Could Philly's Waterfront Finally Become A CRE Destination?
Philadelphia’s Delaware River waterfront has never been a hotbed of development. Hampered by various factors, it has yet to enjoy the benefits of the city’s development boom of the past few years. But recent development announcements indicate that may finally change.
The main challenges facing the waterfront are twofold. First, the majority of its property is privately owned, limiting what the city or state can do to foster development. Secondly, the strip is isolated by the double barrier of Interstate 95 and the arterial Christopher Columbus Boulevard (or Delaware Avenue farther north).
Contrast that with the Schuylkill River, into which the city has poured money on cosmetic and pedestrian improvements while office and residential development increasingly bring Center City and University City closer to the water and each other.
“The center of gravity for Philadelphia has been moving westward within Center City for 200 years,” CBRE research director Ian Anderson said. "So with its center of gravity on the Schuylkill more than ever, the Delaware has been unable to gain momentum."
Previous attempts to develop on the waterfront in South Philadelphia have not performed well: the Residences at Dockside, a development designed to resemble a cruise ship, has been a "quagmire,” Anderson said.
And yet, improvements to areas like Northern Liberties and Fishtown signal that farther north holds reasons for optimism. And when Mayor Jim Kenney committed $90M toward a $225M proposal to cap I-95 from Walnut to Chestnut Street with a park, it indicated the possibility to more strongly tie together the popular Penn’s Landing park to Old City, making the area less of a day-trip destination and more of a connected city park.
A week later, the New York-based Durst Organization announced it had purchased a long stretch of land just north of Penn’s Landing, the Philadelphia Piers, which includes a series of large restaurants such as Dave & Buster’s and cocktail bar Morgan’s Pier. Though the legendary Durst family has no short-term plans to build, the notably patient firm sees the acquisition as “a long-term hold with potential.”
That a real estate family such as the Dursts would choose Philadelphia as its first foray out of its home market is not necessarily a surprise, given the differences between the value propositions of each city, but Delaware River property would not necessarily be the intuitive entry point.
“Initially, my reaction was, ‘Oh boy, here we go, another New York developer when the cycle is near its peak has to get out of New York, finally take a look at Philadelphia, think it’s a smaller city and that they can throw their weight around, buy a piece of land and think they can make something magical occur,’” Anderson said.
“But this is a good move for Durst," he said. "With all the global money centered on New York, having been a generational owner with a long-term horizon, moving into Philadelphia — and specifically the waterfront — is a good long-term value for them.”
The Durst Organization points to its multiple waterfront developments in New York as examples that the company understands the challenges and opportunities in such a location, and even the similarities between the two cities.
“I think there’s a history in New York that we’re familiar with that, if you build something special and unique, people will bridge those divides,” Durst vice president of public affairs Jordan Barowitz said. “We’ve seen it in Battery Park City, which crosses the 9W highway, in Hudson River Park, and we strongly believe that in residential development, if you create a sense of place, that will bring people across barriers like heavily trafficked streets.”
The I-95 capping project would circumvent some of that barrier, but however intuitive and promising it may seem, it is not a sure thing. If it cannot get full funding, any waterfront revival could be over before it begins. That is not deterring Durst, which has not committed to sinking any further money into development and points to positive indicators separate from the capping plan.
“When you look at Philly, there’s been great improvement in the number of people coming to the waterfront with current access and recent access improvements,” Durst project manager Adam Rosenberg said, citing year-over-year increases in the number of attendees at Penn’s Landing Summerfest and Winterfest events and improvements to the Race Street Pier.
The firm has expressed interest in further expanding its presence in Philadelphia, but its preference for controlling the development and management of a project from the ground-up, combined with its adherence to urban areas, makes finding space in crowded Center City a challenge.
As for the waterfront, any serious development, whether from the Durst Organization or elsewhere, is likely years and another economic cycle away. But even if it can become a success story, it is not likely to change the way the city operates.
“The future of downtown Philadelphia, especially office, is along the Schuylkill,” Anderson said. “I don’t foresee the center of gravity shifting back towards the Delaware just due to the capping of I-95.”