A global pharmaceutical giant's former Philadelphia hub that once set a pricing record has sold for a major discount after the loss of its anchor tenant.
The Eastern Atlantic States Regional Council of Carpenters paid $52 million for the nearly 207,780-square-foot property at 5 Crescent Drive in the city's Navy Yard area, about 60% less than what it last sold for eight years ago.
The seller and special servicer, Rialto Management, was tasked with landing a buyer of the commercial mortgage-backed security loan that held the debt on the property. The deal closes a tumultuous period for the property after GSK's abrupt exit in the earlier years of the pandemic that reflected dropping demand for offices around the country — and makes the tower a symbol of the resulting lower values.
The British drugmaker prematurely terminated its lease for the entire building in 2022 as part of a broader plan to cut roughly 660,000 square feet from its national office footprint in response to pandemic-era changes that downshifted its spatial needs.
GSK's original deal for the building — which Liberty Property Trust developed for the biotech giant more than a decade ago — wasn't set to expire until September 2028. However, since the company bought out its lease and relocated to smaller space elsewhere in the city, the Navy Yard property has been sitting empty ever since.
The property has faced an increasingly challenging outlook in the years since Liberty sold the building to Korea Investment Management in May 2018. The $130.5 million price tag for the property set a record for Philadelphia's office market at the time of the deal, largely due to GSK's tenancy and supposedly long-term commitment to the space.
The overseas investment firm took out an $85 million loan through Goldman Sachs' mortgage arm to finance the deal, and the debt was subsequently securitized and sold to CMBS investors.
After making interest-only payments, Korea Investment Management defaulted on the property, and the loan was transferred to special servicing in November 2022, shortly after GSK's exit. The loan matured the following year, with Rialto Capital filing a foreclosure complaint against the Korean firm in early 2024.
A sheriff's sale later that year failed to garner a bid high enough to clear the seller's reserve amount, ultimately transferring ownership of the Navy Yard building to the CMBS trust. All the while, the property's value continued to deteriorate, falling from a 2018 appraisal of more than $132.5 million to less than $89.5 million by 2023, according to CBMS reports.
Filling the space
Korea Investment Management's purchase landed shortly before the pandemic sent the national office market into a yearslong freeze when tenants such as GSK offloaded record amounts of space, halted future real estate decisions and left landlords in perilous financial positions.
The combination of depressed demand, stagnant leasing and the ongoing effects of flexible work has helped push the national office vacancy rate to a record high of more than 14%, according to CoStar data. Tenants collectively handed back upward of 65 million square feet in 2024, boosting the total to more than 210 million square feet of move-outs since the start of 2020.
Those pandemic-induced factors have been exacerbated for a number of property owners, and some — especially if they're facing maturing loan deadlines or mounting expenses — have been eager to offload underperforming properties or ones that no longer fit with their investment strategies.
That has led to a wave of discounted deals across the United States, creating a window for buyers, such as the union, to take advantage of lower pricing for properties they otherwise wouldn't be able to afford.
The labor union is expected to move into the Crescent Drive building within the next three to six months, a spokesperson said, filling the space with about 125 employees and leasing out whatever is left over.
And it could have some better luck.
Tour activity among prospective Philadelphia office tenants has been steadily climbing over the past year, local landlord Brandywine Realty Trust recently reported. While companies in the area over the past year have surrendered about 1.3 million square feet more than they've occupied, according to CoStar data, the Philadelphia region as a whole has maintained a track record for having the third-lowest availability rate among the 15 largest U.S. office markets, trailing only New York City and Minneapolis.