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Interest Rates Kill Another Philadelphia-Area Project

A developer has ended plans to build an apartment complex at a vacant site in Center City due to the elevated interest rate environment, the latest in a series of pullbacks in the region.

2301 Market Street was set for an apartment project that has since been scrapped.

A deal to construct a 172-unit building fell through two months ago, according to the Philadelphia Business Journal. Dallas-based developer Trammell Crow originally had an agreement for the property for “under $25 million,” Richard Zeghibe told the PBJ. Zeghibe is a managing partner for Patriot Development Associates, part of Patriot Parking Inc., which owns the property.

“Prior to the Feds beginning this series of rate increases Trammell Crow had a couple of potential clients interested in working with them on this project,” Zeghibe said. “Once those interest rates started to rise, they backed away. The capital markets just went to the sidelines and they didn’t have a partner to work with.”

Original plans called for demolishing a Rite Aid on the site to construct a 12-story multifamily building just northwest of South 23rd and Walnut streets. The city's civic design review committee's public plan showed the space would have also included 8,000 SF of retail, 5,000 SF of public space and 32 parking spots to the space.

Patriot Development Associates will potentially lease the site and former drugstore building to a new retailer. Parent company Patriot Parking has owned the site since 1995. 

Any lease would be on a “short-term basis,” Zeghibe said, while the company waits for the market to rise again, construction costs to lower and interest rates to come down.

Several developers have stopped, stalled or scaled down projects in recent years.

Brandywine Realty Trust's Schulylkill Yards project was pivoted from a life sciences building to an office building, Bisnow reported last fall. And the group paused its next project, an 800K SF office tower, saying it would wait for the building to be half-leased before it goes up.

The Durst Organization put plans for 360 apartment units near the intersection of Vine Street and Columbus Boulevard on hold two years ago, citing high interest rates. Its partnership in the $2.2B Penn's Landing project nearby has not made progress lately either as the firm is still negotiating with the land's ownership.

Plans for a 31-story luxury apartment tower at the corner of 21st and Ludlow streets have also been scaled down, according to Parkway Corp.

CORRECTION, JUNE 5, 12:53 P.M. ET: An earlier version of this story included an incorrect address for a Durst project. The story has been corrected to state that the 360 apartments planned are a separate project.