By Sam Waltz
“On the one hand, but, well, on the other hand” is hardly the kind of conclusive summary one might offer, but that seemed to be the bottom line — with a more-or-less positive spin — of the 36th Annual Commercial Real Estate Forecast breakfast hosted Dec. 8 by Pete Davisson, SIOR, CCIM of Jackson Cross Partners, a leading broker.
Key takeaways included:
• Class A occupancy rates seem soft, both in the CIty of Wilmington and in Northern Delaware suburban areas, each of them with increasing vacancy rates, but rental pricing seems pretty stable and in positive ground.
• The Pettinaro family’s move from value purchasing (e.g., Riverfront, Paladin and others) to the high end with a Greenville portfolio signals yet even more investment in the Greenville commercial real estate segment, even consolidation for a better tenant mix.
• Buccini/Pollin Group is seeing a bright future for its Wilmington-area mixed-use portfolio, both city and suburban, and it’s leveraging its gravitas in the space into a more developed regional presence, including prime areas in Philadelphia’s Center City as well as the Main Line.
With some 5 million square feet of Class A rental space in the Central Business District (CBD), Davisson said that vacancy rates have increased to almost 20 percent. That’s yielding a higher vacancy rate up from its 12.9 percent historical benchmark, without any significant increase in Class A space which enjoys a 5-2 margin over the approximately 2 million square feet of Class B.
The good news for the industry is that rental rates inched up about 5 percent over last year, to about $27.66/square foot.
Suburban rentals are a bit better, with vacancy rates at 14 percent, and gross rental rates up a bit to $23.73/square foot. Class A and Class B remain on par in the suburban areas, which featured its first real burst of Class A construction in the early 1980s.
However, no new Class A construction is on the radar in either the CBD or suburban areas.
Gregory Pettinaro, CEO of the family’s real estate and development empire, acknowledged that the Pettinaros surprised the market when they bought the Greenville portfolio from Keith Stoltz this fall.
“There’s real value in being a single owner,” Greg Pettinaro said, “when you can pick and choose our tenants [for the best tenant mix], decide what renovations you want to make and what people you are going to bring in. When you can control shape and growth of several properties, you can make it all better.”
Pettinaro already had owned the area’s largest multi-family residential complex, the 768-unit Greenville Place, which it acquired decades ago when it was said to have been in deplorable condition. The family invested in it, and subsequently added high-end short-term and longer-term apartment towers at the back of the property. For many of those residents, Greenville is a walkable destination for dining, shopping and services.
From Stoltz, Pettinaro acquired the Greenville Shopping Center where Janssen’s, M&T Bank, the Greenville Post Office, Pizza By Elizabeths and others are anchor tenants. In addition, it added Powder Mill Square, anchored by the original Brew HaHa! coffee shop, A.R. Morris jewelers, Cromwell’s Tavern, PNC Bank and Chicos, not to mention the new Starbucks.
In addition, coming with the purchase were the old Columbia Gas building, which Stoltz had purchased from MBNA, as well as the Barley Mill House sitting adjacent to the Del. 52 northbound ramp from U.S. 141 southbound.
Stoltz already had done the “heavy lifting” of expansion of the Greenville Shopping Center, with which Pettinaro apparently will continue, adding some residential and retail to the back of the site, as well as a pad out front near the signage at its intersection of Buck Road with Del. 52.
“Greenville by far is the most affluent area in New Castle County,” Pettinaro told the 100-plus crowd, at the risk of stating the obvious.
Founder Verino Pettinaro, an up-by-the-bootstraps entrepreneur from Little Italy, had gotten the family’s start with distressed properties like the Riverfront and what now are the Paladin Club condos, which they successfully recovered and rehabilitated. However, the Pettinaros increasingly have moved into higher-end development, including greenfields ready-to-develop projects in Avondale and Concordville areas.
Greg Pettinaro with his three sisters today runs the family’s enterprise, but founder Verino Pettinaro and wife Midge never are far removed from the family business discussions, and decisions.
From Chris Buccini, co-president of the Buccini/Pollin Group, the news was both local and regional. “BPG now is in 14 states, about 40 percent in office space, 40 percent in hotels, and the balance in residential, parking, and other,” he said. “We have about $750 million invested in Wilmington and nearby,” he added, mentioning the Christina Corporate Center, the Delaware Corporate Center and others.
“In the City of Wilmington, it’s the ‘tale of two cities,’ in some ways. We have a top of the market, that is stable, and some buildings that just need some work,” a point emphasized later by Davisson in an interview, about the aging of Delaware’s Class A office space.
“I really believe that job growth is coming in the suburban office market,” Buccini added, mentioning the company’s portfolio outside the city. “What we’ve seen is the lack of available vacancy in the northern suburban office market, with very little available product.”
“This year, we’re starting to see rent growth, and 2016 will see very impressive rent growth. Rental rates are certainly back to where they were pre-recession,” he added.
“In our market, tenants are caring less about [the amount of] rent and more about finding the right fit. If you have an obsolete building, you may need to refit it,” Buccini said. “The trends we see are less price-sensitive and more focused on experience for their employees.”
Buccini also speculated that on the other end of the large employer leasing, the market would see more rent-by-the-chair, rent-by-the-day co-working space, in the character of the COin Loft and the 1313 Innovation Center at the old Hercules Building. “My assumption is that you’ll see a lot more co-working space,” he said, mentioning a BPG project, The Mill, where tenants will pay “by the chair, month by month” by credit card.
It’s Concord Plaza that will occupy BPG too in the next year, he said, with the demolition of seven buildings in the 1980-era Brandywine Hundred landmark property on Silverside Road, which will be replaced by a variety of mixed-use buildings, including residential, anchored by a 60,000-square-foot new office building. “We just signed a large lease for this site,” Buccini said, “but they said they would come only if it’s a mixed-use site.” The site will include about 300 apartments over retail.
Also likely to attract community attention will be Rockford Falls, what Buccini jokingly called a “fixer-upper,” the old mills buildings complex that are the former Bancroft Mills. It will feature town houses on its upper site against the hillside, as well 325-350 apartments in four buildings on the lower site adjacent to the Brandywine. “Our goal is to get started in the spring of 2016,” he said.
In rounding out the discussion of BPG, Chris Buccini noted “we love, love, love Philadelphia!” He mentioned the Omni Hotel across from the Liberty Bell that BPG purchased, as well as a residential development parking tower, and some prominent suburban Philadelphia real estate.
Gov. Jack Markell opened the conference — attended also by New Castle County Executive Tom Gordon — with comments on economic development and job creation.
“Jamie Dimon, the CEO of JP Morgan Chase, was in town last week,” the governor said. “He has 1,800 people at the JPM Chase facility out at the Astra Zeneca site, and his plan is to bring an additional 1,800 people in the next 3 years. He said he wanted to take a picture and send it to the governor and the mayor of New York,” Markell added.
“These are not the jobs of 20 years ago,” Markell continued. “These are technology jobs. When I ask employers ‘what is your recruitment strategy?’, they used to tell me that it’s ‘to hire away from each other.’ ”
“Today, they have agreed to work together, to develop a new pipeline for employees,” added the governor. He continued by talking about the new computer coding program that just graduated 13 people to jobs with a $55,000 annual salary, and is about to start a new class of 30. “This is an intensive 12-week program, and we’re aiming to have 100-120 students a year go through the program.”
“In the case of JPM Chase, they could have gone to Columbus, Ohio, or to Arizona,” Markell said, attributing the tie-breaker to the quality of Delaware’s work force.
Markell also called out for special mention the groundbreaking on Del. 48 / Lancaster Pike for the new headquarters building for Corporation Services Co. (CSC), as well as the expansion of Incyte pharma at the old Wanamaker’s / Accenture building just off Augustine Cutoff.
“Incyte is an amazing company which could easily have gone to another state,” Markell said, only a few days ahead of Incyte’s announcement that it would locate hundreds of employees in Chester County while it expands the Accenture property.
A number of high-visibility issues did not come into discussion, among them, the future of region’s biggest landmark property, the DuPont Building, now owned by DuPont spinoff Chemours, which is said to being courted for purchase by both DelleDonne and BPG interests, or the future ownership of the Hotel DuPont, site of the conference.