It may not be so much in Manhattan, but a billion dollars still buys a lot of property around Philadelphia.
That's how much commercial real estate brokers in the Philadelphia office of national broker Jones Lang LaSalle say they sold here in 2014, their biggest year ever, says executive vice president Doug Rodio. The firm says it's now the largest adviser to big building sellers in the region.
A string of city and suburban office centers sold in the past month at prices that get this slow-growing region's dealmakers kind of excited. If this keeps up, they hope, there's going to be more office construction, at least on the Main Line, where prices and rents are among the highest in the region, along with University City.
Take Radnor Court, the brick-and-glass, 121,000 square foot complex where Airgas has its headquarters at 249 Radnor-Chester Road, near the Radnor Septa station.
A Goldman Sachs investment fund paid Dan DiLella's Equus Partners more than $43 million, or $360/sf, for the site, last week, according to people familiar with the deal. DiLella didn't immediately return a call seeking comment.
That's roughly double what office high rises have been selling for in recent Center City deals (though less than the $469/sf the owners of 2.0 University Plaza, near Penn, have been asking.) It's about 60 percent of what Liberty Property Trust is spending to build new space in the second Comcast tower. The closer building prices get to the cost of new construction, the closer hopeful bankers and investors get to financing the next manic developer's new-construction plan.
The price also implies that Goldman is confident it can raise rents for suburban Philadelphia corporate tenants like Airgas, from around $32/sf/year, to at least $40/sf, when it's time for renewal.
How'd JLL get Goldman to buy? "Everyone in this market knows Radnor-Conshohocken is the best sub-market in the Philadelphia area," but it wasn't clear how it compared to other U.S. markets that big or larger, says James Galbally, executive vice preisent at JLL. The firm's national number-crunchers checked, and found the Radnor area was the nation's "number-one market, ranked by occupancy," with 97.5 percent of offices leased.
So JLL went out "and educated the entire community of investors who hadn't been looking in Philadelphia because, on its face, prices weren't that strong. And we found the smartest investors." By some measures the Radnor Court deal is the most investors have paid for office space in the region, Galbally added.
In Center City, office-tower prices have risen above mid-2000s levels. Take 1515 Market St., which Florida-based Accesso Partners bought this month for $85 million, including $22.25 million down, the rest financed, according to CoStarInc. data.
Accesso bought from Winthrop Realty Trust, which in early 2013 paid $71.6 million for control of 1515, after previous owner Stockton Advisers gave up the mortgage. In 2007, Stockton had bought 1515 Market for $76 million ($6 million down, the rest borrowed).
Why this rush of year-end deals? It's not a tax panic, says Rodio. It's fed by an improving economy that is slowly requiring more offices, plentiful investor dollars, and cheap rates for mortgage-backed securities, now pricing in the "high 3 percents and low 4 percents," Galbally told me.
How long can that last? Remember, these are brokers: "We don't see any reason it won't continue," said Rodio.