Category Archives: Real estate news

Catching Up With the Trends

One of the best programs of the year is the Urban Land Institute’s “Emerging Trends in Real Estate.” The 2017 version of this was held this morning at the Rivers Club. There was a great panel, with Maureen McAvey from McAvey consulting in Washington DC as the keynote speaker. Her presentation centered on the theme that commercial real estate was in a good place but probably not getting much better for this cycle. In fact, she predicted that the good run probably had another 12-18 months to go before a cyclical slowdown. She called it the “kinder, gentler real estate cycle,” which is more good news. ULI makes the “Emerging Trends” document available at their site.

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Flemming Bjoernslev – former CEO of Lanxess – address the crowd at ULI’s Emerging Trends in Real Estate conference at the Rivers Club.

The rest of the program focused on the Pittsburgh market and the changes occurring. I found the best points were made by Claire Hosteny, one of the partners in East End Development Partners (which brought us the Ace Hotel). Claire spoke about the residential conditions and emphasized that Pittsburgh was beginning to push up against the boundaries of our affordability limits, emphasizing that affordability was one of the region’s biggest selling points. She really hit the mark when pointing out that the biggest threat to continued growth of city living was the inadequate public education system. She urged the crowd to consider investment in the Pittsburgh Public Schools or charter schools as a top priority.

One of the drivers of Pittsburgh’s resurgence has been the 25-35 year-olds returning to the city because of great jobs. Reluctant (or unable) to buy, this group of Pittsburghers have been paying the rents that we middle-agers think are outrageous and driving the apartment market. As this age group does marry and reproduce, the same factor will drive where they live as drives all American home buyers: where are the schools we want? If the city schools don’t pass muster for the Millennials, they will head to the suburbs just like their parents. There is a home buying/building boom in the near future. How good Pittsburgh Public Schools are perceived to be will determine if that boom includes Pittsburgh proper.

A couple of project follow-ups: CCAC put a design RFP out for its 150-bed student housing project at the Boyce campus. The RFP included (sort of) the option to add development and finance to the package. Pitt opened bids last week on its Barco Law Library project. Rycon was low at $3,049,000. TEDCO was second at $3.1 million but could become the low bidder if Pitt were to take 3 or  more of the alternates. Massaro CM Services will be releasing the $5 million North Allegheny Intermediate School renovations on Dec. 12 with bids due on Jan. 11.

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Sewickley is Hopping

During a visit to Sewickley on Nov. 17, I saw the recently-opened new Howard Hanna office on the corner of Thorn and Broad Street and got to experience what can only be calleda building boom in the village of Sewickley. Hanna’s office (picture below) was the fourth new commercial building started in the tiny commercial district in the village. Nearly 60,000 square feet of new office and theater have been started and nearly completed. Around the corner from the commercial activity, demolition was going on to clear the way for the Sewickley Condominiums, a 24-unit luxury development of two buildings on Locust Street by Zamagias Properties. And at the eastern end of the village, Charter Homes built 22 new homes in the last two years.

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The new Howard Hanna Real Estate Sewickley office, Thorn & Broad Street.

Another bit of space in the village will soon become a parking garage, infrastructure that is desperately needed. WTW Architects is designing the 250-car garage, which should cost between $5-6 million.

In other project news, the contractor for Hanna’s office, Dick Building Co., was selected to build the new 4,800 sq. ft. First National Bank branch on McKnight Road. MBM Contracting started construction last month on the $1 million Butler Hospital 6th Floor Administration project. Continental Building Co. was hired by Shorenstein Properties to act as construction manager/owner’s rep for the modernization of the One Oxford Centre building, a project that should run $50 million or more.

Could It Be Amazon?

A trip by the airport yesterday revealed a major dust cloud pluming up from the Chapman Westport development. After stopping by the project site, I found a massive excavation job being undertaken. A little digging around at Findlay Township’s offices uncovered applications by Chapman Properties for four items to be acted upon at the July 26 planning commission meeting. Those actions included the subdivision of 427.4 acres, including the creation of an 84.6 acre parcel, labeled Parcel A. There is also the application for approval of a land development on that parcel that involves construction of a 1,015,740 square foot warehouse/office, along with a 48,000 square foot building on another parcel.

That’s not a typo. There are two commas in that warehouse square footage.

Last week’s Pittsburgh 2Q2016 Industrial Market Report by Newmark Grubb Knight Frank alluded to a million square foot user in the market without naming the company. It would seem that user has landed. Tony Rosenberger, Chapman’s president, politely acknowledged that Chapman was planning a 48,000 square foot spec building – known as 110 Building – and that Foley Excavating was doing a major dirt job to prepare for the expansion of the Westport park. Beyond that, he had no comment on the construction or the applications to Findlay Township. Of course, I would have been shocked if he had.

There aren’t that many million-square-foot users out there. Civic leaders have speculated about those kinds of companies following the Shell cracker as downstream manufacturers; but with the plant’s opening date set for “early next decade,” it seems unlikely that a related plant would be getting underway now. The proximity of the site to GE Plastic’s new facility gets the imagination spinning but, again, it seems unlikely that GE could have created enough economic activity in six months to have spawned a million-square-foot neighbor. The most likely user at Westport is Amazon, especially since Dick’s Sporting Goods announced today that it was building its big distribution center in Conklin, NY.

When Amazon signed the lease for 250,000 square feet in Crafton back in Summer 2014, logistics experts talked about the “Amazon effect” that would attract other big distribution and fulfillment companies. But at the time, the brokerage community talked about the deal as being a search for 250,000 to 300,000 sqaure feet with future need for a million or more. That’s the size that is typically associated with Amazon Robotics’ fulfillment centers, which employ as many as 1,000 people.

Perhaps the end user will be revealed at the Findlay Township planning commission meeting, although that wouldn’t be necessary for the review or approval. In some ways, it could be even better if it’s another big company, since it would make Pittsburgh that much more attractive to kindred businesses. Chances are it won’t be a secret long.

Milhaus, ANSYS, Shell Making News

Milhaus Development has given notice-to-proceed to Franjo Construction for the first phase of its Arsenal Terminal mixed use development. Franjo still needs to finalize a GMP for the $40 million, 250-unit apartment complex, which will be the first part of what shuold be a $120 million investment. Even with the growing supply of apartments entering the market, Arsenal’s proximity to the Strip and Oakland make the project’s prospects for success better than average.

In Oakland, another tech-related development is moving ahead at Carnegie Mellon. CMU and simulation software designer, ANSYS, announced a partnership that will include a 30,000 sq. ft. new building on campus.

While of course no one will confirm or deny it, Aliquippa-based C. J. Betters Enterprises is rumored to have inked a deal to do a 200,000 square foot build-to-suit warehouse for Shell.

 

CRE Finance: Supply vs. Risk

The first quarter of 2016 was rocky for the permanent real estate financing markets, said a couple of Pittsburgh-based veterans of the industry at this morning’s NAIOP Pittsburgh breakfast. HFF’s Mark Popovich and Jim Scalo of Burns & Scalo Real Estate Services expressed surprise that the spreads and rates for CMBS and life company lending jumped up during the first three months of the year. Popovich attributed the rise in cost to a rise in fear of global disruption by a Chinese crash – a crash which never happened. Both expected conditions to remain stable the balance of the year.

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Mark Popovich (left), John Fetsko, Jim Scalo and M & T Bank’s Steve Olsavsky.

Liquidity and capital supply are also running ahead of demand. Banker John Fetsko from Wesbanco noted that his bank (and others) had seen their fill of apartment, hotel and office deals and would be more selective about projects, even though capacity exists. Popovich said that capital supply was running well ahead of deals because of uncertainty but that there was more than ample liquidity to deploy. Scalo echoed the sentiment about uncertainty, going further to predict that presidential elections, oil/gas declines, and fears about China, interest rates and terrorism would slow down development and sales until 2017.

In project news, Excela Health held a groundbreaking for its new $40 million Excela Square ambulatory care center in Latrobe that A. Martini & Co. is building. BRIDGES & Co. started work on the new 110,000 square foot self-storage center for Guardian in Hampton Township and the new $5 million Eden Christian Academy school in Ohio Township. The Cranberry Supervisors approved contracts for the $42.7 million Brush Creek treatment plant upgrade. Mascaro is the general contractor.

Another large treatment project bid earlier this week and again highlighted the hypercompetitive nature of the public market. Port Vue Plumbing was the low general/mechanical contractor for Canonsburg Houston’s plant expansion at $18.7 million, some 15% lower than Kokosing’s $21.5 million bid. In a bit of a surprise the project only attracted two bidders. The week before, Mike Coates Construction was the low general on the $44 milllion Chartiers Valley High job at $28.9 million. That was $3.6 million – or 11% – lower than Rycon Construction second low bid. The low HVAC number was also 10% under the next bid, although the remaining contracts bid tightly.

The tight market worked to Char Valley’s advantage. The school board was able to accept over $3 million in add alternates on the $29.7 million middle school (awarded to Mucci Construction) and $650,000 in alternates to the $48.5 million high school (awarded to Rycon). At the same time Mike Coates Construction pulled low bids on both jobs, a situation that always creates confusion in the market.

Hotel Projects Continue to Proceed

Another sector of the market making lenders nervous is hospitality. Here again, the news isn’t taking hold in Pittsburgh. Alphabet City owner Tony Dolan has taken a plan to the city to add five stories to a building on Reedsdale Street to create a 130-room hotel. Just a few blocks away, Matthew Shollar is proposing to convert the former Burns White building on Isabella Street into a hotel. Both of those sites are just a few blocks from where Oktober Development is planning to convert the former ARC Building into hotel use.

Across the Allegheny River, new boutique hotels at the former Kaufmann’s flagship store – also planned by Shollar – and at the Granite Building are stuck on financing. It will be interesting to see if either, or any of those proposed for the North Side, get enough lender or investor interest to come to fruition.

The pace of suburban hospitality projects has slowed but in Cranberry, the construction still goes on. With the Marriott Town Place topping off in Cranberry Springs, Summit Development and Nittany Cranberry Inn LP have proposed a 101-room Best Western at the site. Bear Construction will build the project. Creative Real Estate is hammering out final details with Franjo Construction for the proposed 116-room Homewood Suites to be built at the Village of Cranberry Woods near Franklin Road. The 124-room Wood Spring Suites hotel is well under construction in the township as well.

In other project news, Volpatt Construction was awarded a $2 million contract to renovate St. Peter Parish on the North Side. The Exel Logistics/Wesex Construction team is about to start construction on a 260,000 square foot warehouse for Phillips Respironics in East Huntingdon Twp. near New Stanton. Berlin Packaging is reported to be near an agreement to lease all of the 250,000 square foot spec warehouse that Al Neyer is developing at Clinton Commerce Park in Findlay Twp.

 

So Much for the Dead Apartment Market

The first quarter of 2016 marked the first that there were no apartment complexes started in three years. At the national level, the apartment market has begun to slow. Lenders are growing very leery of the property type. Absorption in Pittsburgh is slowing. Multi-family has become overbuilt. Those are the headlines. It seems that developers aren’t reading the headlines.

One of the experts concerned about the pace of development is Paul Griffith, president of Integra Realty Resources. His firm forecasts that multi-family construction needs to slow below 500 units for the next 18-24 months for absorption of new units to catch up. The average for the past three years has been above 2,000 units of new apartments. In a recent conversation, however, Griffith noted that requests for appraisals on new deals have not slowed. The activity in the bidding market reflects that.

The most ambitious project in the city is Milhaus’ plan to redevelop the Arsenal Terminal complex just west of 40th Street in Lawrenceville into at least 625 units. The first phase of that project is about 300 units (to be built in 70-75 unit increments) and the $38 million project is being priced by Continental, Franjo, Mistick, PJ Dick and Rycon. Also bidding is the 300-unit South Hills Village Apartments in Upper St. Clair. Mascaro, Mistick, Dynamic and Rycon are bidding the $43 million project. Massaro has been taking bids on its $85 million, 326-unit Empire project in Oakland. In the on deck circle are the first phases of the Riverfront apartments, being developed by NRP Group at the Buncher site in the Strip, and the Station Square West apartments that Forest City/Trammel Crow are proposing. Each is about 300 units. Given the scope of these projects, the apartments won’t hit the market until late 2017 or early 2018.

These 1,500 units are less than one-third of the 4,800 units in the design/development pipeline at the moment.