Tuesday, November 1, 2022

KKR Buys Philly's Presidential City Apartments for $357M

 By Jack Rogers Globest.com

Private equity giant KKR cast a resounding vote of confidence in Philadelphia’s apartment market—at least the part of it with a tenant base of well-paid professionals—with its purchase of the Presidential City apartment complex for a record $357M.

The purchase price for the venerable 1950s-era complex of four 12-story buildings—built by Pentagon developer John McShain—tops the previous record for an apartment sale in Philly by more than $100M.

Prior to this mega-transaction, the most expensive sale of an apartment complex in Philadelphia was 1500 Locust St., a 45-story apartment building that sold for $233M in December.

KKR’s Real Estate Select Trust fund, a non-traded fund aimed at individual investors, made the purchase in partnership with Mack Real Estate Group.

Post Brothers bought Presidential City in 2012; in 2017, Post renovated the entire complex in a $100M spruce-up that included the installation of outdoor swimming pools.

KKR’s big move comes in the midst of a national cooldown in apartment transactions. Apartment transactions totaled $74B in the US in the third quarter, a YOY drop of 17%. Buyers are pulling back on the residential market because of the rising cost of debt and a likely slowdown—possibly even a pullback—in rent growth.

KKR told the Wall Street Journal the lucrative deal for Presidential City made sense because the buyers assumed an existing fixed-rate mortgage held by Post Brothers, a loan with a much lower rate that current levels that are topping 7%.

KKR COO Billy Butcher told WSJ that the occupants of Presidential City are primarily high-wage professionals who spend less as a percentage of their income on rent compared with similar tenants living in properties closer to downtown.

Rents for one-bedroom apartments at Presidential City start around $1,800 per month, compared to average rents in the city center, which generally start above $3,000.

Butcher suggested this puts Presidential City in a strong position to weather a recession. “It provides a lot of stability,” he told WSJ.

McShain originally intended to build 48 apartment towers at Presidential City—and keep naming them after US presidents. The four that were built are named for the first four presidents.

KKR Real Estate Select Trust has invested about 19% of its fund in residential buildings, including a 365-unit apartment complex in Brooklyn that it purchased for $190M in July.

www.omegare.com

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