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REA
October 10, 2018  

REIT Marketing Trophy Tower in Philadelphia

In one of Philadelphia’s largest office listings ever, Equity Commonwealth is shopping the trophy building at 1735 Market Street.

The 1.3 million-square-foot property is expected to attract bids of about $500 million, or $385/sf — a hefty valuation fueled by its high caliber and stable, long-term rent roll. At that price, the capitalization rate would be about 6%. HFF is representing the Chicago REIT.

The estimated valuation is in line with the city’s record high, set in 2006 when Commerzbank bought an 80% interest in the 1.25 million-sf Comcast Center, at 1701 John F. Kennedy Boulevard, across the street from the listed building. That transaction valued Comcast Center at $505 million, or $404/sf.

The 54-story building at 1735 Market Street ranks as the fifth-tallest in the city and has a distinctive pyramid-crowned top. It’s 91% occupied, below the 96% average for trophy properties. The rent roll includes BNY Mellon, Citizens Bank, Fidelity Investments, Goldman Sachs, J.P. Morgan, law firm Montgomery McCracken and Raymond James.

The weighted average rent is $25/sf, and the weighted average remaining lease term is 9.2 years. Leases on some 750,000 sf, mostly for new tenants, were signed since 2015.

The building was completed in 1990. Equity Commonwealth spent $4.5 million last year constructing an amenity floor that includes an updated fitness center and a 19,000-sf lounge with shared workspaces, conference rooms and entertainment space.

Pyramid Club, a members-only social club, has occupied the 52nd floor since 1993. Its lease runs until 2030. Uptown Beer Garden, a seasonal outlet on a ground-level plaza, opened this year. There is also almost 6,000 sf of ground-level retail space at the corner of John F. Kennedy Boulevard with near-term lease expirations, which may provide a buyer with the potential to lease that space at higher rents.

The property is being pitched as a core investment available at a significant discount to the $1,000/sf prices that trophy assets can fetch in prime markets such as New York, Boston and Washington.

Equity Commonwealth, formerly known as HRPT Properties, has owned the building for two decades. A shareholder revolt in 2014 ended when a group led by investors Sam Zell and David Helfand took control and began aggressively repositioning the portfolio.

Since then, the public REIT has sold all its Philadelphia holdings except 1735 Market Street. In February, it sold the 826,000-sf building at 1600 Market Street for $160 million, or $194/sf. The buyer was a joint venture between American Real Estate Partners of Herndon, Va., and Miami-based Independenica Asset Management, a unit of Chilean investment manager Independencia Fondos de Inversion. HFF also brokered that deal.