PHILADELPHIA, PA—Philadelphia's economic recovery, particularly its track record of rental properties weathering the 2008-2009 recession in fairly good shape, is getting the city some brotherly love from the capital markets in the form of renewed investment interest, according to the Capital Markets Update Panel at the ALM Media RealShare Philadelphia conference held February 10 at the Union League.

 “The market has clearly changed over the past couple of years,” says Brian Sykes, senior vice president, Originations, Capital One Multifamily Finance.  “The stability of Philadelphia as well as the steady rent growth, as well as the fact that it survived the 2008-2009 situation where vacancy was on average only about six percent and you had a lot of other markets in the country well above that, and right now we're looking at about 3.4 percent vacancy. There's a very steady, 2.4 percent rent growth. It's caught the attention of a lot of institutional investors. There's plenty of capital here. In fact, one of my institutional clients has never bought in Philadelphia and was mentioning to me the other day that they want to pursue multifamily investment here. It's a very attractive market these days.”

Outside Philadelphia's central business district, industrials had already commanded the respect of investors in that sector, according to Brad Ruppel, senior associate, CBRE. “We're already regarded as a Tier I market,” he says. “You've got the top 20 portfolio buyers in industrial already having holdings in and around Central PA.” In addition, Wall Street is pressuring publicly owned investors in this sector to increase their participation in the Philadelphia market, he says.

The Philadelphia industrial market has seen 19 million square feet of absorption and 15 million square feet of development over the past three years, Ruppel says, noting this is comparable to markets like the Inland Empire in California, Dallas, Ft. Worth, and Atlanta.

Investors are pricing Philadelphia comparably to those other areas, he says. “Compared to other inland markets, we're pricing right in line with those,” Ruppel says, noting cap rates in central Pennsylvania are at about five percent, within 100 basis points of Northern New Jersey which is at 4.5 percent.

Investors' perceptions of Philadelphia seem to have turned a corner, panelists said.

“A few years ago, when we were out looking for capital for Philadelphia, we heard things like 'we're only investing in tier I cities, gateway cities, top 25 MSAs that have a certain amount of job growth,'” says Christopher Datz, principal and founder, Washington Square Realty Capital, LLC. “In the last twelve months that's changed, and we're seeing people getting on planes and coming to Philadelphia to look at projects. The larger projects, you've already seen a lot of capital flowing into, from institutions and equity check-writers. I think you're going to continue to see that over the next couple of years.”

Chris Terlizzi, senior vice president and regional manager, First Niagara Bank, notes that his regional responsibilities include lending in four geographic markets, but that “in the last two years, no matter where I go, I run into somebody from one of those other markets who has already bought something in Philadelphia or is in the process of looking for something to buy,” mainly in the multifamily sector. “That's a distinct difference from what we've experienced in the past, where Philadelphia has generally been overlooked as a market without much growth potential.”

“Clearly capital has rushed back into Philadelphia in the last 12-24 months,” says Stephen Card, Regional Director of Mid-Atlantic, Rubenstein Partners. “I wouldn't necessarily call that a paradigm shift, it really just mirrors what's happened in prior cycles – cheap debt, lots of equity looking at deals.”

“We're definitely seeing a real transformation of Center City Philly,” says Alex Cohen, CEO of Liberty SBF, whose firm doesn't do much lending in Philadelphia because it's very competitive.However, he noted that his firm will be moving into Center City from its current headquarters in Wynnewood to “take advantage of all the city has to offer.”

Participating in the Capital Markets panel were: Stephen Card, Regional Director of Mid-Atlantic, Rubenstein Partners; Alex Cohen, CEO, Liberty SBF; Christopher Datz, principal and founder, Washington Square Realty Capital, LLC; Brad Ruppel, senior associate, CBRE; Brian Sykes
senior vice president, Originations, Capital One Multifamily Finance; and Chris Terlizzi
senior vice president and regional manager, First Niagara Bank.

More than 300 market participants attended the four RealShare panels on different aspects of the commercial real estate industry.

Video and audio podcast programs of the RealShare Philadelphia Conference are available for purchase as instant downloads at this link.