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 insight 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 the capital markets 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. The city overall is doing very well and multifamily specifically is doing very well for a couple of reasons. My generation grew up where owning a home was the American dream and I believe that has changed to a point. The change in the market started with the dip in residential real estate in 2008 – 2010, and there is also a cost factor, but it also has to do with how transient people are. I don’t know that people want to be locked into a house combined with all the work you need to do with a house and the capital expense. Those are some of the factors that led to the increase in demand in the multifamily market and we continue to see it.
Philadelphia is a really cool place to be, and we’re seeing a lot of adaptive reuse of other facilities. We just closed on the adaptive reuse of the former West Philadelphia High School into multifamily. And we’re seeing a lot of similar opportunities. Philadelphia is a great town, there’s a lot of stuff to do. We see a lot of similarities to the sub-markets of New York with all the culture, the great restaurants, and places to go, it makes Philly a place where people want to live, which subsequently increases the demand for multifamily. It’s crazy to see all the development going on in the city and 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?
The underwriting by lenders for opportunities has substantially increased, so I assume those opportunities were well underwritten, demand studies were all taken, etc. I think they are going to continue to do well. We’re seeing a lot of new multifamily opportunities being developed and think it’s great.
We are seeing new developments, people investing in properties with the intention of adaptive reuse, and opportunities where real estate owners come in and 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 the University City area that are doing the same. They are a C- properties and the developers coming in putting capital improvement dollars in to improve them to B+/A properties.
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 an A property a couple of years ago might be considered a B now based on the amenity profile. We do a lot in student housing and are seeing a similar trend. It’s amazing, you walk in and granite counter tops and stainless steel appliances are par for the course.
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 really nice communal area or pool or clubhouse. We see a lot of properties 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 downturn in 2008, the major impact was more drastic within the sand states, like California, Nevada, Arizona, Florida. When you have a really big appreciations there is also a greater risk for big depreciations and you have quick drops when things drop off.
Philadelphia has always been more of a steady increase, steady decrease. There’ doesn’t seem to be large peaks and valleys, rents will continue to increase as demand increases, but the rents haven’t really jumped. It’s been more of a steady increase. The rent growth has been a reasonable increase and dependent on supply and demand constraints.
What are your expectations for multifamily through 2016 and the years following?
From a the standpoint of Philadelphia, I think the growth is going to continue. We’re going to see a continuation of 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 based on the demand and also the increased liquidity and low cost of capital.
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 as a team 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 bring 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.