Listen to this article 2 min
As the real estate climate changes with rising interest rates and continuing Covid-19 fallout, Velocity Venture Partners is positioning itself to take advantage.
The Bala Cynwyd company bought four properties in Bucks and Montgomery counties since late August, adding to its portfolio of 7.5 million square feet of industrial and flex space spanning 80 buildings in Pennsylvania and New Jersey.
Each new property features a current or former office building. With demand for office space shifting, co-founders Tony Grelli and Zach Moore saw opportunity in buying the sites with plans to convert them to industrial or flex space.
Grelli pointed to critical realizations since the start of the pandemic: Demand has increased for domestic manufacturing and assembling of products, as well as local inventory for retail and e-commerce.
“Those underlying trends have lit a massive fire fueling industrial, and it’s become harder and harder and harder for occupants to go out and find space," he said.
The places Velocity bought have the “bones” of industrial buildings, Grelli said, making them attractive to the company specializing in converting buildings. After buying a building, Velocity often will knock out the floors to create a high-ceiling warehouse and then build-to-suit based on the future tenant’s desires.
Velocity is aiming to attract manufacturing, light assembly, warehousing, distribution and services-based businesses to the new properties. Unlike newly built warehouses, Velocity is restricted to the shape of the buildings that already exist. Still, nearly all of the construction work will be done inside the buildings. Other than adding loading docks, Grelli said the exteriors of the buildings won't change much.
High demand, record-low vacancies and accelerating interest rates have made it more challenging to find warehouses to buy. So Grelli and Moore are trying to cater to warehouse tenants by taking other types of buildings and turning them into industrial space.
“We are going after properties that have been disrupted in some way by Covid-19,” Grelli said.
Here are the four properties Velocity recently bought:
101-125 County Line Road in Warminster
Closed: Nov. 18
Price: $27.75 million
The County Line Commerce Center was previously a Fischer & Porter manufacturing complex. It was converted to a 450,000-square-foot suburban office campus in the early 2000s, a common switch at the time.
But the Bucks County office building’s occupancy rate fell below 50% recently.
Velocity plans to convert the campus’ anchor into a 150,000-square-foot, climate-controlled flex industrial space within the next three to six months. They plan to spend $10.4 million renovating the space.
“This deal really is a good demonstration of exactly what’s happened in the marketplace as a whole,” Moore said.
The property is already zoned for industrial. Because of government regulations imposed after the building was built and less land available, Moore said it would be difficult to replicate this type of building. It’s located near the Pennsylvania Turnpike.
Velocity owns 2 million square feet of real estate within 10 miles of the site, and hope to duplicate the success of other nearby properties.
355 Maple Ave. in Harleysville
Closed: Oct. 31
Price: $18.5 million
E. Khan Development Corp. bought the former Harleysville Group headquarters in 2021 for $10.5 million.
The 250,000-square-foot building had most recently been occupied by Nationwide, but the insurance company never brought its employees back after the start of the Covid-19 pandemic. About a year after buying the site, E. Khan Development Corp. resold it to Velocity for $18.5 million.
Velocity estimates it will spend an additional $10.4 million to knock out two floors to create a high-ceiling industrial space.
“Massive, massive amount of vacancy,” Moore said. “Very few new office tenants in the marketplace to lease a quarter-million square feet, if any, across the country. Otherwise it would sit vacant if it wasn’t for a redevelopment focus.”
3701 Welsh Road in Willow Grove
Closed: Oct. 13
Price: $2.37 million
Two miles from an entrance to the Pennsylvania Turning, Velocity viewed this site opportunistically. It’s also fewer than 5 miles from County Line Commerce Center. The building was previously used as an office complex and then converted to lab space.
NMS Labs, which previously occupied the building, moved out. Velocity is demolishing the interior of the building, which had 30,000 square feet of office space across three floors and 50,000 square feet of lab space
With the interior demolished, Velocity plans to find a tenant for the industrial property before planning how the interior would be redesigned.
483 Main St. in Harleysville
Closed: Aug. 19
Price: $3.15 million
The site of a former bank that was vacated, the property was put up for sale in an online auction. Velocity has familiarity with Harleysville and viewed this as a chance to maximize the property.
The property, which had about 100,000 square feet of office and retail, wasn’t in demand for those types of uses. But as an industrial building, Moore considered it a “slam dunk” to buy space for approximately $30 per square foot. Industrial space has often sold recently for significantly more than that. A new industrial building in Delaware County, for example, recently sold for $311 per square foot, or 10 times as much.
“It speaks to what’s going on right now in the marketplace for suburban office space and especially vacant space,” Moore said.
