PHILADELPHIA- The median price for sales of multifamily assets throughout the MSA rose 8% to $73,000 a unit over the past 12 months, according to a report from the local office of Marcus & Millichap. This follows a 30% increase in 2005. New benchmarks have been struck. As GlobeSt.com previously reported, a 31-unit property in Merion Station traded in March for $179,000 a unit, and the owner of Hill House in Center City’s affluent Chestnut Hill neighborhood is seeking $192,513 a unit.

Despite the increases, “cap rates in the 8%-range remain very attractive,” says Jeff Algatt, M&M’s regional manager. “We’re less flashy and less volatile than other East Coast markets, but fundamentals are stable; there’s limited new construction and steady demand. Low prices relative to other markets will continue to attract out-of-state investors.” He tells GlobeSt.com that 65% of his firm’s 2005 multifamily sales were to out-of-state investors.

“The buyer universe is changing,” he says. “It’s normalizing, and today’s buyers aren’t looking for a huge run-up in a short time. They aren’t flippers; they are more conservative, comfortable with increasing income over a longer term.”

The overall multifamily vacancy rate has not exceeded 4.6% nor fallen below 3.4% in any quarter since 2003. Effective rents have risen 3.3% over the past 12 months, and this follows an increase of 1.9% the previous year. Algatt projects a 3.5%-increase this year, and adds, “there’s something of a shift to class B and C properties, because single-family housing affordability is competing with class A rentals. If you’re paying $3,000 a month, you can buy; but, if you’re paying $875, that’s not a mortgage payment.” With this year’s anticipated increase, the area’s overall median rent rate is projected at $955 a month.

Center City rent rates are significantly higher. At year-end 2005, a one-bedroom and two-bedroom unit averaged $1,301 a month and $1,902 a month, respectively, according to Center City District’s 2006 State of the City report. In the priciest zip codes, the two-bedroom average was $3,084.

Developers are expected to deliver 2,000 rental units this year, down from 2,700 a year ago, according to M&M. Yet, the MSA’s overall rental inventory has increased just 1.1% because condo conversions partly offset completions. “Condo converters have been active, but they have not been so active as to skew values and set unreasonable expectations among sellers,” Algatt says.

“Current pricing still presents an attractive entry point for investors, and it has enabled them to buy larger properties during the past few quarters.” He says sales of assets containing 200 units or more accounted for 16% of all over the past 12 months. The year before, these larger properties accounted for just 7% of the total sales.

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