Pittsburgh September 2022 – Key Take-Aways
Mekael Teshome, Federal Reserve Bank
Gene Boyer, Burns Scalo Real Estate: We have remained bullish on office [development] throughout the downturn. We recently completed our latest project in the Strip District — The Vision — and we’re building out the first tenant, ATI, who will be moving in soon. We are a Class A luxury commercial office developer. We believe that despite the move away from offices, CEOs are getting frustrated with the work from home [mindset]. Productivity is dropping. We believe there will be massive bifurcation from old to new — people will pay for quality, better amenities, and full-service office space. We have recently opened The Riviera on Technology Drive, which is a luxury life science building, one of the most impressive engineering feats I’ve seen. We recently broke ground on a half-million square feet in the Parkway West corridor, Diamond Ridge, and we’re working to tie in the family development at the top of the hill, about 250 to 300 units of market-rate apartments. We continue to be bullish in looking at new opportunities
Leah LaFramboise, Frost Brown Todd: We haven’t seen much change over the last couple of months; it’s been very busy, working in leasing and development, sales, and leasebacks. This year’s been crazy, everything you can imagine. We’ve been working with a lot of banks, a lot of acquisitions; a little of everything. I’m over Pennsylvania, Ohio, and West Virginia — steady markets.
William Vespa, Infinity Commercial Capital: We are commercial loan brokers; we’ve been doing a $22 million corporate restructuring. We do alternative solutions to banks, depending on the project. We’ve seen an influx of people looking to convert properties to senior housing. One was a school campus with seven buildings; hotel conversion into hub-related space; that’s something that has shown up of late as a market trend to us. We’re seeing it throughout the country.
Greg Boyd, NexTier Bank: The biggest thing on our radar is we’re trying to deal with the interest rates increase and inverted yield curve where you can borrow long-term money for less than short term. People don’t know what to do — should they go fixed, float, do a swap and hope for the best? Most of my clients have floated and plan to continue to do that until interest rates come back down. Everybody’s projecting for rates to come back down. We’re in the beginning stages of kind of a “cold war,” if you will; there’s going to be a slowdown. We must be on point and looking for good deals that we can help clients execute. We have the Triangle Building, Downtown, at Liberty and Smithfield – it’s going to be good. We financed the first mortgage — a huge capital stack, with tax credits, grants, loans; it was an expensive transaction to close on. Will be 15 apartments, Class A, although three of those will be low- to moderate-income housing. The rental rates on those units are not much discounted. We have done financing for multi-family in the Strip, the hottest market anywhere, with no end in sight. Everyone wants to knock down or rehab old buildings. Employers and employees want to be there and want to live near their work.
Tom Frank, Desmone Architects: We recently opened an office in Cleveland. The business development person there came from the Riverlife side of Cleveland. We have three projects in the greater Cleveland area right now, so it’s starting to be a foothold. One is a multi-family; one is mixed use; we’re not doing 53rd and Euclid because they didn’t want to pay for stuff up front. We do have 20 Federal Street in Youngstown, with National Development. We’ve found our niche in these sorts of projects, funding the gap working with Jim Ambrose, to provide conceptual plans and data they need, and then we work with lawyers and credit consultants, and if we can make it happen, we work the design services into the agreement. We have three in the pipeline now and we’re getting a much higher yield when we write into the up-front costs, rather than trying to get a low bid. We have an office project with a tech company in Warren, Ohio, and one in Lawrenceville, a tech center with robotics. On the multi-family end, we have about 1,500 units in design or construction and we’re not slowing down. 350 of those are in Cleveland and the rest are in the Pittsburgh area.
Jim Futrell, Allegheny Conference: We have lots going on. One big thing: We received one of five biggest awards from Build Back Better Regional Challenge, an economic development program for pilot projects; ours was based on leveraging expertise we’ve built in automation that is benefitting the Strip and Lawrenceville. We’ve been working with existing manufacturers to leverage their capabilities in automation. Later this week, the Global Clean Energy Action Forum will be in town, with 5,000 registrants, although some are virtual, so we can shine globally. We have recently locked in Elevate Bio as lead tenant at Hazelwood Green. And we still have an active pipeline – we had a week in August where we had trouble finding enough project managers to oversee site visits. Surprisingly, there’s lots of interest in old mill sites.
Angela Gillot, Burns Scalo: We have a new retail project in South Fayette/Bridgeville: The Piazza. It’s our first foray into retail, so we’re excited about that. One project I worked on when I was in facilities was creating and growing the BS Restart program. We were only out for about 30 days when Covid hit and then we were under construction with essential businesses. So, we resumed construction right away and we realized we must modify our office space, sanitize, and we created BS Restart, which we have offered to portfolio tenants to assist them with services to bring employees back to the office and help people feel more comfortable. It’s been so successful that we offered it to others beyond our portfolio group. These are things like self-cleaning handle wraps on doors, day porter services where they come in and wipe down in addition to janitorial services, carpet steam-cleaning and other things.
Daniel Pauletich, Specialty Consultants: We’re at the VP level of recruitment; recently completed 158 or so, and 50-plus on the C-suite level. There are just not that many people available and although we’ve been doing a record number of placements, we’re working twice as hard to do so. Compensation levels are off the charts. Whereas a 5 percent bump was the old adage, now it’s 8 percent and 12 percent on top. So, you’re getting about a 20 percent raise to keep up with the market, nationally. The ask from candidates is as obnoxious as I’ve ever seen it. People want to work from home, take Fridays off, get travel and other perks — and they’re getting it. We’ve had more turndowns; only 92 percent accept jobs now, year over year. A majority of those who are walking away are accepting other offers. Some sectors are quiet, such as mall companies. Redeveloping is happening in many cities – live/work/play environments. Among the most active industries, finance is off the chart. One gentleman turned down a $50 million signing bonus to take another offer.
Todd Pifer, AdVenture Development: We’re in a holding pattern in Pittsburgh, while waiting for a park-and-ride to finish up. But McCandless Crossing just opened a bridal store that is amazing – we moved her from Sewickley, and she has quadrupled business in a month. And we’re putting a Condado in. With Condado, we’re 100 percent leased.
Yuanyou Yang, Porter Wright Morris & Arthur: Overall, on the international side, there is a lot of interest. More investments are coming in, and we’re getting approvals from the government.
Michael Mitro, Royal Oak Realty Trust: Based in Rochester; I belong to three Real Professionals groups, and it’s really helped me. The group has been a powerful pull for me in different markets. Raising cap rates; we have a deal in Boston where the seller wanted $24 million and all bidders came in around $19 million, so he said, “I’m not going to sell.” Owners are saying, I’m going to wait. A couple of lenders recently got out of the market. Smaller banks are still lending, but higher interest rates are making it difficult. Lot of folks are giving up [portions of] office space.
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