Philadelphia high on investors' wish lists

"It's an easy city to navigate"

Philadelphia high on investors' wish lists

With major development underfoot, Philadelphia is emerging as a city high on commercial real estate investors’ wish lists.

CBRE – the self-described global leader in commercial real estate services and investments – recently assessed the future of the City of Brotherly Love in a presentation this week. The focus on Philadelphia centered on a planned $1.3 billion sports arena coming to the downtown sector that’s expected to yield more amenities, a more vibrant night life and additional capital in a city that’s long been an attractive site for investment.

Close to NYC, a hidden gem

“For me, Philly has always been the hidden gem,” said David Adelman, a native Philadelphian who recently became a partner with Harris Blitzer Sports and Entertainment, the group that owned the NBA’s 76ers. His focus is on real estate, specifically student housing, as the CEO of Campus Apartments – the oldest and largest privately held company of its kind in the US. Adelman is also a founder or investor in a variety of other businesses, including Darco Capital, FS Investments and more. “You know, people focused on New York,
people focused on D.C.. And for me, Philly was an obvious choice. And having institutions like Penn, Drexel here as well, we’ve just seen that people like it here, that good job growth,” he said. “It’s an easy city to navigate.”

Spencer Yablon, a senior vice president at CBRE who leads a multifamily capital markets team encompassing Philadelphia, agreed with the assessment: “We see interest from everywhere,” he said. “The nuance is that some of that capital that’s first time to Philadelphia needs to really understand the Philadelphia story.”

Historically, Philly is steady-as-she-goes economically

Yablon described the city’s historical consistency in terms of its economy: “Philly has always been, from an investment standpoint, kind of a steady-as-she-goes marketplace. We don’t have big boom and bust cycles here. If you look at how we performed in the Great Recession through COVID, Philly does quite well. Maybe we’re not the sexiest market when everything’s white hot and interest rates are plummeting and fundamentals are great everywhere, and you want to be in the Sunshine State or somewhere else. But Philly has always been kind of a predictable, steady, safe place for capital.”

Beyond its financial bona fides, there’s other dynamics adding to the city’s appeal: “And as it relates to a place to live, just unbelievable historical and cultural amenities, great nightlife and a phenomenal cost-of-living,” Yablon noted.

Investment funds start flowing in

Adelman has noticed some New York money coming in as investors become more bullish on the nearby city, especially in multifamily transactions. “The infamous New York capital that wants to come down here and buy stuff up because they think it’s on sale,” he described, “we love those kind of buyers. So I think it’s really positioning itself as a place that’s interesting.”

Yet the growing influx of investment dollars is a mix of domestic and foreign, Yablon noted: “It’s actually a combination, I think, of all of that,” he said. “We’ve always had New York capital coming to Philadelphia and they’ve kind of looked at us as a borough almost of New York,” he added, noting the reason for that is that the city is a mere 90 minutes down the turnpike. “But we see capital from all over the country and frankly, foreign capital. We’ve had interest and done deals over the last few years with capital from the Middle East, from Asia, from Europe, Canada, South America. We sold an asset right here in University City to South American Capital about two years ago. So we see interest from everywhere.

“The nuance is that some of that capital that’s first time to Philadelphia needs to really understand the Philadelphia story.

“Philadelphia just needs to be sold a little bit harder. But what we found is and we just had a Japanese investor in last week, once they come here and they spend time, they actually really love Philadelphia.”

Multifamily investment is solid

Yablon zeroed in on the multifamily sector against a backdrop of distress in the capital markets: “So demand is great,” he said. “I think if you look back six to nine months ago, the only concern that we were hearing from investors in the marketplace was the ocean of new supply that was going to come. But with interest rates rising, with supply chain issues and the cost of construction doing what it has, a lot of those deals just don’t pencil anymore. And only a fraction of those proposed projects are actually going to get built. So that’s no longer really a concern. Assets in Philadelphia, I would say, are averaging 95 to 96% occupancy. We’ve seen tremendous rent growth. Rents are above where they were pre-pandemic in Center City and surrounding neighborhoods. So the fundamentals are actually really, really good.”