John Banas, Senior Vice President and Managing Director, Northmarq

In an interview with Invest:, John Banas, senior vice president and managing director at Northmarq, discussed Philadelphia’s commercial real estate market, multifamily demand, office conditions, and development constraints. “It is challenging to make developments work. Materials, labor, and financing all cost more, while rents have not necessarily kept pace with those increases,” Banas said.

How has the past year unfolded for Northmarq’s Philadelphia business?

Our team had a very strong first three quarters of financing, although we will have to see what happens in the fourth quarter as interest rates have risen. 

The Federal Reserve raised rates by 25 basis points at its Sept. 16 meeting, and there is a high expectation of another increase at the Oct. 27-28 meeting. That would have a direct effect on variable interest rates and bank lending. On the fixed-rate side, the 10-year Treasury yield hit its highest level since 2007 in September. 

Property values remain relatively high in Philadelphia. Cap rates have increased, but they seem to be lagging behind the rise in interest rates. With properties still carrying high values, the cost of financing has made transactions difficult. 

What has changed most in the region’s debt availability and pricing?

Debt availability has been good. A few years ago, interest rates moved quickly from historically low levels into the 5% to 6% range. I think the market has adjusted. At the beginning of this year, transactions started moving again. We saw a number of refinancings as well as acquisitions. 

We completed the financing for a $97 million acquisition in the Lehigh Valley, probably the largest acquisition we have financed in the last two or three years. We were seeing a big increase in activity at the beginning of the year, even as interest rates fluctuated rapidly. 

Our team spent a great deal of time watching the market and waiting to lock rates once they dropped. 

This year there was a significant increase in capital available from a number of sources: banks, life insurance companies, CMBS lenders, debt funds, Fannie Mae, Freddie Mac, and equity sources. We had a great first three quarters, but the end of the year will be interesting after the interest rate increase in September. 

What are multifamily financings showing about current opportunities?

We still have a good pipeline of opportunities in Philadelphia. Real estate is a fluid market. Opportunities exist in both low- and high-interest-rate environments, but you have to watch what is available and pay attention to markets that are changing. The increase we have seen in interest from lenders, and the agency execution we have been able to deliver, show how strong multifamily opportunities remain in the market. 

Philadelphia has moved toward stabilization over the last two or three years. A great deal of multifamily development occurred from 2020 through 2023, and much of that supply came online over the last couple of years. After a period of oversupply, the market is closer to balance, but there is still probably a long-term undersupply of multifamily housing. People are not buying homes because financing is expensive, and many owners are not selling because they already have low-interest-rate mortgages. 

That keeps the for-sale market somewhat stagnant, with limited inventory, and directs more people toward apartments. It is good to see much of the new multifamily supply being absorbed. Excess supply pushed rents down in 2024 and 2025, but I think the market is reaching a point of equilibrium. 

What could unlock more transactions in the near term?

Lower interest rates would definitely unlock more deals. The impact of interest rates goes beyond the amount of a borrower’s payment; it also affects the size of the loan. When rates were low, financing was more often constrained by loan-to-value or loan-to-cost limits. 

Today, loans are more often limited by the debt service coverage ratio (DSCR). A property may qualify for a higher loan-to-value ratio, but higher interest rates limit the loan to what the property’s income can support. If rates continue to rise, that constraint will tighten further. 

Which property sectors are seeing the strongest demand for capital?

Multifamily has consistently generated the most financing because it is a stable, liquid product, and it has generally been the easiest to finance. Industrial is probably second, followed by grocery-anchored and net lease retail. 

Offices are still struggling, particularly older, lower-quality buildings, with the exception of medical office buildings. The Center City office is still playing catch-up because people are not going into the office as often as they once did. 

How is the financing conversation around office properties changing?

The next few years will be interesting for the office market. Lenders remain selective on office, and financing is going mostly to the higher-quality buildings. My concern is the growing separation between class-A and lower-quality properties. When occupancy and income are weak, deferred maintenance begins to accumulate, and buildings become outdated. Many office properties have not had the money to remain current or keep up with maintenance, and that will be a challenge for lenders in the coming years. 

Occupancy will also continue to influence the financing conversation. I think the market here will continue to be hybrid. The new generation coming out of college wants to be in the office. New York has returned to an office-based model further than most markets, and Philadelphia will probably remain somewhere in between. 

For example, our team is in the office three days a week, Tuesday through Thursday, because we value the collaboration. Younger employees benefit from hearing what more experienced colleagues are doing and walking in with questions, which is harder to recreate remotely. At the same time, remote work can improve efficiency. I live outside the city, and avoiding that commute for part of the week makes me more productive. I prefer the hybrid concept and going into the office when it makes sense, and that balance may help increase office occupancy and support financing. 

What are the biggest obstacles to new development in Philadelphia?

It is challenging to make developments work. Materials, labor, and financing all cost more, while rents have not necessarily kept pace with those increases. 

The market has also spent the last several years returning to balance. Philadelphia entered 2024 with an oversupply of multifamily properties, and rents have not reached the levels many people expected. Projected returns are lower, and for new opportunities, it is difficult to make the numbers work. 

Some longtime clients who were previously developers are now looking to acquire existing properties rather than build from the ground up because new construction is too expensive. 

What would move Philadelphia into a more active phase over the next one or two years?

I think restoring the full 10-year tax abatement would be the biggest catalyst for Philadelphia. The city moved to a step-down abatement for new construction, but the former full 10-year abatement was one of the biggest drivers of multifamily development and redevelopment in many neighborhoods across the city. 

The abatement helped make the numbers work. The step-down program is useful, but it is not as advantageous as the previous full abatement. We have seen a clear slowdown in new development within Philadelphia, which I believe partially reflects that difference.