Philadelphia Multifamily Growth Slow But Steady
As young professionals migrate to the City of Brotherly Love for its livability and diverse job market, multifamily construction has struggled to keep pace.
To meet demand, Philadelphia will need to add 38,407 new apartments by 2030. While the pace of construction has been slow, apartment construction has experienced significant growth. In Center City alone, more than 5,000 units have come online in the past 10 years, according to a report from Marcus & Millichap. Multifamily transaction velocity also jumped 30% over the past four quarters.
The steady growth of Philadelphia multifamily prompted Hunt Mortgage Group to open an office in the city last July. As managing director at the new office, Harris Heller oversees the origination of conventional and small balance agency loans, as well as Hunt’s proprietary fixed- and floating-rate products throughout the Mid-Atlantic. Six months into the role, he has seen the market’s investment potential continue to rise.
“Philadelphia is a dynamic market,” Heller said. “It's a place people want to be. We don’t run too hot or too cold.”
Growth has not been limited to Center City or other neighborhoods in the downtown core. Fishtown, a former working-class community and the historic epicenter of the city's commercial fishing industry, has transformed into a hub for artists and creative professionals. Developers have started to acquire old factories in the neighborhood for conversion into multifamily projects.
Harris recently worked on a deal to secure acquisition financing for a redeveloped former factory, now a stabilized 30-unit multifamily building. The project size is typical for the submarket relative to Center City’s towering residential high-rises.
“Philadelphia is a former industrial hub for the world,” Harris said. “All of those old facilities are now being redeveloped into unique places to live. The city is expanding and these neighborhoods are maturing.”
Fishtown and other up-and-coming Philadelphia neighborhoods also present developers with numerous value-add opportunities. Financing projects like the rehabilitation of aging multifamily properties requires a creative approach to lending. Harris works with property owners early in the development process to put together a loan structure and a business plan.
Hunt can provide bridge lending services with its own capital, allowing developers to secure financing for rehabilitation. Once the property is leased up and stabilized, borrowers can partner with Hunt Mortgage Group again to secure conventional agency loans from Fannie Mae or Freddie Mac.
“Once they see how well we perform, they will often partner with us on long-term financing,” Harris said. “That’s the goal: to create relationships and to show clients what Hunt can do with our processing, people, expertise and integrity.”
The Philadelphia multifamily market still has room to grow. Compared with the rest of the country, it is not adding that many units, Harris said. Conversely, the relatively high proportion of luxury housing construction could lead to an oversupply in that section of the market, resulting in concessions and higher vacancy rates in the near term. Lenders continue to keep a close eye on rising interest rates and are issuing loans with cautious optimism.
“It’s about finding the right debt that works for both the borrower and the lender,” Harris said. “As the market evolves you have to work to create products that benefit both parties’ bottom lines.”
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