Hot real estate? Try the produce aisle

How slow is the national commercial real estate business?

Forget New York towers or Miami hotels. Philadelphia supermarket shopping centers are, if not quite hot, at least warmer than most of the rest of what's out there. That's how slow things are.

"Markets like Philadelphia, North Jersey, Portland Oregon, are now among our leading offices," Hessam Nadji, managing director of research at investor's broker Marcus Millichap, told me during a break at this morning's Realshare conference at the Marriott in Center City.

These markets didn't explode in the real estate inflation of the mid-2000s; because they're populous, services-oriented markets where unemployment hasn't zoomed, they haven't collapsed like a lot of smaller Midwestern, Southern and coastal markets, said Spencer Yablon, head of the firm's Philadelphia office, the firm's busiest.

Last fall I wrote about North Jersey-based Levin Management Corp.'s purchase of Northeast Philadelphia's Morrell Plaza after its previous owner fixed the place up and landed a Shop-Rite as the major tenant. Levin president Matthew K. Harding told me he'd been watching Morrell for years, but waited until the price fell around 20 percent, to $22 million (35% down, the rest from TD Bank.)

That turned out to be a signal for other investors, says Brad Nathanson, a salesman in Yablon's office who has since sold supermarket shopping centers in Bensalem, Royersford and Reading to out-of-state buyers, at attractive prices, given the drop in rents.

Why supermarkets? Philadelphia is home to an unusually energetic competition among supermarkets, as a resurgent Pathmark and the nonunion Weiss, Wegman's and Giant (of Carlisle) chains, plus discounters like Food Lion and Aldi's, challenge market leaders Acme and ShopRite.

Yablon says Goldman Sachs, Morgan Stanley, real estate investment trusts, and other big-name investors are returning to the market, elbowing local banks aside.

"Are these the smart buyers, or the fools?" asked Nadji. He's worried that low-end shopping centers and other real estate has lost as much as half its value, and the recovery is still slow and uncertain.

Not everyone's jumping in, says J. Anthony Hayden, whose family is raising money on the Main Line to invest in troubled office properties.

Hayden smiled skeptically as he quoted the optimists on RealShare conference panels saying prices have been falling faster than rents, creating bargains. "We're not seeing those properties," he said.