Saul Denenberg is a very busy man.
Denenberg, of Cooper Beach Capital, has been spending a lot of time on the road and in meetings with clients looking for investment dollars thanks to a red-hot real estate market that’s attracting developers looking for a place where they can get all of the amenities of New York, Washington, D.C., and Boston at a bargain price.
“We’ve been getting a lot more work,” he says. “We have a lot of clients from outside the city that want to come in and develop things here. Before, a lot of these developers wouldn't have considered Philadelphia, but now they all want to be here.”
From financiers looking for developments to bank on to real estate agents with property to sell and developers hoping to put their stamp on an up-and-coming market, the City of Brotherly Love has become a hot spot.
The projects vary from mixed-use developments in Center City, Point Breeze and Washington Square to apartment buildings and coffee houses in Northern Liberties, Brewerytown and West Philadelphia. The outer ring suburbs of the city, places like King of Prussia and Valley Forge, are also getting the benefit of Philadelphia’s newfound popularity.
There are a lot of reasons for this uptick in Philadelphia’s developmental fortunes.
Before the Great Recession, developers weren’t all that interested in Philadelphia because they didn’t think it was terribly profitable, says Mark Korman, president of KCI Real Estate, the commercial investment and development real estate affiliate of Korman Communities. Why get a 5 or 6 percent profit in Philadelphia when larger profits were obtainable through investing in places like New York and Boston?
But after the Great Recession, developers and the investors they needed to exist decided to become more like the Tortoise of the nursery rhyme and less like the Hare. Slow and steady profits are winning the current race, Korman says.
“When the market crashed, smart people looked for stability in terms of places to develop,” he says. “Philadelphia was stable. People realized that making a 4 to 6 percent profit was OK and that they didn’t need to make 15 to 20 percent profits and take greater risks.”
As the president of Precision Real Estate, a mid-sized commercial brokerage firm based in Center City, Shaun Lyons is the first face that a lot of developers see when they come to town looking for places to create.
Over the last few months, the city has been honored by a variety of travel sites and other organizations as a great place to visit, shop and live. Chestnut Street, for example, has become a great shopping hub with places like Nordstrom Rack, Tiffany’s, Steve Madden and Armani Exchange taking up shop, Lyons says.
But in some cases, developers have decided to come to Philadelphia for reasons recognizable to anyone who remembers his or her high school experience, Lyons says.
In high school, getting the endorsement of the school’s most popular kid, someone like the quarterback of the football team or the head cheerleader, can make the difference between your mom, your dad and your little brother—who doesn’t really want to be there—being the only guests at your birthday party and your birthday party achieving Event of the Year status. In the case of Philadelphia’s building boom, the popular kid that’s made the city look cool is named Comcast. “Comcast is attracting a lot of development,” Lyons says. The city’s amenities have also made it an attractive place to developers, Korman says. In addition to world class universities that can provide businesses with a workforce that’s committed to staying here if the right job comes along, to being a central location that can get you to New York, Boston or Washington, D.C., in less than five hours, to Philadelphia International Airport, which can literally take you anywhere in the world, there’s a lot to like here, he says.
“It should have been a hot market a long time ago,” Korman says. “It’s an affordable area. The city’s still affordable to live in and it’s walkable.”
That’s why Korman Communities has been expanding its AKA Brand into the city. The AKA Development at the Franklin Building at 834 Chestnut St., which was featured in the Oscar-nominated movie The Silver Linings Playbook contains amenities like a DiBruno Brothers location that gives you access to some of the best Italian delicacies in the world.
The company also has an AKA community on Rittenhouse Square and is planning a project at 30th and Walnut Street in West Philadelphia. The mixed-use building with offices, retail and apartments will literally give residents a penthouse apartment on the lowest residence floor, which will be the 27th, Korman says.
But without the buy-in of the city itself, none of this development would be possible.
The advent of the special Center City District overlay gives this district special services like additional cleaning services and police patrols, and more of an emphasis on making the city more attractive.
In his second term as Mayor of Philadelphia, John Street instituted a plan that would allow developers creating or rehabilitating properties to do so with the promise of a 10-year tax abatement, meaning the buyer of said property wouldn’t be responsible for any city taxes for the first 10 years they owned the property.
Former Mayor Michael Nutter took things a step further by becoming the city’s Cheerleader-in-Chief, making it a place to see and be seen by bringing events like the World Meeting of Families, which featured a mass officiated by Pope Francis on the Benjamin Franklin Parkway and the annual Budweiser Made In America festival, which brings millennials looking for a party to the city on Labor Day Weekend from far and wide.
Traditionally, however, the buck has stopped at Philadelphia’s City Council, a body that’s traditionally been hardnosed when it comes to what it will and won’t allow to be built in its districts.
That ability to stop a development dead in its tracks, known as Councilmanic Privilege, means that a councilperson can refuse to introduce the bills necessary to grant the zoning variances needed to help a project go through, says Councilman at Large David Oh.
The practice gets a bad name because it’s sometimes abused, but without it, residents would have no say in what goes into their area, he explains.
“It’s a matter of choices,” Oh says. “The district council people deal with the details of these developments and try to make sure that what’s done is in the best interests of residents.”
Councilman Mark Squilla represents the First Councilmanic District, which includes Center City, Fishtown, Northern Liberties and Kensington. Because many of the neighborhoods in his district have been targeted by developers looking to build, he’s figured out that working with them benefits everyone.
“It’s great to see development that works,” he says.
Will Philadelphia remain a hot property? That’s anyone’s guess. There’s an issue with the city’s schools that might make families stay away and may eventually impact the current building boom. And what happens after all of those 10-year tax abatements expire?
But for right now, the sky’s the limit in the City of Brotherly Love.
Published (and copyrighted) in Philly Biz, Volume 1, Issue 3 (February, 2016).
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