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Connecticut Buyer Snapping Up Midsize Center City Multifamily Properties

1430 South St. in Center City, Philadelphia

Connecticut-based Dalzell Capital Partners is beginning to make serious inroads into the Philadelphia multifamily market.

The firm, headed by Managing Member Christian Dalzell, closed on the $21M purchase of Waverly Court — a 61-unit development at 13th and Waverly streets — at the end of June. That follows on the heels of Dalzell's first two acquisitions in Philly, both within the last year. Overall, Dalzell has acquired five properties, with the other two in Connecticut.

Three blocks away from Waverly Court is 1430 South St., a 35-unit apartment building that Dalzell purchased for $10.8M in August. In December, Dalzell added the 33-unit 514 South St. in Queen Village for $10.4M. All three acquisitions have small retail presences on the ground floor.

Dalzell Capital Partners has used Freddie Mac to finance all three acquisitions, which are about 70% leveraged. It has tapped Ori Feibush's OCF Realty to manage the properties.

Dalzell's acquisitions have gone against the grain of the most popular investment trend in multifamily over the past year or so, which has been in suburban, value-add properties. Both 1430 and 514 South are new construction that Dalzell purchased off-market, and Waverly Court is a mixture of 34 new apartments and 27 that were originally built in the early 1900s.

Dalzell is renovating those units, but he said they still stand in contrast to the 1970s-era garden apartments that have been targeted most. So far, he believes the South Street corridor and Queen Village have the right mix of population density and a high barrier to entry to justify buying new and holding.

“Since you have much more concentrated employment and population south of Market, and because the city has recently changed the maximum density for zoning east of Broad to promote development, a lot of the new properties that have come online in the last six years have done so on very large commercial lots,” Dalzell said. "The city is running out of developable spaces, and it has a much greater barrier to entry south of Market, rather than north of Market, which was historically more industrial.“

Dalzell Capital Partners Managing Member Christian Dalzell

After a few years spent researching the market, Dalzell chose this time to pounce because the multifamily development cycle appears to be ending. The supply pipeline is expected to dry up in 2019, and what has already delivered is absorbing slowly.

“The development that has come online has created competition, but what is about to come online will be more job-creating developments as mostly non-residential [projects]," Dalzell said. "I don’t think that housing need has really been baked into the numbers, which has motivated us to identify more investment opportunities.”

Dalzell said he would ideally like to close on two or three more properties before the year is out, then "take a breather" unless a surprising deal pops up. But he hopes to continue buying in the city over the long run, and is searching for office space to be closer to the majority of his portfolio.

“I think we’re close to needing an office in Philadelphia, and my goal is to give ourselves a reason to open an office,” Dalzell said.