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King of Prussia wears the crown

May 27, 2016

Source The Philadelphia Business Journal Natalie Kostelni

The section of Upper Merion has seen an unprecedented number of commercial property transactions over the past five years.

Roseview Group of Boston began looking for office properties in primary and secondary markets across the country in 2014, and it wasn’t long before it zeroed in on Philadelphia as one of the areas to invest in.

“We have a list of requirements that we need to hit before we buy a property,” said Steve G. Corridan, a partner in the real estate company. “It has to have lots of new residential, continued job growth and an educated workforce. It has to be an 18/7 type of market.”

Roseview’s focus soon turned to King of Prussia and it entered the market with a $21 million purchase of 211 S. Gulph Road, a 102,204-square-foot office building. “It was more the market than the building itself,” Corridan said.

Corridan is among those investors, many from out of state, who have made buying commercial real estate in King of Prussia a focal point. Since 2008, $906 million has been spent snapping up office, retail, apartment and flex properties as well as raw but approved, developable land in King of Prussia, according to Montgomery County property records and its planning department. For the most part, it’s been on steady upward trajectory over those years but last year was a standout when it came to transactions. In all, $230 million in commercial real estate was closed upon. So far this year there have been eight such deals totaling $94 million.

“When I look at the landscape of the market, it’s flashing red lights in King of Prussia now,” said Peter Stevens, an investment broker with CBRE Inc. “It’s attracting investors who typically haven’t played in the market.”

Stevens attributed the torrid investment activity on several forces that have converged including the 155,000-square-foot expansion of the King of Prussia Mall that catapults it to the largest enclosed retail space in the country as well as the mixed-use development of the Village at Valley Forge.

“That has got the market buzzing,” Stevens said. “You have big, institutional investors and developers coming to the market and it shows the power of the market. You also have office building sales that are higher than you have ever seen in King of Prussia at more than $300 a square foot. That is rare air in the King of Prussia market.”

For example, 1000 Continental sold for $63 million and 1170-1190 Devon Park Drive for $63.5 million.

Swedesford Road, a portion of which is in King of Prussia and Tredyffrin, is where a significant segment of office properties are located. Buildings along that corridor have traded at record-setting amounts such as CrossPoint for $89 million. There has been a tremendous amount of investor interest in other sites along Swedesford Road and areas flanking it.

Even smaller properties in the heart of the community are seeing price appreciation. In 2013, when Hector Viñas, a Florida developer bought 620 DeKalb Pike, he paid $1.9 million for what was an old gas station. He went through an approval process and developed the parcel with a building that houses Chipotle and other retailers and sold it for $8.5 million in 2014. A year later in 2015, it traded again for $9.9 million.

Rob Loeper, who heads up the planning department in Upper Merion, credits the uptick in interest in this part of the township to the mall and all of the retail development surrounding it.

“It’s one of the must-have retail locations in the United States in the retail world,” he said. “It has hit everybody’s radar.”

Viñas deliberately chose to buy and build along Route 202 in King of Prussia because of its proximity to the mall.

“It’s the No. 1 mall in the country. It does a tremendous amount of sales and our tenants want to be there,” he said. “Once we started working in that area, we really fell in love with the whole market.”

Other issues are influencing the rise in investment. For one, the King of Prussia District has been instrumental in marketing the area and raising its profile. The organization helped get passed in 2014 a new zoning district ordinance that permits dense, mixed-use development in an area in and around the King of Prussia Business Park and that has triggered more opportunity for developers.

While well off into the future and not yet a sure thing, a rail extension is proposed for King of Prussia that, as with most significant infrastructure improvements, has gotten the attention of some developers, even those who are speculating it could be a boon for the area.

Eric Goldstein, executive director of the business improvement district, also credits pent-up demand and capital resources carried over from the recession.

“These companies are looking for solid places to invest and because King of Prussia has national and international name recognition, they see it as a solid market and it’s a good investment vehicle for those who want to be in the market,” he said.