Flex Space Feasibility Study in Pennsylvania

A flex market that stopped approving

Pennsylvania flex space tells most of its story in the calendar. The file shows 7 loans in FY2017, then 8 or 9 a year through FY2023, then no approvals in FY2024 or FY2025 and a single $120,000 loan in FY2026. The FY2024 lessor note applies. Approvals for the whole lessor group, investor-owned flex, office and retail property alike, nearly stop from FY2024, so the quiet recent years show a change in who can borrow, not a verdict on Pennsylvania demand. Over the whole period the file holds 55 approvals totaling $37.9 million, ranking the state 8 of 51, and the class holds only 19 of 39 among Pennsylvania asset types.

Size, lenders and place

The location quotient of 1.09x is close to the national weight, and the median loan of $440,000 is 0.73x the national figure. The central band of loans spans $165,000 to $1.0 million. The 7(a) program carried 53 of them and 504 only 2, and franchises account for 5.5% of loans. No lender appears in the list, because none reached five loans in this cell, so the lending is spread thinly across many institutions. Montgomery County leads with 6 loans, Allegheny County has 5, and Berks and Bucks counties 4 each, with Chester, Delaware, Philadelphia and Wayne counties 3 each.

Pennsylvania loses at least 14.8% of its approvals to cancellation, with 14.8% also as the ceiling. Thirty loans funded between FY2017 and FY2021, and a charge-off floor of 3.3% applies, none of it arriving later than that window. The cohort is at the edge of publishable size, so a single loan accounts for the rate, and loans still open can add to it.

The code groups flex space with office and retail lessing, and banquet hall rental shares it. A reader cannot tell whether a loan financed a light industrial building with office frontage or a suburban strip with a bakery. For that reason a study must bring the facts the code omits.

Testing a Missouri clinic

A Pennsylvania flex project should be tested on tenants first: who rents, on what terms, at what rent per square foot, and with what vacancy history compared with nearby buildings in the Philadelphia suburbs, Allegheny County or the Lehigh Valley. Cost should be set against the $440,000 median, with purchase and renovation shown apart. Coverage of the loan payment should include a vacancy case and tenant turnover, and the study should say if the owner will use part of the space, since passive investors now find the program much harder to use. The appraisal of a leased building depends on contracted rents, so the study should document signed leases.