Would A Luxury Multifamily Market Be Welcome In University City?
Want to get a jump-start on upcoming deals? Meet the major Philadelphia players at one of our upcoming events!
As a revolution in medical science looks poised to catapult University City to new heights of commercial development, the multifamily and student housing markets hang in the balance.
Millions of square feet in life science development has been proposed in the past few months in response to breakthroughs in gene and cell therapy from the University of Pennsylvania and Children’s Hospital of Philadelphia. If even some of the announced projects actually come to fruition, along with any new construction at Schuylkill Yards, the resulting influx of workers would have seismic effects on the neighborhood’s demographics.
“If [the proposed life science development] delivers, I think we’ll see a rapid appreciation in rent and improvement of credit in residents, from recent graduates or first jobs to young professionals and renters by choice, as opposed to renters by necessity,” Post Brothers Managing Director Randy Hope said.
Just as the multifamily market in Center City has proven, the most valuable real estate for apartments is as close to job centers as one can get. Even before the next wave of nonresidential construction, the Evo at Cira Centre South student housing building and the apartment tower 3601 Market St. both sold in the past couple of years for top-of-market prices.
Both were among the newest residential buildings in University City, but both also underperformed initial lease-up expectations — a running theme among new construction buildings in University City, according to Hope and University of Pennsylvania Vice President of Facilities and Real Estate Anne Papageorge.
“It remains to be seen if [new construction] developments are going to be as successful; some of the unit price points are higher than Center City,” Papageorge said.
Papegeorge and Hope will discuss the growing, western side of Philadelphia's core at Bisnow's University City and Center City summit at the Westin Philadelphia July 11.
For now, residences in the neighborhood that are not specifically student housing are mostly a mixture of rowhouses and low- to mid-rise apartment buildings developed decades ago. Of the latter category, many have been updated relatively recently by developers like Post Brothers, who can afford to amenitize the buildings at rents substantially lower than in Center City and outperform their newer counterparts.
“There is enough spread [between redevelopments and new construction] to notice, but all of the obvious redevelopments have been done, so the rest of the pipeline is either new developments or wait for newer developments to become old in a decade,” Hope said.
The universities, the economic engines of the area, aren’t necessarily greeting trophy-class residences with a welcoming parade. Their undergraduate populations require housing on or near campus, and few of them can afford the rents needed to justify new construction.
Both of the neighborhood's major universities have recently instituted policies to exert more control over where their younger students live, both to deal with prices and to foster healthy student life, Papageorge said. There has been considerable student disagreement on the former point.
Drexel University requires students in their first two years to live either on campus or in certain buildings owned and operated in partnership with American Campus Communities, while Penn will require first- and second-year students to live on campus, rather than just first-years, starting in 2021. That will bring the count of undergraduates housed on campus from 5,250 to about 6,400, according to a Penn spokesperson.
“We want our undergraduates to live closer to the core of campus," Papageorge said. "We prefer them to be in the 31st to 40th Street area, where our dining facilities, academic and residential facilities are.”
Penn also owns 1,000 off-campus residences either through its own real estate program or partnerships with Campus Apartments and Altman Management. The goal there is to ensure a certain level of maintenance and accountability in the farther afield, more price-conscious supply, Papageorge said.
Penn limits itself at 45th Street for properties it owns directly and 50th Street for properties managed through its partnerships due to an understanding with the surrounding neighborhoods. The university is concerned with infringing upon longstanding residents and being gentrification agents, but private multifamily developers have made no such blanket promises.
Post Brothers has delivered more than half of the units for its newest redevelopment project at 52nd and Baltimore, at the western edge of the Baltimore Avenue corridor that has amassed an appealing brewpub-coffee shop-local merchant array. Hope likened it to "West Philly's answer to Fishtown," which could prove prescient for rent and demographic trends.
If the life science development arrives as promised, there may be no stopping more multifamily from coming. Papageorge would not rule out Penn taking a more aggressive real estate approach to protect its students, but the research and production will bring professionals and their salaries.
"[University City institutions] continue to grow and expand, and their campuses aren’t getting much larger, so people who own around those campuses will be the beneficiaries,” Hope said. “There will be new, glassy or steel construction to fill that demand, and there will be a body for every [bed]."