Attracting Business

Pittsburgh’s Next Big Win? Big Next Pittsburgh’s BUSINESS ACTING ATTR

Spring 2018

Industry Intelligence. Focused Legal Perspective. HIGH-YIELDING RESULTS.

Meet our construction attorneys at babstcalland.com.

Whether it’s negotiating a construction contract, litigating a mechanics’ lien or bond claim, resolving bid protests or dealing with delay, inefficiency, or acceleration claims, we help solve legal problems in ways that impact your business and add value to your bottom line.

PITTSBURGH, PA I CHARLESTON, WV I STATE COLLEGE, PA I WASHINGTON, DC I CANTON, OH I SEWELL, NJ

Babst_Construction_DEVPGH_8.625x11.125.indd 1 8/16/16 6:52 AM CONTENTS | Spring 2018

31 Development 05 President’s Message Project Hazelwood Green 41 Developing Trend Landscape of Public Subsidy for Development 45 Eye On the Economy 50 Office Market 06 Feature Update The Business of Attracting Business Jones Lang LaSalle 53 Industrial Market Update Newmark Knight Frank 56 Capital Market Update 61 Legal / Legislative Outlook Contract Termination: Don’t 19 2017 NAIOP Pittsburgh Awards Make a Bad Situation Worse 64 Benchmarks Handicapping and Recapping the Amazon HQ2 Response 67 Voices Tax Cuts & Jobs Act of 2017 69 News from the Counties

25 NAIOP Pittsburgh 80 People / Events Reflections on 25 years

www.developingpittsburgh.com 3 BURNS WHITE CENTER

Oxford Development Thanks NAIOP for Awarding

Best Mixed Use Project

2555 SMALLAMAN We also want to thank our partners: Carl Walker Jeff Kumar McCaffery Langan The YARDS Chuck Local Trade Rycon Taylor Hammel Unions Scalo Solar Structural Engineers ERECT Funds Loftus Strip District Evolve Engineers Neighbors WTW

2501 SMALLMAN

The HUB The YARDS

EDITOR Jeff Burd I am very fortunate and pleased to be nominated for “2017 Best Education 412-366-1857 able to serve in my second year as Event” through NAIOP Corporate and [email protected] NAIOP Pittsburgh president. We have will be continuing throughout 2018 with PRODUCTION had a great deal of accomplishment other great projects as well. Carson Publishing, Inc. in my first year which will allow for the Our Chapter Meetings in 2018 started Kevin J. Gordon chapter to build towards the future. with our annual “Economic Update” in [email protected] One of the primary successes was partnership with BOMA in January. The completing a new strategic plan which February program was well received GRAPHIC DESIGN sets the stage for three primary goals for where “Supply, Demand and the Future 321Blink the chapter – advocacy, membership of Work in the Pittsburgh Region” was and communications. CONTRIBUTING PHOTOGRAPHY discussed and will be followed by our Katrina Flora Our 2018 agenda on state and local April chapter meeting with a “Real Estate Carnegie Mellon University issues will focus on three initiatives: Market Update”. Jim Schafer Location Photography 1. Streamlining DEP state permitting Of course, the most anticipated event Amazon Corp. processes for western Pennsylvania’s commercial RIDC real estate industry is upon us. NAIOP 2. Streamlining City of Pittsburgh Trumbull Corp. Pittsburgh’s Annual Awards banquet is permitting processes Tall Timber Group having its 25th anniversary and will take 3. Supporting the Bus Rapid Transit place on March 1, 2018 at the David CONTRIBUTING EDITORS between Oakland and Downtown L. Lawrence Convention Center. The Karen Kukish Pittsburgh. banquet is the best annual opportunity ADVERTISING SALES In addition, it is important to note the to both celebrate excellence in Karen Kukish success that NAIOP has had at the development and to connect with your 412-837-6971 federal level with the passage of The commercial real estate colleagues. [email protected] Tax Cuts and Jobs Act. For many years, Consider this your invitation to join me the debate surrounding tax reform gave at the banquet and become involved in MORE INFORMATION: rise to ideas that would have caused NAIOP Pittsburgh. DevelopingPittsburghTM is published by long-term damage to our industry, Thank you very much and I look forward Tall Timber Group for NAIOP Pittsburgh including the elimination of 1031 like- to a great 2018! 412-928-8303 kind exchanges, ending capital gains www.naioppittsburgh.com tax treatment for real estate carried interests, and not allowing deductibility No part of this magazine may be for interest payments on the financing reproduced without written permission for real estate projects. The active by the Publisher. involvement of NAIOP in this important All rights reserved. public policy debate helped shape the This information is carefully gathered final product to ensure that commercial and compiled in such a manner as to real estate remains a vibrant contributor ensure maximum accuracy. We cannot, to our nation’s economy. The 2018 and do not, guarantee either the cor- legislative goals for NAIOP at the Federal rectness of all information furnished level include: nor the complete absence of errors and 1. Support for infrastructure and omissions. Hence, responsibility for same transportation investment. neither can be, nor is, assumed. 2. Ensure capital and credit markets Keep up with regional construction meet the current and future needs of and real estate events at: the commercial real estate industry. www.buildingpittsburgh.com 3. Support for environment and energy efficiency. Another hallmark of NAIOP Pittsburgh is our educational programming. In 2017, our Developing Leaders had a stellar year hosting a project series that was David Weisberg open to the entire chapter where there NAIOP Pittsburgh President were tours of various projects around Greater Pittsburgh. This program was

About the Cover: Mill 19 at Hazelwood Green. Photo courtesy Almono LP www.developingpittsburgh.com 5 THE BUSINESS OF ATTRACTING BUSINESS

“ egional marketing is both art and

science: creativity and analytics. FEATURE R Data and analytics are the ‘why’ that answer the question ‘why Pittsburgh?’ often asked by companies considering new investment deals or grow existing presences,” says David Ruppersberger, president of the Pittsburgh Regional Alliance (PRA).

6 DEVELOPING PITTSBURGH | Spring 2018 Amazon’s Seattle headquarters is part of a 13 million square foot campus. The company’s HQ2 deal is projected to add eight million square feet of office demand to the winning city. Photo courtesy Amazon.

www.developingpittsburgh.com 7 Landing the Shell Franklin petrochemical plant remains the largest investment deal in Pittsburgh’s post-industrial era. The project will be catalytic to the regional economy for rest of the 21st Century. Photo by Trumbull Corp.

hat brings new companies to luck stories (thank you Marcellus Shale economy today may have been set by your town? Why do companies formation.) The diversity of today’s the 1994 white paper by Carnegie Mellon Wexpand in your state? Or leave? economy wasn’t because of more good University President Robert Mehrabian As the marketing and business attraction luck than bad. It was because smart that was commissioned by the Allegheny affiliate of the Allegheny Conference people developed a plan to diversify Conference. Researched and compiled on Community Development, the PRA and had the patience to stick with the by almost 5,000 people, the report – strives to answer these questions every plan until it began to work. Economic Working Together to Compete Globally day as it looks to draw business to the development agencies work hard at – evaluated the region’s economic assets ten counties in Southwestern PA that finding leads and selling their corners and liabilities and set forth a set of goals are in its footprint. The answer to the of the region. There is competition for the year 2000. Few of the goals were question, as Ruppersberger suggests, among these agencies but there is also achieved by 2000, but the framework for is a combination of environment, hard extraordinary cooperation. a more diverse economy was established: work, vision and luck. Succeeding at business attraction is a team sport, It’s this cooperation that might ultimately • Build on the strengths that hold the key with accommodations needed from be viewed as the secret sauce to the to future job growth. corporate partners and governments that recipe for whatever success the Pittsburgh control the business climate. region has. Perhaps it was borne out of • Invest in wealth and job creation assets. the recognition that when one major Pittsburgh has been basking in the glow piece of the region’s economy suffers, • Revive our entrepreneurial vitality. of some major business attraction stories the region suffers. Perhaps collaboration • Make our region a leading destination for five years or so. Civic leaders and is really in the DNA of Western for world visitors. economic development professionals Pennsylvanians. Whatever the reason, the deserve all of the credit they are getting, regional leaders have developed a pattern • Create an economic climate for the just as they will take the heat when the of collaborative behavior that has made 21st century. wins become losses. Pittsburgh’s story appealing to the world. That behavior was refined even further by • Establish a new spirit of teamwork in What seems to have worked so well in the ongoing efforts to win the Amazon economic development. Pittsburgh is the blocking and tackling HQ2 competition. of economic development. Over the • Connect workers and students to the course of 30 years since the ability to Secret sauce? Maybe, but it’s still mostly jobs of the future. redesign the Pittsburgh economy became blocking and tackling. an existential crisis, there have been bad • Build one economy. luck stories (remember Fore Systems? Why Here? Why Now? Why Not? Cable Design Technologies?); and good At the same time, leaders in Pittsburgh’s The template for what we see in our business and academic communities

8 DEVELOPING PITTSBURGH | Spring 2018 FEATURE

were gathering to create organizations for the explanation once the corporate overly burdensome tax on top of that like the Pittsburgh Technology Council rate is identified. with the Capital Stock and Franchise and the Pittsburgh Life Sciences Tax. One of the first things that the Greenhouse, among others, to flesh Pennsylvania’s demographics are governor discussed with his cabinet was out that framework. Business attraction, a challenge for companies looking eliminating that.” at least as funneled through the PRA for population growth or a vibrant and economic development agencies, consumer market. The Capital Stock and Franchise Tax was focused on five industry clusters was scheduled to be phased out over that were seen as the drivers of a The fact that PA is not a right-to-work a few years but Gov. Wolf pressed for sustainable economy. Those were state is unappealing for labor intensive accelerating the elimination, even though information technology, financial businesses, especially since 27 states it meant creating another $300-$400 services, biotechnology, energy, and have passed right-to-work laws. This hits million revenue hole. Wolf characterized advanced manufacturing. manufacturing wear it lives. the tax as a black eye for the state and Davin says that site selectors have It turned out those were pretty good Pennsylvania has also proven to be less noticed, often bringing the elimination of industries to place bets on. Over the generous in its incentive offerings. The the tax up in conversation before he does. past 25 years, each of these sectors has Commonwealth’s fiscal situation leaves Davin emphasizes that Wolf hasn’t given had a period of exceptional growth and little room for large cash incentives and up on the CNI either. the future global demand is aligned with the political environment isn’t conducive all of them. That strategy for Pittsburgh to handing over what would be called “The governor in this budget and previous would be as valid as in Atlanta, San Jose, “corporate welfare” on the campaign budgets has called for the reduction in Boston or Austin, where businesses were trail. In practice, Pennsylvania’s incentive that corporate income tax,” Davin says. being attracted in droves. Success would packages would be plenty competitive “He is adamant about that happening and come from making Pittsburgh align with if it were not for the practices of the it has to.” what the companies in those five clusters adjacent states. Ohio has been extremely wanted in the places they located. Did aggressive in offering job incentives and For those companies that get past the Pittsburgh have what companies wanted? cash, like in the case of the PTT cracker inconveniences of doing business in sit. New Jersey announced that it offered Pennsylvania, there is still the issue of “My perspective is for industrial facilities. If $7 billion to attract Amazon in its HQ2 bid. finding appropriate sites in Western you are making or processing something, PA. After identifying the lack of sites you are having a site-specific conversation In Southwestern PA, a shortage as a problem in the mid-2000s, when placing a plant,” replies Gideon of developable sites is a business economic development corporations Gradman, managing director for environment problem that is added and developers worked at building to these headwinds. The PRA does Integrated Energy Advisors, when asked an inventory of pad-ready, or at least a year-end disposition analysis to what were the pluses and minuses of shovel-ready, sites. But the success of determine what factors might be Pittsburgh for site selection. “The labor the past decade has resulted in most contributing to the region’s losses. market and skills attraction is a big part of these sites being gobbled up. With David Ruppersberger points out that of the conversation. The government heightened interest in Western PA as the one problem with that analysis is that it gas industry has recovered, the demand structure, meaning the tax environment, cannot factor in the projects that never for sites is increasing. is important as well. I think that plays a got to the table, opportunities that never bigger role in state-to-state comparisons reached the region because the tax or “When you look at Washington County although site-specific features almost environmental conditions of the state always drive decisions.” they have the natural gas resource to ruled Pittsburgh out. supply the gas processors, who extract the raw materials as inputs to other The environment Gradman is Dennis Davin, secretary of the Department manufacturers,” says Gradman. “Those talking about is dependent upon the of Community and Economic counties now have the opportunity to policies of the Commonwealth of Development (DCED), says the Wolf attract manufacturers of those products.” Pennsylvania to a large degree. The Administration recognizes the problems business climate in Pennsylvania and is making incremental progress. is one of the biggest obstacles to Gradman points to the investment by General Electric at Chapman Westport business attraction in Pennsylvania. “What we’re focused on, with the as an example of a company choosing governor being a businessman, is looking a site based upon the proximity to There is clearly plenty of upside about at the underlying infrastructure of the Shell. GE is doing cutting edge research Pennsylvania as a location but there are state of Pennsylvania. What is it that and development in advanced plastics some significant drawbacks, which are companies want? What do companies manufacturing – 3D printing. Its especially difficult for manufacturers coming to Pennsylvania look for? What selection of the airport/I-376 corridor to swallow. The 9.9 percent corporate helps them the most?” Davin asks. net income (CNI) tax is an eye-opener for its 120,000 square foot facility is an right off the bat. It’s true that most “We have the second highest corporate endorsement for the region’s plastics companies don’t end up paying that net income tax in the country and industry potential. rate, but a lot of prospects aren’t around that’s not good. We also had an

www.developingpittsburgh.com 9 KEYSTONE+MOUNTAIN+LAKES REGIONAL COUNCIL OF CARPENTERS

Congratulations to the Energy Innovation Center on another honor!

PITTSBURGH

412-921-4300 www.DLAplus.com

Connect with us:

@DLA_PLus LinkeDin.com/comPAny/3017087

10 DEVELOPING PITTSBURGH | Spring 2018 FEATURE

The Power of 32 Site Development Fund industry and the petrochemical buildup Some of the projects that are lost involve (P32) is one tool that was developed unfolds. Lack of ready sites may be a reasons that can’t be avoided. Pittsburgh to help meet this heightened demand. problem in Southwestern PA, but a lack can’t become a deep water port, nor can The P32 is a $49 million patient loan of potential sites is not. There are ten the area change its topography. fund that is managed by Callay Partners decommissioned coal-fired power plants and is dedicated to use on horizontal being examined for re-use as industrial “For warehouse/distribution deals, the construction. Since its inception in 2015, sites, along with a handful of brownfields top reason we lose is that we can’t do the P32 fund has approved $24.8 million that will require additional investment two million square feet that somebody in loans to four major projects in metro or expansion to become viable. These to the east on the I-81/I-86 corridor can Pittsburgh and Follansbee, WV. Some sites play into one of Pittsburgh’s best or that can be done on the I-70 corridor 400 acres of land have been made regional advantages. in Columbus,” notes Patty Horvatich, available to develop, with at least four vice president of business investment industrial buildings started in the wake of “Transportation is an important for the PRA. “We don’t have that much the site preparation. component for industry and has always flat land and if you make the land flat it been a strength of the Pittsburgh will cost too much to develop. If you talk Mechanisms for preparing large sites market,” says Gradman. “The rivers are about manufacturing, most of our losses will become even more valuable as the reason Pittsburgh was built and there recently have been because we don’t the downstream impact of the gas is also good rail access.” have a large enough site on a navigable waterway with a Class 1 railway. That’s why PTT ended up in Ohio.”

Horvatich says that the wins are generally because of the users’ high demand for access to Pittsburgh’s best resources. For industrial and manufacturing, that now means access to the cheap, abundant natural gas for feedstock and energy. She says that for headquarters and regional office projects, the attraction is to the talent and corporate business that exists in Pittsburgh. In the years since US Airways pulled out of Pittsburgh as a hub, she says the lack of direct flights was an impediment to big office deals, but she cites the changes at the airport as an example of how the process works.

“That’s a typical example of what we learned from the disposition analysis. We feed that to the right people for action,” she explains. “In this case we didn’t have to, because Christina Cassotis is so good. That used to be one of the reasons but that is changing as flights have been added.”

The Attraction Business

Selling a region is no different than selling anything else. The hierarchy of the sales process is the same. Demand has to be identified. Awareness of the region has to be raised to those who have demand. Specific needs of those with demand must be identified and a response to the needs has to be refined The research and talent being developed at and presented. This is what happens CMU and Pitt are the primary attractions for when you buy a pair of shoes from a technology, healthcare and advanced materials good salesperson. It’s also what happens companies looking for critical locations. when someone like Shell says it will locate a plant in the region.

www.developingpittsburgh.com 11 FEATURE

The Shell project is actually a very good Atlanta, Dallas and Chicago to call those 125 qualified projects typically example of the process in Pittsburgh. on-site consultants and other influencing result in about 30-40 “wins.” Those are The seed for what is the largest business companies. We attend corporate real deals for new companies, expansion investment in Pittsburgh’s history came estate association conferences. We go or retention of businesses that were from former EQT CEO Murray Gerber. to industry-specific trade shows that are contemplating relocation. At the end of When Gerber served on the Allegheny relevant to our industry clusters like the the year, the leaders of the PRA measure Conference’s board, he raised the alarm medical devices manufacturers or North themselves on that hit ratio, just like any for the potential of the Marcellus Shale American petrochemicals.” other sales organization. play to the Conference and suggested that Western PA should be the location From the hundreds of inquiries Each of the ten counties represented in for an ethane cracker. No one else on the generated at any one time, the PRA the PRA’s footprint are partners to the board knew what an ethane cracker was typically responds to about 250 serious regional marketing effort, but each is at the time but the Conference put the opportunities each year. While there are also the business attraction arm of the PRA on the case. many additional opportunities that may individual county government. The PRA is take only a quick real estate reply or a supposed to be agnostic about where a “We started knocking on doors in reference – and training session – for deal might land, focusing on finding the Houston. We started doing speaking PittsburghProspector.com (the regional best site that meets the prospect’s needs, engagements in Houston,” says Horvatich. real estate data base used by the PRA), regardless of which county that site is

It turned out that there were companies in the industry that were already thinking like Gerber. The PRA then led a regional effort to identify sites, crunch demographic and workforce data, and learn as much as it could about the industry and what would make Shell choose Western PA. A coordinated state/ county/municipal effort put a package of incentives together and sold the Monaca site. All that effort resulted in Shell’s choosing the former Horsehead Corporation site as its preferred location. Then the real work began.

The PRA is a nine-person affiliate of the Conference that is built to respond to the requirements of companies like Shell. It exists to do research and marketing of the region. With the help of the Allegheny Conference’s many Regional Investors, the PRA leverages its own assets to create the response to opportunities as needed. In the case of Shell – and now Amazon – this response involves hundreds of entities. These high-profile responses are the projects that gain notice in the Pittsburgh business community but they represent the smallest piece of what the blocking and tackling of business attraction entails.

“We track projects from the Governor’s Action Team, DCED and the Pennsylvania Office of International Business Development. A lot of inquiries come from corporate real estate executives and site consultants, obviously,” Horvatich explains. “We host Retention and expansion of Pittsburgh’s key employers, like PNC Financial familiarization tours for site consultants. Services and JLL, have been key elements in the regional business strategy. We host media tours. We go to major markets such as New York/New Jersey,

12 DEVELOPING PITTSBURGH | Spring 2018 PNC REAL ESTATE | Successful commercial real estate owners, developers and investors can envision the properties of the future — even before the first sketch is made. PNC Real Estate shares that vision. As a top five originator,* we offer comprehensive banking insights, solutions and the expertise to put them to work. Whether you need construction, bridge or permanent financing; public equity or debt solutions; treasury management; risk mitigation; or loan syndications, know that we can help bring your vision to life.

To learn more, visit pnc.com/realestate.

REAL ESTATE BANKING | AGENCY FINANCE | TAX CREDIT CAPITAL | MIDLAND LOAN SERVICES

*Top 5 in originations among banks, MBA 2014 ◊ PNC, PNC Bank and Midland Loan Services are registered marks of The PNC Financial Services Group, Inc. (“PNC”). Treasury management and lending products and services, and investment and wealth management and fiduciary services, are provided by PNC Bank, National Association (“PNC Bank”), a wholly owned subsidiary of PNC and Member FDIC. Investment banking and capital markets activities are conducted by PNC through its subsidiaries PNC Bank, PNC Capital Markets LLC, Harris Williams LLC, Harris Williams & Co. Ltd. and Solebury Capital LLC. Services such as public finance investment banking services, securities underwriting, and securities sales and trading are provided by PNC Capital Markets LLC. PNC Capital Markets LLC, Harris Williams LLC and Solebury Capital LLC are registered broker-dealers and members of FINRA and SIPC, and Harris Williams & Co. Ltd. is authorized and regulated by Financial Services Authority (FRN No. 540892). PNC Bank and certain of its affiliates, including PNC TC, LLC, do business as PNC Real Estate. PNC Real Estate provides commercial real estate financing and related services. Through its Tax Credit Capital segment, PNC Real Estate provides lending services, equity investments and equity investment services relating to low income housing tax credit (“LIHTC”) and preservation investments. PNC TC, LLC, an SEC registered investment advisor wholly-owned by PNC Bank, provides investment advisory services to funds sponsored by PNC Real Estate for LIHTC and preservation investments. Registration with the SEC does not imply a certain level of skill or training. This material does not constitute an offer to sell or a solicitation of an offer to buy any investment product. Lending products and services, as well as certain other banking products and services, require credit approval. ©2016 The PNC Financial Services Group, Inc. All rights reserved. CIB RE REB PDF 1115-0104-200041 FEATURE

located. The county advocate, as you there is something specialized. We make Armstrong County, even though there might imagine, is not as disinterested. Not sure our information on regional and was no increase in footprint. Uncle all ten counties have dedicated economic state websites is accurate, and keep our Charley’s added a line to its plant in 2017 development departments, but all devote own website up to date to make sure it and Cook Medical put on an additional some resources to telling their story. accurately reflects what is available.” shift. Coonley doesn’t see the new focus changing in the foreseeable future. “We maintain strong relationships with Armstrong County’s executive director the commercial real estate brokerage of economic development, Mike “When we have the opportunity we will community. Companies looking to Coonley, says that his office has seen still put our hat in the ring but we don’t locate in the area or expanding usually the fruits of turning its attention inward have a lot of available buildings or sites,” hire a broker to assist. We keep good as much as outward. Coonley concludes. relationships with the brokers so that

they know what product we have and “We’re putting more effort into working One county that has ample land and that we’re a professional organization to with our existing businesses. We still do buildings, and has had great success with deal with,” says Jason Rigone, executive traditional marketing but are working both, is Washington County. Home to director of Westmoreland County more with Armstrong County companies,” Southpointe, Washington County became Industrial Development Corporation. “The he explains. “We looked at the top 15 the center of the Marcellus Shale play Governor’s Action Team and the PRA do a employers in the county and 12 of the over the past decade. With the Southern pretty good job of bringing prospects and 15 added to their payrolls last year. Most Beltway set to open within two years, identifying sites with their prospects. have job openings today. We’ve been Washington County will be positioned to focusing our efforts on trying to connect be at the heart of the energy play in the “We do advertising and marketing in people to employers.” Tri-State area, with assets in the upstream, regional publications but we don’t have midstream and downstream segments of to do much national marketing unless Coonley cites two examples of how the gas business. Jeff Kotula, president this focus brought more business to

14 DEVELOPING PITTSBURGH | Spring 2018 FEATURE

BUILDING SOLUTIONS • General Contracting • Construction Management

• Project Development • Design Build Services

209 Pine Creek Road • Wexford, PA 15090 • 412.837.1381 • www.bridgespbt.com

When it comes to advising our clients on construction matters, we’re all in.

It’s time to count on more. From our integrated business systems and tools, to our dedicated teams of experienced attorneys and professionals, our full-service construction practice never stops delivering the results you deserve. clarkhill.com | 412.394.2428

One Oxford Centre 301 Grant St, 14th Floor Pittsburgh, PA 15219

www.developingpittsburgh.com 15 FEATURE

of the Washington County Chamber that effort sharpened those collaborative of Commerce, credits the business chops further. environment that was created before the gas industry took off as a key to “One of the things that came from Washington County’s success. the HQ2 process is we learned more about the value and assets of the “Washington County’s success in region,” says Rigone. “That information attracting and, I would argue, retaining gathering process would be helpful for companies is due to a strong public/ the future. I think that process should private partnership for economic continue, to have a team ready to development. For nearly 20 years the respond on large projects.” Washington County Commissioners have worked in partnership with the One misconception about Pittsburgh, business community to keep taxes low, at least for outsiders, is that the acclaim to continue investment in business parks the region is receiving is something of and infrastructure as well as promote a an overnight success or the result of one single point of contact for businesses major company, like Google or Shell, seeking to locate or expand in the jump-starting the economy. The truth county,” says Kotula. “The stability of this is that the current favorable economic Petuum Inc.- Office Fit-Out partnership over two decades, and its conditions took a generation to achieve, focus on encouraging an environment with fits and starts along the way. What of long term-economic growth, has is impressive about the current situation prepared us to take advantage of – and the potential future economy – is opportunities such as the energy industry, how closely it resembles the vision that gaming, commercial development and was created as Pittsburgh’s future in the advanced manufacturing.” mid-late 1980s, when regional economic development leaders chose to focus The answer to the best business on five industry clusters. Today those attraction strategy seems to be a little of clusters – IT & robotics, business/financial this, a little of that and all of the above. services, healthcare/life sciences, energy, As new technology tools are becoming advanced manufacturing – have changed more available and Pittsburgh emerges slightly as technology has refined them, as a center of innovation, it’s also true but the strategy has proven effective. that the best business attraction strategy today won’t be the one that works best Imagine the result of the current trend Southern Tier Brewing Company - Pittsburgh in the future. some ten years hence. It’s very easy to see clusters of buildings driven by the “Even though we’ve been doing this Pittsburgh Health Data Alliance between and have had success on a lot of these UPMC, Pitt and CMU (there have already projects, we have to think differently been a dozen or more companies going forward,” warns Horvatich. “There inquiring) in South Oakland. There is is a lot of change in innovation and nothing far-fetched about Hazelwood technology. What might have worked Green as the home to millions of square for us over the years won’t work going feet of research and regional headquarters forward. We have to learn and talk about for global manufacturers looking to this convergence of innovation and adapt robotics to their processes. That technology with manufacturing and community may become the home for with warehousing. We have to look for autonomous vehicles, if the Strip District opportunities that will come from the and Lawrenceville haven’t already. innovation economy that was in the Business attraction will never become Point Park University Brookings Institute report.” an afterthought, but at that scale the Center for Media Innovation Horvatich makes a point that many in industries will become the drivers of the business attraction community make new business as much as any economic about the history of collaboration to development efforts. Leaders in Pittsburgh LANDAU BUILDING COMPANY solve problems in Pittsburgh. She feels and Harrisburg are obviously hopeful RELATIONSHIPS I REPUTATION I RESULTS the integration of government, corporate this comes to pass and are working on partners and foundations gets Pittsburgh the region’s other big business attraction some wins it wouldn’t otherwise. Many of concern: workforce development. 724-935-8800 I www.landau-bldg.com the people who worked on the Amazon HQ2 preparation have pointed to how “Another thing that Pennsylvania is

16 DEVELOPING PITTSBURGH | Spring 2018 focusing on is to make sure that we have a properly-trained workforce. We travel throughout Pennsylvania and meet with businesses all the time and what we come to see is that businesses are struggling to find properly-trained workforce,” admits Dennis Davin. “We have developed a number of training and funding programs, primarily around manufacturing. Last year the legislature approved a program we’ve been advocating for called Manufacturing PA, which allows us to help manufacturers by working with our universities and community colleges to make sure that they have the proper training programs to help these companies. We are also providing funding for apprenticeships. The number of apprentice programs we have NEXT architecture had in Pennsylvania increased by about 15 percent from 2015 and 2016. We know we need to do a much better job of that.”

When asked about what would make a next-architecture.net big difference in attracting business to ARCHITECTURE I INTERIOR DESIGN I STRATEGIC PLANNING Southwestern PA, Ruppersberger also looked to workforce.

“Preparing our workforce to do the work of tomorrow, whatever that takes,” he replied. “That’s different by industry. It may mean re-training coal workers for the natural gas industry or for work in a petrochemical facility. It may mean guiding our students into the right technology fields. Across all industries, it all comes down to that.”

Pittsburgh native Dennis Davin says the lessons learned from the hard work of the last 30 years shouldn’t be forgotten if business booms again in Pennsylvania.

“We learned a very valuable lesson in Pittsburgh, which was that you can’t rely on one industry. It was really good for a hundred years or so, but when the industry collapsed, I lost a lot of friends who moved to Houston because the oil and gas industry was hiring like crazy,” recalls Davin. “Pittsburgh has done a tremendous job of diversifying its When it comes to real estate, we see potential everywhere. economy and industries and that is the CBRE turns scale into strength, expense into performance, key for the rest of Pennsylvania too.” DP and property into prosperity. How can we help you transform your real estate into real advantage?

Build on www.cbre.com/BuildOnAdvantage Advantage

www.developingpittsburgh.com 17 CONGRATULATIONS TO FAROS PROPERTIES AND NOVA PLACE!

ARCHITECTURE PLANNING INTERIOR DESIGN

www.perkinseastman.com

18 DEVELOPING PITTSBURGH | Spring 2018 NAIOP PITTSBURGH AWARDS

BEST BUILD- TO-SUIT OFFICE 100 McMichael Road The project is a 37,500 square foot office building, which serves as corporate headquarters for The Gateway Engineers.

DEVELOPER: Sampson Morris Group

CONTRACTOR: Kacin General Contractors

ARCHITECT: Desmone Architects

BEST SPEC INDUSTRIAL 300 Crown Court Crown Court #300 is the third industrial warehouse building that has been developed by Ashford Partners, LLC in the Imperial Business Park. This 100,000 square foot, speculative building, offers numerous loading docks and drive in doors, significant windows and multiple entrances that allow for natural daylight and the flexibility for multiple tenants or just one tenant.

OWNER: Ashford Imperial Associates

DEVELOPER/BUILDER: Ashford Partners LLC

ARCHITECT: Ed Pope Architecture Inc.

www.developingpittsburgh.com 19 NAIOP PITTSBURGH AWARDS

BEST RENOVATION - OFFICE Nova Place Nova Place is the adaptive re-use of the former Allegheny Center Mall and two office buildings, comprising more than one million square feet. Nova Place, which has become home to numerous technology companies, also includes a 10,000 square foot fitness center, public concourse with free WiFi, 3,000 parking spaces and six restaurants, including the 190-seat Federal Galley.

DEVELOPER: Faros Properties

CONTRACTOR: BRIDGES & Co., Frontier Construction, PJ Dick, Rycon Construction, Turner Construction, Zeus Construction

ARCHITECT: Desmone Architects, Perkins Eastman, Pieper O’Brien & Herr, Strada, Stantec

BEST MIXED-USE DEVELOPMENT 3 Crossings 3 Crossings reconnects the Strip District neighborhood to the natural amenities of a revitalized riverfront and Pittsburgh’s Three Rivers Trail network. The $210 million, 20-acre mixed-use development includes 375,000 square feet of office space in four buildings; 300 residential units in The Yards; 1,200 parking spaces; a multimodal transportation facility; and connection to the future riverfront park. Notable office tenants include Rycon Construction, Robert Bosch, Target Cyber Securities, Petuum, and other technology firms. Burns White LLC and Argo AI have chosen to locate their corporate headquarters in the Riverfront office buildings

DEVELOPER: Oxford Development Company

CONTRACTOR: Rycon Construction

ARCHITECT: WTW Architects

20 DEVELOPING PITTSBURGH | Spring 2018 NAIOP PITTSBURGH AWARDS

BEST GREEN RENOVATION Energy Innovation Center Energy Innovation Center (EIC) is an 11,500 square foot expansion and adaptive re-use of the former Connelley Trade School. The 201,000 square foot building serves as a ‘living laboratory’ for industry-informed education and training programs and a center that co-locates diverse tenants, including private- and public-sector organizations, research laboratories and academic institutions involved in energy efficiency and leadership. EIC was certified LEED Platinum and is listed on the National Register of Historic Places and on the List of Pittsburgh History and Land- marks Foundation Historic Landmarks, making it perhaps the only LEED Platinum designed structure to qualify for Historic Tax Credits.

DEVELOPER: Pittsburgh Gateways

CONTRACTOR: Mascaro Construction

ARCHITECT: DLA+ Architecture & Interior Design

DRIVER OF DEVELOPMENT The PNC Financial Services Group When Jim Rohr joked about “the worst kept secret in the city” in announcing the plans for The PNC Financial Services Group’s new headquarters in 2011, he was talking about the last phase of a multi-year investment in Downtown Pittsburgh. PNC’s development of three major new buildings – as well as the renovation or repurposing of more than two million square feet of existing office buildings – helped catalyze the revitalization of Downtown. Its groundbreaking commitment to energy efficiency and indoor occupant wellness raised the bar on how Pittsburgh commercial buildings were designed.

For these reasons The PNC Financial Services Group is a driver of development for the Pittsburgh region.

Beginning with the construction of its First Side office building in 2000, PNC blazed a trail of LEED-certified facilities. The commitment to green building extended from its thousands of branch offices to operations/call centers and ultimately to its new headquarters, which was the “greenest” office building in the world when it opened in 2015. PNC developed two high-rise office buildings that anchored the turnaround of the Fifth/Forbes corridor, adding thousands of workers and shoppers – along with Pittsburgh’s only Fairmont Hotel – to drive the success of dozens of new restaurants and shops. Along with Millcraft Investments and Point Park University, PNC brought Mid-town Pittsburgh back to life from morning to midnight.

www.developingpittsburgh.com 21 NAIOP PITTSBURGH AWARDS

SUPPORTER OF DEVELOPMENT producing businesses. He also helped develop the Governor’s $650 million energy fund designed to reduce dependence on Dennis Yablonsky foreign oil and grow the energy economy in Pennsylvania.

Retired Chief Executive Officer, Allegheny During his service as Secretary of the DCED, he brought Conference on Community Development together both an economic stimulus program and the policies needed to support business growth, expansion Dennis Yablonsky became the Chief Executive Officer of the and location and to build economic vitality in communities Allegheny Conference on Community Development and its across the Commonwealth. affiliated organizations – the Greater Pittsburgh Chamber of Commerce, the Pennsylvania Economy League of Greater Dennis spent the first 24 years of his career working for and Pittsburgh, LLC and the Pittsburgh Regional Alliance – on March leading two successful software companies: Cincom Systems 24, 2009. in Cincinnati, Ohio and the Carnegie Group in Pittsburgh. At Cincom Systems, an independent software company based in A native of the Pittsburgh region, Dennis is an accomplished and Ohio, he progressed through the company’s organization to experienced veteran of managing and leading dynamic business eventually become chief operating officer and to help grow growth –as a private business leader, a nonprofit economic the company into a $125 million global organization. In 1987, development professional and a highranking appointed Dennis became chief executive government official. officer of the Carnegie Group in Pittsburgh. By 1999, he turned the He has grown companies from the ground up to a greater unprofitable enterprise into a $32 profitability and success both in the private sector and as the million publicly traded software founding CEO of the Pittsburgh Digital Greenhouse and the solutions company that became Pittsburgh Life Sciences Greenhouse, revolutionary models for integrated into Logica North the focused growth of technology companies. America.

Prior to joining the Allegheny Conference, Dennis served In 1999, Dennis became the as Secretary of Pennsylvania’s Department of Community founding CEO of the Pittsburgh and Economic Development (DCED) from February 2003 to Digital Greenhouse and, in 2001, October 2008. As Secretary, Dennis played a lead role in the the Pittsburgh Life Sciences development and implementation of an economic stimulus Greenhouse, innovative models for program that featured more than $3 billion of investment in the doing technology-based economic Commonwealth’s infrastructure, core communities and job- development.

22 DEVELOPING PITTSBURGH | Spring 2018 Nova Place Concourse & Plaza Congratulations to Faros Properties on the success of Nova Place

Turner is proud to have been a part of the Nova Place Concourse and Plaza projects helping Faros Properties revitalize and connect the surrounding neighborhood.

925 Liberty Ave., Suite 300 Pittsburgh, PA 15222 412.255.5400

IF YOU’RE READY TO BUILD, WE’RE READY TO DELIVER.

NAIOP Pittsburgh Banquet: Reflections on 25 Years

The annual awards banquet isn’t as old were about 30 members when I was As NAIOP Pittsburgh as the chapter itself. The banquet was selected as president-elect in 1992 and it part of a resurgence for NAIOP Pittsburgh was suggested that we take the $3,000 presents its annual in the mid-1990s, a resurgence that is NAIOP had in the bank, throw a party sometimes confused by people as the and close the chapter. I said let’s give it awards for the 25th chapter’s founding. NAIOP Pittsburgh was another year.” time on March 1, the actually founded 15 years earlier, when a group of developers and contractors Tarquinio was chapter president in anniversary provides made a visit to NAIOP Corporate and 1993. He found there were others in returned to start up a Pittsburgh chapter. the chapter who felt that the NAIOP an opportunity By the early 1990s, NAIOP Pittsburgh Pittsburgh needed new direction. They remained a small chapter that had trouble formed a new board and a core group to reflect on what attracting the interest of many of the of leaders set about raising NAIOP region’s developers. The man that many Pittsburgh’s brand. Those leaders the chapter has of his contemporaries credit with being included Deb Barron, Jack Klee, Larry the driving force behind the chapter’s Simpson, Margie Bly, Bob Dumler, Elaine accomplished growth, Ron Tarquinio, recalls that some Kirsch, Jim Scalo and Kelly Hoover of NAIOP Pittsburgh’s leaders felt the Heckathorne. Tarquinio credits Bob and what direction chapter shouldn’t be sustained. Stephenson for being a mentor to the group, along with NAIOP Corporate CEO it should take “I worked at Cushman & Wakefield with Tom Bisacquino. He also reserves special Deb Barron, who was chapter president credit to the women on the board. in the future. at the time. She was a strong leader and got me involved,” Tarquinio recalls. “There “The women on the board were very

www.developingpittsburgh.com 25 NAIOP PITTSBURGH AWARDS

involved in getting events and meetings of the steel industry so there wasn’t much here in Pittsburgh. The banquet was a planned,” he says. “We had monthly of an industrial market. If we didn’t do big deal for us. It has come to mean meetings at the Engineer’s Society. We something, there wasn’t going to be a real something to everyone in the industry.” called every developer that we knew and estate career for any of us,” jokes Oliva. invited them to the breakfasts. There was “At the core of it, we wanted to see good Elaine Hirsch and Bob Stephenson a nucleus of people and we started to get things happening for the region. For my organized the first banquet in 1994. It more attendance each month.” part, I talked to developers to sell them on was held at One Oxford Centre and the opportunities for education, advocacy drew about 200 people. A speaker from One of the main concerns of the leaders and promoting the industry. I thought Brookings Institute was brought in for his was the lack of developer involvement. NAIOP was the right platform.” unorthodox opinions about development. Except for Scalo, most of the membership As part of the banquet proceedings, consisted of service providers. Scalo and As NAIOP Pittsburgh grew its base awards for the best projects were given. Tarquinio enlisted Lou Oliva, an industrial membership, the leaders looked to The formula – bringing in national broker early in his career, to serve as capitalize on the growing awareness. speakers with challenging points of view, membership chairman. Oliva says when They began to look to other chapters and promoting the banquet to sponsors, they attended national conventions sought input from NAIOP Corporate. An recognizing projects and throwing a great they were impressed to see that the big idea emerged. cocktail party – became a success. NAIOP national developers were all involved in banquets began to draw 700 to 800 NAIOP, serving on most of the corporate “We learned from national what other people annually. boards. That stiffened their resolve to find cities were doing to gain momentum. ways to draw owners and developers into One of those was an annual commercial Jim Scalo was president of NAIOP NAIOP Pittsburgh. Their motives weren’t real estate awards banquet to raise Pittsburgh the year the banquet launched. entirely altruistic. awareness and money for the chapter,” Scalo added to the time he devoted recalls Hoover Heckathorne. “We went to the chapter by offering the services “You could call it self-preservation. to other cities and saw the energy the of Kelly Hoover as de facto executive Pittsburgh was still reeling from the loss banquet created, and we wanted that director. (“On Burns & Scalo’s dime,”

1995 1995 Ed Lewis, Lifetime Achievement

1994 1998 Southpointe, Fore Systems, Project of the Year. Build-to-Suit. Photo by Jan Pakler Photo by Michael Haritan

26 DEVELOPING PITTSBURGH | Spring 2018 REFLECTIONS ON 25 YEARS

Tarquinio adds.) That year, Scalo was “We took on Mayor Murphy over his one of Pittsburgh after the steel industry named National Chapter President of percent sales tax increase and that set the collapsed. (The groundbreaking white the Year at NAIOP Corporate’s awards tone,” notes Tarquinio. paper by Carnegie Mellon President Dr. banquet and the Pittsburgh chapter took Robert Mehrabian followed a few years home a handful of awards. From there, “NAIOP’s biggest accomplishment later.) Larry Simpson created a statewide NAIOP Pittsburgh took off. may have been fostering the alliance of stakeholders as president in camaraderie among peers and 1995 and pushed NAIOP to the fore in “Ron deserves credit for making some developers in Pittsburgh. Its next biggest advocacy in Pennsylvania. important changes to the awards in the accomplishment was the advocacy late 1990s. Ron put together very specific and involvement in political issues that Perhaps NAIOP Pittsburgh’s signature criteria and very specific categories for the improved the region,” states Mark Dellana, accomplishment was its advocacy for the awards,” recalls Leo Castagnari, executive executive director of development for completion of the I-79 and Parkway West director for NAIOP Pittsburgh. “He was Genesis Partners and president of NAIOP interchange, which culminated in the instrumental in making the awards Pittsburgh in 2008-2009. “Dick Donley re-designation of the Parkway as I-376. different from associations that just rotate (from Chasta Propery Advisors) said it PennDOT’s District 11 executive director the awards among the members. Ron best, you’re either at the table or you’re Dan Cessna called out NAIOP’s influence professionalized it, made the awards more on the menu.” in advancing the priority of the $100 objective than subjective.” million-plus project, which has catalyzed NAIOP Pittsburgh was a leading advocate development in the Airport Corridor and As the Pittsburgh chapter grew, so did on many of the issues that impacted in southwestern Butler County. its influence. The leaders of NAIOP commercial real estate and the business Pittsburgh saw advocacy as an important environment over the years. The chapter NAIOP Pittsburgh’s banquet and awards piece of the value proposition to its drove the formation of the Conference evolved as the chapter and real estate members. Advocating on behalf of the on Real Estate, a collaboration of real industry evolved over the years. development community became a key estate and construction associations to attracting developers as members. that funded the first benchmarking study “We felt that building up the chapter

1999 2004 Thomas Ridge, The Waterfront, Supporter of Development Best Mixed-Use

2001 Joseph A. Massaro, Jr., Lifetime Achievement

www.developingpittsburgh.com 27 NAIOP PITTSBURGH AWARDS

would build up development in the is facing. I wanted to help raise money be in front of those changes. region. We wanted to recognize all the and awareness. I want to see the chapter developers for what they were doing step up.” “We need to ensure that zoning changes well,” adds Oliva. “As the region changed, don’t negatively impact development. I the awards did too. We created a ‘Driver Domenic Dozzi, CEO of Jendoco want to make sure the BRT connection of Development’ category, which has Real Estate, agrees with Ambrose’s from Downtown to Oakland to only been given a few times. The first of vision of NAIOP’s role in the market. A Hazelwood Green actually happens,” he those went to the Hillman Cancer Center, past president of NAIOP Pittsburgh in says. “I think the connection between even though none of our members were 2006-2007, Dozzi believes some of the Downtown and the airport must be involved in the project. We felt that it was current successes are a result of NAIOP’s figured out. We’ll lose companies if we going to change the Shadyside corridor, leadership during the past two decades. don’t fix that connection.” and it did.” “I don’t think there is any way Pittsburgh “There will be disruption in each of The purpose that the banquet’s founders would even be in the conversation our niches in commercial real estate. intended seems to be part of the fabric of about an opportunity like the Amazon Millennials will become the buyers the banquet to this day. headquarters if NAIOP hadn’t been and they think differently from earlier as proactive about creating an generations,” he continues. “We have “The banquet ties to how Pittsburgh is environment that was good for to continue to ask ourselves why we’re transforming. As a city and as an industry, development,” Dozzi says. doing things the way we are. We have we are at an inflection point,” asserts to come up with new ways to serve our Jim Ambrose, director of business Ambrose came to the industry after clients and I think that will be through development for Desmone Architects. working in the technology sector for a new technology. Pittsburgh is where that Ambrose is one of the co-chairs for startup that grew into an acquisition. He is going to happen.” the 2018 NAIOP Pittsburgh Awards sees disruptions coming to commercial Banquet. “I believe NAIOP ought to be a real estate development in the coming “Initially I got involved with NAIOP for champion for the issues that the region decade and believes that NAIOP should networking. After being back in Pittsburgh

2006 2013 Stone Quarry Crossing, Sally Haas, Renovation Supporter of Development

2009 CONSOL Energy Headquarters, Build-to-Suit Office. Photo by Jan Pakler.

28 DEVELOPING PITTSBURGH | Spring 2018 REFLECTIONS ON 25 YEARS

after 15 years, I had a lot of catching up to developers. We should have input,” he Mark Dellana misses that “yinzer” attitude. do. Jason Stewart suggested that NAIOP stresses. “The leaders didn’t ask us to start Working in West Virginia for the past was the best professional organization making decisions back in the day but we decade, he recognizes that he took to join,” notes Jackie Bezek, brokerage pushed them out of their comfort zones for granted the hard-working ethos associate for JLL and co-chair of the to do new things. I look at the airport of an organization on the rise that he 2018 NAIOP Pittsburgh banquet. “What I corridor today as an example. NAIOP experienced during his dozen years have enjoyed the most is the education. should be taking the lead in studying serving on the board of NAIOP Pittsburgh. I really rely on NAIOP to spot the trends. the transit needs and recommending Going forward I know there are a lot of approaches to the marketplace.” “You don’t realize what you have until disruptive technologies that are going you don’t have it,” says Dellana. “Now to create change in our industry and I’m Dozzi hopes that the progress being I’m working in a state without a NAIOP counting on NAIOP to keep me informed made doesn’t alter the culture of the chapter. I realize now how much we about those changes. region. He recalls visiting Nashville last shared information and helped each other, year for the first time in 15 years and even though we were competing for the “I know NAIOP has been huge with being saddened that the original vibe he same tenants. That camaraderie we have advocacy. There are issues, like felt about that city had been replaced by in NAIOP Pittsburgh is unique.” DP permitting, that will need to be addressed the artifice of a tourist destination. and I expect NAIOP will continue to be the advocate for our industry.” “I would hate to see Pittsburgh lose its identity. I don’t think that it will, but When asked what he sees for the future sometimes when cities boom, their of NAIOP Pittsburgh, Ron Tarquinio urges character is lost. I would hate for us to a return to the chapter’s roots. lose our oddball nature. I would hate for there not to still be a little of the ‘yinzer’ in “NAIOP should challenge the leaders us,” he says. again. This is our town. We’re the

2015 Carnegie Robotics/Heppenstall, Industrial Renovation

2013 2016 Mark Schneider, Zenith Ridge II, Lifetime Achievement Speculative Office

www.developingpittsburgh.com 29 P L A N N I N G

P R E F A B R I C A T I N G P R O J E C T S U C C E S S

www.mckamish.com Development Project

Image by Perkins + Will from Hazelwood Green Master Plan. Use courtesy of Almono LLC, October 2017.

Renaissance 3 Architects will deliver the for which Rebecca Flora is the principal. HAZELWOOD GREEN first phase of Mill 19, a 95,000 square Flora, who is known in Pittsburgh for foot research and office building in April her groundbreaking work at the Green n October 13, a group of regional 2019. The building will be the home to Building Alliance, is an urban planner dignitaries and guests gathered at the Advanced Robotics for Manufacturing and is the authorized representative of the former LTV coke works site in O Institute (ARM), which was founded by Almono LP and the project director for Hazelwood to announce the re-branding Carnegie Mellon University and funded Hazelwood Green. of the ambitious redevelopment of the by an $80 million Department of Defense site to Hazelwood Green. Originally grant and $170 million in capital from “Right now, we are going through a series named Almono by the four philanthropic 220 partner organizations. ARM will take of reviews. The partners just saw the plan foundations that purchased the property 60,000 square feet of the first phase to at the beginning of February. We gave in 2002, the 178-acre Hazelwood Green research and develop applications for them a sense of what was in the plan to had reached a critical point of departure manufacturing. make sure that everyone is on board,” in fall of 2017. The ceremony marked explains Flora. “After that we will do a peer the start of vertical development and While Mill 19 marks the culmination review and present to City Planning for the culmination of a year of ownership of more than 15 years of planning and an informal review. We will share it with transition, branding and planning. development, Hazelwood Green is RIDC and Oxford and other entities from actually still in its early stages in many which we want to get input. Following Construction is underway on the first ways. For a variety of reasons, a significant that we’ll take their comments and we building in Hazelwood Green. (Technically amount of the planning for the site will have a version that will be a formal speaking, there are buildings on the required revision when the partners Preliminary Land Development Plan Uber test track but more on that later.) hired ReMake Group in November (PLDP) submission. I am projecting that it The Regional Industrial Development 2016. ReMake is an urban planning and will be middle to end of March when we Corporation (RIDC) and its team of community development consultancy have the public document available.” Turner Construction, MSR Design and

www.developingpittsburgh.com 31 RIDC INNOVATION RIDGE Warrendale, PA 15086 Leasing Inquiries? Contact: Emily Sipes, 412.697.3203 or [email protected]

Rt-19 I-79

I-76

Innovation Ridge ▪ North submarket - located off I-79 near I-76 and Rt 19 ▪ Parcels ready for development

HIGHEST AND ® BEST USE... opportunities and constraints strategically transformed

CEC uses informed analysis to identify and harness the potential of each site’s unique conditions, creatively enhancing value while delivering a conscientious integrated design. CEC’s consulting services are utilized by owners, facility managers, developers, architects and contractors at all points in a property’s life cycle.

Services Photo courtesy of Ed Massery Photography ► Site Selection / Due Diligence ► Geotechnical Engineering ► Planning ► Construction Phase Services ► Land Survey ► Building / Site Operation & ► Landscape Architecture Maintenance ► Civil Engineering Services ► Construction Management Expertise ► Acquisition ► Management ► Development ► Redevelopment Offices Nationwide | www.cecinc.com | 800.365.2324 The new master plan for the site has beyond single-occupancy vehicles. The “Part of the idea in hiring ReMake was to major goals that are ambitious and community has been registered to meet help with this transition in management,” unique for a development in Western PA, LEED for Neighborhood Development says Flora. “The partners turned over regardless of the size of the project. standards. Moreover, elements of the the parcels to RIDC to go vertical. RIDC more stringent Pittsburgh p4 Performance had done what they do best, which is to “You do master plans, but master plans Measures, Living Community Challenge prepare the site and get the infrastructure evolve. No one was screaming density and WELL Community Standard have done. RIDC is currently the only ten years ago. The plan has continued been incorporated into the planning, developer on site and it’s specific to the to densify,” says Don Smith, CEO of the which has been led by ReMake Group and parcels they own, which includes the Mill RIDC. “We were always thinking it would Perkins + Will. 19 property and the land between that be highly sustainable, but the sustainability and Second Avenue.” target has continued to go higher and A new PLDP comes after the investment higher so that there are some really top of $60 million in public infrastructure, “We wanted to find a way to migrate our of the industry sustainability standards for remediation and entitlement work. It also role from managing the site to vertical the site. Those are projects and standards coincides with a change in ownership in developer, because there really ought to that haven’t been done in Pittsburgh.” the partnership that purchased the site in be a private developer managing the site,” 2002. Hazelwood Green was originally says Smith “It really should be someone Overarching the market considerations owned by Almono LP, a partnership of who has great experience doing world- and programming is a goal for sustainable the Claude W. Benedum Foundation, class developments of scale managing development that encompasses the Heinz Endowments, R. K. Mellon this. We don’t do residential, we don’t do environmental responsibility, Foundation and the McCune Foundation, hospitality or mixed use. This site really transportation and wellness. Hazelwood which has since withdrawn from the cries out for a deep-pocketed, visionary Green endeavors to establish project. RIDC was brought on as the master developer.” neighborhood planning that allows general partner of Almono LP. By summer for the future of mobility (including of 2016, it was agreed that RIDC’s role Smith’s observation about a visionary aerial gondolas), adopting the Vision should change. developer matches well with what is a Zero goals of no fatalities and looking potentially transformational development.

Photo by Aerial Impressions. Use courtesy Heinz Endowments, October 2016.

www.developingpittsburgh.com 33 Mill 19 is a three-story office and research facility being built within the steel skeleton of the former mill. Rendering by MSR Design, Ten X Ten and R3A.

Hazelwood Green’s location creates “We’ve seen benefits from the site already Robotics has been gradually seeping possible linkages from Downtown, because there has been development down the Allegheny Riverfront from Oakland and the Pittsburgh Technology within the neighborhood and people the National Robotics Engineering Center deep into the Mon Valley. Its are talking about more development Center (NREC) below the 40th Street proximity to Carnegie Mellon and along Second Avenue,” observes Corey Bridge, adding more than 2,000 jobs Pitt, and the successful landing of the O’Connor, city council representative for to the economy. The move by ARM to ARM initiative, offers the possibility of Hazelwood. “The community has also Hazelwood Green puts the research a strong incentive to finally create a seen a benefit from job training. We’ve capabilities of Carnegie Mellon and transit solution that makes the site seem been working with the trade unions for NREC at the center of the search for like an extension of those Oakland skills training for construction, computer the future of robotics, with $250 million institutions. The project’s sheer size can training and people skills. There has been backing it. It is a field that is exploding, be transformational to the surrounding a negative impact in that some people pairing technology with the problems community, which will see employment have begun buying up properties and we of manufacturing in the U.S. The pace and commercial opportunities that don’t know anything about them or their of development in robotics suggests haven’t existed for a generation. intentions.” that ARM could attract manufacturers and research partners that could fill up “The amazing thing when you look at Hazelwood Green is one of the sites in Hazelwood Green not too far into the a map of where the site is, Hazelwood the mix for the Amazon HQ2 competition 2020s. Green is really the donut hole. When you that Pittsburgh has entered. The full eight look at all the redevelopment that has million square foot buildout Amazon “ARM is very excited to be part of taken place on the South Side, Oakland, promises may not fit fully on Hazelwood Pittsburgh’s focus on manufacturing of the Homestead, and then you have Squirrel Green’s footprint, but the new PLDP should future and advanced manufacturing. We’re Hill, one of the wealthiest neighborhoods allow enough density and mixed uses that excited about the focus that Hazelwood in the city. This site is surrounded by the logistics and online sales company Green will bring to that,” says ARM successful development,” says Tim White, could establish a major presence. Amazon spokesperson Susie Cribbs. “We’re happy vice president of development for RIDC. is still “two in the bush” at this point but the to be partners with Carnegie Mellon, RIDC bird in the hand is ARM. and the Hazelwood Community.”

34 DEVELOPING PITTSBURGH | Spring 2018 Innovative technologies Advanced sustainability Another great experience

Congratulations to Pittsburgh Gateways Corporation. Mascaro is honored to be part of your team for the conversion of the historic Connelly Trade School into the LEED® Platinum Energy Innovation Center.

www.mascaroconstruction.com B U I L D WITH C O NFID E N C E executed the construction of the on-site infrastructure, which ended up costing around $30 million.”

RIDC brought in Perkins + Will in 2015 to take another look at the master plan that Rothschild Doyno had completed and was approved as the PLDP. The emergence of new technology companies in Pittsburgh, and the increased interest in higher density for the site, caused the partners to look anew at the potential. As if to validate that rethinking, Uber became Almono’s first tenant in 2016 when they built their test track on about 40 acres on the easternmost portion of the site. As the new master plan is being crafted into what should be the final PLDP, Rebecca Flora isn’t complaining about the delays that have occurred.

“Since 2002, the market has evolved dramatically in Pittsburgh,” she observes. Photo provided courtesy of Carnegie Mellon University “Between the changing plans of the Mon-Fayette Expressway, the Great Recession and the changes in the “The fact that CMU has located its ARM quickly as possible. Since residential market, it’s probably great that it took this Institute there is huge. I don’t think we absorption outpaces all other property much time.” talk enough about the importance of types, the first master plan by Urban opportunities for manufacturing in the Design Associates was more heavily While the final PLDP details are being region,” says O’Connor. “Manufacturing weighted in residential. The usable developed, the broad brush strokes represents a tremendous opportunity for portion of the site was also smaller, as the of Hazelwood Green have been people in communities like Hazelwood, proposed Mon-Fayette Expressway was to established. The portion of the property where most of the residents have only a take 45 acres of the site and there were to that RIDC owns is the middle section, high school education. Manufacturing is an be 80 feet of ramps constructed near the known as the Mill District. It includes Mill ideal fit for employment in that community.” Hot Metal Bridge. Things changed. The 19 and parcels to the north that could expressway plans died. CSX, which had accommodate about 500,000 square Developing facilities for the future of planned to abandon the Panther Hollow feet of buildings. To the west, extending manufacturing was not part of the line because it could not double-stack to the Hot Metal Bridge, is the section thinking when the four foundations found through its tunnel, decided to lease known as the River District. This piece themselves acquiring the property. At the the line to Allegheny Valley Railroad, will have higher density. time LTV closed, there was a proposal killing Almono’s plan for a transit link to for another coke plant. There also was Oakland. A global financial crisis followed. “The river will have opportunity for taller a proposal to move the tow pound and As economies began to heal, Almono’s buildings and higher density as it gets the cell salt piles for the city to the site. owner took a fresh crack at planning for closer to the Hot Metal Bridge. That is The foundations thought there was a the project. where the downtown views are. That will better use for a property with a view of also be the more likely location for high the Cathedral of Learning and Downtown, “Around 2010-2011, there was a vision rise residential,” explains Flora. “Closer to located a mile and a half from Oakland. process facilitated by Rothschild Doyno the roundhouse, there’s more potential Collaborative,” recalls White. “In 2011 we for light industrial or other low-density “The foundations decided they needed to began the engineering to begin dealing use. The Flats District is planned to be the buy this, so they could take a purposeful with the moonscape of piles of dirt and location for lower density residential and approach to realizing the value that this began the process of creating the core potentially any neighborhood or service- side represents. And they needed us to road and utilities through the site. And oriented retail.” manage that process,” says Smith. we began the financing process. By late 2013 we had achieved the rezoning of The street grid of the Flats will weave into None of the four foundations were the site, the tax-incremental financing the existing street grid of the adjacent experienced real estate developers or (TIF). received money for the RACP grant Hazelwood neighborhood, with lower planners, however. Their desire was to for the infrastructure, and transportation density and shorter buildings. This portion develop what was called Almono as money from PennDOT. From there we of the site is the farthest east and the

www.developingpittsburgh.com 37 last to be developed, as Uber has several “That is something we can commit to. We plan. Smith and White say that there is years left on its lease. will be following LEED for Neighborhood strong interest for an occupant for the Development,” Flora says. “The other second phase of Mill 19, which would “The one thing I will say very strongly thing we are doing voluntarily is to follow likely trigger immediate interest in the about the way we’re approaching the metrics of other sustainable standards third phase of the building within a this plan is that we’re doing a more and doing our own self evaluation against building. Because the third phase is performance-based plan, which allows the Pittsburgh p4 standards. The Living limited to around 100,000 square feet. for ranges that can adapt to changes in Community Challenge is sort of a reach Smith thinks there’s a good possibility the market. The previous plan was much goal that we are continuing to work that the third user may kick start larger more prescriptive,” continues Flora. “We towards. Because we are going for LEED development at its adjacent parcels. are trying to be more adaptive to the plan certification it will make it easier for market. What shows in the plan is more vertical developers to follow along with Both Flora and the RIDC acknowledge of what is the right mix of residents to sustainable building.” that, while they cannot talk about any jobs on the site to have vitality on the site. specific prospective tenants, a review We have a metrics of how many jobs per Among the strategies being employed of the partners of the ARM Institute or square mile and how many residences per to achieve LEED for Neighborhood the players in the autonomous vehicle square mile, so we get a job to housing Development certification, much of industry will yield some educated guesses. ratio. As an example, in the Flats District the sustainable design centers on Tim White sees Mill 19 as a catalyst that ratio is one-to-one. So, for every job mobility and multi-modal access for for creating decisions among these created there’s a housing using whereas pedestrians, cyclists and mass transit technology companies. in the River District it’s more like seven- riders. Stormwater management will to-one.” involve best-practices for handling the “The key thing for the region, particularly runoff without adding to the sewer this tech sector, is creating the Another component of Hazelwood infrastructure. Much of the planning environment so that one of these other Green’s plan is its emphasis on sustainable will be related to energy-efficiency and players scales to at least Uber’s size,” he development. Flora acknowledges that it reductions in water and energy usage. predicts. “What we are doing is instigating is too early to prescribe that the vertical The partners also have an interest in the market by putting a few hundred development be certified to LEED or district power generation and a goal of people down here in high-tech, high- other green building standards; however, net zero usage. wage jobs so that the developer can see she says the Almono LP owners have how the vision will unfold.” DP committed to the standards of LEED for While the PLDP undergoes its revisions Neighborhood Development. this spring, the first vertical development has begun under the existing approved

The construction of Mill 19 will be done in three phases. Use courtesy RIDC.

38 DEVELOPING PITTSBURGH | Spring 2018 “To Build a winning environment with Integrity, Respect and Passion to achieve �lient �a�s�ac�on” FRANJO CONSTRUCTION CORPORATION

OFFICE•RETAIL•HOSPITALITY•WAREHOUSE/ INDUSTRIAL•ASSITED LIVING•INTERIOR/ EXTERIOR RENOVATION•MULTI-FAMILY

General Contractors

F�� .

Contact: Carl Belli - carl��ran�oconstr�c�on�co� ��ran�oconstr�c�on�co� 412-462-4371

FRANJO CONSTRUCTION CORPORATION 335 EAST 7TH AVENUE HOMESTEAD, PA 15120 WWW.FRANJOCONSTRUCTION.COM hfflp.com proven results in real estate capital markets solutions

HFF PITTSBURGH One Oxford Centre, 301 Grant Street, Suite 1100, Pittsburgh, PA 15219 (412) 281-8714

DEBT PLACEMENT | INVESTMENT SALES | EQUITY PLACEMENT ADVISORY SERVICES | LOAN SALES | LOAN SERVICING

P M A NAIOP PM

We Are Building

412-942-0200 St. Elizabeth of Hungary Church [email protected] RSH Architects Photo by Massery Photography www.volpatt.com

Delivering quality construction since 1991 in the institutional, industrial and commercial market.

40 DEVELOPING PITTSBURGH | Spring 2018 Developing Trend

development perspective. He wants to The Pittsburgh Urban Redevelopment THE NEW see something that really helps in the Authority (URA) approved a plan overall area.” on February 8 that will enable the LANDSCAPE OF development of the City’s Edge Davin says that Wolf is taking a look at Apartments in the Hill District, which will PUBLIC SUBSIDY the whole of the business climate in include 74 units of affordable housing Pennsylvania, which means that many of the total of 106 apartments. The URA FOR DEVELOPMENT improvements in business conditions – agreed to divert up to $6.8 million in like the early elimination of the Capital parking tax revenues generated by a new here are a number of ways in Franchise Tax – reduce the revenues 423-space garage to be built at the site which public/private partnerships available to assist in development. at 1400 Colwell Street over 19 years to T (P3) play out, but one of the most help pay for affordable housing. Under direct forms of P3 relationships is the use Attorney Jeff Mills, a real estate partner at the proposal, 75 percent of the parking of public grants and loan assistance to Cozen O’Connor’s Real Estate Practice taxes will be re-directed to the project’s make private development feasible. Like Group, talks about two projects that owner to pay the $4.1 million loan the real estate industry, public support reflect the changing landscape. His client, needed to finance the affordable housing for private development has had a Mills Brothers, purchased the shuttered component of the project. cyclical past. Owens Illinois plant in Clarion, with the intention of revitalizing the property To some extent, parking is at the Tom Ridge, when he was governor in for multi-tenant use. The plant once heart of the need for subsidy in urban the mid-late 1990s, poured millions into employed 1,500 people as the biggest development. As planning standards have public construction and private incentives employer in Clarion County. The project moved to encouraging more density, the as part of his Jump Start program. has the kind of far-reaching impact that requirements for parking have increased Governor Rendell was even more PA wants to incent. the need for garages as part of the vertical generous, expanding the Redevelopment development. Until there is a paradigm Assistance Capital Program (RACP) to “Clarion County, the borough and the shift in transit, construction of new office, exceed the $3 billion bond issuance limit school district provided Tax Increment apartments and mixed-use in the urban he was given. Governor Corbett was Financing (TIF) to do 100 percent of centers will carry parking requirements a fiscal conservative who pared back the project. We closed on the TIF in with the entitlements. This is especially the RACP and other programs as the February,” Mills reports. “But we were able true in Pittsburgh’s tightest real estate Commonwealth’s budget came to leverage the TIF into a Business In Our market, Oakland, where vacant land is under tight scrutiny by the Sites (BIOS) funding. PA awarded a $4.5 nonexistent and surface lots are being Republican legislature. million BIOS loan and also awarded a $1.1 gobbled up for vertical construction. million BIOS grant.” Today, Governor Tom Wolf is constrained Regardless of where the project is by the same budget concerns – and Tax Increment Financing and Local located, parking garages don’t make bigger battles – than his predecessor Economic Revitalization Tax Assistance money for the landlord. In neighborhoods faced. He also has a different philosophy (LERTA) are two of the vehicles that where there is available land for structured about the distribution of grants and municipal government can use as parking, like the North Shore, Strip District enhanced loans. The result is a smaller incentives. Both involve deferring tax or Bakery Square, construction costs pond from which developers may fish for revenues for a period of time, usually for garages are $20,000 to $25,000 per subsidies at the state level, and a larger 10 or 20 years, with the purpose of space. In tight markets, like Oakland, the role for local communities. gaining an asset that will offset the costs can run north of $30,000 per space. lost revenues over the long haul. You “We still provide RACP grants throughout can see the positive impact of such a Schenley Place is a good example of the state of Pennsylvania, probably not to strategy in South Fayette Township or how subsidized parking makes a project the extent that was done in the Rendell West Allegheny School District, which work. Developer Elmhurst was required to era, but we just announced a number deferred taxes from The Pointe in the build 170 spaces of parking for a 105,000 of awards in December,” says Dennis late 1990s in order to make development square foot office building. That added Davin, secretary of the Department of of millions of square feet of commercial roughly $50 per square foot to the overall Community and Economic Development property possible. Pennsylvania’s gaming cost of the project, or 25 percent of the (DCED). “What Governor Wolf has asked industry also provides revenues for county construction cost. Even though Schenley us to do is to be judicious about how governments to use in granting projects Place is earning the highest rents in the we provide those RACP funds to take from the Community Infrastructure city, the cost of the parking garage made a really strong look at good economic and Tourism Fund (CITF) and Gaming the project less desirable for investors development projects, things that really Economic Development Fund (GEDF). and the developer. Elmhurst received $1 make sense and that create a benefit Communities are also becoming creative million from Redevelopment Assistance from a job creation or community in devising other incentives. Capital grants (RACP) and a grant from

www.developingpittsburgh.com 41 the County Infrastructure and Tourism Fund (CITF).

“Parking is a different animal. If Schenley Place was downtown where there was public parking, we would not have needed the grant,” explains Bill Hunt, Elmhurst’s CEO. “The building is in Oakland and there is no place to park in Oakland. That parking is not an economical part of the rest of that building. You need to have a certain amount of parking and it’s just so uneconomical. That’s why they’re called public parking authorities. There are very few if any private developments that occur with parking.”

In the Strip District, at Oxford Development’s 3 Crossings project, the dynamics were a bit different. There was land for parking but the density requirements, riverfront proximity and economic potential of the development dictated that the land be filled with buildings. The desire Save the Dates for the available horizontal public space was for green space and access to the riverfront, not parking lots. The solution was a parking garage. Designed as a multi-modal April 12 - Connect with CREW garage, The Hub is a 590-space garage that cost almost $13 million to construct. Oxford attracted $1.5 million from the The Century Group RACP program to help with the infrastructure costs for the development, which is expected to cost $130 million when completed. Upon full occupancy, there are also expected April 24 - Breakfast Panel to be about 750 employees working at 3 Crossings. Omni William Penn Hotel Perhaps the best example of how public/private partnerships have worked in Pittsburgh is Bakery Square. It’s also an example of how the prevailing winds have changed. April 30 - Annual Golf Outing The original project, which cost nearly $150 million and involved the former Nabisco plant, received more than South Hills Country Club $12 million in TIF financing, historic tax credits and a NEW Location! Department of Environmental Protection grant. Bakery 2.0 landed $2 million in federal aid and $4 million in RACP funding to help with the $130 million investment. Walnut Capital’s president, Todd Reidbord, says the combined May 22 - Luncheon projects, which are home to Google Pittsburgh, created some 2,000 jobs. But a spokesperson for the Governor’s Omni William Penn Hotel Action Team noted that most of the subsidies came at a time when the project’s success and the local market were June 22 - Sporting Clays Shoot uncertain. It was their opinion that the project wouldn’t attract the same level of public investment today.

Seven Springs “We understand that there is a delta between what you can lease properties for and what it costs to build them. That’s where we can help out,” says Davin. “We do have July 19 - Connect with CREW the Redevelopment Assistance Capital Program. We can The Duquesne Club work with the local redevelopment authorities to look at tax increment financing and what we can do to match some of Back by popular demand! that funding. There are also other kinds of programs we will look at if there’s job creation, like Pennsylvania First or PIDA or job creation tax credits.”

County Executive Rich Fitzgerald says that Allegheny County has shifted its focus and criteria for assistance as well. www.crewpittsburgh.org [email protected]

42 DEVELOPING PITTSBURGH | Spring 2018 “It needs to develop benefit for more than just the development itself, but also help develop the community,” Fitzgerald suggests. “We’ve been involved in certain neighborhoods where there had been blight and we would have subsidized almost any kind of development there to prime the pump. Now we are being a little more discriminating about what is involved in the project. For example, in residential projects we want affordable housing as part of that mix. In neighborhoods that have started to come back, VALUED like Lawrenceville, East Liberty or the Strip District, the market will take care of the revenues that will come into the developer. Before we’re willing to give a TIF or LERTA RELATIONSHIPS or some other tax incentive there has to be a percentage that goes towards affordable housing and or some public ... built on our commitment benefit like a park or a trail.” to client service. Fitzgerald cautions that the evaluation of need is on a case-by-case basis, meaning that communities that haven’t seen the benefits of Pittsburgh’s turnaround – like the small towns in the old industrial river valleys – • Construction would be more likely to receive assistance for a good • Corporate & Business Law project without regard to end use. As a rule, however, he says the county is looking to see a multiplying effect • Creditors’ Rights & Bankruptcy from any assistance. • Employee Benefits “For business development, it should be something that • Employment Law is of benefit to all of the community or brings wealth into the region, like manufacturing or research and • Energy, Utilities & Mineral Rights development rather than just retail, which spreads the • Immigration wealth around,” he says. • Insurance Coverage Retail development may still have its champions at the local level. LRC Realty, which Jeff Mills also • Intellectual Property represents, found no interest for assistance from • International Law Allegheny County in redeveloping Northway Mall, but they found receptive partners in Ross Township and • Litigation & Dispute Resolution North Hills School District. • Private Clients “Northway was the first enclosed mall in Pennsylvania. It • Real Estate & Lending was developed in the 1950s so there was no stormwater plan and it had terrible issues with stormwater • Sustainable Development management,” Mills explains. “Ross Township wanted that improved. The township and school district stepped up to the plate to take on 50 percent of the TIF and a step-down LERTA for the second phase. LRC needed help with the infrastructure to make it work. A big problem for McKnight Road has been solved and the community gets a revitalized commercial asset.” This kind of “win-win” scenario seems to be the emerging subsidy model, where the wins on the public side are measurable and politically defensible. DP Henry W. Oliver Building 535 Smithfield Street, Suite 1300 Pittsburgh, PA 15222 412.456.2800 | muslaw.com

www.developingpittsburgh.com 43 Quality. Excellence. Integrity.

For over 65 years, A. Martini & Co. has been providing construction management and general contracting expertise to meet your project needs. www.amartinigc.com | 412.828.5500 Eckert Seamans Denmarsh Studios Eye on the Economy

egardless of where in the business sector had reversed. The downward trend Within the headline change in cycle you measure the economy, in manufacturing continued in 2017. employment trend there is a counter R relative health always starts with trend that is very friendly to commercial jobs. Whether you are examining the U.S. While most observers were slightly real estate. As the maturing business cycle economy or the vibrancy of Pittsburgh’s disappointed with December’s national has provided for fewer new jobs over the economy, employment was the headline job creation numbers, the employment past four years, the share of jobs created story for 2017. growth for the full year outperformed in the office-using sectors – Professional almost every forecast. Some nine years and Business Services, Financial Activities, Employment growth returned in into the expansion cycle following the Information, Other Services and Pittsburgh during 2017, likely matching 2008-2009 shock, employers added Government – has grown significantly. the optimistic forecasts of 1.5 percent. an average of 170,000 jobs monthly Increases in employment in these sectors Hiring grew by an average of 11,625 jobs in 2017. That was a decline of 10,000 drives demand for office space and monthly in 2017 but that average is well compared to 2016, but a steeper decline absorption in commercial development. below the trend. Job creation increased was expected. More to the point, the steadily throughout the year, with the job creation outpaced the growth in An analysis by Newmark Knight Frank of monthly average reaching 16,000 jobs workforce by about 100,000 jobs per the Professional and Business Services in the fourth quarter. In fact, December’s month. That accounts for the decline in sector found that category to be growing job growth of 19,300 was the highest unemployment across all measures, with at a rate of 500,000 to 600,000 jobs year-over-year in 2017. Although there the headline unemployment rate falling to each year from 2014 through 2017. That have been later revisions that deflated the 4.1 percent. sector’s share of the total number of preliminary jobs numbers in several of the jobs added increased from 19.9 percent most recent years, the consistent strength January’s job numbers provided the first to 26.5 percent during that span of of employment gains in 2017 suggests indication of what impact the Tax Cuts time. Newmark’s report on this trend that the trend of flat employment and Jobs Act will have on employment noted, “These are high-wage positions changed significantly last year. growth. The Bureau of Labor Statistics that drive demand for office space—and reported on February 2 that employers Class A apartment units—and which Within the numbers, there was growth added 200,000 jobs in January, with have supported strong national office in sectors that support development, like wages rising 2.9 percent year-over-year. market fundamentals during the current hospitality, retail and financial services. Those wage increases, along with the expansion cycle, including 19 million The end of the year saw big gains in higher take home pay that most workers square feet of net absorption during the the mining, logging and construction should see in February, should support first three quarters of 2017.” categories, reinforcing the anecdotal consumer spending and investment. evidence that the decline in the energy

While the number of jobs created has fallen since 2014, the share of office-creating jobs has risen. Source: Newmark Knight Frank.

www.developingpittsburgh.com 45 For this trend, as well as others driving In PNC’s forecast for the coming two Stagnant wage growth nagged the more absorption, to continue, the overall years, its economists are bullish on wages, recovery throughout the long recovery economy will need to grow at a pace that moderately optimistic about GDP, and and expansion period, only rising above is at least the equal of recent years. Virtually slightly bearish on exports and capacity two percent in 2016. With unemployment all economists are expecting that will be utilization. at 4.1 percent – and PNC forecasts the case for the next two or three years. unemployment to fall to 3.8 percent in 2019 – consistent job creation over the past two years has finally created upward pressure on wages. PNC predicts weekly wages will rise three percent in the coming year and 3.3 percent in 2019. Rising wages should push inflation consistently above two percent for the next couple of years, giving impetus to the Federal Reserve to raise rates throughout 2018 into 2019. In its outlook for rates in the coming years, PNC forecasts that the 10-year Treasury note will reach three percent again by 2019.

PNC forecasts that GDP will grow 2.7 percent in 2018, helped along by incentives for business investment and consumer spending that result from tax reform, and fall back to 2.1 percent in 2019. Conditions supporting manufacturing are not expected to improve in 2018 and 2019, as higher interest rates will suppress demand for U.S.-made goods. PNC sees net exports falling over the coming two years and capacity utilization increasing by two points in 2019, but remaining below the 80 percent benchmark to support new plants and expansion.

Other GDP forecasts similarly see forces boosting output over the next 12 months and the long-term growth settling in somewhere around 2.5 percent. Wells Fargo Economics is on the higher end of that range, expecting GDP to grow 2.6 percent. The National Association for Business Economics predicts GDP growth in 2018 will be 2.5 percent, following a year of 2.5 percent growth in 2017. These forecasts are prototypical for the industry, with the word “moderate” modifying growth estimates in virtually every report.

Economic stability underpins the growth forecasts. The current business cycle is entering its tenth year and that tends to foster concerns about looming recession, regardless of how stable the current conditions seem. Economists take great pains to disabuse us of that concern, however, pointing out that business cycles don’t die of old age but of imbalances. Few economic barometers are indicating anything resembling an

46 DEVELOPING PITTSBURGH | Spring 2018 imbalance that would trigger a correction development environment is limiting long-term trend. Rents were flat year-over- in 2018. Perhaps the recent run-up in new construction to volumes that lag year in Pittsburgh. Construction of new the price of stocks could be viewed as the household formation rate by several apartments slowed in both the U.S. during overpricing; but the correction that might hundred thousand each year. 2017, helping to firm up supply against follow would likely be seen as a buying increasing household formation growth. opportunity, rather than a downturn. Pittsburgh’s housing market is experiencing the same problems as Rents in Pittsburgh remain very affordable Consumers have continued to spend the national market. The number of compared to comparable cities. The robustly but there is also wage growth single-family home starts has been off by average two-bedroom rent in Pittsburgh to support the spending. Moreover, a more than 500 units for a decade. The is $900/month, $260 below the U.S. rate lower federal tax bill will only enhance pace of new development has increased of $1,160. Average two-bedroom rents in wages. The household balance sheet is since 2015 but few communities have other cities range from $1,060 in Phoenix, exceptionally strong, with debt-to-income sufficient available lot inventory to support to $1,640 in Seattle and $3,010 in San ratios lower than at any time in the past more than a year’s construction at the Francisco. 35 years. Use of credit is growing at a levels seen in 2000. These conditions faster clip but delinquency and default are, in part, supportive of the continued Factors like the affordable rents and rates have declined in most categories. construction of new apartments. job growth in sectors that are driving Home mortgage delinquency, which employment of younger people in peaked at nine percent in 2010, has Activity in 2017 reinforced that trend. Pittsburgh help explain why new fallen to 1.4 percent in the fourth quarter. Single-family Likewise, delinquency rates for home housing equity loans, credit card debt and construction was miscellaneous loans have all declined by up compared half or more since 2010. Auto loans have to 2016 but seen a slight increase in delinquency, the gains were to four percent. The outlier is student in attached loan debt, which is seeing delinquency products, like above 11 percent. Even that high level of townhomes and delinquency has not changed since 2012, quads, rather suggesting that the negative impact on than in traditional the younger generation has had limited detached homes. drag on the economy overall. Starts for the latter actually Few, if any, industries are experiencing declined by 6.3 an imbalance in employment, other than percent, to 1,971 an inability to attract sufficient skilled homes under workers. With the exception of the construction. manufacturing sector, employers are not Permits for finding themselves with bloated staffs. In attached fact, most employers surveyed indicate homes jumped that their growth may be slowed by the more than 25 tight labor market, rather than declining percent to 1,035 units. Another trend that construction of multi-family bucked the business prospects creating slack. continued more strongly in 2017 was the national trend in 2017. New apartment migration to the city. Permits for new construction activity was expected The housing market was famously the construction in Pittsburgh proper reached to slow in 2017 but permits for new source of the imbalance that triggered 1,714, or roughly one-third of the total units increased by 11 percent, to 2,368 the Great Recession but any current construction for the entire metropolitan units. That data, gathered by Pittsburgh imbalances that remain are in the form statistical area. Homebuilding Report, measured only of too few homes to meet demand. The new construction, not adaptive re-use; so overhang of homes overbuilt during This imbalance has the upside of pushing the actual number of new apartment units the housing bubble has been absorbed home prices higher. Thus far, home prices created was likely higher. and current inventories of homes for have been rising slightly higher than sale are inadequate to meet the needs historical norms in most markets. There are a handful of apartment projects of prospective buyers. As a result of that will get underway in 2018, notably the mortgage crisis and the resultant One of Pittsburgh’s continually strong in the Cultural District, Lower Hill and regulatory tightening, development of markets is the multi-family sector, which South Side, but overall the pipeline of new new homes has been significantly lower is seeing a pullback at the national level construction is lower than in five years. than normal over the past decade, leaving after years of growth. In 2017, rental Based on job growth and demographics, a lot shortage. New construction has growth in the U.S. slowed to 2.7 percent 2018 looks like it could be the year that historically been the relief valve for a year-over-year, an improvement from the multi-family development catches its housing supply shortage but the lackluster growth in rents in 2016 but below the breath before heating back up.

www.developingpittsburgh.com 47 That same dynamic is not likely to apply exploration, although supply remains very emerging technology, business services to the micro- or macro-economy. high. The governing style of the Trump and energy – are on upward paths, Business investment jumped in the wake Administration elevates the risk that a suggesting that the demand for space will of the tax cuts and it’s beginning to political or global event could disrupt be higher. What stands as an unknown appear that the expansion and hiring may markets; but the administration’s focus on at this juncture is the pace with which be more than political posing in response business and the economy should be a the petrochemical industry will begin to the profit boost. A weaker dollar counter weight against major disruptions. its buildup to respond to the planned should help manufacturing and other 2021 startup of the Shell Franklin plant in exports. Energy prices are supportive of In Pittsburgh, economic indicators are Monaca. There have been indications that every bit as positive downstream manufacturers and supply as those for the chain have been scouting locations with national economy. an eye to being operational by the end The renewed of 2019 or 2020. Such a timeline would job creation in grow demand for industrial sites in 2018. 2017 reversed the trend. Assuming The regional economy looks to be on an the regional upward trend in 2018, regardless of the efforts to attract decision coming from Seattle. Should skilled workers Amazon choose Pittsburgh as its HQ2, pays dividends, the landscape will change in ways that companies looking can only be imagined at this point. to hire should be In the meantime, the combination able to replicate of growing demand and available the growth seen space should produce a solid year for last year. Many of commercial real estate. DP the drivers of the economic recovery earlier this decade – healthcare,

NEW TO MARKET JACKSON DISTRIB JACKSON DISTRIBUTION CENTER UTION Up to 220,000 SF of Class A Industrial Space CENTER 108 Tomlinson Drive, Zelienople, PA 16063

I-79 N Exit Ramp

2403 Sidney Street, Ste 200 Pittsburgh, PA 15203 PHONE: 412.381.7433 EMAIL: [email protected]

Tomlinson Drive

48 DEVELOPING PITTSBURGH | Spring 2018

Office Market Update

hile the majority of major fire, the largest employer in the State over rental rates or construction costs. markets across the country and a current top 10 recipient of NIH Higher quality properties within the urban Wwere negatively affected by grant money, the University of Pittsburgh submarkets with the right amenity mix the Great Recession, Pittsburgh’s office Medical Center (UPMC), was expanding and upgrades garnered the majority of market experienced growth. From 2006 right next door. Since signing their first tenant demand. - 2013, office vacancy rates in the region CBD lease in 2006 at the U.S. Steel Tower, declined nearly 10 percent. Since 2006, UPMC has grown to over 5 times their One of the most relevant new leases average asking rates have climbed over initial occupancy in the CBD. exemplifying this trend in Pittsburgh 20 percent, and prior to 2017 annual net was signed by Buchanan Ingersoll & absorption numbers were positive. The Downturn in Energy Rooney. In 2017, Buchanan Ingersoll & main driver of the growth in Pittsburgh Rooney committed to relocate within was, at the time of the market crash, By the end of 2008, the cost per barrel the CBD submarket. They currently the discovery of horizontal drilling. of oil plummeted to below $50. Shortly occupy 200,000 square feet at One The drilling was used to extract the thereafter, the price began to regain natural gas from the copious amounts strength and climbed past $100 per of Marcellus Shale found in Western barrel in 2011. Then, at the end of Pennsylvania, and it opened up huge 2014 it once again dropped below possibilities for energy companies within $50. However, during the up time, the region. The gold rush to natural production of natural gas from the gas meant energy companies from Marcellus was increasing annually by across the country were flocking to the billions of cubic feet per day. Once Southpointe submarket, 22 miles south the oil prices fell, the large natural gas of downtown Pittsburgh, and setting up reserves, along with other resources corporate offices. By 2013, Southpointe used for energy, were unable to be was experiencing vacancy rate extracted as profitably. Companies like percentages in the single digits, earning Noble Energy began subleasing their the submarket a reputation for being the office space. The total vacancy rate in energy capital of southwestern PA. Southpointe peaked at the end of 2016, ending the year at 27.6 percent. Around the same time that horizontal drilling was making an impact, technology Emerging Trends in Real Estate and healthcare started to pick up steam Exemplified in 2017 as well, thanks to help from both the Leading into 2017, a national trend in private and public sectors. Google office real estate manifested in Pittsburgh opened an office in 2006 at Carnegie and placed additional upward pressure Mellon University (CMU), alongside on vacancy rates. Floor plate efficiency dozens of Apple and Intel employees. As and employee productivity were on the private partnerships with CMU continued minds of corporate real estate strategists. to develop, public partnerships with Employee retention and recruitment the school fueled robotics technology became paramount as unemployment research. Soon after, companies focusing rates were decreasing below pre- in artificial intelligence like Uber entered recession percentages. Companies the market to utilize the highly specialized focused on increasing the productivity of talent. While technology was catching the workplace, which often took priority

50 DEVELOPING PITTSBURGH | Spring 2018 Oxford Centre, a 45-story Trophy class square foot. Within two years of that 2018 and Beyond: Robotics, skyscraper. The new lease relocates announcement, the largest tenant in the Energy, and Healthcare them to 140,000 square feet within the building, along with several other tenants, Union Trust Building, a newly renovated, has signed leases elsewhere. A key to Pittsburgh’s future growth is 11-story, Class A several blocks away. the ability to attract large tenants from While they decreased their overall The new trends in real estate strategy outside the market who have diverse footprint by 60,000 square feet, they affected the Pittsburgh office market needs. In the technology sector, the gained efficiency by increasing the size in 2017. Total net absorption ended at foundation has been set. Pittsburgh has of each floor they occupy. One Oxford -745,309 square feet in 2017, making it proven to be the epicenter of robotics. Centre floor plates average 23,000 square the region’s first year to record negative At the start of 2017, Ford announced feet, while the Union Trust Building floor absorption within the last decade. Large a $1.0 billion investment in local size averages close to double that size. sublease availabilities at Allegheny autonomous vehicle company, Argo AI, The move also reduces them from nine Health Network’s 168,000 square feet which signed a 65,000 square foot lease floors down to three, allowing for greater at 30 Isabella Street in the Fringe, and that kicked off construction of a new employee interaction, collaboration, and Westinghouse’s 315,000 square feet in building in the 3 Crossings development overall efficiency. Cranberry, brought nearly half a million in the Strip District. Uber’s autonomous square feet to market. While some vehicle research has continued to What makes the Buchanan Ingersoll & companies right-sized, others renewed expand within Lawrenceville, leasing Rooney deal so significant is that although and expanded in their current space. another 80,000 square feet in 2017. it serves as a great example of new trends Within the fourth quarter alone, WESCO Carnegie Mellon University’s Advanced in workplace strategy, it also serves as renewed and expanded their presence at Robotics and Manufacturing Institute a barometer for leasing in Pittsburgh. Commerce Court in the Fringe submarket (ARM) committed to approximately One Oxford Centre was purchased at while Koppers renewed and expanded 60,000 square feet of the new the beginning of 2016 by San Francisco- at their namesake building in the CBD, Hazelwood Green Mill 19 development based Shorenstein Company. After the totaling over 180,000 square feet just south of CMU’s campus. sale, Shorenstein announced significant between the two deals. New deals and capital improvements for the building expansions have yet to absorb the added In addition to the growing technology while seeking the highest rates in the availabilities, so the next few years will be / robotics sector, the energy industry is CBD submarket at $34.00-$36.00 per a test for the Pittsburgh market. starting to show signs of life as well. In

www.developingpittsburgh.com 51 2017, EQT acquired Rice Energy, making them the largest natural gas producer in the United States with a combined output of 3.5 billion cubic feet a day. These two energy giants combine as Shell begins construction of the first U.S. petrochemical facility outside the Gulf of Mexico in Beaver County. Downstream and midstream tenant requirements have yet to be seen, but Shell’s growth in the region has already greatly influenced development in the industrial market, and one to two additional cracker plants are rumored.

Pittsburgh’s emerging robotics and energy industries are growing at a time when the healthcare industry is investing billions of dollars into the region. In the fourth quarter of 2017, UPMC announced approximately $2.0 billion in new health care expenditures, bringing the total spend to $3.0 billion over the next five years. The announcement was made days after Allegheny Health Network announced over $1.0 billion in expansion plans that would bring 800 jobs to the area and increase their total investment in Pittsburgh to $2.5 billion through 2022.

The amount of investment by Ford, Shell, UPMC, and Highmark over the next five years totals over $12.5 billion. The commitment made by these four companies alone will drive demand in the market across a diverse set of industries. With several fast-moving industries in high growth mode in Pittsburgh, the newly added availabilities could prove to be well timed.

For more information, please follow the link to download JLL’s Q4 Office Insight and Statistics at http://www.jll.com/pittsburgh/ en-us/research. DP

JLL 260 Forbes Avenue Suite 1200 Pittsburgh, PA 15222 T: 412-208-1400

Dan Adamski Managing Director [email protected]

Tobiah Bilski Senior Research Analyst [email protected] Designing the Dan Adamski Pittsburgh experience

Design with community in mind stantec.com

52 DEVELOPING PITTSBURGH | Spring 2018 Industrial Market Update

he exceptionally strong to 50,000 square feet range, one several build to suit projects will be showing of 2016 did not cause of concern was the lack of announced in 2018. T continue into 2017 for the leasing activity in medium Class A Pittsburgh Industrial Market. In fact, users in the 100,000 to 150,000 Infrastructure Update the slow start in Q1 lasted throughout square feet range. This explains The PA Turnpike Commission Q4 with leasing activity that lagged having two vacant speculative announced it awarded the behind the prior three year trend. buildings in the 250,000 square feet construction contract for the final Starting in 2014, absorption increased to 275,000 square feet range that 1.8 miles of the second leg of the annually from 800,000 square feet were completed in 2017. The success Southern Beltway (Route 576) from to 1,120,000 square feet in 2015 to of these two buildings will be a proxy Route 22 to I-79. Construction started 1,800,000 square feet in 2016 before for the true health of the underlying in 2016 on the Route 22 to McDonald falling to 500,000 square feet in market in 2018. section and this past year on the 2017. While still a positive number, McDonald to Route 50 section. the relative strength of the national There are several speculative projects economy did not fully translate to planned in the growth in the Pittsburgh industrial 200,000 square market. This may coincide with the feet to 400,000 fact that the region lost over 8,000 square feet manufacturing jobs in 2017. range in the West Allegheny/ A closer look at absorption revealed Butler County/ the market’s preference for new Beaver County Class A space at the expense of submarkets in less functional Class B and C space 2018 that could which has been flat or in decline break ground in the past three years. Absorption of Q2 with delivery Class A space in 2015 exceeded total planned for Q4. absorption and accounted for over With any positive 80 percent of total absorption in activity 2016 and 2017, albeit at a slower in Q1, look for rate in 2017. these projects to move forward. Market fundamentals remain strong with vacancy remaining well below Despite the long term historical ranges. Even vacant existing with new construction and less than inventory, build stellar absorption, total occupancy to suit remains remains near 92 percent with Class the only option A occupancy nearing 94 percent. for Class A users Despite a few larger availabilities, the needing more market is healthy and not overbuilt. than 300,000 In fact, several submarkets are in square feet desperate need of Class A inventory anywhere in to accommodate growth of users in Western PA. existing Class B/C product. Based on current projects in the Despite normal leasing activity from market, we are smaller Class A users in the 20,000 optimistic that

www.developingpittsburgh.com 53 there are not as many large scale sites available. The other challenge is the “sticker shock” of new construction in the suburban greenfield sites as compared to older, less functional buildings in the urban core.

The most noteworthy announcement in Q4 2017 was that the Carnegie Mellon University Advanced Robotics for Manufacturing Institute committed to be the anchor tenant for the redevelopment of the Mill 19 building at Hazelwood Green Section 55C1-1 will be completed especially for private landowners. (formerly known as the Almono in the fall of 2019, and the entire 13 The Strip District/Lawrenceville Site). Mill 19 is the only remaining mile s from Route 22 to I-79 will be neighborhoods remained the building on the 178 acre former completed in 2020. hottest land development market J&L Steel site. The shuttered steel in the region with former or current mill will be converted by the RIDC Property owners throughout industrial properties being acquired into a high profile, energy efficient northern Washington County and and developed for adaptive reuse. and sustainable building with CMU southwestern Allegheny County are Several high profile transactions occupying 60 percent of the initial exploring investments in infrastructure closed in the fourth quarter of 2017 94,000 square feet in Phase I which to support sites benefitting from the including the former Packaging is scheduled for completion in Q3 of highway infrastructure that should Corp of America site consisting of 7 2019. Phases II and III will increase result in significant economic growth acres that sold for $11,700,000; the the project to over 160,000 square to that region. The 40 mile “Energy 31st Street Studio site consisting of feet. It is anticipated that this project Corridor” starting at I-79/Southpointe 240,000 square feet on 9 acres that will serve as the catalyst for additional and continuing through the Westport sold for $14,000,000 and the current high profile users on the largest Industrial District between Route 22/I- Sears Outlet/Service Center on 14 development site within the City of 376 all the way to the Royal Dutch acres at 51st Street which sold for Pittsburgh; not the least of which Shell petrochemical plant at Route $10,000,000. It is expected that all of would be the Amazon HQ2 project 18/I-376 should be the epicenter for these properties will be redeveloped with Pittsburgh in the remaining list of regional industrial activity over the in the future to accommodate 20 candidate regions. next decade. growth of technology industries. With greenfield development sites in the Outlook for 2018 Significant Transactions five counties surrounding Pittsburgh offering land prices in the $40,000 to One of the positive themes of 2017 With the late December passage of $100,000/acre range, it is becoming was the continued investment and the Tax Cuts and Job Acts of 2017, economic unfeasible for traditional growth in technology companies; there is optimism that corporations light manufacturing or warehouse/ particularly in artificial intelligence, will take advantage of lower tax rates distribution companies to locate or robotics, autonomous vehicles and and favorable expensing of capital expand within the City of Pittsburgh advanced manufacturing. Although investment in new or expanded with land prices of $1,000,000 to the primary recipients of this job industrial facilities. There is reason $1,500,000/acre. growth were in office/R&D projects in to believe that sectors within the region’s diverse industrial base the Pittsburgh neighborhoods of the The relocation of long tenured city (medical; advanced manufacturing; Strip District and Lawrenceville, the based warehouse users started in 3D printing) will engage in capital industrial market benefitted as well; 2014 and continues today although investment which should lead to

54 DEVELOPING PITTSBURGH | Spring 2018 both new construction and leasing has indirectly invested in our region activity in existing Class A inventory as there were several large portfolio throughout the region. sales in the fourth quarter by national firms which included assets in the One area of concern is the lack region as part of the portfolio sales. of available Class A inventory for purchase by owner/occupiers. This We believe that 2017 was more of trend started over five years ago and a pause rather than an end to the continues today and while a sign growth period that started in 2014 of strength (or continuity) for local and that 2018 should outperform industrial users, it is an impediment to 2017. Regardless, with historical attract new users outside our region growth in the 1.0-1.5 percent range, looking to enter our market. we expect to remain a solid low growth market going forward unless Louis V. Oliva, CCIM SIOR This is equally true for institutional there are significant catalysts for Executive Managing Director capital looking to invest in industrial regional job growth in Newmark Knight Frank assets as supply has not kept up manufacturing and logistics that 210 Sixth Avenue, Suite 600 with demand. Regional and national mirror national trends. DP Pittsburgh, PA 15222 investors have been active in the T: 412-434-1053 Pittsburgh market for the past ten [email protected] years as both the stability and pricing has been viewed favorably by REITS and pension funds as compared to larger Tier 1 markets. Private equity

ONE FIRM ALL SOLUTIONS Full service commercial real estate solutions for tenants, buyers, landlords, owners, developers and investors locally and around the globe.

BROKERAGE MANAGEMENT FINANCIAL • Leasing Advisory • Property • Property Accounting • Acquisition & Disposition • Facilities • Leasing Administration • Valuation & Advisory • Project • Strategic Planning • Construction • Global Account Management

Louis Oliva Executive Managing Director [email protected] 210 Sixth Avenue, Suite 600, Pittsburgh PA Gerard M. McLaughlin Executive Managing Director [email protected] T: 412.281.0100

Mid Atlantic: Offices: New Jersey, Pennsylvania, Delaware, Maryland, Washington DC www.ngkf.com

www.developingpittsburgh.com 55 Let’s taLk @ 412.261.8130 “ We’Re making Loans... and a diffeRence.

You need a bank you can count on for financing. But if the conversation stops at interest rates ”and payment plans, are you getting your money’s worth? We’re a mutual bank, independent like you. We know having experienced professionals on your side makes a difference. That’s why you’ll have your own Dollar Bank business banker. A lender, yes. And more – someone who’ll get to know your business and bring you ideas to build your future. CapitalReady Market foR a bank Updatethat invests in you? Let’s taLk @412.261.8130.

coRpoRate banking · business banking · tReasuRy management · commeRciaL ReaL estate · pRivate banking

- Sponsored by -

One lingeringEqual Housing after Lender. Membereffect FDIC. ofCopyright the ©financial 2012, Dollar Bank, There Federal Savings are Bank.some striking similarities unaware of the risks and are demandingBUS037_12 crisis of 2008 seems to be the imprint between the capital markets in 2018 commensurate returns for the lower- made on the collective memories of and those of ten years earlier, when the rated portions of the mortgage bundles. the real estate finance industry. Even as real estate market was on the verge of Lenders have remained inside the box.

BUS037_12.inddeconomic 1 conditions continue to be implosion. Much more cash is chasing As a result, commercial real estate 2/14/12has 11:08 AM supportive of business expansion and fewer projects and properties, pushing performed well as an asset class without real estate development, it appears that capitalization rates to record low levels. becoming an area of concern. An 2018 will be another year characterized The business cycle is aging, heightening analysis of the main investment vehicles by prudence over improvidence. the risk of a correction or recession. But that offer competition to commercial the similarities end there. real estate for investors shows why “To use a sports analogy, it’s not the buildings remain a favored asset. bottom of the ninth yet but it certainly Regulation and common sense seem feels like it’s in the later innings,” jokes to have prevented the kinds of asset As a result of the gradual rate hikes, Nicholas Matt, senior managing director bubbles that existed in 2007 and 2008. as well as subtle changes in market at HFF. Derivative financing vehicles, like CMBS, dynamics, there were shifts in the have not attracted buyers who are relative yields of the major investment

56 DEVELOPING PITTSBURGH | Spring 2018 vehicles. Yields on Treasury notes drifted There was little economic headline relatively unpalatable for long-term and steadily higher over the past two years, cause for the sudden correction, but near-term investors (although that may but the impact on long-term yields was a combination of creeping factors be changing). This makes the returns on negligible. Yields on three-month notes seems to have shifted the sentiment commercial real estate a very attractive moved from 25 basis points in January of investors. Some of the anxiety may risk-adjusted alternative for capital. 2016 to about 1.25 percent at the end have come from slight disappointment You could make the argument that the of 2017. During that same period, the with early earnings results but the major highly-compressed cap rate environment 10-year Treasury fluctuated by as much culprit appears to have been the reaction made the S & P a better investment in a 100 basis points but ended 2017 at to rising rates that tipped the scales. 2017; but the prospects for a higher roughly the same 2.25 percent that the Readings on inflation, while barely ceiling in the stock market seem worse bond had been yielding in January 2016. beyond the Fed’s standards for balanced, than the prospects for continued rent elevated fears that prices were trending growth and appreciation in commercial Corporate bonds and equities also more steeply upward. That would create real estate. The trading in early February diverged, but in a manner consistent more pressure on the Fed to raise rates strengthens that forecast. with rates and market dynamics. faster. At the same time, interest rates on Baa-rate corporate bond yields fell by other notes crept higher than expected. As a counter balance to the heightened about 125 basis points from January The 10-year Treasury rose more than 30 demand for commercial real estate 2016 to December 2017, resting at basis points since the beginning of 2018. investment, lenders have remained roughly 4.25 percent. Equities were prudent about the supply of debt. lifted by Trump Administration policies, As of mid-February, it appeared that the There has been no chilling event especially tax policy and regulation, market bears had run out of steam but or regulation that is dampening the driving the Standard & Poors 500 Index with lighter demand for U.S. Treasury lending environment; rather, lenders (S & P) to record highs of nearly 2,700 at bonds expected in 2018, concerns have parsed the market and are using year’s end (levels that have since been about higher rates will remain top-of- the more readily-available tools to eclipsed). Higher interest rates, which mind for investors. analyze loans. There is ample liquidity should dampen equity prices, had no for buyers and developers but the impact, as the hikes have been small and Setting aside the correction, the appetite has diminished for lending predictable. That changed February 2. bellwether metrics for commercial into softer segments – like hotels or real estate paint a picture of favorable multi-family. Competition remains high After reaching a record high of 2,872 on industry conditions. Higher rates are for loans, particularly as the number of January 26, the S & P pulled back and good news for lenders. Relatively low deals lightens, but there is no evidence then began gyrating much lower, falling rates are good for borrowers and that bankers are lowering underwriting ten percent over the next two weeks. buyers. And yield environment remains standards to gain share.

www.developingpittsburgh.com 57 “Over the past number of years lenders have remained very disciplined,” says Nick Matt. “Because of the Internet, information is at your fingertips so lenders can underwrite to a higher degree; and they aren’t afraid to knock down the loan amount or increase the escrow if something concerns them. Lenders are looking for income statements that go back seven or eight years, instead of just three. They’re looking at rent rolls and asking questions about renewal intentions for large tenants. They are asking more questions about the underlying business of key tenants.”

“That said, I don’t know any life insurance companies that are cutting their allocations for real estate,” he concludes.

The steady appetite of institutional lenders is one of the reasons that commercial mortgage-backed securities (CMBS) volume is forecast to decline from $90 billion to $65 billion in 2018. Uncertainty about how B&G Breaking Ground Ad:Layout 1 7/2/14 11:58 AM Page 1 the Federal Reserve will unwind its balance sheet, peaking rental growth, strong capital inflows in conventional financing vehicles and regulations Real Estate I Construction I Manufacturing requiring higher cash reserves are P. 412-227-2500 • F. 412-227-2050 combining to mute CMBS demand. www.BlumlingGusky.com There will be significantly fewer CMBS deals maturing in 2018 – the echo of the crisis of 2008 – creating fewer refinancing opportunities.

One property type that is certainly getting a longer look is multi-family. There has been enough new construction of apartments nationally and regionally that at least a slight over supply exists, although rent growth continues. The seasonality of demand for apartments makes it more difficult to assess how much the Project success. new inventory is affecting the market balance. Occupancy has tended to It’s what our clients do. drift downward to 90 percent in the It’s what we do. first quarter in the Pittsburgh market in recent years, as new deliveries run into fewer people moving in winter. The spring leasing surge has been good to landlords, with absorption bringing occupancy back above 95 percent. New construction of apartments in

58 DEVELOPING PITTSBURGH | Spring 2018 Pittsburgh jumped 11 percent in 2017 – something of a surprise – but even that increase added only 234 units.

Nick Matt says that HFF is still seeing heightened interest from investors from outside the region. He says that the concerns he expresses about the supply growth don’t seem to be swaying the interested investors.

“I’ve had people tell me that they understand what I’m saying but they think the lid is about to blow off the Pittsburgh market,”

Increased construction of hotels has created a softer market in hospitality in Pittsburgh. After a five-year run that saw occupancy rise to an average of 64.7 percent and revenue per available room (RevPAR) run 9.3 percent above the statewide average, Pittsburgh hotels saw declines in all of the metrics in 2017. Occupancy fell to 60.3 percent, according to STR, with RevPAR declining slightly more than five percent. According to CBRE Research, demand for hotel rooms still grew by more than five percent but the increase in supply suppressed rates. The forecast for hotel performance is expected to bounce back beginning in 2018, as demand growth continues and new hotel deliveries slow.

Hotel market fundamentals have weakened nationally as well, making the financing of future deals more difficult than during the post-recession growth cycle. This is likely to mean more participation from sponsors and more focus on the hotel flag, rather than a flight from the hospitality product.

The other softer property type in metropolitan Pittsburgh is office. Demand for office space remains on an upward trend in Pittsburgh but the supply of available space has grown. Several large vacancies, both in the Central Business District and in strong suburbs, have created slightly higher trends in vacancy rates. Like with hotels, the upward trend in demand is expected to create positive absorption. Users of larger spaces have been reported in the market and

www.developingpittsburgh.com 59 the industries that drive demand are level of 2.5 percent (assuming inflation “It will be interesting to see how higher strengthening. The prospect of larger remains at the same level as the end of rates affect valuations and cap rates, blocks of available space could also 2017). With core inflation being pressured how it influences yield and cash-on- provide opportunities for relocation by higher wages and energy prices, cash returns,” notes Matt. and upgrading that haven’t existed in the 10-year Treasury is likely to top four recent years. percent by 2019. The Fed’s balance sheet The American consumer is likely better run off will also pressure rates higher. protected against the impact of rising Financing for office projects is not Roughly $230 billion in Treasury debt will rates than the commercial borrower or expected to be markedly different or mature, without reinvestment, in 2018. An investor. The deleveraging that occurred more difficult in 2018. Investor demand increase in the supply of Treasury bonds, following the financial crisis left the for offices remains high and growth in precipitated by the higher deficit policies average household balance sheet in office employment continues to outstrip of the Trump Administration, should also better shape than in a generation. Even overall employment growth. Within the boost yields in 2018. with the recent expansion in consumer Pittsburgh market, capital for office spending and borrowing, the projects should remain accessible household debt-to-income ratios for developers or buyers looking at are lower than they were 30 years good locations and solid pre-leasing. “IT WILL BE ago. Moreover, household debt is At the moment, most of the projects being repaid on time. Consumer in the pipeline are proposed for the INTERESTING TO credit delinquency rates continue region’s most desirable sub-markets. to fall in most categories. Auto loan Projects with some speculative delinquency drifted upward slightly space have been proposed in SEE HOW HIGHER in 2017, but only to four percent. neighborhoods – like Oakland, Strip Only student loan delinquency has District and East End – that have RATES AFFECT risen into more troubling territory. seen short stabilization periods. As a category of debt, student loans VALUATIONS AND have less of an impact on current One variable that has been an financial markets. The increase unknown for almost a decade in student debt delinquency, and now is the long-expected increase CAP RATES, HOW IT ultimately default, is a legitimate in the cost of capital due to problem for long-term economic normalizing interest rates. The INFLUENCES YIELD health, but it won’t materially Federal Reserve’s Open Markets impact 2018. Committee (FOMC) demonstrated in 2017 that it was no longer AND CASH-ON- Stock market volatility has a way concerned about upsetting of unnerving investors across all economic growth by pushing CASH RETURNS,” markets. The choppy trading in rates higher too quickly. Three 25 February is disconcerting but, thus basis point hikes in the Fed Funds far, seems to be based upon the rate had little impact on long-term Because of these varying factors there supply and demand of money in the rates and any concerns about higher should be upward pressure on the stock markets, rather than underlying rates stalling the stock market proved medium- and long-term rates on real economic weakness. Assuming that completely unfounded. The makeup of estate loans. Household formations there is no asset class bogeyman lurking the Fed’s governors and FOMC voters, are expected to outpace new housing beneath the stock markets, 2018 is not to mention the replacement of construction again by several hundred expected to be a solid year for financing Janet Yellen with Roy Powell, suggests thousand units, meaning that higher commercial real estate deals. Liquidity that another three 25-point rate hikes residential mortgage rates won’t is more than adequate. Banks and are baked into 2018. dampen the housing market. The institutions have capacity and the will to impact of rates that are perhaps 100 lend. Even the expected sluggish volume The dynamics of the market forces on basis points higher is less certain. If of CMBS deals is a signal that real estate longer-term rates, including the 10-year only because of the effect on cap investors are not losing discipline while Treasury note, are somewhat less static. rate calculations, the steady upward chasing yield. DP If the Fed lifts rates three times, the Fed pressure on rates bears watching, for Funds would stand near the “neutral” both acquisition and development.

60 DEVELOPING PITTSBURGH | Spring 2018 Legal / Legislative Outlook

n hindsight, the spiral toward minus the unpaid contract balance. time if it had been allowed to continue. contractor termination appears Moreover, the surety and owner’s goals Most importantly, the owner must be able I obvious. The project falls behind are not aligned in this choice. The owner to prove that the delay is the responsibility schedule. Subcontractors reduce their wants the work completed as quickly of the contractor. workforce, or stop coming to the jobsite. as possible, whereas the surety wants Notices of mechanics’ liens appear in to minimize the cost to the surety. The Even where the cause and effect of a the mail. The owner’s first inclination owner cannot proceed until the surety delay is clear, the owner must first give may be to withhold further payment. In makes its decision, as any action taken the contractor notice and opportunity return, the contractor stops work and in the meantime creates risk that the to cure. The notice must describe the refuses to continue unless payment surety will claim its rights have been performance deficiency in sufficient is released. The owner stands firm; violated. All the while, the completion detail, and unequivocally advise the it will not release payment until the date slips further. For all of these reasons, contractor that it will be terminated contractor commits resources to regain before deciding upon termination, unless the problem is abated. While some the schedule. The contractor doesn’t the owner should carefully evaluate breaches are considered “incurable,” blink: it won’t return unless the owner whether it makes sense to assist the where a breach can be cured, the accepts its claim, directs it to accelerate, contractor to get through the current contractor must be given opportunity and releases payment. At this point, the difficulties, and should involve the surety to do so, and the opportunity must desire to terminate the contractor is in this discussion. Compromise on a be real and genuine – demands to do understandable, and acting on that desire disputed claim, joint or direct payment to the impossible will serve only to fuel may even bring a certain satisfaction for subcontractors, reduction of retainage, the contractor’s argument that the the owner. Before acting on this impulse, supplementation of the contractor’s opportunity to cure was illusory and the however, the owner needs to pause forces, and other measures of assistance termination predetermined. and carefully consider its options, and may ultimately be the most cost-effective recognize that a misstep may further path to completion. Once the owner issues a cure notice, delay the project, drastically increase the the contractor must actually cure the cost, and even expose it to liability. Termination for cause is considered a deficiency, or give adequate assurance drastic sanction, and will be upheld by that it will do so. Any assurance must Termination will, almost without a court only upon good grounds and be substantive and realistic; vague exception, delay completion and increase solid evidence. Wrongful termination or qualified promises do not suffice. the cost of the project. To say that a exposes the owner to breach of contract In evaluating the adequacy of the project on which the general contractor damages, including the contractor’s assurance, the owner may consider has been terminated is cursed may lost profit on the entire contract. A such things as the percentage of work be melodramatic, but only a little bit. defaulted contractor may also claim completed versus the percentage of time Following termination, the owner is in a that the wrongful termination caused expended, or the contractor’s failure to difficult bargaining position with potential it to be de-listed from eligible bidding meet prior representations or promises. completion contractors, particularly in lists, suffer reduced bonding capacity Where the contractor fails or refuses to an active construction market. Unpaid limiting its ability to obtain work, or even address the deficiency, and does not subcontractors and suppliers must be put it out of business altogether. Where provide adequate assurance it will do wooed back to the job, or replaced. In the contractor is able to prove these so, the owner’s case for termination either event, the owner may end up consequential damages, it can lead to a grows stronger. In most circumstances, paying for work or materials twice. The substantial award against the owner. however, the contractor will attempt to process can take months. If the schedule excuse its lack of performance, and place can be regained, it comes at a premium. While a contractor has many obligations blame on the owner or the architect. In under the contract for construction, such circumstance, sorting out exactly The existence of a performance bond not every breach justifies termination. what happened and who is to blame may provide the owner some measure In order for an act or omission to can be difficult, and the risk of getting it of protection, but comes with its own warrant termination, it must constitute a wrong, significant. This is when the owner special challenges and additional delays. “material” breach. Whether a particular must diligently abide by the contract and The surety will not act until the owner act or omission is “material” and warrants insist the contractor do the same. declares the contractor in default in termination cannot be determined strict compliance with the terms of the without a thorough factual analysis. For Virtually all construction contracts require contract and bond. Termination without example, a mere subjective belief that the the contractor to proceed with the work sufficient cause, or without following the contractor cannot complete the work notwithstanding a dispute with the owner. correct procedures, relieves the surety within the time remaining is not sufficient A work stoppage or refusal to proceed of its obligations altogether. Before grounds for termination. To justify a is a terminable offense, even if it is later taking action the surety will conduct an termination for cause, the owner must determined that the contractor’s position investigation, which takes time. Assuming be prepared to demonstrate, typically by in the dispute was correct. A conditional it accepts the claim, the surety then has schedule analysis, that the contractor’s or qualified agreement to proceed -- for options as to how to proceed, including lack of progress endangered timely instance, where the contractor says it will financing the defaulted contractor, completion. It must also be prepared proceed if the owner accepts its claim tendering a replacement contractor, to debunk the contractor’s claim that it -- is tantamount to a refusal, and may also or simply paying the cost to complete, could have caught up and finished on warrant termination. The duty to proceed

www.developingpittsburgh.com 61 does have limits, however, and the providing the owner with an independent cost to the bottom line may be less contractor may be justified in stopping basis for termination. with termination for convenience, even work if the owner has materially breached though it means giving up the ability to its own obligations under the contract. Before terminating for cause, the prudent recover from the contractor or its surety. Where a work stoppage is justified by a owner should first consider termination The timing of termination in relation to prior breach by the owner, termination for convenience, if the contract the progress of the work is often a critical of the contractor in retaliation may be allows. When an owner terminates for variable in this calculation. considered wrongful. convenience, the contractor’s recovery is limited to payment for work completed, Project delays, claims, and payment When considering the termination of a plus reimbursement of reasonable disputes can be extremely frustrating for contractor for cause, therefore, the owner close-out costs. A properly drafted an owner, particularly where it appears must first assess whether it has fulfilled termination for convenience clause that the contractor is unwilling or its own contractual obligations. Have should also protect the owner against incapable of getting things back on track. all undisputed amounts been paid? Has liability for lost profits and consequential At first blush, getting rid of the contractor the architect provided needed direction damages. The major disadvantage of may seem the obvious solution. It is at to the contractor, or issued the required terminating for convenience is that it this moment that the owner must try to determination on a request for change precludes the owner from recovering focus on the bottom line, and ask what is order? Regardless of the specifics of damages from the contractor, or from the fastest, least risky and least expensive the dispute, every action and response calling on the surety to complete the path to completion? Where termination by the owner should demonstrate that project. While giving up these rights is a for cause is the proper course, the owner it has: (1) in good faith fulfilled its own significant concession, their enforcement needs to proceed carefully to preserve its contractual obligations; (2) abided by the is neither certain nor without cost. rights and maximize its ability to call on contract dispute resolution procedures; In deciding whether to terminate for the surety to complete the project, and/or and (3) timely and fairly considered the convenience or for cause, the owner to recover damages from the contractor. contractor’s claims. When the owner is needs to consider such things as the so positioned, it can force the contractor percentage of completion of the work, Tom Madigan is a shareholder at to choose between completing the the remaining contract balance, and the Buchanan Ingersoll & Rooney PC. He is work while they resolve their dispute, business loss from further delay to project chair of the Construction Practice Group or refusing to continue and thereby completion. In some cases, the overall and can be reached at thomas.madigan@ bipc.com. DP

62 DEVELOPING PITTSBURGH | Spring 2018 Providing strong legislative leadership to advance your business and commercial real estate. naioppittsburgh.com

NAIOP Pittsburgh is the leading advocacy voice in Western Pennsylvania. JOIN US AND MAKE AN IMPACT ON YOUR INDUSTRY.

GREGORY QUATCHAK

Founding Principal, Civil & Environmental Consultants, Inc. NAIOP member since 1991

naiop.org/joinus Join NAIOP now and get the rest of the year free! Benchmarks

collaborated with the key economic cities that responded. Handicapping elements of the proposal, and churned out a response that won the region a It’s easy to understand why there would and Recapping spot on the “short” list of 20 finalist cities. be such an enthusiastic response. For The coalition that was formed, called economic development teams, the the Amazon HQ2 HQ2PGH, included participation from city, HQ2 project represented a once-in-a- county and state government, along with lifetime opportunity. Amazon described Response Pittsburgh’s non-profits, corporations, and the opportunity as “a second corporate foundations. It was coordinated by the headquarters, at which Amazon will Allegheny Conference on Community hire as many as 50,000 new full-time Development and the Pittsburgh Regional employees with an average annual total t started with a Tweet. Pittsburgh Alliance (PRA), which brought to bear its compensation exceeding $100,000 over Mayor Bill Peduto took to Twitter many corporate partners. Maya Design the next ten to fifteen years, following I within an hour of Amazon’s was hired to manage the project and add commencement of operations. The announcement that it was looking for a its creative assets. Project is expected to have over $5 billion location for its second headquarters. The in capital expenditures…” mayor used Twitter’s form and forum to Hundreds of cities around the country economically let the citizens of the region mobilized their own response teams Amazon stated its preferences early in the know that Pittsburgh would be in the mix. (although those varied widely in makeup). request for proposals (RFP): His Tweet: “On it.” Even though only 53 metropolitan U.S. cities have a population of one million or • Metropolitan areas with more From that September 7 announcement more, there were submissions from 238 than one million people until the October 19 submission a metros. It should not come as a surprise partnership of public and private entities but there were enthusiastic stories about • A stable and business-friendly worked on strategy, gathered information, the likely success of roughly 50 of the environment

64 DEVELOPING PITTSBURGH | Spring 2018 • Urban or suburban locations with The HQ2PGH team took as an article of place to live, a place where tech talent is the potential to attract and retain faith that Amazon, like any other large being developed. Pittsburgh is certainly strong technical talent corporation, was going to encounter that place right now.” problems once they located in Pittsburgh. • Communities that think big and Whether those problems were about So, what are Pittsburgh’s chances of creatively when considering workforce, cost of living, real estate, or landing the big fish? An objective reading locations and real estate options regulation, the response tried to convey of the first RFP suggests that there are that Pittsburgh was a place where leaders some significant hurdles for Pittsburgh to In the details, the RFP listed preferences could work together to help Amazon overcome. On the other hand, Pittsburgh for sites that were within 30 miles of the solve those problems. has some interesting advantages. Cost population center, within 45 minutes of living and housing in Pittsburgh is of an international airport, no more Christy Woolsey, who led the project for significantly lower than other front- than one-to-two miles of an interstate Maya Design, is a relatively recent resident running markets. There aren’t a lot of sites highway and had mass transit on site. of Pittsburgh. Based upon her experiences or buildings but those that exist have very The RFP required a building of at least in other parts of the country, Woolsey attractive elements for Amazon. There is 500,000 square feet by 2019 and the was surprised by the willingness of the the access to Carnegie Mellon’s research potential for eight million square feet by seemingly disparate entities to set aside and talent (as well as the University of 2027. Amazon’s requirements weren’t their own individual interests in the service Pittsburgh’s). And there are some cultural absolute or inflexible but its preferences of the greater good of the community. alignments that could have a bigger almost created the short list before the That spirit has been part of the blueprint impact than just dollars and cents. submission was completed. for revival in Western Pennsylvania for more than three decades. “The other thing that is very important How much was spent by the 238 is that Amazon has a sense of having a respondents to the initial RFP varied “One of the things I think we’re good at positive impact on a community. They from city to city, depending on the in Pittsburgh is we are pretty nimble. We are big on diversity, big on workforce internal resources and complexity all know each other and there’s already development, big on reaching out to of submission for each. Philadelphia a great level of collaboration,” says Rich disadvantaged parts of the community,” Industrial Development Authority had Fitzgerald. “Within a day we started putting notes Fitzgerald. “We’re ready for an mostly managed the city’s first response, plans together. We started to identify sites opportunity to become a partner to one spending $160,000 on public relations to respond to the proposal. It wasn’t a of these big companies that is growing. I and data mapping consulting. Pittsburgh’s very difficult thing to do because we do it don’t think Amazon is necessarily looking submission took an estimated half- all the time.” to get an extra dollar in tax relief from million dollars, with $100,000 coming one city or another. They are making from the city and county respectively. On January 19, Amazon announced that a decision that is going to impact their The remainder came from foundation, it had narrowed the search to 20 cities. organization for decades to come. I think non-profit and corporate support. PNC, Pittsburgh was one of them. they want to move to a collaborative, whose president and CEO Bill Demchak partnering community, which we have is now the Allegheny Conference’s chair, Making the short list is something of become over the past decades.” provided space for the HQ2PGH coalition a feather in Pittsburgh’s cap – some to work in vacant space in 2 PNC Plaza. vibrant cities did not – but the competing Mayor Peduto sees a convergence of cities that remain include every city that Amazon’s presence with what he sees The process put leaders from would have been competition from the is Pittsburgh’s agenda. Peduto shares corporations, government, academia, beginning. Moreover, Pittsburgh’s story the concerns others have expressed and foundations in the same room. is somewhat more compelling than its about Pittsburgh’s capacity for growth Hundreds of people were involved in technical merits. There are few urban but believes that the challenges his the preparation of Pittsburgh’s response. sites that could accommodate the administration is trying to overcome are Details of the proposal aren’t as yet ultimate headquarters vision. Our airport the same priorities that would enable public – although they have been hotly is resurgent in service and will soon have growth. Meeting the challenges of sought by the press – but the properties new facilities, but Pittsburgh International inadequate infrastructure, economic and incentives offered weren’t the meat lags many of its competitors in origination disparity, and inequality of opportunity for and potatoes of the proposal. What the and destination flights. And our mass all Pittsburghers will create a workforce proposal strove to communicate was transit isn’t what it used to be. Of course, and an environment that would enhance how people in Pittsburgh worked and there are factors in Pittsburgh’s favor too. both Amazon’s and Pittsburgh’s growth. lived. That message was the theme of the video, labeled Future. Forged. “I thought we put a very good proposal One statistic about Pittsburgh that has For all. It was a response steeped in together in October, putting our strengths been overlooked in the discussion Pittsburgh’s history as a leading city in play. As we go forward with this I really about Pittsburgh’s capacity to handle of the Industrial Revolution and as a feel confident that we are the best place 50,000 new jobs and unknown business city that has rebounded from heavy for Amazon to locate. I know I’m biased,” attraction that would follow Amazon is industry’s exodus. Its focus was on chuckles Fitzgerald. “They are going to the population of the city proper. At its solving problems. The video also didn’t need to eventually attract 50,000 people industrial zenith, Pittsburgh was home mention Amazon by name. to a region. They will have to have a great to twice as many people as currently live

www.developingpittsburgh.com 65 within the city limits. That leaves room There are reasons that Pittsburgh may pulled together the response. That may to revitalize dormant neighborhoods and not win this competition. Should Amazon sound surprising to say about leaders who communities. decide that an East Coast location or have been hearing kudos about the city warmer weather are the most important for several years; however, it wasn’t that “When you go somewhere with 50,000 factors, Pittsburgh can’t do anything many years ago that Jim Rohr was chiding employees and eight million square feet about that. Should a bigger financial Pittsburghers to stop being so self-critical of office, you’re going to have an impact. incentive be presented by another state, and helped launch the Imagine Pittsburgh Pittsburgh can handle that. Pittsburgh that will also be out of the control of campaign. The exercise of assembling used to be a city of 600,000 people; the HQ2PGH team. Virtually everyone and communicating the selling points now we’re 300,000 people. Allegheny involved in the process agrees, however, of the region in 2018 may have taken County used to have 1.6 million people; that just by the very fact of creating the the growing pride in Pittsburgh higher. now it’s 1.2 million. Adding 50,000 to our response the region is miles ahead. That self-confidence will help with future population is something we can handle. opportunities. Many of the cities on that list have already Those who worked on the proposal had one of these kinds of opportunities seem unanimous in the feeling that the “We’ll continue to learn the lessons and are bursting at the seams. Pittsburgh region has already won. Pittsburgh has of these opportunities. We’ll work to is still hungry,” says Fitzgerald. visibility nationally and internationally that improve the areas where we fall short, could never be bought. New companies whether that be public transportation or With few details about the second are interested in Pittsburgh that have workforce development or whatever,” round of proposals being public, there never talked about moving here asserts Fitzgerald. “One of the things is less known about next steps. From before. The effort taught the economic we’re really good at in this region is all indications, the responses of the 20 development and political leaders to pull solving problems. That’s something that’s finalist cities will require even more effort together when there are opportunities just in our DNA, going back to when and expense than the first round. It also in the future. The RFP preparation we first worked to clean up the air and seems likely that there will follow another created reusable marketing material and the water under David Lawrence. We round of proposals submitted by a shorter generated a massive amount of data that knew we had a problem and we worked list of finalists. can help Pittsburgh be more responsive together to fix it.” DP to future opportunities. “It’s like pinball. You play and, if you win, you get to play again,” jokes David Kristi Woolsey says that she could feel Ruppersberger, president of the PRA. the confidence growing among the participants as they gathered data and

CELEBRATING 25 YEARS OF COMMERCIAL REAL ESTATE SUCCESS Let our expertise and experience work for you. Contact us today.

SAMUEL T. MCGILL Vice President (412) 391-2635 [email protected] Lic. # RS320732

years

GRANT STREET ating

ASSOCIATES, INC. elebr 25 c

G S PG A PM 66 DEVELOPING PITTSBURGH | Spring 2018 Voices

WHAT PROVISIONS OF THE TAX CUTS & JOBS ACT OF 2017 WILL HAVE THE GREATEST IMPACT ON COMMERCIAL REAL ESTATE DEVELOPMENT?

Debra Mark Heather Pitschman DiPietrantonio Findon Partner Shareholder Senior Case Schneider Manager, Sabatini Downs & Co. Tax Services Arnett “The Tax Cut and “While the Tax Job Act, most of Mark Cuts and Jobs Act Carbis Debra Pitschman which goes into DiPietrantonio (Act) provides a Heather Findon Toothman effect in 2018, significant number includes deep of provisions that ““Affecting all taxpayers, especially those cuts for corporations, reduces the tax will impact commercial real estate in the real estate sector, the Tax Cuts and rates and provide sizeable deductions for development, there are several Jobs Act is the most substantial change to pass through entities such as partnership provisions (other than the overall lower the U.S. tax system in over three decades. and limited liability companies which tax rates) that will impact the real estate is how most real estate businesses are industry the most. A major victory for real estate stakeholders is the retention of Code set up. The act not only drops the top First, “qualified business income” will marginal tax rates, but also gives a 20 Section 1031 and the ability to defer be eligible for a 20 percent deduction, tax on properly structured real property percent deduction on taxable income to which will generally be limited to the pass-through businesses making less than exchanges. Conversely, the portion of greater of 50 percent of W-2 wages any exchange that includes personal $157,500 for individuals and $315,000 for paid by the business, or 25 percent of joint filers. In addition, it gives companies property will no longer qualify for W-2 wages paid plus 2.5 percent of tax-deferred treatment. As a result, who exceed those income levels another the business’s unadjusted depreciable method of qualifying for the deductions. personal property broken out due to a property basis. cost segregation study, which many real Second, aggregate pass-through estate business owners have utilized, will Beside the pass-through deduction business losses will be limited to not qualify for tax deferral treatment. companies can also take advantage of $500,000 for married filing jointly filers; bonus depreciation, which increases un-allowed pass-through business Various other key provisions in the Tax to 100 percent from 50 percent for losses carry forward as a net operating Cuts and Jobs Act will affect the real quality assets placed in service after loss and can be utilized in future years estate sector. For example, the Act September 27, 2017 and now applies to (subject to the 80 percent annual net limits the business interest deduction, used property. IRC section 179 expensing operating loss limitation). net operating loss utilization, and puts deduction also increased to one million a restriction on current year business dollars with the phase out beginning at Finally, the Act retains Internal Revenue losses. Additionally, examples of taxpayer the 2.5-million-dollar point.” Code Section 1031 like-kind exchanges friendly provisions include a reduced for real property. However, exchanges corporate tax rate, increased Section 179 of personal property will no and bonus depreciation allowance, and longer qualify for Section 1031 a 20 percent pass-through deduction for like-kind treatment.” non-corporate taxpayers.

As you can see, the Tax Cuts and Jobs Act will have a significant impact on most taxpayers, and the provisions mentioned above are only a small sample of the extensive changes included in the Act. Proper tax planning will enable taxpayers to receive the most advantageous outcome resulting from these changes.

www.developingpittsburgh.com 67 It’s imperative taxpayers discuss these Julie deduction is not available for taxpayers changes with their tax advisors now to Robins in certain specified service industries, but ensure compliance and to take advantage taxpayers who make under $315,000 for of any opportunities.” Tax married filing joint or $157,500 for other Managing filers will not be subject to this limitation or the wage and qualified property Director, limitations. John BDO USA Another item is the change in the Greenling “Every company holding period for partners who hold Manager, must parse profits interests that are often called through the “carried interests.” Under the former CLA new legislation guidelines, the short-term capital gain Pittsburgh to identify which provisions are most definition only included assets held one Clifton relevant to them, analyzing whether the year or less. Now net long-term capital impact will be favorable or unfavorable gains that are attributable to “applicable Larson and strategizing accordingly. Many partnership interests” are subject to John Greenling Allen aspects of the law are being clarified by re-characterization as short-term capital the IRS, and companies could see tweaks gain unless the underlying asset has “The most in the months to come. been held for at least three years. One of impactful provision limits the amount the assets specified under this provision of net interest expense a company can From what we have seen so far in the includes real estate held for rental or deduct in a given year to 30 percent new law, there are several provisions investment. This provision will affect of EBITDA. Any disallowed interest that will impact real estate investors and service partners with profits’ interest in may be carried forward indefinitely, developers. Under the new law, “excess developments that typically sell projects with certain limitations for companies business losses” for taxpayers other than after a short holding period. Until the classified as a partnership. corporations will not be allowed. Affected property is held for more than three years, taxpayers will be able to deduct business any long-term capital gains will be taxed Real property trades or businesses, losses up to $500,000 if you are married at the short-term rates. We believe that including real estate developers, can elect filing jointly and $250,000 for other filers. the three-year holding period provision out of the new interest expense limitation Any disallowed business loss deductions also includes the sale of the partnership provision. This election, however, requires will carry over and treated as part of the interests and expect that the IRS will use of the alternative depreciation system taxpayer’s net operating loss (NOL). Under clarify that with regulations.” the new law, NOLs will be carried over (with longer depreciation periods). indefinitely. Under the old law, NOLs Since this election is irrevocable, careful expired after 20 years. consideration must be given (short-term and long-term) to the slower cost Another significant provision is the 20 recovery of real property versus unlimited percent pass-through deduction for interest expense deductibility. non-corporate taxpayers under Section 199A. The calculation of this deduction The provision’s overall effect raises is complicated and will increase the the after-tax cost of debt. This, in turn, complexity of affected taxpayer’s returns. changes a business’ weighted average The deduction is only available for cost of capital, and can ultimately income effectively connected with a U.S. lower the inherent value of a business. trade or business and excludes investment Commercial real estate developers income, including capital gains and should consult their advisors regarding losses. There are several limitations set the impact of the new provisions and against a taxpayer’s Qualified Business consider potential restructurings.” Income (QBI). For example, 20 percent of QBI cannot exceed the greater of (A) 50 percent W-2 wages paid with respect to QBI or (B) the sum of 25 percent of W-2 wages plus 2.5 percent of unadjusted basis of qualified property. This will likely require the IRS to change the way information is presented on the K-1 forms as individuals will need additional information disclosed to calculate the proper deduction on their 1040s. This

68 DEVELOPING PITTSBURGH | Spring 2018 News from the Counties

care-related businesses and organizations. Strong public-private partnerships have established our region as a global destination for entrepreneurs and investors. Those relationships allow us to steward the increased investment and to ensure our communities are vibrant places to live, work, and play.

For example, Allegheny County’s world-class universities are generating cutting-edge, spin-off companies and collaborative partnerships that are helping ALLEGHENY COUNTY to produce development, such as the work being done at an Allegheny County iconic, abandoned steel mill, now Economic Development called Hazelwood Green. A new Chatham One, Suite 900 facility there will house research, 112 Washington Place development, and office space for the nonprofit Advanced Robotics Pittsburgh, PA 15219 for Manufacturing (ARM) Institute 412-350-1000 (T) and Carnegie Mellon University’s 412-642-2217 (F) Manufacturing Futures Initiative Robert Hurley, Director (MFI). ARM is a $250 million public- [email protected] private collaborative, catalyzed by www.alleghenycounty.us/economic CMU, that puts new technologies to work for industry. MFI is an llegheny County’s innovation interdisciplinary research initiative. economy is thriving, and Together and separately, these Aeconomic development efforts will provide workers with partners are working to support the the best technological tools and continued growth of our advanced allow American companies to manufacturing, technology, finance/ compete effectively with low-wage banking, arts/culture, and health

www.developingpittsburgh.com 69 manufacturing abroad. Furthermore, the collaborative research will help move high-value technologies forward INTEGRITY. COMMITMENT. QUALITY. SAFETY. in the manufacturing and petrochemical industries, which lend themselves to automation. That could Allegheny County Economic Development (ACED) is the enable them to scale up even faster while promoting county’s lead economic and residential development agency. innovation.

Another example of the region’s progress is the Our six authorities assist manufacturers, businesses, tremendous work being done by the Allegheny County municipalities, health care facilities, nonprofits, and homeowners Airport Authority. Its airports are significant economic with funding for land development, improvements, acquisitions, generators, contributing $29 billion in business revenues expansions, and renovations: and almost 148,000 jobs to southwestern Pennsylvania. They also connect local businesses to markets and bring cargo and manufactured goods into our region. In 2017, nearly nine million passengers went through Pittsburgh International Airport (PIT), which now offers nearly double the number of nonstop flights it did just four years ago, going from 37 to 74, and services 17 airlines. Additionally, a proposed $1.1 billion airport overhaul would allow for an expanded security checkpoint, the elimination of the costly train, a newly configured international arrivals process, the implementation of modern technology and an improved baggage delivery system, among other improvements.

The Airport Authority also continues to develop key properties surrounding PIT, including at Clinton Commerce Park, Cherrington Commerce Center, Industry Drive, and Airside Business Park, creating millions in revenue and tens of thousands of new jobs. Over the past two decades, private companies have invested about $350 million to develop more than 3 million square feet of manufacturing, industrial, office, and cargo space on airport property. Currently, there are approximately 4,000 acres of developable land and 30 million square feet of office space available across multiple sites with various types of zoning.

Considering the enormous amount of recent development and all that Allegheny County has to offer, we are confident the region will sustain its economic momentum. Through collaborative efforts, there will continue to be an immense amount To learn more about how ACED can support you and your of interest in this area by innovative developers, entrepreneurs, and investors. project, visit www.alleghenycounty.us, or contact us at 412-350-1000. Let’s Build We look forward to partnering with you.

Robert Hurley, Director Allegheny County Economic Development One Chatham Center • Suite 900 112 Washington Place • Pittsburgh, PA 15219 Phone (412) 350-1000 www.alleghenycounty.us/economic/ www.pjdick.com

A Drug-Free Equal Opportunity Employer

70 DEVELOPING PITTSBURGH | Spring 2018 INTEGRITY. COMMITMENT. QUALITY. SAFETY.

Let’s Build

www.pjdick.com

A Drug-Free Equal Opportunity Employer services tailored to their specific needs. of Aliquippa Economic Development ARMSTRONG COUNTY Startup businesses, satellite offices for Corporation (AEDC) for the initiatives established businesses, and people and in turn receive an 80% state tax Armstrong County Department looking for alternatives to working from credit for its contributions. The Beaver of Economic Development home are eligible for memberships. County Corporation for Economic Northpointe Technology Center Visit www.Innovate28.com for more Development (CED), in conjunction with Center II information. Cynthia Gormley Consulting, LLC and 187 Northpointe Boulevard representatives from DCED assigned Freeport, PA 16229 Working in cooperation with Armstrong to work with city, began in late 2016 to 724-548-1500 (T) School District, Ford City Borough re-organize AEDC, re-establish its board and Kittanning Borough, the ACIDC 724-545-6055 (F) of directors, institute sound business awarded contracts to Ritenour & Sons Michael Coonley, practices, and develop local initiatives Construction of Connellsville, PA for into a strategic plan that resulted in a Executive Director hazardous material abatement and Neighborhood Partnership Program [email protected] demolition of the former Ford City High application and approval. Funds will be www.armstrongidc.org School and Kittanning Middle School. used for blight removal, education and The former school properties have been training services, and support of critical uring the fall of 2017, the designated as Keystone Opportunity social service initiatives. Aliquippa is Armstrong County Industrial Zones and the pad-ready sites will be the first community in Beaver County DDevelopment Council (ACIDC) available for redevelopment in mid-2018. to receive a Neighborhood Partnership partnered with the Gas Technology designation. Institute (GTI) to offer free training to The ACIDC provided financing and displaced coal workers and others start-up assistance to a custom trailer Castlebrook Development Group affected by a downturn in the coal and fabrication manufacturer in acquired and began site work for a industry. The training prepares students Armstrong County. With assistance from mixed-use project, the Bluffs at Glade for high-demand careers in the natural the Clarion University Small Business Path, in Center Township near the Beaver gas industry. The Natural Gas Utility and Development Center, the manufacturer Valley Mall. The 45-acre development is Pipeline Field Skills Training Program was was able to secure a loan from planned to include offices, warehousing, developed by GTI, a leading research, Bridgeway Capital. and apartments and townhomes. development and training organization To date, a lease has been signed to addressing global energy challenges. For information about the services construct a 60,000-square foot medical Funding for the program was provided by offered by the ACIDC, or to search facility on approximately seven acres the Appalachian Regional Commission. available land and buildings of the site. CED supported the site Two sessions have resulted in more than in Armstrong County, development effort with a $500,000 25 students receiving training. visit http://www.armstrongidc.org. subordinated loan.

Armstrong County based CBJ Medical Finally, CED financed over $600,000 Company leased 6,000 square feet BEAVER COUNTY for four manufacturing projects during in the ACIDC’s multi-tenant building, the second half of 2017. These projects Northpointe Technology Center II. Beaver County Corporation for will leverage almost $1.3 million in The space houses CBJ’s office and Economic Development other capital investment and create or distribution center. CBJ provides home retain 89 jobs in Beaver Falls, Ambridge, 250 Insurance Street, Suite 300 medical equipment and supplies to Franklin Township, and Fallston. veterans across Pennsylvania. About Beaver, PA 15009 12,360 square feet remain available for 724-728-8610 (T) lease on the second floor of Northpointe 724-728-3666 (F) Technology Center II. James Palmer, President [email protected] In late December of 2017, the ACIDC www.beavercountyced.org completed construction of Innovate28, a co-working office space located he City of Aliquippa was awarded in Northpointe Technology Center a Neighborhood Partnership II. Innovate28 provides users flexible TProgram designation from the monthly memberships with 24/7 secure Pennsylvania Department of Community access to shared desks, reserved and Economic Development (DCED). cubicles, private offices and collaborative The designation provides $500,000 over meeting areas including a conference a six-year period for a total $3,000,000 room. Memberships include high-speed to fund local community and economic Wi-Fi, printing/copying/scanning services, development initiatives. BNY Mellon lockers, mailboxes, etc. Members also will provide the funding to the City have access to business consulting

72 DEVELOPING PITTSBURGH | Spring 2018 Pennsylvania. We desire to be the BUTLER COUNTY FAYETTE COUNTY pre-eminent “1st stop shop” economic development organization in Fayette Community Development Fay-Penn Economic County by providing comprehensive Corporation of Butler County Development Council business development services through 112 Hollywood Drive #102 1040 Eberly Way, Suite 200 our staff or partners to make our clients Butler, PA 16001 Lemont Furnace, PA 15456 more competitive in a global marketplace. 724-283-1961 (T) 724-437-7913 (T) 724-283 3599 (F) 724-437-7315 (F) Fay-Penn’s ultimate objective is to sustain Joseph Saeler, Interim Bob Shark, Executive Director, a supportive environment for business start-up, expansion, and attraction. Executive Director, [email protected] [email protected] www.faypenn.org www.butlercountycdc.com ay-Penn Economic Development GREENE COUNTY llegheny Health Network will be Council, through its ongoing breaking ground in the spring F $15 million revolving loan fund, Greene County Industrial A on a 30,000 square foot cancer approved loans in 2017 totaling $5.4 Developments, Inc. treatment facility at the Pullman Center million. With this financing, area 300 EverGreene Drive Business Park Expansion. It is hoped that businesses were able to get start-up Waynesburg, PA 15370 the facility will be opened for clients in funding as well as financing for 724-852-2965 (T) projects including building acquisitions, January 2019. 724-852-4132 (F) renovations and machinery and The construction of a 30,000 square equipment purchases. Those businesses Don Chappel, Executive Director foot spec building at the Pullman Center have projected creating or retaining over [email protected] Business Park Expansion is also underway. 60 jobs as a result of the funding. www.gcidc.org The building is owned by Yeltrah PA, LLC and should be completed by July 2018. The total economic investment of the y far the deal that affected Greene approved loan projects totals more than County above all others in 2017 Site work on Phase Three of the Jackson’s $15 million. As of December 31, 2017 B is the purchase of Rice Energy Pointe development which includes 45 seven loans had closed totaling $420,232, by EQT in November making EQT the acres of land located between Route 19 and three more are awaiting closing. largest natural gas producer in the United and Interstate 79 is underway. A fitness States. facility recently opened in Phase Two of Businesses receiving funding through Fay- the business park and additional clients Penn in 2017 included a grocery store, Another major deal which made news for the retail space at this location are glass manufacturer, trout farm, restaurant, in the third quarter of 2017 was the expected to be announced shortly. hair salon, fitness center and group outing announcement that AgriMed, located business. in Cumberland Township, was awarded The CDC continues to work with one of the twelve licenses to grow prospective clients interested in acreage Fay-Penn also had a ribbon cutting for and process medical marijuana by the at the Victory Road Business Park in the Business Event Center, located at Commonwealth of PA. Clinton Township as well as office space the Eberly Business Center. This state-of- that is available for lease at the Pullman the-art training and conference center APV Renaissance Partners Opco LLC Center Business Park. For additional can seat 70, has Skype capabilities, TSI of Barnardsville, NJ in October was information on the land and office space touch monitor, 3-LED monitors, secure granted conditional final approval for available please contact Joe Saeler, Wi-Fi and more. The Business Event construction of their 1000 megawatt Interim Executive Director, at the CDC Center is open to the public. natural gas fired power plant on 20 Office at (724) 283-1961. acres on the site of the closed Hatfield Along with the Business Event Center, Power Plant in Monongahela Township construction of the Penn State – Fayette/ along SR 21 and the Monongahela River. Fay-Penn LaunchBox is slated for Construction is slated to begin in the completion in early spring in 2018. There summer of 2018. will be a grand opening and ribbon cutting in the spring as well. Fay-Penn The United Mine Workers of America is renovating 6,000 square feet in the (UMWA) Career Center was awarded Eberly Business Center at the University $5 million dollars combined in grants Business Park to house start-up, emerging from both the federal government as companies. well as Pennsylvania to be used toward construction and classrooms at their Ruff Fay-Penn Economic Development Creek Center for the retraining of former Council assists in growing and diversifying coal mine employees. the economy in Fayette County,

www.developingpittsburgh.com 73 HillTop Energy received their air quality permit from the Pennsylvania Department of Environmental Protection (PADEP) in December for the construction of a 620-megawatt natural gas power plant near Nemacolin in Cumberland Township.

Greene County Commissioners announced a partnership with Beaver County Community College (CC) to form an educational program catering to Greene County students with an expressed interest to work with Waynesburg University and the Greene County Career & Technology Center. Beaver County CC would replace Westmoreland County CC which ceased operations in Greene County this past May after 12 years of operating an educational center.

Waynesburg Chamber of Commerce changed its name to Greene County Chamber of Commerce in the third quarter of 2017 and moved its office from downtown Waynesburg to just east of town at the intersection of SR 19 and SR 21.

In late summer and fall Sheetz reopened two new operations in Waynesburg and Carmichaels both along SR 21 replacing two older stores with more modern facilities.

Community Bank’s Ralph J. Sommers Jr. Operations Center and the EQT Greene County Memorial Hospital Foundation REC Center, both located in EverGreene INDIANA COUNTY Technology Park, opened their new CENTER FOR ECONOMIC OPERATIONS doors in July and October respectively. First Federal Savings & Loan Association of Greene County celebrated their ● Business / Industrial Parks ● MultiTenant / Flex Buildings new building addition in downtown ● Site Selection Assistance ● Business Plan Assistance Waynesburg including a ribbon cutting and dedication of a special plaque ● Tax Incentives ● Financial Assistance honoring the history and tradition of Rain ● Small Business Consulting ● Workforce Development Day in July. ● Visitor Information ● Networking Opportunities

www.indianacountyceo.com | 724-465-2662

: Affiliates

74 DEVELOPING PITTSBURGH | Spring 2018 for eligible businesses up to $250,000. at the former Snark Boats manufacturing INDIANA COUNTY Additionally, the Pennsylvania Industrial facility located at 911 Industrial Street in Development Authority is offering loans New Castle. Operations should start-up Indiana County Center for at a 3.50 percent fixed interest rate shortly and are expected to create Economic Operations for eligible businesses, which can be between 100 to 150 permanent new 801 Water Street facilitated through the Indiana County jobs. Indiana, PA 15701 Development Corporation. 724-465-2662 (T) In 2017 the Borough of New Wilmington 724-465-3150 (F) The Windy Ridge Business and expanded their farmers market with the Byron G. Stauffer, Jr., Technology Park, located at the help of the Lawrence County Economic intersection of SR 286 and US 422, in Development Corporation (LCEDC) Executive Director White Township, near Indiana, continues and a USDA Farmers Market Promotion [email protected] its Phase 3 roadway design and Program (FMPP) grant. The grant funding www.indianacountyceo.com permitting, with construction estimated jump-started the season, boosting to begin in the Summer 2018, making vendor sales more than three hundred he Indiana County Center for available an additional 70 acres of pad- percent over last year with six times as Economic Operations (CEO) is ready KOZ designated sites. many visitors! The LCEDC will continue Tdedicated to advancing economic to assist the Borough with administering development for Indiana County. The 119 Business Park located in the grant funds through the 2018 season. The CEO works side-by-side with Center Township, and the Corporate its five affiliates: the Indiana County Campus business park located in Burrell The LCEDC expects to complete the Commissioners, the Indiana County Township, near Blairsville, both have final build-out of the Millennium Park Chamber of Commerce, the Indiana available pad-ready KOZ designated sites multi-tenant facility with grant funding in County Development Corporation, that offer all underground utilities and the amount of $242,000 awarded by the the Indiana County Tourist Bureau, immediate access to major highways. Appalachian Regional Commission (ARC). and Indiana University of Pennsylvania. Currently the building is fully-leased to Each of the partners brings a particular For more information on business Steelite International but is expected to strength and focus on Indiana County’s financing opportunities as well as be vacated at year’s end once Steelite people, place and progress in a commercial and industrial real estate completes their nearby expansion coordinated effort for the economic in Indiana County, please visit www. project at the headquarter location in development of this county. indianacountyceo.com. Millennium Technology Park.

The Sustainable Economic Development A land development plan was recently Task Force was recently established by approved by the Lawrence County the Indiana County Commissioners. LAWRENCE COUNTY Planning Commission helping to clear The Task Force hopes to identify new the way for an expansion of the Ellwood opportunities in economic development, Lawrence County Economic Steels facility. Ellwood Group Inc. (EGI) education and job training. The focus for Development Corporation plans to construct a 110,000 square foot, these new opportunities will be in the 100 East Reynolds Street stand-alone building near the former renewable energy sector, agricultural Plaza South, Suite 100 A-space site on Moravia Street in New businesses, building and construction New Castle, PA 16101 Castle. The construction will be part of and environmental restoration. A final 724-658-1488 (T) a $50 million capital investment project report will be presented later in 2018. 724-658-0313 (F) by EGI and will house additional steel- making equipment needed to grow the Indiana County’s third largest employer Linda Nitch, Executive Director company’s production capacity. has clients in almost every state and [email protected] employs about 1,100 people. Diamond www.lawrencecounty.com Construction continues on an $863 Drugs Inc., headquartered in Indiana, is million gas-fueled electrical generation the largest Pennsylvania-based medical n 2017, Mark McClymonds completed plant in North Beaver Township, prescription provider to nursing homes, work on the site of the former New nearly five years after the project was serves 47 states and works with 2,600 ICastle Refractories property creating announced. The plant is located in the correctional facilities. Diamond’s Chief an intermodal complex. Products are Powder MillWorks development (former Operating Officer, Mark Zilner, said that received by rail and then distributed Cyanamid plant) on Route 551. TYR the company is growing at 20 percent a to over-the road transportation at the Energy, a U.S. subsidiary of the Japanese year, which required the acquisition of facility. The Lawrence County Economic energy giant Itochu, along with partner two buildings in White Township. Development Corporation assisted the Kansai Electrical Power Co. and Siemens project with a $1 million PA First Grant. Group, took over the Hickory Run Power The Indiana County Commissioners Station in 2016 from New Jersey-based continue to facilitate the Indiana County In June of 2017, Holistic Farms of LS Power. Revolving Loan Fund (RLF). The RLF has Haverford, PA received one of the first funding available for low-interest loans Commonwealth of PA medical marijuana Ward’s Ridge, a complex of two, and grow permits. They will make their home

www.developingpittsburgh.com 75 possibly three office buildings, is under 2020, the Township’s population is Berlin, Somerset County will offer 14 construction and expected to become expected to increase nearly 50 percent different beers, ranging from pale ales and the new home of the PA Department from the 2000 U.S. Census of 10,057 to pilsners to a number of seasonal brews. of Vital Statistics relocating them from nearly 20,000 residents. The City of Washington also welcomed the current location in the City of New Washington Brewing Company to a Castle. The one-story buildings, to be ABARTA Coca-Cola Beverages acquired redeveloped Studebaker dealership in the sized 10,000, 13,000 and 8,000 square distribution territory from the Coca-Cola city. feet, are being located next to Nesbit Company that will cover 90 percent of Place in Neshannock Township. Pennsylvania including the Houston, PA Dunkin Donuts opened a fifth location distribution center. The company plans to in Washington County at the former On February 8, 2018 Lawrence County spend $10 million per year, for the next ten Donut Connection on Chestnut Street, landed the state’s third mini-casino years, throughout the state on local capital Washington, PA and nearby Washington license. Mount Airy #1LLC secured the investments into equipment, facilities, Crown Center announced that Rural King rights to this Category 4 mini casino for delivery fleet and community support. Supply will take possession of the former $21,188,888.88. The exact location of Gander Mountain space. the casino has not been determined, Washington & Jefferson College will however, it will be within 15 miles of the receive a $500,000 Redevelopment Local favorites Toffee House, a candy heart of downtown New Castle! Assistance Capital Program grant to begin manufacturer opened a retail store at construction on the Greater Washington Washington Crown Center, Emerald Area Business Incubator. Valley Artisans of Scenery Hill opened a retail location at 145 South Main Street in WASHINGTON The county’s real estate market remained Washington and J&D Wine Cellars opened strong with the engineering firm Heyl a location at The Street at the Meadows. COUNTY & Patterson Equipment Division of Hall Industries re-locating its 20 employees Bobby Rahal Automotive broke ground Washington County and its headquarters from Ellwood City for the $12 million Jaguar and Land Chamber of Commerce to 701 Technology Drive in Southpointe. Rover dealership in North Strabane 375 Southpointe Boulevard #240 The initial office space is 8,000 square Township and Park Place, the mixed-use Canonsburg, PA 15317 feet with an option to triple the size as the development in North and South Strabane 724-225-3010 (T) company grows. Townships, will add several new retail 724-228-7337 (F) businesses including Nutrition Pit, Glazed Jeff Kotula, President Crown Castle, one of the largest & Confused, Vintage Grace Boutique and [email protected] occupants of office space in Southpointe Uncle Koko’s Pizzeria. Future construction Business Park, leased an additional 50,000 www.washcochamber.com projects at Park Place will bring an square feet in The Fountainhead building additional 32,000 square feet for office, ashington County continued to in Southpointe. retail and restaurants. develop its infrastructure with Lake Superior Consulting, an integrated the reconstruction of a five-mile Economic development projects were, W consulting firm providing engineering, stretch of Interstate 70 between the East of course, a focus for the county for design and integrity management Beau Street and Eighty Four interchanges the second half of the year. Scannell solutions to clients in the oil and gas near Washington, PA. The project, the Properties of Indianapolis entered an industry, announced the opening of a new largest one ever done in PennDOT’s agreement to purchase a 31-acre tract in office in the Southpointe Business Park. District 12, has been dubbed the “mega the Starpointe Business Park. A 507,000 square foot distribution center and job” by virtue of the almost $118 million In addition to commercial development, price tag and the scope of the project. trucking facility will be developed on the the county’s high quality of life and site for an undisclosed client. The project amenities allowed the county to attract North Strabane Township - Washington is expected to be completed in mid-2018 both companies and new residents. County’s fastest growing municipality - and employ 90 in the distribution center Sky Zone, an internationally franchised plans to construct three new buildings and 110 to 125 in the trucking dispatch indoor trampoline park opened at 281 at their municipal complex – one for operation. Georgetown Road in Cecil Township public works, another for the police in the 30,000 square foot building that and fire departments and the third for A Commonwealth Financing Authority formerly housed the Southpointe Court administrative offices and public meetings. grant in the amount of $852,019 was House. Including the addition of a traffic light announced to add a right turning lane to and turning lane on Route 136, done in the southbound lanes of Morganza Road The number of microbreweries in where it intersects with McMurray Road conjunction with the development of the Washington County continued to proposed 100 plus home development in Cecil Township and a right turning lane increase with the addition of Whitehorse to the westbound lanes and a left turning called Legacy Park, the cost will be Brewing to The Street development about $25 million. Bids will be sought lane to the eastbound lanes of McMurray near the Meadows. Whitehorse Brewing, Road at the same intersection. In addition, in the spring of 2018 with construction a four-year-old craft brewer based in beginning late 2018 or early 2019. By the grant will provide for a new traffic

www.developingpittsburgh.com 77 signal at the entrance and exit of the HydroEdge Solutions, a company that Industrial Development Corporation proposed Cool Valley development area. develops and operates temporary water (WCIDC) was awarded $12.8 million lines for hydraulic fracturing operations, in grant and loan funding for two Chapman Properties will receive a $1 plans to hire more than 20 employees to redevelopment projects. million Redevelopment Assistance Capital accommodate its growth. The company Program grant to develop the 158-acre currently has 92 employees at its locations WCIDC was awarded $1 million in Chapman Southport Business Park. The in McMurray and Eighty Four. Redevelopment Assistance Capital state grant will be used to develop sewer, Program (RACP) grant funding and water and electric service at the site. FTS International expanded its presence Business in Our Sites funding in the in Washington County by moving the amount of a $3.8 million grant and a The Washington County Council on wireline division previously based in $5.8 million loan for development of Economic Development will receive North Canton Ohio to 30,000 square Commerce Crossing Westmoreland. The a $1.5 million grant from the State’s feet of space at 100 Arentzen Boulevard funding will assist with the installation Redevelopment Assistance Capital in the Speers Industrial Park. FTS also has of infrastructure, road widening and Program to develop the third phase of the significant operations in the county in reconstruction, pad development and 1,200-acre Starpointe Business Park. both Canonsburg and Eighty Four. related costs to improve the site of the county’s newest industrial park. Washington County retained its mantle In manufacturing, Perryman Company WCIDC plans to close on the 206 acres as the Energy Capital of the East purchased the former Caterpillar office of property in Sewickley Township by with significant energy projects and building and manufacturing building on the end of the first quarter of 2018. announcements in the latter half of 2017. 35 acres in Houston, PA. The company Commerce Crossing at Westmoreland CNX Coal Resources LP and OMNIS currently employs 525 people across its will be designed to accommodate Bailey LLC announced a partnership to three facilities–the two in Washington companies that desire pad ready sites build a first-of-a-kind solid energy refinery. County located in Houston and with direct access to active rail and The refinery will be used for processing California Technology Park, as well as Interstate 70. The industrial park will waste coal at Consol Energy’s Bailey the Frackville facility in Schuylkill County. consist of five parcels, ranging in size Mine Complex and converting it into Additional employees will be hired once from 20 to 40 acres. high-quality clean carbon fuel and topsoil. infrastructure improvements are made The impurities that will be removed from and the new facility builds business. In In addition, the Jeannette Glass Works the coal are fossilized mineral matter addition, Perryman Company will install project received $2.2 million in RACP from plants. After several years of testing two new furnaces in their existing melting grant funding to be used for site at USDA facilities, this topsoil has been facilities at the California Technology Park preparation. Remediation of the blighted shown to remediate mineral-depleted to serve the aerospace market as well 13-acre site began in 2016 with the farmland, leading to both enhanced as the medical, additive/3D and other removal of hazardous materials, followed plant growth and nutritionally superior emerging markets. by the demolition of all structures on the food. The clean carbon fuel product can site. Recently, Pennsylvania Department be used to further enhance the energy of Environmental Protection (DEP) content and performance characteristics Secretary Patrick McDonnell toured the of the coal product. WESTMORELAND site to see first-hand the importance of COUNTY PA’s brownfields program at work. During Corsa Coal has more than doubled its his visit, McDonnell noted that work was headquarters space at Southpointe by progressing quickly at the site, compared relocating to 9,500 square feet at 600 Westmoreland County Industrial Development Corporation to other similar brownfield properties. Site J. Barry Court. The additional space was preparation will be completed by June 30, 40 North Pennsylvania Avenue #520 needed to accommodate its growth 2018. The site will generate an estimated related to the opening of its Acosta mine Greensburg, PA 15601 $150,000 to $250,000 in annual property near Somerset County as well as the 724-830-3061 (T) taxes and create as many as 160 jobs. future opening of a mine in Berlin, PA. 724-830-3611 (F) Jason W. Rigone, The county’s comprehensive plan Sprague Resources LP acquired Coen Executive Director update, Reimagining Our Westmoreland, Energy and Coen Transport bringing has reached many important milestones, the public-traded company based in [email protected] www.co.westmoreland.pa.us including the completion of the plan’s New Hampshire into southwestern outline. Currently, the county’s planning Pennsylvania. Financial terms of the staff and their consultant, Houseal transaction with privately-held Coen Oil estmoreland County is kicking off 2018 with many economic Lavigne Associates, are formulating a Company included a $33.75 million base strategy to form a number of focus purchase price - the value of its petroleum Wdevelopment projects groups to create actions and strategies products and a potential earnout of up to underway or completed in the second half of 2017. for the plan. These groups will be $12 million. Coen Oil Company retained comprised of topic-area experts. The first ownership of its convenience stores and Recently, the Westmoreland County group has met to discuss the expanded tire company. scope for an Economic Strategy and

78 DEVELOPING PITTSBURGH | Spring 2018 Action Plan. Items for further exploration project as an opportunity to invest in in this focus group will include nimble downtown New Kensington with the manufacturing, instructions of different goal of spurring additional investment in industry sectors, need for an urban the community and along the “Corridor economics strategy, how to connect of Innovation.” entrepreneurs to capital, and young talent attraction. Also, the concept of Another project recently completed is seven regional “Planning Districts” is the modifications to Turnpike 66 – Amos being incorporated in the comprehensive K. Hutchinson Bypass. The $1.2 million plan. Each district will include a number project was needed to accommodate of municipalities and will allow for more “super loads” shipping from Elliott’s regional based decisions to be made facility in Jeannette. In 2016 WCIDC that incorporate planning best practices. was able to bring together officials from Meetings will be held in each of the PennDOT, the PA Turnpike Commission planning districts after the draft plan is and Elliott to work on a solution. After completed to help guide implementation a feasibility study was conducted, of the comprehensive plan. Governor Wolf announced the project would receive $1.14 million in the The Corner entrepreneurial center form of a Transportation Infrastructure in downtown New Kensington is Investment Funds grant. The PA Turnpike now open! The Corner, a partnership Commission covered the project’s between WCIDC and Penn State New design costs. Kensington, provides access to the Corner Launchbox entrepreneurial To learn more about economic programming, as well as active, development projects in Westmoreland membership-driven co-working space, County, visit WestmorelandCountyIDC. operated by Pittsburgh’s Beauty Shoppe. org. The WCIDC envisioned this unique

DEVELOPED SITES QUALIFIED WORKFORCE STRATEGIC LOCATION

Westmoreland County Industrial Development Corporation WestmorelandCountyIDC.org 724-830-3061

www.developingpittsburgh.com 79 People & Events

Community Bank CEO Pat McCune, Jeff Kotula from the Washington Gregg Broujos (left) from Colliers with Rugby Realty’s Aaron Stauber. County Chamber of Commerce and RDC’s Shawn Fox at NAIOP Pitts- burgh’s Night at the Fights.

Zak Wolpert and Mark Ritchie from Providence Engineering, Design- Grandbridge’s Megan Zillweger-Jones and Dan Puntil with Steve stream’s Kevin Turkall and Pennoni’s John Skorupan. Thomas from Chapman Properties (right).

80 DEVELOPING PITTSBURGH | Spring 2018 Miss This Edition? (Don’t make the same mistake twice)

Contact Karen Kukish to reserve space in the Fall 2018 edition of DevelopingPittsburgh. Dollar Bank’s Sandra Wise (left) and Linda Fisher from Farmers Bank. Focus on the North Side

Don’t wait until summer.

412-837-6971

[email protected]

Huntington’s David Tetrick (left), Walter Enick from Clark Hill and Dollar Bank’s Lisa Hart.

Civil-Site Design for 62-Acre Development Gordon Food Service Distribution Center

(From left) CBRE’s Kyle Prwadzik, JLL’s Jason Professional Services Stewart, Jendoco’s Domenic Dozzi and Don ■ Commercial ■ Stormwater / MS4 Smith from RIDC. ■ Industrial ■ Green Infrastructure ■ Institutional ■ Landscape Architecture ■ Residential ■ Planning ■ Municipal ■ Surveying ■ Water / Wastewater ■ GIS / Mapping / South Side Riverfront Park ■ Roadway and Pavement Asset Management The Soffer Organization and Environmental Planning and Design, LLC

Headquarters: 846 Fourth Avenue Coraopolis, PA 15108 (Allegheny County) 412-264-4400 | www.lsse.com Branch Office: Gene Pash and Jael Jones from the Allegheny Greensburg, Westtmoreland County, PA Conference. Managing Principals: Lawrence J. Lennon, P.E., D.WRE; & Daniel S. Gilligan Principals: Ned Mitrovich, P.E.; Jason E. Stanton, P.E.; & Kevin A. Brett, P.E. Civil-Site Design for 125,000 SF Facility GE Additive Technology Advancement Center

www.developingpittsburgh.com 81 Investigating the Past, Evaluating the Present, Shaping the Future!

Integra Realty’s Paul Griffith and Claudia Steeb from HFF.

22 S. Linden St. | Duquesne, PA 15110 | 412.469.9331 (From left) Patrick Flaherty, Natalie Chadwick, www.kuresources.com and Nick Ferrera from Burns & Scalo Real Estate.

• Civil/Site • Construction Services • Energy • Environmental • Geotechnical • LA/Planning • Materials Inspection PNC’s Lou Stempkowski and Autumn Harris & Testing from Century Equities. • MEP • Structural • Survey & Geospatial • Transportation • Water Resources • Water/Wastewater

PNC’s Joe Pascarella (left) and Greg Fedorko (right) flank Kris Volpatti from Key Bank. PARTNERS FOR WHAT’S POSSIBLE www.pennoni.com 750 Holiday Drive, Suite 700 | Pittsburgh, PA 15220 412-521-3000

82 DEVELOPING PITTSBURGH | Spring 2018

AmeriServ Trust And Financial Services Company – Trustee PenTrust Real Estate Advisory Services, Inc. – Investment Advisor

Oxford Development Company’s 3 Crossings NAIOP Pittsburgh’s 2018 Best Mixed-Use Development Award Built with ERECT Funds

Red Swing’s Matt Smith, Mary Rose Hopkins from LGA Partners and Mascaro’s Alyssa Kun- selman.

The Yards at 3 Crossings. Photo by Mark Grasso

Building Solid Investment Returns For Tomorrow, And Creating Union Jobs Today (From left) Tammy Dohn, Jamie Kusevich from For more information call 412-279-4100. Stephany Associates and sister Kelly Kusevich from CEC, Sarah Gianotti from TRG Closing Services and Rebecca Williams from Kimball Office.

a r c h i t e c t u r e / i n t e r i o r s / p l a n n i n g CELEBRATING

Strada’s Rhonda Bolding, Babst Calland’s Krista- Ann Staley, Rebecca Williams, Burns & Scalo’s Shannon McGuire and Ruby Scalo, and Melissa 25 YEARS Powell from MBM Contracting. MEANINGFUL PARTNERSHIPS REWARDING DESIGN

NAIOP Developing Leaders hosted a fundraising event for Greater Pittsburgh Community Food Bank at Arsenal Lanes w w w . l g a - p a r t n e r s . c o m / 4 1 2 . 2 4 3 . 3 4 3 0

www.developingpittsburgh.com 83 (From left) CEC’s Meghann McMahon, Amanda Bonnell, Steve Caruso, and Brian Shaffer

Colliers International | Pittsburgh (From left) BOMA President Tony Young from specializes in adding value to our the Carnegie Museums, PNC’s Gus Faucher and NAIOP Pittsburgh President David Weisberg clients to accelerate their success. at the BOMA/NAIOP Pittsburgh State of the Economy presentation.

(From left) Rycon’s Danielle McCullough, Nicole Commercial Real Estate Sales and Leasing Services Graycar from CMU and Amanda Buczynski from DIRTT Solutions at the NAIOP Pittsburgh > Real Estate Management > Valuation and Advisory ski outing > Corporate Solutions > Investment > Sustainability > Auctions

412 321 4200 | www.colliers.com | @PghCRE Learn how we are living our values of service, expertise, community and fun at www.colliersinternationalpittsburgh.com

84 DEVELOPING PITTSBURGH | Spring 2018 setting the performance standard for 25 years

One Call. One Source. Complete Satisfaction. Burchick Construction Company, Inc. 500 Lowries Run Road • Pittsburgh, Pennsylvania 15237 Telephone: 412.369.9700 • Fax: 412.369.9991 • www.burchick.com 412.682.3810 412.261.8810