Category: Regional Economy

CMU Converting to Wind Power Could Set a Precedent in the Area

CMU Converting to Wind Power Could Set a Precedent in the Area

CMU Converting to Wind Power Could Set a Precedent in the Area

In September of 2019, Carnegie Mellon University announced a deal with Engie Resources for wind power from a 306 megawatt wind farm in Illinois. The deal is to last through 2024, and would power its Pittsburgh campus. This was a bold move towards sustainability and viability of variable renewable energy (VRE), and sets a precedent for other businesses and universities in the area. The move could potentially signal a paradigm shift towards institutional use of environmentally conscious infrastructure for new construction and renovations alike.

With all of this in mind, today we will discuss wind power 101, how other regions and countries have successfully implemented wind power, and ultimately how the recent CMU wind power deal could impact the local CRE landscape.

Wind Power: the Basics

Wind power is a type of variable renewable energy (VRE). The National Renewable Energy Laboratory (NREL) does not identify technical barriers to a grid running solely on VRE, but instead, many of the challenges come from capacity factors. A capacity factor is based on how much power a plant produces in comparison to its overall potential, and it is often based on how often a plan is running or generating power. A conservative estimate for the capacity factor for VREs, namely wind and solar, is around 50 percent.

When there is wind, there is power. On the other hand, nuclear power plants usually have over 90 percent capacity factor. In the long term, however, the resources being utilized will dwindle, which is why many businesses, cities, and states are moving towards either a mix of “clean” energy or, in the case of Carnegie Mellon University, 100 percent wind power.

Examples of Wind Power Around the World

Examples of Wind Power Around the World

As of March 2020, 60 percent of Germany’s energy came from renewable sources, the majority of which came from wind turbines. China and the US lead all countries with total wind power usage, clocking in at 221 GW and 96.4 GW respectively. Interestingly, Germany (the third highest wind power producer in the world) sets a far more productive example of using wind power the right way. Meanwhile, China’s ambitious wind farms have been reported to go largely unused.

This concept of wasted alternative energy hits home in the US. While many Americans support alternative energy over traditional fossil fuels, recent polls have also shown that Americans also fear alternative fuels are less efficient and costlier than the current energy infrastructure. Germany is also a great parallel for Western PA as a region in that Germany has traditionally depended on coal economically and for their energy needs.

German infrastructure has been updated over the past 10 years to adopt more alternative energy sources including wind power that made energy production more efficient, cost effective, and beneficial to the economy overall. Other countries including India, Spain, and the UK have all adopted wind power with mostly positive results.

Implications of CMU Using Wind Power in Pittsburgh

Implications of CMU Using Wind Power in Pittsburgh

That background information leads us to the simple question: will CMU’s converting to wind power have a material impact on commercial real estate in the Pittsburgh area? Unfortunately, as with many issues concerning alternative fuels and climate change the answer is less than clear. Here are a few factors and considerations that will likely come into play when it comes to wind power adoption in Pittsburgh.

  1. Will there be sufficient alternative fuel infrastructure? Businesses and other organizations with the intention of switching to an alternative fuel such as wind power is one thing. Having the available resources and/or infrastructure to make that change is another. The US might produce the second most wind power on earth, but it is primarily located in the Great Plains states.
  2. Governmental and public support. Again, converting to wind power is a very significant choice that requires available supply and infrastructure. The US currently gets slightly more than 7% of its energy needs from wind power. While this number is expected to rise, the future remains murky.
  3. Cost viability of wind power in Pittsburgh. The success of the wind power program at CMU may influence public opinion but investment in wind power in the near future will still depend upon return on investment. As CMU’s contract will run through 2024, we expect to see more detailed numbers over the next 4 or so years.

Implications of CMU Using Wind Power in Pittsburgh

Going Forward

Alternative energy sources become less “alternative” by the day. Some countries, including Sweden and Iceland, have committed to cutting fossil fuels from their energy creation entirely. Such a transition is harder to sell in places, like Western PA, where natural gas and coal are still significant economic drivers. There are ideological and political shifts which will determine the future of alternative power sources including wind energy. American institutions like CMU committing to 100% alternative power generation will certainly have an impact on public perception of such programs.

Second Phase of Major AHN Construction Project Nearly Complete

Second Phase of Major AHN Construction Projects Nearly Complete
Second Phase of Major AHN Construction Projects Nearly Complete

Allegheny Health Network, much like their latest business partners UPMC, have kept busy in recent years with commercial real estate purchases and developments. One of these development projects is a new emergency department in the Jefferson Hospital in Jefferson HIlls, PA. This project is just one of multiple renovations and new construction projects currently underway under the Allegheny Health Network Banner. Today, we will review the details of the AHN Jefferson Hospital project, discuss some other recent AHN commercial real estate deals, and end with how these projects might impact CRE in our local Pittsburgh region.

Details on the Jefferson Hospital Expansion Project

Details on the Jefferson Hospital Expansion Project

According to Commercial Property Executive: “Highmark Health and Allegheny Health Network have completed Phase I of the new emergency department of AHN Jefferson Hospital in Jefferson Hills, Pa. The project cost $21 million and expanded the existing facility by 34,000 square feet. During the renovations, the hospital’s helipad was also relocated to the roof of the structure. Phase II, which is expected to complete in May 2020, will consist of modernizing the current emergency department space.”

The AHN Jefferson Hospital is home to nearly 400 doctors covering over 40 areas of practice. The new emergency department will consist of:

  • 44 private treatment and observation rooms
  • 7 central nursing pods
  • A more modern and spacious triage area focused on privacy
  • Advance CT and x-ray capabilities
  • Trauma rooms
  • Rooms specially designed for behavior health assessments and treatments

The AHN Jefferson hospital currently cares for over 50,000 patients in the Lower Mon Valley and South Hills areas. This latest round of renovations comes on the heels of a $17.5 million investment into a new surgical suite.

Recent Allegheny Health Network CRE Investments

Recent Allegheny Health Network CRE Investments

While the AHN Jefferson Hospital upgrades are ongoing, they are certainly part of a larger effort being put forth by AHN to modernize and invest in their medical facilities. Here are some other recent examples.

AHN Constructing Harmar Hospital

AHN broke ground on a new Harmer Hospital location on October 5, 2018. The site is still under construction, but is expected to open this fall. Construction on the site was delayed for six months, but kicked back into full gear in July of 2019. The new Harmar Hospital will be located at the intersection of Freeport Road and Guys Run Road, near Zone 28 (formerly Fun Fest). The site will operate as an emergency hospital with additional services including imaging, inpatient care, and a multitude of lab tests.

AHN Construction on New Wexford Hospital

As of October 24, 2019, the final beam was put into place for the brand new AHN Wexford Hospital. The 160-bed hospital is expected to open in 2021. According to Cynthia Hundorfean, AHN CEO and President, “When Wexford Hospital opens its doors, it will be the most technologically advanced and patient-centric acute care hospital in western Pennsylvania.” The hospital is being built in response to the rapid growth in Pine Township and the surrounding areas.

AHN Waterworks Outpatient Center

On a smaller scale, Allegheny Health Network has also committed time and resources into developing outpatient centers for local residents. The most recent of these investments went into the AHN Waterworks Outpatient Center. The center employees ~35 workers, and includes:

  • Gynecologist/obstetrician appointments with full ultrasound capabilities
  • Orthopedic care provided by Allegheny Orthopedic Associates
  • Primary care for adults and children
  • Cardiology care including echograms
  • Diagnostics services including blood tests, MRI, CT scans, 3-D mammography, and more
  • Express care service for non-emergency healthcare with no appointment necessary

How Medical Construction Impacts Western PA Commercial Real Estate

How Medical Construction Impacts Western PA Commercial Real Estate

Allegheny Health Network has been investing heavily into the local community, but how does that impact the local Pittsburgh commercial real estate market? While the full breadth of these major CRE investments is far reaching, here are a few primary takeaways:

Investment in local healthcare drives the local economy. It is well documented that greater healthcare investments lead to greater economic health. This has been shown to be true on both large and small scales. As AHN and UPMC continue to invest and improve our local healthcare resources, the population gets healthier, jobs are created, and the overall quality of life improves. This creates a stronger economy which in turn has a positive impact on commercial real estate in the area.

Greater healthcare services serve our aging population. Pennsylvania, like much of the US, has an aging population. As a greater percentage of our local population is 65 plus, the need for healthcare services increases. AHN investing in hospitals and outpatient centers allows the aging population to remain in their current areas. This increases the demand for housing, retail locations, and commercial real estate overall.

AHN is choosing to renovate defunct retail locations. On a more specific note, AHN and other local healthcare providers have been more willing to renovate/repurpose spaces in dead malls and other retail locations. This could be great news for CRE investors sitting on vacant retail spaces. At the end of the day, any CRE investments from our regional healthcare networks should be a shot in the arm to the commercial real estate market overall.

Pittsburgh’s Tech Boom is Driving the Local Real Estate Market

Pittsburgh’s real estate landscape has changed significantly since the slowdown of the manufacturing and steel industry decades ago. The influx of technology giants such as Uber and Google has brought a rise in the demand for both commercial and residential real estate. The low cost of property relative to cities like New York and San Francisco has been attracting companies such as Duolingo, a language learning app that moved its headquarters to Pittsburgh and subsequently put up billboards in San Francisco in 2018 advertising, “Own a Home. Work in Tech. Move to Pittsburgh.” Although plenty of attention has been paid to the effects of the tech industry on residential real estate, not as much as has been placed on commercial real estate.

Today, we will try to connect the dots between the influx of high profile tech companies, trends in local employee behaviors, and how this new Pittsburgh business atmosphere is having a major impact on the local commercial real estate market.

The Current State of Pittsburgh’s Tech Boom

Most of us in Western PA have noticed the recent boost in high tech presence in our local regions. Splitting from our historical business ventures like steel and coal, Pittsburgh is becoming an affordable alternative for tech companies who are no longer willing or able to pay for spaces in Silicon Valley, San Francisco, and other bloated commercial real estate markets.

Much of this tech boom is reliant on the rich talent pool being churned out by local universities. In particular, computer science, robotics, and other high tech programs at Carnegie Mellon University are routinely ranked amongst the best in the world. In recent years, companies like Google and Uber have been working hard to keep these young tech professionals in the local Pittsburgh area after graduation. Those efforts are starting to pay dividends.

Today, there are significantly more jobs (approximately 41%) in research and development than there are in iron and steel mills. Pittsburgh is also experiencing attention from investors. “SoftBank Group Corp (9984.T) last year led a $93 million investment in Pittsburgh-based AI company Petuum. Innovation Works recently hosted 30 Chinese investors interested in robotics and health care start-ups.”

Office Spaces for Google, Uber, Duolingo, and More

While there are many players in the technological revitalization of Pittsburgh, there are a few key players who are leading the way.

Google has long made massive investments in Pittsburgh, particularly with their Bakery Square office spaces. The refurbished Nabisco factory is a fitting transition from the old to the new. Much like Duolingo, Google has actively pursued bringing tech talent to the Pittsburgh area to live and work in the East End.

Uber employs thousands of workers in the Pittsburgh area, which of course does not include the drivers themselves. Perhaps more importantly, Uber has selected Pittsburgh as a research center for self-driving cars. This move ties the ridesharing tech giant to our region for years to come.

Duolingo was founded and is currently headquartered in Pittsburgh. In December, Duolingo became Pittsburgh’s first tech “unicorn” when a fundraising round pushed the company’s value above $1 billion. Rather than going the route of other tech giants and selecting our region as an affordable alternative, Duolingo has always been committed to revitalizing the Pittsburgh area. Duolingo employs 200 workers in local offices.

The Impact of Tech Companies on Commercial Real Estate in Pittsburgh

Beyond the obvious connection of tech companies’ presence being an injection to the local economy, here are some concrete ways in which tech companies have impacted the local commercial real estate industry:

  • Office jobs are on the rise: commercial real estate value for office spaces have been increasing as tech companies continue to occupy more and more space. Thousands of jobs were added in the summer of 2019 as a continuing trend of higher occupancy rates for local office space.
  • Tech companies are investing in properties: not all CRE impacts are directly related to office spaces. For example, Uber recently purchased 600 acres of commercial real estate in Findlay County, PA. This space is going to be used for a self-driving test track for their latest vehicles.
  • Tech workers are driving occupancy in apartment complexes: large multi-family CRE complexes have been going up around the Pittsburgh area, particularly in areas like East Liberty, Lawrenceville, and South of downtown. These complexes are being built in part to accommodate a rising number of tech employees in our area.
  • More tech investment = more local wealth: last but not least, it is undeniable that tech dollars drive local economies. A strong local economy often means a strong commercial real estate market.

Going Forward

There are no signs that the trend of high tech companies choosing Pittsburgh will slow any time soon. An industry-wide trend of shifting away from California and other west coast markets towards traditionally affordable markets is driving the tech industry overall. Other cities experiencing similar growth include Nashville, TN and Austin, TX. The Pittsburgh commercial real estate market has responded in turn, focusing more on offering high scale amenities at premium prices.

What remains to be seen is whether any other large companies like Amazon will set up additional headquarters in our area. Regardless, the effort to keep local talent and recruit local talent to our area will certainly continue to have a major impact on our economy and real estate markets.

Construction Underway at Beaver Valley Mall

Recently, we discussed what commercial real estate investors were doing to solve the problem of America’s dead malls. As part of that article, one of the solutions which have effectively brought life back to struggling retail real estate is to invest in renovations or other related construction projects. The Beaver Valley Mall in Beaver County, PA has recently broken ground on a new construction effort. If successful, this revitalization could be a blueprint for other dying malls in the Western PA region.

Today, we will review some highlights of the Beaver Valley Mall, discuss the details of the newest construction project, and how this project might impact the local commercial real estate landscape.

CBRE Heads New Strip Mall Construction at the Beaver Valley Mall

Funded by commercial real estate giant CBRE, plans to redevelop a now-defunct Macy’s location are underway at the Beaver Valley Mall. The former site of a Macy’s megastore will be turned into a mini strip mall. This is part of a plan to redevelop large retail locations that were struggling in the region. This new mini strip mall is to be named The Shops at Beaver Valley Mall. JJO Construction started work on the first building in the fall of 2019.

As reported by timesonline.com: “The Shops at Beaver Valley Mall, which will include about 50,000 square feet of retail, office and service space with mall access available in various sizes. According to a CBRE press release, there will be nearly 27,000 square feet of retail space facing Brodhead Road. The Shops at Beaver Valley Mall will join other anchor tenants, such as JCPenney, Dick’s Sporting Goods, U-Haul, Rural King, Planet Fitness and Boscov’s.”

This is not the first renovation and/or construction effort that has recently taken place at the Beaver Valley Mall. Recent construction updates for restaurants and entertainment venues including escape rooms have been part of the shift away from large retail locations and towards smaller, more profitable business partners.

Beaver Valley Mall History and Current Climate

Beaver Valley Mall is located less than an hour north of downtown Pittsburgh. The location first opened in 1970 and boasts over 100 individual stores, a gym, restaurants, and is getting more involved in the entertainment space. Beaver Valley Mall is also dedicated to offering free programs and events for local community members and their families.

As with many American malls, Beaver Valley Mall enjoyed financial success through partnership with anchor tenants including JCPenney, Gimbels, The Joseph Horne Company, and Sears. The location of this latest construction, a now-empty Macy’s, is just one example of these retail giants struggling in the 21st century. Sears and Macy’s locations closed in 2016 and 2017 respectively.

Despite all of the hyperbole surrounding the detail of traditional retail, many malls remain successful. Recent history has shown that successful malls have been willing to make updates to both their facilities and their business model. With the recent backing of CBRE, Beaver Valley Mall is looking towards the future.

Following the Beaver Valley Mall Template

As a continuation of this point, Beaver Valley Mall is by no means in a unique situation. Other large, local malls such as Ross Park Mall, Monroeville Mall, and The Pittsburgh Mills, are all in relatively similar situations. In particular, the Galleria at the Pittsburgh Mills has an uncertain future. Despite promises by Mason Asset Management that renovations were high on the priority list, no action has yet been taken.

The four most recent tenants of the Pittsburgh Mills: Allegheny Health Network Citizens’ School of Nursing, Focus on the Arts, Chicken Connection, and Himalayan Salts Co, tell the story of a shift away from large retailers and towards alternative mall tenants. Many Western PA malls are considering what these new tenants might require from an infrastructure perspective.

Beaver Valley Mall is amongst the local commercial real estate leaders investing significant capital into their retail facilities. With backing from a well-financed organization such as CBRE and a commitment to investing in the space, local commercial real estate professionals and residents will be watching how this new construction effort pays dividends.

Going Forward

As all commercial real estate professionals know, there is not much room for waiting in this industry. As the retail space continues to evolve, so too will commercial real estate investors’ mindsets about malls and other large spaces. The process of revitalizing America’s dead malls is already well underway. In the local Western PA area, it remains to be seen which malls will be able to successfully adapt to a changing retail reality. The truth likely lies somewhere in between exaggerated reports of the demise of traditional retail and the rosy reports of modern retail evolutions.

The mall industry will need to adapt to changing consumer behaviors. Beaver Valley Mall is using a now-defunct mega-retail location as an opportunity to develop a location for multiple, smaller, more profitable tenants. Whether this investment will pay dividends remains to be seen. In either case, the success or failure of mall renovation projects will inform future decisions in our area.

Renovations have Brought the US Steel Tower Back to Prominence in Pittsburgh

The US Steel Tower, also referred to as the Steel Building and the USX Tower, has been a trademark of the Pittsburgh skyline since its construction was completed in 1970. The building is now also known as the UPMC building, and has a long history of importance to the Pittsburgh people, identity, and economy. Recent renovations have breathed new life into the now 50-year-old building. Office spaces in Pittsburgh have become more decentralized in recent years with tech companies like Google and Uber electing to headquarter outside downtown offices.

With all of this in mind, today we will review the recent work being done on the US Steel building and what impact this might have on the building itself and downtown as a whole.

Details of Steel Tower Renovations

Although there is no onset of renovations, the US Steel Tower has undergone some major facelifts in the past months and years which will be noticeable to regulars in the area. Here are some of the highlights:

The US Steel Tower is now the second-largest LEED Silver Certified office building in the world

LEED stands for Leadership in Energy and Environmental Design. While the US Steel Building may be thought of as a 50-year-old dinosaur, it is likely the most economically and technologically advanced building in downtown Pittsburgh. This is thanks to recent renovations aimed at efficiency and eco-friendliness.

The US Steel Tower renovations modernized the infrastructure

As a continuation of the above, the US Steel Tower has implemented a number of modern changes that improve cost and environmental inefficiencies. Modern renovations/improvements include retrofitting water supplies, sustainable energy practices, offering alternative transportation services, installing eco-friendly LED lights, installing eco-friendly HVAC products, and much more.

US Steel Building has renovated office spaces

As part of UPMC moving in, several large renovations took place to the office amenities of the US Steel Building. These renovations included:

  • Renovation of seven (7) full floors of office space to be used for UPMC headquarters
  • Changing cubicle like layouts to more modern designs including high-end, high-tech offices and support areas
  • Updates to the 60th floor “Center for Connected Medicine (CCM)”
  • Overall renovations to existing workspaces and offices

These renovations covered a total of 185,000 square feet over 11 months and were all part of the LEED silver certification process.

Pittsburgh Steel Building Facts

To understand why renovations of the US Steel Building are so significant to the local Pittsburgh economy and atmosphere, let’s look at some quick facts on the building itself.

  • The US Steel Building stands at approximately 841 feet tall, making it the 66th tallest building in the United States.
  • Those 841 feet are spread across 64 floors, which are mostly comprised of office space.
  • The single floor area equals 41,163 square feet, which is only ~2,000 square feet shy of a full acre.
  • The facilities include a 2,900,000 square foot grass area which is used as a local park for the public.
  • The US Steel Tower underbelly holds a three-level parking garage which can accommodate 700 cars.
  • The building holds 11,000 windows, 54 elevators, and boasts a massive lobby area with full amenities

List of Recent US Steel Tower Updates

In a five year period, over $60 million was invested into the US Steel Building in total renovations with no end date in sight. These changes include:

  • Lobby updates including renovations to many interior businesses
  • The addition of two (2) garage elevators
  • Newly installed brick and granite in the plaza area
  • A new fire alarm and security system
  • A new tenant and building sprinkler system
  • Renovated restroom facilities
  • Energy-efficient upgrades (as mentioned above) including closed water loops, HVAC upgrades, energy-efficient light installations, and more
  • Improved facilities to comply and exceed the American with Disabilities Act (ADA) requirements
  • New infrastructure including improved electric distribution panels and “base building mechanical improvements”

Going Forward

For those of us native to Pittsburgh, the US Steel Tower is probably the building we think of when we think of the downtown area. While the name and ownership may have changed hands, the importance of this structure remains. Recent renovations have improved both the work lives of the office tenants within and the amenities for the public passing through the building for a bite to eat or just to take in the sights. With major backers including CBRE and Jamestown L.P., it is likely that we will continue to see investments being made into the tallest and most historic Pittsburgh skyscraper.

Will Cannabis Legalization Present CRE Investment Opportunities?

Will Cannabis Legalization Present CRE Investment Opportunities?

No matter what your personal views on the matter, the cannabis legalization discussion is here to stay. As of the writing of this article, marijuana is fully legal in 11 states and legal for medical use in over half the states in the US. Those numbers are not expected to diminish, with additional states considering full or partial cannabis legalization. What has followed has been a growth in a previously non-existent industry that has affected both micro and macro economics in the US. The question we now ask is: will cannabis legalization change the commercial real estate market?

To answer this question, today we will explore the current state of marijuana legislature as well as future projections, the likelihood that cannabis will become fully legalized in the state of Pennsylvania, and discuss how federal and state legislation on cannabis has and will continue to impact the CRE industry.

The Latest on Cannabis Legalization

First and foremost, the federal government considers marijuana a class 1 controlled substance. This puts marijuana at the same tier as LSD, heroin, ecstasy, peyote, and methaqualone.

There is nothing clear about the current state of cannabis legalization. So let’s stick with the facts. First and foremost, the federal government considers marijuana a class 1 controlled substance. This puts marijuana at the same tier as LSD, heroin, ecstasy, peyote, and methaqualone. While legislation has been proposed, the nationwide legalization of marijuana is likely very far off.

11 states have fully decriminalized marijuana

It should be noted that although we consider these states part of a group, their individual laws on cannabis regulation vary dramatically. What remains constant is that users must be over the age of 21, and distribution is still highly regulated. The states that have legalized marijuana include Washington, California, Maine, Michigan, Alaska, Nevada, Colorado, Oregon, Illinois, Massachusetts, and Vermont.

33 states currently allow the legal use of marijuana for medical purposes

33 states plus the District of Columbia allow residents to own and use marijuana when it is prescribed by a physician. Pennsylvania is one of these states. These laws become even cloudier than the “fully legal” 11 states listed above, as the medical red tape can be quite complex.

33 states plus the District of Columbia allow residents to own and use marijuana when it is prescribed by a physician. Pennsylvania is one of these states.

Fully illegal vs. decriminalized and beyond

For the 39 states that have not legalized marijuana, there are varying degrees of criminality associated with possession and distribution charges. Some states including Delaware, Connecticut, Maine, and New York, have reduced cannabis charges, meaning previous punishments have been diminished for those.

Will Cannabis be Legalized in Pennsylvania?

Pennsylvania’s laws on cannabis allow for medical use only. Unlike some other states, Pennsylvania has not enacted laws to decriminalize marijuana possession or distribution charges. As we discuss the possibility of the marijuana business impacting commercial real estate in our region, the next logical question becomes: how likely is it that cannabis will become legal in Pennsylvania?

The answer is as complex as you might imagine. Politicians including Governor Tom Wolf and Lieutenant Governor John Fetterman have both gone on record stating that they would consider the legalization of marijuana in the future. In the case of Fetterman, he is openly in favor of full legalization on the state and federal level.

Pennsylvania’s laws on cannabis allow for medical use only. Unlike some other states, Pennsylvania has not enacted laws to decriminalize marijuana possession or distribution charges.

Recent polls suggest that 59 percent of Pennsylvanians support the recreational use of marijuana. This is in stark contrast to a similar poll in 2006, in which only 22 percent of registered voters were in favor of recreational marijuana use becoming legal. The biggest considerations continue to be:

  1. Pennsylvania’s mix of conservative and liberal ideals clashing at the state levels and
  2. Money. If other states see a windfall from marijuana legalization (including commercial real estate), the likelihood of full legalization grows.

How Cannabis Legalization Has Impacted the Commercial Real Estate Market

The legal marijuana industry has already eclipsed $10 billion in the US. The cannabis market is potentially the fastest growing industry in the nation. Commercial real estate investment is a huge part of that growth. Here are a few ways in which marijuana impacts local CRE markets:

  • The demand exists for large facilities. Cannabis production facilities are quite large, and often include both farming and processing capabilities.
  • Regulations are a blessing and a curse. CRE investors would be wise to understand state and local laws before entering the cannabis arena. Cannabis producers must jump through hoops at the state level to gain site approval before beginning any type of production.
  • Cannabis retail is big business. Of course, production is only one side of the equation. Marijuana has a strong retail presence which has injected life into a stagnant retail market.
  • Local and state economies have been boosted by legal marijuana. Even if you want nothing to do with the cannabis industry, there is now sufficient evidence to make the claim the legalizing pot boosts the economy at the micro and macro level. As we know, stronger economies often create stronger CRE markets.

Going Forward

At the moment, legalized marijuana in Pennsylvania is all a hypothetical. The benefits of legalized marijuana for business and for commercial real estate are well documented. If and when our state (or the fed) chooses to adopt cannabis, there will certainly be an opportunity to pounce. The question going forward will become when that happens and what regulations will come along for the ride.

Uber Purchases 600 Acres in Findlay Township, PA

Uber Purchases 600 Acres in Findlay Township, PA

Uber is a now well-known ride sharing service which has 100’s of millions of active users. Uber has been a major disrupter of the taxi and car service industries by offering a unique (at the time) business model of matching passengers to drivers with independently owned vehicles. Today, those 100’s of millions of active users have adopted ride sharing into their daily lives for commuting, when traveling, or even just getting home responsibly from a night on the town. In the Pittsburgh area, Uber is also known as a pioneer in autonomous vehicles and has established a technological headquarters where they are testing their new self-driving cars and trucks.

 

As part of this testing process, Uber recently made another large commercial real estate purchase west of Pittsburgh. Today we will review the details of that purchase, give some background on Uber, and explore how Uber’s presence in Pittsburgh might impact the local CRE industry.

 

Details on Uber’s Recent CRE Purchase near Pittsburgh

Details on Uber’s Recent CRE Purchase near Pittsburgh

Uber’s autonomous car shop in the Strip District is expanding its reach. Uber had been looking for additional facilities to test its self-driving vehicles. In late 2019, it found a new home by purchasing a nearly 600 acre lot in Findlay Township, PA. The land was sold for approximately $9.5 million by Imperial Land Corporation. The new facility will replace the old Uber testing ground at Hazelwood Green along the Monongahela River. Uber’s current lease at the Hazelwood Green expires in 2023. However, the pace at which the Findlay facility is advancing makes it likely that some portion will open as soon as 2021.

 

As part of the deal, Uber will be testing its autonomous vehicles in a newly constructed facility. The land was vacant at the time of purchase. Uber has not yet publicly announced the details of their plans for the location, but they have announced that their autonomous car facility in the Strip District will remain operational. 

 

Uber’s Pittsburgh Presence has Grown in Recent Years

Uber’s Pittsburgh Presence has Grown in Recent Years

By now, most Pittsburgh locals have seen the Uber self-driving cars patrolling the streets from their strip district research facility. Yet the testing of these experimental vehicles is only a small part of their Pittsburgh footprint. Uber has made it no secret that they intend to grow their Pittsburgh presence around their autonomous testing facilities. The latest land purchase is part of Uber’s plan to add more facilities, employees, and testing to the area. Uber is based in San Francisco, and has found Pittsburgh to be a desirable mix of affordability and access to highly skilled and educated employees.

 

According to Mobility21.cmu.edu: “The [Findlay Township] facility is expected to employ as many as 200 people and come with an observation (sic) tower and other developments to create a 24-hour simulated environment in which to test Uber’s autonomous vehicle technology that brought it to Pittsburgh in 2015.” The decision to purchase land and build a test track rather than leasing one is significant.

 

From a commercial real estate perspective, Uber’s expanded investment in the local economy will likely lead to related projects. As for the Findlay Township facility, much more than a test track is planned. While Uber has made no announcements, plans are being reviewed for entitlement and permit purposes. The first phase includes a 140,000 square foot testing facility with entrance doors that are tall enough to accomodate trucks. The site plan shows more buildings in the future, in excess of one million square feet under roof. 

 

Uber by the Numbers

Uber by the Numbers

To understand how Uber might impact Pittsburgh in the near and distant future, it can be helpful to understand a bit more about Uber’s story and their impact by the numbers. Here are some highlights which give recent events some context:

 

  • Uber was founded in 2009, and has since become the most highly valued private startup company in the world.
  • Recent estimates place the valuation of Uber at around $90 billion.
  • Uber is currently operating in 700 cities and 63 countries across the globe.
  • While Uber’s employee numbers range from 19,000 to 27,000 thousand, the total number of Uber drivers likely exceeds 4 million
  • Uber generates approximately $12 billion in gross bookings per quarter.
  • Uber has completed over 5 billion trips since its inception.
  • While these numbers are declining as the market matures, Uber has enjoyed a 70-75% market share of ride sharing services for several years.

 

These numbers illustrate the impact of Uber as a market disruptor and an economic force. Uber’s corporate decision to invest in the Pittsburgh area has already had a material impact on local economy and CRE landscape. While a 600 acre construction project might not be the biggest in the city this year, the real question becomes what will come next for the ride sharing service.

 

Going Forward

Uber’s preeminence in autonomous vehicles was short-lived. Shortly after establishing Pittsburgh as its global AV headquarters, Uber was joined in the region by Argo AI, Aurora, and Aptiv, along with the testing that Carnegie Mellon does on its own. As an employer and consumer of commercial real estate space, Uber has grown by leaps and bounds. Its competitors have expanded their presence as well. Autonomous vehicles appear to be an inevitability, maybe even morphing into fling vehicles or some other form of mobility we can’t as yet imagine. The beachhead that Uber has established by building a major testing facility makes it that much more likely that whatever the future of AV brings, Pittsburgh will be at the heart of it.

Pittsburgh’s Regional Update (A Preview)

Today’s groundbreaking for the new milllion-square-foot Amazon fulfillment center at Chapman Westport is an example of how the commercial real estate market has driven construction in Pittsburgh over the past decade.

The November/December edition of BreakingGround is in production now. For those who want a sneak preview of what’s inside, below is an excerpt from the Regional Market Outlook that deals with commercial real estate:

 

In the September Metro Mix publication by the Federal Reserve Bank of Cleveland, Pittsburgh’s employment situation was characterized as “steadily advancing.” Among the data cited by the Fed are an unemployment rate that fell 0.4 points to 3.8 percent from September 2018 to 2019, and total payroll employment of 1.123 million, a net gain of more than 10,000.

Metro Mix also took a look at the income and balance sheet of Pittsburgh residents. The real income per capita of a Pittsburgh resident was nearly $56,000, a 2.1 percent increase from 2017. This is above the income per capita for Pennsylvania and the U.S. Consumer debt in Pittsburgh is significantly below the Pennsylvania and U.S. levels as well. Debt per capita for the average Pittsburgh consumer was $26,968 after the first quarter of 2019, following one percent growth in 2018. Not surprisingly, the credit card delinquency rate for a Pittsburgh resident was only 6.6 percent, lower than the 7.5 percent U.S. average.

A strong economy is a good indicator for commercial real estate development. The resurgence of Pittsburgh’s economy over the past decade has been matched by a strong, if not booming, commercial real estate market. A number of factors suggest that commercial real estate will continue to be a positive driver of construction in 2020.

Pittsburgh’s industrial market is extremely robust as the third quarter ends. Normally a slower season, summer saw unusually high activity for leasing and acquisition. The latter is getting a boost from capital sources outside of Pittsburgh, which love the steady returns and strong fundamentals. Among the metrics that are tempting investors and developers are the low vacancy rates, especially for Class A warehouse, and the steady increase in rents. Occupancy levels for Class A reached 97 percent through the end of September and the overall industrial vacancy rate was 6.4 percent. Rents for Class A space rose to $5.70/square foot. Most impressive was the net positive absorption of 1.9 million square feet, which threatens to eclipse the highest annual total on record.

According to Newmark Knight Frank’s analysis of the industrial market, the high absorption, coupled with increased users in the market for space, will drive construction of build-to-suit opportunities in 2020. They specifically forecast increased activity for users of 200,000 square feet or more.

One of the factors driving industrial development in Pittsburgh is the growing demand for smaller warehouses to meet the demands for e-commerce fulfillment. Heretofore, fulfillment centers, like the one million square foot warehouse under construction for Amazon at Chapman Westport, were large and sited close to interstate transportation hubs. The growth of e-commerce volume is accelerating delivery times and pushing warehousing and fulfillment to smaller facilities located closer to denser population centers. This shift in logistics is making Pittsburgh more feasible for warehouse development than it was when the previous logistics models drove construction.

Pittsburgh’s office market held strong through three quarters, despite increases in space available for sublease. Through September 30, net absorption stood at 160,000 square feet, according to CBRE. The increases in absorption were mainly due to strong activity in the Central Business District (CBD) fringes – primarily the Strip Distict – and in the Airport Corridor, which saw positive absorption of 130,000 square feet. The occupancy level rose to 86.3 percent, with a total Class A direct vacancy rate of 12.5 percent.

Vacancy increased in Downtown proper due to large corporate consolidations, including BNY|Mellon, PNC and Bank of America. Falling vacancy rates in the Strip District and Oakland helped offset these holes in the market. According to CBRE, Oakland’s Class A direct vacancy rate fell to one percent. Even with more than 550,000 square feet of new space under construction, occupancy levels are expected to remain constant. Rents rose for the sixth consecutive quarter, hitting $27/square foot overall and topping $30/square foot in the CBD.

The office market is less supportive of new construction than industrial, primarily because of the available space and the high cost of construction in the most desirable locations. The continuing growth in employment in the emerging technology, healthcare, and research fields will create more demand for space and new construction. The market for tenant improvements should be more robust in 2020 and, depending upon how much of the proposed spec development proceeds, new construction in the Strip and Oakland could top two million square feet.

Not a lot of construction news. Volpatt Construction was selected as CM for $3.5 million Mellon Institute 1920 Lab Renovations. PJ Dick will build the $20 million natural gas power plant that will generate electricity for the airport’s microgrid. EIS Solar will design/build the 7,800-panel solar farm.

The Beat Goes On in The East End

Walnut Capital brought plans before the city’s Planning Commission today for what it’s calling Bakery Square Refresh. The Refresh project involves the demolition of the small retail building on the outparcel on Penn Avenue and construction of a two-story, 12,400 square foot retail building that will connect to the original Nabisco bakery. The $5 million Refresh is being designed by Strada Architecture and PJ Dick is the contractor. According to Walnut’s CEO, Gregg Perelman, the new construction – which will be home to several restaurants – is to be ready next October when Phillips occupies its new space in Bakery Square Three. That means construction will start around the first of the year.

The 2-story Bakery Refresh will be adjacent to the Nabisco bakery building. A new green space will be created along Penn Avenue. Rendering by Strada Architecture LLC. Use courtesy Walnut Capital.

Around the corner from Bakery Square, Echo Realty is moving forward with its Shady Hill Center. The project involves 220 units of apartments, to be developed by Greystone Real Estate Partners, a 500-car parking garage, and the replacement of the Giant Eagle with a new 37,000 square foot store. Carl Walker Construction has been selected to build the parking garage.

Data on employment and unemployment was released on the national and regional level within the past week. The job creation data for Pittsburgh showed modest improvement, with 5,500 more jobs in August 2019 than one year before. Unemployment fell by 0.3 points to 3.9%. The good news inside the Pittsburgh metro data, which came from PA’s Department of Labor, was the net growth of employment. The workforce grew by 18,400 from August-to-August, while the number of unemployed fell by 1,000. Retiring Baby Boomers are putting great downward pressure on the workforce supply in Pittsburgh. That the number of people working grew by more than 1.5 percent suggests that the gains in employment are offsetting the demographics for now.

US job growth was better in September than in previous months, according to the Census Bureau’s report on October 4. There were 136,000 new jobs in September. Estimates for July and August were also revised upward by nearly 60,000 jobs. The headwinds on the economy are certainly growing, but US employers are still adding to payrolls.

Pittsburgh Builds Through the Worries

As the end of summer/back to school season brings a few weeks of slower bidding, construction continues at full pace. Few, if any, skilled workers are available. The Shell cracker is at peak employment of 5,000. There are cranes visible Downtown, Oakland, and most of the suburbs. Some of the recent contract awards/starts include: Mascaro Construction landing the 105,000 sq. ft., $9 million WeWork tenant improvement at 600 Grant Street; Al.  Neyer starting work on Crossgates’ 105,000 sq. ft. distribution center at Westgate Business Park in Big Beaver; and PJ Dick getting the green light for a $35 million project for the University of Pittsburgh, infilling behind Hillman Library off Forbes Avenue. AIMS Construction started construction on the $4 million UPMC CHildren’s Hospital pharmacy. Jendoco Construction started work on the $5.7 million Plaza at Hazelwood Green.

The Plaza at Hazelwood Green

At the Federal Reserve Bank’s Pittsburgh Business Advisory Committee meeting held August 28, the most recent survey of regional business owners found that the Pittsburgh economy was holding steady, despite worries about a recession in the coming year or two. Unlike respondents to business conditions surveys in other Federal Reserve Districts, Pittsburgh business owners reported that they continue to look to add staff over the coming months and see demand for products and services as the same or better than the past quarter.