How Philly Roared Back
Philly real estate hasn’t been this vibrant in years, and the opening panel at our fourth annual Philadelphia State of the Market yesterday chalked it up to two strong forces working together: the diversification of the local economy, and investors and visitors discovering Philly. (We're more than cheesesteaks... but they help.)
Economic diversification has given the city resilience, especially Downtown and University City, though it’s been a long time—decades—in coming. From 2012 to ’17, there are about $8.5B in projects underway across all sectors, an unprecedented amount of development. And we don't have to worry about a bubble just yet: There’s no lack of investors looking to buy here, and they're largely from elsewhere in the country—investors who've learned about the city’s growth trajectory and want a piece of the action. About 620 attendees jammed into the Sheraton on Logan Square for the event.
JLL EVP Doug Rodio keynoted, noting that nationally, there’s a lot debt with aggressive terms out there, and debt is driving pricing—a little like '06 and ’07, except that the underlying fundamentals of commercial real estate are stronger this time. Transaction velocity is increasing in all asset classes, and Doug notes that he’s seeing 20% growth in deals year-over-year—probably even higher in Philadelphia. As investors learn more about the region, they want to put equity here. This year, he says his team expects to sell over $1B worth of assets in Philly, a record.
City of Philadelphia deputy mayor of economic development Alan Greenberger says that a combination of policy and advocacy has contributed to the growth and diversification of Philadelphia in recent years. Like small-but-meaningful reductions in business taxes, especially for startups, and the re-write of the zoning code. He also believes there’s a new confidence in the city and how it operates. Part of that’s because the city has worked hard to change the perception of Philadelphia as a business-unfriendly city.
Visit Philadelphia CEO Meryl Levitz, whose organization promotes the city and the surrounding counties, says from the visitor point of view, Philadelphia seems like an overnight sensation—though that’s been over two decades in the making as the city slowly became a more diverse and interesting place to visit. At one time, people didn’t know what to except beyond Independence Hall, the Bell, and Rocky, she recalls. Visiting was seen as more of a civic obligation. Now it’s a discovery destination, a place that visitors are discovering for a wide variety of reasons: history, certainly, but also food, culture, open space, and the thriving neighborhoods.
Trammell Crow senior managing director Jeff Goggins, who’s regionally active in office, industrial, healthcare, and multifamily development (such as the Lehigh Valley Industrial Park and the Atwater Corporate Center) points out that a younger demographic is moving into the city, which is certainly good, but that employment hasn’t quite returned to pre-recession levels. Still, fundamentals are strong, so there’s a lot of job growth ahead, and there will be continued demand for office built-to-suits that provide modern office designs and amenities.
Center City District CEO Paul Levy, whose organization focuses on creating a cleaner, safer, more attractive urban environment for residents, workers, and visitors, says that a generation ago, Downtown was largely a 9-5 office center, with a third shift inside the hospitals. The streets were empty at night and the public environment was in disarray. The story of the last 25 years is one of economic and land use diversification, adding a major convention center, doubling the number of hotel rooms, and creating a huge inventory of arts and culture and a boom in restaurants and entertainment—followed by dramatic growth in Downtown housing. All these sectors now re-enforce each other.
Liberty SBF CEO Alex Cohen moderated the opening panel. Liberty, which Alex founded, is a Philadelphia-based direct lender focusing on CMBS, bridge loans, and owner-occupied commercial real estate. During his career, Alex has focused on whole loan, structured product, and corporate credit trading, and he has also worked in private equity focusing on transactions in the middle-market sector. Tune in next week for more coverage of the event.