U.'s housing deal far from the norm

Lucrative area properties, such as the ones Penn recently bought from a local landlord, rarely change hands. There's a reason you never see a "for sale" sign on any of the houses in the area immediately west of campus. The houses east of 43rd Street between Walnut Street and Baltimore Avenue are some of the most profitable investments anyone can make in the area, which is why their owners rarely put them on the market, according to local landlords. Rentals to Penn students -- almost half of the school's 10,000 undergraduates live off campus, mainly in this area -- are dependable and lucrative. Moreover, the University City rental market is the hottest it's been in years, primarily because Center City is packed. That makes the University's July purchase of area landlord Campus Associates, which owned and operated 200 rental units in 36 area buildings, all the more interesting. Neither institution had announced the transaction, and both have refused to disclose its financial terms or the exact location of the properties beyond saying they are in the vicinity of 39th and Pine streets. "There is such demand for the housing just west of campus," said Mark Sherman, owner of Sherman Properties, which operates 84 rental units. "Why sell it when it makes so much money?" As a result of this high profitability, many individuals or groups buy property in the area immediately west of campus with an eye toward long-term investment, according to Arthur Bye, the owner and broker of Urban & Bye Realtor, which has 180 rental units. While real estate turnover in most markets is around 25 to 30 percent annually, in the area west of campus, turnover is between 2 and 3 percent, Bye said. Tom Lussenhop, Penn's top real estate official, expressed similar sentiments. He said that a significant number of the properties in the area east of 43rd Street are held in a few ownership portfolios assembled over several years. These properties rarely change hands. But Lussenhop said many property-ownership groups are now at a "stage in their life cycle" where they are either looking to pass on their properties to their children or sell them. "The families involved with [the Campus Associates properties] decided it was in their best interest to sell them to us," Lussenhop said. Campus Associates officials would not elaborate beyond saying the deal was in all parties' best interests. Sherman, though, said that "there is no need to sell these properties unless someone wants to offer you a ridiculous price that is much more than the rental income." The purchase was the latest in the University's efforts to reverse an area housing trend. Over the past several decades, the University has expanded farther and farther west, opening Superblock, for example, in 1970. As the school grew, students looked to the area east of 43rd Street between Walnut and Baltimore for housing. Investors bought single-family homes in the area and carved out multiple rental units inside them. Lussenhop said the University's acquisition was the latest part of its long-term plans to secure more housing opportunities for faculty and staff members and reduce the number of undergraduates in area housing. Officials have not yet made any definite plans for the properties. It is possible, therefore, that the University will take many of its newly purchased buildings off the student rental market. Late last month, University officials unveiled a comprehensive, $300 million plan to revamp housing and dining facilities over the next 10 years. One part of the plan calls for the net addition of 870 beds to on-campus housing options. And last spring, University officials announced an initiative to buy run-down homes, rehabilitate them and then sell them as single family homes. Penn also unveiled two programs that provide cash incentives for faculty and staff members to buy homes and remain in University City. These initiatives have had an overwhelmingly positive effect on business and the neighborhood, according to several local realtors. Bye, however, said he is skeptical of Penn's plan to reduce student density because of logistical difficulties -- converting the properties back to single-family homes is one -- that could hurt the properties' value.

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