A billion dollars still buys a lot of real estate in Philadelphia. That's how much commercial real estate brokers in the Philadelphia office of
Jones Lang LaSalle
say they sold here in 2014.
It was a record for the firm, said executive vice president Doug Rodio. The company claims it is the largest adviser to big building-sellers in the region.
Prices are up. See, for example, Radnor Court, the brick-and-glass, 121,000-square-foot complex where Airgas has its headquarters on 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 per square foot, for the site last week, according to people familiar with the deal. DiLella didn't return a call seeking comment.
By some measures, the Radnor Court price is the most investors have paid for office space in the region recently, James Galbally, also a JLL vice president, told me. It's roughly double what office high rises have been selling for in recent Center City deals - though less than the $469 per square foot the owners of 2.0 University Plaza, near Penn, have been asking.
Radnor Court's cost is 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, then the closer bankers and investors get to financing new construction.
The price also implies that Goldman is confident it can raise rents for suburban Philadelphia corporate tenants, such as Airgas, from around $32 per square foot to at least $40 per square foot - when it's time for renewal.
How did Jones Lang LaSalle get Goldman to buy? "Everyone in this market knows Radnor-Conshohocken is the best sub-market in the Philadelphia area," Galbally said. But, he added, it hadn't been clear how it compared with other U.S. markets the same size or larger.
The firm's number-crunchers produced a report showing the Radnor area was the "No. 1 market, ranked by occupancy," Galbally added, with 97.5 percent of offices leased.
So Jones Lang LaSalle 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," Galbally said. "And we found the smartest investors."
In Center City, office-tower prices have risen above mid-00s levels. Take 1515 Market St., which Accesso Partners of Florida bought this month for $85 million, including $22.25 million down, the rest financed, according to CoStarInc. data.
Accesso bought from Winthrop Realty Trust of Boston and New York, which in early 2013 paid $71.6 million for control of 1515 Market St., after previous owner Stockton Advisors gave up the mortgage. In 2007, Stockton of Philadelphia had paid $76 million ($6 million down, the rest borrowed).
The rush of deals has been fed by an improving economy that is slowly requiring more offices, and by plentiful investor dollars. Rates are cheap for mortgage-debt financing, in the high 3 percent range, Galbally told me.
How long can that last? These are brokers, thus mostly optimists: "We don't see any reason it won't continue," said Rodio.