Did You Know – November 2020

Over the past month, we’ve faced with a heated presidential election, an administration transition and a second wave of the COVID-19 pandemic.  Government’s reaction has been to test more people and restrict movement in an attempt the contain the virus until vaccines can be approved and distributed.  At the start of the fourth quarter 2020, macro data suggested that economic activity was showing some signs of improvement, but as more stringent government measures are adopted, we are likely to see slowing economic activity.

Questions remain, like how does the economy rebound, will the government provide additional economic stimulus before yearend 2020, and how will commercial real estate fundamentals and investment fare?  The local commercial real estate market is still active thanks to investors and developers having long term faith in the market coupled with the low interest rate market.  Below is a snapshot of significant commercial real estate sale activity in Delaware for September through November.  It includes a variety of asset types including vacant land, a retail center, a hotel, self-storage building, apartments, modular home park and industrial. The five leased sales below reflect a wide range of cap rates, from 4.7 to 8.76 percent with an average of 6.07 and a median of 6.73 percent.

  • Henlopen Meadows – is the sale in September of 60 acres for $3 million (equivalent to $14,925/lot) that is planned for 201 residential homes to be developed by Ryan Homes in Lewes.
  • Tower Hill– is a proposed 292-lot single family residential subdivision on 138.06 acres in Lewes that was purchased in September for $12,030,000, equivalent to $41,199 per lot.
  • 263 Quigley Blvd and 34 Blevins Road – are two industrial/flex buildings in the Airport Industrial Park totaling 92,901 square feet that sold together as a portfolio in October for $7,350,000, or $79.12 per square foot.
  • Blue Diamond Park – 780 S. DuPont Highway in New Castle is 125.02 acres of EX/I industrial land that sold in October for $31.25 million, equivalent to $249,960 per acre in order to build a 1.33 million square foot Amazon fulfillment center.
  • Sheraton Wilmington South – is a 192-room hotel at 365 Airport Road that sold at auction in October for $19.5 million, equivalent to $101,563 per room.
  • New Castle Storagelocated at 4093 New Castle Avenue is a renovated/vacant fully climate controlled 68,807 rentable square foot facility with 753 units that sold in October for $7,050,000, or $102.46 per square foot or $9,363 per unit.
  • The Garrison – is a 2019 constructed and fully stabilized 120-apartment units and two commercial tenanted building sold in November for $30.65 million, equivalent to $251,230 per unit.
  • The Shops at Limestone Hills – is a 34,710 square foot 95 percent leased neighborhood shopping center that sold in November for $14.425 million, equivalent to $415.59 per square foot.
  • Capitol Green Apartments – is a 132-unit rent subsidized apartment complex in located in Dover that sold in November for $19.5 million, equivalent to $147,727 per unit.
  • Ridgewood Manor Mobile Home Park – is a 202-lot park on 56.4 acres in Smyrna that sold in November for $12 million, equivalent to $59,406 per lot.
  • 300 Executive Drive – in Pencader Corporate Center is a 178,221 gross square foot gutted warehouse on 16 acres sold in November for $7.5 million, equivalent to $42.08 per square foot. It previously sold in May 2017 for $6.5 million.
  • 220 Lake Drive – in Pencader Corporate Center is a 178,235 square foot fully leased office/warehouse on 8.95 acres sold in November for $14.2 million, equivalent to $77.50 per square foot.

Additional government restrictions could stymie holiday consumer spending and mute 2020 GDP.  Unfortunately, if Congress can’t agree with another round of government stimulus then the risks are to the downside for sluggish growth to start 2021.  The hope is that a coronavirus virus approval and distribution in the first half of 2021 will foster market optimism, boost employment, create a positive investment market, and stimulate increased commercial real estate activity complemented by a low interest rate environment.  How will vaccine approvals and rollout in 2021 – impact consumption and business investment, and hence growth and inflation?  Plus, locally will Delaware benefit from the Biden effect?  Our outlook for the local commercial real estate market into 2021 is a positive one with opportunities presenting themselves for investors operating across all risk tolerances.

Did You Know – August 2020

The COVID-19 business shutdown was rapid as it spread over the national and local economies throwing them into a recession in the second quarter 2020.  Recessions are typically market resets, but this was an external shock to the system. It poses the question: will a slow and gradual return back to normal be different?

So, what will our local economic recovery look like?  An informal poll taken by the Delaware Commercial Industrial Real Estate Council (CIRC) on their June virtual meeting had 72 percent responding that they anticipated a slow and gradual recovery locally.  The good news is that locally we have a diverse economy with a good, educated workforce that companies desire.  Having a diversified economic base with a talented workforce makes our local economy more resilient to weather the economic downturn.

While most investors have the phrase ‘past performance is not indicative of future results’ memorized, the truth is it can still help to look at the past to understand future performance.  Typically, in periods of market dislocations there are opportunities to deploy capital.  First many investors hoard cash and, if they buy, they search for safety in blue chip, high tenant credit leased investments or make very strategic investments. Below, we have summarized notable commercial real estate sales settling pre-pandemic in January to March 2020 totaling $82.9 million versus those settling post-pandemic in April to June 2020 totaling $100.7 million.

Pre COVID-19 Delaware Sales Examples

  • Wawaset Park Apartments – a five-story, 32-unit apartment building located at 2600 West 7th Street in Wilmington that sold in January for $4.5 million, equivalent to $140,626 per unit.
  • Former PPG plant – in Dover sold in January for $4.25 million for 176,853 total square feet in two office/industrial buildings on 51 acres. This equates to $24.03 per square foot.
  • Pennsylvania Railroad Building – a sale at 112 S. French Street in Wilmington for a five-story office building, totaling 43,313 square feet, that sold in January for $4.8 million, or $110.82 per square foot.
  • Rite Aid – a 10,908 square foot drugstore with a drive-thru located at 1999 Pulaski Highway sold in February 2020 for $2.0 million, or $183.35 per square foot.
  • One Avenue of the Arts – a part 2- and 3-story, 24,445 square foot office building on the Wilmington Riverfront.  It sold in February for $4.325 million, or $176.93 per square foot.
  • Emblem at Christiana – a 3-story, 245-unit, garden apartment complex that was built in 2017 that recently sold in February for $60.5 million, or $246,939 per unit.
  • Burger King – at 3607 Kirkwood Highway in Newark sold in March for $2,572,293 or $856 per square foot.

Post COVID-19 Delaware Sales Examples

  • 105 Park Avenue – is a 36,000 square foot industrial warehouse in Seaford that sold in April for $2.67 million, or $74.17 per square foot.
  • 824 N. Market Street – is a 10-story, 207,005 square foot office building that was 67 percent leased that sold in April 2020 for $16.55 million, or $79.95 per square foot.
  • 100 Commerce Drive – is a 3-story, 65,605 square foot suburban office building in Newark that sold in April for $5.1 million, or $77.74 per square foot.
  • Renaissance Center – at 405 N. King Street, Wilmington is an 8-story, 189,728 square foot office and adjacent 256-space parking garage that sold to Amtrak in May for $42 million, or $221.37 per square foot.
  • The Rockford Shoppes – is a 18,544 square foot shopping center located in Trolley Square that sold in June for $9.3 million, or $501.51 per square foot.
  • 1604 & 1616 Pulaski Highway – an assemblage of 4.691 acres approved for a 29,089 square foot Lidl grocery store & a 7,200 square foot specialty retail center.  It sold in June for $3.75 million to Lidl U.S. Operations LLC in June.
  • PAM Rehabilitation Center of Dover – is a 42,140 square foot triple net medical office that sold in June for $21.35 million, or $505.57 per square foot.

The local commercial real estate activity, did slow during the shutdowns, but has been steady and somewhat resilient over the past three months.  Our outlook for the local commercial real estate market over the remainder of 2020 will be tied to containing the virus spread via increased testing, the economy via declining unemployment and another round of government stimulus money, plus market liquidity remaining steady.

Did You Know – April 2020

Over the past month, we have all been faced with unprecedented economic and social upheaval precipitated by the COVID-19 pandemic. This global health crisis has caused the U.S. GDP to plummet and unemployment to shoot upward in what is now being termed the “Great Suppression”. The biggest concerns at this time – beyond the life, health, and safety of everyone – are how does the economy rebound, how do businesses reopen, and how does commercial real estate fare?

The outlook for the U.S. commercial real estate market has changed in response to the pandemic. Because of uncertainty in the timeline to find an effective treatment or vaccine for the virus, market momentum has slowed in the short term. Some market participants are on the sidelines taking a ‘wait and see’ approach, whereas others are being more opportunistic to hunt for distressed deals at advantageous prices. The good news is that the commercial real estate market by nature is slow-moving and yield focused, and the leasing and rent fundamentals do not swing wildly from day-to-day.

We know that there will be a reopening of business, but we need to be patient and understand that the economy might not bounce back to normal right away. People will need to continue to heed the CDC guidelines of social distancing, hand washing, and wearing face masks.

Below, we have summarized notable commercial real property sales located throughout Delaware occurring between December 2019 and March 2020. The asset sales range from an assisting living facility, an industrial office/warehouse, office buildings, apartments, and a hotel. The five leased investment sales below reflect a wide range of cap rates from 5.5 to 10.0 percent with an average of 6.77 and median of 7.75 percent.

The Summit at Hockessin – a 4-story, assisted living complex with 91 independent and 94 assisted living units (185 bed total) on 20.59 acres that sold in December 2019 for $46.9 million, or $253,514/bed.

Liberty Square Apartments – a three-story, 297-unit apartment complex located in Newark that sold in December for $32.5 million, equivalent to $109,428 per unit.

Galloway Court Apartments – a two-story, 129-unit apartment complex located in New Castle that sold in December for $11.4 million, equivalent to $88,372 per unit.

Former PPG plant – a sale in Dover in January for $4.25 million with 176,853 total square feet in two office/industrial buildings on 51 acres. This equates to $24.03 per square foot.

Wawaset Park Apartments – a five-story, 32-unit apartment building located at 2600 West 7th Street in Wilmington that sold in January for $4.5 million, equivalent to $140,626 per unit.

Pennsylvania Railroad Building – a sale at 112 S. French Street in Wilmington for a five-story office building, totaling 43,313 square feet, that sold in January for $4.8 million, or $110.82 per square foot.

Rite Aid – a 10,908 square foot drugstore with a drive-thru located at 1999 Pulaski Highway sold in February 2020 for $2.0 million, or $183.35 per square foot.

The Bellmoor Inn & Spa – a 78 room hotel in Rehoboth that sold in February for $17.3 million, or $221,795 per room.

One Avenue of the Arts – a part 2- and 3-story, 24,445 square foot office building on the Wilmington Riverfront. It sold in February for $4.325 million, or $176.93 per square foot.

Emblem at Christiana – a 3-story, 245-unit, garden apartment complex that was built in 2017 that recently sold in February for $60.5 million, or $246,939 per unit.

Did You Know – March 2020

The cumulative risk of the travel bans, school and university closings, the closing or adjusted of hours to stores, restaurants and pubs, canceling of court trials and religious services, and postponing of all sports games and social events, could lead us into a negative feedback loop. A negative feedback loop is a reaction that causes a decrease in function. This loop, like in 2008, starts with a drop off of economic activity caused by the above closures, then spurs job losses and the potential for an increase of distressed properties/loans. This then leads to price declines and the potential for an increase in loan defaults, which in turn leads to bank losses and credit contraction before the loop starts over and continues. Being caught in this negative feedback loop like in 2008 would put us in a recession.

Many consider the U.S. to be in a recession, measured by two quarters of consistent economic downturn. ULCA economists have forecasted U.S. GDP growth in the first quarter of just 0.4%. They forecast second quarter GDP to decline by 6.5%, and by 1.9% in the third quarter. “With the assumption of an end to the pandemic and repaired supply chains by this summer, the forecast predicts the resumption of normal activity in the fourth quarter of 2020 and a GDP growth rate of 4.0%,” UCLA officials said in their report.

A recession is typically caused by excesses in the system (i.e., overbuilding, too much debt, etc.). Hopefully, this is a short-term medical pandemic; unfortunately, without containment of the virus, there will be job losses and other economic pains. In addition, with the economy in flux and stock prices down across the board, it seems likely that the U.S. commercial real estate property markets will hit a soft spot. Clearly, we will experience a short-term economic downturn.

Following the erratic stock market pricing in March as COVID-19 spreads, REITs have performed worse than the S&P. If we correlate the performance of REITs and their drop in share prices as an indication of lower commercial real estate property values, then we are down 20 to 35 percent from at least three weeks ago. Obviously, REITs focused on gaming and lodging having taken the largest hits, whereas REITs focused on the office, apartments, and industrial sectors being on the lower end of the range. Of course, given panicked wholesale selloffs, these signals need to be taken with a grain of sale. Nonetheless, given where we are in the latter portion of the cycle, real estate pricing likely will moderate and come down, varying by property types.

All of this volatility has highlighted the attractiveness of investing in hard assets like commercial real estate, especially secure triple net leased properties, to high credit tenants. But larger assets like hotel/resorts and malls are likely to be impacted by the virus due to increases in cleaning costs and a drop off in patrons and/or tenants. In addition, offices could be negatively impacted if rent payments get delayed; tenants will cut their space needs, or close their businesses entirely.

The good news? It is possible to adapt and overcome. It is doubtful that we will enter a negative feedback loop as described. This is hopefully a short-term biological pandemic and things are not destroyed. There is not a bubble with excesses to clean up or work through. Things have been halted, but provided there is a quick containment of the virus then all the financial economic stimulus will act as a crutch for the financial markets. The outlook is for lower gas prices, low interest rates, pent-up consumer demand, and positive economic growth buoyed by the huge stimulus by yearend 2020.

Did You Know? July 2018

At the approximate midpoint of 2018 we are seeing local transaction remaining robust. We have summarized notable commercial real property sales located throughout Delaware below that have occurred between May and July 2018. Assets summarized below range from apartments, vacant land, retail shopping centers, office buildings, net leased real investments, industrial buildings, self-storage and special purpose properties. Leased investment sales below indicated cap rates from 5.8 to 9.9 percent with an average of 7.66 and median of 7.85 percent.

– 400 Delaware Avenue – is a one-story, 7,550 square foot former bank branch in Wilmington that sold in June 2018 with a 10-year, lease to Bank of America for $1.7 million, or $225 per square foot.

– The Horseshoe – is six unit duplex student housing complex located on E. Cleveland Avenue in Newark that sold in June 2018 for $1.45 million, or $80,556 per bed.

– 100 Paper Place – is a one-story, 43,185 square foot industrial building on 3.08 acres zoned CR that sold in June 2018 for $2.1 million, or $49 per square foot.

– Northeast Plaza – is a 22,240 square foot, strip shopping center located at 1200 Northeast Blvd, Wilmington that sold in May 2018 for $1,825,000, or $82 per square foot.

– Chateau Orleans Apartments – in Wilmington is a 168-unit, garden-style apartment that sold in July 2018 for $15.6 million, or $92,900 per unit.

– The Elms Apartments – is 24 units in Newark that sold in July 2018 for $1,700,100, or $70,838 per unit.

– The Wilmington Loew’s – in New Castle is 28.7 ground leased acres sold in July 2018 for $5.5 million.

– 86 Albe Drive – is a 9,975 square foot industrial building that sold in May 2018 for $1,025,000, or $103 per square foot.

– 14 Garfield Way – is a 42,305 square foot industrial, refrigerated warehouse building on 2.07 acres that sold in July 2018 for $1,700,000, or $40 per square foot.

– 107 Albe Drive – is a 22,970 square foot, multi-tenant, industrial/flex building on 1.69 acres that sold in June 2018 for $2.1 million, or $91 per square foot.

– Liberty Baptist Church – on Red Lion Road in Bear is 8.12 acres improved with a total of 15,211 square feet of buildings that sold in May 2018 for $2,025,000 million, or $133 per square foot.

– 20 acres in the Westown Business Park – located off Merrimac Avenue in Middletown sold in June 2018 for $4,250,000, or $16,100 per unit for a planned 264 unit, garden apartment complex.

– Bunker Hill Professional Centre – located at 102 Sleep Hollow Drive in Middletown is a two-story, 20,853 square foot office that sold in August 2018 for $3,815,000, or $183 per square foot.

– 1050 Industrial Drive – is a two-story, 20.,160 square foot multi-tenant, office in Middletown that sold in July for $1.7 million, or $84 per square foot.

– Former Safe Haven Animal Sanctuary – in Georgetown, Delaware is an 11,500 square foot vacant animal hospital on 13.23 acres that sold in June 2018 at auction for $880,000, or $77 per square foot.

– Barton’s Grand Rental Station & Mini-Storage – in Seaford, Delaware is approximately a 75,000 square foot mini-storage building and a 10,000 square foot retail showroom that sold in July 2018 for $5,125,000, or $60 per square foot.

Did You Know? April 2018

Nationally, nine years into the expansion economists expect a jump in economic growth in 2018. Real gross domestic product (GDP) growth, which was 2.3 percent in 2017, is forecast to rise to 2.8 percent in 2018.  Higher levels of economic growth are anticipated to continue into 2019 with economists predicting a 2.5 to 2.9 percent GDP growth rate.

  • According to the MBA, 2017s lending volume for commercial and multifamily mortgage loans closed at a record of $530.1 billion, up eight percent over 2016. Nearly a third of that total, or $151.2 billion, reportedly came from commercial banks, while GSEs came in second with $130 billion.
  • Commercial real estate loans at banks are at a record of $4.3 trillion, or 11 percent higher than before the Financial Crisis. According to the Green Street CPPI index commercial real estate prices collapsed nearly 40 percent during the Financial Crisis; then prices more than doubled from the low in May 2009 to the peak in September 2017, when the index was 27% above the peak of the prior bubble.
  • Economic growth and commercial real estate fundamentals overall remain strong. The exception is the retail sector due to changing demographics, the impact of E-commerce and tenant bankruptcies.
  • But the “retail apocalypse” isn’t occurring and facts and figures tell the story: 91 percent of all retail sales in 2017 occurred in a brick-and-mortar stores and physical retail store openings grew by more than 50 percent in 2017 thanks to the hypergrowth of dollar stores.
  • The outlook for commercial real estate in 2018 is positive based upon continued low unemployment and positive economic growth even with the headwinds of rising interest rates.

 

Locally, we have summarized several larger priced commercial property sales that occurred in the first quarter of 2018 below.

 

  • One & Two Greenville Crossing – is a 134,389 square foot retail/office complex located in Greenville that sold for $66 million in March 2018.
  • The Alder Park & Pine Grove Apartments – in Dover that total 311 units sold in January 2018 for $20 million, equivalent to $64,102 per unit.
  • Las Casas Apartments – in Wilmington sold for $10.3 million in March 2018, or $85,833/unit.
  • Walgreens in Milford sold in March 2018 for $6.575 million, or a $526/SF and a 5.7% cap rate.
  • 322 Ruthar Drive – is a 120,700 square foot industrial building on 10.67 acres that sold in April 2018 for $6.5 million, or $53.85 per square foot.

Did You Know…July 2017

Did You Know – July 2017

  • According to the Wall Street Journal, the median size of a new single-family home declined for the first time since 2009, slipping two percent to 2,422 square feet in 2016. This is only the third time in the last 20 years that it has fallen, according to U.S. Census Bureau.

 

  • The Wall Street Journal reported that about 854,000 new-owner households were formed during the first three months of 2017, more than double the 365,000 new-renter households, according to U.S. Census data. This was the first time in a decade that there were more new buyer households created than renter households.

 

  • As of midyear 2017 CoStar reports Delaware’s retail inventory of 30.3 million square feet was operating at a 5.0 percent vacancy rate; down from 6.2 percent reported a year earlier but slightly higher than the reported national retail vacancy rate of 4.8 percent.

 

Recent, larger commercial real estate sales in Delaware include:

The Astra Zeneca north campus at 1800 Concord Pike in Wilmington, Delaware sold on June 30, 2016 as part of a sale leaseback.  The property consists of a variety of inter-connected buildings containing 500,000 rentable square feet plus structured parking on about 80 acres.

Mill Creek Mobile Home Park with 770 pads on 117 acres sold to a group out of Michigan for $42,354,150, or $55,000 per pad.

Tri-State’s Self-Storage three property portfolio located in New Castle County totaling over 2,400 units sold June 20, 2017 for $40.25 million to iStorage.

1303 Delaware Avenue is a 15-story apartment with 231 units located in Trolley Square that sold July 27, 2017 for $39.25 million or $169,913 per unit.

Autumn Park Apartments in Newark, Delaware sold on July 10, 2017 for $35.5 million, or $99,162 per unit for its 358 apartments.

124 Sleepy Hollow Road, Middletown, Delaware is a 30,000 square foot, two-story, medical office building that sold on June 14, 2017 for $7.5 million, or $250 per square foot.

Linkside in Magnolia is three properties in Kent County, Delaware that sold in July 2017 for $15 million.  It included a 39,000 square foot shopping center, an independent gas station, a 60-unit apartment and a 10 unit rental townhouse complex.

A 10.21 acre commercial tract which was the former home to Tomato Junction retail produce stand on Coastal Highway in Rehoboth Beach sold in May 2017 for $13.5 million.

300 Executive Drive in Pencader Business Park – sold in May 2017 to Del Monte Fresh Produce for $6.5 million, or $36.47 per square foot.

The University Commons Apartments in Newark is a 32 unit complex on two acres that sold for $6.2 million, or $193,750 per unit.