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Amid buzz, state pushes back deadline on big office-lease proposals

//March 18, 2019//

Amid buzz, state pushes back deadline on big office-lease proposals

//March 18, 2019//

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The state is looking for up to 130,000 square feet of office space in Cumberland and Dauphin counties for roughly 880 workers who are expected to leave the grounds of the former Harrisburg State Hospital sometime next year.

“In our market, the reality is that office transactions, where leasing is in excess of 100,000 square feet, you can count them on less than one hand each year,” said Michael Curran, part of CBRE Group’s Harrisburg team. “For a deal that size with the Department of General Services as the anchor, there will be interest from all walks of life.”

Proposals for sites were due to the Department of General Services by March 15, but the state has pushed back the deadline to April 12 after interested developers requested more time.

Commercial real estate investors who specialize in office buildings have been fairly tight-lipped about their interest and their plans to submit proposals. Multiple Harrisburg-area investors told the Business Journal they were not submitting bids but that they knew of several other unnamed developers who were eyeing sites in and around the capital city.

“We received a lot of requests about space or the ability to build,” said Art Campbell of Lemoyne-based Campbell Commercial Real Estate.

He said interest has come from both local and regional investors. Other professionals and investors have speculated that national groups could be vying for the project.

“Any time the state has a requirement of that size, people’s ears perk up,” Curran said.  

The state is moving workers out of the state hospital as it prepares to hand off the property so it can be redeveloped. The state-owned property, which is in Harrisburg and Susquehanna Township, briefly caught the gaze of Amazon during its search for a second headquarters.

To house remaining workers at the hospital campus, the state is seeking 115,000 to 130,000 square feet of contiguous space in Cumberland or Dauphin counties, with a goal of staying close to Harrisburg.

The state Department of General Services has not said how many proposals have been submitted thus far. Troy Thompson, a department spokesman, said he expects a decision this spring. He also has said the target date for a move is May 2020 but it could be extended.

The state lease would be for a term of 15 years, plus two five-year options. And the state is an attractive tenant, said Stephen Marzullo of CBRE’s Philadelphia Commercial Investment Properties team, who has brokered several property sales involving state agencies.

“State occupancy in your building is definitely more valuable than corporate office tenants,” he said. “The state and most government agencies will sign long-term leases and they make these decisions not too hastily.”

Last year, Marzullo sold a portfolio of five state-leased properties that included the Department of Corrections headquarters, a 100,000-square-foot building in Hampden Township, for nearly $37 million.

The buyer in that deal, Ohio-based Boyd Watterson Asset Management, also snapped up the state Department of Environmental Protection’s office on Elmerton Avenue in Susquehanna Township for $14.5 million.

“Are they lucrative? Yes,” Marzullo said.

The pending move also bodes well for whatever is around the site picked by the state, Curran said. Restaurants and retailers could see increased business from an influx of state employees.

Redevelopment of the Harrisburg State Hospital site could be equally lucrative for developers over the next decade, given the site’s proximity to Interstate 81 and Elmerton Avenue. Real estate professionals and local officials believe the campus, closed as a state hospital in 2006, could eventually house a large business park or potentially a mix of offices, hotels and shops.

“From an access standpoint and geography, the site speaks for itself,” Curran said.