New apartment projects are still being proposed in Philadelphia despite high interest rates
The new projects are smaller buildings with fewer units, but they show developers are still willing to build.
Philadelphia saw an impressive burst of apartment development in recent years, with neighborhoods such as Northern Liberties, University City, and parts of Kensington seeing unprecedented numbers of multifamily homes added to their housing stock.
Even now, it’s easy to think the building boom will continue. After all, cranes reach into the sky in many corners of the city, and every month new plans are revealed for apartment buildings — even in parts of the city far from downtown.
But real estate industry insiders say that Philadelphia won’t be breaking ground on more big, high-end apartment and condo towers anytime soon because interest rates are sitting at their highest level in a generation.
“The bigger and more costly and complex the deal, the less likely it is that financing will be available,” said Clint Randall, director of research at real estate services giant JLL’s Philadelphia office. ”This will likely grind high-rise apartment construction to a halt, particularly in areas of higher land value.”
That means the locus of multifamily development could shift to neighborhoods on the periphery of Philadelphia. Communities in the Northeast and Northwest, for example, could see more small-scale apartment buildings that add density with dozens, not hundreds, of new units.
“The scale of your typical project that’s in the pipeline right now is downsized from peak COVID,” said Kevin Gillen, senior researcher at Drexel University’s Lindy Institute for Urban Innovation. “But the number of multifamily units in the pipeline is still several times larger than the number of single-family houses. Normally, it’s the reverse.”
If developers are able to secure affordability subsidies, or cheap city land, that could further enable them to push against the trends in the current real estate market.
“This bodes well for outlying neighborhoods and slightly off-core locations,” Randall said. “Philadelphia has many neighborhoods where more modestly scaled development is encouraged or allowed by zoning.”
A new batch of projects that will be considered in December by the city’s advisory Civic Design Review (CDR) committee, which advises developers on architecture and planning considerations, illustrates what that could look like. All three are under 10 stories tall and have less than 100 units.
Some real estate industry insiders say that these projects could be imperiled, too, in the present environment.
Skeptics say that many of the new projects submitting for zoning permits — which triggers a Civic Design Review — are just trying to get approvals granted before their district City Council member has a chance to change affordable housing requirements or limit building heights. Randall noted the restrictions created by outgoing City Council President Darrell L. Clarke, which created strict height limits throughout much of North Philadelphia, as a particular problem.
The actual building permits, which precede construction, are not being sought as often, they say.
“If you see smaller ones come through, it’s a good chance they’re just getting their zoning approval to lock in before some Council member prerogative overlays the district and doesn’t allow for development there,” said Brian Corcodilos, CEO of architect Designblendz.
A handful of projects that could still be coming
Corcodilos has a project at CDR next month that he says is an exception to the larger trends he’s highlighting.
Designblendz is working on a five-story, 89-unit building in North Philadelphia’s Ludlow neighborhood. The project is at 1832-46 Germantown Ave. and will have 34 vehicle parking spaces.
Eighteen of the units will be rented to those at 40% of area median income, or almost $36,620 for a two-person household. The area is not seeing a lot of development, and he said the bank calculates that their units will be full (or close to it) as a result.
Another apartment project to be reviewed by CDR next month is a seven-story, 62-apartment building on Delaware Avenue, right across from Penn Treaty Park near Fishtown. The building will be predominantly one-bedroom units, with a handful of two-bedrooms and studios mixed in.
“The project proposed for directly across from Penn Treaty Park in this upcoming Civic Design Review is probably a good example of the type of project we’re likely to see more of in a challenging financing environment,” Randall said.
It includes 13 parking spaces, most of them off-site, despite pushback from neighbors for more.
“It will bring a lot of needed density along the waterfront corridor,” said Derek Spencer, principal with Gnome Architects, which is designing the building, “and the proximity to public transportation is great as well.”
Spencer said the project, being developed by an entity called Philly Capital Group, will press ahead despite the adverse development environment.
“As of now, the plan is to push for construction right away,” he said, “but that’s obviously subject to change based on the owner’s preference.”
Another proposal going before CDR in December shows a seven-story, 65-unit building for seniors on Broad Street near the city line in West Oak Lane.
The project, on the site of the long-shuttered but beloved Oak Lane Diner, will include 46 income-restricted units, although the plans shared with the city don’t explain exactly what “affordable” means in this instance or how the project will be subsidized.
The owner is listed as ABEER LP, and the architect is Parallel Architecture Studio. They did not immediately respond to a request for comment.
“There’s a political shift in favor of affordable housing,” said Gillen, citing Working Families Party victories in Philadelphia’s recent elections and the Biden administration’s policymaking. “There’s now also just more federal and state funds available for developers of affordable housing.”
Even if all three of these projects move forward next year, skeptical industry observers such as Corcodilos of Designblendz say that they expect such projects will be the exception, not the rule.
Actual construction won’t begin, in many cases, for at least another year unless the Federal Reserve begins cutting interest rates sooner.
“Permitting is going to dry up in 2024,” Corcodilos predicted. “My clients in the trenches are just getting their zoning [permits], but they say we’re not [getting building permits] until the end of 2024 or 2025.”
This story has been updated to correct the spelling of Brian Corcodilos’ last name and to accurately reflect what makes up 40% of AMI for a two person household.