EXECUTIVE SUMMARY 1600 PHILADELPHIA, PENNSYLVANIA
EXCLUSIVE MARKETING ADVISORS FINANCING INQUIRIES DOUG RODIO Senior Managing Director 484.532.4205 drodio@hfflp.com BRETT SEGAL Managing Director 484.532.4174 bsegal@hfflp.com JOSE CRUZ Senior Managing Director 973.549.2011 jcruz@hfflp.com RYAN ADE Managing Director 484.532.4209 rade@hfflp.com GRAHAM STEPHENS Managing Director 212.632.1806 gstephens@hfflp.com ANDREW WEIR Senior Managing Director 202.533.2504 aweir@hfflp.com BEN APPEL Senior Director 484.532.4214 bappel@hfflp.com MEGAN McGINNIS Associate 484.532.4177 mmcginnis@hfflp.com UNIVERSITY CITY 1600 market 76 30 TH STREET STATION RITTENHOUSE SUBURBAN STATION DILWORTH PARK PHILADELPHIA CITY HALL JFK PLAZA & LOVE PARK ON THE MOVE FALL 2017 1700 SUITE 3232 PHILADELPHIA, PA 19103 HFFLP.COM
EXECUTIVE SUMMARY THE OPPORTUNITY Holliday Fenoglio Fowler, L.P. ( HFF ) has been retained on an exclusive basis to arrange the sale of 1600 Market reet (the Property, or the Asset, or 1600 Market ), an 825,968 square foot, 39-story Class A office tower in Philadelphia s thriving Central Business District (or CBD ). 1600 Market is a rare, Class A value-add opportunity to acquire and stabilize the Property by implementing a strategic amenity enhancement plan and targeted leasing effort aimed to capitalize on the building s superior Main & Main location in Market reet West, where ever-improving leasing fundamentals, including Class A, 12-month rent growth of more than 7.6% continues to bolster demand for the CBD s most institutionally desired submarket. 1600 Market reet has been anchored by PNC Bank s regional headquarters since 1996 and is currently 82.1% leased to a variety of legal, financial, consulting and professional service firms. PNC Bank currently leases 362,843 SF (43.9% NRA) at the Property which until recently, was scheduled to expire on May 31, 2021. PNC Bank amended its existing lease agreement such that on January 1, 2019, the tenant will downsize to 233,411 SF (28.3% NRA) in a rightsizing lease contraction that comes in tandem with a stabilizing lease extension that runs through May 31, 2031. The amended PNC lease agreement provides over 13 years of term from the Property s anchor and largest credit tenant. PNC s forthcoming give-back of 129,432 SF (15.7% of NRA) will contribute some of the most marketable high-rise space in Market reet West including four, full-floor availabilities on the Property s 28th 31st floors and two, large availabilities on the 2nd and 3rd floors that will be ripe for creative new tenancy or amenity enhancements. The new owner will benefit from over 12 months lead time to plan and implement the strategic repositioning of the Property from as-is condition to the top of the Class A competitive set. Implementing a tenant-focused amenity enhancement plan will position 1600 Market reet at the leading edge of its Class A competition. The increased tenant demand from over 3.8 million square feet of existing, expiring leases over 20,000 SF during 2018 & 2019 will drive competition and allow the new owner to push rents to new highs as the CBD s most desirable tenants as they compete for premium high-rise availabilities in Market reet West. 1600 PHILADELPHIA, PA 19103 ADDRESS 825,968 TOTAL FOOTAGE 22,000 SF AVERAGE FLOOR PLATE THIRTY-NINE (39) NUMBER OF STORIES 1983 / 1997 YEAR BUILT / RENOVATED 82.1% OCCUPANCY (AS OF 1/1/2018) 71.5% * ESTIMATED OCCUPANCY (AS OF 1/1/2019) * Estimated Occupancy as of 1/1/2019 is based upon HFF s Underwriting Assumptions which are further detailed in the Offering Memorandum. 1600 market street 3
1600 CURRENT YIELD WITH SIGNIFICANT VALUE-ADD POTENTIAL With nearly 13.5 years of remaining lease term to PNC Bank, the Property offers stable and predictable cash flow. The PNC Give-Back space located on floors 28 through 31 creates highly desirable and marketable large-block availability rarely seen on high-rise floors in the CBD. The Property s bullet proof location will generate significant interest from the most discerning retail and office users as large blocks of quality space are scarce in the Philadelphia CBD. 1600 Market reet s pending availability puts it in a prime position to draft off the the increased tenant demand from over 3.8 million square feet of existing, expiring leases over 20,000 SF during 2018 & 2019 will drive competition and allow the new owner to push rents to new highs as the CBD s most discerning tenants compete for premium high-rise availability at 1600 Market. Tenants IN THE MARKET 20,000+ SF 1.5M FEET 20 TENANTS 2018 2019 2.2M FEET 25 TENANTS 4 EXECUTIVE SUMMARY
EXECUTIVE SUMMARY anchor tenant commitment Rightsizing Provides ability and Mitigates Uncertainty 1600 Market reet is anchored by PNC Bank, N.A. (or PNC ) who has utilized the Property as its regional headquarters location since 1996. PNC Bank currently occupies 362,843 square feet, or roughly 43.9% of the Property s rentable area, across various floors including 7,276 square feet of ground level retail space with frontage along Market and 16th reets that currently operates as PNC s flagship bank branch downtown along with four, full-floor contiguous high-rise suites totaling 90,724 square feet prominently located on the 28th, 29th, 30th and 31st levels of the building. In connection with PNC s corporate downsizing mandate, the tenant recently signed an amended and restated lease agreement effective March 1, 2017 that will simultaneously right size its current building footprint from 362,843 square feet to 233,411 square feet at the end of 2018 and extend the lease term of its amended premises by 10 additional years to expire May 31, 2031. Excluding PNC s give-back space from the equation, the Property boasts an impressive 9.1 years of weighted average lease term and contributes more than 36% of the building s annual in-place income as of January 1, 2019. pncbank.com A2 A MOODY S CREDIT RATING S&P CREDIT RATING art Size Expiration Floors Existing Premises Nov-1996 362,843 SF 12/31/2018 LL, 1, 2, 3, 4, 6-11, 19, 21, 22, 28-31 New Premises Jan-2019 233,411 SF 5/31/2031 LL, 1, 4, 6-11, 19, 21, 22 1600 market street 5
T 20TH STREET 17TH STREET 16TH STREET 15TH STREET BROAD STREET 13TH STREET 12TH STREET 11TH STREET 1600 The Shops at Liberty Place LIVE-WORK-PLAY MENTALITY IGNITES REtAIL DEMAND IN WEST The dynamic live-work-play environments that are instrumental in shaping today s thriving Philadelphia downtown is also the catalyst that is now organically repositioning areas like Market reet West from prototypical business districts to vibrant mixed use consumer-centric environments. The Philadelphia CBD s burgeoning retail market is supported by surrounding neighborhoods and by 300,000± workers. The growth in tourism, conventions and cultural attractions, along with an expanding residential population in Center City, now generates high volumes of pedestrians on the streets day and night. Over the past decade, the number of retail establishments along with rental rates has been trending upward. The average daily foot traffic, in close proximity to the Property between the hours of 11am & 2pm, exceeds 2,700 people at any given moment, making the intersection of 16th and Chestnut reets (1 block from the Property) the busiest of any recorded location in Philadelphia. THE AVERAGE DAILY FOOT TRAFFIC, IN CLOSE PROXIMITY TO THE PROPERTY BETWEEN THE HOURS OF 11AM & 2PM, EXCEEDS 2,700 PEOPLE AT ANY GIVEN MOMENT, MAKING THE INTERSECTION OF 16TH AND CHESTNUT STREETS (1 BLOCK FROM THE PROPERTY) THE BUSIEST OF ANY RECORDED LOCATION IN PHILADELPHIA. ARCH STREET 15,181 CITY HALL 18,254 JFK BOULEVARD CHESTNUT STREET SANSOM STREET WALNUT STREET RITTENHOUSE 21,300 11,568 26,784 12,608 19,323 CHESTNUT STREET SANSOM STREET WALNUT STREET retailers WITHIN ONE BLOCK OF 1600 MARKET source: philadelphiaretail.com average daily pedestrian volume* by location 8 EXECUTIVE SUMMARY
EXECUTIVE SUMMARY COMPELLING GROUND FLOOR RETAIL UPSIDE The glass facades along west Market reet are changing. Rather than being reserved for banks and lobbies, many of the skyscrapers are adding food options to their ground floors. 1600 Market presents a new owner with a compelling opportunity to reposition 5,066 square feet of ground floor retail availability with frontage along Market reet. Dedicated outdoor patio space between the Property and Liberty Place at the Property s northwestern entrance present ideal space for a bar and/or restaurant tenant seeking coveted high volume foot and vehicular traffic both during, and after business hours. Additionally, the existing tenant mix at the Property affords this new retailer access to a preferred demographic with prime retail space that exists along one the busiest commercial and tourism corridors in Center City. Potential Ground Floor Retail IN THE PAST 12 MONTHS, EXCITING GROUND-LEVEL RETAIL HAS ARRIVED AT NEIGHBORING PROPERTIES ON, INCLUDING THE FOLLOWING: COMCAST TECHNOLOGY CENTER 1601 MARKET 1919 MARKET 1900 MARKET 1600 market street 9
1600 RAISING THE BAR ON potential AMENITIES 1600 Market reet benefits from its ongoing capital investment and institutional level management that has led to long-term tenant commitments highlighted by an average weighted lease-term of 9.1 years (excluding the PNC give-back space). This stability will allow for a new owner to focus on the amenitization of the Property specifically designed to attract Center City s growing millennial workforce. PNC Bank s low-rise, and basement level, give-back space presents the ideal area to add an amenity suite that will help the Property stay on the front lines of the competition on the battle for the City s most discerning tenants. STATE-OF-THE-ART FITNESS CENTER RECREATION/GAMING AREA SHARED CONFERENCE FACILITY COMMON AREA WIFI-LOUNGE DESIGNATED BIKE STORAGE GROUND LEVEL RESTAURANT 10 EXECUTIVE SUMMARY
O4 09 12 O4 09 12 Broad 36th reet Transportation Center lley sler Cir o utes 11, 13, 34, 36 R Aven ue of the Ar ts Juniper 13th Iseminger F awn 12th Sar tain EXECUTIVE Chestnut SUMMARY Walnut- Locust 12th-13th. Sansom 11 Darby Transportation Center 13 Yeadon/Darby CITY Walnut Walnut Transportation Center RITTENHOUSE Walnut- 34 61st-Baltimore AMTRAK service to 15th-16th. Locust 36 80th-Eastwick Baltimore and WASHINGTON Washington, DC Rittenhouse Sq 12th-13th 9th-10th. UNPARALLELED TRANSPORTATION AND CONNECTIVITY Spruce Spruce RITTENHOUSE 76 Civic Center Blvd Health Sciences Dr 33rd Con vention A v 23rd Ludlow Ranstead Chestnut 21st Locust Lombard Airport, Media/Elwyn, Fitzwater Clymer Wilmington/Newark subway, and regional train lines providing Albans immediate accessibility to the entire city and its surrounding suburbs. Amtrak s 30th reet Lines Catharine Kauffman Catharine, the third busiest stop along the nation s Northeast rail corridor, Webster is easily accessible via the Market reet subway, Webster only one block Christian Christian Montrose SEPTA Regional Rail Lines UNIVERSITY 24th 23rd Fulton 22nd 21st 20th Uber Mar tin 19th. 19th Dorr ance Cle veland 18th 17th 16th 15th. Mole Hicks Broad Lombard-South 15th City Hall Rosewood 13th. 11th. Jessup 11th Hall Clifton 10th Delhi P ercy Salter 8th. PATCO High Speed Line Schell Dar ien Pember ton Clymer Christian 7th 5th / Independence Hall Philadelphia benefits from a multi-modal, regional transportation system which offers exceptional WASHINGTON accessibility throughout the city SOCIETY and HILL suburbs. The Property s central CBD location provides irreplaceable access to all areas of Center City as well as the entire Philadelphia region. 1600 Market reet s ideal location places its tenants within a short walk to a number of award-winning restaurants and luxury retail. In South South addition to its extremely walkable location, the Property offers tenants convenient access to all major arterial roadways of the region, including Interstates 76, 676 and 95. 1600 Market is also walkable to multiple forms of public transportation, including numerous bus, from the Property. Randolph Pl Passyunk Av Reese Monroe Fitzwater Fulton Queen Kauffman 2nd S atio Napa t th r 33rd n er Con vention A v rk Surface Transit Routes Market-Frankford Line Broad reet Line and Trolley Lines (end of route) Regional Rail Lines PATCO High Speed Line (end of route) Subway Elevated Broad-Ridge Spur Tunnel reet Center City Subway Surface 76 AMTRAK service to New York, Boston, Montreal, Harrisburg, Pittsburgh and Chicago NJ Transit service to Atlantic City UNIVERSITY CITY AMTRAK service to Baltimore and Washington, DC 76 AMTRAK 30th reet Pennsylvania Ave 24th Benjamin Franklin Pkwy VINE ST EXPRESSWAY South 23rd 23rd 23rd 100 22nd 22nd Spring Garden 21st 22nd. Trolley Routes 10, 11, 13, 34, 36 21st Locust 21st Walnut Rittenhouse Sq Spruce Lombard Clymer Albans Catharine Kauffman transitchristian Montrose Fulton score 20th Uber Mar tin LOGAN Arch JFK Blvd 18th Ludlow 19th. Ranstead Chestnut SHOPS AT LIBERTY PLACE RITTENHOUSE 19th RITTENHOUSE Dorr ance Cle veland 18th Webster 17th 16th 16th Race-Vine Race SUBURBAN STATION 15th. 15th-16th. Mole Hicks Spring Garden Christian 15th City Hall Rosewood Broad Lombard-South Aven ue of the Ar ts Broad reet Line to Fern Rock Transportation Center Pennsylvania Convention Center Juniper 13th. 11th. Sansom Walnut 13th Iseminger Broad-Ridge Spur to Fern Rock T.C. 30 Jefferson F awn 12th Sar tain 676 Jessup 11th Hall Chestnut South Clifton Ridge Av Fitzwater 10th Delhi Catharine Salter Chestnut Hill East, Fox Chase, Lansdale/ Doylestown, Manayunk/ Norristown, Warminster, West Trenton Lines Chinatown P ercy 9th 9th-10th. SEPTA Regional Rail Lines 8th. PATCO High Speed Line WASHINGTON Schell Dar ien Spruce 6th VINE ST EXPWY Pember ton Clymer Christian 7th Webster Arch F RANKLIN WASHINGTON Spring Garden Randolph Pl Passyunk Av Reese 5th 5th / Independence Hall Monroe Fitzwater Fulton Queen Kauffman Spring Garden Vine PATCO High Speed Line SOCIETY HILL OLD CITY 2nd IMMEDIATE ACCESS TO SUBURBAN STATION AND THE SHOPS AT LIBERTY PLACE 2nd 95 95 100 walk score 96 bike score 1600 market street 11
1600 Market reet West contains approximately 72% of the Class A office inventory downtown and is home to nine out of eleven trophy towers in the Philadelphia CBD. Market reet West is comprised of over 28 million square feet of Class A office space and is widely recognized as the preferred location for office users in the Greater Philadelphia region. Through the third quarter of 2017, Class A office vacancy for the submarket was just 10.7% and Class A asking rents averaged $32.31 per square foot, setting a new high watermark for the submarket, an approximate increase of 9.4% over the trailing 36 month period. philadelphias PREFERRED SUBMARKET WEST TWO LIBERTY PLACE 1600 market ONE LIBERTY PLACE 1700 MARKET TECHNOLOGY CENTER CENTRE 15TH STREET 1515 MARKET 16TH STREET 1601 MARKET 1735 MARKET 1650 ARCH CENTER THERE HAS BEEN AN INCREASE OF 9.4% IN ASKING RENTS OVER THE LAST 3 YEARS. WEST CLASS A OFFICE STATS CLASS A HISTORICAL VACANCY & ASKING RENTAL RATES 28M+ TOTAL INVENTORY (SF) 72% CBD CLASS A INVENTORY $32.31 AVERAGE ASKING RENTS 10.7% DIRECT VACANCY 1.9M+ UNDER CONSTRUCTION (SF) 75% PRE-LEASED INVENTORY 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% $35.00 $32.50 $30.00 $27.50 $25.00 $22.50 $20.00 $17.50 $15.00 $12.50 $10.00 $7.50 $5.00 $2.50 $0.00 Direct Vacancy (%) Asking Rents 12 source: Costar TM EXECUTIVE SUMMARY
EXECUTIVE SUMMARY THE PHILADELPHIA SKYLINE IS GROWING. The 1,215 foot tall structure will be one of the 10 tallest buildings in the country WORLD CLASS NEIGHBORS THE COMCAST EFFECT 1600 Market is just two city blocks from the existing Comcast Center (completed 2008) and the neighboring Comcast Technology Center (under construction) where it is primed to directly benefit from Comcast s current and future economic impact. Slated for completion at the beginning of 2018, the Comcast Technology Center will be a $1.2 billion, 59-story, 1.5 million-square-foot tower comprised of 1.2 million square feet of trophy office space entirely leased to Comcast and a 220- key luxury Four Seasons hotel. The project is expected to add 2,800 additional jobs that pay an average salary of $100,000+ annually, all of which will be net new jobs to Comcast Corporation and Center City overall. Philadelphia can expect an influx of well-paid employees that will likely reside within the city limits and ignite significant economic expansion via spin-off office, residential and retail leasing demand across the Center City. 1600 Market is a stone s throw to the Comcast development and will no doubt provide the new owner with additional leasing demand as Comcast and its partners gravitate towards the CBD and continue to grow. TECHNOLOGY CENTER CENTER technology center $1.2B IN ESTIMATED TOTAL DEVELOPMENT 2018 ESTIMATED COMPLETION 1.2M SF OCCUPIED BY COMCAST 2,800+ PROJECTED JOBS 59 STORIES HIGH 1600 market street 13
1600 INSTITUTIONALLY MAINTAINED CLASS A+ ASSET 1600 Market is recognized as one of the premier CBD addresses along the institutionally owned and sought after Market reet West corridor. The Property s durable rent roll results from committed tenants who have found stability in the Property s institutional management, which has focused on long-term, sustained capital investment to keep the Property competitive in the eyes of Center City s tenants. Since 2005, ownership has invested more than $14.7 million into improvements which include a new fire alarm system (2005), a new 750 ton chiller (2007), and a three phase elevator modernization program (2010-2013) converting the building s elevator system to Destination Dispatch technology. Current ownership s institutional approach to the management and maintenance of the Property will leave little to no heavy-lifting for the new owner, allowing the focus to remain on Property amenitization. CAPITAL IMPROVEMENT TIMELINE $210,371 2003 $708,335 2004 $716,578 2005 $33,025 2006 $459,304 2007 $89,375 2008 IMPROVEMENT HIGHLIGHTS Fire alarm system replacement 750 ton RTU chiller replacement Destination Dispatch: Elevator modernization (3 Phases) Domestic water pump replacement Plaza waterproofing ONGOING UPGRADES Upgrade cooling tower controls and installing two new 350 ton roof-top chillers Common corridor upgrades $204,157 2009 $1,829,599 2010 $551,649 2011 $1,315,510 2012 $1,107,350 2013 $699,848 2014 $909,784 2016 $5,955,229 2017 ESTIMATE CLASS A ENVIRONMENT AT A SIGNIFICANT DISCOUNT TO REPLACEMENT COST $14.7 + MILLION Landlords have continued to push rental rates over the last 12-18 months for Trophy and Class A space throughout the Philadelphia CBD. Class A asking rents have surpassed the $30.00/SF threshold, specifically for buildings that have undergone recent capital improvement plans like 1735 Market reet, 1650 Arch reet, 1818 Market reet and 1700 Market reet. At the expected trade range, a new owner will be at a cost basis well below replacement cost and will be able to position 1600 Market reet as a leading competitor for tenants demanding cutting edge, highly amenitized office space, with a prestigious Market reet address. 14 EXECUTIVE SUMMARY
EXECUTIVE SUMMARY PROPERTY HISTORY 1600 Market reet was originally constructed in 1983 on the site of the former Fox Theatre at the intersection of 16th and Market reets. The property was developed by a prominent Philadelphia developer who commissioned Skidmore, Owings & Merrill as the architect for the speculative construction of the modernistic, 39-story glass-lined structure whose original anchor tenant was Provident Mutual Life Insurance Co. PNC is the product of the 1983 merger of two significant Pennsylvania banks: Pittsburgh National Corporation and Provident National Corporation, headquartered at 1600 Market reet. At the time, it was the largest bank merger in U.S. history. In 1996, the Property was renovated to redesign the lobby, street-level retail space and exterior facade of the Property s first floor. The major focus of the renovation was to transform the former arcade area into a grand lobby with increased retail space, while retaining the existing premium finishes including its granite flooring and Italian marble walls. The renovations were completed in January of 1997, and shortly thereafter, the Property hung signage designating the building as PNC Bank Center, its anchor tenant. SKIDMORE, OWINGS & MERRILL IS ONE OF THE LARGEST AND MOST INFLUENTIAL ARCHITECTURAL FIRMS IN THE WORLD. ITS WIDESPREAD USE OF GLASS IN ITS DESIGN WAS INFLUENTIAL IN THE MODERN GLASS BOX SKYSCRAPER. Burj Khalifa Dubai Time Warner Center New York City 1600 market street 15
1600 TECHNOLOGY CENTER 16 EXECUTIVE SUMMARY
EXECUTIVE SUMMARY 1600 market street 17
1600 EXCLUSIVE MARKETING ADVISORS FINANCING INQUIRIES DOUG RODIO Senior Managing Director 484.532.4205 drodio@hfflp.com BRETT SEGAL Managing Director 484.532.4174 bsegal@hfflp.com JOSE CRUZ Senior Managing Director 973.549.2011 jcruz@hfflp.com RYAN ADE Managing Director 484.532.4209 rade@hfflp.com GRAHAM STEPHENS Managing Director 212.632.1806 gstephens@hfflp.com ANDREW WEIR Senior Managing Director 202.533.2504 aweir@hfflp.com BEN APPEL Senior Director 484.532.4214 bappel@hfflp.com MEGAN McGINNIS Associate 484.532.4177 mmcginnis@hfflp.com 2017 Holliday Fenoglio Fowler, L.P., HFF Real Estate Limited (collectively, HFF), HFF Securities L.P. and HFF Securities Limited (collectively, HFFS) are owned by HFF, Inc. (NYSE: HF). HFF and its affiliates operate out of 24 offices and are a leading provider of commercial real estate and capital markets services to the global commercial real estate industry. HFF, together with its affiliates, offers clients a fully integrated capital markets platform including debt placement, investment sales, equity placement, funds marketing, M&A and corporate advisory, loan sales and loan servicing. For more information please visit hfflp.com or follow HFF on Twitter @HFF. ON THE MOVE FALL 2017 1700 SUITE 3232 PHILADELPHIA, PA 19103 HFFLP.COM