PHILADELPHIA-Locally based Pennsylvania Real Estate Investment Trust agrees to pay the Pennsylvania Public School Employees’ Retirement System (PSERS) $32 million, or $97.56 per sf, for The Gallery at Market East II. The price coincides with the median price of $98 per sf paid for retail properties in the Philadelphia MSA in 2003, according to data from the local office of Marcus & Millichap.

The 328,000-sf property is part of the 1.1-million-sf Gallery at Market East, the largest retail complex in Downtown Philadelphia. PREIT acquired the 193,000-sf Gallery at Market East I from Columbia, MD-based Rouse Co. last April as part of a six-property retail portfolio. At that time, PREIT also sold its multifamily portfolio and transformed into an all-retail REIT.

The purchase from PSERS bring’s PREIT’s ownership in Gallery at Market East to 521,000 sf. The Market East II section is anchored by Burlington Coat Factory. Among the 51 other in-line tenants are Old Navy, Foot Locker, Bath & Body Works, Limited Express, and Lerner. Anchors for the full complex are Strawbridge’s and Big K-mart.

As of Dec. 31, 2003, in-line sales volume at the II section of the retail complex was $393 per sf, and in-line occupancy was 78.3%. The acquisition was funded from PREIT’s line of credit. The REIT underwrote the acquisition to generate an unleveraged return of approximately 9.5% on cost, based on anticipated income for 2004, according to a PREIT statement. The property is subject to two ground leases with remaining terms of 79 and 44 years.

Ron Rubin, PREIT’s chairman and CEO, says, “we are very excited about the agreement to increase significantly our ownership of the Gallery.” Of the initial stake in the complex, he says, “we believed this asset would create opportunities for the company,” and ownership now of Gallery at Market East II “will allow the company to improve leasing and operating efficiencies,” he adds.

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