Tuesday, September 11, 2018

Apartment Developers Converging On Philadelphia's University City

University City’s apartment landlords have enjoyed little competition from newly delivered units in recent years. Massive apartment projects continue to complete in development hotspots such as Center City and the Main Line. However, no apartment projects with over 200 units have delivered in University City since late 2015.

This lack of competition from new projects in leaseup has allowed University City rents to outperform. Since the beginning of 2015, the submarket’s 4- and 5-Star apartment rents have averaged 4.6 percent annual growth. This pace more than doubled the rate of 4- and 5-Star rent growth in the Philadelphia metropolitan area as a whole.

The sales market for high-end apartment properties in University City has also been booming recently. Three high-rise projects that delivered in the submarket between 2014 and 2015 -- 3737 Chestnut Street, Evo at Cira Centre South and Arrive University City -- have all sold for over $100 million within the past three years.

University City’s strong rent growth and sales pricing have received developers’ attention. The largest apartment project nearing groundbreaking is Conshohocken-based Exeter Property Group’s 3720 Chestnut. Exeter plans to demolish the Newman Center student ministries, which will be relocated around the corner on 38th Street, and building 420 apartment units with street-level retail.

In addition to 3720 Chestnut, three other large apartment projects are moving quickly through the planning stages along Chestnut Street between 37th and 45th streets. Christopher Rahn of CRP Builders has two projects in the works. These include 130-units at the site of the former Cash Wash at 4125 Chestnut, and entitlements for up to 323 units a block away at 4233 Chestnut, the site of the Christ Memorial Reformed Episcopal Church. CRP Builders purchased 4233 Chestnut in June 2018, secured necessary permitting for the residential conversion and is actively marketing the site to interested developers.

Finally, University City-based Oren Brothers continues to move forward with plans for 165 units on the 4400 block of Chestnut. The project received little resistance from neighborhood residents at its meeting at the Spruce Hill Community Association in March 2018.

Most of these projects are still months away from starting construction, which would take a minimum of 18 to 24 months from start to finish. At 3720 Chestnut, demolition work cannot even begin until January 2019 when the Newman Center is scheduled to be vacated.

All of this means that a surge in new University apartment deliveries is unlikely to occur any earlier than the fall of 2020, giving nearby landlords at least another year or two of minimal competition from new deliveries. However, all of these projects may end up completing within the same one- or two-year period at the beginning of the next decade. In that case, competition between projects in leaseup would likely lead to a softening in University City rent growth and a significant uptick in concessions.
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