As it tries to navigate the challenges of COVID-19, Philadelphia-based PREIT, co-owner of the Lehigh Valley Mall, filed for Chapter 11 bankruptcy Sunday, a move it said will help it restructure.
On Oct. 14, the real estate investment trust entered into a Restructuring Support Agreement with its bank lenders. It said those banks have agreed to provide another $150 million to help PREIT recapitalize and extend its debt maturity schedule.
In a release, PREIT said the bankruptcy filing will help ensure that it can continue operations while it obtains necessary approvals for its financial restructuring plan.
“Today’s announcement has no impact on our operations – our employees, tenants, vendors and the communities we serve –and we remain committed to continuing to deliver top-tier experiences and improving our portfolio. With the overwhelming support of our lenders, we look forward to quickly emerging from this process as a financially stronger company with the resources and support to continue creating diverse, multi-use ecosystems throughout our portfolio,” said Joseph Coradino, CEO of PREIT.
The company will pay all vendors, suppliers and employees during the Chapter 11 process, he said, adding that the bankruptcy should not impact shareholders. PREIT’s common and preferred shares will continue to trade.
“We are pleased to be moving forward with strengthening the company’s balance sheet and positioning it for long-term success through our prepackaged plan. We are grateful for the significant support we have received from a substantial majority of our lenders, which we expect will enable us to complete our financial restructuring on an expedited basis,” he said.
It was a $2,000 bill for an overheated 10-by-10-foot room that led business partners Jonathan Epstein and Jim Seip to launch a new business with a product they’ve developed for commercial real estate managers – the Salamander Reservoir.
The partners are with Berger-Epstein Associations, an Allentown real estate development and management company.
They know the drill of prepping their properties for winter weather.
“Each fall, typically around November, property managers go into their sprinkler rooms to turn on/up the heat to prevent the risk of a sprinkler pipe freeze,” Epstein said. “Also, the same story in vacant spaces – gotta make sure the heat’s on so that the pipes won’t freeze.”
There are many problems with that, he said, especially for owners of a large number of properties who can’t always be on site. At one point Seip was managing 135 shopping centers and such maintenance issues were a big concern.
“At night I’d lay awake at night worrying about these things,” he said. “We hand it over to the guy who’s picking up the trash and depend on him to check on this for us.”
Once, he recalled, a manager left the heat set to 90 degrees in an office not much larger than an office cubicle. While it did keep the sprinkler system from freezing, it also led to a $2,000 heating bill for one month for Berger-Epstein.
They decided there had to be a better way for property owners to remotely manage the heat in a building to keep the important sprinkler systems from freezing and malfunctioning. There were already many remote property management systems available. “You can take the temperature, turn on the lights and open the blinds,” Seip said. But when they started looking more closely at the problem, they saw a gap in the data these systems were using to measure the amount of heat needed to keep sprinkler pipes functional should a fire break out.
The systems monitored the heat of the air of a room, just like a building manager would if he entered the building and checked the thermostat. “That’s always worked out pretty well, but it’s an incredible waste of energy,” Epstein said.
A better way was to measure the temperature of the water inside the sprinkler system’s pipes, he said. Water heats and cools slower than air and is a better data point to use to determine the temperature needed to keep the sprinklers’ water at the 45 degrees needed to ensure they don’t freeze.
“Since the air temperature is so volatile, using that as the threshold to initialize temperature is really using the wrong variable,” Epstein said.
That’s when they started developing the Salamander, a device that attaches to a sprinkler system as a reservoir and probe to monitor the temperature of the water inside.
They created a new business, JTJ Tech, to develop and market the new device and are now manufacturing it through third-party manufacturers in the Lehigh Valley. The Salamander Reservoir also works on dry sprinkler systems, Epstein said, they are just adapted to detect moisture leaks in a system – that can lead to failure – instead of the temperature.
The odd name for the product came from Seip’s son, Tyler, who is the T in JTJ Tech. He chose the name from the stories he’s heard about Salamanders surviving forest fires by burying themselves deep into the ground. With the device’s life-saving potential during a building fire, it seemed like the right fit.
The Salamander sells for under $1,000 per unit. A building would need one Salamander for each stand pipe it uses for a wet system and two for a dry system.
Epstein said the Salamander Reservoir system is now in use in most of the Berger-Epstein properties in the Lehigh Valley. All have gone through one winter season to prove their effectiveness in the real world.
The partners’ goal is to sell 25 units to other real estate investment firms in the region so that they can get testimonials from other REITS and get the product out to a wider market for next winter.
Real estate in Pennsylvania is rebounding now that in-person showings and sales are again allowed after being halted because of the COVID-19 pandemic.
But while sales numbers shot up in May over April, showing a pent-up demand, sales in the Lehigh Valley were still down about 25% compared to May of last year.
Joan Docktor, president of Berkshire Hathaway Home Services Fox & Roach Realtors, which has a 12-county footprint around the Philadelphia market, said it wasn’t the industry closure impacting May sales but extremely low inventory.
Docktor said by the end of May real estate sales in Pennsylvania had nearly caught up to the sales in nearby states that kept sales going through the pandemic.
But housing inventory was down 23% over May of 2019, which was already a period of low housing inventory for the Lehigh Valley.
She said the lack of inventory, however, has been caused by many factors, not just COVID-19 and that may take the local real estate industry longer to recover from.
“We don’t see any way for that to recover in the near future,” she said.
She noted that there was only a two month supply of inventory of homes in the Lehigh Valley market, which means if not another house came on the market in the next two months, theoretically every house would sell.
Normally, there would be a six month supply of housing inventory in the Lehigh Valley.
In the Lehigh Valley there were 1,946 homes for sale in May as compared to 3,486 in May 2019. Berks County had 77 homes for sale in May compared to 139 in May 2019.
According to the BBHS Fox& Roach HomeExpert Market Report, the number of properties sold in in the 12-county greater Philadelphia region during May was down 45.7% from this time last year.
Overall there were 4,779 homes sold in May 2020, compared to 8,796 sold in May 2019.
In the Lehigh Valley 301 properties were sold in May, a decrease of more than 60% from the 838 sold in May 2019
In Berks County only four homes sold were sold in May as compared to 32 in May 2019, a decrease of more than 87%.
While Docktor said it is a strong sellers’ market, many homeowners are hesitant to put their homes on the market.
She said a large source of inventory has traditionally been senior citizens downsizing to 55+ communities, smaller homes and condos.
“Right now the prices of these smaller homes and condos are more than their single-family home, so they’re staying put,” she said.
With those seniors staying put, there’s nowhere for smaller homeowners to move up to and they are keeping their homes too, making it harder for first-time homebuyers to enter the market.
Also, she said the number of investment properties is also high. People bought second homes to rent when prices were low during the last recession.
Those owners are still able to rent those properties out for fairly profitable amount and are still making money, so are unlikely to let them go during this economy.
For those properties that are on the market, prices are higher with most sellers getting asking price or higher.
Average sale prices are up by 5% across the 12-county region, with May 2020 average price at $304,895 compared to $290,315 in May 2019.
In the Leigh Valley the average sales price was $213,789 in May compared to $208,000 in May 2019
In Berks County the numbers are slightly skewed with only four properties sold. The Multiple Listing Service has an increase of 273.6% over the year prior with an average value of $820,000 compared to $183,950 in May 2019. There, the disparity is likely caused by the sale of one expensive home.
But make no mistake about it, home prices are up – even if mortgage prices are at near record lows – and people are willing to pay.
She said there have been many instances where there have been up to 10 offers on one property.
“That leaves nine families without a house and there aren’t nine other houses for them to buy,” she said. “It’s frustrating for all these buyers that find the house of their dreams but miss out.”
She said anyone interested in a home should start out with the last and best offer. Now is not a time where they’re going to find their bargain dream home.
But overall, she said the real estate industry is definitely looking up after a dismal couple of months.
She pointed to a recent survey by the National Association of Realtors that showed even in the wake of the COVID-19 pandemic 75% of people would still attend an open house for a property they are interested in, even if open houses are still on hold in Pennsylvania.
Docktor said the bottom line is that the demand is there.
“People are willing to look at houses. People are willing to sell houses and houses are selling,” she said.
Alvernia University moved a step closer to making its ambitious CollegeTowne project in downtown Reading a reality.
University officials selected the Lancaster County-based firms RLPS Architects and Warfel Construction to design and renovate a property at 401 Penn Street in downtown Reading.
The five-story building, which formerly was home to CNA Insurance and more recently to I-LEAD Charter School, will include classrooms and labs, loft-style student housing, dining facilities, retail outlets and other operations, and serve as the centerpiece of the CollegeTowne initiative.
Alvernia plans to base its business, e-sports, communications and engineering programs there. It also will be home to a student-centered business incubator to be run by the university’s rebranded O’Pake Institute for Economic Development and Entrepreneurship.
Dr. Rodney Ridley, associate provost and vice president and chief executive officer for the O’Pake Institute, said the business incubator will partner with various economic groups that will work together to promote entrepreneurship and business growth.
The idea, Ridley said, is to help jump-start the downtown economy.
“What happens is that now you have college students living downtown, and you need restaurants and coffee shops and entertainment,” Ridley said. “And you begin to make this economic engine start happening.”
A three-building 380,000-square-foot portfolio of light industrial buildings on Cascade Drive in Hanover Township, Lehigh County has been sold to an investor for $26.7 million.
Michael Hines, Brad Ruppel, Brian Fiumra and Lauren Dawicki of CBRE National Partners of Upper Macungie negotiated the sale to the Brennan Investment Group on behalf of the seller, which was a joint venture between the Magellan Group and Drake Real Estate Partners.
“Even during these unprecedented times, we are seeing a demand for functional infill space and no or minimal price adjustment,” Michael Hines vice chairman of CBRE said in a press release. “The sale of the Lehigh Valley light industrial portfolio further proves the desire to own in the Lehigh Valley.”
The buildings, 100, 202-208 and 212 Cascade Drive are near the Lehigh Valley International Airport and FedEx Ground’s Lehigh Valley Distribution Hub. All three are currently fully leased.
It’s not the news real estate agents in Pennsylvania were hoping to hear.
Governor Wolf’s office tells Lehigh Valley Business that he intends to veto House Bill 2412, which would declare the real estate industry as a life sustaining business.
Pennsylvania is the only state with a ban on most in-person real estate, however some activity has been allowed in counties that have been declared “yellow” zones in the governor’s COVID-19 reopening plan.
All but 18 counties will be under the yellow designation by next Friday. Lehigh, Northampton, Berks and Monroe counties are among those that will remain as red zones. Carbon County and York County will, however, be moving to yellow.
The Pennsylvania Association of Realtors had lobbied against the phased reopening of real estate in the state saying it would cause confusion and chaos in real estate transactions being conducted between areas in differently zoned counties.
A bill to declare real estate as a life-sustaining business in Pennsylvania is heading to Gov. Wolf’s desk for signature after being passed by the state house and senate.
House Bill 2412, introduced by Rep. Todd Polinchock, R-Chalfont, would allow for some level of in-person real estate in every county in Pennsylvania.
Pennsylvania is the only state with a ban on most in-person real estate, however some activity has been allowed in counties that have been declared “yellow” zones in the governor’s COVID-19 reopening plan.
“We’re pleased to see that state House members reaffirmed their support of House Bill 2412, recognizing that shelter is essential and real estate is life-sustaining,” said PAR President Bill Festa. “The Pennsylvania Association of Realtors’ 35,000 members and their clients strongly urge Gov. Wolf to sign this bill and allow consumers to buy and sell homes.”
The PAR is encouraging the governor to sign the bill, which they have been strongly advocating for.
Festa noted that any in-person real estate activity would follow Centers for Disease Control guidelines for safety and social distancing.
He had previously stated that the industry was not expecting to go completely back to normal anytime soon and that activities such as open houses would not be held for the foreseeable future.
Despite restrictions on real estate and the fact that most retail stores are shut down because of the coronavirus pandemic, Colliers Bethlehem office said it has sold the Bethlehem Village Shoppes to an investment buyer in Bucks County for $4.5 million.
The multi-tenant open-air shopping center is at 3650 Nazareth Pike in Bethlehem Township.
The shopping center has retail, service and professional tenants including Painting with a Twist, Mitzi’s Table, Kumon, Revolution Styling, H&R Block, Atlantic Aquatic and the Northampton County Court of Common pleas.
All of the tenants have agreements in place with the new owner.
“This sale of an open air, neighborhood shopping center in the middle of the coronavirus pandemic uncertainty is notable for the teamwork and flexibility of all the parties: seller, buyer, brokers, attorneys, lender, title company, and environmental consultants,” said Jeff Algatt, senior vice president in Colliers’ Capital Markets | Investment Services group in a release. “It also shows the investment market for shopping centers is not dead, but alive and adapting to the new normal.”
W.C. Weiss of Equis Commercial Real Estate in Doylestown represented the buyer. Financing was arranged through QNB of Quakertown.
Real estate agents in Pennsylvania aren’t giving up their fight to have their industry declared life-sustaining so real estate sales can resume statewide. Pennsylvania is currently the only state banning most in-person real estate activity.
The Pennsylvania Association of Realtors is urging the General Assembly to pass House Bill 2412 by Rep. Todd Polinchoc, R-Bucks, or Senate Bill 1135 by Sen. Lisa Boscola, D-Northampton, that would recognize real estate as a life-sustaining business and allow agents to return to work.
While some real estate activity will be allowed soon in the 37 counties that will transition to “yellow” in the governor’s “red” “yellow” and “green” stage reopening plan, Chris Raad, president-elect of the Pennsylvania Association of Realtors in Lemoyne, said that’s not enough and could even lead to more problems.
“There’s a lot of inconsistency in the governor’s orders,” Raad said. “The issue is what is happening with the fractured reopening… It creates chaos”
Under current conditions, a seller in the Lehigh Valley buying a house in the state’s northern tier, could buy the house, but not sell their own, he said. Agents throughout the region are frustrated by their inability to sell and rent property under the current orders.
“It’s been horrible,” said Andrea Decker, former president of PAR and associate broker with Berkshire Hathaway Home Services Fox & Roach Realtor’s Coopersburg office. “I’ll have a client call me and say ‘Andy come sell my home.’ People don’t understand. Consumers are confused.”
Tejas Gosai, a realtor with Century 21 Keim Realtors in Allentown, said the shutdown has created a hardship for both clients and agents.
He has clients that range from those desperate to move, looking to escape domestic violence situations, and stuck in hotels because their home sale can’t be completed.
It’s also been rough on Realtors who rely solely on sales commissions for their income and have not had sales for nearly two months.
Gosai created a GoFundMe campaign to raise money for those affected by the shutdown of real estate, both for clients in bad housing situations and agents facing a financial crisis. He’s only raised about $1,100 of his $500,000 goal, but said it was raising awareness of the issue.
“Guidelines for in-person real estate should be consistent with other professions and allow at least four people in a property, while practicing social distancing,” PAR President Bill Festa said.
Radd said Realtors understand that it won’t be business as usual, there won’t be open houses, for example, for a long time. But, he said his association feels showing homes to one person at a time – especially a vacant property – presents much less risk than other activities that are allowed.
“We know we can do this safely,” said Raad.
One positive note, said Decker, is that when real estate activity does resume there will be a demand.
“I’m very optimistic that we’ll all be very busy,” she said.
A Lehigh Valley real estate agent is launching a business brokerage firm. Tejas Gosai and his team, who work for Century 21 Keim Realtors in Allentown, have formed Lehigh Valley Business Brokerage to help consult and assist businesses in the valuation and the sale of their businesses.
Gosai said he originally planned to launch the full-service business brokerage firm in December, but decided to hold off until spring, and then the coronarvirus pandemic hit.
He decided to go ahead with opening the business because there is still a great deal of consulting work that can be done now, to prepare businesses for when they are able and ready to sell. He also noted that some transactions that don’t involve real estate can be conducted even under the current restrictions.
While the brokerage will handle all varieties of businesses, Gosai said with his ethnic heritage he has many contacts in industries that are traditionally owned by the Indian population, so he will specialize in hotels, gas stations and small markets.
Lehigh Valley Business Brokerage will work with tax advisers, CPAs, financial advisers, attorneys, law firms, auditing firms, physicians, and industry-specific advisors to streamline the process.
The building that formerly housed Hackman’s Bible Book Store, a well-known faith-based book store that operated in Whitehall for 70 years before closing in 2018, has a new owner.
The 19,000-square-foot property was purchased by Dave Dooley, owner of EZ Micro Solutions, a Whitehall Township IT provider, who will renovate the building that housed Hackman’s for 30 of its 70 years and relocate his IT business there.
The property was purchased from Bible Fellowship Church Homes, which purchased the vacant property in 2019, but put it back on the market after its plans changed.
Two Hanna Frederick Commercial Real Estate Realtors handled the transaction. Joseph McDermott represented Dooley and Randy Beitler represented Bible Fellowship.
Riverview Bank handled the financing.
Dooley closed on the sale April 30. The agreement of sale was signed prior to the March 6 deadline set by the state, which allowed the transaction to proceed.
The Pennsylvania Association of Realtors is throwing its support behind House Bill 2412, sponsored by Todd Polinchock, R-Chalfont, that would reopen the real estate industry as a life-sustaining business.
“Real estate is an essential business and we believe we can practice safely under CDC guidelines,” said William Festa, president of PAR.
He noted that real estate is not a high contact industry. “We meet a few people at a time,” he said.
PAR is not recommending business as usual. While it can’t control what individual firms do, it would caution against such things as open houses. Festa said the association has a task force in place that is putting together a standardized guide on how it’s best to operate once the governor lifts the order issued on March 19.
Kim Shindle, PAR’s director of communications, said most states are allowing real estate sales to continue, which causes another set of problems for Pennsylvania Realtors and those looking to move here from other states.
“There are some people who may have sold a home in another state and can’t settle on their home in Pennsylvania,” Festa said. “There are a lot of people carrying two mortgages. There’s a lot of economic distress.”
PAR also sees inconsistency in Gov. Wolf’s red-yellow-green plan to re-open the state gradually. PAR wants real estate opened uniformly.
“Otherwise we’re creating a lot of confusion,” Shindle said.
The governor’s plan creates challenges if buyers in red regions are looking to buy in green regions – or the other way around, she said.
“Allowing real estate services to be conducted in one county, while those in a bordering county are unable to do so, simply isn’t practical,” added Festa. “The phased reopening would provide housing relief to some Pennsylvanians, while prohibiting others’ ability to gain shelter.”
In the meantime, Festa said the industry is doing what it can. Sales are off between 75% and 80%, but a few have gone through. Such sales have been rare and complicated because vital components of a sale, such as home inspections and appraisals, aren’t allowed.
“A buyer would pretty much have to waive everything, but some have,” he said.
A study by the National Association of Realtors show that home sellers are holding steady and there hasn’t been any major decline in home prices during the pandemic. Prices are holding steady in Pennsylvania as well, Festa said. The properties just aren’t selling.
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