8A —April 22 - May 19, 2022 — Spring Preview — M id A tlantic Real Estate Journal


A ppraisal

By Carlo Batts, MAI of Rittenhouse Appraisals Measuring up Philadelphia and the growth to come

ap rates are at historic lows, major out-of-town REITS are investing, and devel - opment con- tinues at a feverish pace in Philadel- p h i a . Th e forces in play are creating s igni f i cant shifts in the city’s commercial real estate makeup and geography. Unprecedented development activity in the University City neighborhood means the area C Carlo Batts

is a driving force in Philadel- phia’s economy and recovery. The University City District reports over 1.4 million s/f of new development or signifi - cant renovations with a value of approximately $400 million was in process in 2021, with an additional 11 million s/f on the development launch pad. Life sciences is the key in- dustry in the University City expansion with related office, research, and manufactur- ing facilities. But while these new building uses bring jobs and people, they are also dis- rupting and often removing

other businesses that round out neighborhood ameni- ties. A case in point is the 13-story lab that will replace the current home of Abner’s Cheesesteaks and other eat- eries at 38th and Chestnut. This leaves University City without a dedicated steak shop - distressing to say the least (wink). The investment in Univer - sity City has ripple effects into other real estate sectors. Multifamily investment is now moving into secondary and tertiary neighborhoods, with the 52nd and 63rd Street

corridors as prime targets. These transit-oriented neigh - borhoods are perfect for mul- tifamily development to house the talent that is needed in the research labs and manu- facturing facilities as well as supportive services. This housing demand is anticipated to continue increasing, and while the market is currently under expansion, expect more. With apartment cap rates at an all-time low, and even with possible increases resulting from rising interest rates and inflation, developers and lend - ers still consider multifamily a

strong investment in the core areas of the region. While it seems that Univer- sity City receives the majority of discussion related to Phila- delphia’s changing real estate market, there is significant activity along the North Broad corridor. Netrality Data Cen - ters’ acquisition and invest - ment in 401 N. Broad Street has provided a property for life science users north of Center City. The corridor also in - cludes a variety of mixed-used projects and nearly 800 more residential units are currently under construction with more planned. The Philadelphia Po - lice department opened its new home on North Broad Street and while only a proposal at this point, the Pennsylvania Ballet is considering a new building in this part of the city. The area’s makeup is changing considerably as developers continue to explore new uses for properties and see the pro- jected high ROI from feasibil- ity and market studies. Development in Philadel- phia is at a point where we are seeing core centers reemerge and link together, driving real estate market value changes in all parts of the city. This progress is also creating new service gaps for these freshly configured areas which need to be considered in terms of valuations, risks, and re- turns. One current shortage is of lodging facilities for the North Broad Street corridor, Northern Liberties and Uni- versity City areas based on the projected influx of businesses and people. Outside investors and major REITs are robustly entering the market betting on the continued growth of the city. These new players, plus pres - sures in life science develop- ment, the continued need for housing, and a city connected more than ever are moving small investors and business owners into other neighbor- hoods of Philadelphia, such as Germantown, Mt. Airy, East/ West Oak Lane, and Over- brook. While there is some uncertainty on the part of investors due to fear of a war- time economy emerging along with rising interest rates and inflation, shortages, demands, and projected positive returns look to overcome these doubts. Carlo L. Batts, MAI is principal of Rittenhouse Appraisals. MAREJ

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