RealShare Experts: Selling Philly Has 'Never Been Easier'

PHILADELPHIA-Lower in profile than its neighbors to the north and south along the Boston-to-Washington, DC corridor, the City of Brotherly Love is also less subject to "wild cyclical swings," Chris Terlizzi, SVP and regional manager at First Niagara Bank, said Thursday. It's one reason why, as moderator Robert Fahey, EVP at CBRE, put it during the Capital Markets Update panel at this year's RealShare Philadelphia conference, "It's never been easier to sell Philadelphia."

Panelists in the 50-minute discussion, held Thursday at the Crystal Tea Room in the historic Wanamaker Building, offered other factors in Philadelphia's appeal. Ed Brown, SVP at NorthMarq Capital, pointed to the young demographic that has chosen to come to the city. 

David Dolan, senior managing director with Newmark Grubb Knight Frank, cited the six million square feet of older office space that has been converted to other uses, mainly apartments. This has helped attract major out-of-town owner/developers, such as the John Buck Co. and Kushner Cos., he pointed out.

And there are the continuing strength of the so-called "meds and eds" sector and the city's high livability factor, said Timothy Proctor, SVP at TD Bank. He noted that TD is now doing more business in the city proper than ever before.

Livable though Philadelphia may be, panelists concurred that multifamily is nonetheless not a sector to enter blindly. Terlizzi said his bank was "very circumspect" when it came to apartments, looking closely at sponsorship and exit risk. Proctor questioned whether, with 1,500 to 2,000 more units coming on line next year, the current apartment rent increases of 6% to 8% will be sustainable.

On the other hand, the recent news that Fannie Mae and Freddie Mac will be reducing the amount of loans they're willing to fund isn't likely to mean a reduction in the availability of capital, said Brown. That's because conduit lenders have become stronger and have been pricing debt comparably with the GSEs. He noted that Fannie and Freddie's move away from interest-only loans coincided with the conduits beginning to "give it away."

In the office sector, Brown saw more capital coming in, although debt was harder to come by for single-tenant assets. Proctor made another distinction: TD lately has provided construction financing on three office properties in Philadelphia, including two that were pre-leased. The lender would be more averse to doing likewise in suburban markets, though.

Further, Dolan identified a distinction among suburban markets in terms of their appeal to investors. Conshohocken and Radnor, PA are both hot items—a point also made in a later panel discussion. The appeal of office product in, say, Wilmington, DE or South Jersey doesn't quite compare, he said.

In general, Brown said, he's seeing a “steady progression” of transactions. Although he noted that “some deals have come out of the woodwork that should have stayed there,” he also saw an encouraging uptick in quality. Furthermore, he said, “Not only is money cheap, it's also becoming more and more abundant.” The question, though, is how to maintain discipline in the underwriting, a challenge identified by other panelists, as well.