Hinerfeld Commercial Real Estate, Scranton, PA

Despite the setback of being denied KOZ status, much Mount Pleasant space (the finished building rendered above) has already been gobbled up by Physicians Health Alliance and Valley Oral and Maxillofacial Surgery.

Michelle Dempsey, principal with Dx Dempsey Architecture, says that one of the newest commercial structures in northeastern Pennsylvania (NEPA) is representative of the designs of the future.

The $6 million, 31,000-square-foot medical and professional center facility, known as the Mount Pleasant Corporate Center, is located at Linden Street and Seventh Avenue in Scranton. A product of Beacon Medical Real Estate in collaboration with Summit Associates of New Jersey, the project launched in 2008 after the acquisition of the property by the Scranton Lackawanna Industrial Building Company (SLIBCO).

Dempsey, principal architect for the job, explains that Mount Pleasant economically delivers Class A office space with an invigorating atmosphere and a design that is appropriate for the blooming NEPA market. The building sports a very functional interior with state-of-the-art medical technology and no waste.

“We made careful choices within a rightfully economical budget for Mount Pleasant,” says Dempsey. “The course of many new buildings in the future will undoubtedly be just like this one.”

Dempsey’s team secured the Mount Pleasant job by utilizing a professional network that included her engineering professor at Lafayette and an association with the Greater Scranton Chamber of Commerce. She also is excited about the strong possibility that a Mount Pleasant sequel will be constructed in the near future.

The building serves as a signpost for NEPA’s future in another way. All of the parties involved in the construction agree that the presence of The Commonwealth Medical College (TCMC) served as a catalyst for the economic growth needed to erect such a structure.

“The Mount Pleasant building is proof of TCMC’s economic impact,” adds Dempsey. “Beacon Medical also believes in the future of NEPA more than many of the people living in NEPA do.”

Tri-state activity

Victor Angeline III, principal with Beacon, points out that the company has erected 70 medical buildings during the last 20 years throughout New York, New Jersey, and Pennsylvania. The company still manages 35 of these projects.

He explains that Beacon and Summit, who have collaborated on two medical construction sites in New Jersey, quickly identified the Scranton region as fertile ground for a similar projects after TCMC became established. In short, the school and the region’s plentiful supply of regional hospitals added up to a good investment prospect.

“We see medical buildings as good returns, and have been very successful with buildings near medical campuses,” says Angeline. “We also like NEPA, and our faith became justified when 60 percent of the Mount Pleasant building was pre-leased.”
The Beacon success formula, which is incorporated into the Mount Pleasant site, includes leasing to only “solid” medical practices with relatively no out-of-pocket expenses and ample free parking for patients. Additionally, tenants may enter into a joint venture where the physicians can become part owners of the building.

Angeline also comments that the rental space at Mount Pleasant turned out a bit more upscale than originally intended.

“We believe in a stable construction environment, long leases and very flat long-term leases,” says Angeline.

As the Mount Pleasant project unfolded, Beacon did experience one major setback that eventually lowered the net rental income and decreased the job’s profitability. The Scranton School District, in somewhat of a surprise move, refused to extend Keystone Opportunity Zone (KOZ) designation to the site, thereby removing the building from a group that enjoys select tax benefits.

Angeline also confirms that the potential is strong for construction of another Beacon medical building in NEPA. He says the company is also looking at similar opportunities in cities like Carlisle and Lewisburg, but that obstacles, such as delayed leasing due to the economy and the unknowns from health reform, could serve as a brake to delay project launches.

“Our return to investors is typically about 8 percent to 10 percent, and Scranton, as a whole, has been friendly for our business,” says Angeline. “As TCMC grows, there will be a need for more medical facilities with turn-key construction.”

Healthy demand

Mike Detter, associate broker with Hinerfeld Commercial Real Estate, has been named the leasing agent for Mount Pleasant. He comments that demand for the building’s space materialized very quickly as the Moses Taylor Health System’s Physicians Health Alliance (PHA) grabbed 13,000 square feet of space and Valley Oral and Maxillofacial Surgery leased another 3,500 square feet.

Detter agrees that the presence of TCMC was a prime driving force behind Beacon’s involvement in NEPA. Other positives in the decision to build included the prime location, and the decision to create a very functional no-frills structure that would decrease the operating expenses of the medical practices who leased the space.
He also approves of Beacon’s business plan which offers the option of equity partnership for tenants. This practice is common within Beacon projects in New York and New Jersey, and many physicians have declared that they often prefer to own their space.

Detter identifies the loss of the KOZ exemption as the only real disappointment that occurred in the Mount Pleasant saga.

“When the school board shot down the request for a KOZ extension, it was unfortunate,” says Detter. “Yet, the project moved on, and there is great hope Beacon will create another similar project in NEPA.”