Pittsburgh Construction Lenders for Residential Investment Property

Pennsylvania Residential Construction Insights from a Local Lender

Ground-up construction projects in Pennsylvania are more complex than other housing projects, such as fix and flips, and are more complicated compared to those in other states. The approval process for construction can vary significantly between locations, such as Philadelphia and Houston. According to Chris Tereo from i Fund Cities, the complexity arises from the intricate local zoning and building codes that Pennsylvania follows. Chris advises that it’s crucial for lenders to ensure that projects have the necessary permits and approvals before funding to avoid setting up investors for failure, especially in Philadelphia. “We need to make sure that the investor understands what they’re able to build and can they do it in a timely manner because as a lender, you could set someone up for failure by giving them a loan too early, and they’re paying interest on whatever that initial loan amount was, but they might not be approved to build in eight months. So in reality, they should have probably gotten a different loan. And that’s on an experienced lender and loan officer who understands real estate to guide them towards the best option for funding,” he explains.

Philadelphia-Specific Ground-up Construction Trends

According to i Fund Cities, in the greater Philadelphia region there is ongoing demand for ground-up infill development, particularly for triplexes and planned unit developments (PUDs). “We’re seeing less of the ground up condos and more of the ground up triplex where the exit’s going to be a DSCR, or a lot of the PUDs, planned unit developments, town home developments, so those numbers still make a lot of sense both for the lender and the investor,” Chris states.

There’s also a noticeable push towards single-family developments in the suburbs surrounding Philadelphia. “We’re seeing a lot more of the single-family development type stuff in the greater Philadelphia area and surrounding suburbs, which we’re super excited about,” says Chris.

The hottest neighborhoods for development in Philadelphia, according to Chris, include Point Breeze, Grays Ferry Queen Village, Pennsport, Kensington, Germantown, Mount Airy, Manayunk, and East Falls.

Popular Markets Outside of Philadelphia

Areas right outside of Philadelphia, such as Bala Cynwyd, Newtown Square, the mainline suburbs and Conshohocken, are seeing a lot of activity for ground-up construction. Chris explains that the demand is high in those areas for families who started in the city and are now expanding and, instead of staying in Philadelphia and paying the city income tax, prefer to move just outside the city limits, where they remain close but avoid the additional income tax.

Markets such as Scranton, Bethlehem, New Hope, and Doylestown are seeing increased activity for people wanting to move completely out of the cities. Harrisburg and Wilkes-Barre are also active markets for both new construction and renovation projects. Chris explains, “there is a very big push that we saw [during] COVID, [with] people looking to get some more fresh air, kind of get out of the city. We thought that might stop once people were back in the office, but we’re still seeing a ton of push out into those markets.”

There is also significant construction activity in New Jersey (specifically South Jersey) attracting those who want to maintain a city lifestyle while staying close to the shore. “We see a ton of ground up in New Jersey, South Jersey right now. It’s a great way to be close to the city; maybe you don’t want to go out to the main line or Chestnut Hill in the suburbs in PA, and you want to be a little closer to the shore down the summer, [it’s] a better drive [because you’re skipping] the bridge traffic,” Chris explains.