JLL: CBD Class A Assets Continue Trading Below Replacement Cost
Despite appreciation in the sale price of office buildings in the market this cycle as new outside investors purchase Philadelphia buildings, office towers continue to trade well below replacement cost, with nine recent transactions (containing about 14% of the CBD office inventory) trading at an average per square foot price of $182 compared with new construction cost estimated in the $500 to $700 per square foot, according to a new JLLanalysis.
While existing assets remain attractively priced for investors, as large blocks of available space dwindle, the demand for new construction could rise. But recent office development suggests that it is possible to achieve the rents necessary to justify new construction only with large public construction subsidies or the exemption from many taxes in KOIZs. But JLL notes that even select sales in University City at around $400 per square foot, fell below replacement costs.
CBRE: Diverging Office Market Trends Likely To Widen In 2018
Diverging office market trends in Center City and its Pennsylvania suburbs widened during the past two years and show little indication of changing in 2018, according to a new CBREreport.
Between 2014 and 2015, downtown Philadelphia’s office market fundamentals improved at a far more rapid clip than suburban Philadelphia as downtown occupancy and rents outpaced surrounding suburbs, where job growth has slowed below Philadelphia city levels.
For more, go to cbre.com/research-and-reports/Philadelphia-Office-MarketView-Q1-2018.
Kismet Opening New Co-working Location In Center City
Kismet, a Philadelphia-based operator of co-working space, has opened its second location in 6,000 square feet at 448 N. 10th St. in the Callowhill neighborhood.
Kismet founder Christopher Plant, a commercial and residential real estate broker, said the year-old company is working to differentiate itself by targeting markets that lie outside the heart of the downtown but are easily accessible to the Central Business District or the Old City tech corridor.
Startup Gets Boost Amid EU Privacy Law Change
Upcoming changes to European Union privacy laws have created new business for a Center City tech company specializing in privacy management platforms. The company, Clarip, has been working with retailers, law firms and healthcare companies for the past 18 months to get them in compliance with privacy safeguards of the General Data Protection Regulation (GDPR) taking effect May 25.
The law requires companies to explain what they do with data they gather from their EU users, to make it easy for users to opt-out of data gathering, and to require companies to quickly notify authorities when security breaches are discovered. Clarip, which has raised a seven-figure funding round, employs artificial intelligence to track how data is used through a client’s network.
For more, go to technical.ly/philly/2018/04/05/startup-clarip-eu-privacy-laws-gdpr.
Kimco’s Lincoln Square To Feature Sprouts Market
Sprouts Farmers Market will open a 32,000-square-foot store at Lincoln Square, Kimco Realty’s mixed-use development at Broad Street and Washington Avenue. It will be the first Philadelphia location for the retailer.
The Lincoln Square project also includes 322 residential units along with 50,000 square feet of indoor and outdoor space and panoramic city views. Residential move-ins will begin this summer, with Sprouts set to open in the third quarter of this year.
10-Story Condo Planned Near Rodin Museum
A developer has unveiled plans for a 10-story condo building at 2100 Hamilton St., directly behind the Rodin Museum on the Benjamin Franklin Parkway. The plan calls for 33 residences over three levels of underground parking with space for 48 vehicles.
Builder and developer Tom Bock said the plan preserves a right-of-way easement along part of a sunken former railway passage that’s been eyed as public space for later phases of the Rail Park project. The plan allows Bock to cap the section through his site, though he has not decided whether to do so.
Post Brothers Close Deal On Quaker Warehouse
Post Brothers has closed on buying the long-vacant Quaker warehouse in North Philadelphia, paying $17.25 million for 900-958 North 9th St. Post plans to convert the 10-story, 380,000-square-foot building into a mix of 350 apartments and 60,000 square feet of office space. Construction on the $100 million redevelopment could start by the end of 2018.
As part of the project, Post Brothers is partnering with the Richard Allen New Generation, a community organization, in a workforce development pilot program to train 20 neighborhood residents for careers in building trades. The group will work on the building’s redevelopment.
Urban Social Club Announced For 3 Logan Square
A second urban social club is planned for next year at the top of the office tower at 1717 Arch St. The Forged Iron Club will occupy 9,000 square feet on the 51st floor of Three Logan Square, which is owned by Brandywine Realty Trust. It aims to provide a place for professionals to meet and network in a more relaxed environment.
Fitler Club is scheduled to open next year at 2400 Market St. in Philadelphia. It will occupy 75,000 square feet and offer dining, fitness, co-working and other amenities to its members.
These social clubs have also become tenants that landlords can have as an added amenity in their buildings.
Sweat Fitness Opens Flagship Location On South Broad
Philadelphia-based Sweat Fitness has opened its eighth location at 1 South Broad St. The gym took 25,000 square feet in the building and signed a long-term lease in the 28-story tower, formerly known as the PNB Building.
The fitness chain’s flagship gym joins current tenants Walgreens and McCormick & Schmick's Seafood Restaurant in the Broad Street property. The new Sweat location has a staff of 50 and increases the company’s number of employees to a total of 350.
For more, go to sweatfitness.com/onesouthbroad/.
Le Méridien Completes $5.8M Makeover
Center City's Le Méridien hotel, which opened in 2010 in a former YMCA building built in 1907, has completed a nearly $6 million renovation.
In 2017, the 202-room hotel at 1421 Arch St. underwent a $1.7 million, millennial-focused update that remodeled common areas and dining areas and created additional meeting space. Now complete are an additional $5.8 million in renovations to the hotel's guest rooms and corridors, and its atrium and fitness center.
Drexel Names New Dean For Lebow College Of Business
The interim dean of Drexel University's LeBow College of Business will take on the role permanently. Paul Jensen, a long-time university faculty member and high-ranking administrator, was named interim dean last spring when former dean Frank Lineman retired.
In announcing the appointment, President John Fry said in statement that the school performed an international search but found Jensen was the best fit for the position, pointing to his implementation of a three-year strategic plan to expand faculty research and industry partnerships.
Penn Health System Partners With Mercy Health, St. Mary
The University of Pennsylvania Health System has entered into an alliance with Mercy Health System and St. Mary Medical Center. The parties said the deal is not a merger but a partnership that will focus on developing joint clinical care programs and population health initiatives.
Financial terms were not released. Mercy Health, of Conshohocken, and St. Mary, in Langhorne, will remain part of Trinity Health, based in Livonia, Mich. The Penn Health System, which stretches from central and southern New Jersey to central Pennsylvania, previously added three members over the past five years.
Jefferson Inks 6-Year Naming Deal With Dad Vail Regatta
Thomas Jefferson University will be the naming sponsor of Philadelphia’s Dad Vail Regatta under a six-year deal. Terms were not disclosed.
The race, which draws thousands of spectators to the banks of the Schuylkill River, will be called the Jefferson Dad Vail Regatta. The 80-year-old regatta, in which more than 100 schools and 3,000 rowers from the U.S. and Canada take part, is scheduled for May 11-12.
Saxbys Announces Scholarship Programs At Temple And CCP
Center City-based coffee and hospitality company Saxbys has announced the creation of two scholarship programs with Temple University and Community College of Philadelphia.
At Temple, the Saxbys Fellows Endowed Scholarships will offer $60,000 for students who must meet specific criteria for consideration, including demonstrating a strong connection to community involvement. At CCP, Saxbys started a fellowship and donated more than $25,000 toward the program. The funds were raised through collective funds from pay-as-you-wish events from the end of 2017 to the beginning of 2018.
NY Times Visits Boyds, “The Last Great Clothing Store”
A recent feature story in The New York Times on Philadelphia retailer Boyds examines the history of the 80-year-old business, calling it “the last great clothing store.” The story outlines the family-run retailer’s long history, the multimillion-dollar renovations underway to modernize the store and its offerings, and its reputation for service.
“Given its scale … and the level of service it provides, and the tailor shop and complimentary parking lot, and the near century of independent operation by the same family, it may be the only clothing store of its kind anywhere in the country,” the article notes.
Seeking $1B Valuation, La Colombe Hires NY Investment Bank
Philadelphia-based coffee company La Colombe is exploring investments and open to considering partnerships as it pursues a valuation of at least $1 billion.
Bloomberg reports that La Colombe has hired investment bank Moelis & Co. to examine fundraising options to help drive company growth. La Colombe declined to comment on the report. The coffee company in recent years has added West Coast locations and launched a line of canned coffee drinks.
A Second Shake Shack Coming To Center City
Popular burger and milkshake chain Shake Shack is slated to open in late 2018 at the southeast corner of 12th and Chestnut streets, a block from the East Market development and the upcoming Fashion District Philadelphia. Center City’s first Shake Shack opened in 2012 at 20th and Sansom streets.
Doug Green of MSC Retail, who represents Shake Shack’s real estate interests in the Philadelphia market, said the location “represented the confluence of everything Shake Shack looks for in an urban location — strong daytime population, seven-day-per-week shopping co-tenancy, and a neighborhood that is in high growth mode.”
For more, go to t.e2ma.net/message/b6ssr/fx4i6e.
Navy Yard Subway Extension Could Cost Twice Original Estimate
Extending the Broad Street Line to the Navy Yard would cost upwards of $380 million more than originally anticipated when the proposal to extend the subway line was introduced a decade ago.
SEPTA expects to release updated details and cost estimates soon in a long-delayed feasibility study on the proposed project. The subway extension’s skyrocketing costs and delayed report are the result of a mid-study realization that the preferred construction method of digging a trench, building the subway tunnel, and then burying it — called “cut and cover” — was not feasible. Instead, construction would require tunnels, likely using a boring machine, which could add 40% to 50% to the price tag.
Seattle Council Passes Parking Regulation Reforms
Seattle’s City Council has passed a wide-ranging package of parking regulation reforms that eliminates parking minimums in some areas, uncouples rent from parking space cost and increases bike parking requirements.
The legislation increases the areas where developers are not required to provide any parking spaces for commercial or residential buildings and exempts buildings within a quarter mile of high-frequency bus stops and a half mile of light rail stops from the city’s per-unit parking minimums for apartment buildings.
Like Seattle, Philadelphia is grappling with growing congestion and parking difficulties in Greater Center City. A recent CCD/CPDC report, Keep Philadelphia Moving, looks at the city’s unique challenges and examines possible solutions.
For the report, go to centercityphila.org/research-reports/2018congestion.
Governments Increasingly Tax Uber, Lyft For Transit Revenue
New York State lawmakers have become the latest to place a fee on ride-hailing services such as Uber and Lyft. The move comes as researchers are concluding that ride-sharing services add car congestion in big cities, often at the expense of public transportation or in place of biking or walking.
The ride-sharing industry says they're being unfairly targeted. But the Urban Institute's Richard Auxier says that if a city or state has a track record of applying its sales tax to services, extending that to ride-sharing “is just taxing something that should have been previously taxed.”
PICA: Philadelphia Tax Collections Down 15.9% in March
The City of Philadelphia collected $334.5 million in General Fund tax revenue in March, compared to $397.9 million in March 2017, a decrease of 15.9%, according to the Pennsylvania Intergovernmental Cooperation Authority (PICA).
Decreases in every tax category except city sales tax drove the decrease in overall city collections for the month of March. Double-digit decreases in the Business Income and Receipts Tax (BIRT), real estate tax, and amusement tax ultimately led to a 15.9% decrease in total March collections. However, strong collections in previous months kept year-to-date collections $236 million (10.9%) ahead of last year.
Through March, BIRT fell 2.5%, compared to a projected decrease of 1.0%; the real estate tax increased by 9.7%, compared to a projected growth of 10.1%; the realty transfer tax increased by 40.0%, compared to a projected 16.1% growth rate; and the Philadelphia sales tax collections rose 7.2%, compared to a projected growth of 8.5%.
For more, go to picapa.org/2018/04/3647/.
Northern Liberties BID Proposal Advances in City Council
A proposal to create a business improvement district in the city’s Northern Liberties neighborhood is one step closer to reality. An ordinance calling for the establishment of a Northern Liberties Business Improvement District was favorably voted out of City Council’s Rules Committee, with no objections raised, after a public hearing on April 9. The measure now heads back to the full body for a second reading and vote on final passage.
The BID, which would be the city’s 14th, would require commercial property owners to pay assessments. These funds would pay for streetlamps, sidewalk sweeping, and litter pickup within designated business district boundaries, as well as for marketing and grants to aid local businesses. The nonprofit’s first-year budget would be $374,000 and calls for one full-time employee, who would connect landlords with interested tenants.
For more, go to explorenorthernliberties.org/.
2019 Property Assessments In Philadelphia Show Marked Increases
Under Philadelphia’s newly unveiled property assessments, the median taxable market value of single-family homes increases from $112,800 in 2018 to $124,600 in 2019.
Forty-eight of Philadelphia’s 57 neighborhoods saw jumps, with neighborhoods to the north of Extended Center City — including Brewerytown and Strawberry Mansion — spiking the most, with assessed taxable value for single-family residential properties rising as much as 63% from 2018 to 2019, according to CCD’s analysis of city data. Commercial properties were up 32% citywide from 2017 to 2018 and up 6.3% from 2018 to 2019, for a cumulative increase of 40%.
About $1 billion of the $13.7 billion (7.3%) in new value from 2018 to 2019 is due to expiration of tax abatements, with new value being added, rather than to rising assessments, the CCD analysis found.
OPA Methodology On Assessments Met With Criticism
Neighborhood organizations and some city officials are expressing concerns about the spike in the city’s just released 2019 property assessments and particularly, the allocation of value between land and improvements.
Writing for Philadelphia 3.0, Jon Geeting took issue with the Office of Property Assessment’s (OPA) methodology in setting assessed value, noting that rather than deriving land values from broader area improvements, like demand for close-in neighborhoods with quality schools, OPA appears to back land value out of the improvement value of new construction and substantial rehabilitation. “This leads to the absurd situation where we see big swings in land values within the same block.” Getting notes that if OPA had its state-of-the-art CAMA (Computer Assisted Mass Appraisal) system up and running, land assessments on the same block for different residential properties “would be roughly the same on a square footage basis.” For more, go to phila3-0.org/opa_messed_up_the_land_assessments_again.
City Council OKs Bill Removing 10-Year LOOP Limit
Philadelphia City Council has passed a bill aimed at providing financial relief to longtime homeowners who have seen their real-estate taxes double and triple in recent years.
The bill, introduced by Councilman Kenyatta Johnson, amends the Longtime Owner Occupants Program (LOOP) by eliminating the 10-year limit for residents earning 80% to 150% of the area median income. A spokesman for Mayor Jim Kenney said the administration had to review the bill before commenting.
City Council Introduces Two New Affordable Housing Bills
Philadelphia City Council has introduced a pair of bills to address affordable housing, neither of which call for mandatory set-asides for affordable units in residential developments. The first bill would tax every new construction project and renovation a flat 1%, with proceeds paid into a Housing Trust Fund for households making less than 120% of the area median income.
The second bill beefs up existing incentives to include affordable housing units in market-rate multifamily developments.
New Philadelphia Board Of Education Members Announced
Mayor Jim Kenney announced the city’s new nine-member Board of Education, which will oversee Philadelphia public schools and a $3 billion budget starting on July 1, when the state-run School Reform Commission will cease to exist. Kenney selected the members, who will not be paid for the positions, from a list of 45 nominees chosen by a 12-member nominating panel.
The new members are Joyce Wilkerson, Christopher McGinley, Julia Danzy, Leticia Egea-Hinton, Mallory Fix Lopez, Lee Huang, Maria McColgan, Angela McIver and Wayne Walker.
CCD Issues Update on Rail Park Completion Schedule
The 130-year-old railroad bridge that will serve as the new Rail Park’s primary gateway has been saved from demolition and is undergoing renovation instead. This option will save time and money, preserve the character and original design plans of the park, keep the historic 13th Street bridge intact and enable the park to open in early June 2018.
In response to questions raised earlier this year by the Streets Department about rust and corrosion on structural beams – discovered under a foot of earth during excavation work on the small bridge – CCD initiated a redesign, engineering and competitive bidding process for what was then planned as the demolition and replacement of the structure.
Simultaneously, CCD’s design and engineering team, led by Urban Engineers, conducted a thorough re- examination of the bridge and concluded that the stone and steel structure, which was constructed to bear the weight of railroad freight cars, is sufficient and safe for pedestrian traffic under current load conditions, if a few additional supports are added. These supports will be added as part of the renovation process to increase the load rating of the structure. CCD will also contract for annual inspections of the bridge as part of its ongoing commitment to the Rail Park.
For more, go to centercityphila.org/news/april-rail-park-construction-update.
Stuck In Traffic? A Discussion About Congestion In Center City
Design Advocacy Group presents a free evening on May 8 devoted to exploring how the city, transit authorities and others are approaching the challenge of congestion in Center City. CCD President and CEO Paul Levy will provide an introduction, using the occasion of CCD's recent congestion report, Keep Philadelphia Moving, to consider what has changed.
A discussion follows with panelists Christopher Puchalsky, director of Policy, Office of Transportation & Infrastructure Systems; Erik Johanson, director of Innovation, SEPTA; and Megan Ryerson, assistant professor, PennDesign.
For more, go to facebook.com/events/204789506780429/.
Center City Residents’ Association Honors Paul Levy
Center City Residents’ Association (CCRA) will hold its annual Celebration of Center City Living event on May 10 at The Ethical Society. This year's theme is "Urban Village," where the organization will honor CCD’s Paul Levy.