Investor · Philadelphia, PA · Member since 2016 · 13 posts · 3 votes
Hello BP folks!
I am curious to know what other people are finding to be average CAP rates and price per unit in the Philadelphia market for large apartment buildings?
Any help is appreciated!
Cheers,
Matthew
Depending on the size of the asset in Philadelphia the market has been seeing as low as 6% for multi family buildings on the market. It has become very competitive. Obviously, the small multi family $1M or below you can still see higher single digit cap's depending on neighborhood, etc.
I currently have a quad off market for sale in Frankford at 8.5% Cap rate 32% + COC return based on 25% down @ 4% amortized over 30 years with expenses included reserves for vacancies and maintenance @ 5% of gross income, along with the standard expenses of calculating returns such as PM fees, licensing inspection trash and fire alarm fees, and water expense
For multifamilies greater than 5 units, I saw areas like Kensington/Fishtown hitting 6%. Nicer areas closer to center city at 4-5%. And they were being sold reasonably quickly. If you move futher away to areas like Upper North Philly (e.g Fern Rock) or Northeast (Frankford) then it seems about 8% Cap was still common.
I personally believe the apartment market in Philly is a little frothy right now. I think there is a lot of foreign money where the owner want to keep their capital safe in comparison to their home countries, and they don't need financing, and not too worried about strong cashflow. If borrowing rates go up any time soon then I believe those cap rates will need to come up (which means prices go down) .
I also see different assumptions used in Cap rates around expenses/reserves. I usually account for 15% for maintenance/reserves/vacancies and assumed 5% for maintenance.