APF Properties only invests in markets that permit hands-on management and employs three disciplined primary investment strategies.
New York – “B Buildings in A Locations”
In the Manhattan market, Class B office buildings account for 34% of the market supply, providing the primary office space for many small and mid-sized firms, which in total account for about 94% of all commercial office tenants. APF Properties has developed an expertise in this market by building up a portfolio of Class B buildings catering to service industry tenants that traditionally find these properties an attractive solution given their prime location and affordability. These properties are management-intensive and therefore greatly benefit from APF Properties’ hands-on approach. The emphasis in these buildings is on delivering value to tenants that look to keep rents affordable, that want quality services, and that need to maintain proximity to mass transit to attract a high quality labor force.
Philadelphia – Class A buildings in a market with excellent fundamentals
Philadelphia is the fifth largest metropolitan area in the United States, combining a city of 1.5 million residents with a suburban market of almost 5.5 million. Philadelphia has an unusually decentralized office market, with two-thirds of its office space located in suburban areas. Over the past few years, there has been a noticeable shift of residents moving from the suburbs to the city, and today the city of Philadelphia has the second largest downtown population in the U.S. After years of companies leaving Philadelphia for the suburbs, there is now a noticeable reversal of that trend as businesses seek a presence in the vibrant Center City. The Philadelphia CBD is well positioned to benefit from this growth as the area has experienced virtually no increase in office rents for two and a half decades. The Philadelphia market is a strong fit for APF Properties’ value orientation in that office lease rates are at a substantial discount to its primary competitor cities: New York, Washington, DC and Boston.
Houston – Opportunities require patience
APF Properties entered the office Houston market in 2012, acquired its first asset in 2013, and sold it at a significant profit in 2014. We invested a great deal of time analyzing the market and we were attracted by Houston’s population and employment growth, the increasing diversification of its economy away from energy and its pro-business environment. We still cherish these advantages and believe Houston will be an interesting investment market over the medium term. However, short term we see three risks that will negatively impact the office market: First and foremost is the consolidation in the energy industry that started in 2014, even before the price decline in the oil markets. Second the negative fallout of the oil price decline on worldwide exploration of oil and gas has adverse impacts on Houston “the heart of the global energy industry”. And lastly the substantial uptick in new office development that is coming to market just as demand is decreasing will increase vacancies and reduce leasing rates. We will remain active in Houston exploring opportunities, but will be very careful in the near future.