Good Fundamentals, Not Cheap Debt, Mostly Responsible for Philadelphia's Rise, Says RealShare Capital Markets Panel

Capital Markets panel from RealShare Philadelphia 2016. Clockwise from top: Moderator Douglas Rodio, executive vice president, Jones Lang LaSalle; Chris Terlizzi, senior vice president and regional manager, First Niagara; Timothy A. Proctor, senior vice president and regional director, TD Bank; Matthew Rosenberg, director, Marcus & Millichap, William “Billy” Procida, Procida Funding & Advisors; and Lizann McGowan, senior vice president, CBRE. (All photos by Bill Neumann for GlobeSt.com.)

PHILADELPHIA—Good real estate fundamentals are what’s driving the commercial real estate market in Philadelphia, according to most of the industry leaders on the Capital Markets panel at Tuesday’s RealShare Philadelphia conference, produced by GlobeSt.com’s parent ALM Real Estate Media, at the Union League Club in Center City.

Reacting to the question posed by panel moderator Douglas Rodio, executive vice president, Jones Lang LaSalle, Timothy A. Proctor, senior vice president and regional director, TD Bank, said “We’ve got the strong ‘meds and eds’ institutions as a driving force, we’ve had some great policy work, converting some of the class B office into residential, and I think, relative to our competition, whether it be Washington, New York, or Boston, I think the economics work very attractively for Philadelphia right now.”

Timothy A. Proctor, senior vice president and regional director, TD Bank

William “Billy” Procida, president, Procida Funding & Advisors, agreed that fundamentals are good.

“Working on the Divine Lorraine, which involved the state and the city, I would say this is the best city government to work with,” Procida said. “The Divine Lorraine would not have been possible without them. And coming from right outside of New York City and having done a lot of New York City work over the past 35 years, I can tell you that the break-even on a simple apartment in Manhattan is approaching $2 million for a simple two-bedroom box apartment. It’s unlivable, and I think this is a great city. My slogan is, ‘Come to Philly, twice as nice at half the price.’”

“One thousand percent fundamentals,” declared Lizann McGowan, senior vice president, CBRE. “I think that is what is driving all of the aggressive equity to come here, and that’s backed up by the fact that over a third of the deals we have sold over the last 24 months have been to someone who did not own here before.”

But panelists Matthew Rosenberg, director, Marcus & Millichap, and Chris Terlizzi, senior vice president and regional manager, First Niagara, both suggested that cheap debt could also be playing a role in the market’s rise.

“We did approximately 25 apartment buildings in Philadelphia last year,” he said. “Not one of those properties was over a four percent rate.”

“The fundamentals have been driving Philadelphia and most of the major growth markets in the United States up until this year,” said Terlizzi. “Looking at what’s planned, it’s clearly cheap debt and cheap equity.”

Chris Terlizzi, senior vice president and regional manager, First Niagara

Procida said New Jersey had become “a state you can’t work in,” because of difficulty in getting projects approved. “In New York City, the prices are just out of control,” he said, noting that the American Bible Society had selected Philadelphia because of its affordability when the group decided to leave New York.

“I love Philly. We’ve done six deals, over $100 million here,” he said. “The government jumped all over and helped with everything we needed to get done.”

“The Mural Loft Building got built in half the time I expected,” Procida said. “That would have been an 18-month job in Manhattan.”

“It’s one of the cheapest interest rate pockets in the country,” said Rosenberg. “We see a lot of the lenders coming over from New York, New Jersey, into Philadelphia, putting out three percent money where the Pennsylvania banks are more in the four percent range. I’m starting to see interest rates push up from those New Jersey banks.”

Rosenberg says 70 percent of his firm’s 2,000 loans last year were multifamily, the rest retail.