FEATURE ARTICLE, SEPTEMBER 2004

THE PREFERRED APPROACH
Pennsylvania-based Preferred Real Estate Investments turns factories of the past into office buildings of the future.
Susan Fishman

Preferred Real Estate Investments (Preferred) has built its brand around restoring former warehouses, manufacturing facilities and obsolete office buildings. The Conshohocken, Pennsylvania-based company owns and operates roughly 9.5 million square feet and is in the process of buying another 3.5 million to 4 million square feet this year. By acquiring properties at prices substantially below replacement cost and renovating them in spectacular fashion, Preferred is able to lease its buildings to clients at prices that are highly competitive with traditional office or industrial space.

“We’re very much a growth company,” says Erik Kolar, president. “We were starving entrepreneurs trying to get into a business that is highly institutional, so we naturally gravitated toward the buildings that nobody wanted. Philadelphia has such a rich history that there were a lot of these old industrial buildings that we originally started buying and making multi-tenant.”

Preferred’s core development business has always been around adaptive re-use, 80 percent of which is industrial to office. But the company, which is comprised of a leasing company (Preferred Real Estate Advisors Inc.), a construction company (Preferred Construction Advisors, LLC) and property management company (Preferred+), is also buying more completed office products and is beginning to take a more mixed-use approach as well.

“What’s driving our growth is that we manage all of our own disciplines internally,” notes Kolar. “So we’re very much a hands-on company and take a very holistic approach to what we do. We have lawyers and space planners on staff; we do all of our financing internally; we manage construction of all of our product; and we manage and lease our own buildings.”

With the technology advancements of the late 1990s, Preferred’s buildings catered to the market needs, which called for systems furniture and open work environments versus private offices. The buildings also catered to high-density work environments that required much greater parking ratios and bigger window lines than what the typical 1980s buildings offered.

“When the markets and the business needs changed, and corporate America, especially in the late ‘90s, was looking to squeeze every cent out of real estate and make it as efficient as possible, our buildings catered to that — heavy power, heavy parking, great ceiling heights — all the things they wanted,” notes Kolar. “Our product wanted to be something different, so we needed to buy the same buildings but invest in all new electrical, all new HVAC, all new windows — turn an old building into a new building but hold on to its original architectural aspects.”

Its customer-centric business approach has also allowed Preferred to keep growing.

“We’re really focused on solving problems, not just developing buildings,” says Kolar. “The asset is truly the tenant, so our property managers are uniformed differently. We send them through the Disney model of customer service training. They’re very responsive and very connected, and they carry the vision of long-term growth.”

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Preferred converted the former Lee Tire Factorymanufacturing plant in Conshohocken, Pennsylvania, into an office and industrial building.

Preferred’s first big project was Lee Park, formerly Lee Tire Factory, now a recently renovated Class A office project in Conshohocken, just 150 yards from the train station that serves suburban Philadelphia. In the late 1980s, Preferred converted the old tire manufacturing plant into an office and industrial building. In April 2002, the company purchased the 650,000-square-foot asset from a former partnership and did a $30 million renovation, shrinking the space by 200,000 square feet, taking down the outside building to bring the parking closer to the property, renovating all the common areas and reducing the tenant rent roll to make larger, more efficient spaces — all while holding on to the building’s original architecture. Preferred also added the best office building amenities, including food service, outdoor seating and an expanded tenant conference center, featuring a 75-seat auditorium and training center.

Preferred Real Estate Investments converted a former power plant built in 1917 into Wharf at Rivertown, a 90-acre mixed-use community in Chester, Pennsylvania, that includes Class A office space.

Preferred is also responsible for the Wharf at Rivertown, a 90-acre mixed-use community that includes Class A office space converted from the former power plant in Chester, Pennsylvania. The plant was built in 1917 to support the war effort and was a model of modern technology at the time. Now, the space is 80 percent leased and tenants include Wells Fargo, Synergy, Mita Management and AdminServer.

“It’s nothing short of magnificent from a physical perspective,” notes Kolar.

The project has also been, according to Kolar, “the perfect storm of public/ private participation.” The state has agreed to put infrastructure ramps off Interstate 95 to get people into the city, and tenants will receive major tax exemptions through 2013. Just the first phase of the project will increase jobs by 40 percent.

“So it’s a great story and I think it will be kind of the poster child for urban/suburban revitalization,” Kolar adds.

Another adaptive re-use project is Island View Crossing, a Class A office building in Bristol, Pennsylvania, that was formerly the Dial Soap Factory. The 183,000-square-foot project is significant as one of the first office buildings on Philadelphia’s Delaware River, and provides magnificent views from 22-foot glass windows on the top floor. Preferred has also put in pads for an additional 200,000 square feet of new construction.

Preferred’s most recent closing was the American Metro Center, a former 750,000-square-foot toilet manufacturing plant located at Interstate 295 and the Hamilton Train Station in New Jersey. The company is shrinking the space to 450,000 square feet and converting it to 100 percent office, restoring the building to its original 1920s fabric. Architectural highlights include a terracotta tile exterior, mosaic design and red brick walls.

“It borders the white collar and blue collar market, so you have great access to labor and incredible access to transportation,” notes Kolar. “I think it’s a well-planned community, and Hamilton Township had a lot to do with making sure it was done right. The entitlement process was arduous, but efficient in the end.”

Since 1992, Preferred has grown an average of approximately 1 million square feet per year. Primarily a Mid-Atlantic business, the company is branching out into the Maryland and Northern Virginia marketplaces and has opened an office in Columbia, Maryland. Preferred also opened an office in Princeton, New Jersey, and is experiencing a tremendous amount of growth in the New Jersey marketplace. As the firm continues to grow, it’s looking up and down the coastline and, by 2006, plans to have 20 million square feet under ownership.

©2004 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.