MAY 5, 2010

Denholtz Associates, a New Jersey-based real estate investment and development company announced today that it has recently signed a 17,600-square-foot three-year lease renewal with Allegheny Plywood Company, a wholesale distributor of cabinet grade hardwood plywood, located at 7036 Snowdrift Road in Allentown, PA. The tenant and landlord were both represented by Michael Adams of Caldwell Banker Feist & Feist in the transaction.

“This facility is well-situated in highly visible location in Lehigh Valley, the third most populous county in Pennsylvania, and provides easy access to Philadelphia, New Jersey and New York City,” stated Kristine Hurlbut, senior director of leasing at Denholtz Associates.

According to Q1 stats from CB Richard Ellis, Lehigh Valley industrial rents are hovering around $4 a square foot. According to the same CBRE report, a flurry of smaller tenants are the most active in the Lehigh Valley market and are pursuing aggressive proposals from landlords who have dropped average asking rents for six consecutive quarters. According to Hurlbut, rents are down around 15% from 2005 to ‘o6 highs. “Back then, free rent was unheard of. But now, we need to be more flexible, which could involve taking a lower rent for tenants who renew or keeping the rent stable for those who opt for short-term renewal.

Denholtz is also downsizing tenants early. “I’d rather take space back and lease it to somebody rather than just reduce a tenant’s rent. If I reduce their space by 40%, I can also reduce the rent by 40% and then we both win,” says Hurlbut. Still, she says, there are TI packages that are simply too big. “We recently had a tenant who wanted a 10-year renewal – we usually do three to five years – and a TI package; it just got too rich for us,” she says, adding that the company is also giving more free rent up front in order to keep the base rent higher.

Still, Pennsylvania is a cakewalk compared to Florida and Georgia, where Denholtz is also in charge of leasing up properties. “In Orlando, FL, we’re not kicking out tenants who want to go month-to-month,” says Hurlbut. “We’d rather have the income now.” She also explains that the commission structure has increased in the Sunshine State, with brokers upping from 4% to 5%. “Tampa, FL and Tallahassee, FL are okay,” says Hurlbut, “but suburban Atlanta property is dead. In Downtown Atlanta, we are fighting for deals.”

The upside of all of this may be that landlords are more focused on customer service than ever before. “If it’s all about economics you lose, but if it’s about more then you have a fighting chance,” says Hurlbut. “Tenants can get cheap rent everywhere, but you have to be the prettiest show in town.” She predicts that 2010 will be more of the same in terms of concessions. “By 2011, the packages will start to decrease, and in 2011 we might see some increase in base rents.” But, like most real estate-related indicators, it all depends on job growth.