Investors Remain Bullish On Philly And Unconcerned With Trump

Deep into a long cycle, but with no indication that a change is on the horizon, investment and lending activity look like they will continue to be strong through 2017.

Philadelphia, like most major markets, has experienced consistent growth in the aftermath of the housing crisis a decade ago, and the upswing has lasted longer than most predicted. While it is normal to wonder about when the other shoe will drop, all investors can do is trust their own analysis. For most, it still shows strong fundamentals and predicts more growth in the immediate future.

“I have not seen any pullback related to any end-of-cycle trends,” said HFF’s New Jersey office chief Jose Cruz. “This question comes up every day: Where are we, what inning are we in? Most groups aren’t listening or making decisions based on that, they’re just looking for deals they like and if they have the capital.”

Around the region, experts are confident in the strength of office properties in Center City and University City, as well as multifamily properties all over the area, and that capital and equity remains available for those willing to invest.

Even though multifamily projects are being built at a much higher rate than office, renter demand seems to be holding steady, which means that investors can be confident that top-level properties will retain, and possibly increase in, value.

Whether in the suburbs, downtown or infill neighborhoods, investment activity has been strong in the last couple of years because outside players, nationally and internationally, have taken greater interest in the Philadelphia market.

“In the last 12 months, Philly has become a much more active destination for equity," Keystone Property Group chief investment officer Chip Walters said. "It’s always been a player for debt.”

That is not to say that there is any sort of feeding frenzy going on, especially in light of the specter of rising interest rates from the Federal Reserve. No official word has been given on just how much the increase, expected this month, will be, but the fact that everyone knows it is coming means a higher interest rate has been baked into some recent transactions.

“[The coming interest rate hike] has an impact, even if it’s merely psychological,” Cruz said. “Say if someone expects rates to move up when they haven’t yet. That said, we’ve been in an environment of potential interest rate rises for some time now, so I don’t think we’ll see a large jolt.”

Even if there is a bigger rate jump than expected, capital figures to remain plentiful in and around Philadelphia, thanks to predicted strong job growth and high construction costs. Those high costs are a headache for developers, but as a barrier to entry, they are a necessary enforcer of scarcity for investors who would otherwise be concerned about a diluted market.

If it all seems like a rosy outlook projected by investment executives, that is because it is. To some, that can be a bit of a surprise, considering how the volatile nature of Donald Trump’s presidency has made the future of the economy seem so tenuous to the average citizen. Those in real estate investment do not seem to be all that concerned.

For example, the Dodd-Frank legislation drafted in the wake of the financial crisis is in danger of being seriously neutered. Multiple sources have refused to comment on the issue in recent weeks beyond saying that less regulation would be beneficial to the commercial real estate investment industry on the whole.

While upcoming legislation or a Trump surprise could affect investment attitudes, Cruz said investors and lenders rarely look past the specifics of a deal to the general political climate when making decisions.

Even ahead of changes to Dodd-Frank, there has been increased activity on the riskier side of commercial mortgage-backed security loans, by a new set of players active in B-rated loans.

“The B-piece players, the emergence of this debt fund,” Walters said. “They’re the big story from what we’ve seen in the past six months, and could have the most influence in the next six months.”

Though they may be exerting big influence on the debt market currently, Walters said those B-note seekers have been “careful and intelligent in deciding the right amount of risk, and it’s been good for the market.”

Whether they will continue to do so if regulations disappear could give pause to some, but for now it’s all systems go for investing in Philly.