Philadelphia is On Fire
With a surging millennial population, robust housing supply and a thriving job market, Philadelphia is enjoying the biggest real estate boom in a decade, a panel of experts at a networking forum agreed last week.
While the city still faces significant challenges such as poverty and housing affordability, speakers at the breakfast event hosted by accounting and advisory firm Friedman LLP said Philadelphia has bounced back from the economic crisis and now enjoys significant advantages over other major U.S. cities.
“This is an exciting time for real estate development in Philadelphia,” said the event host, Bruce Marks, a partner at Friedman who heads its real estate department practice there. “Many call this a resurgence - I call it a surge.” The event, “Philadelphia’s Rapidly Changing Skyline: What’s Next?” took place Nov. 14 at the Union League. Joseph Pasquarella, senior managing director at Newmark Knight Frank moderated the panel.
Friedman convened the gathering of movers and shakers as it significantly increases its services to the industry in Philadelphia since the firm of Shechtman, Marks Devor PC joined Friedman in 2016. The expanded firm now has 8 offices and more than 450 professionals. “We now have one of the largest real estate practices in the country,” said Marks, who has more than 30 years of local experience.
Keynote speaker Allan Domb, a developer who was elected to the City Council in 2015, said the market was reaping the rewards of the city’s 10-year tax abatement program for eligible construction or improvement projects.
“Philadelphia is on fire,” said Domb. “[The abatement program] itself has almost turned around our economy.” He noted that the program has greatly benefited middle-class and workforce housing, as less than three percent of beneficiaries were for homes valued at more than $1 million.
Domb added that the new construction in Philadelphia outpaced the region. “From 1999 to today housing starts in counties surrounding Philadelphia were at minus 30 percent,” Domb said. “In Philadelphia it’s up 166 percent.”
The councilman noted that the city is growing in home sales among millennials and baby boomers, the former in the core areas of the city and the latter in outlying areas. The rate of college students or others who come to the area without family, then choose to stay, has grown from 24 percent in 2003 to 67 percent, a higher rate than Boston, which saw only a slight increase during that time. In the past decade, Domb said 100,000 millennials have taken up residence in Philadelphia.
A key to continuing that growth, he said, is more investment in education to reduce poverty and thereby improve neighborhoods, through strategies such as teaching financial literacy and computer coding in high schools. Technology jobs, he said, often do not require a college education, and each new job tends to create opportunities for others. “It’s a great way to help our economy.”
Another panelist, Leo Addimando of Alterra Property Group, added that from an investor perspective, one of the top concerns in real estate is the convergence of the residential and hotel sectors. He noted that due to the sharing economy and services such as Airbnb, “the lines are totally blurred” between the two sectors. “These days the only true difference between a hotel and an apartment is whether they offer room service,” Addimando said. “Apartment landlords and hoteliers have had to rethink the utilities of their assets. There are choices people didn’t have five or 10 years ago.”
Addimando observed that younger renters show a willingness to trade less individual space for more public space: Amenities such as gyms, roof decks and concierge services are more crucial to filling vacancies than large kitchens.
Kevin Gillen of the Lindy Institute for Urban Innovation at Drexel University said the city was seeing a “golden age” for single family housing, with price appreciation not seen since the 1920s.
“We saw prices fall from peak to trough during the economic crisis, and they have now recovered, and are 16 percent above the previous peak 10 years ago.” Gillen pointed out that according to Case-Shiller statistics, Philadelphia’s 8-10 percent appreciation was outpacing other cities seeing only 5 percent. He added that million-dollar sales were at a record high.
Anne Fadullon, director of the city’s newly created Planning and Development Cabinet cautioned that Philadelphia faces a significant challenge in addressing the affordability of city life, but added, “We definitely are not facing the kind of pressure that they have in Boston or the West Coast.” She kconcluded that a strong mass transit system was a key selling point and that “other than the Bay Area and Boston we have the fastest growing technology sector in the US,” amounting to about 5 percent of the workforce, or 160,000 jobs, with opportunities in biotechnology, stem cell research and traditional technology jobs.
“That’s more than Denver or Boston or Atlanta,” Fadullon said.
In the discussion, Pasquarella of Newmark Knight Frank conveyed his sense that “overzealous” lending that was common before the financial crisis had for the most part become “less aggressive,” indicating a restraint on the part of the developers “that makes this cycle more comforting.”
Panelist Richard Gottlieb of Keystone Property Group agreed, saying that while there is “lots of capital out there, it is constrained … On the development side they are not going to take too much of a risk.”
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