1601 Market St. sees new leasing, recapitalization

APF Properties has just 11 percent remaining to be leased at 1601 Market St. in Philadelphia as it has chipped away at the building’s vacancy over the last six years.

With its occupancy higher and new retail space churning out more income for the building, the New York real estate company is also in the midst of undertaking a recapitalization of the 36-story, 680,000-square-foot building.

“We bought it in 2008 and now, in its seventh year, some of our investors would like to get out of their investment,” said Berndt Perl, principal at APF Properties.

APF will retain its ownership interest while it goes through the process of exchanging, or essentially selling, some other investor’s ownership interests in the building to other parties in a process that is common among partnerships that own properties.

APF bought the building for $98 million. It's hard to determine how much the building could fetch at the moment. One variable that will play into its value is Radian Group, which maintains its headquarters in 150,000 square feet of the building, but is out looking for a new space. The company could stay put at 1601 Market, but it's exploring its options.

Regardless, the building has attracted tenants and cinched up 105,000 square feet in new leases during this year. Of note: The Disciplinary Board of the Supreme Court of Pennsylvania signed a 12-year lease on 10,390 square feet on the 33 rd floor and moved from 1635 Market St. Also, Lee Hecht Harrison leased 2,590 square feet on the 24 th floor, relocating from 2000 Market St.

APF has also expanded the building. It spent about $9 million to construct a glass curtain that created 7,500 square feet of street level space and allowed for the expansion of two existing retail spots. The second floor was also expanded.

The Philadelphia Convention and Visitors Bureau leased the mezzanine space. Two newly created retail spaces, one totaling 2,100 square feet and another 1,900 square feet, remain vacant. Michael Salove Co. has been retained to find tenants to fill those spots.

Perl envisions a restaurant to use the second-floor space and an accompanying outdoor seating area and another upscale retailer for the last storefront.

“The other retail space is next to our main entrance and we want to make sure we have the right use for it,” he said. “We have had a lot of users who want to be there but decided we can’t take them. It has to be something high-end.”

Perl is so far pleased with how 1601 Market is shaping up. With its leasing activity, the new retail space and the expanded use of the basement and concourse level where a day care center now operates have all added up to enhancing the building’s profile, he said.

“The property has been a good investment for us. No question,” Perl said. “We’ve increased [net operating income] and that is partially related to some of the leasing. I’d like to say the market has moved up considerably but I don’t think rent levels have increased significantly. The big revenue boost has been the increased usable square footage by 40,000 square feet as well as expense reductions and our green initiatives.”

Perl noted the building uses 2.5 million fewer kilowatts per hour than it did in 2012.

Perl continues to look for other office investments in Philadelphia. APF took a stab at buying 1818 Market St. and 1835 Market St. but didn’t manage to make a deal.

“There are favorable signs in Philadelphia,” he said. “We are pleased to be here.”

Source: Philadelphia Business Journal