What Are Philadelphia Investors Working on Right Now?

Question

The Philadelphia message boards have been extremely quiet lately, so I thought I would try to get a discussion going.

What are local investors currently working on or looking for? Any noteworthy acquisitions, refinances, developments or other recent accomplishments?

Stuart Udis · Answer

@Kevin Moyer Strong insight, and always valuable to get the perspective from someone who manages a large portfolio of real estate spanning different neighborhoods and asset classes.

My best-performing rental is a four-unit building I developed in 2022. Rates were rising just as I received the certificate of occupancy, so I kept it as a rental even though I had already recorded the condo declaration. The permanent lender treated it as one blanket loan, and I operate it as a four-unit multifamily property. I just have four separate tax bills each year. Fortunately, it qualified for the older tax abatement, so the taxes remain incredibly low.

With rents above $3,000 per month for stacked duplexes, most of the red tape imposed by the city becomes a rounding error, and the tenants have the financial means to absorb reasonable rent increases. I refinanced the building in July 2023 with a $1,250,000 loan on a 20-year amortization schedule. With some additional principal payments, the balance is already below $1,120,000. The original rent roll was approximately $11,500 per month and should approach $12,750 once an upcoming renewal takes effect within the next 60 days.    I’m also only building new housing that can achieve $400/SF+ valuations.

This speaks to the affordability issue you raised. It's becoming nearly impossible to operate the affordable housing stock effectively in Philadelphia and only housing that's not attainable to the average Philadelphia tenant can effectively absorb the realities of 2026 costs and agree something will have to give. I have no interest in competing in that space, too many headwinds to fight in an already difficult business. Don't foresee it getting better any time soon with more progressive city council members continuing to be elected.

Jeffrey Sommer · Answer

Rentals have been hard to come by although I am wrapping up a refinance on a duplex conversion project. That took way too long to complete but I'm glad its finished.We've been doing some flips as well and have had some success. You just need to run your numbers extremely conservatively. The offers pretty much need to be 40-50% below list price to make anything work and still have some profit left over. Hopefully that shifts a little bit soon.

Alan Asriants · Answer

I haven't acquired any property or projects in Phila since 12/25. And that was a transaction I just couldn't say no to. On the market it would've sold for 60-80k more and I already owned RE on this block.

Besides that I am actively looking to invest outside of the city limits. it used to be that investing in the city made more sense since property taxes were lower - increasing your cash flows and making dealing with the City's headaches more manageable. With every year there are more and more restrictions on the landlord and property taxes are spiking YOY. My taxes on Phila properties are already higher than suburban properties - and now the tax policies for BIRT is even more strict and more income taxes to pay to Phila.

I still think its good to buy in Phila if you purchase in the right location and buy the right asset - especially if you are new to RE and want to househack. Personally I just decided to shift and don't need to keep buying in the city - but I'll never pass up a good opportunity :)

Currently working on what I like to Call a  BRRWRR type deal in Montgomery County. Buy, Rehab, Rent, Wait, Refinance, Repeat. Its a more long term approach to the traditional BRRRR model - but I have found if you wait long enough and find good moments when you can save on interest rates, you can really implement this model. Really its just real estate investing while taking advantage of rate cuts and appreciation.

Kevin Moyer · Answer

It's really been dead quiet. Property Tax Abatement + BRRRR popularity + low interest rates from 2017-2023 sparked new construction and rehab projects all throughout Philly. The city was buzzing with capital injection and improvements in the residential world. I had clients folding in new rehab projects for property management constantly during this era. I personally picked up some investments in 2017 and 2018 and the cash flow and performance have been strong to this day. However the investments I picked up in 2022 and 2023 did not pan out. This is primarily because the numbers are not working right now in Philadelphia. Through my years operating as a property manager and real estate attorney I have connected with many experienced Philly investors and they are almost all still waiting on the sidelines for new acquisitions or projects. Some are leaving entirely. The city continues to pile on more cost and risk through regulations increasing property taxes, eviction risk, insurance risk, etc. And rents haven't caught up (yet).I predict the bottom of the market falling out over the next 1-3 years. An evaporation of the $1500/mo 3BR row home supply. More C class rentals falling into inhabitability and pushing the rent floor up for this stock of housing that can be maintained. Supply starts to squeeze a bit and rents come up to where they are being pushed by policy.

Stuart Udis · Answer

@Chris Seveney I still can’t wrap my head around how RAD managed to raise so much capital when its leadership had no legitimate track record to speak of. Beyond the loss of investor capital, I can only imagine the carnage left in its wake. The fraud was so obvious that its business model depended on hiring completely inexperienced or incompetent employees who couldn’t recognize what was happening directly in front of them. Probably not what the investors who invested in this company want to hear but there's probably some opportunity acquiring their distressed notes similar to what you're accomplishing.

@Joseph Scorese What you shared makes sense. I suspect with a few more repetitions under their belts investor underwriting is now taking into account the realities of today's construction costs and ongoing opex costs. This isn't specific to Philadelphia but a lot of investors got hurt underwriting like they were buying pre-pandemic not accounting for the shift in pricing that needs to be accounted for.

As for me, I am finishing the buildout of a restaurant space for an operating partner in a building that is otherwise stabilized. I have started speaking with several credit unions about refinancing the property.

I am finalizing an amendment to a previously approved zoning variance because the zoning plans conflicted with the building code. The construction loan is already in place, and I hope to break ground later this fall.

I am also purchasing the PLCB restaurant liquor license from Devon Seafood and recently received approval to transfer it to a conversion project that will consist of a 27 seat cocktail bar, 250 seat indoor/outdoor dining concept and 10 loft apartments. I am in the process of completing the permitting process. I hope to begin construction by the end of the year and will seek construction financing after the other refinance is completed.

More broadly, I am evaluating additional mixed-use properties and land in specific areas of Mount Airy, where my entire portfolio is located. I also recently began raising capital under a 506(c) exemption for my current pipeline and future opportunities along and near the Germantown Avenue commercial corridor which is where I am focused.