Monday, February 15, 2016

"Live, Work, Play" Sees Multifamily Opportunities In Philadelphia Market

by Steve Lubetkin,
Investors in the new mixed-use marketplace are looking for “that specific, special asset,” with extensive amenities.

“That does involve amenities. These amenity packages and the lifestyle that is provided by many of these class A communities has only been in the last ten years or so. It used to be that the gym was kind of like, ‘oh, that last unit that you couldn’t rent, let’s make it a gym.’ That has obviously changed substantially.”

“Pricing and basis are important, but it’s really that quality and the ability to add value to these projects,” he said.
How corporations look at the workplace of the future is driving decisions on where to locate offices.

Some companies, like Google, are moving part of their workforce into urban environments, away from the suburban campus. Google has taken a million square feet of office space in San Francisco, he says.

“Others are moving aggressively and consolidating downtown. Independence Blue Cross is an example. Where they used to have their node at 19th and Market, and then separate facilities out in several suburban markets. They moved to the [Philadelphia] Stock Exchange [building], their leases there are about that consolidation, and the realization that they want their people together in one spot for collaboration, because that’s where innovation comes from.”

Urban environments have become important for corporate offices because that’s where their employees are living, Garvey says.  “In terms of attracting the best quality worker, you want the best-educated worker, and the most innovative,” he added.

“Compared to some of the markets we’re in, Philadelphia is by far the most stable market,” says Dustin Downey, senior vice president of multifamily development, Southern Land Company.  “Many markets, especially the Texas markets, rise and fall ten percent, they have ten and 15 percent vacancy one year, and four percent vacancy the next, and the Texas developers go out and build 23,000 units, and vacancy’s back up to ten percent. Philadelphia, through the good times and bad, has always remained a very stable market, mainly because of the stable base of ‘eds and meds.’”

Downey feels there is “a substantial amount of future growth left” in the Philadelphia multifamily market, especially as both millennials and their empty-nester parents seek out new smaller-footprint living experiences in the city.

“People are struggling to sell big houses on the Main Line now, because everybody is moving back downtown,” he says. “You may have a situation where 20-something millennial kids will be living next door to their 60-something move-down empty-nester parents, either in the same building or two blocks away. That will continue to drive a strong Philadelphia multifamily market, both in class A and class B+.”
Bradley J. Korman, co-chief executive officer, Korman Communities, agreed. “We are under-apartmented,” he says. “New York City has 1.6 million apartments, Los Angeles has 550,000 apartments. Chicago and Houston have over 300,000 apartments. We have 85,000. Both in terms of absolute number of units and as a percentage of our housing stock, we are way under-apartmented.”

From a rate standpoint, where San Francisco is the most expensive apartment market in the country, and New York is second, Philadelphia is 12th, Korman says.

“We have room from a capacity standpoint, we have room from a pricing standpoint,” he says.

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