Project Development/Infrastructure/P3

Earlier this morning (June 3, 2025), I had the pleasure to moderate a panel at a Philadelphia Adaptive Reuse convening hosted by Bisnow.  My panel consisted of local/regional experts and was comprised of German Yakubow, President of Haverford Square Properties, Phil Balderson, CEO of Odin Properties Jason Scholl, President of LK Miller and Christopher Horch, Associate Partner JB&B.

The discussion initially focused on the various demand drivers for adaptive reuse in Philadelphia, including:

1. Large stock of older buildings;
2. Return to work mandates at many businesses including the City itself;
3. Availability of easier to adapt medical and industrial buildings;
4. Tenant preferences for character and a sense of history; and
5. Philadelphia’s 10-year, 100% real estate tax abatement fully applying to adaptive reuse

We also chatted about whether Philadelphia was in a unique position to capitalize on this type of adaptive reuse work with the panelists concluding that while Philadelphia was, in fact, NOT unique as compared to Boston, NYC, Baltimore or DC, the one thing Philadelphia does have at the moment that the other cities do not have is an ease of permitting and development approvals for older buildings and a lower cost of acquisition than the other cities. Ease of permitting was a bit surprising candidly to most in the audience as this is not often the case with the City, but the panel was unanimous in their praise of the City when it comes to adaptive reuse timing and approvals.

When asked to focus on the biggest surprises to avoid, our panelists were quick to remind the audience that despite what they may hear, it is very hard to reuse the systems infrastructure in older buildings and it is better to plan on a gut rehab of lighting, electrical and HVAC in your pro forma.  Sage counsel.  The MEP and GC on the panel further stated that it is better to roll with what the building has to offer and meet it there than fight what is there and force it to work.  In short, make sure your pro forma and your budget assumptions and scope adequately address lighting, HVAC and electrical at a minimum.

When reviewing what types of buildings they like to hunt for, our developers indicated that a square building with good window lines and access to light is what tenants are looking for so they tend to stay away from deep buildings with big cores and prefer industrial or old schools that tend to provide better floor plates than older churches and office buildings (which are tricky when it comes to running plumbing).

As far as costs go, I was a bit surprised to hear from all of the panelists that they are not overly concerned about tariffs and have been “ignoring the noise” that is coming out of DC regarding the on again/off again tariffs.  They acknowledged that construction costs have gradually increased since Covid, but they have not sky rocketed.  Their bigger concern was on longer lead time items on certain hard costs like cooling towers and switch gear that can still take up to 50 weeks to obtain and, in certain instances, getting the local utilities confirmation of specific times that lines would be run from the curb to the building, which can take multiple months rather than weeks.

All of our panelist were of the view that despite what might or might not come out of DC federally on energy efficiency and sustainability, that the customer is in fact interested in lower cost utilities and that owners are now focusing more and more on life cycle costing analysis of systems vs. using a simple payback period which fails to take into account future savings on energy consumption in an environment where utilities costs of energy are increasing 26% this coming summer.

Moreover, despite the de-emphasis federally on renewables and sustainability with the new Administration, all of our panelists agreed that their companies and their tenants all value efficiency and sustainable attributes of buildings, in particular when there is a return on investment for the installation – e.g., lighting, HVAC, building cladding that leads to less consumption of energy and therefore less cost to the tenant at the property.

Duane Morris has an active team of lawyers who have been engaged in the review and dissemination of real estate and incentives related alerts, blogs and advice on various topics. Please see our website for a few list of all available articles and blogs.

If you have any questions or thoughts, please contact Brad A. Molotsky, Paul Josephson, David Amerikaner or any of the Duane Morris lawyers you regularly engage with.

Last week I had the honor of moderating a super panel at the MidAtlantic Real Estate Journal and the Businesses Committed to Southern New Jersey Annual SNJ Commercial Real Estate Forecast in Mt. Laurel. The panel consisted of Joseph J. Aristone, EVP and Chief Revenue Officer of PREIT, David J. Fleming, Director of Engineering at Marathon, Dan McGovern, SVP at CBRE, Shimon Kanter, Principal at SMK Storage and Kirk Miller, Sr. Director at Cushman Wakefield.

The key takeaways from the wide-ranging conversation included:

• Retail – there has been a flight to quality in the last 3 years; COVID sped up the disruption already occurring with at home purchasing habits but became a facilitator as well as it culled out some of the less well capitalized companies. Much of the strip retail continues to be held by private owners while the larger malls tend to be owned by the public companies. Rents in quality malls continue to be around $90-100 psf with rents in most Class A strip centers in SNJ being around $20 – $20 psf. Tenants are asking for better and more reserved parking closer to stores as amenities.
• Office – despite what you hear on the news and in the papers, office is far from dead; there has been a flight to well capitalized owners and the last 2-3 years have represented a super time to buy assets if you have some stones and equity capital. Office in SNJ which was dominated by the REITs during the early 2000s, is now predominantly owned by private owners. Rental rates for A product range from $21 psf to $25 plus electric in particular markets and have not moved much in the last 15-20 years, creating a squeeze on returns as costs to operate continue to increase. Vacancy has continued to reduce from 23% to approximately 15% in early 2025, a good sign. Tenant Improvement dollars continue around $25 psf for a 5-year deal and $40-50 for a ten-year deal with good credit. Tenants are asking for fitness centers, return of lobby cafes, walking trails and good property managers.
• Self-Storage – COVID created a bump in a marketplace already doing fabulously well and drove occupancy to the mid 90% with rents in the $1.50 psf range – unheard of previously. Currently there is a bit of backlash in suburban communities at the moment with occupancy trending down into the 80s and rents around $1.05 psf. Many projects have been done in SNJ by private owners while the REITs continue to make inroads in NJ. 1,200 buildings in NJ were built in 2023, a record for this product type; Expected deliveries in 2025 are down to a more manageable 300 buildings while suburban towns begin to push back on more deliveries. Tenants are looking for excellent lighting and safety.
• Industrial – it has been on an amazing 20+ year ride; however, the marketplace has been very volatile over the last 3 years; COVID created an occupancy bump and an increase in pricing for owners; this marketplace has moderated a bit in the last year plus with occupancy down a few hundred basis points but still in the low 90s. Most of SNJ product is now institutionally held by public companies and institutional owners. 2025 looks like a year to be a tenant with tenant improvement allowances of approximately $8 psf depending on credit but this is likely to be short lived as interest rates decline. Tenants continue to look for the 3 P’s – power, PILOTs (i.e., reduced taxes) and Public Utility availability.
• Construction – again, despite what you have been reading, there has been a lot of construction over the last 3-4 years with many having plans finalized and permits finalized to take advantage of hoped for reduction in interest rates later this year.
• Data Centers – continued growth in Southern NJ but access to redundant sources of power are slowing growth in this sector in NJ.

On the sustainability front, despite what the de-emphasis federally with the new Administration, all of our panelists agreed that their companies and their tenants all value efficiency and sustainable attributes of buildings, in particular when there is a return on investment for the installation – e.g., lighting, HVAC, building cladding that leads to less consumption of energy and therefore less cost to the tenant at the property.

Duane Morris has an active team of lawyers who have been engaged in the review and dissemination of real estate and incentives related alerts, blogs and advice on various topics. Please see our website for a few list of all available articles and blogs.

If you have any questions or thoughts, please contact Brad A. Molotsky, Paul Josephson, David Amerikaner or any of the Duane Morris lawyers you regularly engage with.