CPDC Developments Newsletter - 10.29.19

Office Sector News

One Of The Nation's Largest Banks Is Coming To Center City 

One of the nation’s largest financial institutions is opening its first Philadelphia location in Center City, the Philadelphia Business Journal reported. The Pennsylvania Department of Banking and Securities approved Northern Trust Corporation’s application to open an office on the second floor of 2400 Market — the 650,000-square-foot building that was redeveloped last year by a partnership involving Lubert-Adler and PMC Property Group.

Chicago-based Northern Trust is one of the largest 25 U.S. banks, with $126.5 billion in assets and $1.2 trillion in assets under management. It focuses on providing wealth management, asset servicing, asset management and banking to corporations, institutional investors and high net-worth individuals.

Cohen Seglias Moving And Expanding In Center City

Cohen Seglias Pallas Greenhall & Furman has leased 34,381 square feet on half of the 31st floor and all of the 32nd floor at 1600 Market Street, about 10% more than its location since 2005 at 30 South 17th Street. The law firm’s 84 employees are expected to move to the new space in August 2020. Center City architecture firm L2P has been retained to design the space.

American Real Estate Partners purchased the 39-story tower from Equity Commonwealth for $160 million in February 2018. The building has been the local headquarters of PNC Bank since 1995.

Development News

More Office, Residential High-Rises Coming To East Chestnut

National Real Estate Development plans to build a 23-story medical office building and a 24-story tower with 396 apartments on the Chestnut Street facing portion of its East Market project site between 11th and 12th streets, where a parking structure slated for demolition currently stands.

The Washington-based developer is nearing completion of work on the Market Street-facing two-thirds of the property, where it has developed a pair of apartment towers and an office building, with lower-story spaces occupied by branches of Iron Hill Brewery & Restaurant, TJ Maxx, Mom’s Organic Market and Little Baby’s Ice Cream. It is also converting the historic Stephen Girard Building on 12th Street into a hotel under Hilton’s boutique Canopy brand.

2 Projects Planned For Growing North Broad Corridor

Toll Bros. and Alterra Property Group are separately planning apartment projects on Broad Street north of Center City that could add nearly 900 units to the rapidly revitalizing corridor. The Philadelphia Inquirer reports that Horsham-based Toll is teaming with Salt Lake City investment firm Sundance Bay on its plan for a 368-unit tower adjacent to the entrance to the Rail Park on Noble Street. Alterra, of Philadelphia, is planning a midrise with as many as 500 units at the northwest corner of Broad and Spring Garden.

Toll aims to break ground in late 2020 on its project, which would include a tower rising to 18 stories at its highest section and would also include a two-story commercial annex with ground-floor retail, a public plaza and an underground garage with 107 parking spaces. The site was selected for its proximity to both the Rail Park and Center City, and for its public transit access using the Broad Street Line.

Alterra’s plan for the 1.5-acre site at Spring Garden includes a seven-story midrise over ground-floor retail and 275 underground parking spaces, with construction to start in the second half of 2021. Alterra’s Leo Addimando said he was not concerned about competing inventory in the area. “We look at it as an extension of Center City,” he said of the new site.

Lightbox Film Center Finds New Home In Center City

The Lightbox Film Center is leaving the University of Pennsylvania’s campus and will become part of University of the Arts in Center City. For 40 years, the film center has presented foreign and art films at International House, which is in the process of selling its 14-story building.

Lightbox is moving to the former Gershman Y building, which UArts owns, on the Avenue of the Arts. It is the former home of the Philadelphia Jewish Film Festival. Lightbox will present film programs under its own name and intends to collaborate across UArts artistic disciplines.

Residential Market News

Philadelphia Seeing “Influx Of NY Investors Fleeing Rent Control”

A push for rent control in New York resulted in the passage of comprehensive state legislation in June, limiting landlords’ abilities to raise rents. Bisnow East Coast reports that “the change has driven a wave of New York-based investors … to seek deals outside of their hometown for the first time — and Philadelphia is one of the first places they have been looking.”

The Philadelphia market has felt upward price pressure from its New York-based influx, multiple investment brokers told Bisnow. Cap rates are on the rise in New York (from the low 5% range in Q3) and the added competition has tightened them in Philadelphia to the mid-5% to low-6% range, according to Marcus & Millichap. Rents are up 5.1% year over year in Philadelphia, according to that report. In comparison, New York's rents are only up 3.9%, and Marcus & Millichap forecasts slower growth going forward.

Eds & Meds News

Philadelphia Biotech Expands To New Research Facility

Integral Molecular has added a new 26,000-square-foot research facility at 3624 Market Street, in order to accommodate its increasing number of biotech partnerships. The company, one of Philadelphia’s oldest biotech firms, also has operations at 3711 Market Street.

Technology developed by Integral Molecular has been integrated into the drug discovery pipelines of more than 300 biotech and pharmaceutical companies to help discover new therapies for cancer, diabetes, autoimmune disorders and viral diseases such as Ebola, Zika and Dengue. The company, spun out of the University of Pennsylvania, has received $50 million in National Institutes of Health grants and contract research funding.

City Is Having Its Best Year For VC Deals Since 2000

At the close of the third quarter of 2019, Philadelphia is having its best year in terms of deals in the region in nearly two decades, according to a recent PricewaterhouseCoopers (PwC)/CB Insights MoneyTree report. In Q3, the Philadelphia region saw 17 deals that totaled $483 million – a large increase from Q2’s deals that totaled $259 million.

Philadelphia has already surpassed $1 billion in deals for the year after only Q3. In the quarter’s biggest deal, Century Therapeutics raised $250 million to develop cell-based therapies for cancer. The city is increasingly establishing itself as a leader in healthcare innovation, as 93% of the deals in Q3 fell into that industry, including pharmacy, biotechnology and med tech.

Mebias Expands Development Of Opioid Substitutes With New Funds

Months after closing a new $3.5 million financing round, Philadelphia-based Mebias Discovery said it will deploy the funds to expand its pipeline of new drug candidates targeting gastrointestinal and inflammatory disorders. The financing was led by Viva Biotech of China and Sprout BioVentures of Boston.

Mebias says it is developing medications that achieve pain relief without the potential for addiction that is common among opioids currently on the market.

Temple Health System's Profit Nearly Doubles In FY2019

Temple University Health System (TUHS) has reported net income of just under $43 million in fiscal 2019, up from $22.8 million in the previous year. Total revenue also climbed to nearly $2 billion from $1.8 billion in fiscal 2018.

In a recent call with bond analysts, Temple Health System outgoing CEO Larry Kaiser said that in addition to an increase in state funding, the health care provider has benefited from an increase in its research funding, including more than $80 million in National Institute of Health grants in each of the past two years, as well as a new network of 10 ambulatory care and specialty centers to expand the TUHS footprint outside of North Philadelphia. Temple also opened branch campus for its medical school in the Lehigh Valley, which Kaiser noted will go to a full four-year curriculum within the next year.

Retail News

Victory Brewing Plans Center City Taproom, Restaurant

Victory Brewing Co. is making its first foray into Philadelphia with a new brewery and tap room in 14,000 square feet at the Embassy Suites in Center City. Victory Brewing was established in 1996 and has three locations in Chester County.

The new brewery will have a kitchen, three bars, outdoor seating and a rooftop patio when it opens in late 2020 in the soon-to-close TGI Fridays restaurant space. Purchased late last year by Pearl Properties, the Embassy Suites has 288 rooms, 5,000 square feet of meeting space and a 150-space garage.

Employment News

City’s New Job Growth Concentrated In Low-Wage Sectors

After decades of economic contraction, Philadelphia has added jobs for nine straight years, an unbroken growth streak not seen since the boom years of World War II. However, the city has grown a disproportionately larger share of lower wage jobs than the nation and the 25 largest American cities, according to a new report from the Center City District and Central Philadelphia Development Corporation.

In a comprehensive look at the employment categories that are expanding in Philadelphia, in the 25 largest American cities, in our surrounding suburbs and nationally, the report finds that since 2009, 60.5% of the jobs created in Philadelphia are in sectors paying $35,000 or less; only 26% are in the $35,000 to $100,000 range, and 13.5% pay $100,000 or more.

In the 25 largest U.S. cities, the percentage of new jobs in those first two wage brackets are almost exactly reversed: 28.1% ($35,000 or less), 51.8% ($35,000 to $100,000) and 20.1% ($100,000 or more). The national breakdown of new jobs is similar: 29.0% ($35,000 or less), 58.4% ($35,000 to $100,000) and 12.6% ($100,000 or more).

Transportation News

Truck Congestion Caused By Online Shopping: Challenges And Opportunities

An article in The New York Times takes a look at the dramatic increase of delivery truck congestion caused by the growing popularity of online shopping. “While the rise of ride-hailing services like Uber has unquestionably caused more traffic, the proliferation of trucks has worsened the problem,” the Times found. The story also notes that cars in the busiest parts of Manhattan now move at only 7 mph, roughly 23% slower than in 2010.

Meanwhile, neighborhoods like Red Hook, Brooklyn, are being used as logistics hubs to get packages to customers faster than ever. Two million square feet of warehouse space is being built in New York, the report states.

The article’s findings are very similar to our 2018 report on Center City congestion, Keep Philadelphia Moving. The in-city logistics and storage facilities provide opportunities for job growth in Philadelphia as discussed in our new report, Growing More Family Sustaining Jobs in Philadelphia, which is discussed in the above item.

SEPTA Completes $28M Upgrade to 15th Street Station

SEPTA has wrapped up a $28 million renovation project at the 15th Street Station transit stop, Philadelphia’s busiest transit hub. The updates represent the second phase of a larger, ongoing $146 million revamp of SEPTA’s 15th Street and City Hall stations complex.

The latest improvements include two new glass-walled ADA-compliant elevators, new ramps, wider corridors, reconfigured fare lines, and new stairs and railings. The next two phases of the massive project will bring new fare lines and elevators to City Hall Station under Dilworth Park, as well as ADA-compliant tunnels connecting the two subway stops.

Economic News

Era Of Inexpensive Services By Tech Startups May Be Ending 

A recent article in The Atlantic examines the current state of cash-strapped tech-based consumer startups and predicts that “the millennial urban lifestyle is about to get more expensive.”

The piece notes, “If you wake up on a Casper mattress, work out with a Peloton before breakfast, Uber to your desk at a WeWork, order DoorDash for lunch, take a Lyft home, and get dinner through Postmates, you’ve interacted with seven companies that will collectively lose nearly $14 billion this year. If you use Lime scooters to bop around the city, download Wag to walk your dog, and sign up for Blue Apron to make a meal, that’s three more brands that have never earned a dime or have seen their valuations fall by more than 50%.”

“What’s coming next is the promise-profit convergence. … Eating out and eating in, ride-hailing and office-sharing, all of it will get a little more expensive. It was a good deal while it lasted,” the article concludes.

Manufacturing, Service Industries Continue Growth In October

Manufacturing activity in the region continued to grow in October, according to firms responding to the Manufacturing Business Outlook Survey conducted by the Federal Reserve Bank of Philadelphia, with new orders up for 42.4% of firms, down for 16.2%, and remaining the same for 41.3%. The number of employees increased for 34.4% of the companies, decreased for 1.5%, and was unchanged for 61.0%.

Looking ahead six months, 43.2% of the firms expected conditions to improve, 9.4% anticipated a downturn, and 44.8% predicted no change.

Business indicators suggest continued expansion of activity in the region’s service sector in October, according to responses to the Philadelphia Fed’s Nonmanufacturing Business Outlook Survey, with new orders up for 40.9% of firms, down for 14.0%, and remaining the same for 25.4%. The number of full-time permanent employees increased for 22.6% of the companies, decreased for 6.6%, and was unchanged for 68.7%.

Looking ahead six months, 34.8% of the firms expected regional conditions to improve, 19.3% anticipated a downturn, and 39.4% predicted no change.

City Government News

In Anticipation Of Recession, City Prepares Cutback Proposals

Philadelphia’s government is preparing cutback proposals in preparation for a potential recession in the next year. Municipal balance sheets are healthier than they were before the last recession a decade ago, but officials warn that the city isn’t as well prepared as its peers for a widely anticipated slowing of economic growth. 

In Philadelphia’s annual financial report reveals that the city ended fiscal year 2019 with a fund balance of $439 million, which represents about 9% (or 33 days) of spending. That’s better than where Philadelphia stood before the last recession but substantially worse than the Government Finance Officers Association’s recommendation of a 17% fund balance.

PICA: September Tax Collections Up 7.8% From Last Year

The City collected approximately $210.5 million in General Fund tax revenue in September 2019, compared to $195.2 million in September 2018, an increase of 7.8%, according to preliminary figures from the Pennsylvania Intergovernmental Cooperation Authority (PICA). Almost every tax category saw increases in collections compared to last September except the City sales tax, which decreased by almost $840,000, or 5.7%.

Year-to-date through September, the Business Income and Receipts Tax (BIRT) tax rose 65.4%, compared to a projected decrease of -1.2%; the real estate tax rose 1.0%, compared to a projected growth of 0.2%; the realty transfer tax decreased by -7.1%, compared to a projected 1.4% increase; and the City sales tax collections rose 11.9%, compared to a projected growth of 5.9%.


CCD Customer Satisfaction Survey: Tell Us What You Think

Each year, the Center City District surveys our constituents about our performance. What can we do better or differently? What are your perceptions of Center City’s cleanliness and safety? What changes would most help make Center City a better place to work or live?

Take our five-minute online survey and you could win $250 in restaurant gift certificates. The survey closes December 2.

November 7: CPDC Young Professionals Networking Series

CPDC is pleased to invite young professionals at member firms to a free networking event at City Winery on Thursday, November 7, from 5:30 p.m. to 7 p.m.

Hear from Heather Crowell, Executive Vice President of Strategy and Communications at PREIT, how Fashion District Philadelphia is bringing live entertainment to Market East and redefining the shopping experience in Center City. Enjoy complimentary appetizers along with a wine and beer open bar at the newly opened City Winery restaurant and music venue, 990 Filbert Street. Click the link below to register.