& Co., Inc. is increasing its bet on the apartment market by buying a Philadelphia housing complex for $357 million.
KKR’s purchase of Presidential City, a four-story, 12-story building on the edge of Philadelphia, is more than $100 million more than the previous highest price ever paid for an apartment complex in the city.
The sale comes at a time when the multi-family housing market is showing signs of cooling after nearly two years of blistering performance that pushed rents to record highs.rent now falling from their peak.
Amid growing concerns about affordability and the economy, demand is declining and vacancies are rising, with some renters taking the lead. Taking on a roommate or moving in with family.
Still, according to KKR, tenants in Philadelphia complexes are primarily high-paying professionals who make up a smaller percentage of their income than similar tenants in properties closer to downtown. This has put their finances in better shape to weather the recession, which has become a more important priority for many investors as the US economy shows signs of slowing.
KKR Chief Operating Officer Billy Butcher said:
Rent for a one-bedroom apartment in the Presidential City starts at about $1,800, according to real estate services, while one-bedroom rents in luxury downtown buildings can run upwards of $3,000.
KKR also purchased a 365-unit apartment in downtown Brooklyn for $190 million in July and a multi-family project in Jacksonville, Florida last year. Overall, his KKR fund, which purchased the apartment, holds his 19% stake in the residential building.
In recent years, the Philadelphia market has not been considered a major target for institutional investors. Such buyers tend to gravitate to high-growth cities in the Sunbelt, where costs are lower and rents are more likely to increase. Compared to some other large cities, Philadelphia also has fewer newly built glass luxury apartments that are popular with large investment funds.
However, as the economy shows signs of weakness, investments such as Presidential City are being reconsidered. High occupancy with regular cash flow and the prospect of a steady pace of rent growth. Multifamily seller and local real estate developer, he represented Post Brothers.
Multifamily housing has become one of the most popular sectors in commercial real estate due to rising rents. But rising mortgage rates and fears of a recession are keeping many on the sidelines, according to real estate investors and brokers.
$74 billion worth of condominiums were sold nationwide in the third quarter, down 17% from the same period last year, according to MSCI Real Assets. Brokers and investors say many purchases are no longer penciled out as the cost of debt is expected to rise and rent growth is expected to slow.
KKR said it was also able to make the Presidential City numbers work because it assumed existing fixed-rate mortgages held by Post Brothers, loans issued when interest rates were much lower.
“Without the funding, this transaction would not have happened,” said Butcher.
The four 12-story buildings in Presidential City are named after the first four U.S. presidents and were built by John McShane in the 1950s. John McShine is best known for his work on the Pentagon and other landmarks in the Washington, DC area. Post Brothers purchased this property in his 2012. Five years ago, we completely renovated each tower, constructing separate amenity buildings and adding additional amenities such as an outdoor swimming pool.
KKR purchased the complex through a private non-trading real estate fund. started just two years ago, KKR Real Estate Select Trust, Inc. Mack Real Estate Group, LLC. It was also an acquisition partner.
Prior to the sale of Presidential City, Philadelphia’s highest rental property sale was 1500 Locust Street, a 45-story apartment that sold for $233 million in December.
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