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APARTMENT BUBBLE?

Philadelphia
APARTMENT BUBBLE?
First Niagara Bank's SVP Chris Terlizzi has a warning for all thosemultifamily developers gearing up for the next project: Be careful. Abubble may be forming. (That's the scariest Halloween story we've heard all week.)
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While barriers to entry have been fairly high, particularly in this region, it just seems that all of the sudden there's a rather robust pipeline of projects waiting in the wings, Chris (center) told an audience of more than 300 CRE pros earlier this week at Bisnow'sPhiladelphia Multifamily Summit. “The one thing that we're all concerned about is we don't want to see another bubble.” (Hide your gum!) His main concern: the assumption of rents and how much and how long they will continue to increase. Without substantial job growth or population growth, those pro forma assumptions could be off, which could mean developers are “going to have our foot on the accelerator for too long and overshoot what might have been a reasonable target.”
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Chris was part of our debt/equity panel concerning apartments at the Grand Hyatt at Bellevue, which included Marcus & Millichap's senior director Matt McManus and Jones Lang LaSalle's SVPChristine Espenshade (with McGladrey's Beryl Simonson as our excellent moderator). Christina says development is being spurredby the abundance of debt and equity available today for multifamily, and Philly apartment fundamentals see sub-2% vacancy rates in the city and 5% in the 'burbs. And Christina is less concerned about aglut of new supply hurting fundamentals. “We want to make sure wedon't oversupply in the next five years, but this is typically a market that can't do that because it's so difficult to build.”
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Despite the positive momentum in Philly's multifamily sector, REITs have been conspicuously absent in the recent spate of apartment investment purchases. That's because REITs need a critical mass to justify coming into a market. And with little product available, it affords a big opportunity for private buyers to invest here, Matt says. “Even though people are paying up for the income right now being derived from multifamily… rents are going to grow,” he says, further deepening the reputation Philadelphia has for being one of the country's best multifamily markets.
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We caught up with The Martin Architectural Group's Daniel McCauley, Mike Rosen, and Dan Rosen. (Get over yourself, chandelier—no matter how bright you are, we don't want to talk to you.) The Philly-based firm, which has been specializing inmultifamily design for its 40-plus years, was a valued sponsor. Recently, the firm helped the McHenry Row office building in Baltimore achieve LEED Gold Core & Shell, the fourth building in Charm City to do so. It's a mixed-use project with 60k SF of officeand a brownfield-converted Main Street anchored by Harris Teeter.
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We also grabbed a pic of Philly's newest CRE company: Urban Igloo's Kate Becker, Rick Gersten (whose tie is in an epic and noble battle with the wallpaper for yellow supremacy), and Emily Bush. The DC-based company, which lists available apartments for landlords via its website, just opened its Philly metro operations. Urban Igloo was also another of our sponsors. Be sure to read Philly Bisnow next week for continued coverage of our multifamily summit.