Horsham-based property firm delays IPO, as suburban offices lag city center peers

Office landlord Workspace Property Trust has postponed its plan to publicly list shares on the New York Stock Exchange, citing "current market conditions,"  and suggesting possible scant investor interest in the company's portfolio of suburban real estate.

"We are delaying the [initial public offering] but will reevaluate options at a later date," the Horsham-based company said in a release Monday. "We do intend to utilize the public markets to expand our capital base; however, our current capital structure and balance sheet provides us with sufficient flexibility to grow our brand."

Workspace, led by Thomas Rizk, a former Mack-Cali Realty Corp chief executive, built its portfolio of suburban office and light-industrial space through two large purchases from Liberty Property Trust, betting that such properties were poised to soar in value as today's young urbanites seek homes — and jobs — outside city centers.

The IPO's delay may indicate that investors are less confident than Rizk about prospects for a suburban office rebound, especially in the submarkets where the company's property is located, said Ian Anderson, research director for CBRE, a commercial real estate firm in Philadelphia.

In Center City and University City, average asking rents per square foot of office space rose about 1.7 percent to $29.56 between July and September of 2017 from $29.06 a year earlier, according to CBRE data.

Rents in Philadelphia's suburbs, by contrast, decreased 1.6 percent to $25.17 from $25.57 during that time, according to the data. That trend held in the Horsham/Willow Grove section of Montgomery County, where many of Workspace's buildings are located. Rents there sank 1.6 percent to $23.06 from $23.43.

"The real drivers of office demand have been more and more urban-focused," said Jeffrey Langbaum, a Princeton, N.J.-based real-estate analyst with Bloomberg Intelligence. "The highly educated, tech-focused workforce has really pulled demand for space into the urban centers and away from suburban markets."

Workspace made its first big acquisition in December 2015 with a $245.3 million purchase of the 41-building Pennsylvania Business Campus in Horsham from Liberty, which has been shedding office assets to concentrate on its expanding portfolio of industrial properties and city-center projects, such as its work on Comcast Corp.'s towers in Philadelphia.

"We feel there's real value in those assets," Rizk said of the suburban offices at the time. "You'll read a lot of articles about how millennials want to live and play in the cities. While we think there is probably truth to that, we believe it is probably exaggerated."

Workspace followed the Horsham deal in July 2016 with a $969 million purchase of 108 suburban properties in Pennsylvania, Arizona, Florida, and Minnesota, including most of the Great Valley Corporate Center in Chester County from Liberty.

As of early October, the company had 9.9 million square feet of suburban office and light-industrial space, with another 25 million square feet identified for acquisition for around $4 billion, according to a filing with the Securities and Exchange Commission.

The pre-IPO placement sought to sell 39 million shares of the company — about half its total equity — for $12 to $15 each, according to the SEC filing. That would have yielded between $468 million and $585 million.

It had originally aimed for a stock exchange listing last Friday but rescheduled for Monday due to the Veterans Day holiday.

Monday's indefinite postponement suggests that the pre-IPO pricing overshot demand, and "they just couldn't find enough investors willing to take those shares at that price," Langbaum said.