Property swaps: 'Want to play?' 'Yeah!'

Liberty Property Trust, the commercial landlord that developed Philadelphia's tallest buildings, is speeding its switch from suburban offices to warehouse properties.

Yesterday the Malvern company announced it's selling 6.6 million sq ft of mostly office or office/warehouse "flex" space, in Mt. Laurel, Ft. Washington and elsewhere, to unnamed buyers, for $705 million; last month the company paid $1.475 billion for Cabot Industrial Fund IV's portfolio of warehouses in New Jersey and other states. Georgia and other states. (Shares are trading near the company's one-year low of $33 and change.)

Who bought? There's no shortage of actual and would-be national landlords collecting properties at a discount to replacement costs: Liberty has most recently sold office projects or portfolios to Cole Real Estate (soon to be part of Nicholas Schorsch's American Realty Capital Partners), which bought PNC Bank's operations center near the Philadelphia International Airport for $75 million earlier this year; Lower Gwynned-based Somerset Properties, in partnership with Greenfield Partners, bought 1.9 million sq ft of South Jersey, N. Carolina and Wisconsin offices from Liberty for $146 million last year.

The Liberty properties being sold this time include 20 mostly sub-100,000-sq-ft buildings on Lippincott Drive in Mount Laurel and on Commerce Parkway, Fellowship Road, Briggs Road and nearby streets in Moorestown, NJ; the 750,000 sq ft building at 1100 Virginia Drive in Fort Washington, Pa., home to GMAC successor Allied Bank, and five smaller buildings nearby; Liberty's remaining offices in Maryland; its holdings in the Jacksonville, Fla. area; and flex properties in Minnesota. The buildings will be sold in stages over the next six months. 

The deal boosts Liberty's increased focus on "industrial real estate," chief executive William P. Hankowsky (an owner of the company that owns the Inquirer) said in a statement, while also allowing the company to focus its develpment efforts on "creating and managing high-quality office environments" that are also high-profit.

Why warehouses? Liberty's Northeastern regional executive James J. Mazzarellli told to me last month: "In our recent strategic analysis" of the way goods move from U.S. and foreign markets, through online and store retailers, to consumers these days, "it's become clear that every person in every metro area uses 40 sq. ft. of warehouse space. In some markets, 50. All the stuff in someone's kitchen or bathroom or bedroom comes out of a warehouse." Home Depot, Bed Bath and Beyond, Amazon all calculate how many people in a given section of the company will need how much space to buy their goods over the next year.

"This generates tremendous warehouse needs. Take New York City and North Jersey, one of the most densely populated regions on the East Coast. All those people at 40-50 sq ft/person need industrail space. Where is the multi tenant industrial for all those people? Some is North Jersey, the Meadowlands. Mostly it's down by Exit 8-A. 300k-500k sq ft boxes. Some is all the way to the Baltimore-Washington corridor.

"The more dense the population that number goes up. Try to supply all the Bed Bath and Beyond stores in New York. Suddenly they need (a lot more space)... That's where Central Jersey fits on the supply chain.

"Port real estate is very expensive. Go south to (NJ Turnpike exit) 8a, 7a, for more of what we're talking about. Household goods stuff. 40-50 sq. ft. person. Big units. Lots of people. So we think 8a and to some degree 7a is a really good spot to be. Because it gets so damn expensive."

That's where the big Cabot acquisition came in: "Our industrial strategy is to be in 25 major markets, coast to coast, with multitenant industrial buildings. And a few big-box markets, those million-square-foot (Amazon or Walmart-sized) buildings like you see in the Lehigh Valley. That's the strategy. Then Cabot comes along. Bill (Hankowsky) gets a call. 'You want to play?' Yeah! We do!

"Things that didnt perfectly fit, we'll sell. But 80 percent of it did fit in our stragegy. North Jersey and Central Jersey turned out to be a Tier 1 market. We can use anything in Carlisle, in the Lehigh Valley. WalMart is building a million square feet in the Lehigh Valley. P&G is building 1.7 million sq. ft. in Shippensberg, to serve 8-12 markets."

Add the Cabot properties to Liberty's growing warehouse portfolio, he concluded, and "we like where we are."

Liberty's not the only one getting out of older suburban projects. In August, for example, North Jersey REIT landlord Mack-Cali unloaded its suburban Philadelphia office properties to Bala Cynwyd-based Bill Glazer's Keystone Property Group.