With units in Philadelphia fetching prices as high as $17.85
million in the last few years, it might seem as if the city’s condo
market is stronger than ever.
After all, between the impending delivery of Tom
Scannapieco’s 500 Walnut sometime this fall and the opening of Carl Dranoff’s One
Riverside this past May, the two luxury towers together are expected
to bring 103 new units to the Philadelphia market, totaling $330 million in
sales if both sell out as planned.
What’s driving the sales, both developers have said in
the past, is demand among the region’s wealthiest residents for an ultra-luxury
product that has never existed before. Yet there’s also another primary driver
behind their successes: Both condo towers are in Center City.
Such unevenness in the condo market’s recovery is
surprising for the greater Philadelphia real estate market, which largely has
been thriving for years — especially in the single-family house and apartment
sector. Recently, neighborhoods across Philadelphia
have seen single-family property values skyrocket beyond their 2007
pre-recession peaks, as prospective buyers, seeking more
affordable housing, have pushed into lower-priced neighborhoods. Rents
citywide, meanwhile, have climbed to new heights
as more millennials have flocked to the city.
The condo market has been different, Domb and Gillen’s
study found, and has largely been divided among demographics. Wealthier baby
boomers seeking an urban lifestyle have propped up the Center City condo
market, developers and experts say. Younger buyers, however, have increasingly
desired flexibility and delayed home ownership. As a result, the popularity of
condos in more affordable areas — once a popular option for entry-level housing
— has been eroded by both rental demand and a spike in new, tax-abated houses
in gentrifying neighborhoods.
All the while, builders have continued to face tight
lending standards, making it harder to build new product and jump-start
enthusiasm in the condo sector.
Those circumstances have left Philadelphia with a condo
market with much room to grow. After falling a cumulative 28 percent
citywide from a peak in 2006, condo values on average have recovered just a
part of what was lost.
“The market has been in recovery mode,” Gillen and Domb
wrote in the findings. But “current price appreciation has been rather
sluggish.”
“Citywide condo prices are only up 1.3 percent from a
year ago,” the report said, a rate that is “well below the 9 percent rate of
annual appreciation that the single-family houses in Philadelphia are currently
experiencing.”
Some neighborhoods have fared better than others, the
report found: The Rittenhouse Square condo market, for example, has fully
recovered, and values are now 10 percent higher than where they were in 2006.
In the second quarter of 2017, condos there had a median price of $813,565. Old
City values are 4 percent higher, with a median price of $310,937. And values
in the Washington Square condo market, where the median price was $375,213, are
up 2 percent.
But outside of those wealthier, central areas, condos
have struggled. In South Philadelphia, for example, where single-family
properties recorded a 59 percent increase in values in the second
quarter, condo values remain down 5 percent. The median price there was
$409,041, according to the data. The same exists in the highly popular Northern
Liberties and Fishtown area, where condo values are down 11 percent, Gillen
found. The median price there is $339,027.
With its grand opening in May, Carl Dranoff’s One
Riverside has moved toward its sales goal very quickly. The tower has already sold
$135 million worth of condo units.
“This [study] pretty much confirmed what everyone has
thought: You don’t see baby boomers buying condos outside the core area,” Domb
said in an interview. “ … They want to be in the center of the city, near
restaurants and the theater.”
“But with new millennials moving into Philly, they are
the ones populating the Port Richmonds and the East Kensingtons, Francisville
and Queen Village,” Domb continued. “ … They are making those come alive in the
single-family market.”
Indeed, local developers say, the strength of the Center
City market has been guided by demand from wealthy baby boomers and
Generation Xers, many of whom are leaving the suburbs, trading large, expansive
homes for amenity-filled high-rise towers.
And they are willing to pay top dollar, Gillen and Domb’s
data show: From April to June, there were 28 sales at One Riverside for $1
million or more. At other properties across the city, there were an additional
23 sales for $1 million or more during the three-month period.
“Most of our buyers are 40 years old and up,” said
Marianne Harris, vice president for sales and marketing at Dranoff Properties.
They “are people who … don’t want to be in outlying areas.”
“So much has happened in the last 10 years, and the reputation
of Philadelphia has risen dramatically,” she said. “People want to sell their
property and move into the city. I think what as getting in their way
previously was that there wasn’t any product available.”
Tom Scannapieco’s 500 Walnut penthouse broke the record
for the most expensive residential sale in Philadelphia’s history.
While multiple developers rushed to build condos in the
years running up to 2007 and 2008, many projects were canceled as the economy
soured. Others went bankrupt. Some barely survived, while others were saved
when different developers stepped in. Ultimately, between a bad history of
success in Philadelphia and tighter lending standards, little condo
construction occurred in the last decade.
Which meant that when One Riverside and 500 Walnut were
announced, the supply drew immediate interest. Since One Riverside began
pre-selling in 2015, Dranoff and his team have 59 units either sold or under
agreement, for a total of $135 million in sales so far. Only nine units remain.
At Scannapieco’s 500 Walnut tower, $120 million of the tower’s $180 million
goal has been reached, including the $17.85 million penthouse currently under
agreement.
Other Center City condo towers built in the late 2000s
have benefited from the recent demand. At the Residences at Ritz-Carlton, which
was delivered to the market next to City Hall in 2009, sales were more sluggish
amid the recession. But recently, as the city has improved and new towers
rise, sales have picked up: In May 2016 alone, the tower sold $23 million in
units.
The condos at the Residences at Ritz-Carlton are selling,
but the penthouses are not.
The Residences at Ritz-Carlton have benefited in recent
years from the upswing in the Center City condo market. Still, the penthouses
have remained unsold for years.
Outside Center City, the situation is very different.
At the 10-year-old Waterfront Square in Northern
Liberties, for example, “sales aren’t bad,” said Debbie Centofanti, director of
sales at the property. She did “close to $30 million in sales” just two years
ago.
At Waterfront Square in Northern Liberties, units that
originally sold for $600,000 or $700,000 are now being sold by investors for
the mid- to high-$400,000s, said Debbie Centofanti, director of sales.
Yet, she said, “we did sell them at a much higher price
10 years ago when the market was much stronger.”
“Some of those units, investors are now selling them in
the mid- to high-$400,000s,” Centofanti said. “Originally, they would have sold
for $600,000 or $700,000.”
The reason: Many are seeking the townhouses and
single-family projects that are now booming in Northern Liberties.
“A lot of my buyers might have come to me when they got
matched here while doing their residency and have outgrown the condo
lifestyle,” she said. “They want more room; they want to start a family.”
Elsewhere in the city, developers and officials say,
older condo buildings have likely taken a hit in sales after Philadelphia’s
10-year tax abatements expired. In the city, new construction in the condo
market hit its stride in 2004, when nearly 3,000 building permits were
issued for new units.
“The economist in me says that, if an abatement has
expired, it takes away from interest,” Gillen said. “If you have a huge tax
break, you can rationalize paying a certain price.”
After that, however, Gillen said, buyers might begin to
think about selling.
Source: Philly.com
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