Rahil Raza has built homes to rent and sell in lower North Philadelphia for a decade.
Like almost everyone else, his business is frozen right now. The new office his company is building for its small staff will remain a blueprint for the immediate future. Their infill single-family homes are frozen at various stages of completion on quiet residential blocks. Home sales have slowed and the contractors he employs are out of work.
But like many professionals active in Philadelphia’s real estate sector, Raza says that his faith in the industry’s future remains strong.
“I think development will pick up right where it left off,” Raza said. “I’m not going to say ‘these things happen’ — nothing like this has ever happened — but there are always hiccups in the economy. I think we’ll get back on track.”
Raza said that he is planning for a six-month hit to the for-sale market. On the rental side, he thinks that his company may have to lower rents to attract clients who could be more financially conservative in the pandemic’s wake.
“I bought these properties for a low amount and so if I have to drop the rent a couple hundred dollars, I’ll do that,” said Raza. “It’s not gonna break my bank.”
‘Planning for the recovery’
For now, most construction in the city is halted. Layoffs have hit architecture firms, real estate companies and contractors. The Philadelphia Building Trades Council reports a 60% unemployment rate for its members. Project managers who managed to secure waivers from state authorities report difficulties finding workers, as some subcontractors laid off their work forces en masse after last Friday’s end-of-construction deadline.
Still, the developers say the acute pain will be temporary. Most of the real estate professionals interviewed for this story predict that the economic downturn caused by the coronavirus pandemic would affect their industry less dramatically than the Great Recession.
But that’s not saying much. Mortgage foreclosures and the collapse of the real estate-backed financial industry caused the 2008 economic crisis and quickly, credit ceased flowing. It was clear to many observers that getting a loan for a project would be difficult, if not impossible, for years to come.
“Lenders completely ran for the hills,” said Carl Primavera, a real estate and finance attorney with many major Philadelphia developers as clients. “The economy was structurally impaired and it wasn’t going to be a short-term dislocation. It was an overall failure that really put people on the sidelines and the amount of activity slowed tremendously.”
Primavera and other industry players who were operating in 2008 and its aftermath say they haven’t yet seen similar kinds of reactions from the various corners of the real estate industry.
“[Unlike 2008], people that I’m talking to are not pessimistic or thinking that it’ll be a recession or depression,” said Primavera. “We’re still seeing a tremendous amount of interest from our clients in moving forward with pre-development approvals and planning for the recovery.”