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One segment of the real estate investing market we are constantly monitoring is the redevelopment of older malls into the new consumer paradigm including experiential retail. It was just announced that an older Lehigh Valley mall is being purchased, potentially for redevelopment.
The Westgate Mall in Bethlehem which was originally built by Harold S. Campbell in 1973, and sits on just over 22 acres, was just purchased by Onyx Equities for a reported $30,000,000. The previous owner Mark Pepitone reportedly invested $5,000,000 into the property in 2015 as part of a redevelopment which included adding SkyZone as a tenant.
From the HFF Press Release:
Holliday Fenoglio Fowler, L.P. (HFF) announces the sale and financing of Westgate Mall, a 270,000-square-foot enclosed mall in the Lehigh Valley community of Bethlehem, Pennsylvania.
The HFF team marketed the property on behalf of the seller. Additionally, HFF worked on behalf of the buyer to secure financing. New ownership is the joint venture between Onyx Equities, LLC and PCCP, LLC.
Situated on 22.6 acres on Schoenersville Road, Westgate Mall is adjacent to the intersection of Route 22 and Route 378, providing quick regional access to Lehigh Valley, Philadelphia and New York. More than 93,900 residents earning an average annual household income of $71,641 live within a three-mile radius. Westgate Mall is anchored by Weis Markets, Rite Aid and Sky Zone; was formerly anchored by The Bon Ton; and is adjacent to Lehigh Valley Hospital.
Jon Harris (@ByJonHarris) of The Morning-Call has some excellent insights into how the redevelopment of the mall could potentially happen, New owner of Westgate Mall in Bethlehem: We plan on ‘revitalizing this well-located retail center’.
Jeff Green, a partner at Hoffman Strategy Group, a retail consultancy, said Onyx has pumped money into its acquired retail properties before, specifically pointing to an ongoing redevelopment at Hazlet Town Center in New Jersey. Green also pointed out that Onyx has non-retail properties, including office buildings in New York and New Jersey.
“They own a lot of non-retail properties, so I wonder if their play here is to redevelop with a mix of retail and non-retail uses,” Green said.
As it is now, the mall is anchored by Weis Markets, Rite Aid and SkyZone, after the shopping center lost its largest tenant, Bon-Ton, earlier this year. The 10-acre parcel that includes the former Bon-Ton is adjacent to Lehigh Valley Hospital-Muhlenberg, which has long fueled speculation that the site could eventually serve a medical purpose, among other redevelopment options.
For those interested in how Onyx Equities redevelopment of the Hazlet Town Center has progressed can check their website which lists current availabilities and property information.
Readers of the blog know we are big believers in the potential for co-working spaces as a value-add real estate investment. From retail to older office buildings and corporate centers, adding a vibrant co-working community could be the kickstart to a successful redevelopment.
Catie Dixon has an excellent article in BisNow which even the title highlights what today’s tenants desire, Working From Home Never Looked So Good, that points out some ways multifamily real estate owners could benefit from incorporating co-working spaces into their building or buildings. Catie writes:
As remote work increases, multifamily landlords are increasingly swapping out clubroom or lobby space for coworking.
It can serve as an amenity for residents, and some multifamily owners are taking an extra step — bringing in outside coworking tenants, monetizing the space and perhaps drawing in new residents along the way.
To meet this rush of demand, designing common areas in multifamily to include workspaces has changed dramatically over the last two years, according to Linowes Design Associates founder Elyse Linowes, whose firm specializes in multifamily design. “It’s now something that’s a must-have,” Linowes said. “It’s no longer just a bonus.”
This is what we’ve been preaching. Those who are able to re-work old un-used or under-used space in their multi-family buildings into a productive co-working space, have the ability to capture the tenant of the future.
Real estate investors looking to succeed, with the continued changes to the paradigm of office space needs, who take a creative approach to the redevelopment of older office buildings have a great opportunity for success.
This article from Hotel Resource News shows one way older office buildings are being redeveloped, Hotel Development Trend – Office Buildings Convert to New Hotels
An emerging trend that architects are seeing taking shape in hotel development is the conversion of older office buildings into hotels. Office space locations and needs are rapidly changing as trends in the traditional office environment are evolving.
Companies in suburban areas want to be in “live, work, play” locations causing an increase in office buildings sitting vacant that don’t offer “urban-type” amenities, such as walkability, public transit, more housing options, retail and restaurants. Large office buildings and huge surface parking lots are less appealing to companies. Hotel developers are seeing these buildings as prime locations for hotel properties. Many of these outdated office buildings need modern improvements and through that process are being converted to other uses.
The article then goes on to quote an architect Stephen Overcash of Overcash Demmitt Architects. Stephen specializes in old office building conversions and laid out some very interesting thoughts on the benefits of converting older mid-rise office buildings into a new use.
“It is more efficient to convert an office building to a hotel versus building new. It’s more environmentally friendly and saves months of tedious site approvals and permitting”.
Another advantage of converting an office building is that hotels require less parking than offices. The large parking lots necessary for the office user is prime real estate for an additional hotel or restaurant.
The quote about the parking is something which really stood out. As I drive around the Philadelphia area especially in Chester County and Delaware County, I often notice the extreme amounts of parking part of the older office buildings and even office parks. Looking at these properties for new uses, seems like a tremendous investment play.
We are always looking for innovative real estate investment strategies. That’s why we’ve been covering Opportunity Zones and their potential to allow for serious investment. Earlier today we put up a post about how Philadelphia Opportunity Zones are already seeing investment.
If you are looking for more proof that Opportunity Zones offer the potential for tremendous investing success Theodore Schleifer wrote a recent article in reCode which offers some insight into just how big Opportunity Zones could be, The new hotness for tech billionaires? Do-gooder investments they can write off on their taxes.
At private dinner parties and on the suddenly overflowing conference circuit, billionaires like Tom Steyer and the people who advise the rich are swapping notes, beating back viral rumors and trying to understand whether these tax write-offs are indeed too good to be true.
“It’s a lot of the high net worth individuals talking to each other,” said Bernier, who advises clients at Ernst and Young. “A lot of it comes from, ‘I heard this on the internet.’”
He then goes on the write…
The ability to defer paying capital gains tax through 2026 after selling your company, for instance? Appetizing.
The chance to not pay any capital gains tax on any money you make on top of that payday if it’s invested into an Opportunity Zone? The real cha-ching.
By spending the money in one of 8,700 Opportunity Zones — low-income census tracts ranging from nearby Oakland to the Aleutian Islands of Alaska and covering as much as 12 percent of the country — people can reap those extensive benefits thanks to the tax bill passed by Congress earlier this year.
As we see it, Opportunity Zones and the associated Opportunity Zone Funds are going to end up making significant investments in many of these areas. Outside of putting money in a fund, there are going to be numerous opportunities for the independent investor to find great investments.
For those looking at value-add multifamily, retail or office building investment strategies, finding off-market properties in Opportunity Zones may be the strategy to consider.
It seems like there will be no delay in real estate investors and developers utilizing the new Opportunity Zones in the Philadelphia area.
BisNow is reporting Philadelphia real estate developer Eric Blumenfeld is already planning to make a significant investment in an opportunity zone, Eric Blumenfeld Plans 30-Story Tower In North Broad Street Opportunity Zone.
Eric Blumenfeld, the man behind the multifamily redevelopment of the Divine Lorraine hotel and the conversion of the Metropolitan Opera House into a Live Nation concert venue, plans to build a 30- to 33-story tower at the corner of Broad and Spring Garden streets….
Though Blumenfeld is still soliciting community input as he firms up plans, the Inquirer reports that he is eyeing a $130M project with 250 apartments sitting on top of two floors of office space and ground-floor restaurants.
The retail would open onto an outdoor plaza facing the eponymous mural on the side of the Mural Lofts apartment building. The project, with funding assistance from frequent Blumenfeld partner Procida Advisors, is to be titled Mural West, according to the Inquirer.
From investors looking at Fix and Flips to those looking to make major investments in office buildings or retail, there is a great potential for Opportunity Zones to be the next big thing in real estate investment.
With the continued changes to the retail market and real estate, the Bucks County Courier Times reports that two Bucks County malls will be affected by the Sears Bankruptcy, Sears to close at Oxford Valley and Neshaminy malls amid bankruptcy filing.
The stores at the Oxford Vallley Mall in Middletown and Neshaminy Mall in Bensalem are slated to close.
That’s in contrast with chains like Walmart, Target, Best Buy and Macy’s, which have been enjoying stronger sales as they benefit from a robust economy and efforts to make the shopping experience more inviting by investing heavily in remodeling and de-cluttering their stores.
For those looking to make investments in the changing face of retail real estate, this article from BisNow has some excellent insight into how mall and shopping center investors can benefit from the changing face of real estate, 4 Things Retailers And Landlords Want You To Know About Consumer Shifts
If shoppers can ’Gram it, they will come. While the retail experience is driving foot traffic to stores, the key to sustained success goes beyond luring people to brick-and-mortar locations.
Making something worth posting means customers do the marketing themselves, and stores become locations worth visiting.
“When people photograph things, they become influences for a brand and that can really push digital sales, and really push people back into a shop,” Sugar Hill Real Estate Chief Creative Officer Jay Solomon said. “Old types of retail didn’t offer in-store experiences that were ‘Instagrammable.’
There’s nothing interesting about walking into a Home Depot and taking pictures of aisles with hammers.” Starbucks Director of Store Development Dan Shallit said customers posting videos improves company and store standards.
There will continue to be shifts in retail real estate and investors with a forward-thinking approach will be the beneficiaries.
The Bucks Local News reported on the recent purchase of a Bucks County Corporate Center, Rubenstein Partners secure $63 million in financing to purchase Lower Makefield Corporate Center
Affiliates of Rubenstein Partners acquired the eight-building, 467,000-square-foot Yardley office complex this month. Affiliates of Rubenstein Partners acquired the eight-building, 467,000-square-foot Yardley office complex this month, with Rialto Capital Management providing separate mortgages for the property’s two distinct campuses on Stony Hill and Township Line roads.
The article went on mention a few items which made the suburban office market especially attractive:
Lower Makefield Corporate Center offers a distinctive combination of high-quality office product at an attractive basis, strong sponsorship, and positive leasing momentum – in a market defined by consistently appreciating fundamentals.
As we see it, there is a lot of value in investing in suburban office buildings and corporate centers with the right value-add strategy. There are plenty of recent examples of suburban corporate centers and office parks selling at a discount.
Figuring out how to reduce vacancy while providing the amenities desired by today’s office tenants will be a key to a successful real estate investment.
A recent article on BisNow, Major League Sports Teams Want CRE Ventures To Boost Non-Game Day Revenue, highlights the growing trend of real estate developers looking at projects near major sports teams.
Developers across the country are looking to tap into the idea that neighborhoods can grow around a major league sports arena, from the Titletown District surrounding the Green Bay Packers’ Lambeau Field to Mission Rock, a 28-acre, mixed-use development partnership between the San Francisco Giants and Tishman Speyer.
Patient Zero of this trend is not a stadium, but a once rundown city park. Bryant Park was one of New York City’s most dangerous parks during the 1970s and 1980s, but Biederman Redevelopment Ventures President Dan Biederman founded Bryant Park Corp., which was devoted to turning it around.
Now, the Midtown Manhattan park is a magnet for tourists, and some of the city’s most valuable office properties abut it.
“We were asked, ‘can you bring Bryant Park elsewhere?’” Biederman said. “All of a sudden, we became consultant for a few major league sports teams.”
As we have written before, Should You Invest In Real Estate Near Sports Stadiums?, there is often an opportunity for the savvy real estate investor near sports stadiums especially in areas committed to it like Capital Yards in D.C.
For those familiar with Philadelphia sports teams, the promise of redevelopment along the river in Chester, was promised to help lure a new sports team to the area. It features the area’s Major League Soccer team, The Union. Unfortunately, the hoped-for development has never materialized, which should be an important reminder for all investors. It takes successful planning and execution for investor returns to materialize.
This is an interesting article, East Coast States Are Going All-In On Casinos. Some Smell A Bad Beat Coming, on how casinos are being built at such a rapid rate up and down the East Coast. The article highlights how it’s likely many could see financial strain as more casinos are built and thus the available pool of gamblers is further diluted.
The article has a short look at the well-documented hit Atlantic City took.
“Atlantic City has probably seen the biggest downturn as a result of all of this [growth] than any other locality,” Peterson said.
“It’s a longer drive and you don’t need to drive there to get the same experience that you can get half an hour away.”
Guardian, who served as mayor from 2014 to 2017, thinks Atlantic City’s decline was entirely avoidable had the city done a better job to diversify its economic base beyond casinos. Comparing it to Dubai not relying on oil, Guardian said the city needed to find ways to reinvent itself to make its appeal to travelers sustainable.
“It’s a lesson to not put all your eggs in one basket,” Guardian said. “As gaming suffered, Atlantic City suffered as well and wasn’t prepared for the rainy day.”
The building of casinos up and down the East Coast is going to continue to change communities and which places are the best for real estate investment. Though it took a hit, there are many positive signs Atlantic City could be a great place for real estate investing.
A good reminder to commercial real estate investors, is even the best plans go turn and not go as planned. BisNow has a recent report, Main Line Office Portfolio Last Sold Before Recession Hits The Market At A Discount, on how a suburban Philadelphia office park is being offered for sale at a price point $40,000,000 below the purchase price.
Pitcairn Properties bought Chesterbrook Corporate Center in Berwyn and Glenhardie Corporate Center in Wayne for $250M in 2006, and has put them up for sale expecting to receive only $210M, the Philadelphia Business Journal reports.
AmerisourceBergen represents the issue in microcosm: It will depart multiple buildings in a sprawling, suburban office park for a single, new-construction development in the mini-urban node of Conshohocken.
Whoever buys those buildings, whether as part of the full portfolio or if they wind up taking only one of the office parks, will be looking for ways to update the property for the new paradigm.
Definitely doesn’t sound like this suburban office space investment went as planned. For those looking to invest in suburban residential and commercial properties, this article has a potential formula to improve your real estate investing, Philly’s Suburban Growth Sticks To Established Areas And Formulas For Success.
Conshohocken and Main Line suburbs like Ardmore have dense development areas surrounding their train stations, and even as King of Prussia gains value in office and multifamily, the former two areas remain the cream of the crop as public transit becomes a greater component of workers’ lives.
“I think we’ve doubled the amount of train riders in our [Conshohocken] buildings in the last two years,” Oliver Tyrone Pulver Vice President of Marketing Esther Pulver said. “[Reverse commuting] is going to increase in a pretty big way. The lines have added trains to the schedule and added cars to the trains. I don’t think transit is going any other direction.”
According to Holton and Pulver, redevelopments of large industrial parks into mixed office and light industrial have enormous potential if they are near transit.
As both articles show there is ample opportunity for the savvy real estate investor. It will be the investor that can find the best opportunities that continue to see success in the new paradigm of commercial real estate.
Finding towns near mass transit that could be poised for strong growth can be beneficial for everyone from the residential fix and flip investor to those looking to revitalize the suburban office or apartment park into the type of property being desired by today’s tenants.
Another look at the benefit of investing near a rail line can be seen in the recent purchase of a premium suburban office building in Conshohocken. American Real Estate Partners recently purchased Eight Tower Bridge in Conshohocken. GlobeSt has some highlights on the purchase including a quote from a principal at AREP highlighting the benefit of being near mass transportation.
“In Eight Tower Bridge, we have acquired a best-in-class asset in the very healthy Conshohocken submarket,” says Michael Gribbon, AREP principal and executive managing director.
“The supply and demand dynamics of Conshohocken continue to improve, and the tenant community continues to favor this market due to its great rail access, its walkable amenities and its proximity to Philadelphia’s most coveted bedroom communities.”