After homegrown firms have gone it alone for years, local real estate and economic development professionals welcome the growing interest from outside companies.
For-profit firms First Industrial Realty-Trust of Chicago, Verus Partners and Higgins Development Partners of Rosemont, Ill. and others have entered the market within the past few years, buying properties and constructing buildings for sale or lease.
“We’ve never had that many private developers,” said John Cognetti, president of Hinerfeld Commercial Real Estate in Scranton.
First Industrial through NAI Mertz of PA is shopping around a nearly 250,000-square-foot building in the Grimes Industrial Park in Pittston Township. Higgins is building a 400,000-square-foot distribution center in the Schuylkill County portion of the Humboldt East Industrial Park near Hazleton. Verus has a 248,640-square-foot building under construction in Hanover Township. Floor to ceiling, the interiors of these buildings climb close to 40 feet to accommodate storage racks.
“These guys only invest in areas that they think are hot or are going to be hot,” said Jim Cummings, president of Penn’s Northeast, a regional economic development organization with public and private members.
Taking the temperature of the region and conveying it back to banks helps investors get funding, said Stan Mullin, president of the Society of Industrial and Office Realtors in Washington, D.C.
The only way these companies can get the money is “if they can convince the banks that tenants, users want to be here,” said Mullin of Newport Beach, Calif.
As the Lehigh Valley and Northern New Jersey areas fill up, companies are looking to sites in the northern section of the Interstate 81 corridor that stretches from Hazleton to Scranton.
Sites with infrastructure such as utilities, roads and rail sidings sell for about $50,000 an acre here compared to $100,000 to $200,000 in the Lehigh Valley and between $400,000 and $600,000 in Northern New Jersey, Cummings said.
It’s not that land in the other regions is almost gone, but “there is certainly more of a constraint” on it, said Gene Preston, a senior vice president with Higgins in Morristown, N.J.
Recession spurs outside firms
In the past chambers of commerce bought land for industrial and business parks and firms such as Mericle Commercial Real Estate Services and Sordoni Construction Services Inc. put up buildings as part of the plan to attract national companies and bring jobs to the area.
Cognetti, with nearly 30 years in the real estate business, pointed to the recession of 2000 as a reason for the outside interest. Then, he said, people “took money out of the stock market and put it in real estate.”
Today that investment is turning up in both new and old buildings, in the industrial and business parks and towns and cities in the region.
The former state Department of Labor and Industry building on Highland Park Boulevard is one of the properties Hinerfeld has listed. The asking price for the 47,000-square-foot building is $4.2 million and it is in a prime location in the Wyoming Valley’s fastest growing commercial area, Cognetti said.
He said he’s optimistic the building and land will be sold and noted the sales of other retail properties.
“All of the major shopping centers in the area changed hands in the last five years,” he said.
In a piece recently published in the NJPA Real Estate Journal, Cognetti wrote of burgeoning industrial activity in the region comprised of Luzerne, Lackawanna, Monroe, Wayne, Pike, Susquehanna and Wyoming counties.
Demand for buildings for logistics and distribution operations is strong, he said in the article. So is the need for manufacturing facilities.
“The bottom line is that not only because of demand, but add the increase in construction costs, values are increasing for new and existing buildings and existing industrial land values are beginning to make us blink,” Cognetti wrote.
Cummings too has noticed the increased interest. Prospect activity is up by 15 percent from last year. Out of that, 55 percent have been manufacturing prospects.
“The vast majority of them want to build new buildings or go into new buildings rather than retrofit (existing buildings),” he said.
Some of the older structures just can’t handle the warehouse/distribution center functions of some companies. On average, logistics centers in the region cover 450,000 square feet. They range in size from 100,000 square feet to 1.5 million square feet, Cummings pointed out.
Ceiling height is equally important, so they can mount high rack systems for storage. Companies want ceilings 30 feet or higher. They “won’t look under 24 feet,” he said.
Costs make area appealing
Higgins’ building meets the specifications for a distribution center and fits right in the area where other firms have either located or are looking at. The area “is viewed as being very attractive by companies that occupy large warehouse buildings,” Preston said.
Like others Higgins is constructing what’s known in the industry as a speculative or “spec” building, one without a tenant right now but down the road a company will find it meets their needs and move in.
When deciding on a location, Higgins looks at a number of factors including the costs of labor, utilities and transportation, said Preston.
“With a lot of users nowadays, it’s not just location,” said Jeff Thomas, regional director of First Industrial’s Middletown office. “A lot of it does relate to labor and transportation and logistics.”
It’s no secret that companies want to have a business friendly environment, said Mullin. That includes low tax environments, no unions and low labor costs. There is a direct correlation to growth and states that are right-to-work, he said.
In addition to the Pittston Township property, First Industrial is building warehouse/distribution centers that have a combined total 2 million square feet in the Covington Industrial Park in Lackawanna County. The park is located near Interstate 380.
The company has received good feedback from its customers, Thomas said. They have been “pleasantly surprised by not only the labor supply, but the quality of the labor.”
That’s been the case for Verus Partners as well, said Chris Broccolo, who is in charge of marketing and leasing for the company.
“It’s been a good market for us. There’s a very good demand for the type facilities that we’re doing,” he said. The company’s property can handle a number of uses from distribution to manufacturing to assembly, he said.
The more success outside companies have here, the more other national companies will want in, added Thomas. He likened it to a “herd mentality” where one follows the other.
First Industrial plans to do more, he said.
“As long as we’ve had operations in the area, we have no doubts as to whether we should be there or not,” said Thomas.
-Courtesy of The Times Leader
