Philly's Multifamily Price Record Shattered: Post Brothers Sells Presidential City To KKR
A big-name institutional investor has bought into Philadelphia with a record-shattering multifamily acquisition, even as the investment market for the sector has seemingly imploded nationwide.
Post Brothers has sold the 1,018-unit Presidential City apartment complex at the western edge of Philadelphia to a nontraded REIT controlled by KKR for $357M, as The Wall Street Journal first reported and Bisnow can confirm.
The previous record for a multifamily sale was set in December when the 45-story, 612-unit building at 1500 Locust St. was purchased by New York-based Fairstead for over $230M.
KKR was able to close such a massive deal at a time when the cost of new debt has overtaken the expected income from most buildings because it is assuming a fixed-rate loan that Post Brothers took out on the property in 2019, WSJ reports. The $290M loan from French financier Société Générale had a 10-year term at a 4.3% interest rate, the Philadelphia Business Journal reported at the time.
Post put Presidential City on the market in the first quarter, when the loan's interest was well above the federal interest rate, Post Brothers President Matt Pestronk told Bisnow.
"The financing in place on the property was potentially a liability when we took [Presidential City] to market," Pestronk said. "Then it became an asset."
With over 2,700 units under construction at an aggregate cost well above $1B, Post is using the sale of Presidential City to keep reinvesting in Philadelphia, Pestronk said. Post considered putting two older properties in its portfolio up for sale this year as well: the Goldtex complex just north of Center City and Rittenhouse Hill in the woodsy Wissahickon section of Northwest Philadelphia.
"[Goldtex and Rittenhouse Hill] will probably become a next-year decision, even though those properties also have existing assumable financing," Pestronk said. "There’s just a lot of volatility in the market now.”
Post had attempted to sell Presidential City in 2019, soon after completing its redevelopment, but opted to refinance instead because of how difficult Philly's property taxes and assessment system were for out-of-towners to understand, Pestronk told PBJ at the time.
Though Philly's newest assessments this year have caused consternation among locals, recent decisions on lawsuits and appeals of city assessments have added enough certainty to ease the concerns of investors like KKR, Pestronk told Bisnow.
Built in the 1950s and designed by the same architect responsible for the Pentagon and other Washington, D.C., landmarks, Presidential City was acquired by Post Brothers in 2012.
It was redeveloped over the next five years for more than $100M, which included a complete overhaul of each unit and a reskinning of the four 12-story buildings. Post Brothers also revamped the ground-floor commercial space at one of the buildings, which is now home to a Panera Bread, and added a $7M amenity center with multiple outdoor infinity pools.
KKR purchased the property through its KKR Real Estate Select Trust, a nontraded trust marketed to smaller investors that it opened two years ago. Mack Real Estate Group joined with the REIT as a partner on the acquisition. A JLL investment sales team led by Senior Managing Directors Mark Thomson and Carl Fiebig, Senior Director Fran Coyne, Senior Managing Director Jose Cruz and Director Tyler Margraf represented Post in marketing and selling the property.
The combination of high occupancy, rents well below what similar units in Center City fetch and a tenant base similar in income levels to Center City renters gave KKR optimism that Presidential City can outperform what looks to be a softening rental market in the years to come, WSJ reports.
Even with the transaction serving to underscore Philly's increased legitimacy for national-scale and institutional investors, the area's investment market may not see the end-of-year run on transactions that is expected most years. There is still a substantial dislocation between prices sellers expect for their assets and what buyers are willing to pay or able to finance, Pestronk said.
"We were hoping to get more, but it’s a fair price for the market," he said, adding that he expects the dislocation between buyers and sellers to begin shrinking next year. "I think Philly multifamily is becoming more liquid, current market conditions notwithstanding.”
UPDATE, NOV. 3, 11:45 A.M. ET: This article has been updated to include JLL's role in the transaction.
