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.