Former owner of single-story light industrial building, located at 1139 Lehigh Avenue, increased occupancy of warehouse component of asset from 87% to 100%
Bethesda, MD (April 11, 2022) – 1788/Riverside Business Center, LLC, an affiliate of 1788 Holdings, LLC., a Bethesda, Maryland-based real estate investment company, has sold Riverside Business Center, a 423,900 square foot single-story light industrial building in Whitehall, Pennsylvania to Buligo Capital Partners for $34.65 million. 1788/Riverside Business Center acquired the asset, located at 1139 Lehigh Avenue, in 2018 for $11.65 million and increased the occupancy of the warehouse component of the project from 87% to its current 100% during its four-year hold period. Michael Hines of CBRE’sRadnor/Philadelphia office represented the seller in this transaction.
“We were initially attracted to Riverside Business Center based on the unique opportunity to acquire a high-quality Class B light industrial property that was substantially leased with in-place rents significantly below market, as well as the compelling opportunity to build significant value with a strategic capital investment program, aggressive leasing effort and cost-efficient property management strategy,” stated Larry J. Goodwin, Principal, 1788 Holdings. “The property contained every fundamental necessary to achieve this objective, led by an irreplaceable location, a strong tenant base and the extreme acceleration in demand for industrial, light manufacturing and warehouse space throughout the Lehigh Valley corridor.”
Riverside Business Center overview
Constructed in 1910, Riverside Business Center has been improved and renovated on numerous occasions, including the investment of more than $9 million by the previous owner in 2006 to convert the property from a single-user manufacturing facility into a multi-tenanted warehouse and light manufacturing facility. The conversion included the installation of 31 dock doors and 23 drive-in doors, the installment of modernized HVAC and lighting and plumbing systems, substantial improvement to all tenant suites, a complete exterior brick and concrete makeover and parking lot upgrades.
Positioned on approximately 34 acres of land, Riverside Business Center features average ceiling heights of 20 feet, the availability of ample automobile and truck parking and a dry sprinkler fire protection system. Abutting the Lehigh River, the center is located adjacent to Lehigh Valley Thruway (US Route 22), with immediate access to Interstate 78 and the Pennsylvania Turnpike. Lehigh Valley International Airport is less than three miles from the site, while Philadelphia is approximately 60 miles south and New York City is approximately 90 miles west of the project. This location places the asset within a one-day truck drive to approximately one-third of all consumers residing in the United States.
Summary of value enhancement strategy executed during the hold period
1788 Holdings implemented a series of value enhancement strategies during its hold period from March 2018 to March 2022, including physical plant upgrades, rehabilitating an abandoned second floor of the office structure to allow the recapture of 13,000 square feet of office space, adding wayfinding signage, creating fenced-in outside storage areas for certain tenants and repointing and repainting the exterior. In addition, the new ownership established relationships with existing tenants, the local brokerage community and officials of Whitehall Township. In several instances, discretionary investments were made to upgrade tenant premises prior to lease expirations, and those decisions were rewarded with renewals from those tenants.
As the COVID-19 crisis took effect, 1788 Holdings worked closely with Riverside Business Center tenants to provide financial assistance, if needed, during the period of uncertainty. This included offering rent relief or rent abatement, allowing certain tenants to execute short-term leases, and permitting others to give back space while they navigated business challenges.
“Real estate is a relationship-driven industry and our first order of business upon acquiring Riverside Business Center was to develop open lines of communication with our tenants, and demonstrate that we have their interests in mind at all times,” Goodwin explained. “This corporate mission was validated during the height of the pandemic when several tenants faced unprecedented challenges and uncertainty, and we responded with concessions that assisted with their recovery. As companies achieved normalcy, our actions paid dividends with longer-term renewals, as well as higher lease rates to new entities signing leases at Riverside Business Center.”
Seizing the opportunity to sell in response to market conditions
1788 Holdings acquired Riverside Business Center in 2018 at just over $27 per square foot, a price which represented less than 30% of the property’s replacement cost, and rental prices in the Lehigh Valley submarket averaged approximately $3.00 per square foot at the time of the acquisition. Although the plan was to hold the asset for 10 years, 1788 Holdings began exploring a possible sale last fall after detecting the continued compression of capitalization rates for similar buildings in the region, which fell from 7% to the mid-4% range.
CBRE was selected as the exclusive sales broker, and upon bringing the asset to the market, it solicited more than 10 qualified offers. At the time of the sale to Buligo Capital Partners, the average in-place industrial rent had risen to approximately $4.25 per square foot, and 1788 Holdings had elevated office rents from $2.40 triple net to $10 triple net. 1788 Holdings acquired the asset on a 9% cap rate and sold the building on a 5.625% cap rate.
Sustained vibrancy of Lehigh Valley, Pennsylvania submarket
Riverside Business Center is located within the Lehigh Valley submarket, which is considered to be the 69th largest metropolitan area in the United States by population, It is home to nearly 700,000 people and has a Gross National Product (GNP) approaching $43 billion. According to the Lehigh Valley Economic Development Corporation (LVEDC), more than eight million square feet of industrial space was added to the submarket last year, increasing the total to nearly 140 million square feet of industrial space. More than 9 million square feet of space was leased, lowering the vacancy rate to 4.2%.
Outlook of national industrial/warehouse space category
The brokerage firm Cushman & Wakefield stated in its 2021-2022 North American Industrial Outlook, “the tailwinds of e-commerce and heightened focus on supply chain resiliency will keep the industrial market in an upswing, with record construction and new all-time high rental rates on the horizon.” More than 481 million square feet of industrial space is expected to be absorbed throughout North America during this time period.
According to CBRE’s U.S. Real Estate Market Outlook 2022, “on the heels of record transaction volume and rent growth amid extremely tight supply and high demand, the industrial real estate market will remain extremely strong in 2022. Demand will primarily be driven by growing e-commerce sales, the improving economy, population migration and the need for onshore safety stock inventory to avoid the supply chain disruptions of the past 18 months.”
1788 intends to deploy proceeds of sale to fund future value-add acquisition opportunities
1788 Holdings created the company’s light industrial platform in 2018 with the purchase of Riverside Business Center. The company has since expanded its targeted geographic footprint to seven states and continues to seek opportunities in additional markets. 1788 Holdings is particularly interested in acquiring under-performing warehouse/industrial assets with the opportunity to re-tenant, complete leasing programs and improve operational efficiencies.
“This disposition was a timely and successfully-executed thesis that rewarded our investors, and we intend to remain aggressive and active in our approach for the foreseeable future to seize emerging value-add properties in various asset categories,” said Goodwin. “We have particular interest in the light industrial and outside storage asset categories and have ready capital to immediately act on the opportunities before us.”
1788 Holdings, LLC is a Bethesda-based commercial real estate investment company with a focus in the Mid-Atlantic and Southeast regions of the United States. The company’s capabilities include the acquisition, development and strategic oversight of highly-differentiated residential, office, retail and industrial properties, including Industrial Office Storage assets. 1788 Holdings now owns 17 properties totaling approximately 1.5 million square feet of space, as well as an additional 50 acres of outside storage space in Alabama, Florida, Georgia, Maryland, North Carolina, Pennsylvania and South Carolina, with a total market value of $137 million. For additional information, visit www.1788holdings.com