The Philadelphia Apartment Market

Written by Antonia S. Perdomo    Tuesday, 20 December 2011

The Philadelphia economy has always been very stable, according to Joseph Brecher, executive vice president at Gebroe-Hammer Associates, which recently closed two transactions in Philadelphia, involving a total of 209 units for $10 million. The diversity of the economy means there is not one single factor driving it. "That's why office vacancy rates haven't been as large as other markets," says Brecher. "It's affected positively the apartment market." Metro-wide occupancy is approximately 95 percent, though Brecher points out that suburban assets tend to have larger vacancies than those in the city. "We're talking over a whole region and metro area, so there are peaks and valleys, but in stable markets … such as Northeast and Northwest Philadelphia, [which have] always been B markets, occupancy has stayed steady in the high 90s." Center City, meanwhile, experienced a spike in vacancies and a drop in rents--between 10 percent and 20 percent for top-tier communities. At the same time, the shadow market has only really affected Center City. Brecher notes that the metro has not seen much sales activity in the B market. "As pricing has obviously come down for apartments, that has affected the volume," he says. "Sellers aren't interested and not in real distress," and the aggressive prices they are seeking are not in line with reality. There has, however, been a rise in foreclosure sales and sheriff sales for distressed B and C assets. "For the really distressed properties in C areas … the buyer says, 'I have a lot of work to do, but I am getting it for pennies on the dollar.'" A recent Class B transaction that sold in Northeast Philadelphia traded for just above a 7 percent cap rate, for example, Brecher reports. This is off from the 6 percent and below seen at the cycle's peak. And unlike the D.C. metro, most of the interest for stable assets has come from local and regional investors. The Bozzuto Group recently announced a partnership with the Peterson Cos. to bring 350 apartments to National Harbor in Prince George's County, Md. Expected groundbreaking is for Fall 2011. Photo courtesy of The Peterson Cos. Harbor Group International LLC recently acquired the 320-unit Hanover Apartments (at left) in Greenbelt, Md. Harbor paid $39.45 million for the 98 percent-occupied community, and the company intends to invest approximately $1.9 million to continue a renovation program that was begun by the seller to generate significant rent premiums.

Last Updated ( Tuesday, 20 December 2011 )