We’re back with another Broker Spotlight to bring you knowledge directly from multifamily professionals. This month we had the pleasure of interviewing John Banas Senior Vice President at the Philadelphia Office for Colliers International. John has been in commercial real estate for 10 years now after owning health clubs for 11 years where he met his current business partner Kristopher Wood. At the time Kristopher was working for a boutique commercial real estate finance company in Philadelphia and tapped John to join the company in the beginning of 2006.
John stayed with the company through a Marcus & Millichap acquisition until 2014 when Colliers made him an offer. His current team includes: Alex Hails, Martin Duval , Tim Hoyt and Sam Marder – Senior Associates and business partner Kristopher Wood also a Senior Vice President.
We wanted to ask John a few questions to get better insights into the greater Philadelphia Multifamily market and here’s what he had to say:
What were some of the biggest challenges you saw in multifamily in 2015 and the years leading up to it?
Within Philadelphia there was a lack of liquidity for new developments for a while. It was a supply and demand issue. As the supply dropped and banks started to loosen the reigns a little bit, we saw more development dollars. We didn’t see a lot of construction prior to the end of 2014 into the beginning of 2015 based on a lack of liquidity in the market. Banks weren’t looking to do construction loans because doing anything from the ground up is always going to be the most risky.
You guys definitely got over that bump since Philadelphia was mentioned at BMAC in December as one of the top markets to watch in 2016. Why do you think Philadelphia multifamily is doing so well?
I think it’s a combination of things. I think the city overall is doing very well and I think multifamily in general is doing very well for a couple of reason. My generation grew up where owning a home was the American dream and I think that has changed to a point. One, the change in the market with the cost factor and the dip in residential real estate in 2008 – 2010, but it also has to do with how transient people are. I don’t know that they want to be locked into a house due to all the work you need to do with a house and the capital expense. I think that’s went into the boom in the multifamily market and we continue to see it.
Philadelphia is a really cool place to be, we’re seeing a lot of adaptive reuse of other facilities. We just closed on the adaptive reuse of a former West Philadelphia High School into multifamily. Fresh prince is moving back to Philadelphia! And we’re seeing a lot of stuff like that. Philadelphia is a great restaurant town, there’s a lot of stuff to do. We see a lot of sub-markets of New York that have all the culture, the great restaurants, and places to go, stuff like that and it’s an easy roll off for people to want to live here, which increases the multifamily side. It’s crazy to see all the development going on even in the immediate suburbs in Conshohocken and Manayunk. I just drove by and saw two brand new multifamily developments being done along the waterfront in Manayunk, which is awesome.
Speaking of. . . a few days ago Bisnow reported some massive suburban developments are in the works for greater Philadelphia, how do you see that affecting the multifamily properties in the suburbs?
I’m sure the underwriting for opportunities has substantially increased, so those opportunities were well underwritten, demand studies were all taken. I think they are going to continue to do well. I see a lot of stuff in Conshohocken being built, we’re seeing massive multifamily opportunities being developed and I think it’s great.
We see new developments, investing in properties with the intention of adaptive reuse, and also opportunities where they come in to put substantial capital improvement dollars into changing a B- property into a B+ or A property. We’re seeing that a lot more based on demand in specific areas. Without going into specifics we’re looking at two large opportunities in West Philadelphia right now in the University City area that are doing the same. It’s a C- minus property and they’re coming in putting capital improvement dollars in to improve it to a B+/A property.
We know based on our research of Philadelphia there has been a big demand in Class A properties recently. Are Class B and Class C properties getting as much attention or has the market been just hyper focused on Class A?
We’re seeing both. For multifamily as competition increases so do amenities. So what might have been considered, and we do a lot in student housing so we see the same thing within the student housing world, a couple of years ago may have been considered an A property might be considered a B now based on how much amenities continue to change. It’s amazing, you walk in and granite counter tops and stainless steel appliances are par for the course for everything now.
There’s only so many multifamily opportunities. It’s a big city with a small inner city, there’s only so many multifamily properties you can do within the inner city which leads to the new developments. As far as everything going on in just the Manayunk area you have two new developments being done down along the waterfront and then you also have the whole upgrade of the Presidential which is a huge undertaking.
What are some of the newer trends you have been noticing when it comes to multifamily properties?
What I’m seeing a lot more is creating a sense of community within multifamily properties. Where they have a nice communal area or pool or clubhouse. We saw a lot of places where they went beyond just the normal good amenities, especially in old city, where they tried to build not just a place you live, but also a place that creates community.
What are your thoughts on the rent growth we’ve seen for multifamily?
Even when it came to the big downturn, it was more within the sand states, like California, Vegas, Arizona, Florida. When you have a big, big appreciation there is a big appreciation and you have quick drops when things drop off.
Philadelphia has always been steady increase, steady decrease. There’s not huge bounces all over the place, so I think rents will continue to increase as demand increases, but the rents haven’t jumped. It’s been a steady increase, not a huge jump. It’s a reasonable increase and also it’s dependent on supply and demand constraints.
What are your expectations for multifamily through 2016 and the years following?
From a standpoint of Philadelphia, I think the growth is going to continue. We’re also going to see more adaptive reuse, construction, conversions, opportunities to convert from a B to an A or a C to a B. I think it’s going to continue just based on the demands and also the liquidity has increased and cost of capital is down.
John’s insights show a cool inner city tucked in a broader assortment of neighborhoods which are attracting a lot of attention from renters. He backs up this view with details of constant development, reasonable and steady rents, and the trend of adaptive reuse of older buildings. There is certainly reason to feel optimistic about the Philadelphia multifamily market for the coming years.
We wanted to get John’s opinion on one more thing while we had him on the phone. Since we are a CRE tech company, we just wanted to know how he thought tech might help his team in 2016.
How do you think CRE technology will give your team an advantage in 2016?
We try to make sure we’re sharing things between each other and make sure we’re staying on top of things. We love REscour because honestly I don’t have the time to do what you guys do for us. We want to make sure that we’re as informed as possible about new and current things going on within our markets and I don’t always have the time to look into it. So to have a resource that gives us the most up to date information, that’s great for us. We need to try to stay ahead of things and all the different tools we use brings a different resource.
It is especially important for some of the guys on our team who are starting their real estate careers. It’s a lot different from when I started. I remember when I first walked in, I was given a phone book and desk and told good luck. So for these guys to go and build their databases, they have a lot more resources to be able to find out what’s going on.