to create Opportunity Austin, which is a business development arm that has done an amazingly effective job of attracting businesses. So I think that’s one of the macro trend lines you’re seeing nationally where you’re seeing projected higher growth rates in the Sunbelt markets, primarily driven by affordability, job growth, political climate. More jobs will be migrating from kind of the Northeast and the West Coast to some of these Sunbelt markets.

On what the Biden administration may mean for the Philadelphia real estate market

I think it’s too early to tell. One of the brokerage firms did a great report, and this is out of Washington, showing that at a time when the executive and the legislative branches are aligned with one party, that tends to be good for real estate. So the fact that everyone’s aligned right now, I hope is good for real estate and I don’t know what the political dynamics will be. I certainly think the new administration is going to be much more amenable to providing federal financial support to Northeast cities and states who tend to have the highest level of budget disequilibrium. One of the things I’m really hopeful for is from a mass transit standpoint. Leslie Richardson and her team at SEPTA are doing an absolutely amazing job of maintaining the health and safety of that system under very difficult challenges. Their revenue stream has disappeared. They need help. And my hope is that the Biden administration will be much more responsive to addressing the needs of mass transit systems around the country. If that’s the case, I think that could be a big catalyst for the reopening of the city of Philadelphia, which certainly should be a near-term objective of everybody.

On the long-term impact to Class B and C properties

I think it’s going to be a challenge, I really do. Not that I think some of those buildings aren’t beautiful architecturally, they just don’t have the superstructure capability on a cost-effective basis to retool to meet the demands of today’s tenants — at least from what we’re seeing at this stage. I think the impact you’ll see, as Philadelphia has always seen, is a number of those buildings will get converted to residential. They’re talking about doing a lot of that up in Midtown Manhattan for a lot of buildings. I think that trend line will continue, so I hope the residential market remains fairly strong. And I think that there will probably be a cost imbalance in some of those buildings that may create opportunities for repricing. We don’t really own any B-quality space. It’s a market segment we moved dramatically out of in the last 10 years. I do think they’ll face more margin squeeze than the Class A trophy office buildings.

*Article courtesy of Philadelphia Business Journal

For more information about New Jersey or Philadelphia office space, New Jersey or Philadelphia retail space, and New Jersey or Philadephia industrial space or other New Jersey and Philadelphia commercial properties, please call 856-857-6300 to speak with Jason Wolf (jason.wolf@wolfcre.com) at Wolf Commercial Real Estate, a leading New Jersey and Philadelphia commercial real estate broker that specializes in both New Jersey and Philadelphia office space, New Jersey and Philadelphia retail space, and New Jersey and Philadelphia industrial space.

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

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

As experts in both Philadelphia and New Jersey commercial real estate listings and services, the team at our commercial real estate brokerage firm provides ongoing detailed information about Philadelphia and New Jersey commercial properties to our clients and prospects to help them achieve their real estate goals.  If you are looking for New Jersey or Philadelphia office space, Philadelphia or New Jersey retail space, or New Jersey or Philadelphia industrial space for sale or lease, Wolf Commercial Real Estate is the New Jersey and 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, Philadelphia, and New Jersey commercial properties for lease or sale through our Philadelphia commercial real estate brokerage firm.

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Developers Want Malls to Become Warehouses or Offices. It Is a Slog.

Potential land mines await those seeking to raze and redevelop a space that spans dozens of football fields

Many developers look at failing malls and envision modern office campuses, bustling warehouses or residential buildings. But some are finding that converting these shopping centers isn’t so easy.

Repurposing a mall is expensive. New owners typically need to shell out hundreds of millions of dollars on construction and labor, developers and brokers say.

Continue reading at The Wall Street Journal.

For more information about New Jersey office space, New Jersey retail space, and New Jersey industrial space or other New Jersey commercial properties, please call 856-857-6300 to speak with Jason Wolf (jason.wolf@wolfcre.com) at Wolf Commercial Real Estate, a leading New Jersey commercial real estate broker that specializes in New Jersey office space, New Jersey retail space, and New Jersey industrial space.

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

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

As experts in New Jersey commercial real estate listings and services, the team at our New Jersey 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 New Jersey office space, New Jersey retail space, or New Jersey industrial space for sale or lease, Wolf Commercial Real Estate is the New Jersey 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 New Jersey commercial properties for lease or sale through our Philadelphia commercial real estate brokerage firm.

 

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Air Cargo Construction is Booming, Thanks to Amazon

Since the pandemic started nearly a year ago, 15,000 fewer people arrive and depart daily from the Cincinnati/Northern Kentucky International Airport, known as CVG. Yet the 60% drop in passenger traffic is not so apparent on the airport’s four runways, which are handling a record amount of air cargo — nearly 4,000 tons a day.

Ranked by the Federal Aviation Administration as the nation’s sixth-largest cargo airport, CVG’s standing is about to climb higher.

Amazon Air, the e-commerce giant’s 5-year-old cargo airline, is completing a 798,000-square-foot sorting center, seven-level parking structure and acres of freshly poured concrete to accommodate 20 aircraft. The new facility, under construction on a 640-acre site along the airport’s southern boundary, is scheduled to open in the fall. It represents about a third of the $1.5 billion, 3-million-square-foot air cargo hub Amazon is committed to building at CVG.

“This hub is going to let us to get packages to customers faster,” Jeff Bezos, the Amazon founder and chief executive, said during the groundbreaking ceremony at CVG in May 2019. “That’s a big deal.”

By far the largest air cargo construction project in the airport’s 74-year history, the mile-long facility will be the center of Amazon Air’s national air transport network, which now has more than 70 aircraft and hundreds of daily flights to 35 other cities in the United States. Last week, Amazon announced the purchase of 11 Boeing 767-300 aircraft as part of an effort to expand its fleet.

The new building is a signal measure of Amazon’s influence as the largest online retailer and its dedication to fast delivery. Both have helped generate a wave of air cargo construction at airports across the United States.

FedEx, the world’s largest air cargo carrier, handled an average of 6.2 million air packages a day last year, a 48% increase over 2016. The company just opened a $290 million, 51-acre project at the Ontario International Airport in Southern California. It features a 251,000-square-foot sorting facility, spacious concrete ramps, nine gates, 18 truck loading docks and the capacity to handle 12,000 packages an hour.

UPS and Amazon also operate out of older buildings at the airport, which is handling 30% more cargo than it did in 2019. “There is a lot of consumer behavior that permanently changed in 2020,” said Mark A. Thorpe, the airport’s chief executive. “We’re seeing levels of cargo today that were expected in 2028.”

Ted Stevens Anchorage International Airport, the second-largest air cargo airport in the United States after Memphis International Airport, is planning for $500 million in new freight and package handling and sorting facilities. The demand for more space by the airport’s cargo companies — among them Alaska Cargo & Cold Storage, 6A Aviation, FedEx, UPS and Amazon — is soaring. As of the end of September 2020, the airport reported that 2.3 million tons of cargo had touched down in Alaska, a 9% increase over the same nine-month period in 2019.

At Chicago Rockford International, plans are underway to build a 90,000-square-foot cargo facility. As soon as it opens in the spring, the airport will start another 100,000-square-foot cargo project for DB Schenker, Emery Air and Senator International. Last year, Rockford completed a $22.3 million, 192,000-square-foot facility for Amazon, along with $14 million in concrete aprons sturdy enough for Boeing 747 aircraft.

“The traffic in cargo is responsible for all the new demand at airports now,” said Rex J. Edwards, an industry analyst and vice president of the Campbell-Hill Aviation Group, a Northern Virginia consulting firm. “The cargo carriers want more airport space. They need room to park planes and facilities that meet next-day delivery requirements. That is the evolution of the business now.”

Before the pandemic, e-commerce sales were growing more than 10% annually, pushing total air cargo to 12 million tons last year, according to the Bureau of Transportation Statistics, a unit of the Transportation Department. Federal analysts project that air cargo will reach 45 million tons annually by midcentury. But executives at big air shippers, airports and airplane manufacturers say that the pandemic altered online commerce so substantially that the industry will hit that mark a decade sooner.

Three years ago, Philadelphia International Airport paid $54.5 million for 135 undeveloped acres next to the airfield. The airport is now developing a master plan for the ground that includes 1.5 million square feet of cargo handling facilities. “We knew, prepandemic, that cargo was only going to increase,” said Stephanie Wear, the airport’s director of air service development and cargo services.

For the time being, Amazon is the largest influence in new airport cargo construction.

To serve the 14 immense fulfillment centers it built in California near San Bernardino and Riverside, Amazon established a western hub at San Bernardino International Airport. This month, it is finishing a 658,000-square-foot handling and sorting center and two smaller 25,000-square-foot buildings at the 79-year-old airport, which started as a World War II military airfield. The $300 million project includes parking and gates to handle 14 aircraft and 26 flights daily, said Mark Gibbs, the airport’s director of aviation.

No airport is receiving more attention from Amazon Air than Cincinnati/Northern Kentucky. The company liked what it heard from airport executives, who spent the last decade diversifying CVG’s revenue and recovering from a fiscal catastrophe by recruiting air carriers and related companies to its 7,700-acre airport.

In 2008, in the midst of a deep recession, Delta Air Lines unexpectedly shut its regional hub at CVG, halting more than 500 flights a day, closing terminals and throwing the airport into a panic. Executives countered by marketing CVG’s location, a half-day drive or a short flight from most of the major metropolitan regions in the East, Midwest and South. CVG had plenty of space for development, and it is close to important interstate highways and to Cincinnati’s renovated Ohio River shoreline and city center.

The German carrier DHL became interested straightaway and arrived in 2009. Four years later, it completed its 1-million-square-foot North American hub. Amazon arrived in 2017 and contracts for loading and sorting at the DHL facility. FedEx also operates out of the airport.

The air cargo activity generates its own momentum. Five years ago, Wayfair, the online décor and home furnishing company, completed a 900,000-square-foot logistics center at the airport. Last year, FEAM Aero, an aircraft maintenance company, opened a $19 million, 103,000-square-foot aircraft service hangar on an 8-acre site.

Amazon Air’s strategy for cargo routes and ground facilities differs substantially from that of other carriers. Its cargo is composed of goods sold on its own online market. Its airport facilities are close to Amazon’s network of fulfillment centers.

That formula fits Amazon’s decision to settle at CVG, on the Kentucky side of the Ohio River across from Cincinnati. Since 2010, according to the company’s data, Amazon has spent more than $15 billion in Kentucky, much of it on 10 fulfillment and sorting centers, two delivery stations, a customer service center and two Whole Foods Markets. The company says it employs 14,500 people in the state. Its air cargo hub will add 2,000 jobs.

The cargo strategy was essential to keeping CVG operating since March 2020, when the pandemic took hold, said Candace S. McGraw, CVG’s chief executive, who led the work to recruit Amazon and the other carriers.

Air cargo grew 14% in 2020 at CVG and is expected to grow at least 10% more in 2021 and 2022, when Amazon’s new facility is fully operational. Cargo now accounts for 75% of the more than $25 million in annual revenue from landing fees, the second-largest source of CVG’s income after parking.

“We learned the lesson to diversity from Delta,” McGraw said. “We’re grateful for the cargo business.”

*Article courtesy of Philadelphia Business Journal 

For more information about New Jersey office space, New Jersey retail space, and New Jersey industrial space or other New Jersey commercial properties, please call 856-857-6300 to speak with Jason Wolf (jason.wolf@wolfcre.com) at Wolf Commercial Real Estate, a leading New Jersey commercial real estate broker that specializes in New Jersey office space, New Jersey retail space, and New Jersey industrial space.

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

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

As experts in New Jersey commercial real estate listings and services, the team at our New Jersey 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 New Jersey office space, New Jersey retail space, or New Jersey industrial space for sale or lease, Wolf Commercial Real Estate is the New Jersey 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 New Jersey commercial properties for lease or sale through our Philadelphia commercial real estate brokerage firm.

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Governor Murphy Signs the NJ Economic Recovery Act of 2020

Effective today, January 7, 2020, Governor Phil Murphy signed the NJ Economic Recovery Act of 2020. The NJERA bill creates a 7-year, $14 Billion Dollar bundle of tax incentives geared to allure and preserve New Jersey based real estate development and businesses.

The 249-page NJEDA outlines new tax incentives to replace the expired NJ GROW and ERG programs and expands or creates new subsidies for film and television production, revitalizing brownfields and assisting so-called food deserts, among other areas, all while creating financial caps and oversight for the programs and the state agency that manages them.

Under the NJERA, most of the new tax credit programs are subject to a collective $11.5 Billion Dollar cap over 6 years, while allowing for a 7th year of allocations under those programs for uncommitted credits. The NJERA also provides for $2.6 Billion in tax credits over 13 years for projects related to film and television production.

A new office, the Office of Economic Development Inspector General will be created along with a chief compliance officer to manage a Division of Portfolio Management and Compliance to oversee the awards.

Under the new Emerge program, tax credits are available to encourage economic development, job creation and the retention of significant numbers of jobs in imminent danger of leaving the state.

Eligibility is subject to various provisions, including a requirement that the award of tax credits, the resulting capital investment and the resulting job creation or retention will yield a “net positive benefit” to NJ ranging from at least 200 to 400% of the award, depending on the location. Emerge also has minimum requirements and adjustments for the necessary capital investment based on the type of project, the size of the business, the types of jobs at stake and other factors.

Tax credits under both Emerge and a separate program, Aspire, are subject to a combined $1.1 Billion annual cap for 6 years. The NJERA also calls for the $1.1 Billion annual cap to be split so that up to $715 million of tax credits will be for projects located in 14 northern counties and $385 million for projects in 7 southern counties.

Aspire, the successor to the Economic Redevelopment & Growth program, or ERG, will provide gap financing to development projects that are intended to serve a public policy goal but which would otherwise generate a below-market rate of return. Additionally, the proposal outlines different provisions for commercial and residential projects, providing bonuses for those that serve distressed or targeted communities, along with transit-oriented development and affordable housing.

The NJERA would also allow the Economic Development Authority, which oversees tax incentives, to review each project’s performance and reduce the amount of the subsidy if it determines that the financing gap is smaller than determined at board approval. If there is no project financing gap, then the developer would forfeit the incentive award.

  • Historic property reinvestment — providing tax credits for part of the cost of rehabilitating historic properties in the state, with a cap of $50 million annually for 6 years;
  • Film tax credits — amending existing programs to include provisions for so-called New Jersey film partners and New Jersey film-lease partners and allowing an additional $200 million of tax credits annually over 13 years;
  • Brownfields redevelopment — providing tax credits to compensate developers of redevelopment projects located on polluted sites for remediation costs, with a cap of $50 million annually for 6 years;
  • Food desert relief — providing tax credits in order to incentivize businesses to establish and retain new supermarkets and grocery stores in underserved communities, with a cap of $40 million annually for 6 years;
  • The New Jersey Innovation Evergreen program — auctioning tax credits for cash, which will be used to invest in startups and other innovation-focused businesses, with a cap of $60 million annually for 6 years;
  • Community-anchored development — providing tax credits to anchor institutions to incentivize the expansion of targeted industries in and the continued development of certain areas of the state, with a cap of $200 million annually for 6 years; and
  • Main Street recovery — providing grants, loans and loan guarantees to small businesses, with an appropriation of $50 million under the bill.                                                                        

Brad A. Molotsky, Partner

Duane Morris, LLP 

1940 Route 70 East, Suite 100

Cherry Hill, NJ 08003

bamolotsky@duanemorris.com

856-874-4243 O

 

Brad A. Molotsky practices in real estate law and serves as a team leader for the Duane Morris Project Development group and co-head of the firm’s Opportunity Zones practice group. Duane Morris, LLP is a law firm with over 800 attorneys across the United States along with being international. Duane Morris began as a partnership of four attorneys developed in 1904. The firm since then has grown to be one of the largest firms in the world. Through the growth of the firm, the same principle has remained and 

guided them through the years: an agreement to work together in striving to meet and exceed their clients’ goals. For additional information about Duane Morris, LLP, please visit the firm’s website Welcome to Duane Morris LLP.                                                                      

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Eight Ways the Pandemic Changed Commercial Real Estate

The coronavirus pandemic has forced the commercial real estate market into a series of seismic shifts, accelerating some trends and bringing others to a complete halt. 

It wasn’t so long ago that everyone talked about the importance of shared workspaces, community amenities in apartments and how modern-day consumers preferred experiences over stuff. Those concepts look much different in a world where social distancing is a health imperative.

The public health crisis sparked renewed interest in the suburbs, rendered in-person entertainment and travel businesses impractical and created hot commodities out of dull industrial buildings, now the nerve centers for seemingly anything that can be delivered to a doorstep. 

With 2020 now in the rearview mirror, it would be difficult to overstate how surreal this past year has been. It may, however, have a very real influence on the future.

Here are eight trends of the past year that could have lasting effects on where and how people use space:

8. Telework Accelerates As Employers, Led by the Tech Giants, Shift Workforces Out of the Office

Large technology companies including Facebook and Google emptied their offices long before any shelter-in-place orders were issued, sending employees home. As cases spread, the companies were first to extend their work-from-home policies. They began by pushing deadlines through summer 2021 and, in some cases, indefinitely. 

San Francisco-based Twitter and Square both decided in May that employees would have the chance to permanently work remotely, a shift that triggered a series of smaller companies to follow suit. 

According to CoStar data, most major U.S. cities still report less than 20% physical occupancy of office space as employees remain at home.

The bet among real estate experts is that many employers will retain flexible work-from-home policies even after workers return to the office.

7. Global Tourism Shutdown Strangles Hotel Industry

Travel bans, canceled flights, shelter-in-place orders and strict capacity limits gave the hotel industry little to celebrate in 2020. 

CoStar’s hotel research and analytics company, STR, estimates it could take up to five years for the hospitality sector to fully recover. Revenue per available room, a key metric for hotels, bottomed out after an 80% drop this spring, and average daily rates are estimated to be down by about 21% compared to last year for the remainder of 2020 for hotel properties across the country. 

While recent developments for a COVID vaccine have provided a glimmer of hope for operators, the recent surge in cases across the United States means the industry is far from any semblance of a recovery. Many expect leisure travel to boom once the virus is brought under control and people are freed from their homes but businesses could be slower to send workers back on the road now that many have become accustomed to video and online meeting options. 

6. Nation’s Most Expensive Housing Markets See Renter Exodus 

The country’s multifamily market was suddenly split between expensive urban areas and quiet suburban towns at the onset of the pandemic. As work-from-home trends evolved and renters looked to move out of costly and cramped spaces, crowded downtowns faced a drain in occupancy. 

In the nation’s most expensive apartment housing market, San Francisco, the fallout from the pandemic’s outbreak drove the multifamily vacancy rate up to a historical high of more than 11.5%, according to CoStar data. Comparatively, the national vacancy rate is 6.8%. 

Rents, especially for those among some of the high-end apartment properties, nosedived by as much as 18.3% in the tech-heavy bay city. Landlords have had to respond by offering steep concessions, with some property owners touting perks including as many as three months in free rent, internet credits, personal training sessions and allowances toward moving expenses.

Many will be watching to see if renters re-embrace downtowns once the pandemic subsides or whether the move to less crowded spaces becomes a more durable trend.

5. Companies Pause Development, Expansion Plans 

Search engine giant Google, one of the largest occupants of office space in the country, hit the pause button on operations including data centers, hiring, marketing, travel and real estate investments as pandemic-related uncertainty climbed early this year.

The move was emblematic of a slowdown in the tech industry’s rapid acceleration and leasing activity. As the healthcare and financial crises wore on, companies became increasingly prudent about their future space needs, and many decided to shrink their office footprints, put their space up for sublease or shift entirely to a remote-work model in an effort to curb costs. 

Like other tech companies, Google has started to put its foot back on the gas for development, though the new activity is still below its pre-pandemic level.

4. Biotech Growth Fuels Shift to Life Science Development 

The COVID-19 pandemic has driven historical gains in the biotech sector, pushing fast-growing companies to gobble up space and drive most of the leasing activity for markets across the country. Throughout 2020, rents for lab space rose, vacancies plunged and employment figures climbed. 

The phenomena inspired big-name developers such as Boston Properties to say they would pivotoffice development plans into new life science projects, as leasing from most office users dwindles.

According to a recent report from brokerage CBRE Group, about 14 million square feet of lab space is under construction nationally, but demand among biotech tenants outpaces what’s in the pipeline by almost 2 million square feet. 

In the nation’s top life science markets such as Boston or South San Francisco, lab space vacancy is at a historic low of less than 8%, which has given landlords the chance to drive rental rates even higher. 

3. Trophy Skyscrapers Sell At a Discount

The clearest sign of how some of the leading office sales got done in premier markets this year is the delayed and discounted sale of the Transamerica Pyramid in San Francisco, the nation’s most expensive office market. 

After years of growth driven by the city’s tech sector, San Francisco’s office market was in for a rude awakening as the pandemic spread a wet blanket over previously white-hot demand for space among both tenants and investors. In a sign of the times, the anticipated sale of the Transamerica Pyramid office complex was delayed by several months and eventually sold in late October for $650 million, the priciest workspace sale in the city for the year. 

While the price tag was high, it represented 10% off the $711 million purchase price that was originally agreed upon in February. Debate has now begun over whether demand will ever reach as high as it once did for space accessible only by elevator. 

One sign of hope: Facebook’s surprise decision to sign New York City’s largest office lease of the year. The social media giant agreed to move into all 730,000 square feet of office space in the Farley Building at 390 Ninth Ave., which is located in Vornado Realty Trust’s Penn District redevelopment in Manhattan next to the nation’s busiest transportation hub — this after it said in May it would transition its workforce to a remote-work model. 

2. Landlords and Tenants Spar Over Who Should Pay, And How Much

The pandemic split the brick-and-mortar retail world, showing the durability of businesses that provide essential goods such as groceries and pharmaceuticals and rendering uncertain those who products and services could be delivered online or to the home. 

Some sectors found themselves on both sides of the divide: Starbucks and many fast food establishments found their footing by focusing on takeout food while many mom-and-pop restaurants struggled to adapt to ever-changing restrictions.

The crisis left many to reevaluate their real estate footprints, sparking growing tension between landlords. Some decided to take the matter to court as part of attempts to recoup unpaid rent, fight over lease negotiations or break rental agreements entirely. 

One of the more closely watched battles involved the nation’s largest mall property owner, Simon Property Group, who sued the nation’s largest retailer, Gap Inc., over $66 million in unpaid rentstemming from forced store closures across the country. 

The legal tussle escalated with Gap later suing the landlord over failed attempts to renegotiate leases, setting the stage for similar lawsuits among struggling landlords and retailers fighting to protect their businesses in the face of massive drops in business. The pandemic is likely to lead to new lease language in the future.

1. Amazon Expands Mammoth Footprint Even Further With New Leases, Acquisitions

If e-commerce conglomerate Amazon was already on the fast track to growth at the start of this year, the pandemic strapped a rocket pack to its ambitious plans and fueled millions of square feet of new leases and commercial real estate acquisitions. 

According to CoStar analysis, the retailer was on track to expand its fulfillment capacity by 50%, or 300 million square feet, before the end of 2020, a massive spike that drove it to snap up swaths of available industrial space across the country. 

In this year’s second quarter, other retailers were facing steep revenue declines and serious headwinds. However, Amazon invested more than $9 billion in fulfillment, transportation and Amazon Web Services capital projects in that period, according to company SEC filings. 

The company is even willing to throw serious money at plans to open in premier markets including Los Angeles. The strategy is marked by its recent $200 million purchase for the site of a future e-commerce center in San Francisco.

*Article courtesy of CoStar

 

For more information about New Jersey office space, New Jersey retail space, and New Jersey industrial space or other New Jersey commercial properties, please call 856-857-6300 to speak with Jason Wolf (jason.wolf@wolfcre.com) at Wolf Commercial Real Estate, a leading New Jersey commercial real estate broker that specializes in New Jersey office space, New Jersey retail space, and New Jersey industrial space.

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

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

As experts in New Jersey commercial real estate listings and services, the team at our New Jersey 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 New Jersey office space, New Jersey retail space, or New Jersey industrial space for sale or lease, Wolf Commercial Real Estate is the New Jersey 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 New Jersey commercial properties for lease or sale through our Philadelphia commercial real estate brokerage firm.

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Murphy USA’s $645 Million QuickChek Deal Shows Growing Convenience Store Demand

The purchase of QuickChek, a family-owned regional chain with stores in New Jersey and New York, for $645 million by Southern-based gas-and-convenience-store giant Murphy USA spotlights how demand is rising for this type of commercial property in the pandemic.

The buyer, based in El Dorado, Arkansas, said it reached an agreement to buy QuickChek, which is based in Whitehouse Station, New Jersey. The Garden State-based company operates 157 stores, including 89 locations with fuel in North and Central Jersey, New York’s Hudson Valley and Long Island.

Murphy USA’s deal for QuickChek is part of a trend of ownership consolidation in the U.S. gas-and-convenience store sector this year in the pandemic and its restrictions on indoor restaurant dining. Contrary to other retail categories during the COVID-19 outbreak, convenience stores look like attractive investments to a growing number of investors because restrictions on sit-down dining have prompted some consumers to instead seek grab-and-go food and beverage options.

Last month, Israel-based Arko Holdings said it was acquiring 60 self-operated convenience stores, which also sell gas, in the Midwest for $100 million. And in August, the Japan-based parent of 7-Eleven stores announced it will pay $21 billion for 3,800 Speedway gas stations in the United States and Canada. When that sale closes, 7-Eleven will be expanding its North American presence to more than 14,000 sites.

Murphy USA will use its QuickChek purchase to diversify beyond its current locations, which are now typically in front of Walmart Supercenters.

“QuickChek fulfills the very high aspiration we set when thinking about what an industry-leading position looks like,” Murphy USA President and CEO Andrew Clyde told analysts on a conference call. “In making the acquisition, we not only secure one of the industry’s leading food and beverage C-store operators with its own very attractive growth plans, we greatly accelerate and de-risk the opportunity to transform our existing growth plans for new stores, raze-and-rebuilds and upgrades.”

Publicly traded Murphy USA is a gas station and convenience-merchandise retailer with nearly 1,500 sites located primarily in the Southwest, Southeast and Midwest. Its purchase for QuickChek is an all-cash transaction, which includes expected tax benefits valued at $20 million for a net after-tax purchase price of $625 million. The transaction will be financed with a combination of cash on hand, existing credit facilities and new debt. Murphy USA has obtained committed financing from the Royal Bank of Canada.

QuickChek was founded in 1967 as an extension of Durling Farms, a door-to-door milk and dairy products delivery service that originally opened in 1888. It offers quick-serve restaurant-style food alongside convenience items.

The chain has “per-store per-year merchandise sales of $3.5 million, combined merchandise margins of 38% with [food and beverage] representing over 50% of the mix, and per-store per-year fuel gallons of 3.8 million,” according to a statement from Murphy USA.

“Additionally, QuickChek has a proven history of same-store-sales growth and a rich real estate pipeline to sustain unit growth within its existing footprint,” the statement said.

Clyde said in a statement that in October the company outlined an updated capital allocation strategy and “committed to improving our food and beverage offer at existing and future sites.” 

Now, the QuickChek deal “accelerates those efforts and benefits, and is expected to provide reverse synergies across our network, while enhancing future returns on new stores,” Clyde said. “The transaction is also expected to create direct synergies that leverage our enterprise scale and our distinctive capabilities in fuel, tobacco and loyalty.”

The sale is expected to close in the first quarter.

Murphy USA has nearly 10,000 employees who serve an estimated 1.7 million customers each day through its network of gas stations in 25 states. The majority of Murphy USA’s sites are located near Walmart stores. The company also markets gasoline and other products at stand-alone stores under the Murphy Express brand. 

*Article courtesy of CoStar

For more information about New Jersey office space, New Jersey retail space, and New Jersey industrial space or other New Jersey commercial properties, please call 856-857-6300 to speak with Jason Wolf (jason.wolf@wolfcre.com) at Wolf Commercial Real Estate, a leading New Jersey  commercial real estate broker that specializes in New Jersey office space, New Jersey retail space, and New Jersey industrial space.

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

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

As experts in New Jersey commercial real estate listings and services, the team at our New Jersey 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 New Jersey office space, New Jersey retail space, or New Jersey industrial space for sale or lease, Wolf Commercial Real Estate is the New Jersey 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 New Jersey commercial properties for lease or sale through our Philadelphia commercial real estate brokerage firm.

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NJEDA COVID-19 Economic Relief Package

NJEDA initiatives aimed at stabilizing and revitalizing local small businesses, midsize businesses, and other early-stage companies.

NJEDA has developed an economic stability approach around three core principles

1. Get funding into the market as soon as possible
► Where possible, adjust existing NJEDA programs to address crisis needs
► Utilize multiple channels / partners to maximize marketing of programs and minimize processing capacity constraints

2. Leverage private, federal, and philanthropic capital where possible to scale impact

3. Provide a suite of compatible offerings to help address varied marketplace needs (e.g., grants, no-cost loans, low-cost loans, loans through intermediaries, technical assistance)

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Asphalt Sealant: Squeegee and Spray Coatings

Asphalt Sealant Squeegee and Spray Coatings

Asphalt Sealant Squeegee and Spray Coatings

When it comes to applying asphalt sealant, pavement maintenance contractors have several options to offer property managers. They can employ any of the following:
• a spray system
• a piece of ride-on equipment with squeegee and/or spray application options
• a squeegee or a broom to apply material by hand
So, which asphalt sealant option is the best choice for the job? According to manufacturers, the decision hinges on several variables including application, material being used, personal preference, and budget.

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Squeegee and Spray Asphalt Sealant Applications:

Both the squeegee and spray methods have their own set of advantages. The pressure from the squeegee application method allows the asphalt sealant to fill any cracks which help to create a high quality bond with the surface of the pavement. In contrast, the spray method lends itself to better control of how much material is being used, and a more precise application process. Oftentimes, spraying asphalt sealant is misunderstood if the operator ‘thins’ the material, or uses a low spread rate to apply it to the surface. When managed properly, both the squeegee and spray methods can lay sufficient asphalt sealant for the customer’s needs.

TWO ARE BETTER THAN ONE:

Property owners and managers may know that when seeking a pricing estimate for their asphalt sealant needs, they will generally be given a price for one application type. However, the best of both sealant worlds includes using both the squeegee and spray sealant applications together. Sealcoating application is dependent upon weather conditions; requiring a temperature of over 50°F in order to be applied. If conditions are ideal, the contractor will apply the initial base coat. Utilizing the squeegee machine, pavement sealer is poured on top of the asphalt and is pressed into all of the pores before removing excess material. The first coat generally takes one to two hours of dry time before spray coating the second application. Applying the squeegee method first creates the proper
bond to the asphalt, but can leave behind pin holes and other slight imperfections. Spraying on a second coat of asphalt sealant will help to fill those holes, allowing the surface to have a cleaner appearance by eliminating squeegee marks and any blotches. Once the second sealcoat has been applied, the area requires 24 hours of drying time before resuming use of the surface.

While one coat of asphalt sealant leaves the parking lot, or street nicely covered, the second coat will help to keep out water, leaving a longer lasting application. Plus, spray coating the second layer uses less material and takes about half the time to apply than the initial coat.

INVESTMENT:

When considering the long-term value, employing both sealcoating methods for a total of two coats is the best option for longer-lasting results. Used in conjunction, the two methods will yield a longer lasting result as opposed to the typical two spray coat applications. Starting the maintenance process within three years of the initial paving installation is important in order to preserve, and protect your asphalt. Repeating the sealcoating application every five years can beautify and extend the life of your asphalt as long as 30 years. While the initial investment for the squeegee and spray coat application costs more than other methods, it will ultimately give you a better return on your investment in asphalt maintenance.

For more information, contact:

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Sale Leaseback Strategies for the New Year

Sale-Leaseback Strategies

Companies often have significant capital tied up in real estate holdings, even when they’re not in the business of owning real estate. For companies where real estate is not their primary business, a sale- leaseback can unlock the capital tied up in real estate for more productive purposes.

What does a sale leaseback involve?

A sale leaseback occurs when an owner/occupant of real estate sells the property to a third party, and simultaneously enters into a lease to continue occupying the premises. A typical sale-leaseback transaction involves a lease that is 7 to 15 years with triple net terms, meaning the tenant retains most expenses associated with operating and maintaining the property. The seller (now tenant) retains long-term control of the property, and the buyer (now landlord) obtains an investment with a reliable cash flow.

What’s in it for the seller/tenant?

A sale-leaseback can free up capital that he been tied up in owned real estate for investment in the tenant’s core business, or for more profitable investment vehicles. Companies that are in an expansion phase also find sale/leaseback a useful tool. A sale leaseback provides a greater return of cash than a mortgage, due to the typical loan-to-value restrictions of traditional real estate financing.

A sale-leaseback can be attractive for companies that have below-investment grade credit, although the overall creditworthiness of the tenant does affect the sale price. In certain circumstances, a sale-leaseback can also have positive effects on the tenant’s financial statements, creating a lower debt-to-equity ratio. There may also be tax advantages, depending on the terms of the lease and how it is classified.

What’s in it for the buyer/landlord?

Purchasers in a sale-leaseback transaction gain a reliable stream of income and the potential to capture appreciation of the real estate value. The long term nature and triple net terms of most sale-leaseback arrangements also mean that a buyer has a reduced risk of vacancy, as well as minimized operating and management expenses.

What kind of property is right for a sale-leaseback?

Office, retail, medical and industrial properties are all candidates for a sale-leaseback. In general, the more uses a property has, the more attractive it is as an investment vehicle; purpose-built properties are of slightly lesser value.

A company should consider a sale-leaseback in the context of its overall strategic goals. The cost of alternate capital, as well as the specific tax and accounting implications of the transaction, should also be examined.

WCRE’s commercial real estate experts can provide guidance and advice to owners considering a sale-leaseback transaction, as well as local or national opportunities for those seeking sale-leaseback property as an investment.

For More Information Contact:

Tony-ManninoAnthony V. Mannino, Esq.

P: 856 857 6300

D: 215 799 6140

F: 856 283 3950

M: 215 470 6084

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Wolf Commercial Real Estate Adds VP of Corporate Services and Portfolios

Ever-Growing Area Firm Hires Drew Maristch to Expand Portfolio Management and Corporate Services in the Philadelphia Region. (View PDF)

drew-maristchWolf Commercial Real Estate (WCRE) is pleased to announce the hiring of Andrew “Drew” Maristch III, who will serve as Vice President of Corporate Services and Portfolios. Maristch brings nearly 15 years of corporate and commercial real estate experience to the firm, including more than a decade of corporate representation and tenant advisory experience. He will be a key leader tasked with expanding WCRE’s presence in the Southeastern Pennsylvania office market, and his negotiation skills, national network, creativity, and extensive understanding of respective rights and obligations of landlords and tenants will be prized assets to WCRE’s clients.

Drew Maristch’s most recent position was Director of Leasing and Corporate Operations at alphabroder, where for 12 years he managed a diverse four million square foot national real estate portfolio consisting of warehouse, call center, corporate office, and retail space, for the billion-dollar enterprise. Serving as the sole leader of the real estate department, he led site selection, space planning, contract negotiation, relocation, expansion, subleasing, and property management. Maristch will continue to manage this same portfolio as part of the duties of his new position.

“Each new member of our team strengthens our ability to meet specific needs and build even more successful relationships with our clients and community,” said Jason Wolf, founder and managing principal of WCRE. “Drew brings a unique skill set that will allow WCRE to serve clients in new ways, and capture new landlord representation opportunities in southeastern Pennsylvania and in other markets.”

Maristch is WCRE’s second hire of the fourth quarter. Recently Anthony Mannino, Esq., a former longtime chief of staff in Harrisburg, joined the firm in the newly created position of Vice President of Corporate Strategies. The pair join Lee Fein and Brian Propp in focusing on WCRE’s growth in Pennsylvania.

In addition to his professional accomplishments, Maristch exemplifies WCRE’s core values, especially commitment to the community. He has organized and promoted several charity ice hockey events to benefit Alzheimer’s Association Delaware Valley Chapter and has served on the organization’s development committee. Currently he is active on the Citizen’s Council for Cherry Hill Township.

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 online 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 and www.phillyretailspace.com.

 

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