Pittsburgh Business Times Photo by Joe Wojcik May 19, 2017

After some 30 years as a business owner at various locations in the Strip District, Chris Welling knows better than most how much change is coming to Smallman Street. Just across the street from his Pittsburgh Rug Co. store is a sign marketing a luxury three-condo project with interior parking on a narrow plot in what’s long been a sleepy stretch of the neighborhood.

“That’s bizarre to me,” says Welling of the ambitious infill development. “That’s how popular this area is getting.”

Take a trip up and down Smallman Street and you’ll find a hodgepodge of old and new, with recently built offices, condos and apartments cropping up amid old mill sheds and modest warehouses.

Observers of the local real estate landscape are keeping a close watch on the thoroughfare — a new “Robotics Row,” CBRE calls it — that arguably ranks as the hottest corridor for new development on the city’s urban fringe.

Jeffrey Ackerman, the managing director of the Pittsburgh office of CBRE, has to think back decades in a career of more than 30 years to compare the amount of concentrated development proposals along Smallman with anything similar in the region’s recent history.

“I don’t think that we’ve seen that kind of potential for new development in one area in a long time,” he said. “The last time we saw it was the amount of development going on at Southpointe” in Washington County, perhaps the region’s most successful master-planned development in the last 30 years.

What’s transpiring in the Strip also is in contrast to the region as a whole, as some commercial real estate reports have suggested new office development is lagging amid weak job growth over the past two years.

But evidence of Smallman Street and the Strip District as a whole taking off is gaining momentum, stretching from a new AC Hotel by Marriott under construction at 11th Street out to where Lawrenceville begins at 35th Street.

In between, there are five office development proposals in the works for six different sites, some renovations and others ground-up construction.

There’s also the recently announced plan to build an office building that would kick-start commercial development on a 45-acre master planned site owned by the Buncher Co., as well as Chicago-based McCaffery Interests’ venture with the Peduto administration to redevelop the 1,500-plus-foot-long Pennsylvania Railroad Fruit Auction and Sales Terminal and 165,000-square-foot 1600 Smallman Building.

Sites in play for potential development or sale include a block-sized surface parking lot owned by the Troiani family (also the proprietors of Papa J’s Ristorante) from 22nd to 23rd Streets; the 31st Street Studios building, part of 9-plus acres that came available through a bankruptcy process; a block-long assemblage of properties between 31st and 32nd Streets; and the vacant 7-acre Packaging Corporation of America property on the riverfront at 32nd Street that sources indicate Oxford Development Co. has under agreement.

How the Strip District reached this stage comes from what Mike Lee, chairman of the board of the nonprofit economic development organization Strip District Neighbors, calls a “strange series of events and demographics.”

It started with the city’s historic warehouse district, long a regional draw for its variety of wholesale food merchants, restaurants and unique local businesses, which after decades of largely benign neglect saw its infrastructure begin to deteriorate as small local businesses took advantage of often cheap real estate costs in old and smaller warehouse buildings.

Then in 2005, property owner Chuck Hammel and McCaffery Interests began converting a hulking abandoned cork factory along the river into what became the successful 297-unit apartment complex The Cork Factory Lofts, whose lease-ups and subsequent sale helped to underwrite future Strip development.

And just as a new generation of young adults were starting to demonstrate a strong preference to be in the kind of gruff, urban setting the Strip has long offered, Uber Technologies Inc. parachuted into town with its Advanced Technologies Center, hiring more than 500 people to help engineer autonomous vehicle technology as it leased up a few hundred thousand square feet of flex industrial space along or close to Smallman.

“From a neighborhood perspective, I think our duty is not to dictate what happens with private land,” Lee said. “But it is to make sure that we’re not infringing on the historic character of the Strip … of what has traditionally been the Strip.”

That doesn’t appear to be the case, he said, as developers communicate with one another and concentrate their energies largely along Smallman and away from the traditional commercial businesses on Penn Avenue.

What’s most striking to Steve Guy, president and CEO of Oxford Development Co., is the opportunity to build new along Smallman without forcing anybody out.

“I really think there’s so much opportunity to do development without dislocation,” he said. “We’re always very careful about dislocation. It’s a great place to get that done — build a tax base without disturbing anybody’s lifestyle and opening up the river.”

A recent CBRE report reinforces why new demand for development along Smallman appears to be converging with the growth of the city’s technology industry, a sector that has experienced a 52 percent increase in jobs from 2008 through 2015.

Noting the growth of the National Robotics Engineering Center in nearby Lawrenceville, CBRE’s report puts the percentage of the city’s tech workforce in the Strip District at more than 31 percent, considerably higher than in any other sub-market.

Aaron Stauber, president of Rugby Realty Co. Inc., remembers first investing in the Strip District in the 1990s. He sees the neighborhood now as outflanking East Liberty as a hub for tech firms for its proximity to both downtown and Oakland, the two areas considered the main drivers of commercial real estate in Pittsburgh.

“I really do believe that the Strip District is unique right now in all of Pittsburgh because of the famous thing: its location, location, location,” he said. “The beauty of the Strip District is it connects both of those areas. And it’s a cool area.”

Stauber’s been touting the Strip for years since buying a key property at 21st and Smallman in 2006 that Rugby has yet to develop despite having accumulated nearly 4 acres there.

That may be about to change, thanks in part to the success of Oxford at 3 Crossings, a 20-acre, mixed-use development that will total 375,000 square feet of office space between 25th and 27th streets along Smallman and the riverfront.

With three buildings fully leased and an undisclosed tenant confirmed for its final office building, construction on the 107,000-square-foot Riverfront West at 3 Crossings is expected to start in the next few weeks, according to Guy.

He recalls there were early doubters about the mixed-use project.

“A lot of people said [the Strip District’s] not where it’s happening,” he said, noting how Lawrenceville and East Liberty were brimming with interest at the time. “We decided to take a chance and so far so good.”

What’s happened with 3 Crossings is “straight out of the playbook” of leasing and execution, Guy said. Three office buildings have been built and notable tenants including tech firms such as Apple and Robert Bosch and law firm Burns White have moved in.

A few blocks from where The Cork Factory Lofts proved the viability of the market for new apartments in the neighborhood, Guy reports the 300-unit multifamily project Yards at 3 Crossings recently reached 95 percent occupancy.

It’s Oxford’s initial success with office leasing at 3 Crossings, inking name tenants at rents of about $30 a square foot, that has helped motivate other developers to swing into action, whether it’s the 105,000-square-foot District 15 at 15th and Smallman or more modest office renovations and expansions out past 31st Street, projects now viewed as financially feasible if higher rents can be achieved.

Guy acknowledges how the early success of 3 Crossings has fostered competition.

“You have people go to locations and try to help make a place,” he said. “Usually what follows is there’s a whole herd of people who come after that and follow on. The competition is actually pretty stiff right now in that market.”

Stauber expects his long-held confidence in the Strip to escalate, roughly estimating there could be as much as 400,000 square feet of new office space demand in the near future, with a significant chunk anticipated to come from Ford Motor Co.’s Argo AI autonomous vehicle startup.

“We’re spending real money now to try to get out of the ground,” he said. “There are a few groups out there that are going to be putting out some big [requests for proposal]. We want to be in the position to be able to respond to their RFPs.”

Rugby has been working on a joint venture with Al. Neyer to build a new office and retail building at its site at 21st and Smallman, a plan Stauber wouldn’t offer specifics on beyond calling it a “big development.” (One source familiar with Rugby’s thinking suggests a building of at least 200,000 square feet.)

Given the Strip District’s recent development history, it remains to be seen just how many of the proposed developments will be built in the near-term.

Gregg Broujos, managing director of the Pittsburgh office of Colliers International who is marketing the 31st Street Studios property, estimated about half the proposals will come to fruition while the rest remain great sites for speculative interest.

CBRE’s Ackerman points out the Strip’s development plans provide the opportunity to build and customize a new kind of space for a new, young workforce.

“It’s a changing workforce. It’s a much different workforce than we’ve seen before,” suggested Ackerman, who said to expect more open collaborative spaces and a greater flex approach. “It completely changes space requirements.”

Meanwhile, McCaffery Interests CEO Dan McCaffery conceded his amazement at how much change is taking shape in neighborhoods like the Strip.

“It’s shocking to me in some respects that there’s any demand,” he said. “I’m of an age where it’s now shocking to look in the rearview mirror that this is actually happening.”

Tim Schooley covers retail, real estate and construction. Contact him at tschooley@bizjournals.com or 412-208-3826.

Original article here