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Spring 2014
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CONT E NTS 06
| Spring 2014
05
President's Perspective
31
Developer Profile
Retail Changes Course
A deep recession and online shopping change the character and direction of retail development.
Fourth River Development
35
Developing Trend
38
Eye On the Economy
42
Office Market Update
47
Industrial Market Update
52
Retail Market Update
55
Capital Markets Update
60
Legal / Legislative Outlook
63
Benchmarks
69
Voices
73
News from the Counties
P32 Site Development Fund helps with big site preparation.
19
NAIOP Pittsburgh's Awards
NAIOP Pittsburgh’s 21st Annual Awards Banquet honors projects and individuals exemplifying excellence in the commercial real estate industry.
Avison Young
Colliers International
Newmark Grubb Knight Frank
Endangered species can endanger a development project.
Foundations take a more active role in bricks and mortar development.
23
NAIOP Pittsburgh Hall of Famers weigh in on the proposed ethane cracker.
Development Project Southpointe Town Center
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3
Congratulations USAA and GLL.
We are proud to be your trusted real estate services provider. CBRE applauds USAA on their NAIOP “Renovation of the Year” award and GLL Real Estate Partners on their NAIOP “Green Building of the Year” award.
PARK PLACE CORPORATE CENTER
RENOVATION OF THE YEAR USAA
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GREEN BUILDING OF THE YEAR GLL REAL ESTATE PARTNERS
President’s Perspective PUBLISHER Tall Timber Group www.talltimbergroup.com EDITOR Jeff Burd 412-366-1857 jburd@talltimbergroup.com PRODUCTION Carson Publishing, Inc. Kevin J. Gordon kgordon@carsonpublishing.com ART DIRECTOR/GRAPHIC DESIGN Carson Publishing, Inc. Jaimee D. Greenawalt CONTRIBUTING PHOTOGRAPHY Carson Publishing, Inc. Markowitz Communications Rycon Construction NEXT Architecture Desmone & Associates Architects CONTRIBUTING EDITORS Anna Burd Karen Kukish ADVERTISING SALES Karen Kukish 412-837-6971 kkukish@talltimbergroup.com MORE INFORMATION: DevelopingPittsburgh is published by Tall Timber Group for NAIOP Pittsburgh 412-928-8303 www.naioppittsburgh.com No part of this magazine may be reproduced without written permission by the Publisher. All rights reserved. This information is carefully gathered and compiled in such a manner as to ensure maximum accuracy. We cannot, and do not, guarantee either the correctness of all information furnished nor the complete absence of errors and omissions. Hence, responsibility for same neither can be, nor is, assumed. Keep up with regional construction and real estate events at www.buildingpittsburgh.com
W
Pittsburgh Magazine.
elcome to the Spring 2014 edition of the award winning Developing-
Since the last edition of DevelopingPittsburgh the Pittsburgh chapter has had many successes. One of those was in our role in advocacy initiatives. Our membership played a vital role in helping push through the passage of Pennsylvania’s transportation funding legislation. We received other good news when we learned that the Southern Beltway connecting the Pittsburgh International Airport and Interstate 79 was also fully funded. NAIOP Pittsburgh has been actively advocating for its completion for several years. A contingent of NAIOP Pittsburgh members recently attended the NAIOP Legislative Retreat in Washington, D.C. We spent a day on Capitol Hill meeting with some of Western Pennsylvania’s elected government officials further advocating for tax reform for Leasehold Improvments and Brownfield Development, incorporating economic consideration for energy saving initiatives in new construction, a comprehensive Endangered Species Act (ESA) reform and more transparency in the implementation, and the reauthorization of a multi-year Federal Transportation bill.
about shopping has changed how retail property is being developed. Retailers are among the first to feel it when a downturn is coming and trends that influence retail development have downstream impact on other commercial and industrial development. The shift to online shopping, for example, has created a market for warehousing that did not exist just a few years ago. The Internet companies that are thriving because of this shift, like Amazon, are still wrestling with what their logistics and fulfillment center needs are. There are similar changes in commercial development that have resulted from changes in consumer behavior in just a few years. Here in our own backyard we have seen that influence already in the mixed-use properties that have moved forward. Enjoy this edition of the award winning DevelopingPittsburgh magazine. We continue to strive to provide relevant and useful information. We are always receptive to input on new topics so please do not hesitate to reach out to us. Remember to visit the NAIOP website (www.naioppittsburgh.com). We look forward to seeing you at any of our upcoming events. Regards,
On the leadership front, we rolled out our Developing Leaders Mentoring Program in January 2014. The response to participate by our membership was tremendous and the program was actually oversubscribed by members willing to act as mentors to our DLs. We have received favorable input from both the mentees and mentors. Frankly, it seems like the mentors may be learning just as much as the mentees. In the Spring edition of DevelopingPittsburgh, we’re taking a look at how changes in how we think
Daniel P. Puntil NAIOP Pittsburgh President
www.developingpittsburgh.com
5
f e a t u r e
The Game Changes
for
Retail Development
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f e a t u r e
Rendering of the McCandless Crossing town center phase, looking from McKnight Road. Courtesy AdVenture Development.
In his 2000 bestseller, The Tipping
recent holiday season was just such
Point, author Malcolm Gladwell defines
a tipping point and the impact of the
the title as “that magic moment when
changes that are taking place as a
an idea, trend, or social behavior
result are impacting commercial real
crosses a threshold, tips, and spreads
estate development across many
like wildfire.� For retailers, the most
kinds of properties.
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f e a t u r e
The re-branding of Ross Park Mall that began with the attraction of Nordstrom’s has been one of the most successful retail projects in the region. Photo courtesy Markowitz Communications.
A
fter more than a decade of aggressive retail development fueled by consumption that exceeded any previous trend (or reason as it turns out), the retail segment of the commercial property universe came crashing down with the financial crisis in 2008. W ithin 12 months the amount of retail space opened fell by two-thirds from its peak. By 2011, new space totaled less than ten percent of the space delivered on average between 2000 and 2008. The jarring nature of the financial crisis and the fear that followed put a freeze on retail development; moreover, many analysts felt that because the crisis was brought on by consumption run amok, there would be a shift in behavior. Many were of the opinion that Americans would be changed by the crisis, that it would dampen consumer spending permanently and create a new paradigm.
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Five years later it’s quite clear that retail development has been altered and probably not for just the short run. What is equally clear is that the Great Recession had only a temporary chilling effect on shopping. Consumers cleaned up their balance sheets and reduced debt with some old-fashioned belt tightening for a few years but had roared back by 2013. What changed the face of retail wasn’t less consumer spending; it was the advent of multi-channel shopping, creating an approach called ‘omni channel retailing.’ “For two years we haven’t seen a change in the pattern, where we don’t get that build in traffic past Black Friday. How much of that has moved online? The pattern shifted this year,” says Diane Ellis, CEO of the Limited Brands. “Is that the tipping point towards online? That is where we see our growth. So we have to re-think our footprint with regard to size, the role of the store and the role of the mall itself.”
Welcoming the Consumer Back Those who feel that malls are lagging because Americans aren’t shopping are ignoring the data. According to the Commerce Department’s figures, total retail sales were up 4.1 percent year-over-year in 2013. The same report showed that in-store sales soared 9.9 percent. The National Retail Federation (NRF) reported that industry sales rose 3.7 percent in 2013. The NRF forecasts an increase of 4.1 percent in 2014, but predicts online sales will grow between 9 percent and 12 percent. The industry association sees the economy growing at a faster rate than the historical average in 2014 and believes that the housing market will continue to expand. These trends have proven to loosen shoppers’ purse strings, as does increased employment. NRF forecasts job creation to average 185,000 new jobs monthly. W ith inflation pegged at less than two percent, consumers will feel freer to spend.
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South Hills Village is undergoing a renovation and re-mixing of tenants that is attracting retailers like Apple. Photo courtesy Markowitz Communications.
Another component of the retail formula is dining. The National Restaurant Association (NRA) reported in January that it expects sales to be $683.4 billion in 2014, a 16.5 percent increase over 2010 and an 80 percent jump from 2000. While those increases seem robust, the NRA’s 2014 Restaurant Industry Forecast found that consumers were still feeling the hangover from the downturn in December 2013 when
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it came to dining out. Four out of ten consumers responded that they were not eating out as often as they would like. When that same question was posed to consumers during the mid-2000's, only 25 percent said they wished they could eat out more. That suggests there is considerable room for even higher sales in 2014 if consumers are confident in the economy or simply respond to pent-up demand.
What does this mean for retail development? If 44 million square feet of new retail space satisfied a higher level of spending than occurred when developers delivered 325 million square feet of space, there seems to be little doubt that floor space and sales are no longer moving in concert. At the same time, the dining segment of retail is accelerating and seems to have more room to grow, albeit as a fraction
f e a t u r e of the total retail market. The good news for restaurant development is that consumers can’t eat out online. “A high percentage of the growth currently is centered on food. That includes full service, fast casual and fast food,” notes Herky Pollock executive vice president at CBRE. “Additionally, there has been an unusual amount of grocery and convenience store activity led by Giant Eagle, Bottom Dollar, GetGo and Speedway.” Pollock believes that the competition entering the market has motivated Giant Eagle to become more aggressive. “The new competition in the marketplace has lit a fire under Giant Eagle to go on the offensive and the defensive. They are testing new [store] products and concepts.” “We work a lot with restaurants and that is a segment that is still growing,” explains Jared Imperatore, vice president of retail at Grant Street Associates. “Pittsburgh has gotten on the radar as being a foodie town so we’ll see some new concepts coming to this market.” The Limited has opened only a handful of stores in the past few years and has taken a harder look at who is shopping at their stores and why. The results of the research have been surprising and challenging for
future development but the reward for success is justified. “A tremendous number of our customers look online and purchase at the store and many who do just the opposite, so the store experience has to be very special, very distinct. The store can’t just be convenient or offer discounts to draw traffic,” explains Ellis. “It’s about making the store a differentiating experience, very high touch and high service. It’s worth making both online and stores great experiences, because customers who shop across multiple channels will spend two or twoand-half times more than those who shop one channel only. And they will spend more in both channels.”
Regional Malls – The Have’s and Have Not’s While retailers wrestle with what their physical presence should be, malls are paradoxically experiencing happier days. Or at least the right kinds of malls are. W ith the delivery of new regional malls virtually halted, mall operators are experiencing favorable results with the right products. Simon Property Group, owner of the Ross Park Mall and South Hills Village Mall, reported 7.9 percent net operating income growth in the fourth quarter compared to 2012 and earnings of $2.47 per share. At its January 31 earnings call, Simon reported occupancy of 96.1 percent. “I can’t recall any time in my 12 years at Simon that occupancy was higher. All our metrics are up,” notes Les Morris, spokesman for Simon Property Group. “Tenants still want to be in regional malls and outlets. W ithout a lot of new construction, the supply and demand equation works in our favor. I expect online retailers to drive traffic to stores for pickup and mall locations will be even more valuable.” While the equation may be working for Simon, traffic in all malls is off sharply. In fact, according to ShopperTrak, foot traffic at malls and large retailers was 17.6 billion
visits during the holiday shopping months of November and December. That’s half the number of visits that occurred during the two months in 2010, when consumers were still solidly in recession mode. Not only is online shopping tamping down traffic, the trend is also creating polarization between malls of varying quality. “There used to be B and C malls that served their markets but now the difference in quality is huge,” observes Ellis. “It’s either an A-plus mall or everything else is a D mall.” The quality of the mall is largely a perception of the quality of the retailers and shoppers but that perception – and the label that accompanies it – goes a long way towards determining the kinds of rent that can be asked. And in a time when retail footprints aren’t growing, lower grade malls are the ones being shuttered. Simon made an announcement in December that sheds light on this polarization. The developer has spun off its strip centers and smaller malls to focus on large malls and Premium Outlets. The spinoff has not yet been branded – it is being called SpinCo – but the properties within its portfolio all produced less than $10 million in net operating income in 2013. Morris points out that even these smaller properties grew their NOI four percent last year; but SpinCo’s success will come from its ability to strategically acquire similar assets at desirable prices. At a time when it is spinning off properties, Simon Property Group is also investing in its core portfolio. According to Les Morris, the company is pouring approximately one billion dollars into its properties between 2014 and 2016, although most will go into new Premium Outlets rather than into mainstream malls. Simon’s top five tenants at regional anchored malls are Macy’s, Sears, JC Penney’s, Dillard’s and Nordstrom. Those first three have closed more than 500 stores over the past three years. That
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makes decisions to upgrade malls much more difficult. Some of Simon’s capital expenditures will be in select regional malls that are outperforming the mainstream, malls like Ross Park and South Hills Village. Ross Park’s success can be attributed to the opening of Pittsburgh’s only Nordstrom’s. Even with very challenging timing, the signing of Nordstrom attracted dozens of one-off tenants to the mall. Simon sees the same opportunity at South Hills Village and is putting tens of millions into a reworking and renovation. “Nordstrom’s opened in October 2008, right as the recession started, but the amount of great retail that has come on board has been incredible,” remarks Morris. “I don’t know any other Simon property that has remade itself so completely. South Hills Village has similar characteristics. Both malls are fixtures in the community. Both serve communities with appealing demographics and have great name loyalty.”
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Still, with declining traffic the mainstream regional mall is facing a tough road ahead. The business case for operating a mall has been the steady growth in rents but retailers are looking at the value proposition harder. “Malls used to equal traffic but that hasn’t been the case in recent years,” says Ellis. “You are looking
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| Spring 2014
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Unlike retail stores, dining sales translate into more restaurants.
f e a t u r e
at a three percent rent increase each year to get maybe eight or nine percent less traffic.” In the final analysis, the effects of the recession, demographic changes and online shopping’s rise have all combined to make for a different development opportunity than the big box power center that dominated development from the mid-1990’s until the downturn in 2007-2009. There is a perfect storm of influences that are making it more appealing for shoppers and developers to reduce the size of the shopping area. More importantly, there are factors that point to successful retail happening within the context of a mixed-use development. There is resurgence in the neighborhood retail category.
Shopping Where You Live The largest new retail center under construction at the moment is McCandless Crossing, a million square foot-plus project being developed by AdVenture Development along
McKnight Road between the Perrymont and Cumberland Road intersections. Developer Kevin Dougherty had designs on the project – which lies just north of the main McKnight shopping district – for more than a decade and imagined it to be an
More importantly, there are factors that point to successful retail happening within the context of a mixed-use development. There is resurgence in the neighborhood retail categor y.
ideal setting for a power center or lifestyle center. The first phase of McCandless Crossing was, in fact, a carryover from Dougherty’s days as a big box developer with the construction of a Lowe’s that opened in 2010. Even at that point, however, the plans had begun to change. “I had been following the change in trend and certainly made several adjustments along the way,” he remembers. “Talking to big boxes it was clear they were getting smaller but the bricks-and-mortar stores still have their place.” AdVenture’s plans always included offices, hotels and consumer service establishments. The next phases of the project included a Home2 Suites hotel, LA Fitness, CVS Pharmacy, a WesBanco branch and a Doodlebug child care center, along with a small strip by the Lowe’s. It is the fourth phase, now under construction, that saw the most significant shifts. As retailers were changing their needs, Dougherty decided that he’d create a
Photo courtesy Markowitz Communications.
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f e a t u r e different kind of destination, emphasizing dining and retailers that would fit the needs of the residential neighborhoods that surround the site. “The tenants were optimizing their layouts to maximize the customer experience without wasting footprint. We were mindful of that when we planned the retail spaces,” he days. “Dick’s was looking at 50,000 square feet. The cinema was down to 12 screens. Home Goods is only 24,000 square feet. Even the grocery store [Trader Joe’s] is only 12,000 square feet.” McCandless Crossing had always included a portion for housing but AdVenture looked at creating the opportunity to be a destination for the people who would work at the center and the nearby UPMC Passavant Hospital and La Roche College, as well as the adjacent neighborhoods. “One of the reasons we went so heavily into restaurants at McCandless was that we felt there was a void on McKnight Road that we could fill,” Dougherty says. Those same dynamics are in play at two of the other new retail projects. Horizon Properties is completing the two retail buildings at 1800-1900 Main Street, which are a mix of ground floor retail and loft offices located in the heart of the Southpointe II and Southpointe Town Center office buildings. The retail portion is just less than 60,000 square feet and the interest has been heavily weighted towards restaurants that want to take advantage of the surrounding office workers, hotel guests and residents of the 376 apartments being built within a few hundred yards. As of mid-February, there were 11 tenants taking roughly half the available space. In Murrysville, Herky Pollock and Mark Baranowski are developing the 71,000 square foot Blue Spruce Shoppes on Route 22 at the Monroeville border. The tenant mix there includes a day care center, specialty grocer and W ine-and-Spirit store,
Total retail construction in metro Pittsburgh from 2004-2013. Source Tall Timber Group.
In the final analysis, the effects of the recession, demographic changes and online shopping’s rise have all combined to make for a different development opportunity that the big box power center that dominated development from the mid-1990’s until the downtur n in 2007-2009.
but it is also dining-oriented thus far. The developers are able to take advantage of the mature, dense residential development that exists near the site to target community retail as their niche. “The mixed-use neighborhood concept is more appealing to people now. The idea of ‘build it and they will come’ that used to drive retail to malls isn’t working,” notes Edie Hartman, director of research and communications for Grant Street Associates. She says her data shows that neighborhood retail is making a comeback because of a different kind of convenience. “People want to shop and walk around near where they live. It’s what is appealing about developments with residential and retail. The neighborhood retail works especially for Generation Y. They want everything and they want it now so shopping where they live suits them.” Hartman explains that while the Gen Y attitude expects immediacy, that demographic group also supports the specialty store that adds other value, like sustainability or social
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“Pittsburgh has to tackle retail development in a different way because the new store concept just isn’t going to come to Pittsburgh first,” he explains. “Projects coming out of the ground in 2014 or 2016 are going to be right-sized for the neighborhoods they serve. For one thing the banks don’t want to finance a big retail development. And second, the retailers just aren’t there.”
Photo by Denmarsh Photography.
conscious. She cites the bracelet maker Alex & Ani, which recently opened in Shadyside, as an example of the type of handmade, socially conscious store that will attract young shoppers. “The specialty store is doing great because people are interested in niche products and want the experience that goes with those niches. They want to touch it and pick it up,” Imperatore says. Horizon’s Mike Swisher sees the changing retail landscape as an opportunity for secondary markets like Pittsburgh.
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Right-size and neighborhood are constant refrains from many in retail and development. For Horizon, which originally planned a power center for Southpointe, the right size allowed them to develop offices for the burgeoning oil and gas industry while providing a destination dining place. For Kevin Dougherty, doing neighborhood development meant literally listening to the residents who were nearby and may have opposed McCandless Crossing in the first place. “Residents did offer suggestions for retail tenants. One opponent of the project gave us eight or nine suggestions of tenants that weren’t in the area,” he laughs. “A couple of those are actually going into the project.”
The Online Fulfillment Effect Retail has always been a demand driver for warehousing. In the hierarchy of development, jobs create the need for housing; retail follows housing and distribution tracks retail. While online shopping has been the bane of the bricks-and-mortar store, the growth of online retail has recently been a boon to warehouse development. Online shopping required only modest expansion of the existing retail distribution network to fill its orders initially and thereafter the growth created logistical challenges that could be solved by leasing/building a few modestly-sized warehouses around the country. The acceleration of the Internet in the late 1990’s meant accelerating logistical needs too but the real catalyst came with the astounding success of one company: Amazon. Beginning in 1999, Amazon began building distribution that could keep up with its rapid growth in sales. It hardly seems risky by this time, but the company was a groundbreaker when they built a handful of fulfillment centers – in the hundreds of thousands of square feet – around the U. S. and a few in Europe. As T im Bezos’ ambition found legs as the global recovery boomed in 2005 and Internet use exploded, Amazon’s logistics solutions boomed too. Amazon built more than 50 ‘super warehouses’ right through the recession and in recent years has continued to expand the need for fulfillment well beyond their own sales, turning third party fulfillment into a profit center. Lest you think this is a marginal impact story, compare Amazon’s development to the overall warehouse market. From 2011 through 2013 the company built 24.7 million square feet of warehouse space. The total amount of warehouse space developed in the U. S. during that same time was 133 million square feet. The ‘Amazon effect’ was
f e a t u r e
18.6 percent of all U. S. warehouse development in those three years. On average, Amazon’s warehouses were 915,000 square feet. Amazon now operates 100 fulfillment centers across the world and sees their expertise and retail customer knowledge base as the key to accelerating expansion. That means secondary and tertiary logistics points – such as Western PA – will be more likely to have a location in the future. Of course, there are other retailers whose online sales have mushroomed during the same decade or so. Even some of the retailers that Amazon is hurting with its growth are seeing online growth of their own and are taking advantage of the economies of scale to create massive fulfillment centers of their own. Retailers like WalMart or Target are also combining the need for expanded fulfillment capabilities with the shifting rail and truck infrastruc-
ture, creating efficiencies that justify construction of larger distribution centers at transportation hubs. The expansion of online shopping has been a boon to shippers like FedEx and United Parcel Service, both of which are in a building mode.
Don’t Fight the Change Observers looking for a leveling out or change in the trend of online shopping or even a pullback in consumption will be disappointed in the near term. Changes in consumer behavior tend to persist until something cataclysmic occurs. If the financial crisis of 2008 didn’t provide that sort of shock therapy, it’s unlikely that anything else will in the next few years. Online shopping has become seamless for consumers, as retailers and resellers have made it easy to select and return what they want. The
advances in fulfillment have given sellers the ability to make shipping costs disappear and turnaround orders in well under a week’s time. Perhaps the most catalytic factor in the expansion of online sales is the rapid growth of mobile devices. Limited’s Diane Ellis estimates that 40 percent of their online sales were from mobile in 2013. That’s a figure that would have been zero just a few years ago. For developers this isn’t bad news, just a shift in needs. The advantage of smaller, mixed-use projects is that the market risk is spread between varieties of product types, some of which offer very stable occupancy. The current trend means retail sites should work well in urban settings or in proximity to denser suburban residential. For the next decade or so, ‘coming to a neighborhood near you’ will mean exactly that. DP
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st
NAIOP AWARDS
Renovation – Industrial West Pittsburgh Business Park 1000 Napor Boulevard, Pittsburgh PA Completed in 2013, the project was a complete renovation of 50,000 square feet. DEVELOPER: Sampson Morris ARCHITECT: Desmone & Associates CONTRACTOR: Bruce Construction
Renovation – Office Park Place Corporate Center The project is an acquisition and renovation of 216,000 square feet in two office buildings. The $25 million investment in 2013 resulted in 100% occupancy. DEVELOPER: USAA Real Estate Company ARCHITECT: NEXT Architecture CONTRACTOR: A. Martini & Company
Build to Suit Pittsburgh International Business Park, Building 100 & 110 Completed in 2013, the project was the first of two 53,000 square foot offices built for ServiceLink. DEVELOPER: Chaska/Continental ARCHITECT: WTW Architects ARCHITECT-INTERIOR: NEXT Architecture CONRACTOR: Continental Building Systems www.developingpittsburgh.com
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Speculative - Industrial Neville Grand, Neville Island Completed in 2011, this is a 90,000 square foot new industrial space. DEVELOPER: JLS Land Company LLC ARCHITECT: Sweeney Shank Architects CONTRACTOR: Dynamic Building Co.
Speculative Office J. Barry Center, Southpoint II Completed in 2013, the project is a five-story, 156,000 square foot new spec office. DEVELOPER: Horizon Properties ARCHITECT: Kernick Architecture CONTRACTOR: Rycon Construction
Green Building 11 Stanwix Street, Downtown Completed as part of an ongoing renovation the project involved $6.3 million in improvements to the building lobby, HVAC systems, lighting, elevators and waste and water systems. DEVELOPER: 11 Stanwix Street LLC ARCHITECT: Desmone & Associates PROJECT MANAGER: CBRE Inc. 20 DEVELOPINGPITTSBURGH
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NAIOP Pittsburgh Officers Daniel Puntil, President Grandbridge Real Estate Capital
Brian Walker, Vice President Millcraft Investments
Lou Oliva, Secretary Newmark Grubb Knight Frank
Christine Vann, Treasurer BDO USA
Lynn DeLorenzo, Past President TarquinCoRE LLC
Domenic Dozzi, National Board Jendoco Real Estate
Gregory Quatchak, National Committee Civil & Environmental Consultants
DeWitt Peart, National Committee Pittsburgh Chamber of Commerce
Jamie White, National Committee LLI Engineering
Board of Directors At Large W. Scott Caplan CLAYCO
Linda Fisher Dollar Bank
Wm Randell Forister Allegheny County Airport Authority
Grant Mason Oxford Development Corp.
Tyler Noland
Learn more about NAIOP in the western Pennsylvania tri-state region at naioppittsburgh.com or 412-928-8303.
NAIOP, the Commercial Real Estate Development Association, is the leading organization for developers, owners and related professionals in office, industrial and mixed-use real estate. NAIOP provides unparalleled industry networking and education, and advocates for effective legislation on behalf of our members. NAIOP advances responsible, sustainable
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Jamie White, LLI Engineering Inc. Transportation Maureen Ford, ALCOA Marketing/Communication David Weisberg, Wells Fargo Programming Carl Belli, Continental Building Systems Membership Geoff Nara, Civil & Environmental Consultants Economic Development Jamie White, LLI Engineering Inc. Economic Development Michael Sharp, Continental Office Environments Developing Leaders
Development Project The Town Center retail buildings along Main Street are being fitted out for tenants. As of late February, 11 lessees had been signed.
Southpointe Town Center
S
ince the natural gas industry came to Western PA and made Southpointe its home base for shale exploration, Southpointe has experienced significant new devel-
opment. Southpointe II has been a runaway success but while the acclaim is well-deserved, it is easy to forget that there were some bumps in the road that came before its ‘overnight success.’ In 2003, Horizon Properties developed a master plan for its role as the lead developer in Southpointe II. After a decade of steady and robust growth, thousands of office workers were coming to Southpointe daily yet there
were virtually no lifestyle amenities in the park. As they laid out how the second phase of Southpointe would develop they included 34 acres for what they envisioned as a 500,000 square foot lifestyle center, something akin to a power center with some provision for residential in a small Traditional Neighborhood Development. The developers felt that this parcel, branded as Southpointe Town Center, would add the services missing to complete a Class A suburban office complex.
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The new headquarters office for Mylan was the first project started within the Town Center proper.
“I think the origin of Town Center was that Southpointe needed to be more than just an office park. We had been successful over the years and had created a destination for businesses, an alternate to Downtown Pittsburgh,” recalls Rod Piatt, CEO of Horizon. “But when you aggregate a large block of population, you need to have more than just a place for people to go to work. The thought was you need to also have a place for people to recreate, shop or have dinner.” Southpointe II was the backdrop for the proposed Town Center. At 225 acres, the plan for the park was to continue the office development that had been completed to the north of the site and to develop large office buildings following the rising ridge surrounding the Town Center site. The east-west Main Street of the Town Center was designed to connect the offices that were closest to Southpointe Boulevard to the buildings above them. The timing of Southpointe II turned out to be excellent, as the region was going into a robust growth mode and CONSOL Energy made the decision to locate its 350,000 square foot headquarters complex in the new phase. Southpointe II had its anchor.
Horizon concurrently developed a spec office building, 1000 Town Center Drive to be the anchor for the Town Center’s Main Street. They also developed an Embassy Suites hotel opposite that office building. Southpointe II had more than a half-million square feet of new construction within the first eighteen months of opening and plans for another spec office underway when things changed in fall 2008. “When we built the Homewood we knew it was going to be the end of Main Street. We just didn’t know how Main Street would turn out,” observes Mike Swisher, principal at Horizon who heads up development.
there were certain headwinds against that happening,” he explains. “When the recession came upon us most people don’t’ remember or realize that we still had a much larger town center planned. We had an executed lease with a large theater operator. So we were well on our way to developing a pretty significant town center, not the 500,000 square feet we envisioned but clearly 200,000 or 250,000. I would say that some of the regulators who aren’t in the development business didn’t have vision and couldn’t understand what we were doing at Southpointe. That was one of the headwinds we faced, to develop a plan that was going to be actionable.”
The recession that was underway wreaked havoc on real estate development across all categories but no commercial category was hit harder than retail. Although Piatt says he wasn’t necessarily eager to abandon the Town Center that was planned, circumstances dictated a change.
“The decision to change was totally market driven,” says Swisher. “There were headwinds in 2008 and 2009 but as we got to 2010, I think that if the Ann Taylors and Gaps were still doing deals in the second tier cities we certainly would have gone after those retailers.”
“At one time we had visions of a larger open air shopping environment and the economy certainly played havoc on that vision, although I always believed that vision would work. But
Even as the door was closing on a large-scale open air retail center, another door of opportunity was opening. The exploration of the Marcellus Shale formation for natural gas was
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Construction is underway on the Town Square office building, which was designed by Kevin Turkall of Designstream LLC. Image courtesy Designstream.
about to ramp up. That industry was an opportunity looking for a place to land and Horizon wanted to make sure it landed in Southpointe. The developer reinvested in a revised master plan that would position the Town Center differently to serve the companies that were rapidly expanding their presence in Western PA. “Fortunately, the oil and gas business – the Ranges of the world – started to penetrate Southpointe so [those projects] were just easy things to do,” says Piatt. “Southpointe just happened to be near where some of the early drilling took place, so that kind of worked well as a bridge. We ended up developing more office space to fulfill the needs of all the oil and gas companies.”
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Horizon’s original master plan for Southpointe II and the Town Center was office-oriented and had flexibility in it but the shift in prospects for the park created a need for even more office space. The demands for office space created an almost chaotic shuffling of tenants as the companies in the oil and gas business grew rapidly. Range Resources, for example, went from a handful of players to requiring its own 180,000 square foot office in a matter of three years. Coincidental to the explosive growth in that industry, a number of Southpointe’s longterm occupants were also growing. Names like Crown Communications, Ansys and Mylan had been fixtures in the park and their businesses were expanding beyond their existing facilities. Mylan, in fact, proposed building a new headquarters that turned out
to be the first construction in the new Town Center. “We ended up offering a smaller town center that will probably be occupied by smaller regional players with a concentration on restaurants rather than the Ann Taylors of the world,” notes Piatt. “I think that will suit us just fine and will suit the Southpointe residents just fine.” The new plan, which didn’t receive final approval until 2012, created parcels for three office buildings, Main Street office over retail buildings of 120,000 square feet, a couple of outparcels for smaller businesses and introduced a different residential element. Because one of the fallouts of the financial crisis was a larger cohort of people who won’t or don’t qualify
for a mortgage, the new plan included apartments. Swisher says that developers considering a large-scale apartment complex in an area like Southpointe were initially cautious but once they got a look at the changing demographics and influx of workers at the park, the interest piqued. GMH Capital Partners from Newtown Square, PA signed on to buy the parcel for construction of 376 units plus a 640-car garage. The $40 million investment represents significant confidence in the destination that Southpointe has become. Work started in fall 2013, by which time there was a frenzy of activity on virtually every other parcel in the Town Center. Construction on Mylan’s 250,000 square foot headquarters began in late winter 2012, with the 1800-1900 Main Street retail/offices shortly thereafter. Both buildings were designed by Cooper Carry Architects. PJ Dick Inc. was the contractor for the Mylan project. Rycon Construction built the Main Street project and is the contractor for the Town Square office building, a 208,000 square foot multi-tenant office under construction that will be anchored by Noble Energy’s 150,000 square foot lease (although an official announcement of that deal has not been made). WesBanco is also currently building a new branch on an outparcel.
Within the approved Town Center plan there remains another offic e building to develop. That project will likely be a 120,000 square foot multitena nt building, unless another user steps for ward first.
With so much more office space surrounding it, the vision for the retail portion of the Town Center has changed. Horizon is hopeful that the dining focus will create a different dynamic. “The concept here is to serve the daytime population, which is somewhere around 14,000 or 15,000, so just for those people getting lunch or a cup of coffee the market is pretty strong,” says Swisher. “With the change in retail, everybody is getting smaller. Grocery stores are getting smaller; fitness centers are getting smaller; everybody is getting right-sized after all those big boxes. Those smaller stores fit well within a concept like the town center but they have to be in neighborhoods with a large daytime population. One thing we recognized in making this a restaurant-centered development was
that we were going to depend upon Canonsburg, Upper St. Clair, Peters and even South Fayette to bring diners to the restaurants in the evening and the weekend. So we had to make it an attractive destination for them to get here.” To that end, the next phases of the project will include a small park and more landscaping. The parking solutions, including the structured parking are geared towards the flexible daytime/night time needs. Horizon prevailed upon Cecil Township to create a town center overlay zoning designation to accommodate how parking, setbacks and building height worked in this kind of development. That took some education, since the township had no other town center experience. It also required educating civic leaders in the new realities of retail. “One challenge has been getting people to understand the dynamics of the retailers. People have said, ‘why don’t you get Whole Foods in there or Fresh Foods’,” Swisher explains. “You have to understand that Fresh Foods is going to put one store in Pittsburgh and it's going to be by The Galleria or someplace like that. That’s been the biggest frustration, getting people to understand that, even government officials who say ‘that’s what we want there’. We have to say that it’s a great idea but it’s not going to get done and then explain why it’s not going to get done. It’s market driven, not our preference. I think we’ve finally gotten there, so people understand why we need the retail we’re attracting.” Within the approved Town Center plan there remains another office building to develop. That project will likely be a 120,000 square foot multi-tenant building, unless another user steps forward first. While that will complete the official planned Town Center, Horizon has another large parcel located opposite the Mylan office that offers even better visibility from I-79. Just don’t get the impression that this development wraps up Southpointe. “You hit a nerve there,” chuckles Swisher when asked about what else is available at the park. “I know the word out there is that only one lot remains in Southpointe but that’s just
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not the case. It makes it sound like Southpointe isn’t open for business.” “People are saying things that just aren’t true; they don’t have all the information. There are still opportunities to do large buildings at Southpointe,” Piatt emphasizes. “We own probably the best parcel at Southpointe just east of the Town Center and we can control whether it's office or retail. Horizon can build 500,000 square feet of space at Southpointe but only Horizon can do it because of our land holdings. If there’s a large company that would like to come to Southpointe then we can certainly take care of them.” Piatt’s concern may seem unfounded, given the success of Southpointe in recent years, but his company has created a gravity that means Horizon will get an inquiry for just about any new user of office space interested in the region. That’s momentum that he doesn’t want to see stopped by a false impression that Southpointe is built
out. And Horizon knows that the difference between success and struggle can be fairly thin. “When we were planning Southpointe II we pushed the county to approve the plan to capitalize on the momentum of Southpointe I. Barry Stout was instrumental in getting that done,” remembers Swisher. “If that didn’t
happen as quickly as it did, maybe CONSOL puts its headquarters someplace else and Washington County doesn’t become ‘energy center east’.” DP
PROJECT TEAM
Horizon Properties Group LLC........................................ Developer Rycon Construction............................................ General Contractor PJ Dick Inc............................................. General Contractor, Mylan HQ Cooper Carry Architects..................... Architect, Town Center/Mylan Gensler............................................... Architect, Mylan Interior Fit-out Designstream LLC.....................Architect, Town Square Office Building First Commonwealth Bank..................................................... Lender Cushman & Wakefield/Grant Street Associates....... Leasing Agent R.A. Smith..................................................................... Civil Engineer
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Lunch Program: Social Media, Rivers Club
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6th Annual Sporting Clays Shoot, Seven Springs Mountain Resort
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Annual Wine Dinner, Rivers Casino
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(open to members and nonmembers)
Developer Profile
month before John met Dick Rubinoff and Dick hired him to be the director of marketing and leasing and responsible for the company’s 200,000 square foot-plus portfolio.
Fourth River Development
F
ourth River Development (FRD) was founded in 2006 by three professionals whose passion was real estate even though each of their careers started in different arenas. A company evolves and transitions through its history as it creates and responds to opportunities in its marketplace. Survival often depends on how it responds to threats. FRD’s response to its greatest threat, the unexpected death of co-founder Mark Schneider in 2012, tested the resiliency of its surviving co-owners, John Watson and Sally Flinn. Real estate development is a business built on relationships and powered by the deals that are made and executed. If the three most important things about real estate is location, location, location, then real estate development is about relationships, relationships, relationships. It was 1990 when “Dick Rubinoff realized that The Rubinoff Company was not growing at the rate he needed it to grow and that’s when he brought in Mark and me” recalls John Watson. Mark was hired a
An accountant by education, John previously worked in the retail oil business, concert promotion and for a non-profit. His natural curiosity gave him a love of learning about his clients’ businesses which fed his talents for relationship-building and deal-making. The seeds of John’s path to real estate development were sown when at age 21, he envisioned and attempted a deal to use the former YMCA building in downtown Pittsburgh to develop a mixeduse building with a fitness club, a hotel, and a Playboy Club franchise (which was all the rage then). The deal never happened but a passion for deal-making was ignited. In the early 1980’s John met Keefe Ellis (of Langholz W ilson Ellis) at a Red Cross fund-raising party that John was promoting. Discussions with Ellis led to John’s realization that every company had some real estate component whether the business owned or leased some real estate. Although he stayed in the entertainment business for a while longer, the opportunity Dick Rubinoff presented proved to be persuasive. John Watson, Mark Schneider, and Sally Flinn first became a team at The Rubinoff Company. Their talents were pooled by Dick Rubinoff as he created a dynamic team to expand Rubinoff’s business and portfolio even more. John is quick to credit Dick for teaching him “ninety
percent of what I know about real estate” and for showing him a business model that still works for FRD today. The development company generates low-risk fee income from developing a commercial real estate property that is owned by a separate partnership that may or may not include others outside the firm. FRD approaches development from the owner’s point of view because its partners understand the problems associated with owning and managing their own properties. During their time at Rubinoff Co., John and Mark had the opportunity to develop office and industrial projects on some interesting sites, including Herr’s Island, the site of a former slaughterhouse. The company passed on the chance to develop the residential component of the Washington’s Landing project, and while the commercial portion was a winning project, the success of the residential property whetted Mark’s appetite for urban residential development. In 1999, Mark was made president of The Rubinoff Company and John became the vice president of marketing and leasing, with continued responsibilities for the company’s property management operations. That year, Sally Flinn joined the company after stints with the facilities departments at the Sports and Exhibition Authority (SEA) and University of Pittsburgh. Over the next seven years she managed several of the firm’s development projects. John, Mark and Sally helped Rubinoff expand its portfolio to more than four million square feet; but in
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2006, Rubinoff Co. wanted to shift its focus away from development to managing their own properties and providing services for fee. The reorganization resulted in the departure of John, Mark and Sally. They still had the drive to keep doing what they had been doing – commercial and signature residential development – and Fourth River was the result. John and Mark took a few projects with them – most notably Summerset at Frick Park and Starpointe, which Rubinoff was not interested in pursuing further. Fourth River handles the property sales and develops for users that want help at Starpointe, on behalf of the Washington County Council on Economic Development (WCCED). Mark and Sally coordinated the multi-faceted planning and construction of Summerset, a unique Brownfield project. One of their co-developers and builders on Summerset was Montgomery & Rust, the builder that they had watched have such success on Washington’s Landing a decade earlier. Both the Starpointe and Summerset projects succeeded in part because of the coordination of public and private resources. The environmental cleanup of the Summerset site along Nine Mile Run was – and is – an obstacle that would have made the land unfeasible to develop without significant public funding to prepare. Starpointe did not face the same kinds of Brownfield headaches but the property was a publiclyowned asset that was far enough removed from the metropolitan area that it would have been difficult to attract investment without sites that were immediately ready for vertical development. Navigating the public/private partnerships of developing was in Mark’s wheel house. His background as chair of the SEA and Stadium Authority boards and as commissioner on the Southwest Regional Planning Commission led to relationships throughout government. Mark and John had the wherewithal to create compelling cases for public assistance in their projects and Mark’s
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Navigating the public/private par tnerships of developing was in Mark’s wheel house. His background as chair of the SEA and Stadium Authority boards and as commissioner on the Southwest Regional Planning Commission led to relationships throughout gover nment. relationships in Harrisburg and on Grant Street helped assure their case was heard. The salt-and-pepper approach of the two men fueled the fun and success of Fourth River. Mark took a top-down approach to development while John was a nuts-and-bolts guy who kept the pro forma in focus. John describes the difference in style noting that, “Mark’s activities always found a project to develop and my activities always found a tenant to develop for.” But both believed that relationships created opportunities that got developed. John explains that the different approaches served them well in meetings. W ithout any well-rehearsed script, the Fourth River team could respond flexibly to where the prospective client was leading, knowing that each was capable of providing either vision or detail. Both early projects fared well. Starpointe has seen seven of the original 13 land parcels sold or fully developed and a second phase with larger manufacturing facilities is planned. Development of Summerset opened with a waiting list of buyers and all 160 lots of the first phase are sold out. That project whetted FRD’s ap-
petite for urban development – a special passion of Mark’s – and the firm took on a 26-lot traditional neighborhood development called Columbus Square in the Manchester neighborhood of the North Side. In 2007, the City of Erie commissioned FRD to oversee the planning and development of a six-block area along State Street near Griswold Park in Erie’s downtown. The foundation of FRD’s business is provided by its property management and leasing services. John’s ‘nut-and-bolts’ approach to real estate served FRD well in these critical income-producing lines of business. The company manages or leases nearly two dozen properties throughout the state and region. Aside from the business’s owners, FRD employs five others who handle property management and leasing. Fourth River was in just its third year of business when the recession hit commercial real estate hard. W ith development opportunities chilled by the downturn, FRD relied upon its third-party services for growth and was able to get the Columbus Square project underway successfully. FRD also made progress on Starpointe, finding support for a large infrastructure project to prepare the 100-acre second phase of the industrial park in 2011, as the burgeoning natural gas industry was finding the northwestern Washington County location very attractive. FRD also undertook a difficult consulting assignment for the Pittsburgh Public Schools. The project was an assessment of the varied underutilized buildings in the footprint of the city’s district. FRD produced an asset maximization plan for PPS that made recommendations about the maintenance and disposition of the schools that had been closed, intending to advise the school board how to efficiently maintain the unused buildings and to maximize the market value of the schools it intended to sell. John remarks that some of these properties – like the Schenley High School – were appealing to him for Fourth River projects; however, he feels their role as objective advisor precluded any involvement in redevelopment of the schools.
Having grown the business through a tough environment, the untimely death of Mark Schneider in July 2012 forced an unexpected transition upon the business. In addition to the emotional toll of losing a friend and business partner, John and Sally found that there would be business challenges as well. “Mark was larger-than-life in life,” says John to explain that some of the firm’s business relationships didn’t survive Mark’s passing. In May, Fourth River will make another transition. Sally Flinn and John Watson are in the process of preparing FRD for Sally’s departure to start her own consulting firm. She will focus on the residential and mixed-use development, finishing up the Columbus Square project while helping the City of Altoona with the planning of a downtown project similar to Erie’s.
While completing the Erie State Street and other residential projects, John Watson will steer Fourth River Development back in a more commercial/industrial direction. He says that the company has a deal to develop a large building in Starpointe in the works and hopes for further opportunities there as the park gains momentum. John is also working on several projects near the urban core, including a flex project in the Strip, and a multi-building project in Crafton. Having been part of a few of the seminal redevelopment projects in Pittsburgh, John sees the expansion of the central business district as an opportunity. FRD is on one of the teams looking at alternatives for the Produce Terminal that Mayor Peduto requested.
relishes doing business with people with whom he’s maintained lifelong relationships. Fourth River Development LLC 5168 Campbells Run Road, Suite 204 Pittsburgh PA 15205 412-231-4444 www.frd.us.com DP
John is anxious to get back to the core business that attracted him to real estate in the first place. He understands the small-town nature of Pittsburgh’s business community and
John Watson
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Developing Trend Foundations Expand Their Role in Development
T
he significant role played by our region’s charitable foundations is a powerful residue of Pittsburgh’s industrial past. Names like Heinz, Carnegie, Benedum, Buhl and Mellon call to mind the powerful men whose businesses were the economic foundation of Western PA. Those same men created charitable foundations with a sense of philanthropy towards those in need. Many of the foundations that were established by Pittsburgh’s industrialists aimed to improve the living conditions and culture for their workers and their families. In the 1980’s, when heavy industry pulled out of Pittsburgh, those strong foundations helped provide for the hundreds of thousands living in former mill towns that were decimated by the plant closings and relocations. Pittsburgh’s network of charitable foundations played a huge role in the revitalization of the city’s Cultural District, the strength and vibrancy of its artistic companies, the cleanup of Pittsburgh’s environment, and even the leadership role Pittsburgh organizations have played in developing a greener world. It’s not surprising then that the charitable organizations in Pittsburgh are joining those in other cities in using funds to do bricks and mortar development. Charitable organizations have long been concerned with economic development as one of the keys to improved conditions for those in
need, regardless of what the specific focus of the individual foundation was. W ithin the past decade, there has been a growing trend in promoting real property development towards that same end. Like teaching a man to fish instead of giving him a fish, funding development is provid-
“Historically, bricks and mortar have been seen as a key piece of community development activities but the vehicle has been the community development orga nization,” Thieman says. He says that while foundations rarely did the bricks and mortar development themselves, the trend is for organiza tions like the Buhl Fou ndation to take the lead as part of a broader approach to community development. “The more recent trend has been for foundations to get more intimately involved with the community through place-based grant making.
ing places where jobs can be created and poverty can be defeated, particularly if those places suffered disinvestment and decline for long periods. Fred Thieman, the Buhl Foundation’s president, notes that the trend is less about foundations funding development than about a changing emphasis in how community development is done. “Historically, bricks and mortar have been seen as a key piece of community development activities but the vehicle has been the community development organization,” Thieman says. He says that while foundations rarely did the bricks and mortar development themselves, the trend is for organizations like the Buhl Foundation to take the lead as part of a broader approach to community development. “The more recent trend has been for foundations to get more intimately involved with the community through place-based grant making. Part of that has been a move towards holistic solutions to a community’s needs. Investing in a development is part of a concentrated, broad, holistic strategy rather than just funding six houses someplace.” Place-based grant making gives philanthropic organizations focus and a better opportunity to see the results of their work. The social problems that charitable foundations try to solve are interrelated and so make it more difficult to work one problem without fixing another. Grants to improve literacy are more effective, for example, if nutrition and health problems are also improved. Using Fred Thieman’s example, funding six new homes in a blighted area has less impact if no programs exist to reduce crime, add employment or incent growing home ownership. In a holistic approach to community development, foundations are seeing
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the benefit of building and controlling community assets that support the mission of the foundation. One of the better known regional examples of foundations taking a leading role in development is the Almono project. Located on a large brownfield site between Second Avenue and the Monongahela River in Hazelwood, Almono is proposed as a large-scale, mixed-use redevelopment of a former LTV steel mill site. The project will have industrial, office and residential properties as the main uses. When completed, Almono will be the site of thousands of jobs and hundreds of homes. It’s expected to have a significant positive impact on the Pittsburgh region but one of the principal beneficiaries should be the blighted Hazelwood neighborhood that adjoins the development. The project – which should see its first vertical construction in 2014 – was originally capitalized by investment from four Pittsburgh foundations, which formed a limited partnership with the RIDC as general partner. Those foundations – Heinz, R. K. Mellon, Benedum and one that remains anonymous – have varied goals, some of which overlap. Their motives for creating Almono LP include providing both economic and social benefits. There was also a strong desire from at least some of the foundation partners to thwart the construction of a coke manufacturing facility that was being proposed in the late 1990’s. Although he acknowledges the growing role of foundations in development, RIDC’s CEO Don Smith doesn’t necessarily see charitable groups working regularly on largescale development. “Almono is a unique project in that in addition to economic development, the project also hits environmental and social goals of the foundations,” he explains. “There was a commitment to principles of development there from the foundations and if they had to hold the property they were willing to do so.”
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Wh en completed, Almono will be the site of thousands of jobs and hundreds of homes. The timeline of the Almono project bears that out. The 178-acre site was purchased by the partnership for $10 million in 2002, while the U. S. was in the throes of recovering from recession. By the time the project had gone through its preliminary stages it was 2008. Although the original plan was to find a master developer for Almono, the economic environment made it impossible to do so. RIDC has taken on the role of site developer, shepherding Almono through the process of entitlement, local approvals and finding grants to aid in the preparation of the site. W illiam P. “Pat” Getty, the president of the Claude Worthington Benedum Foundation says that his foundation’s flexibility with its endowment fund allows the Benedum Foundation to be a patient investor in a project that is unique in a number of ways. “At Almono, it was our chief investment officer who came up with the idea. We could see that site being carved up and we thought if we could just develop it according to some kind of plan,” he says. “How many 178-acres parcels are there within three miles of two major research universities and sits on a river? Despite all of its problems – and it’s got plenty of them – it’s potential is pretty apparent.” As the project proceeds, the foundation partners in Almono LP will ensure that the development is done with maximum consideration for sustainability in stormwater management, wastewater, energy and construction. Although the operating expenses thus far have been borne by the partnership, the foundations expect to recover their investment
as the project in completed. That eventuality will close the loop on the project’s sustainability, creating a development that is an economic multiplier and that returns capital to the foundation for re-use elsewhere. On a less grand scale, the Evergreen Cooperative Initiative in Cleveland has been a growing, integrated solution that demonstrates placebased grant making principles. Operating in the Greater University Circle neighborhood since 2008, the Evergreen Cooperative Development Fund has been a vehicle for non-profit foundations to invest in startup businesses that integrate development, employment creation, environmental stewardship and employee ownership. To date, Evergreen has helped launch three businesses: Evergreen Laundry, Evergreen Energy Solutions and Green City Growers. The companies provide employment and ownership opportunities in what was a poor and underinvested community. Moreover, the businesses that have launched provide needed services to the neighborhood’s residents and institutions – area hospitals, universities and non-profits – that are environmentally responsible. Evergreen Cooperative Development Fund investments have been used to leverage grants and loans from state and federal sources; but more importantly, the fund has used its resources to create for-profit entities that would not need further subsidy to survive. In addition to providing return on the Fund’s investment, these three businesses also continue a cycle of improvement and growth that is sustained by their own viability. The key for development capital investments like those made in Cleveland was the control that the foundations had in building the assets that were supported. Charitable foundations that have environmental missions could support the effort knowing that the businesses created were going to operate a green laundry service or a solar energy company. Foundations that work towards entrepreneurship or job creation could see the value in building facilities that would foster those ends.
As investors, the foundations could ensure that the businesses that were launched maintained the intended focus. By requiring that the companies sustain themselves, the foundations ensured that the emphasis of the development was on adding value to the community rather than finding occupants to meet a pro forma.
LEADING THE DEVELOPMENT OF THE REGION
Fred Thieman says that the Buhl Foundation is committing its resources to a place-based model. Founded by the fortune of North Side retailer Henry Buhl, the foundation supports education, youth development, human services and community development throughout the city and Allegheny County, after initially focusing on the North Side neighborhood. Some 87 years later, the Buhl Foundation is returning to its roots. “We are in the process of refocusing, looking to do more place-based grant making in the North Side,” Thieman says. “That is moving from being one of our focuses to being our primary focus over the next 10 to 20 years.”
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Charitable foundations are expected to be key investors in a site development fund that is being administered by the Power of 32, a 32-county vision of a region that supersedes metropolitan boundaries. The Benedum Foundation is a key supporter and Pat Getty serves as chair of the steering committee for the Power of 32. The goal of the site fund is to prepare large sites for industrial development but there is an emphasis on Brownfields that Getty says keeps it in line with the goals of foundations like Benedum. “Foundation accounting rules certainly encourage us to do economic development in blighted areas and a site fund is one way you can do that. These sites are almost certain to be in blighted areas. A Brownfield is almost the definition of that,” he says. “On the visionary side, if we can take two or three Brownfield sites in communities that have lost their economic reason to be, then this is their chance. They don’t get many chances. It’s kind of a practical way to position them to have a kind of economic recovery.” D P
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Eye on the Economy
A
fter several years of commercial development being buffeted by headlines about inadequate credit, regulations, sovereign default and government shutdowns, it is refreshing that the central story coming into 2014 is about the underlying economy again. Much like in 2008, when the coming storm was underestimated, it appears that the coming recovery is being underestimated. It remains to be seen over the coming months if the optimism from the fourth quarter is justified or not, but the fundamentals for commercial real estate are as strong as the years before the last cyclical peak. What the real estate market is looking for more than anything else is an increase in the rate of growth in gross domestic product (GDP) and an accelerated pace of hiring to bring unemployment down. The two aren’t unrelated of course, with the pickup in GDP being a leading indicator that more employees will be needed. According to the Commerce Department’s report on GDP at the end of January, the economy provided an unexpectedly better rate of growth during the fourth quarter of 2013. GDP growth came in at 3.2 percent, following a revised growth rate of 4.1 percent in the third quarter. The rate of growth for the last six months of 2013 ended up being 3.7 percent, nearly 100 basis points higher than was forecasted at mid-year and more than double the anemic 1.8 percent of the first six months of 2013. The growth in GDP from July-December was the highest during any six-month period since the last half of 2003. After dealing with a two-point increase in Social Security withholding and a payroll tax increase for workers earning over $400,000 per year in January of 2013, American consumers bounced back and showed confi-
38 DEVELOPINGPITTSBURGH
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dence in a recovery that was not yet in full bloom. The robust fourth quarter reading came in spite of the three-week shutdown of the federal government at the start of October. It’s likely that the rebound from the shutdown has worked its way through the economy but if not, economists predict that there will be a makeup of 50 to 75 basis points to GDP in the first quarter of 2014. Improving economies in Europe and China should also add 50 points or more to the GDP, as U. S. exports would see a related increase in exports. Getting a reliable reading on conditions in Europe and China is difficult, however, and there is ample evidence to suggest that growth is not going to occur in the Eurozone
Once productivity levels off, the only way for employers to respond to growth is by adding to staff. Employees will stretch to produce more when there is the fear of losing jobs or in response to a rallying cr y during tough times. As the prospects for a business improve, the fear that pushed productivity abates and additional output mus t come from new workers.
just yet. Likewise, China has an overbuilt real estate market and export problems of its own because of the European recession. The news on employment wasn’t quite as good in February, although the overall jobs picture has improved more than forecasted. The U. S. economy averaged 150,000 new jobs monthly in 2013 and total employment stood at 137.5 million in January 2014. That is within shouting distance of the January 2008 peak of 138.6 million jobs. Although the December and January job creation numbers were disappointing, enough extenuating circumstances exist that economists remain optimistic about the hiring trend overall. Looking at the more reliable threemonth average of job creation makes for a slightly more cautious narrative. During the November-DecemberJanuary period, employers added an average of 154,000 new jobs, some 50,000 less per month than the September-October-November period. Unemployment fell to 6.6 percent in January, helped in part by what is becoming a noticeable trend of Baby Boomers retiring at a faster rate. If that trend holds, there will be added pressure on hiring in addition to a different trend that is less frequently examined. As has held true during recessions since the 1981 downturn, worker productivity climbed significantly during the Great Recession. Layoffs outpaced business contraction in 2009 and hiring back occurred at a much slower pace since then. The average worker’s productivity rose sharply during that period but productivity has stalled since late 2012. Once productivity levels off, the only way for employers to respond to growth is by adding to staff. Employees will stretch to produce more when there is the fear of losing jobs or in response to a rallying cry during tough times. As the prospects
Economists from PNC Financial Services Group expect to see a new peak in U. S. employment during the first half of 2014.
for a business improve, the fear that pushed productivity abates and additional output must come from new workers. Analysts expect the growth in employment to be strongest in five healthy segments of the U. S. economy: • T echnology: Internet startups, 3D printing, robotics and growth from tech giants like Apple and Google are adding jobs at twice the pace of the broader labor market. • E nergy: Because of shale oil and gas discoveries and improvements in extraction technologies, domestic energy production is forecast to grow by more than 20 percent from 2012 to 2035. And the International Energy Agency predicts that the U.S. will emerge as the world’s largest oil producer by 2020.
• A griculture: According to the Department of Agriculture, U.S. farm incomes are at their second-highest level since the 1940s on an inflation-adjusted basis. Prices remain near record highs and the U.S. remains the world’s largest agricultural exporter. • H ousing: U.S. home prices rose 12 percent year-over-year in 2013. Housing starts are on track to surpass one million units in 2013 for the first time since 2007. Homebuilding and the related spending on home improvements will boost employment significantly. • H ealthcare: Spending on healthcare rose to more than 18 percent of GDP in 2013. The costs of Affordable Care Act are still unknown but the legislation is expected to extend insurance coverage to 30
million or more Americans over a decade. Demographics are supportive of delivering significantly more healthcare services. On a regional level, hiring in the technology, energy and construction segments is expected to be even better than at the national level. Economists predict between 15,000 and 20,000 new jobs in metropolitan Pittsburgh during the next three years. This suggests support will increase for construction of new housing, retail and the office/industrial segments in which the jobs were created. Several other factors are creating economic strength that will extend over the next two or three years. Consumer spending has fully recovered from the trough of the recession, bringing consumer confidence along with it. Just as important as the renewed spending from the sec-
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| Spring 2014
tor that comprises 70 percent of the economy is the fact that the consumer balance sheet has also been repaired. If consumer spending is a result of pent-up demand from the austerity that preceded it, the reemergence of the consumer has not come as a result of re-leveraging. Household debt has fallen to 15.5 percent of income (from above 18 percent in 2008) and mortgage debt shrunk from more than seven percent to 4.7 percent of income. Those are the lowest levels in 20 years. While oil prices appear to be permanently in the $90/barrel range, the price for natural gas remains well below the historical norms. Even after rising sharply in late 2013, natural gas trades in the $4/million BTU neighborhood and the increased production from shale gas exploration is likely to keep gas prices range bound for years to come. That has a salutary effect on consumer confidence but, more importantly, the low prices make manufacturing in the U. S. more attractive to energy-dependent industries. Gas costs in Europe run between $12 and $14/MBTU. In China, gas prices are at $18/MBTU. That low cost of energy makes U. S. manufacturing more competitive, especially in the petrochemical and industrial chemical industries. There hasn’t been a wave of new manufacturing plants opening in the U. S. but the trend is for increased manufacturing rather than decline. Expect hiring to increase, which has a trickledown effect throughout the economy. Commercial real estate fundamentals are becoming more supportive of new development throughout the major asset classes, with the possible exception of multi-family. Construction of new apartments lead the commercial real estate recovery because of investor appetite and financing that rested upon the difficulty of home ownership following the mortgage crisis. Apartment construction and acquisition has accelerated through 2013 to the point where hypersupply is becoming a concern, both nationally and region-
Commercial real estate fundamentals are becoming more supportive of new development throughout the majo r asset classes, with the possible exception of multifamily. ally in Pittsburgh. Cap rates for Class A apartment properties fell below six percent for both urban and suburban product. Construction of new apartments was running higher to absorption in most markets, with Pittsburgh ranking first with construction that was 127.5 percent of the absorption rate. At the same time as these data raise concerns, the vacancy rate for both the U. S. and Pittsburgh markets were both 4.5 percent at the end of 2013. Class B occupancy is actually slightly higher than Class A. The growth in rents has slowed but occupancy continues to encourage rent increases. The conclusion that hypersupply is approaching seems reasonable at this point in the cycle but it also appears that changes in demographics and household formation patterns may be supporting multi-family differently than in past cycles. Retail is another category that is undergoing cyclical changes. The rise in e-commerce and the oversupply of inventory from the pre-recession boom have influenced the recovery of new retail development dramatically. Most U. S. markets are still in the early stages of recovery based on historical metrics. The average vacancy rate for retail property fell from above nine percent to 8.42 percent in 2013. Urban vacancy was lower at 7.65 percent and the average regional mall vacancy rate was under seven percent.
The slowly improving employment picture kept occupancy from growing as robustly in the office and industrial sectors, even though development of these asset classes remained sluggish. Class A office vacancy averaged 14.5 percent nationally, with the Class B rate averaging about 16.75 percent. Occupancy levels for both Class A and Class B industrial space were just below 90 percent nationally. Cap rates for both Class A office and industrial declined to approximately 7.5 percent at year’s end. Development of new hotels was the most robust segment aside from multi-family, yet data from STR (formerly Smith Travel Research) shows that demand for rooms remains a few points higher than supply. In fact, even though occupancy levels were relatively flat in 2013 – as it was in 2012 – the average daily rate experienced double-digit increases in 2013 and Revenue per Average Room (RevPAR) grew nearly six percent. Those market dynamics were even more pronounced in metro Pittsburgh. Since the peak of 2007, the supply of hotel rooms has increased 10.2 percent. Despite the increase in supply, occupancy has increased by eight percent; the average daily rate is up more than 15 percent; and RevPAR has risen 24.7 percent to $76.55. The business cycle for commercial real estate is fairly predictable. Developers build until too much product exists for demand, generally due to contraction in the economy. The extended trough of the last recession was anything but predictable, with a number of factors dragging on development other than simple supply and demand. As 2013 ended, government regulation is less uncertain – if still unsupportive – and the U. S. fiscal status is much firmer. Government should present little drag on the economy and on development. Assuming that the trend of recovery continues its arc in spring, commercial real estate should see green lights for development in 2014. DP
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Office Market Update
T
he success of Pittsburgh’s office market continued in 2013 as rental rates increased and construction in the area carried on at a high level. The region was once again at the top of the list of places to relocate to, work, and invest. Not only did the energy sector in Western Pennsylvania grow at a rapid rate, but the healthcare and financial industries experienced similar market growth and expansion as well. Pittsburgh and its surrounding submarkets, by all indicators, are ready to enter 2014 on the upswing of a successful 2013. A forecast for the Pittsburgh office market can be revealed by the past performance of all transaction types (lease, sale, etc.) over the course of a year. During 2013, the CBD Class A office market realized a substantial rise in rental rates coupled with heavy construction activity in the suburbs. By relying on these indicators, 2014 is poised to be another good year throughout the Pittsburgh office market.
The CBD continues to thrive on the success of companies new and old getting established in the region. The city offers attractive rental rates across all classes. Average Class A rental rates have hit a recent high, averaging $25.16 per sq. f t. over the fourth quarter, while Class B rates hove red around the $19.30 per sq. f t. mark. With an enticing Class A vacancy rate, developers continue to eye speculative development projects in the city. 42 DEVELOPINGPITTSBURGH
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CBD Pittsburgh’s CBD office market was as strong a performer as any of the region’s submarkets in 2013. Statistically, the market leaned in the landlord’s favor with vacancy rates ending the year at 13.7%. Rental rates for Class A properties saw positive growth and leasing activity remained consistent. Many notable buildings traded, while multiple major tenants renewed and expanded their Downtown presence. Many of the large office users were active throughout the year. Therefore, it did not come as a shock that PNC continued to grow and restructure their downtown offices. The Lord & Taylor building (formerly Mellon Bank’s headquarters) was given new life as the home to PNC’s call center. Add this to the current construction taking place at PNC Tower, and it is evident PNC plays a major role in the real estate of Pittsburgh’s CBD. Many CBD owners evaluated options for selling their buildings due to the favorable landlord conditions existing in the region. Significant CBD sale transactions in 2013 included: Federated Tower’s sale to Starwood Capital, Rugby Realty’s purchase of the Koppers Building, Drury Hotel’s acquisition of the Federal Reserve Building and the sale of the Clark Building to PMC Holdings. A strong indicator of rising investor interest in the region was demonstrated by the endless activity over the previous 12 months. Numerous large CBD tenants continued to expand and extend their leases: Northwestern Mutual, KDKA, FiServ, Leech T ishman and KPMG. Newcomers also began to make their presence known as top-tier businesses Downtown. Computer Sciences Corporation became a tenant at Penn Liberty Plaza, W illis Insurance
began occupancy at One PPG Place, Omnyx- Pittsburgh and Axiall Corporation also moved into key locations in the CBD. Other notable CBD occupants also found new homes in Downtown. Allegheny County Economic Development relocated from 425 6th Ave. to One Chatham Center, PNC relocated from USX Tower to the Lord & Taylor Building, Metz Lewis moved to the Henry W. Oliver Building, and Buck Consultants changed their address to 11 Stanwix Street. On the other end of the spectrum, several big name Pittsburgh based companies reduced their presence in Pittsburgh in 2013. Heading the list were H.J. Heinz and EDMC. Their downsizing as well as multiple others resulted in over 350,000 sq. ft. of sublease space coming to market over the course of 2013. The CBD continues to thrive on the success of companies new and old getting established in the region. The city offers attractive rental rates across all classes. Average Class A rental rates have hit a recent high, averaging $25.16 per sq. ft. over the fourth quarter, while Class B rates hovered around the $19.30 per sq. ft. mark. W ith an enticing Class A vacancy rate, developers continue to eye speculative development projects in the city. From a landlord’s perspective, the CBD is in seemingly great shape due to limited high-rise options paired with low vacancy and growing rental rates. However, with the unfortunate news of EDMC and H.J. Heinz both putting very large blocks of excess space on the market, mid-tier opportunities still remain prevalent in downtown Pittsburgh.
Suburbs The Pittsburgh suburban office market turned in another strong performance in 2013. Rental rates rebounded from the recession of
2008. W ith many new projects kicking off in the fourth quarter of 2013 and first quarter 2014, the suburbs currently have over 750,000 square feet under construction. Medical office activity was strong in the eastern and southern suburbs with the transfer of Corporate Office Park - a 116,000 sq. ft. medical office complex which sold in July for $15.14 million to Healthcare Trust of America. St. Clair Hospital also opened a new 40,000 sq. ft. medical office building in Peters Township as well as an addition of over 25,000 sq. ft. on Oxford Drive. Suburban construction activity continued to be a bright spot with developers focusing on the I-79 corridor from Butler to Washington, PA. The largest lease of the year was the 118,000 sq. ft. transaction by PPG for their North American Architectural Coatings headquarters at 400 Bertha Lamme Drive in Cranberry Woods. The Parkway West also saw substantial activity with the purchase of over 60 acres by Chevron. It is rumored Chevron has plans to make this their next regional headquarters and home to an estimated 1,000 workers. This number could grow to as much as 1,500 employees by 2025. Dick’s Sporting Goods also announced in June 2013 they had leased 73 acres from the Allegheny County Airport Authority to accommodate expansion of their corporate headquarters campus. Their initial commitment was for a single 180,000 sq. ft. building to be completed by 2015. It is expected, however, Dick’s will add substantially more square footage. Another notable development was the commencement of DiCicco Development’s construction project involving the 130,000 sq. ft. WestPointe Corporate Center Four. Users seeking a corporate or regional headquarters presence in 2014 may face limited options due to the past year’s large volume of transactions.
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Although the price of natural gas remained below $4.00 per thousand cubic feet for most of 2013, gas companies and their subsidiaries were not deterred from moving into the region. The overall vacancy rate in the suburban markets ended the fourth quarter 2013 at 15.3%. Net absorption totaled a positive 424,775 square feet for the year compared to 526,010 square feet of positive net absorption in 2012. Class A rents bottomed out at $21.07 per sq. ft. during 2009 but ended 2013 at $22.12 per sq. ft. During the same period vacancy rates in suburban Class A space dropped from a high in 2009 of 23.1% to 11.2% at the end of 2013. The Class B market interestingly saw a slight decline in vacancy rates during the same period. The Class B market vacancy rate of 18.1% in 2009 compared to the vacancy rate of 17.7% in 2013. Currently, there are only four existing buildings along the Parkway West with more than 50,000 sq. ft. available.
Forecast The Pittsburgh office market is poised for a strong and active 2014 coming off the momentum gained in 2013. PNC Tower’s construction is moving forward with an estimated completion date of June 2015. UPMC, St. Clair Hospital, PNC, and Highmark all have plans to continue to expand their real estate footprints in the region. Other exciting developments for 2014 include: Ansys’ relocation within Canonsburg, Noble Energy’s search for a new headquarters in the region, and Continental Real Estate continuing development on the North Shore.
The Pittsburgh office mar ket is poised for a strong and acti ve 2014 coming off the momentum gained in 2013. PNC Tower ’s constr uction is moving for ward with an estimated completion date of June 2015. UPMC, St. Clair Hospital, PNC, and Highmark all have plans to continue to expand their real estate footprints in the region.
#43 Best Places for Business and Careers and one of Under30CEO. com’s Top 30 Best Cities for Young Entrepreneurs. Combine these accolades with the continued success of the growing energy, healthcare, and financial sectors and one can conclude Pittsburgh’s office market is moving in a promising direction in 2014 and beyond. For more information contact: Duke Kingsley Avison Young 20 Stanwix St. #401 Pittsburgh, PA 15222 412-944-2130 Duke.kingsley@avisonyoung.com
DP
The positive business climate in the Pittsburgh office market is further exemplified by recent national acknowledgements. These praises include being named as Forbes’ Duke Kingsley
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Industrial Market Update
T
he fourth quarter of 2013 finished in much the same way it began and maintained throughout the year; solid if unspectacular growth. The vacancy rate fell from 7.9 percent in the third quarter to 7.7 percent in the fourth quarter and dropped three basis points in total over the course of the year. The lack of quality Class A warehouse continues to be a factor with vacancy levels dropping to an astounding 2.97 percent. The greater Pittsburgh’s industrial market is approximately 172 million square feet spread out over the seven-county region (Allegheny, Armstrong, Butler, Beaver, Fayette, Westmoreland, and Washington) and the Class A portion is approximately 17,500,000 sq. ft. W ith a vacancy rate of 2.97 percent we only have a total availability across
With the continued growth of e-commerce and impending opening of the Panama Canal in 2015/2016, the remaking of the global supply chain will have a profound impact on the U.S. industrial and retail markets. East and Gulf Coast ports equipped to handle the increase in cargo flows, such as Baltimore, Charleston and Norfolk, as well as inland ports and intermodal markets, are well positioned to benefit from the change.”
our total market of 519,750 sq. ft. of Class A products. This is below equilibrium for a healthy market. Furthermore, the definition of Class A product in the Pittsburgh region would not necessarily hold up in markets with more speculative developments such as Columbus or Lehigh Valley. Take this in context with the prediction of many economists that industrial will continue to outpace other real estate categories, i.e. office and retail, in 2014 and into 2015/2016. Colliers International’s own national economist K.C. Conway recently published our Q1 2014 Global Predictions. The following quote outlines some of his thoughts on why industrial will continue to flourish on a national level. “Industrial will remain the star performing real estate property type as U.S. distributors, manufacturers, and retailers scramble to remake their supply chains just in time for the
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onset of the first post-Panamax decade. W ith the continued growth of e-commerce and impending opening of the Panama Canal in 2015/2016, the remaking of the global supply chain will have a profound impact on the U.S. industrial and retail markets. East and Gulf Coast ports equipped to handle the increase in cargo flows, such as Baltimore, Charleston and Norfolk, as well as inland ports and intermodal markets, are well positioned to benefit from the change.” Although Pittsburgh has hit the radar of the national real estate community for the opportunity on the investment side, we are still very
The expansion of the Panama Canal portends great opportunity to inland ports in the Tri-State region, provided the material can navigate the lock systems.
much a secondary market. As it pertains to Pittsburgh, the next quote by Conway relates to expansion in tertiary U.S. industrial markets. “Demand for U.S. commercial real estate will finally move out to strategic secondary markets. For industrial property, this will mean places aligned with the new post-Panamax supply chain. Secondary metro economics with an ICEE (Intellectual Capital, Education and Energy) focus will see the most demand.” Optimism is the word heading into 2014. Pittsburgh should be especially bullish given the multitude of story lines that should positively impact
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| Spring 2014
the industrial market. These include CSX announcing that they will construct a $50,000,000 multi-modal facility in McKees Rocks, the continued expansion of the Southwest Pennsylvania energy sector and the much
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needed passage of the State Transportation Bill. Any of these alone are significant but, taken in total and combined with the positive national dynamics, insure that the region will continue to advance forward. The
passage of the State Transportation Bill and the CSX multi-modal facility tie in nicely with Conway’s prediction that growth among intermodal markets will continue to escalate.
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The investment being made by CSX is evidence that they consider Pittsburgh to be a player in the inland intermodal supply chain. The McKees Rocks project would entail the renovation of the former Pittsburgh and Lake Erie Railroad site which operated for over 100 years. This $50 million project is part of CSX’s National Gateway project. The Gateway project is an $850 million publicly private partnership to create a highly efficient and environmentally friendly double-stacked clear rail corridor on the CSX network between the mid-Atlantic and the Midwest. According to Michael J. Ward, chairman, president and chief executive officer of CSX, “The facility will create more economic opportunity for its residents and significantly enhance distribution opportunities for its businesses”. The other critical component of the intermodal trifecta is highway infrastructure. While Wester n Pennsylvania still has our windmills to tilt with respect to our highway system, we took a huge step in the right direction with the passage of House Bill 1060 in November of 2013. The State Transportation Bill will infuse $2.3 to $2.4 billion dollars of sorely needed funds into road and bridge projects across Pennsylvania. This will lead to not only the repair of aging infrastructure and the avoidance of road closures and weight reductions on bridges, but to the start of new projects. The most high profile of these is Phase II of the Mon-Fayette Express Way/Souther n Beltway. This 13.3 mile stretch of highway will connect Phase I which travels from the Pittsburgh Inter national Airport to Imperial (Route 22) and then runs South into Washington County, ultimately connecting to I-79. For a region without a conventional beltway (and no, red, yellow, blue, and green do not count), this is a much awaited announcement.
pectancy of 50 years. Nearly 45,000 loaded barges carrying more than 66 million tons of material, valued at $5.6 billion passed through district locks in fiscal year 2012. The funding for replacement and rehabilitation is piece meal and results in continued construction delays and cost overruns. The expansion of the Panama Canal portends great opportunity to inland ports in the Tri-State region, provided the material can navigate the lock systems. Deals of significance in the fourth quarter include Trufood’s (formerly Tsudis Chocolate) lease of 155,000 square feet at 106 Gamma Drive in RIDC O’Hara, the sale at 3000 Grand Avenue (60,000 square feet) on Neville Island; and the sale at 19 35th Street (40,000 square feet) in the Strip District. On the land side, Paragon USA purchased thirteen acres of 62nd Street from the URA with plans to build a new food distribution warehouse. The first quarter of 2014 has already brought the announcement that the Pittsburgh Post Gazette will move their printing operation out to the 240,000 square foot former Flabeg Solar building at the Clinton Commerce Park. Flabeg exited the building only three years after taking occupancy and hiring 300 employees. This is good news for the region, but offers further
evidence that supply is tight when a building is scooped up prior to formally going to market. As we head into 2014 the overall industrial market future looks bright. Disruptions are inevitable, but companies will continue to look to Western Pennsylvania as an area of growth. The shale boom has created a cottage industry for not only the drillers and gas suppliers, but also for companies that benefit from participating within the mid and downstream markets. Demand for good warehouse / distribution space will continue to outstrip supply and hopefully lead to additional speculative development. By not offering the market quality options in which incoming companies can set up shop, or for existing businesses to expand the region risks experiencing opportunity loss to our neighboring industrial regions who offer better options. For more information contact: John Bilyak SIOR, CCIM Colliers International Two Gateway Center, 603 Stanwix Street, Suite 125 Pittsburgh, PA 15222 412-321-4200 ext. 209 john.bilyak@colliers.com www.colliers.com DP
Unfortunately, the news is not all positive with the third key element required for intermodal transportation. Our nation’s system of locks and dams is collectively in very poor condition given that 52% have eclipsed their designated life ex(Left-to-right) Anthony Pantoni, Pat Tracy, John Bilyak and Ray Orowetz
50 DEVELOPINGPITTSBURGH
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Retail Market Update PITTSBURGH COMMERCIAL RETAIL SECTOR – 2013 Recap
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he secret is getting out that Pittsburgh is one of the best places to live, work, and play and the Pittsburgh retail market is evidence of that. 2013 capped another relatively strong period for retail real estate in Pittsburgh and the Pittsburgh retail sector closed the year on an optimistic note. Declining unemployment figures and increased consumer spending no doubt contributed to this success. Limited space availability in many trade areas has pushed rents up to varying degrees in the top submarkets and demand for space remained rather strong. Various retailers and retail sectors entered the region and/or expanded their presence and grocers led the pack during 2013. Included were a mix of high-end and discount concepts. In the East/Monroeville submarket, Shop N’ Save signed a lease for 26,000 square feet in the Village of Murrysville shopping center. Trader Joe’s committed to an 11,500-square-foot store in the new McCandless Crossing in the North/ McKnight Road submarket. The store is expected to open in 2014 and is the third location in the Pittsburgh market for the California-based specialty grocer. Fresh Market, based in Greensboro, N.C., made its debut into the Pittsburgh marketplace with a 19,000-square-foot store in the South/Rt.51 submarket and Whole Foods committed to a new location in the South Hills. Dominant Pittsburgh-based grocer Giant Eagle
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Other retailer activity during the year included announcements by Dick’s Sporting Goods. In the North/ McKnight Road submarket, Dick’s will be relocating and expanding to approximately 50,000 square feet from Northway Mall to the new McCandless Crossing, and in the Eas t/Monroeville submarket, Dick’s will move from an adjacent Monroeville Mall out-parcel to the Mall itself. The Pittsburgh mattress war continued with Mattress Fir m and L evin Mattress opening a number of new locations throughout Pittsburgh.
opened a Market District Express in the South/Rt.19 submarket. This new model combines a high-end grocery, gas station and convenience store with a modern dining experience. Urban locations were the choice of several other grocers including Bottom Dollar which opened an 18,000-square-foot store in Homestead and announced plans for a store in Garfield for 2014. Along neighboring Baum Boulevard, Aldi opened its doors in the newly renovated Offices at Baum. A new Shop N’ Save opened adjacent to the CBD in the Hill District; the 29,500-square-foot store is the first such store to open in that neighborhood in 30-plus years. As a result of the growing residential population and substantial retail and office redevelopment in the CBD, local developer Ralph Falbo and Giant Eagle are separately exploring plans to bring a grocery store to the CBD where no such full-service store currently exists. Restaurant growth continued throughout 2013 at a brisk pace with competition often fierce for the best restaurant sites. Numerous new and established independent eateries opened throughout the marketplace in 2013, a few regional/national newcomers to the area included Ontario-based T im Horton’s, locating in the Meadow Lands and All Star Grill and Zoup! in Southpointe; all in the Washington submarket. Other retailer activity during the year included announcements by Dick’s Sporting Goods. In the North/McKnight Road submarket, Dick’s will be relocating and expanding to approximately 50,000 square feet from Northway Mall to the new McCandless Crossing, and in the East/Monroeville submarket, Dick’s will move from an adjacent Monroeville Mall out-parcel to the Mall itself. The Pittsburgh mattress war continued
with Mattress Firm and Levin Mattress opening a number of new locations throughout Pittsburgh. In addition, La-Z-Boy Furniture Gallery continued its re-entry into the marketplace with a number of new showrooms in regional trade areas around greater Pittsburgh. Furthermore, HomeGoods committed to 25,000 square feet within Monroeville Mall- its second location in the region. Developers were busy during the first half of the year either announcing plans for new projects or fueling existing sites. In Washington County in the South submarket, Horizon Properties progressed with Southpointe Town Center which will consist of 100,000 square feet of retail space. Horizon is also marketing The Street At The Meadows – a mixed-use development that will contain luxury multi-family units and 50,000-squarefeet of retail. Newbury Market, at I-79 and SR-50 in Fayette Township in the South submarket, will include a 120,000-square-foot office building, and can accommodate over 200,000 square feet of retail. At McCandless Crossing in the North/McKnight Road submarket, site work began on the fourth phase of the 500,000-squarefoot complex. Joining Cinemar, Longhorn Steakhouse, Bonefish Grill, and Carraba’s Italian Grill will be Panera, Chipotle and First Watch. In the bustling CBD, where the residential population has increased by more than 30% in past twelve years according to the Pittsburgh Downtown Partnership, Millcraft Investments and McKnight Realty Partners will redevelop the former Saks Fifth Avenue department store into 25,000 square feet of retail and a 450-space parking garage. Along the adjacent North Shore Fringe, North Shore Developers LP is diligently working toward the purcha s e o f 1 . 3 a c re s o f l a n d f o r a three-s t o r y, 8 0 , 0 0 0 - s q u a re - f o o t o f fice bu i l d i n g a n d 4 0 , 0 0 0 - s q u a re - f o o t retail c o m p l e x . L e a s e c o m m i t m e n t s have b e e n s e c u re d f o r To b y K e i t h ’s
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L ooking ahead, 2014 is expected to be another good year for the Pittsburgh retail sector. Favorable retailer activity should keep vacancy rates low and rents stable or increasing, particularly in the better suburban trade areas ... rates low and rents stable or increasing, particularly in the better suburban trade areas, the CBD, and the East End of the City. A new progressive mayor should help an already hot city and an encouraging economic environment, Marcellus Shale growth, low interest rates, and consumer and retailer demand should spur development activity in the Pittsburgh region in 2014. Urban redevelopment will continue as more people move to the City. For more information contact: David Glickman Director Newmark Grubb Knight Frank 412-434-1065 dglickman@ngkf.com DP
I Love T h i s B a r & G r i l l , B u r g a t o r y and No r t h P a r k L o u n g e f o r t h e re tail po r t i o n . Sale activity in the Pittsburgh region maintained a brisk pace and included the 1.2 million-squarefoot Century III Mall purchased by Moonbeam Capital Investments LLC from C-III Asset Management in the South/Rt.51 submarket; DDR acquired the 299,000-square-foot Township Marketplace in the Beaver submarket from Blackstone JV in a portfolio sale of power centers; In the West/Robinson submarket, Forest City Enterprises acquired the
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remaining 28 percent interest in the 903,431-square-foot Mall At Robinson. The Cleveland-based company also sold its 50 percent interest in the nearby 457,231-square-foot Plaza at Robinson Town Center. Net proceeds to Forest City were $7.75 million at closing. Also in the West/Robinson submarket, the 146,000-square-foot Plaza at The Pointe was purchased by WP Realty from US Bank for $16.8 million. Looking ahead, 2014 is expected to be another good year for the Pittsburgh retail sector. Favorable retailer activity should keep vacancy
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evelopers and investors will find that the combination of market forces, Federal policy and an improving economy is creating a capital market environment that is more favorable in 2014. In an unequal but opposite reaction to the excesses of 2007 – with apologies to Isaac Newton – the availability of capital is growing because of continued low yields from alternative sources, a re-balancing of risk and return, and a continued improvement in the performance of commercial properties.
The extraordinary interest rate environment that has prevailed since the Federal Reserve Board took rates to the floor through its short-term policy and Quantitative Easing programs continues to have an impact on cap rates that is unprecedented. As 2014 unfolds, lenders seem to be accepting the cap rate compression and looking to other factors to evaluate real estate risk, even while keeping a wary eye on the potential threat of rising rates. What has occurred over the past two years is a return to commercial real estate appreciation that is more certain and a general recovery in the performance of commercial properties. Appreciation was positive for all
categories of commercial real estate in 2013 and surveys of real estate professionals predict that commercial property will gain in value between two and four percent again in 2014. According to Integra Realty Resources’ Viewpoint 2014 market survey, roughly 20 percent of the respondents even predicted appreciation of more than four percent for industrial Class A property. At the root of the good news about appreciation is the improving economy, especially the growth in employment; however, perhaps the single most important factor driving real estate performance has been the limited new construction. The lack of new inventory, especially in the more
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distressed categories like retail and industrial properties, allowed for improved absorption and rents. Against that backdrop, the outlook for commercial real estate capital sources is for increased participation. Feedback from the recent Mortgage Bankers Association’s (MBA) Commercial Real Estate Forum was that the major lending sources – banks, life insurance companies and commercial mortgage-backed securities (CMBS) – should be somewhere between bullish and aggressive in 2014. Of the three, life insurance companies have been the most influential since the recession. As the financial institutions were in disarray in 2009, life insurance companies were the first source of available financing for commercial real estate, albeit almost exclusively for the one category of property – apartments – that was in favor. Needing to place premium revenue in investments that could provide the returns needed to meet their actuarial pro forma for benefit payouts, life companies saw multi-family as an opportunity. Since then, life insurance investment in commercial real estate has diversified into other categories and grown each year. As of the end of 2013, life companies held over 13 percent of the nearly $2.5 trillion commercial mortgage market. Those holdings produced roughly nine percent of the life insurance industry’s cash and invested assets. For 2014, the plan is to add to that share. “Life companies have a tremendous amount of cash right now,” observes Gerard Sansosti, executive managing partner for HFF in Pittsburgh. “Last year life insurance investment [in commercial real estate] was about $53 to $55 billion. I think it’s probably going to be about $60 billion in 2014.” “You’re catching me right after the MBA so I just had a meeting every 45 minutes for two days and it was pretty much all life companies,” jokes Daniel Puntil senior vice president at Grandbridge Real Estate Capital. “I would say without
exception that every life insurance company has increased its allocation from 2013 to 2014. And all of them commented to me that their spreads have come down.” One of the surprises of 2013 was the resurgence of the CMBS market. CMBS was the poster child of the ‘go-go’ period of CRE finance in the middle of the last decade, peaking at nearly $230 billion in 2007 and collapsing to less than $3 billion in 2009. Analysts predicted a recovery for CMBS in 2011 and 2012 after the full extent of the damage to commercial real estate worked itself out; however the global financial shocks that came from fears of sovereign default during the summers of those years stunted recovery. Even though the problems originated in government-issued bond debt, the sell-off that occurred dampened all bond markets. Instead of returning to levels close to the historical CMBS issuance average of $60 billion, volume stalled out just above $30 billion in mid-year, reaching $48 billion for 2012.
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The improving fundamentals and absence of a fear-inducing scenario helped boost CMBS issuance above $80 billion in 2013. According to the Urban Land Institute’s Real Estate Consensus Forecast, CMBS issuance will be $88 billion in 2014 and top $100 billion in 2015. As might be expected, the increasingly strong fundamentals of CRE have whetted the appetite of CMBS investors. Commercial real estate returns yielded 8.5 percent in 2013, according to the National Council of Real Estate Fiduciaries (NCREF). NCREF forecasts 8.8 percent returns in 2014 and 8.6 percent in 2015. The diminished yields from alternative investments, like Treasury Bonds, have pushed bond investors to consider commercial real estate mortgages more favorably. Pricing for CMBS has increased and leveled out, as has the risk spread. Sansosti explains that there are still some concerns within the CMBS market.
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“CMBS conduit business was about $53 billion [in 2013]. When you add in single-asset sales you get up to $80 billion,” he says. “Single-asset bonds haven’t priced well. There aren’t enough buyers out there to create demand for those deals. Once you get above a $150 million deal you have to carve it up into several bonds or it’s not as desirable. What may also hold down volume is that the pools of loans seem to be stuck around one billion. That seems to be where the buyers of bonds are comfortable.” Still, even with some headwinds in the market, CMBS participants are growing. There are now 38 CMBS conduits in the market. At the peak of the market in 2007, there were 44 lenders. An overriding concern about increased competitors in the CMBS market will lead to decreasing underwriting caution. “CMBS will do the deals that others won’t. There’s an important place in the market for CMBS but it’s not just CMBS that is getting more aggressive,” says Puntil. Since the crisis, CMBS deals have stayed below 75 percent loan-tovalue. No observers of the CMBS market sees that shifting upward in the immediate future but pressure to increase volume, especially for newer entrants, would offer an incentive to move the proceeds towards a higher LTV, or at least a higher value. IRR’s Paul Griffith, the managing director in Pittsburgh, says that he’s seen that pressure manifest itself.
While the bad loans have largely been written down or off the bank balance sheets, the regulations meant to deal with the mortgage industr y are just now kicking in. These will principally affect residential lenders by limiting what is considered a ‘qualified mortgage’ that can be profitably sold into the secondar y market. For commercial real esta te, these increased regulations will put more pressure on the com mercial lenders to make loans.
“It’s interesting with the Wall Street investment banks like Goldman Sachs that are now more regulated,” he says. “The banking side of the business is playing it by the book but the lending side of CMBS is trying to push the envelope on appraisals.”
the requirement of a five percent risk retention that the CMBS originator would retain through the life of the loans. This provision would unfavorably impact the pricing of CMBS issuances. Another deal-breaking regulation is the requirement that buyers of the so-called ‘B-piece’ portion of the bonds – which have the most default exposure but bring the highest returns – must hold the bond until the underlying loans mature. This provision would prevent savvy investors from re-selling the positions as a risk management step.
The iceberg that looms for the CMBS market is the regulation that will result from the Dodd-Frank legislation from 2010. As proposed, the regulations on CMBS contain several provisions that are totally at odds with the current market practices and would dampen investor interest significantly. Chief among these are
Proponents of CMBS have kept the regulations from being implemented thus far but some measures could be put in place in 2014. That would be bad news for a portion of the capital market that could be vital as the next wave of re-financing maturities for ten-year deals arrives in 2015 and 2016.
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Regulation is also an important factor in how commercial banks will behave in the real estate markets in 2014. Although the housing market seems to be in full recovery, the fallout from the crisis is still working its way through the banking system. While the bad loans have largely been written down or off the bank balance sheets, the regulations meant to deal with the mortgage industry are just now kicking in. These will principally affect residential lenders by limiting what is considered a ‘qualified mortgage’ that can be profitably sold into the secondary market. For commercial real estate, these increased regulations will put more pressure on the commercial lenders to make loans. Banks are flush with cash. Deposits are at high levels. As a result of the crisis, the ratio of deposits to loans may be at an all time high. In a low interest rate environment, the alternatives for banks to grow will become fewer with the regulations that DoddFrank brings. That should be a good thing for commercial real estate. “I don’t think regulations are causing any concern or pause with commercial real estate. We continue to look at quality deals,” says John Fetsko, senior vice president/senior banking officer at WesBanco. “We are looking more closely at concentrations. There has been a lot of demand for hotels or offices, for example, but not for retail. We have financed our share of hotels – and they have been good to us – but at some point there could be pockets that are overbuilt.” “Commercial real estate has always been an important part of our business, even during the recession,” says Andy Devonshire, Dollar Bank's chief commercial lending officer and president Dollar Bank of Ohio. “The only real issue on the commercial side is that the banks that were struggling during the recession are now healthy again and are being aggressive again. That leads to doing things that ultimately are going to cause problems again. There are too many banks chasing the same business.”
“It is a great time to be a borrower right now in this market,” says Puntil.
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Sansosti seems to agree and offers a parallel that is both encouraging and cautious. “It really feels like we’re in 2005 again. If you look at the investment market, debt market and construction activity, it just feels like 2005.” D P
RY
All these and other looser conditions should give pause to those who track the credit markets but there is one significant difference between 2014 and 2007. Unlike 2007, there has been nothing like a real estate bubble and the artificial boom that resulted from it. Lenders may be anxious for deals but the underlying economy has kept developers from rushing in to soak up the lending capacity. W ith the U. S. economy – and perhaps the global economy – gathering steam, the capital markets may be a willing enabler of overdue growth. But even if the demand for loans doesn’t heat up, those looking to finance commercial development or acquisitions should find ready partners in the banks, life insurance companies and conduits in 2014.
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The parallels that are being drawn to the frothy lending of the mid2000’s period are coming from the conditions that are being offered on deals. The share of non-recourse loans is growing. Lenders are becoming willing to do constructionto-permanent loans. Spreads have fallen to 150 basis points and less. Lenders are getting creative in making permanent loans work for notyet-stabilized properties.
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Devonshire feels that the improving economic conditions throughout Western PA and Eastern OH make commercial property attractive to lenders and that the competitive situation makes the market attractive to borrowers. The latter is a consistent refrain throughout the real estate capital industry, as more capital is available for deployment than there are borrowers, although with an improving economy that could change in fairly short order.
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Legal/Legislative Outlook
How Bugs and Bunnies Can Kill a Development Project
I
By Valerie Kamin n Pennsylvania State Representative Jeff Pyle’s legislative district, a school district was required to pay thousands of dollars to mitigate the impact of a new school construction project on the habitat of the Indiana bat, a protected endangered species, even though no bats were ultimately found on the construction site, according to Rep. Pyle. He has also publically expressed his frustrations that a species of endangered mussel has stalled the dredging of gravel in the Allegheny River which would be used on state road projects. Not surprisingly, a signature piece of Rep. Pyle’s legislative agenda has included reinforcing what he views as a currently neglected balance between endangered species management and economic development. “If you go back and look at the Game Commission and Fish and Boat’s charter, they’re not allowed to make any decisions based on economic reasons. But I think in today’s economy, and with jobless figures the way they are, it has to be considered. There’s a balance to everything,” Pyle has said. Since the passage of the Endangered Species Act of 1973, the Pennsylvania Game Commission (PGC) and the Fish and Boat Commission (FBC) have had the sole discretion and authority to determine
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when mammals, birds, fish, reptiles and amphibians are threatened and become a part of the state list of endangered species. Currently, Pennsylvania businesses seeking permits for development projects must first determine whether the location of their project produces a “hit” on the current PNDI database, which is a database managed by the Pennsylvania Department of Natural Resources that catalogues and geo-codes federally and state listed endangered species habitats. If a developer receives a “hit” on the PNDI database, indicating that the site may be a habitat for a protected species, the developer is then required to conduct a habitat assessment or a more extensive (and expensive) habitat field survey, depending on the circumstances. If a field survey is required, there may be a very short time-frame within which to effectively conduct the survey. For example, a field survey for the habitat of the Indiana bat, the most common endangered species to retur n PNDI “hits” in Wester n Pennsylvania, can only be performed between May and August. A developer who misses this window will be subject to a nine month delay, simply because of the habitat survey requirement. House Bill 1576, introduced by Rep. Pyle, aims to change the ways in which animals are added to the state’s endangered species list, while alleviating obstacles for developers and increasing regulatory transparency. Known as the Endangered Species Coordination Action, the bill maintains the FBC’s and PGC’s power to designate endangered and threatened species, but will subject their decisions to independent review and ratification by the Independent Regulatory Review Commission (IRRC). Created in 1982, the members of the IRRC are appointed by the gover-
nor and each of the four legislative caucus leaders and review regulations from every other state agency, including endangered species designations made by the Department of Conservation and Natural Resources. The Endangered Species Coordination Action requires the PGC and FBC to provide to the IRRC detailed reasoning and a summary of acceptable data and methodology upon which a proposed designation is based, and any activities that may be affected by such designation. Proponents of the bill view this procedure as increasing agency accountability and transparency with respect to the designation process, which is largely viewed as shrouded in secrecy and without regard to local economies. Undoubtedly, the legislation would curb the power of the state’s fish and game agencies in the protection and classification of the threatened and endangered species. “We are simply asking for sufficient burden of proof that a species is truly endangered or under a threat of extinction,” Rep. Pyle has said. “Not all state agencies are required to play by the same rules when it comes to these designations, and my bill would essentially level the playing field.” The proposed legislation also requires the development of a new centralized database, which would replace the PNDI system. Similar to the PNDI, the database would identify the specific spatial areas in which listed species are known or likely to be present. However, the new database would also indicate the exact coordinates of endangered habitats. This information is currently made unavailable to the public in order to prevent poachers from hunting endangered and threatened wildlife.
“We want to be able to say, here is the science,” said Drew Compton, chief of staff of State Senator Joe Scar nati, the sponsor of Senate Bill 1047, the companion bill to House Bill 1576. “It’s posted, it’s available to reporters, developers, legislators and therefore there’s a rational basis this area should be protected for frogs, fish, trout, whatever. We want to ensure anyone who has an interest in a property can be able to ascertain what species are being protected and what aren’t,” said Crompton. The proposed legislation also requires gover nment agencies reviewing applications for permits, approvals or other authorizations to consider potential impacts only on listed species and their critical habitats included in the centralized database. Unless agency data indicates that the presence of a protected species is likely, gover nment agencies shall not require persons to conduct field surveys or other activities to determine or evaluate the presence of species or their habitats. Rep. Pyle and Sen. Scar nati’s proposed legislation has incited considerable debate, but has gar nered tremendous support. The heads of the Associated Petroleum Industries of Pennsylvania, the Pennsylvania Independent Oil & Gas Associations and the Marcellus Shale Coalition wrote in a letter of support that the bill will “introduce consistency, transparency, and accountability to threatened and endangered species conservation while also allowing sustainable economic development across the Commonwealth.” Natural oil and gas producers are not the only groups voicing support for the legislation. The Pennsylvania Chamber of Business and Industry and a multi-industry coalition
Natural oil and gas producers are not the only groups voicing support for the legislation. The Pennsylvania Chamber of Business and Industr y and a multi-industr y coalition voiced their support in a letter to Pennsylvania L eg islators. Acc ording to the letter, those groups “fir mly believe that there must be a balance between the designation and protection of plant, wildlife, and fish species and economic development. voiced their support in a letter to Pennsylvania Legislators. According to the letter, those groups “firmly believe that there must be a balance between the designation and protection of plant, wildlife, and fish species and economic development. This legislation achieves such a balance and ensures that all parties involved in the process of species evaluation, designation and
protection are able to provide input in a consistent and open manner.” The coalition includes NAIOP, PA Coal Alliance, Schuylkill Chamber of Commerce, Energy Association of Pennsylvania, PA Independent Oil & Gas Association, Associated Petroleum Industries of PA, National Federation of Independent Business, Electric Power Generation Association, Pennsylvania Food Merchants Association, Pennsylvania Manufacturers Association, American Concrete Pavement Association, Pennsylvania Asphalt Pavement Association, Pennsylvania Forest Products Association, Pennsylvania Farm Bureau, PA Anthracite Council, Central Atlantic Bridge Associates, Pennsylvania Builders Association, National Utility Contractors Association, Associated Pennsylvania Constructors, PA Aggregates and Concrete Association, Master Builders’ Association of Wester n Pennsylvania, Associated Builders and Contractors Keystone Chapter and the Greater Pittsburgh Chamber of Commerce. These two bills have made it out of committee and are currently on the House and Senate floors awaiting a vote. A hearing on S.B. 1047 took place on January 10, 2014 at the Indiana University of Pennsylvania campus in Indiana County. While waiting for a vote on this proposed legislation, developers should continue to work closely with their environmental consultants to appropriately plan for the habitat review process. Valerie B. Kamin is a member of Meyer, Unkovic & Scott’s Real Estate and Lending Group and focuses her practice on commercial real estate development, acquisition, disposition and leasing projects. She can be reached at vbk@muslaw.com DP
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Benchmarks
Site Development Fund is Part of a Super-Regional Marketing Push
T
hey say politics make strange bedfellows. In the world of economic development, the emergence of the natural gas industry has made strange bedfellows of business attraction competitors.
A new fund that is meant to boost the inventory of available sites throughout a 32-county footprint – one that encompasses the heart of the Marcellus and Utica shale formations – is a blueprint for cooperation across regional and state lines. The P32 Site Development Fund is an initiative of the Power of 32, a regional visioning collaboration of private and public leaders who are trying to identify and solve problems that are common to the people and businesses of 32 counties in southwestern PA, eastern OH, northern WV and the two westernmost counties in MD. The concept of the 32-county super-region has been an idea in formation since 1999 but
with the shared economic opportunities of the shale gas play and the crisis in local government finance, a sense of urgency moved leaders to get serious about super-regional thinking. A steering committee developed 14 initiatives that would create benefits for the entire region and in 2012 began to pursue them. One of those initiatives was to get better sites for business growth. The objective was to ensure that there would be adequate sites ready to accommodate the expansion of existing regional businesses and the attraction of new businesses. The latter was especially relevant to the burgeoning gas industry.
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Pat Getty chuckles at the memory of competitive bankers, brokers and economic development agencies all enthusiastically embracing the site fund concept. As the concept began to be fleshed out, it made sense for the Allegheny Conference on Community Development – a founding partner of the Power of 32 – to be the communications conduit for the fund. The Allegheny Conference has the resources to manage the process but Getty says that rival economic development agencies were somewhat suspicious of a fund that the Conference would lead.
Source: Pittsburgh Regional Alliance
It has been an article of faith that there aren’t enough pad-ready or shovel-ready sites in Western PA for some time. In truth, a number of government and non-profit efforts have improved the inventory of available sites over the past half-decade. Lou Oliva, who is executive managing director for Newmark Grubb Knight Frank’s Pittsburgh office, was part of the P32 team looking at the problem. He is one of those who feel the site inventory isn’t a dire problem at the moment but said that his concern was that the efforts to create sites in the past weren’t as effective as they could have been. “I don’t know that there is a lack of sites right now. But if you look at the public money that went to various IDC projects, you have to ask was that money well spent,” he asks. “Did [the decision] take market factors into consideration? Were developers and brokers involved in meetings trying to prioritize where the money should go?” The Claude Worthington Benedum Foundation is a major sponsor of the Power of 32 and the Benedum’s president, William P. Getty, co-chairs the steering committee. He recalls those economy team meetings and the early indications that the idea might have traction. “For the site fund, the economy team came up with two main ideas,” Getty
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explains. “The region clearly needed more pad-ready land. It was a broker, Lou Oliva, who said that if there were a fair, honest process to identify the best sites that have the right characteristics to attract the kinds of companies that would hire regionally and have regional impact, and the regional economic entities would be willing to market the sites because they would recognize the regional economic benefit, then a site fund made sense. From that second, everybody jumped on board.”
It has been an article of faith that there aren’t enough pad-ready or shovel-ready sites in Western PA for some time. In truth, a number of government and non-profit efforts have improved the inventor y of available sites over the past half-decade.
“There were three very parochial county commissioners involved with the Power of 32 who I was meeting with one night. We were sitting at dinner and they asked, what about this site fund,” Getty recalls. “They were suspicious of how it would work so I explained that there would be a process to identify the best sites that would have regional impact. One commissioner said that if she thought it was really an honest and transparent process, she would support it even if her county didn’t have any of the sites. That’s when I thought, this idea has real power.” With that kind of broad support, the P32 Site Development Fund was introduced in the second half of 2013. The Pittsburgh Regional Alliance (PRA) is the point for communication and administration of the proposals. CH2M is the consultant hired to evaluate the sites from an engineering and constructability perspective. A Market Advisory Team will review the site proposed to identify the most suitable and strategic properties. Callay Capital LLC has been retained as the fund manager and has the experience with its sister company, Pentrust Realty, to assemble multiple parties into a funding mechanism. The Site Development Fund is a private loan fund that will support development of speculative, shovel-ready sites by financing horizontal construction only. The Fund is initially limiting the sites to 20 acres or more to help with the challenges of developing large industrial parcels given the topography of the 32-county region and the history of much of the industrial land. An emphasis is being placed on Brownfield sites. The Fund will invest up to
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50 percent of the cost to prepare land with loans ranging from one million to ten million dollars. “We’re looking at the marketability of the site, revisiting the original criteria of site selection,” explains Josh Lavrinc, CEO of Callay Capital. “Engineers want to know if there’s access to highways, rail and utilizes but is it a site that is in demand. Were it not for the gap in funding the costs of preparing the site, would there be vertical construction there?” In the marketing of the Fund, it is being described as a ‘patient’ loan fund. It’s also a fund that will likely produce returns that will be conservative. While there are patient, conservative private investors out there, the investor for the P32 Fund is more likely going to be an entity that has a stake in the region’s success beyond the return on the cash itself. “It will be investors looking for ‘double bottom line’ returns,” notes Dewitt Peart, president of the PRA. “Foundations, banks, corporations, utility companies are the sorts of entities that invest in the communities where they do business.” Lavrinc echoes Peart’s assessment. “I expect charitable foundations, banks that have incentives or credits for community investments, energy companies that have an interest in indirect return from community development or other corporations looking to promote community development.” It is in the reach of what constitutes community that makes the P32 Site Development Fund different, if not unique. It is the intent of the Power of 32 leaders that the chosen sites have the potential to impact job creation and business growth well beyond county or metropolitan borders. It is somewhat difficult to even visualize what kinds of projects might fit that category were it not for the energy sector. The looming prospect of not one but two ethane crackers being developed within the 32-county region makes it easier to understand how such big projects will multiply employment and business growth downstream.
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“I met with Secretary of Commerce [Keith] Burdette in West Virginia and his feeling is that everything between Parkersburg and Beaver – you can basically just draw a line and there will be substantial development if both crackers are built,” says Lavrinc. “Energy isn’t the only sector though. It would be foolish to ignore the bird in the hand, the other clusters that are building, like information technology or mortgage servicing.” It is the natural gas industry’s development that offers the best opportunity for the type of large footprint development for which there are very few available sites. Stories are being quietly
“Energy isn’t the only sector though. It would be foolish to ignore the bird in the hand ...
told of million-square-foot users investigating sites along the Ohio River and users looking at locating along the I-376 backbone to be between Pittsburgh and the Akron-Youngstown area. These locations either lack sites or have sites that will require substantial investment to clean and prepare should a large user appear. According to De Peart, those are the opportunities that aren’t going to get to the brokers and developers to chase using the current site inventory. “We’re getting inquiries from site location consultants and we’re getting eliminated before it even gets to the brokers,” he explains. “The PRA tracks the reasons why we lost a project and the lack of real estate is still the number one reason. We have an analysis of where demand exists but there is no product. Right now demand is being driven by outside forces like petrochemical.” If the results of the initial round of site proposals are any indication, the cycle of economic growth is still too early to have land developers and economic
development agencies understand what is viable. P32 accepted applications for suitable properties on October 8, 2013. There were 29 applicants – a number that the Fund expected to be higher – and a fair number of those simply weren’t complete enough to act further. The good news is that the Fund does not intend to use deadlines to eliminate projects. “In the first round of applications they needed more information from a number,” Lavrinc says. “There was concern that those who didn’t get approval lost but it was just the initial round and P32 will be open for business every day. It’s not a competition with a due date so those applicants can resubmit with more information.” There is still time from the investment side of the P32 Fund as well. According to Josh Lavrinc, the securities documents for the fund are still being finalized so no official investments have been made as yet, although he says there is significant interest and commitment from a number of organizations. The goal for the Fund’s initial round is $40 million. All the parties involved in the P32 Fund still expect to close funding by the end of the first quarter. Assuming that transpires, loans for the first projects identified could begin processing before mid2014. Having $40 million in site development funding available will help developers and business attraction professionals deal with some of the obstacles that make industrial development very difficult in this part of the northern Appalachian region. To meet the demands of real estate development on the scale that is desired, however, the P32 Fund will have to grow and be leverage for public development grants. “It’s not the complete answer to solving this problem. It’s just one more tool in the tool box we can use to bring projects here,” reminds Peart. “We have to work with all the other tools to bring business to the region.” DP
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Voices NAIOP Pittsburgh's Hall of Famers Weigh In on the Economic Impact of the Proposed Ethane Cracker Thomas J. Murphy Retired, CEO Jendoco Construction
Louis V. Oliva, SIOR Executive Managing Director, Newmark Grubb Knight Frank
Gregory P. Quatchak, P.E. Founding Principal Civil & Environmental Consultants, Inc.�
“The d e c ision to procee d with a n ethane cracke r in Monaca w i l l certain l y enhan c e comme rcial de v e lopmen t in the re g i o n . F i r s t , i t w i l l p ro v i d e constr u c t i o n j o b s wh i c h a l w a y s help a n a re a . Second l y, n e w p e o p l e e n t e r t h e area re q u i r i n g h o u s i n g d e v e l o p ment a g a i n p ro v i d i n g j o b s i n t h e housin g s e c t o r. F i n a l l y, i t h a s freque n t l y b e e n re c o g n i z e d t h a t each n e w j o b e n t e r i n g a n a re a will su p p o r t f o u r t o s i x j o b s i n t h e service a n d s u p p o r t s e c t o r s o f t h e econom y. T h i s w i l l t a k e t h e f o r m of rest a u r a n t s , s h o p p i n g c e n t e r s , theate r s , p ro f e s s i o n a l o ff i c e s , a l l contrib u t i n g t o c o m m e rc i a l d e v e lopmen t i n t h e a re a . A l l c o n c e r n e d should b e e n c o u r a g e d t o p ro c e e d with th i s p ro j e c t . “
“Based on all of t h e i n f o rmation p ro v i d e d t o d a t e by n u m e ro us s o u rc e s re g a rd i n g the positive economic impact of an e t h a n e processing facility, the p o t e n t i a l investment by Shell (or a n y o t h er related company) of an e t h a n e cracker plant in the Pittsb u r g h region should be a catalyst f o r a s i gnificant amount of ind u s t r i a l property development in o u r re g i on. Manufacturing is the k e y c o m ponent to real economic g ro w t h and the thought of seeing a l l o f o ur investments in site dev e l o p m e nt and infrastructure made i n a n d a round the Airport corridor u t i l i z e d by food processing, apparel m a n u f a cturers, packaging, medi c a l p ro d ucts and other industry v e r t i c a l s that should benefit by the f e e d s t o ck produced by the ethane c r a c k e r is extremely exciting for a l l o f u s in this region! I always h o p e d I would live long enough to e x p e r i e nce a boom period in Pittsb u r g h a nd this may be the first real o p p o r t u nity! As my professional c a re e r s tarted with the demise of t h e s t e e l industry, I would like to e n d m y professional career watch i n g t h e proliferation of new manu f a c t u r i n g facilities throughout the re g i o n ! ”
“Civil & Environ mental Consultants, Inc. (CEC) has already experienced the growing needs for industrial and commercial real estate from downstream industries within the Marcellus and Utica Shale natural gas plays. We have been assisting clients in evaluating properties and completing site planning and development for equipment assembly and laydown, materials handling and other light industrial type activities supporting their natural gas operations. In addition, we have provided complete design and entitlement services for new office buildings for gas companies and their downstream suppliers. The ethylene cracker plant proposed by Shell at the former Horseheads Resources Plant in Beaver County will exponentially increase the need for real estate development to support the downstream and upstream petrochemical industries. For example, I have read that the construction of the ethylene cracker plant will require hous ing for 5,000 construction workers over a 3 year timeframe. The real estate development needs associated with the temporary construction and permanent petrochemical industry investments in our region will be a major component of our next industrial boom.”
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James Scalo President Burns & Scalo Real Estate Services “The impact will be substantial. This will drive development along the largest sub market - the Parkway West. It will include the Airport Authority land and private land. The impact will be multiplied with the infrastructure connecting the Parkway to I-79 in 2019.“
Ronald J. Tarquinio Owner TARQUINCoRE, LLC
606 Liberty Avenue | Suite 300 | Pittsburgh, PA 15222 412.261.2200 | www.LWEre.com
“A decision to proceed with the cracker will certainly be a good thing for Pittsburgh. There shouldn’t be any doubt about that. But there is a lot of information that we don’t have about what the impact will actually be.” “It would be helpful to probe other markets where these kinds of projects were built to see what kind of commercial properties were needed to service them. In other markets where this happened, how many square feet of office space was needed. We have a certain number of hotel rooms in the marketplace; how many more rooms will be needed? How many apartment units are needed and does the demand disappear after construction is completed? What kind of industrial projects will follow a new cracker and what size should we expect them to be? Getting this kind of information from others who experienced a project like the cracker would be very useful to help guide development. This will attract a lot of interest in Pittsburgh from all over the country. If it were up to me, I would ensure that our lenders and regional leaders probed in to these questions and I’d make sure we didn’t overbuild.” DP
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News from the Counties
ing the second half of 2013. The Armstrong County Industrial Development Council (ACIDC) sold lots within their industrial parks, leased space within their Class A multitenant facility, provided financing assistance, and utilized state funds to construct pad-ready sites.
Armstrong County Armstrong County Armstrong County Department of Economic Development Northpointe Technology Center Center II 187 Northpointe Boulevard Freeport, PA 16229 724-548-1500 (T) 724-545-6055Â (F) Michael Coonley, Executive Director mpcoonley@co.armstrong.pa.us www.armstrongidc.or Economic growth in Armstrong County was tied to several success stories dur-
In December 2013, Projectile Tube Cleaning, Inc. completed construction of their 10,000 square foot facility in the Manor Township Business Park. The new building will allow the company to meet a growing customer demand. With the sale to Projectile Tube Cleaning, Inc., the Manor Township Business Park is now fully occupied with tenants that include: Nutrition, Inc.; Steve's Auto Body, Inc.; Projectile Tube Cleaning, Inc; the Pennsylvania National Guard; and a senior citizen housing complex featuring 73 condominium units. R.E.D. Mantini LLC purchased Lot 36 in the West Hills Industrial Park to develop a new Pennsylvania State Police Barracks in Armstrong County. Occupancy is expected in early 2015. Also in late 2013, the ACIDC learned that their application for a Keystone Opportunity Expansion Zone (KOEZ) designation was approved. The newly-designated KOEZ is available at Northpointe and the West Hills Industrial Park. Pad-ready industrial www.developingpittsburgh.com
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Armstrong County (continued)
Beaver County
sites and a new retail/commercial area at Northpointe are within the zone in addition to all of the remaining acreage at the West Hills Industrial Park. Additionally, the KOEZ designation was added to several school facilities in Armstrong County that recently closed or are scheduled to close. The designation should help in the efforts to repurpose these facilities.
Beaver County Corporation for Economic Development 250 Insurance Street, Suite 300 Beaver, PA 15009 724-728-8610 (T) 724-728-3666 (F) James Palmer, President jpalmer@beavercountyced.org www.beavercountyced.org
The ACIDC is the lead economic development agency within the County and provides a single-point-of-contact service for information pertaining to all economic development and business related resources in Armstrong County. Operating four industrial parks, a multi-tenant office building and other properties, the ACIDC is tasked with presenting new or expanding businesses a wide range of options to guide their relocation, expansion, or initial location decisions. The ACIDC works directly with companies to identify sites and assists with financing, permitting and workforce development needs.
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T he Beaver County Corporation for Economic Development (CED) completed a more than $1,000,000 earth-moving project as part of its continued expansion of the Hopewell Business and Industrial Park, located at Exit 48 off I-376. The project involved moving more than 200,000 cubic yards of earth as part of creating an additional fifteen acres at the site. To date, the Hopewell project has become home to ten projects employing over 1,500. Currently all improved property at the site is either sold or under agreement.
CED approved loans for two manufacturing projects in November, consisting of $200,000 in direct loans from its Business Development Fund. The projects will create or retain fifteen jobs with total capital investment of $400,000. Chalmers and Kubeck (C&K), one of the largest independently owned machine shops in the United States, announced its purchase of the former Armstrong World Industries’ site in Beaver Falls. Armstrong ceased production of building products at the site three years ago. C&K provides valve sales and service, a full service CNC machine shop, pump repair with testing, and a full field services department. The company will invest over $3.5 million to acquire, renovate, and equip the facility, creating fifty-three jobs within three years of beginning operations in Beaver Falls. In December Beaver County was host to the Beaver County and Southwest Pennsylvania Manufacturing Community Roundtable, partnering with the Obama Administration, the U.S. Environmental Protection Agency, the Commonwealth of Pennsylvania, and regional economic development leaders. The Roundtable convened local government, regional organizations, state government, federal agencies, private sector organizations including manufacturing leaders, and philanthropic and non-profit organizations. Its purpose was to promote publicprivate and intergovernmental partnerships focused on revitalization of localities along the Ohio River for a resurgence of manufacturing jobs. Approximately 150 attended.
Butler County Community Development Corporation of Butler County 112 Woody Drive Butler, PA 16001 724-283-1961 (T) 724-283 3599 (F) Ken Raybuck, Executive Director kraybuck@butlercountycdc.com www.butlercountycdc.com The Community Development Corporation of Butler County (CDC) finalized three deals in 2013 - the sale of the former Trinity Building, the sale of 10,000 square feet of office space at the Pullman Commerce Center and the sale of sevenand-one-half acres at Victory Road Business Park.
Fayette County Fay-Penn Economic Development Council 1040 Eberly Way, Suite 200 Lemont Furnace, PA 15456 724-437-7913 (T) 724-437-7315 (F) Michael A. Jordan, Jr., Executive Director michaelj@faypenn.org www.faypenn.org During 2013 the projected new business development due to the expansion of Marcellus Shale and other energy and advanced manufacturing and support businesses is overwhelmingly favoring positive economic growth in Southwestern Pennsylvania. Fay-Penn Economic Development Council (Fay-Penn) is working to develop and provide additional sites to support business
Greene County Greene County Industrial Developments, Inc. 300 EverGreene Drive Waynesburg, PA 15370 724-852-2965 (T) 724-852-4132 (F) Don Chappel, Executive Director donchappel@gcidc.org www.gcidc.org
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The former Trinity Building site at the Pullman Center Business Park Expansion (PCBPE) is now home to Johnstone Supply, an HVAC wholesaler. The 30,000 square foot building provides them with both showroom and warehouse space. UAW Local 3303, which serves employees of AK Steel, purchased 10,000 square feet of office space at the Pullman Commerce Center, also located at the PCBPE. The property at the Victory Road Business Park is located in a Keystone Opportunity Zone and will be the new home of Kerry Manufacturing, who will erect a new manufacturing building on the site. Contact the CDC at (800) 283-0021 or kraybuck@butlercountycdc.com for office or industrial space.
development initiatives, thereby creating new sustainable jobs. In the past few years, Fay-Penn has been successful in providing business site and location assistance to fifteen gas and gas-related companies alone and the inquiries continue to come. As a result, more than 100 acres of land have been sold, and Fay-Penn was able to immediately accommodate the location of seven companies leasing a total of 47,000 square feet in single and multi-tenant building space. The gas industry activity not only offers significant job opportunities and new private investment, it also creates a great need to develop new location sites and buildings for immediate occupancy. In an effort to address that shortfall, Fay-Penn has
G re e n e County Industrial Devel o p m e n t s Inc. received great news w i t h t h e announcement of a $1.5 m i l l i o n R edevelopment Capital Ass i s t a n c e Grant to aid in the phase f o u r c o n struction of EverGreene Te c h n o l o gy Park near Waynesburg. A c t i v i t y i n the Park was robust in t h e s e c o nd half of 2013 with four p ro j e c t s taking shape.
Butler’s Centre City project, which includes a new Marriott Springhill Suites Hotel and Rite Aid Pharmacy, continues to move forward. Developer J.S. Capitol Construction has agreed to acquire additional property in 2014 to build a much needed parking garage. Cranberry Township has four commercial projects over 100,000 square feet currently going through the planning process. These include the new Penguins training facility plus 190,000 square feet of office at the same site; a 100,000 square foot addition to Cranberry Business Park; and an additional 125,645 square feet at Ehrman Square.
developed a ten-year industrial development strategy, which includes the acquisition and development of additional business parks and construction of several new speculative buildings offering flex space (either single or multi-occupant). Advanced manufacturing remains an extremely important, high valueadded industry for Fayette County. It is evident in reviewing the trends of companies that have moved into or expanded within Fayette County business parks over the past decade, that having a strategically located property with accessibility to rail and air service, four-lane highways, existing and sufficient infrastructure, along with shovel ready sites is a key driver of new business development as it pertains to manufacturing in Fayette County.
Irwin Car & Equipment purchased two acres in EverGreene Technol ogy Park to construct a new distribution warehouse and will employ twelve people. Construction began in January 2014. Red Cedar Brown Partners LLC from Chicago purchased 14.8 acres in EverGreene in mid-December to construct a new building to house FMC, a Fortune 500 gas and oil
Greene County (continued) compa n y. T h i s i s t h e f i r s t o f two pro p o s e d b u i l d i n g s f o r t h e site an d e a r t h m o v i n g b e g a n the las t w e e k o f D e c e m b e r. T h e projec t w i l l e m p l o y t w e n t y - f i v e people w i t h a n i n i t ia l $ 4 m i l l i o n investm e n t . R.G. Jo h n s o n C o m p a n y I n c . moved i n t o t h e i r n e w 3 5 , 0 0 0 square f o o t b u i l d i n g i n E v e rGreene Te c h n o l o g y P a r k i n e a r l y Decem b e r. T h e p ro j e c t i s a $ 5 million i n v e s t m e n t o n s e v e n acres o f l a n d a n d w i l l e m p l o y twenty - f i v e p e o p l e . R . G . J o h nson co n s t r u c t s c o a l m i n e s h a f t s and do e s re p a i r w o r k a n d h a s been a c o a l m i n e re l a t e d b u s i ness fo r n e a r l y a c e n t u r y. Permit s w e re f i l e d a n d re c e i v e d for ear t h m o v i n g t o d e v e l o p a ten-a c re p a d - re a dy s i t e i n EverGre e n e Te c h n o l o g y P a r k . The bi d f o r t h e w o r k w i l l b e l e t in Janu a r y w i t h a t i g h t s c h e d u l e for a M a y c o m p l e t i o n . Bayles E n e r g y L L C , a s u b s i d i a r y of IMG M i d s t re a m o f Ya rd ley, pro p o s e s t o b u i l d a s m a l l 20-me g a w a t t n a t u r a l g a s - f i re d power p l a n t i n G re e n e To w n ship. B u r n i n g g a s p ro d u c e d l ocally, i t w i l l s e r v e a b o u t 1 3 , 0 0 0 homes , c o s t b e t w e e n $ 1 5 a n d $20 m i l l i o n , a n d t a k e a b o u t nine m o n t h s t o c o m p l e t e g i v i n g it a 20 1 5 t a r g e t f o r c o m m e rc i a l operat i o n . The Gre e n e C o u n t y M e m o rial Ho s p i t a l F o u n d a t i o n p l a n s to buil d a 4 5 , 0 0 0 t o 5 1 , 8 0 0 square f o o t re c re a t io n c e n t e r on 7.6 a c re s o f v a c a n t l a n d along O a k v i e w D r i v e i n F r a n klin Tow n s h i p . T h e y e x p e c t t h e buildin g t o b e l a r g e e n o u g h t o contain a n i n d o o r s o c c e r f i e l d , basket b a l l c o u r t s , f i t n e s s c e nter, an d m u l t i - p u r p o s e ro o m s that co u l d b e u s e d f o r a e ro b i c s and ed u c a t i o n a l p ro g r a m s t o benefi t t h e c o m m u n i t y.
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Indiana County Indiana County Center for Economic Operations 801 Water Street Indiana, PA 15701 724-465-2662 (T) 724-465-3150 (F) Byron G. Stauffer, Jr., Executive Director byronjr@ceo.co.indiana.pa.us www.indianacountyceo.com Indian a C o u n t y o ff e r s f a s t - t r a c k e d develo p m e n t a t f o u r K e y s t o n e O pportun i t y Z o n e ( K O Z ) d e s i g n a t e d busine s s p a r k l o c a t i o n s : t h e I n d i a n a County C o r p o r a t e C a m p u s l o c a t e d at the i n t e r s e c t i o n o f U . S . R o u t e s 22 and 1 1 9 , t h e 1 1 9 B u s i n e s s P a r k along U . S . R o u t e 1 1 9 , t h e W i n d y Ridge B u s i n e s s & Tec h n o l o g y P a r k a t the int e r s e c t i o n o f U . S . R o u t e 4 2 2 and PA R o u t e 2 8 6 , a n d t h e I n d i a n a County – J i m m y S t ew a r t A i r p o r t
Lawrence County Lawrence County Economic Development Corporation 100 East Reynolds Street Plaza South, Suite 100 New Castle, PA 16101 724-658-1488 (T) 724-658-0313 (F) Linda Nitch, Executive Director nitch@lawrencecounty.com www.lawrencecounty.com The pa s t i s n o t a l w a y s p re d i c t i v e of the f u t u re b u t i n t h e c a s e o f e c o nomic g ro w t h i n L a w re n c e C o u n t y, all ind i c a t o r s p o i n t t o t h e c o ntinued ro b u s t i n t e re s t o u r c o u n t y witnes s e d i n 2 0 1 3 a s a h o t s p o t f o r uses re l a t e d t o t h e s h a l e g a s i n d u s try and m e t a l re c l a m a t i o n . L.S. Po w e r i s s e t t o g e t a p p ro v a l for a n a t u r a l g a s - f i re d e l e c t r i c i t y genera t i o n p l a n t o n a s i t e i n N o r t h Beaver To w n s h i p . T h e H i c k o r y R u n Energy S t a t i o n – a s i t w i l l b e c a l l e d – is ex p e c t e d t o g e n e r a t e t w e n t y five pe r m a n e n t j o b p o s i t i o n s , a whopp i n g 5 0 0 t e m p o r a r y c o n s t r u ction jo b s a n d w i l l e x p e n d $ 7 5 0 m i llion in i n v e s t m e n t s . T h e p l a n t w i l l have a 9 0 0 - m e g a w a t t c a p a c i t y a n d will pro v i d e a m u c h n e e d e d s o u rc e of low - c o s t p o w e r.
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B u s i n e s s Park located adjacent to a n e w 5,500 foot runway. Parcel s i z e s c a n be customized from as s m a l l a s a couple acres to pad ready s i t e s i n excess of 30+ acres. I n d i a n a County also has a mix of i n d u s t r i al and office/flex buildings a v a i l a b l e for lease or sale, with s p a c e s ranging from 2,500 square f e e t u p to 200,000 square feet, m a n y o f which are designated with K O Z t a x incentives. C re p s United Publications is com p l e t i n g a 95,000 square foot stateo f - t h e - art printing plant operation o n a 9 . 4 acre site at the W indy R i d g e B usiness & Technology Park. G ro u n d breaking for the project o c c u r re d in March 2013 and ex c a v a t i o n and construction were f a s t - t r a cked with substantial project c o m p l e tion in December.
We a re working with several smaller m a n u f a cturers - either in the pro c e s s o f moving into an existing fac i l i t y i n the County or are building t h e i r o wn establishments – that are ( y o u g u essed it!) involved in either t h e n a t ural gas industry or recla m a t i o n . These businesses include: M a g n e t ic Lifting Technologies, P o r t e r s ville Valve, EnTech Industries, B e n We itsman’s Upstate Shredding, a n d R WE Holding Company. T h e C o unty is anticipating the L a w re n ce Downs Casino & Racing R e s o r t l ong-planned for Mahoning To w n s h ip along our border with the S t a t e o f Ohio. The proposal curre n t l y o n the table with PA Gaming C o n t ro l Board calls for the devel o p m e n t of a $225 million racing a n d g a mbling facility. The facility w i l l f e a ture a har ness-racing track; a b o u t 1,250 slot machines at openi n g ; a b out forty live table games a n d t e n poker tables; and surface p a r k i n g for 2,000 vehicles, accord i n g t o Penn National. Both Penn N a t i o n al Gaming Inc. and partner E n d e k a Entertainment LP have s u b m i t t ed proposals to the Com m o n w e alth to operate that gaming f a c i l i t y.
The Central Allegheny Challenger Lear ning Center project was announced in December, the first such education facility in Pennsylvania, which included a $1.365 million Redevelopment Assistance Capital Program (RACP) grant. The Indi ana County location will serve 22 counties. Planning is also underway for a STEM Institute (Science-Tech nology-Engineering-Mathematics). Please visit www.pachallenger.org. The Indiana County Center for Economic Operations (CEO) provides comprehensive information and re sources pertaining to e conomic and workforce development opportuni ties. Please visit www.indianacountyceo.com.
“If the proposed Lawrence Downs Casino and Racing Resort becomes a reality and hires the projected 1,200 full- and part-time employees, it would become the largest employer in the county,” said Dan Vogler, chairman of Lawrence County's board of commissioners, which has committed $50 million to the project. “This has been our No. 1 priority as a board of commis sioners because of the potential for significant economic impact for our county and neighboring counties,” Vogler said. Though we’ll keep our fingers crossed for the realization of Law rence Downs, we believe that our future growth involving the natural gas industry is not a matter of luck. The LCEDC, along with our county officials, have worked tirelessly to ensure that adequate manufacturing real estate is available to entice businesses to land here. This, along with lucrative financing incentives, have made Lawrence County an enviable target for new investment. Again, predictions are precarious to make but a positive future for Lawrence County throughout 2014 is a sure bet.
The Power to Prosper is right under our feet. Nature put Washington County, Pennsylvania at the center of the Marcellus Shale. It’s up to you to make the most of it. There is more energy to tap. There is more room to grow. There is more time to prosper. Join other Washington County companies and help shape the nation’s economy, energy security and clean energy future.
Put your company on top of it all.
www.washcochamber.com
Washington County Washington County Economic Development Partnership 20 East Beau Street Washington, PA 15301 724-225-3010 (T) 724-228-7337 (F) Jeff Kotula, President jeff@washcochamber.com www.washingtoncountyworks.com Washin g t o n C o u n t y f i n i s h e d a strong y e a r w i t h m a j o r e c o n o m i c develo p m e n t a n n o u n c e m e n t s i n t h e final q u a r t e r o f 2 0 1 3 . A l t a V i s t a Busine s s P a r k i n F a l l o w f i e l d To w n ship in t ro d u c e d t w o n e w d e v e l o p ments w i t h S c i e n t i f i c D r i l l i n g a n d Wauke s h a - P e a rc e I n d u s t r i e s c o m mitting t o t h e p a r k . A l s o i n t h e Monon g a h e l a Va l l e y, M o n R i v e r Indust r i a l P a r k , a f o r m e r W h e e l i n g Pittsbu r g h S t e e l s i t e , re c e i v e d a $1.5 m i l l i o n R e d e v el o p m e n t A s s i s-
Westmoreland County Westmoreland County Industrial Development Corporation 40 North Pennsylvania Avenue, Suite 520 Greensburg, PA 15601 724-830-3061 (T) 724-830-3611 (F) Jason W. Rigone, Executive Director wcidc@wpa.net www.co.westmoreland.pa.us In the s e c o n d h a l f o f 2 0 1 3 , We s t morela n d C o u n t y c o n t i n u e d t o attrac t b u s i n e s s e s a s i t s u n e m p l o yment r a t e w a s d o w n t o 6 . 7 % w h i c h is belo w t h e s t a t e a n d n a t i o n a l averag e s a n d h o m e s a l e s w e re u p – signs t h a t t h e c o u n t y ’s e c o n o m y i s on a d e v e l o p i n g c o u r s e . The av e r a g e p r i c e o f h o m e s s o l d i n Westm o re l a n d C o u n t y i n c re a s e d b y 4.6%, a n d t h e n u m b e r o f s a l e s ro s e by 10. 6 % re a c h i n g a l e v e l o f n e w housin g c o n s t r u c t i o n n o t s e e n i n the are a f o r a t l e a s t a g e n e r a t i o n . “Our j o b i s t o k e e p We s t m o re l a n d Count y o p e n f o r b u s i n e s s a n d I ’ m optimi s t i c t h a t w e c o n t i n u a l l y s t r i v e for all t h e r i g h t n u m b e r s w h e n y o u look to o u r f u t u re g ro w t h i n e c o 80 DEVELOPINGPITTSBURGH
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t a n c e C apital Program grant from t h e C o mmonwealth of Pennsylvania f o r i n f r a structure improvements. I n H a n o ver Township, the norther n t i e r o f t he county, the Washington C o u n t y Council on Economic Dev e l o p m e nt welcomed Lifting Gear H i re a s a new addition to their s u c c e s s f ul Starpointe Business Park. A l o n g t he Racetrack Road Corridor i n b o t h North and South Strabane To w n s h i ps, the Meadows Landing d e v e l o p ment announced construct i o n o f the Tri-State Surgery com p l e x w h i ch will house the offices o f Wa s h ington Ear Nose & Throat, Wa s h i n gton Health System Wom e n ’s D i a gnostic Center, the offices o f S o u t hwester n Gastroenterol o g y O n c ology Associates, Keystone A n e s t h e sia Associates and other p h y s i c i a ns’ offices. In addition, Wa s h i n gton Area Teachers Federal
n o m i c d evelopment,” said Commiss i o n e r Charles Anderson. T h e y e a r ended with notable highl i g h t s i n cluding Seton Hill Univers i t y ’s O c tober announcement of i t s n e w 60,000 square foot Health S c i e n c e s Center. The $21.5 million f o u r- s t o ry center will link to Lynch H a l l o n two levels within the camp u s a n d will include examination ro o m s , classrooms, laboratories a n d o ff i ce space for students in a v a r i e t y of majors who ear n degrees f ro m t h e university and the Lake E r i e C o l lege of Osteopathic Medic i n e p ro gram. I n N o v e mber, Ar nold Palmer Reg i o n a l Airport’s announcement that G re y h o u nd began service from the a i r p o r t i n Latrobe to downtown P i t t s b u r gh was a major broadcast c re a t i n g tremendous opportunities f o r t r a v elers in the region. T h e a l l - round industrial park suc c e s s s t o ry for 2013 may very well h a v e b e en Leedsworld. In Decemb e r t h e company announced its i n t e n t t o purchase another 22.585 a c re s a t the Westmoreland Business & R e s e a rch Park located in Upper
Credit Union and GetGo confirmed new facilities in Meadows Landing. Also along this gaming and entertainment corridor, three new hotels, including a new 155-room Hyatt Place by Meadows Hotel Associates LLC were either opened or announced in the fourth quarter. Finally, the Greater Washington County Region welcomed the opening of Mylan’s 280,000 square foot Robert J. Coury Global Center as well as the groundbreaking of AN SYS’ new headquarters building in Zenith Ridge of Southpointe II. In addition, the Washington County Chamber of Commerce and Wash ington County Tourism Promotion Agency announced their merger and consolidation to new offices located at 375 Southpoi nte Blvd., Southpointe.
Burrell and Washington Townships. Leed’s is a company known for its comprehensive line of promotional products. The company first located its operations in the county’s Busi ness & Research Park in July 1997 when they purchased twelve acres to construct an initial 100,000 square foot office and warehouse facility to house their eighty-five employees. Less than tw o years later, they increased their office/ware house facility by another 40,500 square feet. Since that expansion, the company has grown its opera tions to include a 200,000 square foot warehouse for distr ibution of products, a 39,000 square foot design center housing a variety of sales, marketing and other administrative functions, and over six acres of property for overflow employee parking alone. W ith the intent to purchase the last remaining “pad-ready” l ot within the industrial park, Leed’s plans to construct a new facility in multiple phases. “The first phase is currently anticipated to be approxi mately 200,000 square feet with roughly 20% that will be utilized for decoration operations and 80%
that w i l l b e u t i l i z e d f o r w a re h o u s e s p a c e , ” said D a v i d F a r r, C h i e f F i n a n c i a l O ff i c e r o f Leed’s . “ W h e n f u l l y b u i l t , w e a n t i c i p a t e total s q u a re f o o t a g e f o r t h e f a c i l i t y o f aroun d 5 0 0 , 0 0 0 s q u a re f e e t . ” T h e c o m p a ny ho p e s t o f i n a l i z e d e s i g n p l a n s a n d b e g i n const r u c t i o n o f t h e f i r s t p h a s e a s s o o n a s possib l e w i t h a g o a l o f m o v i n g i n t o t h e new f a c i l i t y b y t h e f i r s t q u a r t e r o f 2 0 1 5 . In add i t i o n t o t h e t w e n t y - t w o a c re s p u rchase d b y L e e d ’s , E a r l y A m e r i c a n P i t t sburgh , I n c . a n d t h e M o u n t P l e a s a n t G l a s s Museu m m o v e d o p e r a t i o n s t o M o u n t Pleasa n t G l a s s C e n t re i n M o u n t P l e a s a n t . Early A m e r i c a n P i t t s b u r g h , a f a m i l y - o w n e d candl e m a n u f a c t u r i n g c o m p a n y f o u n d e d by Elm e r a n d D o ro t h y B y r n e e s i n 1 9 6 2 , manu f a c t u re s m a n y t y p e s o f c a n d l e s i n a d dition t o s p e c i a l t y c a n d l e s f o r w h o l e s a l e r s throu g h o u t t h e c o u n t r y. M o u n t P l e a s a n t Glass M u s e u m , d i s p l a y i n g t h e h i s t o r y a n d produ c t s o f t h re e w o r l d - f a m o u s g l a s s m a n ufactu re r s t h a t o n c e o p e r a t e d i n M o u n t Pleasa n t , o p e n e d i t s d o o r s w i t h i n 1 , 5 0 0 square f e e t o f e x i s t i n g s p a c e o c c u p i e d b y O’Rou r k e C u t G l a s s . D P
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People & Events
NAIOP Ski Outing co-chair Bob Dezort from Anderson Interiors (center) with (from left) Brian Winfield, Jeff Kotula from the Washington County Chamber of Commerce, Washington County Commissioner Larry Maggi and Gene Pash of Value Properties. The 2014 event drew 110 skiers and revelers to Seven Springs on February 7. This year’s event was the largest in its history.
PenTrust’s Tyler Noland (left) with Brian Pukylo from First Commonwealth Bank at NAIOP’s ski event.
(Left-to-right) Kento Omuri and Felix Fukui of Fukui Architects with architect Roy Penner.
(From left) Louis Oliverio from Dinsmore & Shohl, James Murray-Coleman from Trammel Crow, HFF’s Kyle Prawdzik and Chris Minnerly from The Mosites Co.
Yaso Snyder from Mobili Office with Greg and Cindy Pfeiffer of Pfeiffer Holdings at CREW’s holiday dinner on January 14 at Lidia’s.
Ashley Hartman from Langan Engineering with PNC’s Autumn Harris at the CREW dinner.
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DEVELOPMENT (From left) NAIOP Pittsburgh board member Greg Quatchak from CEC, IKM’s Mark Witouski and Chic Noll from Desmone & Associates.
BROKERAGE
Jim McDunn from Citizens Bank with Emily Timko from RCx Building Diagnostics.
PROPERTY MANAGEMENT
Mary Jo Vicario (left) and Kelly from Derbish DraxxHall Management Corp.
www.developingpittsburgh.com
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Apartment Complexes Senior Living Facilities Condominiums Hotels
BNY Mellon’s Richard Schaich and Pamela Gill.
General Contractors Fast and safe execution with a clear cost benefit solution for our clients. Contact: Dave McMullen - dmcmullen@franjoco.com www.franjoconstruction.com 412-462-4371
Connecting ideas, capital and clients.
Andrea Lepore from MBM Contracting and BNY Mellon’s David Danielson.
Grandbridge Real Estate Capital provides the vital link between complex market conditions and capital solutions. As a national full-service leader in commercial and multifamily finance, we combine our wide range of capital sources with a knowledgeable and experienced team to deliver results, deal after deal. our scope of services includes: -
Freddie Mac Program Plus® Seller/Servicer | Seniors Housing Fannie Mae DUS® FHA-insured Loans | MAP and LEAN Nearly 50 Insurance Companies CMBS | Institutional Investors | Pension Funds Proprietary Lending Platform | Structured Finance $29 Billion+ Loan Servicing Portfolio
ContaCt Us Two Gateway Center | 603 Stanwix Street | Suite 1899 Pittsburgh, PA 15222 | Phone 412.391.3366 | Fax 412.471.1773 grandbridge.com Loans are subject to credit approval.
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(From left) Sarah Reigl of Meyer, Unkovic & Scott, Mimi Fersch and Kim Bolam from First American Title Insurance. Equal Housing Lender. | Spring 2014
LOWE’S HOME IMPROVEMENT HILTON HOME2 SUITES HOTEL DICK’S SPORTING GOODS HOMEGOODS TRADER JOE’S CINEMARK THEATRE L.A. FITNESS CVS/PHARMACY Panera Bread First Watch BoneFish Grill Longhorn Steakhouse WesBanco Bank Sportclips Phase IV Chipotle Mexican Grill The Residence at McCandless Crossing McCandless Town Center DoodleBugs Childcare Geico Insurance Verizon/Wireless Zone Opening Spring 2014 Handel’s Homemade Ice Cream Dibella’s Old Fashioned Subs in the North Hills of Pittsburgh Supercuts Nail Studio II www.adventuredev.com/projects/mccandless-crossing IHOP GNC
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Additional Development Opportunities Call Kevin Dougherty at 919.965.5661
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