CPDC Developments Newsletter - 04.30.19

Office Sector News

Another Growth Year Predicted For Center City Office Market

Philadelphia's office market in Q1 benefited from positive net absorption, stable vacancy, rent growth and demand-driven new construction activity – the cornerstones of a healthy market, according to Newmark Knight Frank’s recently released market report. New leasing volume in the CBD was healthy but partly offset by new vacancies due primarily to Aramark’s relocation from both 11th and Market Streets and the Wanamaker Building to its new quarters at 2400 Market Street.

NKF said the prospect of continued positive performance in 2019 is supported by job gains in office-using sectors in the CBD, where year-over-year employment increased by approximately 1.4%. Local NKF brokers reported an uptick in market velocity as the first quarter drew to a close – suggesting to NKF another year of office market growth.

For an overall view of 2018 trends, see the office chapter in CPDC’s just released State of Center City.

Goldman Sachs Takes Stake In Center City Office Portfolio 

Goldman Sachs’ merchant banking division has taken a stake in MRP Realty’s Philadelphia portfolio that includes four buildings in the Independence Mall area. Real Estate Direct reports that the deal has Goldman taking a majority interest in the portfolio valued at $200 million.

The buildings involved the deal are: 400 Market Street, a 181,587- square-foot office building; 325 Chestnut Street, a 206,816-square-foot office building; the Bourse at 305,922 square feet of retail and office space; and a garage with 453 parking spaces. MRP owns several other properties in Philadelphia including Three Parkway, a 20-story, 561,352-square-foot office building at 1601 Cherry Street.

CHOP Expands Presence In Center City 

Children’s Hospital of Philadelphia (CHOP) has expanded its presence in the Wanamaker Building and added another 54,000 square feet. CHOP now occupies a total of 300,000 square feet in the building at 100 Penn Square East in Philadelphia and serves as its largest tenant. The building’s office space is 95% occupied. 

With the deal, CHOP fills a vacancy created when Aramark relocated to 2400 Market. CHOP maintains administrative offices in the Wanamaker, and has joined the University of Pennsylvania in using Center City office space to house a portion of those functions.

Eds & Meds News

CHOP Plans New Medical Office Tower On University City Campus

Meanwhile, CHOP plans to add another high-rise to its dense complex of medical buildings in University City. The proposed 17-story Physician and Administrative Office Building would be located just south of CHOP’s Buerger Center building, to which it would be attached.

The building would comprise about 565,000 square feet of office space, along with a fitness center, auditorium and other amenities, according to plans on the website of the city’s Civic Design Review panel, which is to consider the project at a May 7 hearing. The tower, designed by Chicago-based architects Perkins & Will, is to feature a facade of painted aluminum in a “saw tooth pattern” supporting windows that span nearly ceiling-to-floor in the building’s interior, according to the plans.

University Of The Sciences Completes $43M Multipurpose Dorm

University of the Sciences has completed the construction of a new $43 million residence hall at 46th Street and Woodland Avenue. Called the Living and Learning Commons, the project marks the first step of a multiphase effort to replace the school’s existing housing stock over the next several years and to activate the Woodland Avenue corridor.

The six-story, 128,000-square-foot building with 426 beds is designed to be not only a dorm, but also a place for students to socialize, study, and attend classes and other programs. It will also have ground-floor retail space.

Philadelphia Startup Reports Positive Results Of Glioblastoma Vaccine 

A Philadelphia immunotherapy startup is advancing a new way to treat an aggressive type of brain cancer. Results from a recent clinical trial of a glioblastoma vaccine developed by Jefferson Health and Philadelphia-based Imvax found the treatment was well tolerated by patients, slowed tumor recurrence, and prolonged patient survival.

Hospitality News

PHLCVB: Conventions In 2018 Generated $500M Economic Impact

2018 was a record-breaker for Philadelphia hotels and for meetings and conventions, which had a $500 million economic impact and reached all-time highs in key performance indicators, according to the Philadelphia Convention & Visitors Bureau's (PHLCVB) annual report.

About 19 meetings and conventions will come to Philadelphia in 2019, generating over 369,000 hotel room nights and over 361,500 attendees. PHLCVB said it has secured 607 meetings, conventions and sporting events for future years, representing more than 827,000 room nights booked. More than 40% of those future booked rooms will occur within the next five years.

Retail News

Fashion District Philadelphia Signs 4 'Uniquely Philly' Tenants

Pennsylvania Real Estate Investment Trust (PREIT) has signed four tenants to a space it calls "Uniquely Philly" at Fashion District Philadelphia, set to open this September. The 4,647-square-foot space will house a collection of local retailers and other businesses that make products connected to Philadelphia and will provide them with more space and visibility to display and sell their items.

PREIT partnered on the initiative with the Enterprise Center, which provides minority entrepreneurs with access to capital, business education and economic development opportunities. The inaugural “Uniquely Philly” retailers are: American Hats, Dolly’s Boutique, Duafe x the Sable Collective and South Fellini

WCRE: Grim Retail Narrative In U.S. Is Not The Philadelphia Story

“The well-known narrative that online shopping is crippling brick-and-mortar retail properties is not the full story in Philadelphia,” Wolf Commercial Real Estate (WCRE) noted in its recent Q1 regional market report. The report stated that expansions by grocers, fitness centers and new experience-oriented retailers have kept Philadelphia’s market fundamentals on solid footing and accounted for some of the largest lease signings and store openings in recent quarters.

CCD/CPDC’s Philadelphia Retail Examines Current Market Trends

For more, visit CCD/CPDC’s annual report on Center City retail. Philadelphia Retail notes that the downtown’s retail market is experiencing the shifting dynamics affecting retailers everywhere but is faring far better – vacancy along prime retail corridors in Center City is just 5.4%. By comparison, Q2 2018 retail vacancies hit 10.2% nationally and 8.4% regionally.

Transportation News

SEPTA Chairman to Pa. Lawmakers: “More Work Is Left To Be Done”

While a $6 billion lawsuit against the Pennsylvania Turnpike Commission and the state Department of Transportation has been dismissed and no longer a threat, SEPTA Chairman Pasquale T. (Pat) Deon said in an April 25 letter to members of the Pennsylvania General Assembly that “more work is left to be done to ensure that transportation is adequately funded.”

Deon said the passage of Act 89 in 2013 allowed SEPTA to replace infrastructure dating as far back as the Civil War – and those investments have paid large economic dividends – but more is needed. Specifically, he urged lawmakers “to provide a state solution to relieve the Turnpike of its growing debt obligation … and to consider legislation that would allow for increased investment levels in public transportation.”

A video presented by Deon, a guest speaker at the Central Philadelphia Development Corporation meeting on April 23, is located on the State of Center City 2019 page of our website.

Dockless E-Bike Pilot Program Set To Arrive In Philadelphia This Year

A dockless e-bike-share pilot program is expected to get underway before the end of the year. Private companies such as Lime and Jump, an Uber subsidiary, will be invited to bid for permits to set up systems within the next few months. The yearlong pilot will focus on one neighborhood where the company will be required to maintain a steady supply of bikes.

The temporary test program, which will operate independently of the city-owned Indego bike share, will expand cycling options outside of Center City and offer access to electrically powered pedal-assist bikes. These bikes still require pedaling but allow riders to travel faster with less effort, with powered speeds of up to 17 mph.

Residential Market News

Proposal Revised For Riverfront High-Rise Complex

A plan for a complex of six residential high-rises along the Delaware River in South Philadelphia is revived after a nearly three-year pause. Rockville, Md.-based developer K4 Philadelphia LLC will present its new plans for the Liberty on the River project to Philadelphia’s Civic Design Review board on May 7.

Updated plans call for a total of 1,770 apartment or condo units; 232 senior-living units; 208 hotel guest rooms; and about 43,000 square feet of retail space on the 18-acre site east of South Columbus Boulevard between Washington Avenue and Reed Street.

Carlyle, Alterra Pay $29.7M For Center City Apartment Building

Carlyle Group, a Washington private-equity and asset-management giant, has teamed with Alterra Property Group to pay $29.7 million for the Commonwealth apartment building in Center City. Last month, the venture bought the 92-unit apartment building in a converted 113-year-old office tower at 12th and Chestnut streets from Atlanta-based investment manager Invesco Ltd.

Invesco had purchased the 15-story building in 2012 from a group involving Alterra that had completed the conversion from offices to apartments. Carlyle’s other area assets have included stakes in the 3737 Chestnut apartment building in University City and the Philadelphia Energy Holdings refinery complex in South Philadelphia.

Development News

Harbison's Factory In Kensington To Be Redeveloped As Mixed-Use

The former Harbison's Dairies plant, known for its water tower shaped like a milk bottle, has sold for $4.2 million with plans to redevelop it into a mixed-use project by next summer. An affiliate of Pop! Promos bought the building in the Kensington neighborhood. The property consists of four connected structures totaling 58,000 square feet.

Preliminary plans call for converting three of the structures into 55 residential units and the fourth structure into office space for Pop! Promos, which creates customized promotional materials and has 35 of its 80 staff members based in Philadelphia. The former bottling plant dates to 1895 and is on the Philadelphia Register for Historic Places.

This development in Kensington is part of a broader trend reported in CPDC’s recent housing report, Building Out from the Core, of housing activity extending north of Girard Avenue along SEPTA’s Market-Frankford Line.

Former St. Joseph's Hospital Changing To Apartments, Retail Space 

MM Partners is a few months away from completing a $24 million conversion of the former St. Joseph’s Hospital at 1600 W. Girard Avenue into a mixed-use complex called the Civic. The developer bought the property in 2017 for $8.1 million following the bankruptcy of the North Philadelphia Health System and began transforming the building in February 2018 into residential use with retail space. 

St. Joseph’s totals 167,000 square feet and is being converting into 88 apartments. It will have 33,000 square feet of retail space and residential units ranging from “micro-apartments” at 350 square feet to two-bedrooms at 1,800 square feet.

Government News

Lawsuit Challenges Building Trades’ Lock On Construction Contracts

A federal lawsuit is challenging Philadelphia’s long-held tradition of reserving city construction work for specific labor unions. The April 18 filing takes aim at documents called “project labor agreements” or “PLAs,” which, according to the suit, favor the Building and Construction Trades Council, a consortium of 31 locals led by indicted electricians’ union leader John J. Dougherty.

The lawsuit claims PLAs exclude locals that are not part of the consortium. The suit also alleges that prior mayoral administrations conceived of the labor agreements as a tool to be used on certain projects, but that the Kenney administration has “imposed a blanket PLA” on city projects over $3 million in value. A spokesman for Mayor Jim Kenney said that PLAs are not inherently exclusionary.

Pew Report: City Pension Costs Will Remain A Burden For Years

A new analysis by Pew Charitable Trusts on Philadelphia’s retirement plan for city workers has found that recent reforms demonstrate that improved funding of the city’s pension system is attainable with strict adherence to the current contribution policy. The city’s pension costs have steady grown, consuming 9.5% of the city’s operating budget in 2006 to 17% in 2019, from $331.8 million to $720 million in FY19. By comparison the city’s expenditures for sanitation services, traffic signals, street resurfacing and filling potholes is just $143 million this year.

Pew noted that the city’s high contribution rate, while a budgetary challenge, provides protection from future investment underperformance and the pension system’s funded ratio will increase gradually and substantially under any economic scenario.

The projected improvement in Philadelphia’s retirement system funding level is also due, in part, to the stacked hybrid plan design for new hires, which exposes the city to lower levels of investment risk over time as the stacked hybrid becomes a larger portion of total pension liability. Pew concluded that even under the best scenarios, however, high pension costs will likely persist for at least 15 more years, making that money unavailable for other budget priorities.

Most City Council Candidates Oppose 10-Year Tax Abatement

The majority of Philadelphia’s 46 City Council candidates said in a recent survey that, if elected, they would seek to reform or end the city’s 10-year tax abatement on new construction. PlanPhilly reported on the survey results, which were conducted ahead of the May primary by Rebuild, a left-leaning political organization.

Watchdog Group Releases Government Accountability Agenda

Local government watchdog group Committee of Seventy has released an agenda called Philadelphia Resolution 1 designed to strengthen transparency and increase accountability for government institutions. The platform’s five elements, which are described in greater detail on the organization’s website, are: make elections open, fair and competitive; curb councilmanic prerogative; enable citizens to lead the redistricting process; enact council term limits; and, ensure a more transparent and accessible City Council.

Taken together, the changes would shift a considerable amount of political power from politicians to voters by reducing the power of incumbency, and transfer a significant amount of power from politically appointed ward leaders to elected committee people.


State Of Center City 2019

At the Central Philadelphia Development Corporation’s meeting on April 23, Center City District released its annual State of Center City 2019: a data-driven compendium, organized by employment sector, that examines the latest trends in both in Center City and in the broader Philadelphia economy. 
Distilling a wealth of up-to-the-minute data from city, state, and national agencies; local organizations and businesses; and CCD’s own in-depth research and analysis, this report makes policy recommendations for local leaders on how Philadelphia can catch up to many of its peers. Infrastructure investment and tax reform are key to more expansive and inclusive growth in Philadelphia, which is in the longest period of economic expansion since the end of World War II while remaining the nation’s poorest big city.

Inquirer: “What Makes Center City Work Can Also Transform The City’s Neighborhoods”

The Philadelphia Inquirer’s editorial board, in a piece published the day after the release of CCD/CPDC’s State of Center City 2019, said “the report’s 74 pages offer a hard-won, data-rich blueprint for replicating Center City’s celebrated success in business districts, and community hubs citywide, and perhaps even lessening the contrast between downtown’s exciting skyline and Philly’s unenviable status as American’s poorest big city.”

Stating that CCD “not only cleaned up the downtown core but has kept it clean,” the editorial board added that “without this ambitious, if imperfect, transformation of the public realm, Center City’s renaissance might not have happened when it did. Or at all.” The editorial concluded that CCD’s efforts offer “a practical guide for Philadelphia neighborhoods” and “a lesson for those responsible for (city) neighborhoods, including the mayor and District Councilmembers.”