Philadelphia- University City (Prime Drexel Location)

[Anuj Khosla]

Hi BPers! I am currently analyzing a deal that situated only 2 blocks from Drexel's Campus (Philadelphia), it's a highly desired location for students. I only know this because I attended Drexel for 4 years so I have a decent knowledge of the desirable locations for students. As I am analyzing this deal I keep running into trouble when it comes to the operating expenses. The numbers that the seller's broker has provided show OE at 27% of Effective Gross Income. I always model for at least 35%-40% of EGI to be OE. I know I should alter my numbers if the utilities are sub-metered and if the building is newer or recently rehabbed (not just cosmetics but mechanicals). In this particular deal 9 of units are older (built in the 1930s) and 3 are brand new construction. In the older building cold/hot water, and gas(heat) are paid for by the owner and the electric is paid by the tenant. The newer construction cold water is paid by the owner but hot water, gas, and electric are paid for by the tenant. Knowing this I understand the newer building should be operating at a lower operating cost but does 14% of EGI for OE sound low? I am planning on talking to two property managers and having them walk thru the properties and numbers with me later this week to get a better idea of what it should really cost to operate each building. If there is anyone out there with some experience with student housing and the operating cost for both an older building and newer construction building I would greatly appreciate any pearls of wisdom you have to share. Also, if you are willing to do the deep dive into the financials with me, I will email you my financial model. Thanks!