Here Are The 10 Biggest Stories In Philadelphia's Commercial Real Estate Industry In 2018
As the year 2018 draws to a close, we at Bisnow are looking back at the moments that defined the year in real estate for the Greater Philadelphia market and counting them down.
10. East Market opens, Fashion District Philadelphia doesn't
At the start of November, National Real Estate Development cut the ribbon on the first phase of its East Market project, which it developed and owns in partnership with Joss Realty Partners and SSH Real Estate.
At a ceremony attended by Mayor Jim Kenney and other Philadelphia officials, the project was celebrated for the success it has already had in leasing up its retail, office and residential portions and breathing life into what had previously been called Center City's "hole in the doughnut."
A block away, Center City's biggest retail project in decades showed off its own success in recruiting a variety of tenants, but did not open this year as originally hoped. Fashion District Philadelphia, the joint venture of PREIT and Macerich, is now scheduled to be completed in September.
9. Piazza sells, Bart Blatstein plans bigger sequel
The Piazza at Schmidt's has been considered a symbol for Northern Liberties' explosive growth since the turn of the 21st century, largely shepherded by one man: Bart Blatstein. But he sold the Piazza years ago, and the most recent ownership group of Oaktree Capital Management and Kushner Cos. (yes, that Kushner) had proved unable to keep its residential or retail occupancy stable.
Now, the Piazza is back in the hands of local ownership, with Post Brothers buying the development in a deal that its own leadership acknowledged was somewhat uncharacteristic of the development-focused company. Blatstein had bemoaned the previous owner's hands-off approach, and he is likely more than encouraged by the change due to his future plans for the area.
The Tower Investments CEO announced in February his intentions to build a new mixed-use complex just across the street from the Piazza, with taller buildings more densely packed than the original, less retail square footage and more of a focus on smaller units — over 1,100 of them. Tower Investments submitted plans for the project, tentatively titled Piazza Terminal, to Civic Design Review in July, though no groundbreaking date has been set.
8. Comcast Technology Center officially opens
After topping off in late 2017, the tallest building in Philadelphia — or anywhere in the U.S. outside of New York and Chicago — opened for business this year.
Housing tech incubators, local news stations, standard offices, a Four Seasons hotel and a ground-floor café from one of Philadelphia's most renowned chefs, the Comcast Technology Center cuts an imposing figure in Philadelphia for reasons beyond its sheer height.
7. Liberty Property Trust exits the office market
Liberty's involvement in CTC wound up being something of a swan song, as the company announced during its Q3 earnings call that it would be divesting itself of its office holdings and ceasing to develop any new office product.
For the past few decades, Liberty had led the redefinition of the city's skyline as the developer of both Comcast skyscrapers as well as One Liberty Place, the first building to go higher than City Hall. It had also been the lead developer for the Philadelphia Navy Yard's transformation into an office campus, where its last development project is currently in progress.
Liberty CEO Bill Hankowsky told Bisnow in October that the company's decision to focus purely on industrial assets was a result of the office market being considerably more capital-intensive and his belief that the industrial sector has more growth potential going forward.
The REIT had spent the months leading up to the announcement selling its sizable office holdings in the Philadelphia suburbs, a process that is almost complete. It also sold the Navy Yard headquarters it built for GlaxoSmithKline in the priciest per-SF deal in the city's history.
6. Southern Land plans Philly's tallest apartment building
In March, the Nashville-based developer announced its intention to build The Laurel, a 48-story apartment building, at 1911 Walnut St. In September, it broke ground on what will be the tallest residential building in the city when complete.
The residential units will be a mix of for-sale condos, standard rental apartments and furnished short-term rental units above ground-floor retail. In each of those portions, Southern Land expects the Laurel to achieve prices at the top of the market despite the unprecedented surge in residential deliveries in the past few years.
The Laurel will likely deliver in 2021, when the status of the city's development pipeline is unsure. But due to its unique position in the most desirable part of Philadelphia, the building is unlikely to feel major absorption pain, according to experts such as Post Brothers President Matt Pestronk.
“I think it would be very hard to mess with Rittenhouse Square’s success," Pestronk told Bisnow in March.
5. Local developer stabbed to death in Rittenhouse Square
The commercial real estate community was rocked in July by the news that Streamline Solutions founder Sean Schellenger had been stabbed to death following an altercation with a food delivery cyclist in Rittenhouse Square.
Streamline Solutions was a fairly young player in the city's real estate scene but had already carved out a niche for itself with acquisitions and developments in the South Kensington neighborhood. But the ambitions of Schellenger's company have taken a back seat to the complex drama surrounding the trial of Schellenger's killer.
The case has been closely followed and hotly debated, as some consider it a litmus test for class and racial divisions in the city. The reality of the case, and the circumstances of Schellenger's death, is far more complex.
4. AmerisourceBergen announces move to Conshohocken
Pharmaceutical wholesaler AmerisourceBergen made perhaps the most significant office move in the Philadelphia suburbs this year when it announced its intentions to move into a build-to-suit project in Conshohocken this past June.
The development, Keystone Property Group's SORA West, was initially planned to house multiple office tenants, but Amerisource will be taking the entirety of the 400K SF office portion, which broke ground late this year. Its completion date is estimated for mid-2020.
The move's ripple effect has already been felt in its previous digs, the Chesterbrook Corporate Center. It looks likely to sell at a steep discount to Rubenstein Partners as a package with nearby Glenhardie Corporate Center. Meanwhile, Conshohocken reaffirmed its standing as perhaps the most desirable suburban submarket in the Philadelphia region.
3. North Broad Street gets even hotter with Opportunity Zone program
North Broad Street has been a development hotbed for a few years now, as multiple sizable multifamily projects have delivered in the stretch just north of Center City. Now, that may only be the beginning.
The Tax Cuts and Jobs Act passed by the federal government at the end of 2017 created the concept of Qualified Opportunity Zones: areas that allow the deferral of capital gains taxes in exchange for prolonged investment with very few restrictions. Within Philadelphia, 82 such census tracts have been designated as opportunity zones, and 14 of those touch North Broad, according to the North Broad Renaissance group.
Already, the effects have been seen among leaders like developer Eric Blumenfeld, whose holdings along the drag include the Divine Lorraine redevelopment and the new concert venue created from the bones of the Philadelphia Metropolitan Opera House. He has grown the size of a multifamily proposal at the corner of Broad and Spring Garden as a reaction to the opportunity zone legislation.
The stretch between Arch and Spring Garden streets along North Broad has already drawn plenty of interest and development, feeding the perception that the legislation will primarily benefit investors in areas that were already growing. But as development pushes farther north, it will begin to touch areas of the city that have long been neglected by investors.
Philadelphia Director of Planning and Development Anne Fadullon believes that North Broad is likely to be the biggest beneficiary of opportunity zone investment, and while she shares neighborhood advocates' gentrification concerns, she also sees opportunity in areas like the North Philadelphia Amtrak station, which already has a massive redevelopment plan in place from a New York developer that is waiting for funding.
2. The affordable housing/construction tax fight
The fight over how best to fund affordable housing in Philadelphia without alienating developers has raged for years, and although it's far from over, it came to a head this fall.
After a mandated set-aside provision for any new multifamily developments failed to make it past committee in the Philadelphia City Council, Council Member Maria Quiñones-Sanchez introduced a bill proposing a flat 1% tax on all new construction in the city to fund affordable housing. The "blunt instrument," as she called it, proved every bit as divisive as set-asides.
Though City Council voted to approve the 1% tax over the protests of the real estate community, Kenney reached out to strike a compromise to avoid vetoing a bill for the first time in his term. At the eleventh hour, a deal was struck to funnel all property taxes from buildings coming off the similarly controversial 10-year tax abatement into the Housing Trust Fund.
Another part of the deal was the passage of a law increasing the potential zoning benefits developers can access in exchange for either setting aside affordable units in their properties or paying into the trust fund. Though the 1% tax is dead and the 10-year abatement survived, Sanchez and others have promised to fight for more affordable housing initiatives.
1. Philly misses out on Amazon HQ2
Excitement reached a fever pitch when Philly made the 20-city shortlist of finalists for the projected 50,000 jobs and $5B in investment, but it was not to be. Amazon shocked the country by splitting HQ2 between the New York and Washington, D.C., areas, placing Philadelphia squarely in between the two campuses.
Like with other finalists, Philadelphia did not strike a despairing tone in the wake of the announcement. Instead, Kenney and other officials stressed the lessons it learned by coming together as a business community to woo the e-commerce giant.
In a press conference the day of the announcement, Kenney joked about being more disappointed by a Philadelphia Eagles defeat than the loss of HQ2. While New York and D.C. are already coming to grips with the dubious honor of HQ2, Philly has moved on.